So today we're going to talk a little bit about token investing and all its various forms and get some different opinions on it. Perhaps maybe everyone agrees, but I guess we'll find out. So to start things off, perhaps we'll jump into just a very brief introduction from everyone, and I think the more interesting part of that will be to talk a little bit about your experience with token investing so far.
Great. Hi everyone, Meltem Demirors. I work at a company called Digital Currency Group. We invest in, build, buy, support Bitcoin and blockchain technology companies. We've invested in over 100 companies, I think the official count is at 107 across 28 different countries. So we began investing in 2013 when it was still all about Bitcoin. Over the last five years, we've seen the ecosystem really evolve, and the trend of tokens, I think, is something that's not new. We invested in Ripple in 2013, arguably one of the first token launches after Bitcoin. We invested in Zcash, the company as well as the token. And now with the trend of ICOs really starting to proliferate and more and more platforms bootstrapping with tokens and not just traditional equity investments, we're starting to also delve into the ICO and token space. But I'm interested to sort of have a lively discussion today about what makes a token valuable, what constitutes utility. I spend a lot of my time personally focused on infrastructure surrounding tokens. One of my fundamental beliefs is that tokens are worthless unless there's sufficient infrastructure to make them useful. And so I think this is one area where we haven't seen as much development because the incentive structure today is really aligned more around launching tokens, not building infrastructure for tokens. So I'd love to explore with our panelists how that may evolve.
Hi, my name is Gary Tan. I was one of the first investors in Coinbase with Brian Armstrong, worked with him as a partner at Y Combinator back in the day. I was also one of the first investors personally with Olaf at Polychain and ended up putting our fund into it as well. I started off as a founder, became a partner at Y Combinator for five years, worked with Blockstack, awesome company, and then kind of branched off and became a traditional venture investor. So investing out of a $125 million micro VC fund today. And I have to admit, we're still learning about token sales and want to learn a lot from this panel and from this audience as well. So, you know, wearing my old school Silicon Valley VC hat.
Then hi, I'm Naval, founder of AngelList, now building CoinList on top of that. 2013 I got into blockchains and Bitcoin specifically. Had a thesis that there were going to be more tokens in the future, wrote a little bit about it. Really passed up the opportunity to invest in a lot of great companies in the space just because I felt like I was more interested in the protocols and the token layer that was forming. So I only invested in companies that would later release tokens. So I ended up being the first investor in Zerocoin Electric Company, which became Zcash, and on the board of the Zcash Foundation. Also invested very early in Blockstack and Protocol Labs, which created Filecoin. Got a couple of others like that, some of them still sort of in development. Also co-founded a fund called MetaStable, which is a cryptocurrency hedge fund that's been around since 2014 with a mission of investing in long-term protocol tokens other than Bitcoin, which is obviously a great one, we also do that now as well. I don't think anybody in this room really understands tokens fully. I think this is one of those cases where humans have created something that's larger than themselves. We've done it before, we did it with the internet, we did it with market economies, we did it with nation states, and now we're all going to sit around as blind men and women trying to figure out what the elephant looks like. Which is fine. I mean, you can get a thousand macroeconomists in a room and you get a thousand different opinions on how economies work and how economics works. And I think so we are in the process together of trying to figure out what it is that we've created, what value it's going to have. And like George Gilder would say, and by the way, the fact that you got to hear George is amazing, he's one of my heroes, and he's been ahead of the curve for 30 years, which is no small feat. 30 years ago he was talking about optical communications. And anyway, side story, but what you get to do here is, this is the token market still has a lot of surprise in it. There are a lot of surprises coming, there's still a lot of information, there's a lot of entropy in there. And the fact there's entropy doesn't mean it's random, doesn't mean it's chaotic. There is order underneath, but it is an emerging order, it is a fractal order, it is a complex order. And we get to figure all that out and make some money along the way, so it's all great.
Great. Okay, well, it's good. I think we have a diversity of perspectives on this panel to say the least. So one of the questions that we get constantly, where I suppose it's a misunderstanding of what the difference is between traditional investment routes and what token investing is becoming. And we understand that's changing all the time, but love to hear some perspectives on what you think are the biggest differences between traditional means of capital raising we've seen so far and what we're seeing right now around token investing.
