The New Economics of Crypto Tokens | Austin Barack

David Hoffman:
[0:04] I'm here with Austin Barak. He is the founder and managing partner over at Relayer

David Hoffman:
[0:08] Capital. Austin, welcome to the show.

Austin Barack:
[0:09] Hey, David. Glad to be here.

David Hoffman:
[0:11] Austin, we're going to talk about tokens today. You and I share a lot of the same ideas about a lot of the same tokens. We're going to talk about Venice. We're going to talk about Pump. We're going to talk about Hyperliquid and Etherfy, maybe a few others if we get enough time. But I first want to talk about kind of your lens for investing in crypto. So talk to me about Relayered Capital and the strategy that you guys have over there when you guys look at investing in crypto assets.

Austin Barack:
[0:38] So it's an interesting question because crypto markets have changed so much over time. So you're forced to evolve. Otherwise, you end up in a stagnant strategy. You know, what worked in 2017 or what worked in 2021 or 2022 or 2024 doesn't necessarily continue to work. But there's certain themes that I think have... Found replicatable success. And those are being at the intersection of growth and value. And what I mean by that is no one comes to crypto because they're looking to find a company that's, you know, growing 10% a year and trading at a 4x multiple. That's not interesting. They can buy like a power utility. Well, actually, power utility is getting a little more interesting with AI data centers, but you kind of get what I mean. So when I say growth and value, Investors are looking for.

Austin Barack:
[1:26] Companies and tokens and projects that are growing most quickly, but also you have the most margin for opportunity when they're also valued very reasonably. And because capital in crypto has these very cyclical patterns where at times things are very overbid and at times things are, you know, very oversold, you get these moments in time that,

Austin Barack:
[1:51] often persist where there's actually growth and value, which is something you typically don't see. So that's kind of the overriding theme in terms of what I look for when I look for an asset. However, taking a step back, you know, I found a Relayer Capital about two and a half years ago. Before that, I was a partner at CoinFund. A Relayer, we do Liquid and Venture.

Austin Barack:
[2:13] Leaning quite a bit more to Liquid recently because I think that's where there's more opportunities. And the two segments of the market that I found most interesting are the intersection of crypto and AI and 24-7 trading slash tokenization. And those have been the two core themes of what I've been looking at, especially this year. So that includes many of the assets that you mentioned at the beginning, whether it's Venice or Pump or Hyperliquid or Etherify or others. But yeah, that's the general lens through which I look at the market and, you know, try and find opportunities.

David Hoffman:
[2:48] How do you think about like the typical VC strategy of very early stage, like speculative bets, you know, all or nothing? Is that how you lead the VC side of Relayer? Or does it kind of stick with the public token side of things where you're at the intersection of growth and value, as you said, do those things match?

Austin Barack:
[3:10] Yeah, so that's a good question. and I guess a good distinction because that's really on the liquid side. In venture, I'm a firm believer that like, it's very rare that the best deals are also priced cheaply. So if you want to get into what you consider to be the most interesting opportunity, you're usually going to have to pay up for it. However, if you can get in early enough, that means at least on an absolute valuation basis, you can get in at an attractive level. So on the venture side, I still am looking at those major categories, whether it's like neobrokerage, on-chain DeFi, tokenization, 24-7 trading, AI and whatnot. But really, the focus there is getting in at the pre-seed or seed level where the valuations are most compelling. And, you know, ultimately, when you're a venture investor, you're making a bet on the team, the market opportunity, and, you know, as an extension of the team, their ability to execute. So, you know, that's where I like to get in, you know, at that stage.

David Hoffman:
[4:10] Between the two sides of Relay or between the liquid public token and the private VC side of things, which side has been capturing your attention more? Which side has been winning in the tug of war, if you will?

Austin Barack:
[4:24] Yeah, so I would say maybe like the first three quarters of the year of 2024 when I was live with the fund, I would say it was pretty 50-50. Now it's 95% liquid. I think most of the deals that you're seeing on the venture side come to market are, you know, there are interesting deals, but they're growth stage deals. They're more like traditional payments and fintechs companies, which I think are also compelling. And I like on the public equity side, when you think of like crypto linked assets, so something like a new bank or a D local or a figure, but something that I'm a little bit less excited about on the venture side. So at this point, it's like 95% liquid where I'm spending my time.

David Hoffman:
[5:03] Do you think that's just downstream of where we are in the cycle? I mean, it's a very interesting week for me to even ask that question because Bitcoin just ripped from like 62 to almost $80,000. And so, you know, potentially, potentially the bull market is on. But, you know, nonetheless, like last week, if the bull market is indeed on, the last week would be like the last week of the bear market. And so a lot of the liquid tokens, therefore, present themselves as very, very valuable deals. Do you think that's part, like, the reason why liquid tokens are so favored right now by you at Relayer is because of where we are in the cycle?

