The Battle Between Crypto VCs & Retail Investors | Regan Bozman

like I was talking to someone last week and he's like every VC I talk to is utterly miserable like you you would not be able to tell that prices are like cuz retail's miserable too everybody all everybody's miserable you know yeah we all um maybe you all need to go to like a Mexican Beach vacation you can claim our our Igan air drop you know while we're South of the Border and just like chill out for a bit welcome to bankless where today we explore the frontier of VC's versus

retail that the conversation today as always I'm Ryan Sean Adams and we've got David Hoffman and we're here to help you become more bankless VCS versus retail are they at War this cycle in crypto have they always been at War that's the through line of the conversation we have today with crypto Rider and VC Regan Boseman few things we talk about to get to the subject matter number one why this cycle in crypto feels weird number two why retail attention is actually the tail that's wagging the dog right now number three why air drops are broken

and how to fix them number four the toxic combination of high fdv and low float and how we got there and number five is a casino our primary use case should we give up on this whole fundamentals thing understanding the crypto markets and why they are what they are has been one of the more interesting things to investigate I think since I've ever gotten into crypto uh there are so many different things about the way that these markets are built that are fundamentally different and Peak people in in different ways and one of the ways that they're different

is that they're all of the middlemen between End Market liquidity and Retail buyers and early Sage Venture capitalists are gone in crypto there are no middlemen one thing that we do in crypto is we do disrupt the intermediaries but now it's really smushed VCS early stage VCS and late stage retail liquidity uh into the same room into the same very small Market uh $3 trillion is a lot but it's still a very very small Market in the grand scheme of things and so how retail

attention and what retail wants to invest in has changed over the years has really dictated the way that VCS invest in the space And so there's been this like tenuous relationship between uh retail which this entire industry is built on like the early people that bought Bitcoin those these are retail people this entire crypto movement is spawned out of retail but nonetheless there are early stage VCS how do these two parties come to turn with each other how do these markets develop uh and I think lately one of the reasons why this

crypto cycle feels so weird is we're kind of coming to some sort of conclusion about people's education and understanding about these Market structures so this is a conversation that we unpack here with Regan Boseman but first before we get to that conversation with Regan a moment to talk about some of these fantastic sponsors that make this show possible belas Nation Regan bosan is an invester at Lattis which is a VC fund he's uh come on our radar a lot recently and particularly he writes these powerful threads on crypto which I think just like synthesize various investing topics

around crypto markets private markets airdrops like whatever is going on uh one of the themes today that we're going to explore is V VCS and Retail is like a defining marker of this era that we're in maybe versus retail or maybe how they collaborate and work together Regan welcome to bankless yeah thanks for having me on so there's maybe going to be a common through line through this episode we're going to set up a a problem statement let's let's say and and even discuss whether it's a a problem of kind of the the current meta in crypto and the relationship between

uh VCS in retail and then we're going to discuss the reason why that problem exists and then finally like what that means and where it's going to uh evolve moving forward so I I actually want to throw this to to David because I know David's been exploring this uh this thread recently it's a a Travis cling thread and rean I I actually found this thread uh through one of your threads so thread deception right now Travis cling thread started off more or less titled a lack of pretense that any of this [ __ ] does anything or will ever do anything

this kind of what I I call like the crypto identity crisis in 2023 and 2024 especially after coming off of the terror that was 2022 uh and then now looking around and you know reflecting about like what have we built as an industry and has resulted in some kind of like uh bull market despair that I think the crypto industry has felt like Bitcoin is is that alltime highs because of the Bitcoin ETF uh ether people perceive will be at alltime highs once it gets its ETF uh and then some quotes from Travis King's article that people

want to gamble on vaporware and next year looks like a good year to be at the casino and the ratio of expectations to market cap feels like the lowest it's ever been and lastly Financial nihilism is growing like microchips so rean when you read this Travis cing article you like I said um wrote your your your threat about it and have processed it how how do you think that this kind of just like defines the market cycle that you in elaborate on your thoughts and your interpretation of this yeah so I

