Original compilation: Leo, BlockBeats
Original compilation: Leo, BlockBeats
Recently, encryption analyst Miles Deutscher interviewed Haseeb Qureshi, partner of Dragonfly Capital, which was also part of "Crypto For 2023" hosted by Miles. The two talked about a lot of views and prospects in the Crypto field. BlockBeats compiled it as follows:
Miles：Welcome Haseeb, partner of Dragonfly Capital, to participate in this interview. I have been thinking about interviewing you. There are many topics to talk about, such as Dragonfly Capital, tokens you are optimistic about in 2023, how long this bear market may last, what good projects are there in the future, and How to enter the market as a retail investor and so on, so we have a lot of topics to discuss.
Haseeb：Where do we start?
Miles：First introduce yourself and your background.
Haseeb：Ok, I took a detour into crypto, from 16 to 21 I was a pro hold'em player, one of the top 10 no-limit poker players in the world, made a lot of money, a lot of poker players Eventually found my way into crypto, but I didn't dabble in crypto directly, I quit professional poker at 21, went back to school to be a software engineer, first found crypto bugs in 2017 while working at Airbnb, First at a company called 21 Lnc, then they were acquired by Coinbase, then I started my own venture, working on stablecoins, and was recruited by Naval Ravikant to join a fund called MetaStable Capital, which was launched in 2014 One of the earliest crypto funds in , is where I started investing, and I made a lot of early investments there in 2017-2018, mainly investing in crypto infrastructure like L1 L2, where I met Dragonfly's Another partner, we reached a cooperation. Since then, I have been in Dragonfly and become one of its managing partners. We invest in the global encryption industry, mainly early and mid-term projects, CeFi, DeFi, L1, L2, NFT, Infrastructure, fund custody, brokers, trading platforms, everything about crypto, we are committed to crypto projects and tend to invest in the long term, and that's about it.
Miles：amazing! Obviously you've done a great job on Web 3, but I'd love to hear your poker story, you're a great poker player.
Haseeb：Yeah so I started playing poker when I was 16 and was exposed to the world of risk and money at a very young age, as a poker player I learned a lot from an early age, as you can see in crypto culture, I think every generation has its own hustle. In my generation, if you are really smart, poor, and not afraid of losing face, online poker is a good way out. After you learn it, you can understand a lot. After a few years It became fantasy sports, it became ICO transactions, it became NFT transactions, every generation has a similar way, NFT transactions may become newer things after that, so at that time, a lot of young people earned With money far above the level of your peers, doing things that others think are very strange and very subversive, you will also understand that money can’t buy happiness, because there are many people who make a lot of money, but most of them are very serious. Not happy, I think I understood this at a very young age, but I also learned a lot about risk and how to regulate my own psychology, so in some ways, I think this part of the experience is very important for investors. Speaking of it has played a very good educational role, especially in the crypto industry, there is too much volatility, there are too many different voices, and you often see people who seem to be very successful, they are basically the kind of crazy "operation The super-leveraged monkey,” a very timely observation.
Given what happened with FTX and SBF, I would say that it really doesn't matter every cycle, no matter what stage you are in, there is every moment in crypto where you see someone making crazy money, or every prediction is right Yes, but almost in the second year they all failed, it was a very sudden situation, the person who made the most money in any year was also the person who made the most money the next year, Nassim Nicholas Taleb (Blockbeats note: "Black Swan ’) has a good insight worth reflecting on: “He’s talking about day trading, and in general, the best-performing fund in the financial markets in any one year is not the best-performing fund in the next year because the best-performing The fund almost always overfits to the market mechanism, and when the market mechanism changes, the fund is rarely able to adapt to the market the next year.”
In fact, it's the same in poker, the best poker player in the world is not necessarily the one who makes the most money in a certain month or week, if you look at who made the most money during the week, it's almost always someone Very good people, but it's not the best strategy in the world, it's like participating in the world series every year, the champion is not always someone, it may be another random one, there are many very good players, but not the best The good players, the best players are the ones who almost always make it to the finals or always see his name in the top 20 or top 30, they're always the top performers, that's what repeatable as an investor Practical meaning of success, maybe you think of someone, I won't name names, but you think about who looked the best last year, who looked the best in 2020, who looked the best in 2017 Yes, there is almost never a fund that ends up doing the best over a long enough time horizon, and I think that's a mantra I learned as a poker player that carries over to investing and everything.
Miles：Yeah obviously that has a huge impact on your crypto experience which got you into Dragonfly so what does Dragonfly do other than have the coolest crypto site just to give the audience awesome website?
Haseeb：For Dragonfly, we put a lot of heart and soul into it, what we do is basically work with early-stage companies, we help them build Crypto, so we're doing some real things from the beginning, like we invested in a lot of seed rounds , such as Avalanche, dYdX, Dune Analytics, 1inch, Matrixport, Amber, they are creating very important things, whether it is CeFi or Infra, whether it is DeFi or Layer 1, we help them succeed, and we are also a very global investment Or, we have business in Asia, America, Europe, business all over the world.
Of course, looking at crypto objectively, a significant portion of the business happens outside of the US, a significant amount of the business happens in Asia, look at all the top exchanges right now, they're all in Asia, none of the top exchanges are in the US or the West, if you look Looking at total transaction volume, total number of users, adoption rate, or whatever metric is actually a material metric for crypto hubs, the answer is, Crypto is global, Asia is a big part of it, and most Crypto investors don't even understand it What happened in Asia, for us, that's always been our core, crypto is global, so we're global, because if you don't understand the crypto landscape at all, how can you invest, you know, if you You can't see the whole elephant, how do you tame it, this is how we look at the encryption market.
