Name: Balancing The Ledger: Multicoin Capital's Outlook for Ethereum, EOS, Ripple, and Litecoin
Uploaded: 2018-06-29
Duration: 10 min 44 s
Description: Kyle Samani, Managing Partner at Multicoin Capital, stops by Balancing The Ledger to share his investment theses.

[ MUSIC ]. Welcome to Balancing the Ledger, where tech and finance intersect. I'm Hackett. I'm Jen Wieczner. And today we're joined by Kyle Samani, managing partner at Multicoin Capital Thanks so much for being here. Hey guys, super excited to be on the show. We're gonna discuss your cryptofund in just a minute, but first we're gonna discuss the news of the week. First up, Facebook is reversing course on a cryptocurrency advertising ban that they. Initiated in January. Do you think this is positive news? I think it's good for the ecosystem and that's allowing experimentation. Engineers and entrepreneurs are doing a lot of [ INAUDIBLE ] work and that's continuing, regardless their paths to advertising and getting word out there. The fact that this obvious powerful channel has reopened is good, because like, step one is build, step two is tell people about it. And so that's a very good thing. Where better to tell people than on Facebook, which has billions of users at this point. Exactly, right? So that's clearly good for the ecosystem in terms of driving an option. And especially because we're on the verge of releasing some new applications. So things like Auger are about to come out, And other kinds of applications. FunFair, Dharma, these kinds of things. And so, as these new applications come out, it's important that people who spent all this energy building them can tell the world. So, that's super important. Obviously, you have the flip side is the cryptocurrency stuff is kind of wild, wild west, and there are lots of You know, below the bar teams, let's just say. There are lots of scams out there, I mean, that's why Facebook did this in the first place. You know, everybody's trying to sell their coins to get rich quick. Are there reputable companies advertising too, though? You know, to date, there are none to come to mind. I'm sure there have been. But moving forward, I expect there will be, like Robin Hood for example, Robin Hood should be able to advertise their crypto trading service, and that seems like a reasonable thing for them to be able to advertise. There was some other news this week too, we have Andreessen Horowitz, one of the leading Silicon Valley [ UNKNOWN ] capital firms Opening their first crypto currency fund. 300 million dollars they have put into it. It's their first major VC firm to open a crypto fund. You also have a crypto hedge fund. I mean, does this industry need more competition in the fund world? Does this make it harder for you to make money? I think it's super good thing for the [ UNKNOWN ], cuz the [ UNKNOWN ] whose one of the GPs there and I think [ UNKNOWN ] is the other. Chris is an LP in our fund in multi coin, so know the for a while. Overall it's a great team for the eco system. We're talking to a lot in dominance today who are looking at the crypto eco system and there's just a real challenge for them in kind of career risk. because of unknown space, a lot of unknown fund managers, and being able to take a top tier firm with a, you know, a well, very well known general partner there who's been there for five or six years now, and to, kind of, launch a dedicated vehicle. It's a very good way for existing institutional LPs to be able to invest in crypto through a known entity, or a known vehicle So I think it's had the trickle of opening the flood gates of its usual capital. It's starting to come in through Chris and Katie's new fund. Tells us a little bit about Multicoin and how your strategy is different from some of the other funds in the market, whether it's Polychain or now Andredssen's fund or any of those. One of our major differences is that we really focus on delivering venture capital economics to our LLPs. But with public market liquidity. And so what we mean by that is, you could think of our fund like a venture fund, in terms of risk reward profile. We're taking pretty high risk, pretty concentrated bets in things that we have a high conviction in. But we recognize that the. Markets we play in, either are liquid or they will be liquid within a reasonable time horizon. Let's say 12, maybe 24 months. And that differs, obviously, from a venture fund, which is 7, 8, to 15 years. Much, much longer time horizon. Crypto, because you're liquid, if you think you're, over some period of time, it turns out investment thesis was not correct. Then you can typically pull your capital out and put it elsewhere. And so because of that fact, we believe we actually need less diversification to deliver the returns we want to deliver. So that's kind of one major difference between us and a lot of the other folks in the industry. I want to talk about one of the big positions that your fund took, which was in the EO splotchin. This has raised, it's been the most successful ICO of all time. It's raised something like $ 4 billion. Why are you so bullish on this project? We're really excited about EOS because it is making a different of trade offs than most of the other teams in this space. And those trade offs are going to allow EOS to deliver a much higher performance, and much lower latency, which will ultimately enable software developers to build much more capable applications. That's, I think that's going to Allow more people to get into Crypto, more people to use these things, and get the snowball rolling. At the same time there have been a number of security issues with EOS lately. They've had to shut down the blockchain basically a couple days after the main net launch, and they've had Chinese researchers find serious security holes inside of it. Has this deterred you at all? So I mean, we're committed investors. We're not gonna be dogmatic, but for now we're holding our position, we haven't sold any. the EOS launch did not go as smoothly as we were hoping it would. All things considered, actually it hasn't gone as badly as I think people say it does. Given on a relative basis, people seem to forget. But the theory, in its early days back in 2015 when the Blockchain launched, was it launched with no tooling, no infrastructure at all. You'd have to use the command line to interface with the thing launched. And it got hammered by