Today on the podcast, I sat down with Avichal Garg and Curtis Spencer of Electric Capital. Electric is a venture fund that recently raised a $110 million fund two from some high-profile institutional investors. I wanted to have Avichal and Curtis on because I think they're two of the most thoughtful people in the space and they really know how to articulate some of the big ideas and opportunities that startup teams are tackling right now. In this episode, we discussed a range of topics including their experience raising a big institutional fund in this climate. We talked about how they think about developer communities and the future of layer one protocols and we also talked a bit about the future of decentralized finance and there was a whole lot more in addition to that. So I had a great time with this one. I could have gone on for another hour. So without further ado, here's my conversation with Avichal Garg and Curtis Spencer of Electric Capital.
Guys, thanks so much for joining the podcast today.
Our pleasure. Thanks for having us.
So, so much to talk about here, but would love for maybe if we just start off with a quick background. Could you guys each give your quick history and then would love to hear kind of how you decided to start Electric Capital together?
I'll give a background on how Avichal and I met. So, we were in the same dorm in college and became pretty good friends. Going back, it was an interesting time. It was right after the dot-com crash. So in many ways similar to 2014 or 2018 in crypto where there was a hangover from the market crash but still a pretty positive general energy like around campus about something fundamental happening with the internet and the worldwide web. So we both started companies and then we started our second company together that we sold to Facebook. So been working together more or less for at least 10 years. Me personally, I have a distributed systems background and was early with both like SETI at home and folding at home which were these large-scale distributed systems before Bitcoin. So I encountered Bitcoin relatively early because the white paper proliferated through these similar circles and people were like, whoa, like someone figured out incentives for these like distributed computational networks. At the time, Avichal and I shared an office with two other startups while we were doing our company. And we had some like fun debates about like whether Bitcoin would work and few of us were like running Bitcoin nodes under our desks on our Linux machines, but we were like this is never going to work. And so we tabled it and it sort of became this background thread. We check in on it periodically. And I think a lot of the technical people that come to Bitcoin because it's like a technical curiosity, it takes a lot longer for some of the macro hedge and the sound money ideology to seep in. And slowly over time it did. And I think that's what's really interesting with crypto is it's like the mix of community plus technical innovation and this like broader religion around sound money. And that's why I think a lot of like the technical people miss that. You have to sit with it for quite a while.
My background, as Curtis mentioned, we went to undergrad and grad school together. Did our second startup together and then I also have an engineering background, but have spent most of my career kind of on the product side as a product manager or product leader. And then as Curtis mentioned, we sort of came at it from the distributed systems perspective. And Bitcoin was in many ways the gateway drug for us that opened up crypto more generally. And so kind of the story of how Electric Capital happened, I left Facebook at the end of 2016 and I'd been a pretty active angel investor in a number of companies outside of crypto and kind of in crypto. And so we were investors kind of in that vintage of crypto companies, companies like dYdX and Anchorage and Bitwise and Lightning Labs kind of of that 16-17 vintage. And a lot of the VCs here in Silicon Valley were reaching out to us and saying, 'Hey, I remember you guys telling me about Bitcoin like five or six years ago. Is it real this time? Should I be paying attention? Should I buy some Bitcoin?' This is early 2017. And then they started asking about ICOs. And so we were doing a lot of sort of information sessions with people that we'd worked with, we've co-invested with or people that had invested in our companies or that we'd worked with over the years. And kind of by the end of 2017, a lot of the existing VC firms here in Silicon Valley realized they're not really set up to do crypto. Partly structurally, like how do you do custody or how do you think about compliance or operations or SEC registration? There's just some complexity there. But also, it's just a different beast in a lot of ways like the way that you invest or you kind of don't want to own 40% of a network. You want to own 5% of a network. And so kind of the structurally the way that you invest in the space is different. And so a few of them came to us and said, 'Hey, we're not really set up to do crypto. Our firms are not set up to do crypto, but we trust you guys. Would you consider taking money from us and just do what you're doing with your personal money, just keep doing it and we'll give you money.' And that's how Electric happened. So in Q1 2018, about two and a half years ago, we formalized a lot of what we were doing personally in the space into Electric Capital and kicked off our first fund. And then as you know, we just closed our second fund. Maybe that's a good segue kind of into our high level thesis which from the very beginning we published a paper I want to say it was 2017. We wrote it in 2017. We may not have published till 2018 but it was the thesis behind Electric Capital which we call programmable money at the time. And our basic belief was what we've really done with something like Bitcoin is invented a new form of digital money. And of course the one of the unique properties of it is that you can write code around it. You can have computers natively taking custody of money for the first time and that opens up a whole new set of actions and behaviors that were previously not possible. So a human paying a computer, a computer paying another computer and to us that was kind of the critical unlock in many ways is so different from what you can do on the internet and we can dig into that but to us that's disruption. And so from the very beginning, that's kind of been our core thesis is things that involve money and moving money and computers and humans and computers and computers interacting around money are really going to be the sort of killer apps of this space. And so that's where we've been investing for the last two and a half years.