Austin Barack:
[5:37] No, I think even more so than that, you know, this has been core focus for probably about a year now. And I think we've... It's because we've been in such a deep bear market for such a long time that you've been able to see this separation of, instead of looking at 100 tokens, all right, there's actually 10, maybe, or five that are really, really compelling that are... Finding product market fit that are growing quickly, you know, it's an extension of that. And then are also priced really attractively. And if anything, actually, some of these assets are now priced a little less attractively, but in the grand scheme of things, still pretty good. I mean, you see something like Athena, which I think everyone was looking at as like, let's say if the bottom is the first inning, and then the first recovery of assets is the second inning. I always thought of like Athena and Pendle as third inning assets, where it's like, once things heat up and on-chain yields increase, those are two of the protocols, like these native on-chain yield protocols that benefit most. And, you know, Athena's up 40% in the last like 30 hours or something.

Austin Barack:
[6:46] So we're definitely seeing this play out.

David Hoffman:
[6:48] Let's talk about Venice. Let's get into some of the specific tokens here. There's a tweet from you that I'll read. In my opinion, that Venice, it is my opinion that Venice's token is materially underpriced at $1 billion FDV. I think the price is a little bit higher now today, or actually quite a bit higher price target based on what I consider to be a realistic scenario is $43.90. Talk to me about how you backed into that model. How do you think about VVV? Because it's not a token that really we've seen before. It's very interesting in terms of its value capture story and it's very specific in its value capture story. So when you think about valuing VVV, what are the most important things to consider when you create a model around it?

Austin Barack:
[7:31] Yeah, so, I think right now it's actually interesting because I think a lot of more people are creating like more sophisticated models because AI allows you to kind of build things so quickly. But I actually started my career in corporate development and FP&A at a payments company, actually. So I built this model the traditional way from scratch, which, you know, maybe it's a little crazy to say, but I found fun. But the way I built this model is like, all right, you got to start at the top. What is the business, right? And the business is private and uncensored AI use, being able to, access kind of AI as an application through or be able to access any sort of model, whether it's a frontier model or an open source model. And they monetize primarily in two ways. So there's people that sign up for subscriptions. It's freemium. So you don't need a subscription, but you can access all the products. And then it's, you know, unless they've changed the tiers recently, it's $18 a month, $68 a month, or $200 a month. But as, you know, consumers of AI know, that gives you a certain amount of credits. And when you run out, as people often do, if you want to keep using the product, you need to, you know, pay for additional credit. So that's really the second major revenue line right now, which is credit purchases. And then now you have to think about like, all right, so what does this mean for the token?

Austin Barack:
[8:55] And in June, or I guess maybe it was the very beginning of July, they raised an equity round or $1 billion valuation, equity and token to be clear. So alignment across both. And, you know, there's a lot of scar tissue in crypto. So people are like, oh, what does this equity mean? And I think Venice has actually created one of the most elegant balances of token and equity where this is an off chain business, right? The majority of this is just people using AI as a consumer application, signing up with a credit card, using it on their computer or their phone. So in order to create all of the relationships and access all of the compute they need and everything like that.

Austin Barack:
[9:39] Running a fully on-chain business as a foundation is just very operationally complex. So most companies, you know, will need an equity business. So what they've done is you have this token where, you know, the token benefits from burns that are happening on-chain. It also has a certain utility in terms of tokenized compute. And I'll get back to that in a second. And the idea is like, all right, well, they're reinvesting in growth as any business should do at an early stage when they're growing so quickly. However, all of, or the majority of free cashflow of, you know, the excess of what's spent goes into the token. And that's the plan long-term. They've been very explicit about that. And right now they have two programmatic burns. So for every new signup, whether it's, you know, depending on the tier, they burn a certain amount of tokens. And for every credit purchase, they also burn a certain amount of tokens. So from there, you can back into like, all right, this is the revenue for the business.

Austin Barack:
[10:40] Now, let me assume, let me make some assumptions on what the gross margins are at the business level. So, you know, this is not hyper liquid with like 100% margins. It's a business with costs. So what are, you know, the cog? So what are like the inference costs and the related things? And then what's the op-ex? So marketing, customer acquisition, headcount, all of that. So that when I think about burns, I think about it in the context of like, what are they reinvesting in the business? What are their costs? What's actually feasible to burn? Because, you know, people say they're burning 8% of revenue. Well, if let's say as an example, their gross margins are 50%, they're reinvesting in the business. And right now, let's say their EBITDA margins are 10%.