distributed denial of service attacks through the first year at least. Through the first year, people were really trying to beat this thing into the ground. And the system was pretty challenging to use for quite some time. Eos was better than that. I concur that it wasn't as good as it should have been given the resources they had. So, they made some mistakes and slipped up but on a longterm time horizon, those are rounding errors. They don't really matter. They've been working through some weird governance things and some other challenges. Overall, it was to be expected there were gonna be bumps in the early days and there have been bumps. I think the bumps were a little larger than Many EOS supporters would've liked, us included but the corner investment pieces hasn't changed and you know we continue to talk to application developers building on EOS theorem and other blockchains and were seeing that desire and interest, From these teams to build on a block chain with just more performance. In terms of Ethereum. I mean, you own a significant amount of Ethereum itself, but you're also investing in some Ether competitors. When you look out into the market in the future, I mean, what are you most bullish on? Yeah, so we always make sure to look at things probabilistically. Today Ethereum is, without question, kind of the leading [ UNKNOWN ] contract platform. Most mind share, dev share, market cap, mining community, software infrastructure. On really all fronts Ethereum is the leader today. A lot of other really smart people have looked at the decisions that the Ethereum team has made in terms of designing the system. And they just have fundamentally different views about the tradeoffs they should make in designing their system. So you notice for example it's much more centralized in the thereon and that allows them to deliver performance. You look at Kadena for example, Kadena you're doing a proof of work system and not perfect stake and they have this kind of braided or threaded proof of work system that allows for a very new formal scalability. Teams like DFINITY, they've enabled this thing called threshold relay and probabilistic slot consensus. That allows for really high [ UNKNOWN ] so as we look at the space we see just this massive wave of experimentation happening. We make it really our priority to dive in deep with each of these teams, understand their world views, understand the trade offs that they want to make in their system. Why they believe their set of trade offs is the right one. And then relocating capital across a number of these, watching them grow, building relationships with those core engineers, and core protocol designers, and then also understanding how their ecosystems are developing. If you had to pick one though, token on the market today, which one do you think, you know, is the most likely to succeed? I mean, if you told me to pick only one token today and come back in ten years, I'd pick Ethereum. I think the only other real option, that is just final answer, is BitCoin. And it's cuz those two are the largest, the most well known for sure. And you're They're a long short fund, which means in addition to betting on the success of these various tokens you also bet against them or believe some are overvalued. Can you talk a little bit about that and how are you feeling about the market in general right now? Which coins are you shorting? We're definitely very long biased and it is our general bias is to be fully deployed or close to fully deployed. And that's where we wanna be. We are not fully deployed at the moment and we are not fully long right now. We have a few shorts open. That's largely a reflection of market cycle and then a few idiosyncratic views about certain assets. So right now we have, for example, shorts open on Ripple and Litecoin. Litecoin in my view has no reason to exist. It was for a fork of Bitcoin, it's just been sitting around. It's a harsh assessment. The only investment thesis that I've ever heard for Litecoin is it's a test net for Bitcoin, but that's not an investment thesis. And so it trades, it's got a 2, 3, 4 billion market cap, whatever the number is. But it doesn't really have a reason to exist. It's clearly more risky then BitCoin just kind of structurally in terms of brand and everything else. When we look at ripple, you know ripple is just, they keep selling into the markets and based on the FCC's guidance a couple weeks ago about ethereum not being a security. It's quite clear to us that ripple is a security. We don't know when that news is gonna drop, but the catalyst seem to have kind of gone away from Ripple and we have very high conviction that it is a security. And so as kind of the system plays out over time we think that short will deliver idiosyncratic returns So the security label is kind of a designation that kind of dooms these cryptocurency, think it's kind of a fatal designation. So, the challenge with being labelled security in the space, formerly, is that not a single crypto- exchange in the world today of a trade crypto is an SSC- registered exchange. If you go to the SSC's website and look at SSC- certified exchanges There's like 10 or 12 of them. It's NASDAQ and YCE, CFTC, excuse me, the CBOE. A bunch of them are pursuing financial regulations that'll allow them to do that. And some are brokered dealer licenses like Coinbase and some others. Right, so Coinbase has got an ATS now, they've got a broker dealer license. But they're still, that's a long way from being an SEC registered exchange. And that's a multiyear process, and that's well known to be a super, super difficult thing to do. And so, my point is is that if Ripple is labeled a security formally by the SSC, all of the cryptoexchanges are going to stop trading Ripple, because they are not SSC certified exchanges, SSC registered exchanges. And so if that happened, liquidity's going to dry up On XRP Enterprise, we will plummet. Well, we'll just have to see how the coins fall. We should have you back- Or not. To discuss how your bets go in the future, but thank you so much for coming on, Kyle. Guys, this was awesome. Super glad to be here. That's all we've got time for. I'm Robert Hackett. I'm Jen Viecher and for more Balancing the Ledger, come to fortune. com. See you next time. [ MUSIC ]

Kyle Samani, Managing Partner at Multicoin Capital, stops by Balancing The Ledger to share his investment theses.