Name: Balancing The Ledger: Polychain Capital's Olaf Carlson-Wee Isn't Discouraged by the Crypto-slump
Uploaded: 2018-07-13
Duration: 10 min 55 s
Description: In fact he’s downright excited by the state of the industry

[ MUSIC ] Welcome to Balancing The Ledger, where finance and tech intersect. I'm Jeff Roberts. And I'm Robert Hackett. And today we have Olaf Carlsen We, founder of Politen Capital. Welcome, Olaf. Yeah, guys, thanks for having me. We're gonna begin with the, some of the news out there. Let's start with Facebook. They've hired a new head of blockchain, what do you make of that? So I think it is really exciting that these kind of incumbant tech giants are getting into crypto currency technology. That said I think it is very hard for me to imagine a way that a centralised entity like Facebook could own a peer to peer crypto currency or block chain. In general that sort of centralised revenue extraction is Incompatible with peer- to- peer networks. Do you think that Facebook might be prepared to kind of really rejigger, restructure its operations? You've got David Marcus there who's on the board of Coinbase, a company you were long affiliated with. And he's leading the block chain efforts there. Yeah I do think they have a shot. I mean the way I think about this is for example with the advent of file- sharing With Napster and peer- to- peer file sharing like the torrent protocol, a lot of that kind of media distribution industry was sort of steamrolled, but you did see really successful businesses arise later, like, for example, the iTunes store or Spotify. So I do think these types of business models are absolutely possible in a post Blockchain world, but I do think they have to change what they were doing, what they're doing today. Let's turn to another item in the news this week that was sort of interesting. There's a study out there that says. Apparently half of ICOs dies after four months. You probably caught that. What did you make of those study. Yeah. So actually as someone who has been in this base for a long time. It's not that surpriising. There's a lot of white noise. And a lot of nonsense happening in the cryptic currency space on any given day. Now that said, I do think it's important for people to reframe their minds in a world where you can permissionlessly fundraise on the internet from anybody else in the world. So to me, it just means that it's a really different landscape. And I think it's very exciting that We can see that kind of efficient capital coordination, but it's also important that people kind of reframe their mind to understand that when anyone can fundraise on the internet using a smart contract on a blockchain, it just really changes the investing landscape. You were early to investing in ICOs. You started Polychain Capital which is one of the most prominent hedge funds in the crypto space. How do you go about separating signal from noise in this industry? So having been in this for a long time, it's usually pretty easy to spot things that are outright sorta fraudulent or just have no real basis. I think the trickier thing is that among the kinda Top, you know, 5 % or even top 1 % of projects out there determining which architextures could be the best suited for new use cases. So a lot of what we think about is what really can be enabled in novel manner through this technology. So what are the novel, new behaviors that a technology might enable? And for anyone less familiar with Polychain, can you give a quick rundown of what the fund is all about and how you pick your investments? Yeah, so to my knowledge, we're the world's largest cryptocurrency investment firm. In general, we are investing exclusively in what we view as novel technologies with a very, very long hold period. So we're very very long term and we also invest in extremely early stage. So we're often the first money a project may receive. At the same time we're seeing the markets are getting crushed right now in the cryptocurrency world. Prices are down, they were up over the winter but noe it's kind of in the toilet a little bit. Are you shaken or rattled at all by this? Not at all. Having been in this fulltime since 2011 You know, I think it's hard to communicate how much growth we've seen since then and the pace that this entire industry has been created literally from nothing, is, is absolutely remarkable, So, what I pay attention to is not the month to month market price of these assets, but rather the, sort of, developer momentum around building novel applications. And today, what we're seeing is an absolute exodus from many of these major tech giants. Like Facebook, Google, LinkedIn, Snapchat of really high quality talent now starting cryptocurrency startups. And so to me, actually, there's more kinda wind behind the sails so to speak on the development front than there ever has been. So By my litmus test, I actually think we're kind of doing better than the industry ever has. But of course, I think that most passive participants who are maybe speculators care more about the month to month market price. So you're saying the best metric force for the health of the crypto ecosystem isn't so much price on a given day. It's the enthusiasm of devs coming to projects. Yeah, and I mean it's quantitatively as well just how many projects are being built. And you can quantitfy in all sorts of ways, through GitHub repositories and forks of Major cryptocurrency projects and things like that. And what you were saying about the tech giants losing people to crypto, is that just sort of from your encounters in San Francisco? Yeah, that's anecdotal. I do think there are a huge number