Austin Barack:
[11:22] If they're burning 8%, that means they're burning the majority of the free cash flow. So I think that's like a nuance that needs to be understood. So what I've done in my model is I look at where are credit burns today? Where are new subscription burns? And then what do I project those line items to grow based on, of course, how do credit purchases grow and how do subscriptions grow? And then, you know, I'll pause in a second. Then I think about like, all right, what are some new business lines and what are potential burns from that? That's the Minds product that they've been hinting at for a while, which is kind of like an app store for AI products, which is very interesting. And, you know, I imagine coming in the next couple of weeks. And then the other piece is what are subsequent burns that can be rolled out? Because, you know, they started first just with a discretionary burn. Then they did it for new subs. Then they did it for credits. And what are new ones that can be added? And how does that all roll up? So, you know, right now, as of, you know, August, they are run rating at an.

Austin Barack:
[12:26] In my estimate, at $107 million of annualized revenue and at $8.3 million of annualized burps.

Austin Barack:
[12:36] I have that in 2027, scaling up to $336 million in projected revenue and $70 million in burps. So from there, I just look at what's a reasonable multiple on earnings, like a P-E ratio. And I think for a token, buybacks to market cap is a very reasonable way to think of an equivalent for a P ratio. And for a business that's growing directionally like 5 to 10x year over year, which is just astounding growth, 50x is a reasonable comp, if not like potentially even cheap looking at stock market. And 70 million times a 50x valuation multiple, 3.5 billion for the token. Thinking about the projected token supply at the end of 2027. And that's how you get to $43.89, which versus the current prices today at about $16. It was $12 when I updated the model a few days ago. I think it's very compelling.

David Hoffman:
[13:32] What are the biggest assumptions in that model? The most shaky assumptions that kind of require the most amount of faith. So what are you kind of relying on in order to create a fair value of almost $44?

Austin Barack:
[13:46] Yeah. So I think the... Of that 70 million, I have 29 million in burns coming from the mine's product. So that's a significant assumption. That's 40% of 2027 burns coming from a new product. However, I don't make that assumption blindly. Venice didn't have a credit purchase product that existed in 2026. They rolled out in the very beginning of this year. And prior to that you could you know use the frontier models and credits as you know to the extent that you had available and then after that you you kind of had to to use other products or other models or upgrade tiers, and they rolled that out in, January or maybe it was February but you know beginning of this year and based on current credit purchases and this is something you can all track on chain, their run rating at $60 million of ARR. So a product that didn't exist eight months ago is now doing 60 million a year of revenue. So I think, you know, thinking about what the business looks like in 2027, 30 million for mines, well... Perhaps optimistic because, you know, this is a product that doesn't, that's not yet live. So there's a lot of assumptions required. I think it's something that's reasonable based on like what we've seen from the execution of the team so far.

David Hoffman:
[15:13] Let me give you some pushback on that one, which is that the credit purchases, you call it a new product. It's the same product because they're just selling tokens. Venice has always been selling tokens. They were selling tokens with selling their subscriptions and now buying credits is just like another way to sell tokens. So it's been the same product, but it's been just another way to take in revenue and really maximize, amplify a product that already exists. Mines, which I agree is exciting and potentially large, we just don't know. And so it could also potentially be a flop and the credit purchases are not gonna be a flop because it's selling the same product that already exists. But Mines is like a completely new line item in the Venice business. And we actually just don't know. And I don't think even the Venice team knows how well Mines is going to do. How would you respond to that?

Austin Barack:
[16:07] Yeah, so I think that's fair. And in that lens, let's look at credit purchases. You know, it's an extension of just using the product more. That's fair. So let's call that like a two out of 10 in the like new product scale. Maybe mostly not a new product. I think you can think of Minds as like 5 out of 10 in the scale of new product, where it is a new product, but it's not like a 10 out of 10 completely new. And the reason for that is, so Credits allowed you to use the existing product and the existing models more, the assets of it. And what Minds allows you to do is use the existing product more and better. And what I mean by that is whether you're building out agentic use cases or you're using coding tools as part of your existing Vanish experience or you're just doing chat prompts, The way people currently use AI today, like as a regular user versus a pro user, it's like you're using different products. The difference is vast. And that's the core of what Minds is building, whether it's like these structured prompts or like applications to help you use AI better. That I look at is just like making the existing product suite easier to use and easier to use more. So...

Austin Barack:
[17:28] And maybe I'm actually overestimating the revenue that will come from mines and I'm underestimating how much mines may just increase the pace of subscription growth and credit purchases because now they're going to be using mines, but, in turn, like using the existing products more because it's more useful. So I continue to look at it as an extension of what's being built.

Austin Barack:
[17:51] But yeah, I think that's fair pushback. It's definitely more new than credits versus like extension.

