From Web2 to Web3: Alexis Ohanian and Kevin Rose - Modern Finance

Yes, one Alexis for an Alex. I didn't... I swear I DM'd you a minute ago. This was early into the NFT rabbit hole, probably early this year, and I was like, 'Kevin, I want to do a podcast with you. I will be your Alex.' I was just so impressed, so impressed by the fact that you've been... I mean, you're ahead of the game obviously with Web 2, happy to talk about that, but you've absolutely pioneered on Web 3 and in particular the culture and communities around NFTs and digital art and all this stuff. And I'm not ashamed to say it, it's been great following you on this, and I think most of my great ideas around Web 3 have come from reading your stuff and listening to your stuff.

I appreciate that. That means a lot. I mean, I think a great place, you know, a good place to start where one thing I absolutely figured I must do on this show is I think about the early Digg and Reddit days. I mean, you know, late 2004 for when Digg first got off the ground. And I just want to say, I want to apologize because I said some really mean things about Reddit and I feel like...

Yeah, it's definitely youth. But I feel bad for some of that stuff and I hope if you saw any of it, I hope now that you know not to take it personally. It was just me being... I mean, it wasn't like every single episode we were bashing you, but I know that we were... there was some rivalry going on there where it got a little intense at times.

Okay.

CRA? I didn't know that. That's amazing.

The Reddit-Digg controversy in the heyday. Well, the funny thing is, dude, after all those years, it's like I felt... well, the first few years, you know, Digg had a lot more traffic than Reddit, way more, crushed us. And then I remember being like, 'You guys sold to Condé Nast, right?' I know. And it was GG, right? We should have given up. Yeah. And I was like, 'Oh, good, like, it's done, they're over, like, we won, like, awesome.' And then, dude, those subs were so brilliant where you just deputize the community to go and build this long, long tail of content. Dude, the entire time I thought I was going to wake up one morning to you announcing that you would let users create their own sub-Diggs or call it something better. Like, the thing... okay, this was the argument I gave to investors and I would say, 'Hey, we're raising our Series A or Series whatever,' and then didn't obviously, sold it to Condé. The thing that we are betting on is the Digg front page is always going to have a ceiling of people for whom it is going to feel relevant for that community because there's only so many people who can look at that front page and say, 'This is for me.' And in the mid-2000s, we didn't have great recommendation engines, computer or machine learning, all the stuff wasn't there. So it was like, how do you hack that? And we realized in the first month that we should just be allowing people to create their own communities because once our front page had too many programming or not enough programming links on it, right, the programming community was like, 'Meh, there's not enough stuff here.' So we gave them r/programming and realized, 'Oh, good, we'll just let users do that.' There was not a brilliant insight there other than let's just solve this problem. And for years I just hoped no one over there would do it because if you all did, you already had the user base, you already had everything. And anyway, so I'm happy you didn't. So thank you for not doing that because I think you would have eviscerated us.

But it's here now. Yeah, I mean, it took years with an algorithm. It just was, you know, 15 years later.

Wow, I totally... I should have prepared better for this. I was like, what are all the embarrassing things that are going to come up? That was okay. Well, I appreciate that because I still... okay, I remember Mike Arrington wrote the front page story on TechCrunch about that and he was like, 'Guy who slams Digg for copying Twitter... no, guy who copied Digg slams Digg for copying Twitter,' something. And I took that personally because I'm like, dude, no, we were just ignorant. Yes, Digg built it first, but in 2005 it was possible to be that ignorant about interesting things on the internet. But that said, I do think the part... okay, the hot take that I'm convinced of is if Reddit doesn't get acquired... actually, there was a USV... Fred Wilson invited me over in 2010. This was so I'd left Reddit in early 2010. We'd gotten started on this travel search website called Hipmunk, rest in peace.