of people Leaving those tech giants with their kind of friends or colleagues at those companies to launch novel cryptocurrency startups. That is anecdotal, but I do think it's happening in a way it's never happened before. Can you name any significant names or examples you think of kinda Hot shot developers who've left one of these places? Well, I don't know if it's hot shot developers. Often times, the best builders here are sort of what I might call outsiders. The entire cryptocurrency space was not built by the strategy team at a bank, right. [ LAUGH ] This was built by people who seemingly were deeply underqualified to do what they were doing. Ethereum was created by Vitalik Buterin when he was 19. He didn't exactly have a Ph. D. in cryptocurrency or something like that. Should probably have an honorary one at this point. Yeah, I wonder which university is gonna start giving out the first Ph. D. in cryptocurrency. Let's talk a little bit about your particular bets. One of your biggest and earliest ones was on Tezos. And that has gone through a whole lot of controversy over the past year or two that it's been around. Give us an update on that. You recently joined the board, what's going on over there. Yeah, so I'm very pleased to say that the network has launched. So the peer- to- peer network is running and that to me is by far the most important thing, And actually how far [ UNKNOWN ] the achievements of many cryptocurrency projects in this ecosystem. However, they did encounter a massive what I would call offline debacle, which is in the governance of the non- profit foundation that's sort of like The Wikimedia Foundation or the Linux Foundation, which is sort of promoting the development and use of the Tezos protocol. So that has pretty much been entirely fixed at this point and what I care about a lot more is the on- chain governance and voting procedures. That are now enabled by the Tezos blockchain. So I think it's actually somewhat ironic that this on chain governance technology really saw these terrible off chain governance problems. What if magazine actually gave their cover to that certain drama or debacle. But the upshot of the story seemed to be it's now okay. Did you agree with the thesis of the story? Yeah, I think that all of the issues with the board were mostly Caused by just a couple individuals that had some big disagreements. So the board has been entirely replaced now. A hard fork. [ LAUGH ] Yeah, exactly. There was an off chain, pre- launch hard fork basically. Another one of your bets is Polkadot, which is building interoperability between blockchains, as I understand it. Maybe you can give us a little bit more detail on that project as well. Yeah absolutely. So the long term vision with Polkadot is actually full blockchain interoperability, and what that means is that A smart contract on one blockchain could actually reference data on another blockchain. So, for example today a netherium contract cannot trigger based on the balance of a bitcoin address. In a post Polkadot world, you will have that level of interoperability across many, many different blockchains. So to me we are betting on a future where there are lots of different protocol architectures here that are useful for specific types of applications. And so it's really important that these blockchains will have interoperability. So Polkadot is being built by Gavin Wood and his team. I think it's just one of the most technologically ambitious projects out there today. It's also one that has the most promise, I would say. Do you think it's realistic this will take off though? Cuz won't the block chain incumbents, I know it's early enough, we don't have a clear winner to try to serve, or is it in their interest to encourage interoperability? So I think this is very similar to what people told me about ethereum in 2015. Isn't BitCoin so big there's no way that theorem could grow? To me it's almost similar to large incumbant companies. Even if they have a lot of capital a lot of resources and established network effects, start ups do work. Not always, but sometimes. And so to me if what you're building is technologically differentiated enough. It's often possible to move faster than it is for this incumbent technology to actually change, say, its consensus mechanism. Which is almost like a spinal transplant. What's the most exciting thing we're gonna see a year from now, where the average kind of crypto- enthusiast is gonna get to discover a year from now? Yeah, so I think as more and more things get built on this kind of Web 3 blockchain- based stack of technologies You're gonna see more and more exciting interoperability across applications. So what we're seeing today, for example, are non- fungible tokens in the Ethereum system, being referenced by developers of other applications. To give you a pragmatic example If you have for example a sword, or a piece of armour, or an avatar in a game that's represents by non fuctionable token, any developer in the entire world can write a separate game that interacts with your sword, and avatar, and armour. And so the you get this really odd kind of counter intuitive emergence Properties like the idea that a sword could be transferable across various games. And today as a gamer that's really odd but also extremely exciting because you could actually own the assets that you earn through game play. Well fascinating stuff thanks so much for joining. Yeah thanks guys for having me. I'm Jeff Roberts. I'm Robert Hackett. Come to fortune dot com for more balancing the ledger. See you next time. [ MUSIC ]

In fact he’s downright excited by the state of the industry