Miles：It's been a crazy year obviously, we've had Luna, Celsius, BlockFi, FTX, and most recently Binance Fud, so how do you guys see 2022 from a business standpoint and how you're going to get through the year ?
Haseeb：We have been very lucky this year, 2022's encryption "big trap" (FTX, Luna, BlockFi, Three Arrows, Alameda, Celsius, Voyager), we have not participated in any investment, in fact, even fell 90% like Axie infinity % above projects, we have not invested, so I think we have managed to avoid a lot of pitfalls in our investment, which does not mean that they are our investment without failure, because in encryption, no matter where you are, even if you Stay away from the "blast range" of these events, they will reach you too, it doesn't matter what you hold, as long as you are in the crypto space, you will suffer this year. So we're no exception, it's been a tough year, but honestly, if you look at last year, at the end of every year, we do an investment review, we look at the biggest deals of the year, did we invest in them and try to Find out what we've learned, what we've missed, and what we've done right.
Last year, we reflected on the major investments we missed and screwed up, and we reflected on why we did it wrong and how we can do it well in the future. The investments we missed were FTX, Luna, Axie Infinity and Solana, The question we ask ourselves is how can we miss these projects every time and why, and conclude that we ask too much, we look too deep into the problem, and when we see these investment projects, what we get The answer is no don't think they're going to do a good job we kind of doubt that's the answer we got late last year uh then it turns out almost every item that we expected could go wrong and I think we actually The 2022 annual investment review is about to take place, the experience gained will be very unusual, at least for me, in the long run, you can't escape the mechanism design, if your mechanism design is broken, it will end up against you, It does sometimes happen that if you start with a broken mechanic, over time you may end up with something stronger and more sustainable, but that's the exception, the rule most of the time is if Your mechanism is broken, if your investment economics are broken, if you create something that doesn't actually have net created value, then it's not going to work, no matter how big you are, to me, that's the best thing to do in 2022 Important lesson, when I look back, I think a lot about what we did right and what we did wrong during the year.
Miles：You mentioned some issues about mechanism design. I would like to use this as a guide to talk about DeFi. Obviously, some problems exposed by centralized platforms, such as FTX, have shifted the focus from the perspective of regulation and market sentiment to DeFi. You What do you think of the recent events affecting the DeFi market, and what is your long-term view of DeFi as an asset class?
Haseeb：Yes, DeFi is doing very well, at the time almost all centralized crypto players showed mismanagement, vulnerability, even if they were well managed, they couldn't insulate themselves from the collapse of FTX and others, uh, Almost nothing happened in DeFi, such as MakerDAO, Compound, Aave, 1inch, Uniswap, all performed well, the problems that arise in CeFi are almost not seen in DeFi, which shows that no one's decision-making power will also run Better yet, the problems we've seen with Alameda and FTX ultimately come down to people, to people doing what's right or wrong with other people's assets, whether it's accepting things that you would never accept under normal circumstances Abnormal collateral, I still think that if I lose the customer's deposit, I can earn it back later. If we go back to trading, all of these decisions ultimately boil down to a loop where there is no need to have a real transaction, when it comes to trading, Uniswap or another Dex or mortgage lending these are businesses that really don't require human intervention they can actually be fully automated Completely done, no one is in this cycle, this is DeFi, DeFi has been proven right this year, there is no doubt that all Crypto has dropped by 70% or more, DeFi has performed very well during that time, Almost all centralized lending has failed.
As you said, the FTX story has turned the focus to DeFi, and indeed, in a sense, people realize that the value point of DeFi suddenly becomes clear, and it is more obvious why DeFi is attractive. When you realize, well, maybe I can't believe in centralized businesses, FTX is a good reason why centralization doesn't work, but earlier this year, especially after Terra crashed, DeFi faced a lot of problems. Big pressure, a lot of regulation and a lot of lawmakers are paying attention, DeFi is really bad, how do we control DeFi, lawmakers and regulators are actually less concerned about DeFi, they are more concerned about CeFi, so the pressure is back on the centralized players On the body, they feel, well, DeFi is okay, but in the end we have to prevent the next FTX, which is what we care about, is the headlines, ultimately regulators and legislators are passive, and now the passive element is to control CeFi, so This does not mean that DeFi is always clear and transparent.
Overall the story resonates pretty well actually DeFi is beyond reproach on all these things DeFi looks really good so now how does that affect my optimism on DeFi I'm bullish The reason for DeFi is obvious, I think DeFi is promising and doing very well, right in an environment like crypto, macroeconomic rates are very high right now, you know what Powell is hinting at, he hinted last week What's interesting is that interest rates will remain high, which means to us, how will DeFi respond to an environment where the nominal interest rate is 5% for a period of time, we can see the real interest rate is significantly positive for a period of time, in DeFi We are still in a "struggling" stage before we really get our own status. When our real interest rates are negative and nominal interest rates are zero, the world desperately needs yield. Any form of yield, no matter how risky it is, is very attractive Force, this is the super value of DeFi, this huge product market is now falling with interest rates, we see it is falling, in the long run, I don't think DeFi will be mainly determined by the yield, but the yield is DeFi market products are suitable, and high-risk yields are much lower in value in a high-interest rate environment, so I think that in the short to medium term, DeFi will continue to "struggle", and eventually interest rates will fall back, and we will enter a relatively more stable market for DeFi. Attractive environment, but until then, I expect DeFi to remain depressed and we won't see a lot of consumer demand unless it's for some exposure to real world assets, which I think there is still a way out.
Miles：I think if DeFi is going to be successful, it needs very robust apps and ecosystems that can withstand disruption, so I wanted to ask you if Avraham Eisenberg has been doing some "stress testing" of DeFi, apparently we're seeing that, like in Mango What happened in the Market may be called exploitation. I would like to ask you, for example, what do you think about the stress test, what is Avr doing, and do you think this is a good thing or a bad thing for DeFi?