David Hoffman:
[17:58] On the flip side, the bullish side of Mines, I think, is also worth talking about and illustrating because it also kind of discusses Venice's positioning as a company, as a product. And maybe just to illuminate Mines even more as a product, there are a handful, a good handful of Venice users who are like super users. And the cool thing about Venice is that it has all the models. And some of these super users, all of these super users have gotten really intimate about which models do what very well. And so some of these super users are super prompters and they pick and choose the right models for the right circumstances. And the idea behind Minds is that it gives these developers like a developer platform, like a sandbox to create a structured model product.

David Hoffman:
[18:48] Like use this model and this model and this model in these ways to amplify the experience of like an average user. So a Venice super user can create a structure and they can present that to the rest of the Venice user base. And I think they kind of hinted at a way for like developers to actually monetize this. So if your mind gets used a lot, you get a kickback. And so it kind of turns it into an Apple App Store experience and it's like, And the reason why I think this is uniquely interesting about Venice is because Venice touches the end user. And I want to talk to you later about OpenRouter and the $7 billion OpenRouter Stripe acquisition. But this is something that OpenRouter or any generalized model aggregator doesn't have as an option to them because Venice owns a direct relationship to the user. So talk about the bullish side for Mines from that perspective, where like Venice actually gets to, they have a direct user relationship and the potential like how Venice might re-rate if it actually does turn into like an open developer platform.

Austin Barack:
[19:57] Yeah, and I think that's a big reason for why modeling it at 44 and it's currently trading at 16 because I, believe based on my research that this is more likely to be successful than I guess perhaps the market does right now. And, you know, that's how you make a market. But I think the bull case is they have 4 million historical users. I mean, they haven't released what monthly active or quarterly active numbers are, but by my estimates, that's at least over a million. And so you have these very, very active seven-figure user base, and they're going to be marketing to each other, especially these power users, and it's not going to just be on Venice. It's going to be wherever conversation is happening, whether it's on Twitter or Reddit or Telegram groups or Discord, because they're going to be incentivized to earn additional income for things that they're already doing by sharing those products. And I think that's like a really, really strong bull case. And like we've seen with, you know, like ChatGPT tried to build out like additional tooling around the product and like an app store of sorts, but it wasn't very open. It wasn't prominently featured. Venice is actually going to feature mines in the midst of everything they're building. So it's not going to be this thing off to the side.

Austin Barack:
[21:16] So I think, you know, if you probability weight it, the $29 million number that I have is maybe like a fair, reasonable number, but there's opportunity for significant upside from there. And one of the things that I think is interesting is like, so they've been chatting about this. There's been like a few tweets and announcements around a film festival that Venice has been sponsoring and part of.

David Hoffman:
[21:42] Yeah, the Lumara Film Festival in October in New York. Yeah, exactly.

Austin Barack:
[21:47] And I think that's one of the things where, I mean, you're seeing so much content created, but I think use of diffusion models is still pretty early in terms of image and video generation beyond just like fun novelty creation. And those sorts of products, perhaps most specifically, are where a Minds type product could be the most useful because you have so many people that want to be creators. And it's not like using an AI chat product where you can kind of figure out and you don't even know how much your prompt versus another prompt is useful. Not useful. Whereas like if you're trying to create a one minute video and you

Austin Barack:
[22:29] have no idea where to start, then an app store for that becomes incredibly useful.

David Hoffman:
[22:34] I want to talk about the tension between value and growth on the Venice side. Venice has been buying back and burning VVV with a share of its revenue from day one. And of all AI startups that exist right now, it's probably the only one doing the value thing instead of the growth thing. It's definitely still doing the growth thing, but they're, as you said, they're taking a very healthy chunk of their free cash flow and choosing to do essentially like stock buybacks in quotes, buy and burn of the VVV token. And this just goes against like common sense about startups. Like Venice is a very young startup, just a couple of years old, and it's doing stock buybacks with some of the revenue. Now we can talk about the trust that needs to be imbued in the crypto industry because of this token equity problem and the value that having programmatic buybacks brings to the trust around the VVV asset. But does it concern you at all that a AI startup is doing value based activities rather than taking that revenue and reinvesting in growth? Like, wouldn't that be like the more normal thing to do?

Austin Barack:
[23:43] Yeah, so that's a good question. So there's lots of positives, lots of negatives of having a token. So it cuts both ways. The positive is you're able to get a ton of attention and you're able to bootstrap quickly. You're able to create new types of like token utility. Like I mentioned, you can lock up Venice to mint a token called Deem, which is essentially tokenized compute, gives you a dollar per day of inference, which is really, really cool. And it allows you to acquire more customers. But on the flip side, until we have Clarity Act, you don't have necessarily those guarantees that.