mean I think you know it's a Common Thread that people talk about how the past two cycles were sort of like kicked off by some new form of speculation you had icos in 2017 and then you had defi summer and yield farming and then nfts in 2020 and 2021 and those were both new forms of speculation but there were also companies that came out of both of those right icos you had a and maker Dow maker was maybe a little bit earlier but you had you know a lot of companies come out of that cycle and then defi summer in nfts and you had compound and openc and

you had a lot of large companies right there were things for people to do and so I think this cycle it's different in that you kind of just have this external water hose of capital with the Bitcoin ETF coming in that's been the cycle rather than something internal sorry it's been the Catalyst for the cycle rather than something internal and then you actually don't really have like a new thing for people to do it's just been mean coins which are not new right Doge came out maybe in 2013 2014 but it's like the most kind of pure form of

gambling and just like if all you wanted to do was make money on crypto tokens like punting on mcoins is the purest form to express that investment View and so I think what we're seeing is you know people on crypto Twitter are arguing about whether meme coins are good or bad or whatever but it's clearly what people want to do in this moment is just gamble on whether these things go up or down without any care in the world about whether this stuff will actually do anything I think part of this um sentiment also comes from the fact that there doesn't really seem to be any new

people coming into the crypto industry like the Bitcoin ETF is bringing in New Capital uh but there's actually no new players there's no uh like bit Bitcoin capital is like the most vanilla type of capital that exists in the crypto markets it's actually not there's no inventing anything new here it's just Bitcoin uh and so like while we are getting new capital uh and Bitcoin has you know punched through alltime highs we're not getting there's no new crypto people right we're actually not really scaling this revolution we're actually kind of just like scaling the market cap of Bitcoin and then people are kind of

like recycling that Capital like down into the longtail and so I think maybe that also kind of helps Define about like why this Market has been so weird lately I think that's right and I think look people have gambled on things for thousands of years if you look at sports betting or the lottery clearly gambling is like ingrained in our society and I think being able to spin up permissionless betting markets on salana people can like it's cheap it's fast it works it clearly is like Innovative in that regard but if all we if we don't

get anything beyond that this cycle I think it is a little bit worrying and I think part of why maybe you don't have new people coming in is like gambling on the meme coins or doing it on dexes you need to use something like Dex screener bird's eye you're like looking at new token contracts getting uh getting deployed like it's a very Crypton native thing to do and it's not that it's not that easy to navigate I think another interesting thing to think about is like you look back at last cycle and like you had all these stories that were really powerful and this is like what every LP

was told it's like oh art is a 10 trillion dollar asset class and nfts are going to revolutionize every aspect of art oh Finance you know Banks make hundreds of billions of dollars of fees a year you guys are you know being bankless you're probably more familiar with this than I am um and defi is going to like cut out all these middlemen and just whatever anyone can send money to anyone in the world and you don't have any stories like that this cycle now I think that both of those things are actually true like defi nfts all of this stuff kind of slowly eting away these

industries I think we're further along than we were three years ago but that's not what people are talking about and so I think there's just not really a new meta for people it could be retail it could be LPS but it just there's not like a story to latch on to of like this is why crypto is cool and this is why I should be involved let me ask you rean so is all of this a is a problem so I mean we we couched this section and said like maybe there's there's a problem or

like that you know something weird about crypto this cycle and then TR Travis clling talked about this and framed it as a form of financial uh nihilism and then you said that there have been arguments back and forth on whether this is good or bad um is it like a existential problem or do you think that this is just like what crypto is here to do maybe it's good in some way like is there really a problem here I think it's a problem if it if this is all that occurs this cycle yes I