Haseeb：This is a tough question, I would say it's a positive, there's public stress testing of DeFi protocols, specifically a positive thing, but it's not so easy to say what Avr does, but it's kind of like asking you, like , is it ok for your child to live in a stressful situation, yes; is it ok for your child to be bullied by a particular person, no, in general, they grow up and need to confront Pressure, that's fine, well, that's how I feel about Avr. It can be divided into two different story summary, Avr attacking Mango Market and shorting Curve, let’s talk about Avraham Eisenberg’s impact on DeFi, Mango Market is the kind of jungle alliance, there is not much activity on Mango Market under Solana, they Allowing you to use their own tokens as collateral, unsurprisingly able to manipulate the market and cause a series of losses on Mango Market, well, we don't actually know if Avr made money in the attack, but just left some bad debt, It's possible that if you make money, they might lose money because it's likely that if you make money, it's stored off-chain, but, in general, the attack wasn't as disruptive as one would expect, it's done right, So Avr has about 1.5 million bad debts, you know 40 million, Avr deposited into Aave, well, 1.5 million bad debts, not even 10% of Aave's profit and loss this year, so the whole Aave is actually completely fine, just Like it withstood the attack a little bit, but then changed its risk parameters to make it impossible for this attack to continue, in general, like Mango Market was hit hard, it was actually attacked by Avr Destroyed, you know, took a hit, knocked it out, sort of repaired itself and moved on, so I think that actually proves the fact that DeFi will do even under certain attacks very good. But in CeFi, just like what happened to centralized lending, it’s not a targeted attack, it’s not someone deliberately trying to sabotage them, it’s just a normal business process, they crashed, but Aave apart from the normal business operation process, Also withstood a targeted attack, so for me, I think the story is actually really compelling.
Miles：So do you think it's legal to continue stress testing DeFi?
Haseeb：I think it's important to stress test DeFi, it looks like it's important to have "bad" things happen to kids in their childhood, hmm, is it moral for you to go and bully other kids, probably not, Illegal, immoral, I think what Avr did to Mango Market may be illegal, what he did is not clear, it seems to depend on the situation, I don't even know where he lives, is he American?
Miles：I'm not sure, if he was American, I would be very worried about the SEC's pursuit, so I very much doubt that he may be in Dubai or some other country, now many people go to Bali, and he may be there, the next question is a bit probing , the token you bought for the first time was BTC or other tokens you like, because most people usually buy BTC for the first time, introduce a little bit about your first token purchase?
Haseeb：The first time I learned about BTC was actually after I quit poker, you know a lot of poker players, around the time I quit, there was a big event in the poker world called Black Friday, the US government shut down a lot of online poker sites, So if an American wants to continue to play high stake online poker, they have to play on some sites that are dominated by BTC payments, so that's the first time I learned about BTC, my mental model of Bitcoin is, BTC is like Skrill or net teller, it's like one of these weird online payment methods when you can't pay in a more obvious way, well, so it's a workaround, yeah, I won't decide until Trump is elected , Trump was elected, I think it's "the end of the world", the only thing I can think of is buying BTC, this is the first time I bought BTC meaningfully, because I don't know much about Bitcoin, I know the area What a blockchain is, I know what a hash is, PoW, whatever, but I didn't really understand BTC and its wider story, so when the ICO craze started and Ethereum came to the fore, I didn't really understand why I wanted to be in crypto , because I see what's happening in Ethereum, smart contracts and on-chain computing in a broad sense, which is going to change money, change finance, change the way trust works, and that's what really makes me believe that what's happening in the future is far from More than that, it was a different way of paying that got me really excited about crypto and eventually got me into the industry.
Miles：So your original Altcoin purchase was ETH, so what do you think about ETH and BTC now? From an investment standpoint, what are your preferences?
Haseeb：Yeah, I mean, I don't want to look at investing per se because I'm only looking at it from a short-to-medium term perspective, the passage of time is not how I do business, I'm not a long-term investor, but when I first got into crypto Like when I first entered the crypto space full-time, I was convinced that ETH would replace BTC and BTC would be forgotten, which is a very naive point of view, because I thought it was the right time for people entering the crypto space at that time. Very common because I don't really understand that BTC is a subset of what ETH can do, ETH can do more things than BTC and you know BTC is like all these tedious hateful people who don't like ETH Not very open, and ETH is very open, friendly ecosystem, they have all the developers, so ETH obviously wins, right, this is my mental model, because I am a developer, so until a long time Later, I understood why some of the properties behind BTC are actually very valuable, these properties include that BTC will not change, there is not much programmability, there is not much scalability, etc. In fact, this is a BTC Pros, so it took me a while to figure it out.
Now if you look forward, how do I see the relationship between BTC and ETH, do you know that ETH has the potential to dilute BTC? I think the answer is possible, and I think it's more likely now because of ETH's monetary policy and the fact that Ethereum meets ESG (Environmental, Social and Governance), which sounds good, isn't it kind of ridiculous, well, it actually Does affect the ability of institutional buyers to buy assets at scale, ultimately if you want to get a trillion dollars or more in tokens, you're not going to do it with retail backing, you need institutional buyers willing to buy large scale ETH , because given the ESG ramifications of BTC and where ESG as an investment standard is going, I think it's getting harder and harder to really keep institutions able to buy BTC, so I mean I'm just seeing that because we have a lot of large Institutions are our investors, and this is obviously something they are increasingly concerned about, I want to invest in crypto, but I have to invest in a way that meets my ESG requirements, how do I do that? You know, most crypto has moved to PoS.
Miles：So you think environmental issues are the main risks facing ESG at present?