That's great. Appreciate that background. And you've hit on a couple things that I think are really important in this segment. If you look at this through the lens of venture capital, certainly the specialization approach has really paid off and I think a lot of folks have talked about why this is a difficult asset class and difficult category to just do on a kind of a part-time basis. It's difficult to be 10% of your time in this category. How do you guys think about it in terms of what are the most interesting opportunities whether that be protocols versus companies? And you must get asked that question a lot in terms of how much time do you spend looking at the protocols versus spending at the company level.
The sort of high level answer or at least the way we think about it is we'll know in five years if we were right or not. But at a high level the way we think about it is the line between company and protocol is kind of a blurry one. And so you can't really easily say should you look at companies or should you look at protocols. And so what we do is we think about things that we think probably need to exist in the world and then keep a very very open mind about really smart people coming to us and just having conversations about what they think is interesting. And so it's sort of half here's what we think this technology might be good for and some intuition around that. And so we can poke around with things like when we maybe a month ago or so we published 15 or so ideas that we thought needed to exist. And so for example, invoice factoring is a very large market and we think crypto infrastructure might be a really good fit for something like that. And so there are areas where we say there might be something here and will that be a company or will that be a protocol or will that be somewhere in the middle something we call community-owned networks that look kind of like companies and look kind of like networks is sort of TBD depending on how you actually decide to solve that problem. But I would say probably half of what we end up spending time on is somebody really smart, a founder or an engineer comes to us and says, 'Hey, I've been tinkering with this thing. What do you think?' I think as investors, if you look back at the history of technology, a lot of the stuff that ends up being the really the big stuff on a platform, the big outlier sorts of things like an Uber or a Facebook, when you look at it, it's often you can't predict those things in a lot of ways. And so what you kind of have to do is rely on really really smart people who figured out something about the world that nobody would have thought of and have them come to you and then sort of keep an open mind about it. And so probably about half our time is spent just trying to talk to people and see what they come up with. And a lot of it is very counterintuitive. And a lot of it is which is what one of the most fun things about crypto I think is you can't really tell if it's terrible idea or a good idea at first glance. It's a very thin line sometimes. To Curtis's point earlier, I think you have to kind of sit with some of these things for a little bit and get your head around like is that a terrible idea or is that a brilliant idea, which I think makes this space a lot of fun.
Yeah, it's so true. I mean, even the idea of just Bitcoin, if someone had pitched that to you before it existed, it would have been hard to imagine it working.
Yeah, totally. Well, and actually, I mean, just look at the protocols that have the largest market caps. And actually, many of them were not venture-backed. They were actually in effect community funded because through the traditional venture lens and I think a lot of the crypto VCs take a different perspective obviously but through the traditional venture lens some of these things were unfundable like they just didn't pattern match to the kinds of things that you could actually invest in.
It's a great point. I mean really everyone missed Ethereum, everyone kind of missed Bitcoin if you look at it through the lens of just traditional venture funds. So it's a really good point.