Another one. Did that not... yeah, seriously, travel is a terrible, terrible industry. For the wrong... if you're in the business of just getting people their flights, you're just making nothing but... anyway, my dad was a travel agent, he still is, 20, 30 years in the business, and he warned me, but I didn't listen because that's what kids do, I guess, they make dumb mistakes. But I was... Fred Wilson called me to the office and he was like, 'Look, we want to bring Reddit out of Condé Nast and we want to capitalize it.' This is... I've not shared this. And he had the whole team there and I just sat there and I was like, 'Um, thank you, but I'm really excited about travel search.' And, you know, I just didn't have the confidence. I honestly, I did not have the confidence. I didn't have the savviness. And I was just like, 'Well, I don't know, this sounds like a lot of responsibility and like, let's just see how this travel thing works out.'

Yes, don't worry. The 776 Foundation is going to be very well funded. I've got creative names. That foundation is going to be very well funded from that. And I'm mostly thinking back to these moments where I'm like, God, a few different decisions in execution... and I'll even go so far as to say I don't think Twitter should have existed because I think if either one of us had nailed on the community side but then also the sort of... not the self-promotion side of it, but giving creators a platform to say, 'Hey, come here and post your content.' This has historically been the thing that gutted me every time because I would talk to webcomic artists back in the day and like OG creators, XKCD, Saturday Morning Breakfast Cereal, Dinosaur Comics, and they'd say, 'Reddit loves me, how do I participate more?' And I would have to say to them, 'Um, just comment and make good stuff,' because they were so used to saying, 'Oh no, I want to... let me post, let me... can I tweet stuff out? Can I post?' And it's like, 'No, actually, the product is hostile towards that because it's viewed as self-promotion, all this other stuff.' But I look at so much of these platforms that have emerged and I just think, God, we had a couple... we had the right pieces, we had the right everything. Discord is another one where I was like, I mean, that was built out of the Reddit sidebar, right? Gaming communities on Reddit would say, 'Hey, go join the Discord.' And it was very clear. Right. So the good news is we both did okay. And at the end of the day, Web 3 is going to fix all of this, dude. It's going to fix all of this. And the community stuff from '04 that you were spitting and '05, you know, I was espousing, is the blueprint. Except now people have real ownership. And so the value of that community is more than internet points, man. It's real.

I'm curious. I mean, given you've got this massive platform in Reddit and I know like your day-to-day has shifted, right, in terms of your role there...

But are you... I mean, do you not look at that and say, 'Gosh, why doesn't Reddit just embrace all of this Web 3 tech?' I know that they've talked about it for a long time. Like, do you have any insight into what's going on there?

Yeah, like when that DVD key got released, you remember that DVD key? Yes. And making decisions of what to take down or what not to. And so we got a 101. This is in our bones, right? We can't unsee that lived experience. And every CEO we back that we invest in now going forward, or any project lead, or any of these teams, has to default think this way. Whereas again, there's this weird, awkward phase of Web 2 founders and CEOs who, if they haven't lived and breathed internet communities for the last 15 years, are kind of walking into a field that doesn't... the battlefield has changed drastically and it's a very different experience. And so for those reasons, of both a community that has to get sort of shifted over and brought over, and leadership just not having a sort of default community mindset, it's going to be very hard. And it's never been a better time to be starting from zero because the expectations of your community are so low and because where it can go from here is so much greater. Like, retrofitting that in a community is very hard. And even things... so I think my greatest contributions to the Reddit product were upvotes and downvotes on comments, which led to karma score changes, and then these awards. So like, people today introduce themselves to me as like, 'I'm a 12-year redditor.' They don't say their government name, they don't even say their username because maybe they don't want me to know that. They say, 'I'm a 12-year redditor,' and it was a little badge along with a number of others that we had. Because after like six months, the karma scores were so high that a new user would just be totally unmotivated. They would never hit that goal even if you did it by day or by week or whatever. So I created these daily awards based off of GoldenEye because when you ended a GoldenEye 4v4 or four-person deathmatch, even if you were the worst, you still got some usually some award, like 'Most Cowardly,' right? And so even though there could only be one winner, everyone felt like they had some participation trophy essentially for some unique thing. And these awards became a big part of the culture and a big part of the community. But again, they had no value outside of these made-up internet points. Now the fact that a community can be rewarded for being early and right just by participating, whether it's playing a video game like Axie, whether it's participating in one of these online communities, whether it's buying an NFT, whether it's whatever, like that now starting out at zero is huge because every one of those early community members sees the potential upside. And the potential upside is monetary, right? Like, it's pay your bills.