Austin Barack:
[24:20] The token is going to accrue the value of everything that's built. The team has been very explicit that they plan to return value to the token, predominantly so. And they also plan to like, they made it like burn every token out of existence. And like, I guess that's like asymptotically impossible, but like that's the plan of, or like the, the, the gist of, of, of what they're going after. But you need to, you know, walk the walk if you're going to say that pre-Clarity Act. And I think that's what they're doing. So they're, they're walking the walk, but they're also doing in a way that's sustainable where, right now the burns are, it started with discretionary burns, which is just a couple hundred K per month. Then they're like, okay, we're going to do for new subscribers, but we're not going to do it for existing subscriptions. So it's like, you only get a cut the first month if you're a token holder. Then they're like, all right, well, we'll have this credit purchase line item that's growing really quickly. Let's do 5% of that revenue. So $5 of every $100. So they're being very deliberate to make sure they have enough money to reinvest in the business and, of course, be profitable, but also have this signal and provide this value to the token. One of the things that's most interesting about the raise that I think sometimes gets lost in conversation that Eric, the founder, was talking about is they raise $65 million.

Austin Barack:
[25:45] So that they have the ability to prioritize the token, but also be able to actively reinvest in the business. So if you think about what's been burned so far, I don't know, like the, I can actually pull it up from Venice stats, but like the historical number to date.

Austin Barack:
[26:02] It's, I don't know, like a few million bucks. And they've raised $65 million. So they've raised, you know, 1020x, what's been burned so far to be able to grow the business. So I think they've found a good balance where raising outside capital, getting other stakeholders involved, also making those stakeholders token the line because those stakeholders all have token warrants is, what gives them the ability to continue to grow so quickly. But yeah, it's an imperfect tension about reinvesting in the business and growth. And I mean, maybe Hyperliquid is just like an anomaly of anomalies, but I don't think it's reasonable for them long-term to be burning 99% of tokens unless like all of the growth comes from, like all of the customer acquisition growth comes from trade XYZ or is just like funded by the team. But maybe that goes down to like 95 or 90% down the line And they use some of that money to just like lean into marketing and customer acquisition and whatnot. And maybe they don't. And, you know, I'm a big fan of hyperliquid. So I don't mean that in any particular way. But yeah, it's, you know, a certain amount needs to be reinvested. And I think like to the extent that is reasonable, Venice is straddling that line very well.

David Hoffman:
[27:21] So there's two main mechanisms that VVV gets burned. As you've said, it's new signups. So different dollar amounts of VVV gets burned based off of the tier that somebody signs up for a Venice subscription. And then the second one is API credit purchases. So you buy $100 of credits, you burn about $5 of VVV, it's about 5%. There's one more like possible mechanism for VVV burn that the team has like potentially raised as a mechanism for burn without any committing to it in any particular way, which is resubscriptions. So like you buy a one year subscription and then it runs out at the end of the year. And then if you resubscribe, if you have like a rolling over subscription, no new VVV gets burned because it's just on initial signup. So there's potentially one more addition to the VVV burn mechanism, which is, you know, subscriptions rolling over and then they're buying another year's worth of subscription. Do you have that as an input into your model for Venice? Is that part of the $43.89 model? Or is that something that you haven't integrated yet?

Austin Barack:
[28:26] That's part of where, depending on your view of where the token is headed, my model is reasonable or optimistic. But I do have that part in my model. They've rolled out new burns over time, programmatic burns, and I think they'll continue to do so. So in my model, I have that beginning later this year or early Q1, depending on the different scenario analysis that I have. I think that's something that they're likely to do. But I think that's also a place where they can be measured. So, you know, if the subscriptions are $1,868 or $200 a month, they could start low, see how that impacts, you know, their ability to reinvest the business and then grow that over time. So that's also what I'm modeling out over time that like it starts low. And then over time, they increase that number. And for what it's worth, that's actually what I model out for credit purchases as well. So right now, it's at 5% of every credit purchase is burned. In 2027, I have that becoming 10% because, you know, I think they'll be able to actually increase that.

David Hoffman:
[29:35] Oh, wow. Oh, wow. Okay. So I was understanding a little bit of your model and your like stance towards it. It sounds like your model is optimistic and reasonable as in nothing is ridiculous. Everything has had evidence or some supporting evidence somewhere, but nonetheless, it is an optimistic model where like all of the, all of the things that are reasonable, but optimistic are included in the model.

Austin Barack:
[29:58] Yeah, I think that's fair. Let's call like ultimate bear case is 0 out of 10 base case is 5 you know full bowl case is 10 you can probably call it like I would call it a 6.

David Hoffman:
[30:11] A 6 on the optimism spectrum

Austin Barack:
[30:14] Yes cool.

David Hoffman:
[30:16] What do you think about just Venice growth to this point? Has it like exceeded your expectations? The trajectory from day one, has it been about meeting your expectations? What can you say about like Venice's growth up to this point and what you have imagined for it in the future?