Yeah. And you sort of go back in time and look at what was funded. It was things like Coinbase and Chainalysis because it was just simple. It was like, hey, this is an equity business. We can look at it through our traditional lens. And I think to Avichal's point earlier, it's like you really need to be flexible as a crypto focused VC, especially now. It's like things are changing underneath us every day with fair launches and DeFi exchanges adding tokens. There's just like a lot of schemes that are still being built today.
Yeah, that's a really great point. And so you guys have gone through this process. You're coming off raising a hundred million plus fund two here, which is definitely no small feat. And if I just think back to the times that I've been in this space, it kind of started off with traditional funds doing a deal or two here or there. I think the Andreessen dedicated fund was a big moment. Obviously, crypto hedge funds kind of had their moment, but this is a exceedingly rare kind of thing to see as a hundred million plus fund with big institutions behind it. So, I'd love to just hear your perspectives on what that process was like because I think you're kind of blazing a trail here that not a lot of funds have been on.
First off, I think we're very fortunate that we get to follow some folks like Andreessen, Polychain, Paradigm, like people who have raised larger funds than us even. And I think in particular with Andreessen, the floodgates opened. I think when Chris and Katie went out there with a platform like a16z where they have an amazing track record in terms of the crypto investments that they made, but also just generally as a VC firm that institutional LPs trust and has done right by that community. This was 2019. I think it made a lot of institutional LPs kind of sit up and say, 'Wait a second, somebody like Chris Dixon or Katie Haun is putting their career on the line for something like this. We should really pay attention.' And if somebody like Marc Andreessen and Ben Horowitz is saying yes, we're willing to stand up a dedicated fund for this like we should really pay attention and I think that was actually a really important moment from the VC's perspective because that sort of made it okay like you open the floodgates with going out. So I think in a lot of ways we benefited from that. And so for us the conversation was a lot easier than it would have been in say 2018 when we were doing our first fund because as soon as somebody let's say you're an institutional LP you run some large endowment or some large nonprofit the conversation is really different when one of your peers has already invested in Paradigm or has invested in Andreessen. So in many ways I think our job was made much easier by that. I think the other thing that happened was 2017 really created this moment where a lot of people started to pay attention and they started to say maybe this thing is real and then to Curtis's earlier point people got to sit with it for a year or 18 months and try to get their heads around like was it a fad was it tulips or was it actually something real and sort of being forced to have to spend some time with it and think about that and really mull that question over a lot of people came to realize actually this is not tulips there's real technology here and the caliber and number of people that are going into it is very very high. And when you have Turing award winning professors and you have MacArthur fellows leaving tenure positions to start projects and you have the inflow of engineers that you do in Silicon Valley into the space, you know, you have to sort of pay attention to that. And so I think being able to sit with it for a little bit, a lot of the institutions, their job is to deploy capital and be ahead of these things, but the opportunity to sit with it for a year made that a lot easier. So I think there's sort of this combination of things between the market and some people who had sort of the ability to move the market a little bit being able to do that that made our jobs a lot easier and then a lot of what we had to do which is not easy as you know is convince the institutional LPs that we knew what we were doing and we were fortunate actually it wasn't by design but I think one of the things that worked in our favor was that so many of our earliest investors into Electric in our first fund were the VCs themselves and so when you're talking about institutional investors that invest in VC firms, the background reference checks became very easy because they would call the people that they already invest with outside of crypto and say, 'Hey, do these guys know what they're doing?' And of course, those people would say yes. And so that I think wasn't by design, but it sort of worked in our favor that all of our earliest LPs into the first fund were people who are deeply connected into this institutional investor community. And so it sort of worked in our favor for the second fund.
That makes sense. One thing that was actually really refreshing compared to like raising in 2018 versus 2019 is just the amount of work that the institutional LPs are putting into it. I remember conversations the first question would be like isn't this the tulip bulbs or doesn't Bitcoin get hacked all the time? Those are the types of questions we would receive. And then in 2019 it got to the point where like oh like what Ethereum scalability solution holds water or how do you build a moat around smart contracts? Like these are the type of questions we were getting and so that was really refreshing to see that panelists on these larger institutional teams of 20 to 30 people were really putting in the work and I think that just made the conversations a lot easier.