Haseeb：Yeah, I mean, it's not a primary concern, they're worried about BTC causing all these environmental hazards, right? Maybe they don't think so, maybe they think it's one, but at the end of the day their funding is not just needs, they have to report ESG to the board, look at the investments they've made, so their answer is probably, you know, we No investment in BTC so everything we have is ESG compliant, everything we have is green so they don't have to report to the board, they don't have to report to the ESG officer or whatever, so a lot of institutions will say that, something like Yu "I don't like BTC because of ESG."
Miles：So, if you have to look ahead, say 10 years from now, do you think BTC will be the market leader?
Haseeb：10 years, well, to be honest, maybe 55, I think ETH has a good chance of surpassing BTC, and BTC has a good chance of staying ahead, 50% is a kind of "escape", but I really think this is a win-lose point problem.
Miles：Fair enough, I mean, overall, where do you think BTC dominance is headed? Obviously, we've seen it come down a lot over the last few years, um, like in the last few months, we've seen the dominance go up. Do you think that trend will continue to decline over time, or do you think it will find its way again?
Haseeb：I think BTC dominance is largely related to risk demand, when risk appetite is low, BTC dominance rises, when risk appetite is high, all tokens make a comeback, so this can be said to be a crypto macro An indicator of the cycle, well, I don't know how many people will have heard of BTC, oh, I think the story of BTC has taken root, I think many naive versions of the story of BTC have basically expired, so a lot of people are saying, Back in 2020, many people said that BTC is an inflation hedge tool, which is why you want to buy BTC because you are worried about inflation. It turns out that the moment inflation goes up, BTC starts to get killed, BTC has been the antonym of inflation edge, it's closely related to inflation, well, basically we've seen all crypto transactions including BTC transactions, like growing As opposed to the edge of inflation, the fact is that the ultimate benefit of BTC is that there are two kinds of inflation, one is price inflation, which is what we are seeing now, and it is what everyone cares about; the other is monetary inflation, which is An increase in the money supply does not necessarily increase the price of goods.
So when we see monetary inflation, that's when money is being printed, 2020 starts to stimulate the economy, that's when we see BTC prices go up, that's when we see all these risky assets go up in price, currency inflation is actually BTC's Response rather than price inflation, under price inflation BTC will be destroyed, so I think a lot of this stuff makes us start to better understand the monetary properties of BTC and crypto assets, now there is no guarantee that this will continue, it is likely that when you Going into a different regime where the central bank fights inflation differently and BTC again mutates from where it is now to another regime where it starts functioning differently again is not out of the question, I think it's even possible With our different understanding of BTC and its maturity, it is starting to work differently than it did in the early 2020s, but the best view on BTC right now is that BTC is a risk asset, and as a risk asset it has been in the past two years. The performance of the year is not surprising.
Miles：I think that ultimately changes your long-term view on BTC, is it an inflation hedge? Is it a store of value? Do you consider it a legal substitute? What is your point of view?
Haseeb：Yeah, my take on BTC over time is, you know the digital gold analogy, digital gold right now is, gold in an inflation hedge, it's an inflation hedge right, at a time when inflation is going up , the performance of gold is not very good, inflation is the increase in the price of commodities, so what is an inflation hedge, the answer is that commodities are inflation hedges, because that is what inflation means, inflation means that commodities become more valuable relative to currencies, So something like oil is a real inflation hedge, oil is a hedge against inflation, cars are inflation hedges, cars appreciate like physical commodities, are these things real inflation hedges, in a way, Gold is an inflation hedge but it didn't serve that function well uh so now it's a hedge against other types of stuff gold is obviously attractive when fiat currencies are devalued I think This is the role that BTC may eventually play, but it will take time to achieve this, the reason is that a lot of things that BTC trades now are ahead of time, which is a problem, if BTC does become digital gold, it may not become digital at all Gold, but if it really becomes digital gold, how long will it take, will it take 5 years, 10 years or 20 years, BTC will be better in the future, in order for BTC to grow into the ultimate digital gold, this is a question about what you think it How long will it last, so I think it will be longer than most crypto people expect, but shorter than crypto naysayers, who will say, 100 years, 50 years, whatever, sooner, crypto hobby Those who say, only need 3 years.
Miles：So judging your answer maybe 10 years or so, 10 to 20 years, sounds reasonable.
Haseeb：I'd probably say that's the correct time frame.
Miles：Well, that's been a good performance historically, and if you look at how long it took for the stock market and other emerging technologies, even if you go all the way back to the first Internet stocks, they took longer, So even 10 years, in the scheme of things, it's really not that long, is it?
Haseeb：Yeah, I mean look at how far crypto has come in the last ten years, it's been 13 or 14 years since BTC started, it's hard to find people these days who don't know what BTC is, memes The level of penetration is absolutely unbelievable, it's the same as the Internet, the first 10 years of the Internet everyone has heard of, but not everyone uses the Internet, it took a long time for people to adapt to the Internet, to feel comfortable, to find the use of the Internet, But the concept of the Internet penetrates very quickly, and so does BTC. The value of meme transmission far exceeds the actual financial assets.
Miles：Um, so looking back at the last cycle, uh, if we look at what was the best performer, it's obviously L1, so obviously Solana, Avax, Fantom, all have thousandfold returns, do you think the L1 story will end in the future , or will we see a revival of L1?