mean I think people have talked a lot about kind of trying to wrap like speculation in sort of like an academic lens people point to carleta Perez's book which I think is called something like speculation and financial Innovation how like speculative booms have led to a lot of investment which has kind of lowered the cost of infrastructure and that's then allowed like real technological innovation to happen so people use this like the example of the do com boom subsidized a lot of like you know bandwidth getting laid in the US and now 20 years later you have a lot of very very large

companies that came out of this so I think it's speculation in and of itself is not bad as I said before right people you know were gambling on like what Gladiator was was going to win in like Roman times but clearly it's not enough of a thing to draw new audience in because we're not seeing that happen now and this cycle has been very PVP which is you know crypto is Big it's not that big right if the industry doesn't get any bigger from here it's not that interesting so I think it can be like a

step in the journey but if this is the end of the road then I think we all have kind of a bigger thing to worry about which is like where do we go from here are we just going be sitting around arguing on Twitter about whether meme coins are good or bad for the next five years like that doesn't sound very fun to me well hopefully you can answer some of that in in the the process of going through this episode but another question I have on this thread is is it really that different so like we're we're saying that this time there's Financial nihilism in crypto oh my God like wake up hasn't it been here every cycle would be a retort to that so I

mean 2017 we had icos didn't we uh and that was like a form of uh speculation and gambling certainly like what else would you call uh some of these icos uh the previous cycle we had all sorts of mechanisms for the the animal spirits right not least of which was uh monkey jpegs and all sorts of things sorry I didn't mean to single out Community but all the jpegs we were speculating on that uh that mood went down now this cycle it's just the same sort of animal spirits not expressed in icos not expressed in nfts and other things like

this just expressed in in meme coins and hey is isn't by the way uh instantly isn't that the purest form of speculation anyway we get it distilled and it's not uh like VC um you know like bag shelling like the previous uh cycle so you know is it really that different I guess is the core question here so I think the ethos of it is not necessarily that different right people want to get rich and to me I think if you just still down like people love to talk about crypto communities in my view like

Community is basically making money with your internet friends that that is really how these like communities form is like positive Financial upward Mobility um but I think the retort to like oh all of that was just speculation is like well yeah Salon did an Ico in 2020 and like now it's 2024 and stripe is using that thing so clearly like real things have emerged out of this you had like defi summer and now Lio has like what $25 billion and tvl and a and compound or these very real things where

like you have these Global permission lending markets which is like an incredibly powerful primitive so yes I think like most things in life and Venture like 95% of it is kind of useless and will will fade away but from both of those prior speculative Cycles you clearly did have like generational companies or protocols or Primitives come out of it now the question is like what comes out of this and what comes out of meme coins and I you I wish I had the answer to that one interesting data point is you know we have built

basically software that like tracks Twitter activity to try to Source companies right it looks we have a few hundred accounts we think are like Alpha generating to some extent and every time like they follow a new account we basically try to sort sus out like okay is this a new company or not and then like we basically Source some of our deals via that mechanism and interestingly in Prior Cycles you know more companies were started right crypto prices went up more attention went on the space people were talking about crypto and so people started companies and we actually haven't really seen that

happen this cycle which maybe isn't that surprising right it's okay this meme coin thing is interesting it's kind of a long leap to be like okay now I want to start a company in crypto right there's just not that much meta about productive things yet and so that is kind of a leading indicator that hey like maybe not that much useful is kind of coming out of the current Paradigm just to be clear Regan you're seeing more meme entrepreneurs and a fewer like sort of app entrepreneurs I think just's like less entrepreneurs generally one thing I want to open up is

the that conversation of the stories that always seem to come with with um every single crypto Market cycle I I remember coming into 2017 crypto and just fell in love with the massive amount of stories that were told like every single Ico would tell a story of like a future internet that like you know just got me going I loved it I just ate it up uh and it wasn't really wasn't like into deep into 2018 where I realized kind of the reality of what was going on here and that was actually like the retail uh individual that was learning his first lessons in the financial markets um uh but like as the

next cycle came around the defi story and like you said the nft story came about which seemed to be just so much more coherent right and it actually meaningfully did onboard people into the crypto world right like defi is going to disintermediate trillions of dollars of intermediaries and put that hands back into the to the margins right like we're going to tokenize the entire Art Market and put it on chain and there's going to be a revolution in digital art culture like I I believe those stories I still believe these stories these are I think these are good stories but telling these stories I think in