Another thing that I've kind of noticed that really maybe brought down the career risk was that Cambridge Associates report that Marcos Veremis and his team wrote a couple years ago.
Absolutely. That was something I don't know if you guys would have seen this, but I think that really moved the needle with a bunch of allocators and probably took the career risk down in a similar way that that first Andreessen fund took the career risk down and the Paradigm fund.
That paper that Marcos put out was fantastic and we hear LPs mention it all the time. So I think the reach of that really helped out the crypto fund space in general.
Yeah. And one of the things that we have always kind of talked about from an institutional perspective and I've applied this even to institutions looking at holding underlying crypto assets directly is you know you hear a lot of talk about hey the infrastructure needs to get built and then the institutions can come. Now the other thing that people don't talk about maybe as much is just what is the thesis for why this is interesting and sort of what bucket do you put it in and so I'm curious with the institutions that you're going out and speaking to you're obviously talking to endowments and big foundations, big family offices. Is there an overarching thesis for why they actually care about blockchain and crypto? Is it digital gold? Is it kind of smart contracts, data self-sovereignty? Is it everything? Where do you see the most interest just from a thesis perspective?
Yeah, it's kind of all of the above and it depends a lot on kind of the backgrounds of the investors. Generally speaking, the bucket that the institutional LPs are placing this into by and large is the venture bucket. They look at it as having a return profile of venture investment. It's very asymmetric. You can get 100x on some of these investments and short of if you're not doing anything too silly, you can't really blow up. You'll lose your investment money. And so they think of it as a venture investment. In terms of the narratives that resonate, it varies pretty dramatically. I think it depends a lot on the backgrounds of the people involved. It depends a lot on the background of the CIO at these institutions. And so we found generally speaking there are two camps. There's sort of this top-down macro camp. People who think about this as a potentially new form of money, a macro hedge, is this digital gold and sort of an ecosystem around that. And that's kind of the starting point. And then there's another camp which is much more bottoms up. And these are people that tend to think that if you follow where the engineers go, it's sort of that I think it's a Chris Dixon saying is what the engineers are doing on the weekends for a hobby or what you'll do for a job in 10 years. And I think there are a lot of LPs, institutional LPs that sort of subscribe to that sort of mentality of if there is really really great technical talent flowing in a particular direction, you probably just want exposure to that and then be smart about sizing into it. So don't have too much exposure and be too early and sort of time diversify as much as sector diversify. So for some institutional LPs, this bottoms up perspective really resonates. And the reality is both are true. There's definitely something to this idea of this being non-sovereign money and non-sovereign store value and appearing at least for the last decade to be uncorrelated and we'll see if that continues for the next decade. And there's absolutely something to the fact that thousands of engineers are coming into the space and there's real innovation happening all over the world and there is a new technology stack here and a new platform that is about building software in a fundamentally different way and every time we've seen that whether it was mobile or the internet or PCs or mainframes like every time we see a platform emerge like that that just has unique properties you throw enough engineers at it and you just get this new ecosystem that emerges that can be massive and so I think both are true and then which message resonates sort of depends on the DNA of the organization.
That's such a good point around following the talent and the thousands of developers that are moving into the space and I've been a big fan of what you guys have been putting out over the years on developer reports and kind of market maps. So maybe let's talk a little bit about that and why did you start tracking developer activity? Why did you think it was important and kind of what's the thought process there?