Haseeb：First of all my views do not provide investment advice, everything they say is like a macro view of the market, well, I don't think the L1 story is going away, there are a couple of reasons, what we've seen in the last year are non-EVM chains Huge drop in , Solana drop, NEAR, etc. Network drops that aren't EVM, on the other hand, EVM is actually still solid, like Ethereum, Polygon, Avax, but non-EVM is really far from ideal, I think now if you look at the TVL 9 out of the top 10 chains in the top 10 are EVMs, in fact the top 9 are all, what we see now is just the advantages of EVM in the field of smart contracts, I don't think you should infer from this that the story of L1 is over, we Will use Ethereum, this is because Ethereum still has the same scalability issues as before, even EVM-based issues, whether it is Polygon, BSC or Avalanche, fundamentally EVM is based on L1, they are not actually in EVM yet Innovating by itself, all of these hit a bottleneck, because the EVM is stuck, it can only do a maximum of 300 to 500 transactions per second, if you use the EVM, you can increase it to L1, and besides, the EVM is actually still In order to do more, the EVM needs to be able to do better than what is used today, which means either an EVM re-architected and significantly improved.
Just like JavaScript in the early days, now JavaScript is a super performant language on browsers, because Chrome and Firefox, you know all these browsers have JavaScript optimization done, whether it needs to happen on the virtual machine, or needs to happen on the EVM, It has not happened yet, almost every client or almost every client is consuming Gas, they just fork the EVM implementation in Ethereum and push it to a new blockchain, using a new consensus mechanism , which is fine, you can run very fast, but you're not fundamentally improving the constraints of the EVM itself, you have to take a non-EVM approach, and fundamentally, if you talk about Roll-up, talk about any other architecture you know , it doesn't matter, until you don't rely on Gas, all these things are still using Gas, you won't see a significant improvement in the underlying scalability of these blockchains, and we know that they have to improve in order for the blockchain to truly achieve prime time, so for that reason, I think eventually the operating system for the blockchain will continue to iterate, although we have now realized that the EVM is very good, it's a bit like we got to Windows 95, Windows 95 is good, people can use Windows 95, you can create windows app, we already have all the parameters, but there will be more OS iterations, like we are not done yet, there is so much work to do, so that's why I say L1 The story is not over.
Miles：In an interview last week, Jordi (Selini Capital CIO) said that he thought it might be because the demand for data block space was high in the last cycle. Now it is obvious that fewer and fewer users use the market, and the demand for data block space Just less and less, he thinks that all these chains may have too much block space, do you think this is a real threat to the development of L1?
Haseeb：No, not exactly, I mean it's obviously very cyclical, the demand for block space is very cyclical, if you just look at the 2017-2018 cycle the demand for data block space was very high and then It came down again at the end of the cycle so these things are cyclical and yes I agree that the demand for block space for the next six months is not a lot and eventually in the crypto industry there will be more blocks than we need Well, we're on the crypto front, we're pioneers, we're pushing west, and when you push that much wider, you might ask yourself, well, there's so much open land, who's going to use that space, you know 1 million people in the US, um, what the hell is that space, isn't it just a huge waste of space, it's true in terms of time, but the fact is, when you build more and more space, you're Apps or things happening create more spaces but it takes time to develop those spaces and if you're convinced that this is a frontier then it's not just exploring like the Amazon rainforest when it's still untapped because yes A huge rainforest and it's like people are obviously cutting it down and doing horrible things to it but they don't live there but in the end if you're right it's actually the work of a great forerunner and there's a lot Significant resources can be harvested from the process, then just the idea of one or a few cities, they're all old colonies, like Boston and New York, Massachusetts and Philadelphia these are unimportant places, other things you do in the west All important, my mindset is that there is so much blockchain can do in the next ten years, we need more than just Ethereum.
Miles：That's interesting, I guess one of the main criticisms of the L1 is that we're going to see rapid improvements, we're going to see newer products coming out that are better than their predecessors, is it worth the investment in your opinion? Is it the old general product like the last cycle, or the new better liquid product that's coming out like next year that might improve like we've got Sui, we've got Aptos, well, that's just a couple of examples, Do you think it's worth investing in legacy products?
Haseeb：I think the answer is situational, there is no single answer, it's kind of like, well, I really like comparing L1 to cities, do you think the old cities will be successful? Do you think these new cities will be as successful as Los Angeles or Chicago? Do you think these cities will be successful? The answer is probably both, they'll be new cities that succeed, they'll be old cities that succeed, they'll be old cities that fail, they'll be new cities that never get off the ground, it doesn't matter. The point is that L1 is doing something different and will end up being important in the next 3-5 years, the answer to the question may be very unimportant to some of them, or it may be everything, it really depends on the facts And the environment, I think some of the older companies are going to be very successful, or some of the new companies are going to be very successful.
Miles：So there's a theory, you probably know, called the Fat Protocol theory, where Dapps actually generate more value than L 1 itself, what do you think about that, from an investment perspective, do you think we should focus on Invest in L 1 , or should more capital be used for applications, powerful applications on the chain?
Haseeb：Yeah, so the fat protocol theory is actually the opposite of what you said, the fat protocol is this, in the traditional internet, the internet infrastructure is like an ISP router or something, they make very little money, and the apps make Almost all the money, so Facebook, Google, Instagram make all the money, apps capture almost all the value, the infrastructure is like L 1 , which is just the opposite of the blockchain, where the protocol earns Take all the money, ethereum is worth hundreds of billions of dollars, and then the application is like, like swap is 5 billion, this thing is 1 billion, and then it's like a small part of a behemoth, um, so it's called a fat protocol , it's really more of an observation than an opinion, in the sense that it proves it, it's not like making a claim and then verifying it in practice, when a protocol is written, the protocol is more important than the application More valuable, that's still true, so this is a really good question, why is the fat protocol observation true, is it going to keep going, and I think part of it is, like the L 1 alignment in old and new cities , how much of the value of the tech industry in Silicon Valley is captured by the city of San Francisco, the answer is a lot, because if you look at real estate, taxes, all of these are ridiculously high in Silicon Valley, so San Francisco is one of the most expensive cities in the world because they can get from All the companies built in Silicon Valley and San Francisco get rent the same way now, why is that, why San Francisco, all the companies built there are creating a huge amount of value, the answer is because they have a scarce resource , this scarce resource is land, and land cannot be extended infinitely in the same way, if you build on Ethereum, the scarce resource is Ethereum block space, you can no longer use it, there is no more space left for you, So there's a bottleneck in the ethereum space, and that's ethereum itself, and ethereum can get a lot of rent in a different way than the internet, which is infinitely scalable, and if you have a router, you can add another to the internet A router, there is no limit to the number of routers on the Internet, unless you know IPv6 or something, when IPv6 is active, there is no limit to the number of addressable entities on the Internet, which means, in fact, the Internet is infinitely scalable, Just like you add more people, just like the ISP doesn't get in the way of the internet, there's always room for more competition when it's not running.