Who does that? And who... what? You downloaded the new beta of Windows? Yeah, because who cares, you know? That's impressive, man.

I think it's the best... that is the best solution that sort of solves the problem well enough while like kind of punting on the bigger issue, which is like jumping on the new trend. I think this becomes much more existential much faster than any of us thought about. Because back in the day we knew it would be years before a competitor would really come up and scale, right? And if the market caps of some of these profile pic projects are any indication, like, that's real value for, you know, nominal utility, although it's increasing. Like, you put that kind of value creation behind a platform that has community and like wealth creation and excitement and all the things that social platforms... and you get something that looks more like Axie Infinity coming out of nowhere with gaming, right? That's the start. It's only going to get better, same thing with these social platforms. And so I know, you know, at the end of the day, user experience is what wins. And that's the part where if you're only going to go half measure like a Discord or any of these other Web 2s that are even further behind, someone's going to show up with that amazing user experience and the early adopters who already know how to connect their wallets, and yes, it's terrible and yes, it needs to get so much better, they're going to join and they're going to have success and they're going to recruit and this will grow and this flywheel will spin. And so I will never bet against the great user experience in those early days that can capture the momentum, especially in this Web 3 world. Because like you said, you add something that can give people... change people's lives financially and you have every incentive for it to keep growing.

Yeah, I agree. And this is like, I think of this as such... especially NFTs is such an expansive pie. And it's one of those things where, you know, some of the tweets I've done recently have just been drawing attention to Black NFT artists, to trying to have a lot of women artists on the podcast as well. And the reason being is, one, they're fantastic artists, so that's a no-brainer. But two, it's like, one of the trends I've noticed is that when these NFT artists, they make money and they start getting paid these royalties, they're backing their other artist friends and they're helping. And so it's a beautiful flywheel of expansion into new markets that as a standard, like, white dude off the shelf, like, I'm not going to have visibility into. And so it'll be a great way to kind of push all of the different arenas and grow this pie. I think it's exciting. And dude, I'll double down on this with a weird fact. So when I left Reddit the first time in 2010, I went to go volunteer in Armenia. I'm Armenian, with Kiva doing microfinance. Lived there for four months. And one of the things that gets drilled into your head early on in microfinance, and this is, you know, giving small loans in US dollars, maybe $100, $500, $1,000 loans to people in the developing world, usually to start businesses or do whatever they need. When you... it is statistically significant, you are way better off lending money or investing in women in these communities all over the world. Doesn't matter when you normalize across different countries or regions, cultures, does not matter. Give money to women. Because when you do, let's say they're going to start a business or what have you, the gains from that don't just get reinvested in the business, they get reinvested in their families and their communities. And so this nature that you're talking about in the NFT community of paying it forward to other people in the community, like, it is real. We know it exists offline in environments that are way higher friction because it's just hard, you know, you're limited by geography, all this other stuff, and it still happens unequivocally. We take that to the digital world where the barriers fall down and you can find an artist halfway around the world that just excites you because you were bored at 2 a.m. scrolling through Twitter, it's going to keep happening. And that builds that flywheel that again just makes us all better off at the end of the day.