Thanks for the kind words on that. High level, we break the crypto ecosystem down into a lot of constituents, a lot of players. You have miners, you have traders, you have regulators and developers. And then you have like this broader user category. And I think that's the metric that everyone wants to drive up is this like broad user adoption. And there probably more groups like maybe you could put like lawyers in there as well, but I think those like first four really inform the growth of the user group. And so when we're looking at stuff to track, when you take miners for instance, you need to achieve this threshold of security, but after that, like an additional terahash of hash rate doesn't really meaningfully drive user adoption. And for traders, outside of driving price action into headlines and creating liquid markets, I don't think they move the needle on user growth as well. So really only regulators and developers are the people out there like really building foundations for the next like quantum of user growth. And the regulators that's a black box we can track kind of sentiment maybe amongst regulators but we don't really know exactly what they're going to do. But with developers it's something open. We can look at GitHub. We can look at GitLab. We can see what developers are building which platforms that they're putting energy on. And each of those like pieces of work is additive. It creates like this durable foundation that more things can be built upon. And the last three years since 2017, you saw a huge influx of developers. And some of them churned, some of them went away. But there was this kind of ground swell of continued development. And we think by looking at that we can start to pattern match to other like broader open-source communities and see like which are the things that are going to have a lasting network effect.
Yeah, that's super interesting to me. And I'd be curious what kind of metrics you think are most important as you're looking at these developer ecosystems because it's not obvious what specifically stands out as a metric that would tell you that a certain ecosystem is growing. I mean I guess just the total developers would be interesting but I guess you could also think about well what's the quality of the code so how do you guys think about that?
For us we are building out this infrastructure over time as well and so in our first dev report we started with commits and like developer counts which is a bit of a blunt hammer but it did inform sort of what networks have activity and what don't and then in the second edition we started to like peel back layers of the onion a bit and focus on understanding the type of developer. So whether they were like a full-time, part-time, or a one-time. And I think that gave us a bit of a better understanding of like which platforms have people that are just putting in their life's work on this thing versus coming in and making a config change. And then in the next edition, I think we just want to continue to go deeper focusing on code quality or for instance like how valuable is a particular commit like a commit to Bitcoin core that has 30 comments on the BIP around it is much more valuable than a one-line change to a readme file in another repository. And so trying to quantify that is kind of what's going to be going into the next developer report. And so building out that infrastructure has been a challenge. It's something that the team spends a lot of time on.
That's interesting. So if you look at Ethereum, I'd say most people in this industry would probably say that Ethereum has the strongest sort of developer mind share and activity right now of any base layer platform. I'm curious if you'd agree with that comment and maybe outside of Ethereum if there are other communities that you have an eye on that have strong developer mind share that maybe people aren't talking about as much.
I think Ethereum out in the open definitely has the most developer mind share at the moment. I think Bitcoin also has a ton of mind share and there's also a lot happening in I would say it's like the closed source world of Bitcoin. There's a ton of development happening in CeFi that really is not out there in the GitHub discourse. I think we see a lot of broad ecosystems that aren't any like one particular like tied to one token. So one example would be zero knowledge cryptography. There's a lot of platforms building libraries here that anyone can use. So things like snarkjs or a lot of the work that Zcash puts out is actually used across a lot of zero knowledge proof systems. So we track stuff like that. There's like peer-to-peer networking stacks like libp2p that's used across a ton of the networks. So that's like one sector where there's a ton of developer activity. The other is I think just a lot of high quality layer ones that are coming out. So you have projects like Cosmos, Polkadot, Near, Celo. They're all kind of building their developer ecosystems out and they're all targeting kind of how do we like scale this next phase whether it's going to be app chains or sharded systems or like in the case of Solana very specialized verticalized systems with like really beefy hardware. It's still unclear like which is gonna win out, but I think we need all the experiments happening. And then like lastly, I mean to your point Matt about Ethereum, I think everyone realizes that they have to play in Ethereum and Bitcoin's world. And so we're seeing a lot of activity really around building bridges. Like how do you get Ethereum or ERC20 assets to come in to new platforms or how do you get assets and these new platforms to come into DeFi happening on Ethereum and similarly like Bitcoin to Ethereum like that bridge. There's a ton of activity there as well.
It's a great point on a couple different levels. One that I really agree with is just the activity around centralized infrastructure buildouts to support Bitcoin and probably to a lesser extent Ethereum. I think there's just a ton of activity going on in big enterprises around wallet infrastructure and key management and things like that that unfortunately you just can't really measure that by looking at GitHub. So we don't really know how big that is but I think anecdotally it's pretty big.