2024 people like just don't want to hear it the stories don't land as well both I would say for crypto Natives and for external non-crypto people and I think external non- crypto people in 2024 actually understand kind of the crypto story even if they're not crypto people like crypto is a household name now like people know what Bitcoin is at least they get the Vibe they get the gist of you know democratizing access to finance they they kind of get that and so I think we've hit some level and I want to

get your sentiments on this reg is I think we've hit some level of like story saturation or even with the stories of like nfts coming to disrupt the art markets still had like nefarious nft drops milking retail users and milk milking people who would like you know buy the top of their nft right like there's plenty of these examples and nonetheless like we had the defi story and then there were still plenty of just like startups that would play the get-rich game for ourselves and not for anyone else and so like nevertheless there's always some sort of Nefarious or

there at least there is perceived to be some sort of Nefarious motivations in much of the makeup of the crypto uh industry like at least when it comes to the private markets as I mean defi is a perfect example right it's like we had two years of like incredible Financial Innovation and then us and mirror destroys like $ 15 billion dollar of value overnight right totally yeah and so like telling stories these days I just don't think people want to hear it uh both both Outsiders and insiders and so maybe I think that's kind of also

contributing to the nihilism whereas people people have heard these stories before and they like kind of just shout like well these are these are the VC podcaster stories that are here to like kind of work work the narrative how would you react to that David though is it like that they don't want to tell stories or hear stories or they just don't want to hear those stories cuz there are are all sorts of new stories that that are Brewing but they're more like Casino like like meme type of story it's a different type of story maybe I mean there's always an appetite for some sort of story somewhere but the stories

that I'm hearing are not like being broadcasted to the point where they're actually bringing in new people right like if they're not bringing in new people into the crypto industry are they like useful stories like rean what are your thoughts on this well I think it ties back to what we were talking about before right it's like the prior two cycles you did have this form of speculation but it was like hey this is funding this like new wave of companies that pretty clearly do something right a permissionless lending Market has a function whether or not you think that's a big opportunity that's like a different question clearly these

companies did something and this cycle you kind of have me mcoins this new form of speculation but it's not really clear like what it's funding so I think you know there's like different audiences for stories right I think if you look at retail investors coming into crypto like what has been the main goal of most of them my assumption is like it's to make money right like maybe you're interested in this stuff maybe if you just buy Bitcoin you know you kind of believe in this like hard money thesis but if you're like punting on tokens like you

probably pretty clearly want to get ahead financially and so maybe now with like just cheap meme coins on salana that we like you can make a 100x in a day you can also lose your money in a day that is just like it's what you wanted to do but you don't need the story right you don't need the icing on the cake just like that's the purest form of gambling you could find and so it's like that segment of the market maybe doesn't even need stories anymore or they don't believe the stories that they were told um I think for

institutional allocators who've funded a lot of you know what's happened in crypto they don't want to hear that story right if you're like a foundation or an endowment and you're trying to compound money over a 20year time frame a new form of like oh this is like a casino but better that's just like not a story you want to hear right you want to hear Big Dreams because historically like that is what has produced Big Financial outcomes in the past is like industry changing companies and you

don't have that right now which is why I think yes like price has gone up Bitcoin has hit all-time highs the floodgates of institutional money coming into the space it has not happened yet and I think a lack of like a coherent story is a big reason why so rean I think this brings up the question of like were we fools to believe the uh like the defi story to begin with OR the crypto money story right so like at some level I I totally acknowledge that crypto has always been about as you say the main story here the