Not so in crypto because crypto networks are more like cities than like the internet and that's one of the reasons but the other thing I would say is that in the end we don't know if that's going to be true in the long run , a large part of the reason is that the blockchain still doesn't have that many users, and in a sense it's not surprising that Ethereum is really valuable because people know that Ethereum is developing, but they are not sure what will be born Looking back, during the dot-com bubble, one of the most valuable companies was Cisco, a company focused on network infrastructure, which is exactly the same as Ethereum today, and we knew that the Internet would be very valuable, So we know that Cisco is going to be very valuable, but we don't know which applications are going to be valuable, right, I think the analogy is actually a good one, partly because we don't know what the blockchain will end up being used for, but We know they will be used, which is why people are more than happy to bet on Ethereum, even if they are not sure what applications will end up being valuable, but in principle it must be the case, a clear example, what prevents the like Apps like Facebook, Facebook as a company is now worth 300 billion dollars, you already have an app on Ethereum that is worth more than Ethereum because Ethereum is now worth more than 100 billion dollars, so fat Is the thesis of the protocol proven to be true, no, it's like an observation of where we are in the evolution of crypto, this observation describes reality but it's always subject to change, it's an application observation , whether or not we see applications overtaking the underlying infrastructure, those applications will ultimately succeed on-chain.
Miles：So from a retail investor perspective, if your theory is correct, would you put more capital and energy on L1? Or will you try to identify better Dapps and position yourself in the ecosystem?
Haseeb：I can't answer this question.
Miles：Well, the reason I'm asking this question is that I get this kind of question a lot on my twitter, like: should I invest in NEAR? Or should I invest more in apps like Dex and Bridge.
Haseeb：I think this is the wrong question, Howard Stanley Marks has a famous quote, Howard is a very famous bond investor, if you haven't read this stuff, I highly recommend you to read his letters, he is the most outstanding in modern history One of the investors in , he famously said: There are no bad assets only badly priced assets so whether it's Dex, L1 or NFT, whatever it is, there are no bad deals, only bad deals at a given price, so you ask I'm talking about Dex, L 1 , as long as you give me a low enough price, it's also a good deal, but it's still a bad deal if you give me a price that is too high.
Miles：Makes sense, so 10 years from now, uh, you said Ethereum will play a very important role, how do you see the prospects for L1? Do you think L1 will be leading or challenging, or at least take some of Ethereum’s market share? Or do you think the future is mostly L2? How do you see the prospects for L1 and L2?
Haseeb：It's clear that L2 is on the rise, especially with the non-EVM weakening, L2 is becoming more dominant, this will only increase after the Shanghai upgrade, probably by the end of the first quarter of next year, which will greatly reduce the on-chain The cost of on-chain data, which means that the main cost of publishing data to L1 will be significantly reduced, so you will see all L2 fees drop by an order of magnitude, which will be L2 becoming price competitive with L1 An important catalyst that is very intense, well, the second thing is of course the ZK Rollup market, ZK Rollup performs calculations like EVM, called ZK EVM, we also participated in the investment, um, build zkSync, Scroll and polygon, it has its own The ZK EVM, dubbed Hermes, all of which are coming online next year, I think that's going to be a very interesting and interesting aspect to watch, but aside from summarizing, I think the EVM has proven itself on the L1 side Is the real dominant player, and in the long run I think almost certainly there will be a non-EVM player, at least one for now, will it be Solana? Will it be Near? Will it be Aptos? It's hard to say, um, but I think they're all fighting for the position, and I think it's a pretty "valuable" position of who's going to be the high performance low latency chain, maybe one, two, three, maybe not Will be more than three but I think it's likely just one because there's one product that's got widespread adoption but they're all vying for the award and even though we've seen some cutbacks this year it's clear in the long run that many crypto Use cases require low latency and high throughput, and the only way to achieve this is with a non-EVM architecture.
Miles：Obviously, you are also one of the investors in Near, you are probably a fan of Near, can you share your views on Near, why do you think it is very challenging in the future?
Haseeb：Of course, what I mean is that Near was one of the earliest movers in the field of sharding, there are basically two ways to scale the blockchain, one is what is called vertical scaling, which means that you can basically make bigger and bigger machines like the Firedancer, which is a new way of building clients for Solana, basically you just throw in more and more dedicated hardware, bigger boxes, bigger RAM, and you make this thing It's basically hard to run, so the extreme cases are things like Dfinity, which can really only run in a data center, so uh, you basically need a supercomputer in order to run a blockchain to a certain extent, no longer It's decentralized, and vertical scaling on the other hand is basically running bigger machines, which allows you to get more throughput, run faster. The other option is horizontal scaling, basically having many chains running in parallel, which is how almost every traditional web infrastructure company actually scales, there's no choice, there's no single server big enough to run Facebook or run Google, the truth is On them, they have a huge distributed system with many, many machines running in parallel, and when using Google research, it's likely that our queries are actually being made on different machines because they just have a bunch of machines side by side Waiting for your query, so my thinking is that almost all web services scale like this if they really want to work in the world, so on the blockchain, so this is Ethereum 2.0 The story, they will use sharding as a basic way to scale the network, these horizontally scaled machines all operate in parallel with each other, Near is the first network that actually implements production sharding, it is possible today in production The most dominant sharded blockchain.