Austin Barack:
[30:32] Definitely exceeded my expectations. I first started tracking Venice when they launched our token beginning of 2025. And, you know, that's because I was doing a lot of work in the virtuals and AIXBT and kind of related ecosystem. So I was fortunate to get a nice airdrop of VVV tokens. And, you know, that started following in since then. And, you know, it was something that was interesting and I kept an eye on, but, you know, honestly lost a little bit of track of it through like all the tariffs and crazy stuff that was happening in 2025. And, you know, they changed their economic model. Originally, VVV was both the token and the inference compute token. And then later on, I think it was in August, they created the DEEM token. But it was actually very beginning of this year, Venice was trading at like $2. And Eric wrote this really long tweet thread about the change in token economics, how their tokenized compute token worked, what some of the growth that they've seen lately was.

Austin Barack:
[31:35] And sometimes it's nice to have this like blocked out periods of time where there's nothing else to do. But I was in a 40 minute taxi ride. I was traveling across town. So I'm scrolling Twitter and I'm like reading through this whole thing. And I'm like, wow, I guess I hadn't like kept fully up to date with what they were doing with DM and started digging in. And that's when I started building a position for the fund, But I did not anticipate that the token would 10x the revenue, like what I estimated at the time was maybe like the 10 to 20 million range would do like a 5 to 10x in a period of eight months that they'd be at 4 million users. I think they were maybe at 1 million users at the time. That credits would also grow so quickly. So yeah, I've been really pleasantly surprised. You know, I chat with the team a lot just because I'm like an active community member and I love sharing ideas, suggestions, like unsolicited feedback. So I appreciate that they don't tell me to lay off and, you know, they listen to the ideas that I have. But yeah, it's really incredible. And I think one of the things that's cool is we've seen so few products in crypto that have legitimate mainstream consumer crossover that have found product market

Austin Barack:
[32:57] fit, and Venice is one of those.

David Hoffman:
[32:59] When you saw OpenRouter sell for $7 billion, what was your reaction to that from the Venice perspective? Was that confirmation of the sector that Venice is in, or did that add anything new to your perspective around VVV, the token? What was your reaction?

Austin Barack:
[33:13] Yeah, so I think it just shows that we're moving to like a multi-model routing world where people are finding tons of utility of using different models for different use cases. And that's what Open Router is, but like more on the developer tooling level versus like the consumer level. And fundamentally, that's what Venice is as well. You go there because you want privacy, but also because if you go to ChatGPT, you're using whichever model of, you know, OpenAI's latest models that you pick to use. Or, you know, same thing with Anthropic if you're going there, you know, so on and so forth. But there's very few strong consumer products that allow you to pick whatever model is best for the particular use case they're using at that time, And that's just validating what Venice is doing. So, you know, OpenRouter raised at a 1.3 billion valuation. It's like two months ago, like not really long ago. And now it's like 7x and or more than 7x at 10 billion. So I think that just reflects on what a reasonable multiple should be for Venice and like, Maybe the right number was 30x before or 50x before. But if they continue to see this growth, maybe 70x is the right multiple. So that just gives me more conviction in the valuation analysis that I've done.

David Hoffman:
[34:42] There have been a few tokens in the last like six months to a year or so that have grown in price, grown in value, idiosyncratically like out of the bear market. Where, you know, Bitcoin is down to flat, ETH is down to flat, but hype just like blew up in the last like 12 months or so. Venice, you know, really grew despite the bearishness in the macros. And there's been a few of these tokens that have grown despite just the broad bearishness in crypto. So there's one take where it's like, oh, well, like once Bitcoin goes, then like, oh my God, these are going to go even further. But the bearish take is like, oh no, these like, you know, What is Venice exposed to? Venice is exposed to, or VVV is exposed to the success of Venice, obviously. And actually, if Bitcoin goes to all-time highs and beyond, say Bitcoin goes to like a quarter million dollars, actually VVV has no exposure to that whatsoever. Do you think there's any sort of coupling between the macros of the crypto assets and things like hype or VVV, which have grown according to their own revenues? Or do you think these things are like actually meaningfully decoupled and macro growth in crypto as an industry actually won't really show up in things like

David Hoffman:
[35:56] VVV or Hype. Do you have an opinion about that?

Austin Barack:
[35:58] Yeah, so that's a great question. So I think they're partially coupled, partially decoupled, but the decoupling part is in a positive way. So I'll start with the decoupling, which is the performance that we've seen before the move in Bitcoin and majors.