I can start there. I think one of the key differences I focus on is when you make a venture investment, when you're investing in a company, you have a relationship typically with the founders. Typically the investment thesis for most investors, I think, is largely based in the early stages at least, which is where we invest at the seed or sometimes even pre-seed stage. It's based on the individual, the founding team, the vision, the idea, and their passion for the idea. And typically your equity investment comes along with investor rights. So you meet regularly with the team, you sort of go through this incredible growth journey with them. It's my favorite part of being an investor, of working with these companies. The dynamics of token sales really change this relationship in some ways because a token project could have thousands, one day maybe even millions of investors who own small pieces of this quote-unquote investment, but it doesn't really come with participation rights. It doesn't come necessarily with decision-making rights. So I think for token holders, the dynamics of the relationship between a founder, founding team, and the token holders is starting to evolve. In addition, a lot of these tokens, the people buying them may not necessarily be the participants in that ecosystem that's using the tokens, that's creating utility around these tokens. So I think one of the interesting challenges is over time as tokens evolve and grow, how does the distribution curve of tokens change and how does the distribution of tokens get reallocated from investors who may buy large chunks of these tokens to the actual people using these tokens in the networks they're intended to be used in. So I think there's this interesting, maybe it's a tension, maybe it's a new dynamic that's starting to emerge. But I think it'll be interesting to see how the developer community who's building applications on top of some of these new protocols, the investor community, who by and large, by the way, I think there's a big degree of overlap between the traditional venture community and the token investing community. I would say a lot of the early investors in these tokens are also VCs, are people in the asset management, capital management space. And I think that's something that's going to be interesting to watch. It introduces a lot of challenges, a lot of ethical questions for people building tokens as well, in my view.
Yeah, I mean, you bring up a great point because the hardest part about building software for other people is actually building organizations that can build that software. And so that's kind of the biggest question that, and I don't have an answer for, but actually, you know, people in this room are going to try to figure that out, right? The traditional venture model is very much predicated about one or two founders with an idea coming together and just working as hard as they possibly can. And you know, I think that the question for tokens is like, what is governance? How do people get paid? You know, with a startup for instance, you have pretty classic four years vesting with a cliff. And so right now we're just in the early innings of what is normal, what should that structure be, and how do you properly incentivize. You know, today we basically, the closest analogy is an open source project, right? And open source can create really great software. I mean, thank you to Mosaic and all of these things, right? So, but we're trying to figure that out. And so that's one of the biggest questions for me is, you know, I want to work with teams, whether it's a C-Corp with a VC fund or, you know, from a stash of Ethereum I have, or an institutional version of that. You know, all of that is the mechanism. Like, the real awesome part is just the creation part, and that seems to be morphing right now.
In my mind, blockchains are a brand new way of applying governance to networks, especially digital networks. And they come with scarcity and rights, and therefore a token to keep track of the scarcity and rights attached. And so they come with their own financing model. And I think you just have to throw the venture playbook out the window. If you're a VC and you're not simultaneously euphoric and terrified by what's going on, you're not paying attention. This completely destroys the existing venture business model. The venture business model is based on access. It says we get proprietary access early on, we shepherd the company through multiple rounds and 5 to 10 years of markups and whatever, and then we take it out to Joe Public and it goes liquid, and that's when we get really paid well. These things are liquid in day one. Everybody has access. Now we really test to see if the VCs have any better judgment than everybody else. Like, it's a true level playing field. And I think that's really scary, that should be really scary as a VC. And historically, everyone's been telling VCs how smart and funny they are, how good-looking they are, what advisers they are. And now we're finding out, well, what does that buy you in a token sale? Does that get you a discount at all? Does that get you any special access to the team? So we're not, not to rag on my own people, I mean, obviously VCs have something to add, but it's much more meritorious now, I would argue. And then on top of it, you also have to look at the team dynamic very differently. I remember when Ethereum was first out raising money, when Zcash was first trying to raise money, a lot of VCs rejected it. They didn't even meet with them or they dismissed it out of hand because they're like, who's the CEO? This is just a bunch of techy nerds. Well, it turns out that now a very small number of nerds is all it takes. The distribution is taken care of, the financing is taken care of, maybe there's someone to help with the marketing, but you don't need really large teams. You're talking about protocol development, you're talking about two to five people, or maybe even just one, who can completely change the way the entire internet works and they can reach 7 billion people at once. So this idea that we even have to have a building in which we're going to teach these people how to build and grow a team, maybe it applies, maybe it doesn't. I just think that approaching token investing the way you've approached venture investing is probably going to cause more failures than if you just approached it cleanly and looked at it as a brand new thing.