Absolutely. There's a ton of engineers over at BitMEX working on Bitcoin related code.
Exactly. Now the other thing you said that I want to kind of dig into a little bit more is just other layer ones. So I remember when I was at Fidelity, we had Vitalik come in. This was maybe early 2017, late 2016 to do a talk, just like a bits and blocks club type of a talk. And that was when he was really going around and just evangelizing. And I remember asking him what his schedule was like. And I think he had been on a plane for like 25 out of the last 28 days or something crazy. And that's really in my mind one of the things that built up a robust ecosystem there is that he was just out there evangelizing, going to meetups. And I guess that's one way to do it. I'm curious your perspective on what it takes to build that developer ecosystem. Do you need to be evangelical like Vitalik was or are there other ways to get that community build out?
I think it's tough. Like I talked to Vitalik at a conference once and I asked him kind of where he calls home and he says I'm a superposition. He's just like living everywhere. [laughter] It's a tough nut to crack. I think developer conferences and hackathons were definitely a great way to grow adoption, but I think a lot of folks in crypto really experienced a conference burnout and this environment now I think the in-person developer evangelism is really diminished. I think when we look at other layer ones, a lot of them take the like we build it and they will come mentality. And I think that works to some extent, but I think the savvier ones are operating more like private equity firms where they're putting their grant capital to work and really helping developers and entrepreneurs with capital formation and how to build like a lasting business on their platform. And hackathons can create some of that, but they don't tend to be as lasting as helping someone raise capital. I think that's what we're seeing across the really strong layer ones right now.
Just to jump in for a second, I would add sort of I think there's kind of two phases almost to these communities. Phase one is how do you just bootstrap the community? And I think at that phase, there really is no substitute for just hard work and one-on-one and it's just hand-to-hand combat. And I think Vitalik was in that zone a few years ago. And then once you've kind of got the kernel of your community going and you have a few true believers and a lot of that is emotional and psychological more than rational maybe they think in 2016-2017 ETH era was that they thought Vitalik was really impressive. They believe the vision the world computer like whatever DeFi whatever narrative was resonating and that opens the floodgates and then those people start to build and some of those things start to stick and once they start to stick if they can make a little bit of money other developers will start to see that and say oh there's actually there's a way for me to make a living here and that's interesting and so then the next tranche of developers who say well I don't need to make that much money I just need a little bit maybe it's supplemental maybe it's a side gig maybe it's a hobby but now I can come in and sort of play with this and so they're a little bit lower sort of on that like true believer spectrum, a little bit more rational and then they start to make things work and then the next tranche developers who are even more rational but a little bit less true believer sort of come in and sort of that's how these platforms get built and eventually the platform can only really scale if it's rational. If people can actually make money on it, if a developer can come in and make money on it, it can work. And so you saw really similar things with early internet, you saw early mobile work this way as well. And I think Ethereum is now hitting this point where you can definitely make money on it, but if the gas fees stay as high as they are and the barriers to entry for developers are as high as they are, can it really break out? Can it really go to the mainstream developer who just wants to come in and can it compete with the app stores? Can it compete with Apple, for example? And I think that's an open question. And so for all the other layer ones, I think they're still where Ethereum was in 16-17, which is just hand-to-hand combat. And so techniques like what Curtis is mentioning, using your foundation capital or your treasury to support those people and bootstrap them into the zone where the business models make sense is where most of these other people are right now. I would argue that so many more developers know about these ecosystems now. And the fact that you can actually launch something on Ethereum and you look at something like YFI or Sushi, the scale that you can get to in such a short period of time is compelling for developers, especially because you can't do that in many other places in technology today. And so I would not be surprised if one of these other layer ones is able to bootstrap a network and get into the later stages of community development around can you actually build a business here and something sustaining for developers much much more quickly. You might argue it took Ethereum let's say four years to get there. And I don't think it's crazy to imagine that the next set of layer ones might be able to bootstrap their way there in two years instead of four years just given how much more scale we're dealing with today.