Austin Barack:
[36:12] These are businesses that are growing really quickly. They're seeing like fundamental value being returned to token holders. That gives them a strong floor valuation based on just the business that's being done. And depending on how much you want to underwrite the value for the growth that they have, you can price out what they should be worth. A lot of them have been growing faster than people expected and were valued cheaper than was reasonable. And that's why we saw this re-rating earlier in the year. I think that continues as the business fundamentals continue, and I think the business fundamentals continue. So that non-correlated aspect should continue to do well. Now let's take three particular assets as examples on what their coupling and correlation is to the broader market. do. Let's use Venice hyperliquid and pump. So Venice, I think all of the, let's start. So all of them, I think benefit from the fact that they are fundamentally tokens, not equities. And tokens have had negative drift for the last 18 months. What I mean by that is there's no capital flows coming into crypto, probably, or definitively capital leaving tokens, leaving crypto, moving to equity is moving to AI, moving to other asset classes.

Austin Barack:
[37:31] And, you know, you look at equities, equities just because of 401ks and pensions and whatnot, they structurally have positive capital flows. But the negative drift in crypto is cyclical. I don't think it's going to persist. I think that flips over time. I think it's probably just flipped, which is why we're seeing this massive movement across the board. So to the extent that VVV, Pub, Hype, these other assets are tokens, they're going to benefit from more capital going to tokens as an asset class. So I think that's a tailwind regardless, and that's a very meaningful tailwind because when people say like, I want to allocate to tokens, those are some of the ones that are going to be top of the list, especially for the people that are trying to underwrite fundamental value, whether you think about it as like traditional hedge funds or liquid hedge funds or like family office, high net worth type investors, and also retail that is just looking at it from that lens as well.

Austin Barack:
[38:28] The part where it's coupled further, I think Venice has that piece. I think Hyperliquid and Pump actually have some further coupling. So Pump benefits their fundamentals from when there's more on-chain activity and more meme coin trading. We've seen an acceleration over time, but I think that's just gonna like massively grow from here. And we could see revenues, you know, over the last 90 days, like the 90 day average versus, you know, what we've seen recently, it's grown like 80%. I think we could see like a doubling or tripling even from here. So just return of on-chain activity and meme coin trading, very positive for PUP. For Hyperliquid, most of the re-rating came from volume in their HIP3 markets and they're like RWA markets, whether it's, commodities, stocks, indices, and that hasn't generated a lot of revenue so far because they're all in growth mode. The revenue, the top line, hasn't actually grown that much because while volume is growing so much from the RWA markets, not generating a ton of revenue, the cash cow has always been the crypto token business. And if we see a return to flows moving into crypto and lots more activity, then that's something where they're going to benefit in the part of the business where they have the highest take rate and they're actually earning the most fees. So if you look at, they were generating.

Austin Barack:
[39:51] Directionally just under a million dollars of fees a day a week ago. Now they generated about $5 million of fees in just one day a couple days ago. So I think the cycle reflexivity is very, very strong for something like a pumper or a hype in the fundamentals as well.

David Hoffman:
[40:10] So you think that a handful of these tokens that we've talked about actually get the best of both worlds. They get exposure to their own growth, which obviously they do, but they also get exposure to just like Like the tide that lifts all boats, which is the crypto markets pump and the purse platforms, especially just because like that is they are the crypto markets. That's literally their product.

Austin Barack:
[40:31] Yeah. And the nice thing about Venice is like, well, it doesn't have the full extent of the tide that lifts all boats with crypto because it doesn't have that reflexivity with on-chain trading or whatnot. It has at least as big of a tide that lifts all boats, which is just AI adoption, which is why I'm so excited about it because more people are using AI every

Austin Barack:
[40:51] day and that's not changing.

David Hoffman:
[40:53] There's a bunch more tokens that I want to talk to you about, but I don't want to prime you in any particular way. So what token, we've talked about VVV, so that one's done, like checkbox on that one. What token excites you the most? What gives you the most intellectual fodder to work with? What gets you going?

Austin Barack:
[41:13] A couple from different lens, from like a finance and valuation analysis perspective pump, I think it's still incredibly cheap. It's trading at 5x buybacks, where if you look at hyperliquid and lighter in the 30 to 40x buybacks range. So those are much higher. But I think people ascribe a higher multiple to a perps business than pump, which is.

Austin Barack:
[41:37] You know, I think you can call it, I think it's not unreasonable to call it a durable casino business. You know, people go to pump and trade meme coins looking for asymmetric returns, have very short trading time horizons. And I think it's similar to gambling in many respects. But there's nothing wrong with gambling. It's a very big business. Like people are investors in Wynn and Las Vegas Sands and MGM and Giraffe Kings and FanDuel. In, I don't know, like you look at prediction markets or, you know, zero day to expiry options on Robinhood. It's a form of speculation on the line with gambling that I think is not an unreasonable comparison. And trading at a 5X multiple to earnings is crazy in my opinion. I think 10X multiple to earnings is much more reasonable. That would be a 2X from current levels, assuming no further growth. I think it grows further from here. So even though Pump has done, you know, 3x in the last month and a half, two months, something like that, I think it has a lot more room to grow based on these multiple re-rating and value plays out. Hype, I think, is incredibly interesting just because it's.