Good. All right, so overall pretty positive across the board there on these things, so that's good. So we'd be remiss talking about token investing if we don't bring up the SEC's recent commentary on this. So be curious to hear if there's any opinions either on that or just regulatory in general and what kind of a role you see that playing in the short, mid, and long term for token investing.
I mean, I think it's great. What the SEC said was not that surprising. They basically said, the best description I read was on Twitter where somebody said, if it walks like a duck and talks like a duck and quacks like a duck, it's a duck, even if it's a digital crypto duck, right? So basically, if it's a security, like if you're selling an equity to go buy a token later, or if you're selling a revenue stream, then they're going to treat it like a security. On the other hand, if it's clearly a token where you're selling access to a network or a ticket of some kind as a token, and in between it's going to be a case-by-case. I think we can all be thankful that in some ways the horse is out of the barn. Like, if we were asking permission from the SEC or the government 5 years ago, these markets would never have happened. But because they're global, because they're distributed, because there's so many actors and there's so much being done, and because the SEC right now is short-staffed and they're taking the right approach, I think, which is they're saying, caution, have disclosure, these are securities in some cases, we could have cracked down but we didn't, be careful, they're going to go move with 20/20 hindsight. So we're still in the phase where they're relying on good judgment and self-policing. Now, is there good judgment, self-policing going on? Unfortunately not. There's a lot of scams going on, there's a lot of junk, there's a lot of people who are basically like, let me raise every dime possible and run billboards and ads and taxis and whatever and just try and extract every dollar from the users. And I think those people are going to get smacked. I think some people will end up in orange jumpsuits. But you know, if you're careful about it, if you follow the law, you can still raise a lot of money, you can still have access to global markets in a scale you never could have before, you can still have access to secondary trading and immediate liquidity bypassing the entire IPO market. So I think there's still a ton of opportunity. You don't have to cut corners to get that last 10%.
But I want to actually go back to something you said in your earlier comment. I do think what the SEC said was meaningful, not necessarily for token issuers, but for exchangers and people participating in token sales. So I think what they said for token issuers, as you said, nothing new there. It's obviously, if you're issuing a security, it's a security. If you're not, it's not. But I think what was important about what was said is they clearly called out exchangers and they clearly called out purchasers of tokens. And so what this introduces is a new dynamic. I think you made the comment earlier that tokens represent the democratization of financing of the protocols that are building the new web. I think what we're increasingly seeing though is token sales, because of this regulatory pressure, are becoming open only to accredited investors. And I think that fundamentally changes the dynamics of the way a token community functions. If the majority of your development community is distributed, if the people participating in building your protocol are located all over the world and are hobbyists, not all of them are going to be accredited. And so I do worry that with people moving more and more to an accredited token sale model where they're selling tokens in chunks of 100 or 500,000 or a million dollars, it is squeezing out a lot of people who would be participating in these token sales and it's not necessarily creating the democratization that I think tokens are intended to create. So in effect, I think token sales have actually become more and more gated as the token market has evolved because people have a much easier time going out pre-selling their token sale. They can get more money and they can raise more money if they just limit it to 50 or 100 large investors as opposed to going out and sort of trying to solicit funds from a larger community, which is much more challenging to structure, will take a lot more time to structure. So I would love to see token sales be more thoughtful about the distribution of the actual tokens because I think it's very important. Right now we're in the fun stage where everyone gets to raise millions of dollars and issue all these tokens, but in the longer term, how do we make sure these tokens don't just become digital Beanie Babies or digital trading cards? They have to have some sort of function or utility in a network. So what incentivizes people once the money's been raised to actually do the hard work? Right? It's like a startup, when you first start, you have an idea, you go raise a seed round, it's fun, and then the shit hits the fan, you have to actually build a company, and that's really, really hard. And so my question is, all of these token sales, we're in the fun stage, everyone's raising tons of money, it's exciting, it's sexy, you're on stages, you're talking at conferences, but who's going to do the hard work? Who's going to build the infrastructure that helps people trade these tokens in a responsible way? Who is going to do the hard work to make sure these ecosystems have value, create value for more than just the founders of the token projects and the people who get in early?
So you're saying advisors do have a role?