Yeah, that makes a ton of sense. And certainly some of this infrastructure that's been built out is extensible to these other layer ones. So, you could definitely see that. You brought up the fee pressure. I was looking this morning. I think fees are at an all-time high on Ethereum right now. I even saw someone talking about just some of the fees that exchanges are incurring to add new Ethereum addresses just to onboard new users and it's adding to their customer acquisition costs. I mean, what do you see happening here just in terms of the fee market on Ethereum? Is this something that is going to really benefit some of the competitive layer ones, do you think?
I think absolutely because I think it's forced the question to be answered essentially because especially if you're an exchange or one of these smart contract wallets for instance that's paying gas fees in the name of user acquisition it's starting to look more appealing to take a bet on one of these layer 2s like you saw dYdX's announcement of working with StarkWare I think they really feel the pain right now and they need to move to something quickly and I hope it also forces the question on exchanges it makes a ton of sense for exchanges to dive into the layer 2s because a lot of what they're doing is simply transfers and so they shouldn't be paying a ton of gas to do transfers for people that are doing deposits and withdrawals. I'm hoping it causes kind of a golden age of layer 2 in the next 6 to 9 months.
Yeah, it needs to happen soon for sure.
One thing I would add, there's some like second order effects here that I think are really interesting as well. So one obviously is that the gas sort of forced this question of how do you scale Ethereum itself and there are lots of techniques to doing that. I think it opens up a question of well is actually the near-term solution maybe it's something like what dYdX is doing with StarkWare but in some sense maybe it's DeFi or exchanges in some sense just like a layer two on top of Ethereum and these centralized bodies that can custody assets and have no gas fees might end up being a short-term solution. It opens up the question of other layer ones as we were discussing and I think this is the angle that a lot of the other layer ones are taking is Ethereum isn't scaling and ETH1 is not scaling and you might consider ETH2 is hopefully going to happen in the next 6 to 12 months in some meaningful way but it's effectively a layer one competitor to ETH1 and so there are all these layer 1 competitors and then it also creates I think this psychology or this game theory with developers which is this has been a looming challenge for some time we saw similar issues in 2017 and they're still not resolved. And so putting on my developer hat, if I were the developer of one of these protocols that is hitting scale on Ethereum, what I would be thinking is, well, how do I solve my own problem? Like, how do I risk mitigate here? And what you saw the CryptoKitties team do is they essentially built their own layer one. They just said, we need something that's customized for our use case.
case. We're just going to go build our own layer 1, which is certainly something that I could imagine some of these DeFi chains wanting to do is just say, we're going to fork it off. We're going to go solve our own problem and make something killer that just works for us. And I could also imagine hedging. And so if I'm one of the killer apps on Ethereum right now, if I'm in DeFi, I'm absolutely looking at ways to bridge into these other chains just as a hedge just in case like maybe Ethereum can't solve this in any short period of time. And if that ends up being the rate limiter on my protocol success or my business's success, not at all crazy to say maybe I should be on a couple of chains. Maybe I should be in a couple of different ecosystems just as a hedge just in case somebody else solves this first. And so I think you're actually going to see a bunch of the killer apps built on top of Ethereum actually building variants of what they're doing for other chains and trying to bridge these two universes and purely rationally. I actually don't think most people here are operating philosophically because I think there's just so much value to be created that as a developer it's just a rational thing to do is to say well if this doesn't work I need to be on at least one other platform that might allow me to scale. And so I think you're going to see sort of a rush of people moving to these other platforms as a secondary backup option.
I think that makes a ton of sense. And if you think about how the internet was built, it wasn't that we were just stacking single approaches to scaling on top of each other. These things really tended to evolve, at least in the internet protocol suites, with a lot of different solutions kind of cobbled together and it surfaces as a delightful user experience through a browser to most people, but there's actually a lot of protocols underneath the hood there. So maybe this ends up being pretty similar.