Another thing that's very special about Near is that they're very developer friendly, NEAR has been working on developer adoption and developer go-to-market since the beginning, so the only chain you can write about today is actually NEAR besides Agoric The only blockchain that allows you to write smart contracts in JavaScript, JavaScript is the most commonly used language today, the most popular programming language in the world, JavaScript Now if you want to use Solidity to write smart contracts, I think the world uses Solidity There are about 10,000 programming developers, maybe you know about 10,000 people, not many, and the number of people who can write JavaScript programs is in the order of millions, which is more than all the programs that can write smart contracts today So I think the story of Near is that if you really want to mainstream smart contract programming and blockchain programming, you need to make it available to a wider range of programs than is available today, which is Illia Polosukhin, one of the founders of NEAR, who is actually one of the co-authors of the paper on the Transformers architecture, which is today adopted by GPT 3 and Stable Diffusion and all the crazy rejuvenation and AI used. Ironically, before Near went into blockchain, I knew this because we invested in Near's seed round and they actually switched from an AI company called near.ai to blockchain because they thought AI It is too difficult and too complicated, but blockchain is the opposite, just like blockchain developers are not very good, they don’t know what they are doing, they have been troubled by these simple mistakes, so they think, about the distribution The whole thing with tablets everyone seems to think it's hard, I bet we can build this thing faster than anyone else, so they have an amazing world class team full of professional, competitive programmers, hmm , one of the best raw talent teams the crypto space has ever seen.
Miles：I wanted to ask about sharding because one of the main criticisms I've heard of Near is, oh, if Vitalik has given up on sharding, why does Near think they can succeed? Can you explain, because Near's sharding is different than Ethereum's, um, how they're going to implement it? Can you explain this fallacy?
Haseeb：yeah, in principle, this is actually very similar to what Ethereum originally planned, what ended up happening is that Ethereum was way behind their planned timeline, you know originally Ethereum 2.0 was supposed to be done many years ago, in fact I think Vitalik initially Ethereum was first launched believing PoS in 2018, in 2022 Ethereum 2.0 is finally released, and nothing else in Ethereum 2.0 is released, so no sharding, no execution, nothing, so there should be three things that end up happening The first stage is PoS, which is where we are now, the second stage should be sharding, a few years away, the third stage is sharding executable, meaning first they just dump data shards, So it's kind of like if you have a baby, you can put his ECG data on it, that's it, and then the last stage is that the sharding becomes executable, so the sharding is not just dumping the ECG data, but also the Ethereum baby, so You can run on Ethereum, and eventually the reality of Ethereum is far behind their planned timeline, and they realize that it seems that we will wait until we enter the third phase, and the real sharding can be implemented, so it is better to abandon it, and Saying Rollups are mainstream, Rollups are going to happen faster, we know everyone else is doing Rollups, it's not a bottleneck at the base of Ethereum, so you know what a Rollup is, you guys screw up it will take Rollups forever The execution part, which is why Ethereum dropped the idea of shards being executable.
But of course it would be better if you could do it on shards, right now it's very complex and the advantage is that if you use a network like Ethereum, that's always been true and you know it's behemoth, trying to turn things around and revolutionize The existing structure is very difficult, it's like trying to land a space shuttle, it's super complicated, but if you start from scratch, you say you know we're going to build this thing from the ground up so that it's Being able to do sharding, then you have no technical debt, no constraints, you know turning things around like you know starting a new company, not trying to reform an old company, if you start with an old company, not from scratch , that's much harder, and that's part of why I think Near gives you an idea of their technical capabilities, they don't have the baggage of Ethereum, so I don't think it makes sense for Ethereum to decide to do sharding, the reason is because they're hard Complete, and too slow, but I think we hope that everything can be executed in pieces eventually, which is a path that Near provides you with basically unlimited scalability without processing, and L 2 also exposes a lot of problems , but in other shards, these problems do not occur.
Miles：Near is one of them, you talked about some other L1s, you talked about some things like zkSync, things like LayerZero coming next year, let's look ahead, what kind of narrative do you and Dragonfly believe will be big for crypto Influence, where are you going to focus towards the next cycle?
Haseeb：Well, I think any time you look at a cycle that's ended, you want to go back and see what the biggest issues you identified in that cycle are the ones that we need to work on before we can build a Paving the way for the next cycle, so what's the biggest problem with this cycle, obviously scalability, we've talked about that, L1 L2, etc; the other big problem is identity, we don't have any concept of identity on chain, you know , there really isn't a solid standard that everyone uses that allows for things like using credit, or like, wanting to be able to log into this game and carry my identity in that game and be able to tell if I'm a bot or something , obviously one of them; the other thing that's been seen in this cycle is the debilitating of airdrops, airdrops used to be a beautiful word for you to reward people and now it's just a horrible game that you know just pointless Statistics, like how many addresses are doing fake volume on your app, or NFTs, trading platforms, or whatever, so airdrops are completely broken because we don't have a concept of a stable identity, so you create one New addresses, you create some liquidity, transaction volume, you know that breaks some things, so I think there are still some things like usability, usability is still neglected on the chain, this recent cycle, so many people Learn how to install MetaMask by watching tiktok videos and do something like a lot of Crypto stuff in sequence they obviously don't know what they're doing Crypto is amazing but lots of people lost money hacked wallets Messed up, lost mnemonic, all ended up being disruptive players in this space, because Crypto usability is still low, it's important to improve, next cycle, we can't have this kind of people on Encryption wreaks havoc and ends up losing their apes or losing their private key or something, so security is another important thing.