Okay, so when I started 776, my VC fund, a year ago, and a year obviously in the community, I thought, okay, Web 3 is going to be a part of it. Like, my biggest win in venture so far was seeding Coinbase in 2012. And that was largely because our Bitcoin community was so strong that I was like, okay, if Reddit's this excited about this thing and Brian Armstrong is this talented, like, government will probably shut it down, but something interesting will happen here. And a year, two ago, I really got crypto-pilled, both with Coinbase going public and then just the energy of really talented people, whether it was on the design front or in the product front, saying, 'No, no, no, this is what I'm going to spend the rest of my life working on.' And so, I mean, at least half of our investments out of this fund are going to be Web 3 at this point. And I look, man, I've made a career just out of finding people smarter than me and listening to them. And especially the builders, not just people smarter, a lot of those people, people who are building stuff who I know are seeing where things are headed and looking at the tools they use, looking at the things they care about, looking at the things they do. And then just living like all of us, one anxious morning at a time, frantically checking my Discord and Twitter for all the stuff that I miss every single morning and trying to participate. I mean, it's... dude, the tools are going to get better. I know you know that. Like, it feels pretty frenetic to say the least. And it's probably always going to feel that way, but we will get better tools. But I'm spending the vast majority of my time, and I think the fact that we make more than half of our investments in Web 3 is probably going to increase even in the next year or two because that's the other part, man. The rate of acceleration continues to exceed certainly my own expectations because I keep thinking, okay, well, this is going to... you know, this will get better in six months or this will get better in a year or two years, it'll be... and then sure enough it happens in a fraction of the time. And this is that game my linear thinking brain doesn't want to play but I feel needs to. And it just excites me, man, because we proved in Web 2 that this stuff works and now by adding real ownership into it, it's changing lives. And especially for so many of the artists. I mean, even to see Basel here in South Florida just be taken over by everything from NFT degens to really amazing artists is exciting because it's cutting out middlemen that historically have not really played a role. And to hear just one artist, and now I've obviously heard like thousands, talk about the fact that, like, your first work tends to sell for the least amount of money and for the rest of your life you kind of rue the day you sold it because you see what it sells for at an auction, you know, 10 years later when you've built a career, 15, 20 years later. But to know that now that secondary sale actually is going to bring in the vast, vast, vast majority of the revenue for all time, that changes everything, dude. It means an artist can think about making generational wealth that carries right for generations. Their great-great-great-great-great-great-grandchildren will be able to withdraw from an ETH address and be like, 'Thanks again, great-great-great-great-great-grandma.' That's a really big deal, especially for an industry or for a career choice, an artist, that usually has gotten met with, 'Oh geez, do you have a backup plan?' Right? I mean, that's world-changing, dude. And it's not hyperbole.

Like, 100%. I'm not a maximalist. Don't try to back me into... I know you had any laser eyes going on or what was...

I am... the only way to do this job well, in my opinion, is to be pragmatic as possible. So yes, I mean, I look, I obviously, like everyone, wish I'd bought even more Bitcoin when I did that Coinbase investment. But when ETH showed up, I was lucky enough to be in the pre-sale. I've dabbled in other chains. We've invested in Avalanche. We're very intrigued to see this. Messed around with a few others. Obviously, Solana, the Solana partnership that we're doing. But I'm following... I'm most excited about ETH. My largest personal position is in Ethereum still. But no, I'm not a maximalist, man. You can't. You just can't. Like, this is such a big pie that I don't believe any one technology can possibly win. And I'm just doing my best to sort of forecast in 10 years what I think is going to have the most value. That's it. And building, I think, just like databases... like, I don't know about what was... so with Reddit and... well, Digg was the LAMP stack, Linux, Apache, MySQL, PHP. What were you back in the day?

What programming language? No, that was terrible. That was because Paul Graham was like, 'You should build it in Lisp.' And whatever, we within six months we'd switched over to Python. And so similar. I remember the wars. I remember even the Rails developers. I remember, you know, PHP kids. Like, there was... I feel the exact same way on this. Like, your tech stack at the end of the day doesn't really matter unless it affects the user experience, which again is the thing people actually care about. And there are going to be tech stacks that matter for certain technologies that have to be a certain way or are smarter that way. I still think there are plenty of databases that are fine to be centralized, like, where the user experience is better, do that. And so I, you know, plenty of dumb money is going to get convinced by a deck that sees like a slide that just says 'Web 3, blockchain' where it doesn't matter or where it doesn't actually serve a purpose or it is actually more expensive or whatever. Just stupid. But no, man, no, come on, got no time for that. No time for the maximalist.