through line is making money with your friends but it used to be like that plus if we do that and when we do that we get to economically secure this permissionless open internet property rights system for the world we get even the Bitcoin the original Bitcoin story was like if we do that if we when as we make money with friends right we create this uh sound money standard uh that protects us against Fiat de basement the ethereum uh story is like as we make money with friends as we get uh

ultrasound money right we we start to create this um defi system that anyone can use free us from the bankers I mean this is part of the the the bank list origin story as well and now it's just as you say like a more distilled version of like we make money with friends uh and like maybe there's some element to um and creators and influencers get to kind of like democratize access to their fans maybe there's vestages of that but like I guess my question is were we fools to believe all of the uh original

crypto origin stories it was like was it only about making money with friends to begin with no I I think that incredible things have come out of all of those like you look at salana right like it is now this incredibly fast blockchain stripe announced last week that they're going to use it um and if you kind of think about like this you know shared upside amongst an early community and early adopters like salana was live and liquid under a dollar for like months in 2020 right early adopters of that

Community have seen huge financial upside I think you look at stable coins like I talked to a company yesterday that is working with like merchants in South America that Import and Export um Goods they need to deal in a bunch of different currencies like they are using stable coins and it is much cheaper and faster for them than like using the Swift system that exists today so I think there are real success stories coming out of crypto but you know using the stablecoin um company as an example that's not necessarily something that's

like investable or you could trade day-to-day and so I think the attention of the market is clearly focused on like the fastest part of it but there are a lot of really successful cool things happening in crypto it's just like that's not the current meta I want to turn through why all of this story talk is uh so important like why why do stories matter so much uh and one of your threads rean you you said a line that's now stuck with me which is terminal liquidity in crypto comes from retail uh and so this is this has been

just true about crypto from the GGO retail interest has always had an outsized impact on the crypto markets like the the Bitcoin itself was molded out of like casual retail investors the first people that bought Bitcoin were not the VCS were not the fund managers they were just the internet casual people who stumbled upon the Bitcoin white paper uh and were crazy enough to buy Bitcoin before it actually had a market price and this has this is reverberated throughout the halls of like crypto Cycles throughout time right retail predominantly owns like the

longtail of assets in crypto and so like what retail cares about what the average average Joe with an internet connection and aoup 00 what they care about uh it actually matters like quite a bit in the crypto markets uh and so your line here is that terminal liquidity for V for VCS comes from retail and I think this kind of opens up the the conversation of the relationship between Venture Capital firms and Retail uh but just let's hang on that moment that that line for a second just like terminal liquidity

comes from retail just Express a little bit more about what you mean by that and how that has impacted what the crypto markets actually are yeah so I think if you look at traditional Venture markets you know a seed investor will back some SAS company at the seed round right maybe they have a few customers they're generating a few thousand dollars a month in revenue and then there's series a investors and there's series B investors and you know basically as a company produces more cash flows like there are more investors who are willing to put more money into a company as it

grows and eventually there's like a number of exit possibilities for that company could be sold to a private Equity Firm a strategic Quire or could buy it or it could go public but there are a lot of different Avenues and generally there are it's it's not like retail buying as SAS company maybe in an IPO like some retail investors buy those shares but there's a lot of institutional allocators that are focused on companies that produce free cash flows and there is this universal currency of free cash flows most of

those things don't exist in crypto right there's not a lot of growth stage investors generally companies aren't raised seen more than a series A or a series B before they launch a token and if you look at who's trading these tokens and let's just take Bitcoin and eth out of the equation everything kind of below that in the quen gecko rankings it's probably at least 80% retail so I think there's always been this kind of uneasy truth that there is just a lot more money allocated to crypto Venture than there is to like fund managers