Security is a big issue this year, yes, the total amount of money lost in hacks this year is more than $3 billion, very huge losses, I think this 2022 may be the worst year ever for crypto hacks, so obviously , this issue needs to be addressed so that the space becomes stronger in the next cycle, well, I think there are a lot of tools at the protocol layer and user layer to keep yourself safe, so it's hard to know what's going to happen in a bear market Apps, narratives, or consumer use cases drive the next cycle, I don't know, no one really knows, well, but you can be sure that the big problems of the last cycle, if you solve them, there will be a jackpot Waiting for you, look at the last cycle, what was the big problem in the last cycle, like the scalability of the blockchain was a big problem at the end of the 2017-2018 cycle, after seeing the price on the chain, there is no way to really Efficiently transacting on-chain, these things are resolved, we went from Ethereum to Uniswap, one of the best investments at the time, from CryptoKitties to OpenSea. FTX was actually one of the big winners of the last cycle, same thing, endowed with scalability, whether it's Solana or L2 like Matic, those were some of the big winners of the last cycle, so solving those big problems ends up almost always Will pay off handsomely, so what will the payoff look like? It wasn't obvious at the time, but I thought it would be the best investment of the period.
Miles：I know obviously don't want to say too much about retail investing, but can you introduce the audience to some projects, or at least things that you find interesting?
Haseeb：Well, I can talk about some of the investment stuff, there's a project called Quadrata, Quadrata is an identity solution that allows users to kyc on-chain and show identities to people without revealing their privacy, well, it uses A fancy encryption technique to make it impossible for on-chain onlookers to peek, but still allow applications to know that you are a real person, for example, if you are doing on-chain lending, you can use this to guarantee your credit , which does a better job than Aave, you can't get an unsecured loan unless you really know who a person is and you have broader recourse, it's an application I'm very bullish on, another one we recently invested in One company is Aptos, we talked about it before, I think it's still early days for them, but I'm very excited about the Sui ecosystem, Sui is coming soon, but Move has a unique approach to writing and developing smart contracts I think the L1 has really taken a hit as the price has come down, especially the non-EVM this year, but overall, you know, as a young L1 and a young ecosystem, they're keen to see What will happen to the Move ecosystem, especially the traditional Web 2 players, they are very interested in building things on top of the Move ecosystem, which I am very excited to see, I think there is still a lot to look forward to, and then the third One I would say, on the L2 side, well, we just announced an investment in Matter Labs, a development company for zkSync on ZK Rollup, they were the first company to build a ZK Rollup product, they've done Long time, the earliest and best team in this space, currently running, so I'm very excited to see what happens with ZK, I think ZK is the long term, the future, obviously, more and more cryptographic architectures eventually Will integrate ZK from one angle to another, we can still see this trajectory like Moore's law, where like exponential growth is the efficiency of ZK, it's unbelievable, it's wisdom and creativity collection of forces.
Miles：Um, so I think that's what you want to focus on in 2023, is there a lot of ZK's product right now? Most will be available next year?
Haseeb：Most of them are still relatively mature, right, so if you look at things like Loopring and Aztec, you can experience it now, and of course Tornado Cash uses ZK, and, uh, there's Zcash, which is uh , but I think the biggest application of ZK will be in general computing, these are still quite rudimentary, it will take some time for them to become more mature and powerful, but in the long run, I think ZK will be in long enough Solve everything in terms of calculations within the scope, but it will take some time.
miles：I know you're leaving in a few minutes, so I won't take too long with you, but I do want to touch on what you just said, what is your outlook for 2023? Obviously you know we're in a monetary tightening right now and the markets are bleeding and things are looking bleak, are we close to a bottom? Are we at the bottom? What is your point of view?
Haseeb：I don't quite know either, a lot of the conversations this year were not public but internal and private and I was wrong about a lot of the conversations so one thing I learned and one thing your audience should learn is , people don't know what's going to happen, like 2022 has taught us one thing. tldr; I think I have an advantage, there are some things that are specific to crypto, but obviously there are many factors that determine crypto, such as macroeconomics, Raoul Pal is very good at this because he knows what he wants to do, talking about The crypto market, there are a lot of things that I am very excited and very bullish on, the blood has flowed out of the market, now you can buy and sell anytime, there is nothing stopping more people from selling what looks like a bubble, I mentioned to you A lot of things, I think this year has been okay for me, I don't know how many bad projects there are, there are some projects that are doomed to fail, so I think giving more confidence and more aggressive investment, actually the market will become healthier.
Miles：Yes, do you think DCA (Dollar Cost Averaging) is the best standard from a retail point of view because that's what a lot of people take, or do you think it's better to position yourself on new bets , maybe try a little more market timing?
Haseeb：The point I'm making is that market timing is never a good idea because as I said, no one is good at timing the market, so if you're not good at timing the market, don't be like the average process investor, they tend to Invest at the highs, sell at the lows, if you don't seize the timing, you are unlikely to end up as a process investor, pro-cyclical and counter-cyclical are hard, but the important thing is at least not pro-cyclical, as long as you do , you should be doing pretty well; the other important thing I would say is that it doesn't really matter if you buy everything at once or if you can, what you do is buy assets, And then stop looking at them all the time, that's the hardest thing so whatever it is, whether it's buying a lump sum or DCA or whatever, the bottom line is don't stare at your portfolio every day, that's what you'll end up doing make the wrong decision.
Miles：Well, investment quality and long-term investing, enjoyed the conversation today, you brought up some great points, thank you Haseeb for joining.