holding liquid tokens and so ultimately the kind of assembly line we've built of like protocols getting funded and launching ultimately it's dependent on retail investors wanting to trade these assets when they go liquid and if that breaks down then you know there are like things that need to be fixed just to elaborate on the point that there's so few like funds that hold liquid tokens because if if you were uh a hedge fund that held like liquid tokens and you are buying the cream of the crop of tokens

in 2017 you're probably down 97% right like if we're talking about Bitcoin and eath like what what was like one of the best tokens of 2017 that I can remember like basic attention token like augur like these tokens don't make it through the cycles because like crypto's so heavily like evolving and so research focused and we are developing new systems like we didn't have the word data availability until 2022 I think uh and so like there holding tokens for the longterm like crypto moves so fast it

evolves so fast and so like there's always like a new meta of like industry infrastructure that means that like being a long-term investor in the longtail of tokens is like kind of untenable in this space yeah I think that's right I mean clearly there are assets that last through multiple Cycles Bitcoin eth mkr but generally they don't most don't and I think just in an industry where there are 90% upswings And draw Downs it's very hard to manage a liquid fund across

Cycles because at some point if you have a liquid fund and your investors can redeem money like you will be down 75% and so the way most investors have chosen to access the asset class is through Venture funds which I think has worked well it's funded some incredible technology and it's helped drive a lot of like the industry's forward progression But ultimately there still is a big Delta where there's all this money going in on the private side and eventually like that money needs to turn into more money to go back to those LPS

to then fund like the next wave of to venture funds yeah so would you say we we've cut out the middlemen right we've cut out um all of the steps between like early seed stage venture capital and late stage public markets we've cut out you know series cdfg we've cut out the the investment Banks we've cut out all these things but like that Capital actually just like kind of re repointed itself towards Venture Capital making Venture Capital very like uh overweight in the crypto World versus like retail

and so when we have like an overweight VC uh pendulum and then we have no net new incomers into the crypto markets all the retail individuals the longtail buyers is actually the same people that have been here from since 2021 and this is kind of where like this this meta has like a merched where we have an overweight VC and then we have like the same supply of retail people uh and that's kind of the current structure of the market would you say that's right yeah I think that's right and I think you know people want to launch tokens in

the bull market right so you have a lot of teams that have been building maybe kind of getting ready for tge during 2023 the market starts ripping in December and it's like oh yeah like let's let's launch let's get the token out the door and if you don't have any new retail inflows who's going to buy these things right and I think that's maybe why you're starting to see the market kind of like get a little bit shakier than it was two months ago where some of these new token launches are not going well now for what it's worth think structurally the current Paradigm we've

set up of these high fdv low float tokens is terrible I think it's like the worst Innovation the industry in a long time and I can talk about that so I I don't think it's like an un it's not an intractable problem but um the current Paradigm is just not working let's come back to that issue of um high fdv but before we do just to flesh out like why we're why we're in this state I I want to ask you a question like structurally why do we even have this or like need this to divion between retail and VCS

right I I uh remember the original promise of 2017 with icos was like VCS are dead we don't need VCS any longer right and I'm wondering if you think that that is like like why why why there is this division is it a product primarily of like accredited investor laws uh let's say where like uh it's a product of the regulatory regime that that we're in or is there something deeper here because it it's not um I mean permissionless access to kind of launch a token and like raise funds it's

not clear that you need a whole separate class of investors and call them VCS so I I think crypto VC's get a lot of flak and some of it is definitely deserved I think they generally do serve a purpose which is taking very early bets and accepting a very different liquidity profile than most people who are just punting tokens so maybe to like frame kind of the timeline of this generally when we make an investment tokens are locked for at least a year and that tge event maybe 6 to 24 months

away and then our tokens vest over another 2 to four years so it can be three four years before we even have half the tokens you know that we kind of purchased with like a token warrant or something like that so I do think VCS take a liquidity timeline that is very different from how most retail participants want to trade tokens so I I do think you need a different class of participants and I also think you know often times when we're underwriting these Investments it is like two people