Austin Barack:
[42:47] Maybe other than stable coins, the best, and Bitcoin and Zcash and money from a perspective, I think it's one of the best examples of the crypto thesis playing out, which is instant settlement, 24-7 trading, bringing all assets on chain, and shifting the financial system onto blockchains. So it's really fascinating to see markets grow. And also new use cases like.

Austin Barack:
[43:16] Price discovery for SpaceX, or someone like Cerebris, or Unitree, or a lot of the new IPOs happened on Hyperliquid.

Austin Barack:
[43:26] I think increasingly bankers, as they set what the price for an IPO should be, are going to look at their hyperliquid screen and it's like, all right, well, that's where it's priced. I guess that's what the market is willing to pay.

Austin Barack:
[43:39] EtherFi is another one. EtherFi, I've been following probably closer than most for a very, very long time. And the fun reason for that is it was actually my first venture investment in the fund. So I started chatting with them in January, 2024, before the fund was actually even live. And the fund went live February 1st and made an investment in their Series A then. And at that time, they were just a liquid restaking business. But, you know, I was after speaking with Mike and Rock and the team there, they just struck me as a team that was like really top decile, top percentile in their ability to execute, but also, build new products based on where the puck is going and understanding that like, certain products can be useful for customer acquisition, but they could become commoditized over time. And like liquid staking is one of those products. And, their ability to move from liquid restaking to yield products to a credit card product to now a full-fledged NIO brokerage where you can, trade any asset on chain, you can borrow against those assets, you have like an incredible credit card offering, they have their own instance of Aave V4 where they can facilitate borrow, lend and monetize that.

Austin Barack:
[45:00] And the way they're using stablecoins to access a global market kind of reminds me of like a mini on-chain Nubank. And Nubank, you know, it's like a very flattering comparison for EtherFi. And if they can achieve a fraction of Nubank's success, that would be awesome because Nubank is worth, you know, like $80 billion and has 139 million users. But I think the thesis is somewhat the same in terms of, you know, offering compelling products to users in, on a global basis, but doing it in a way that was fundamentally different than what was standard at the time with, you know, NewBank offering, you know, products that were much more kind of consumer friendly and more internet native and, EtherFi doing the same thing in a global stable coin driven on-chain context.

David Hoffman:
[45:50] EtherFi is also doing buybacks of their own token. Their own token, unlike all the other tokens that we've talked about, Venice, Pump, Hype, their own token, I mean, EtherFi has really felt like it's been in a hangover from like the infra phase of crypto, which we have firmly left.

David Hoffman:
[46:06] But nonetheless, like EtherFi is making revenue doing buybacks. How do you think about EtherFi on the growth versus value spectrum? Are you in EtherFi because there's a lot of growth left to do because the Neo brokerage is a phenomenal product that EtherFi is really a first mover on? Or is it just because like actually they're making revenue and they're buying back the token? And based off of that, there's actually some dislocation in the market. How do you think about this thing?

Austin Barack:
[46:30] So it's both. It's both. And let me explain why. On the valuation, they've been fundamentally valued like a liquid staking or liquid restaking business for most of their history, which meant people were really excited about it in the beginning of 2024. It was like an $8 billion FDV at the peak at the time that people thought Eigenlayer was going to be worth $15 or $20 billion.

Austin Barack:
[46:55] And, you know, valuations declined over time as there's been less excitement and liquid staking and liquid restaking or restaking generally. And you even see this play out as recently as the Ethereum inflation reduction proposal where EtherFi was down 10 plus percent on that day, as was Lido. And EtherFi is a fundamentally different business today than it was then. And it's definitely not the same business as Lido. So it just shows how the market as like still not that made that transition and perception of what Ether5's business is today. And when I say that.

Austin Barack:
[47:33] What I mean is today, 65 plus percent of Etherify's business comes from their Neobank product. So it's from credit card usage and it's from borrow revenue of people borrowing against their balances to use the credit card. And only 35 percent is from yield and staking. And that's something that's been shrinking as a percentage of business with the Neobank part growing over time. I think that portion of the business even accelerates further as they've offered access to tokenized stocks, wide variety of assets. So now instead of a handful of assets, hundreds of assets and a much more compelling product than they even had before, which I think was already compelling with some of the updates that they recently released. So I think it's something that should be valued differently than it's being valued today. And on that context is actually quite cheap. It's, you know.

Austin Barack:
[48:30] In the range of, you know, 10 to 15 times earning, depending on like what price you look at, because it's moved quite a bit recently. On the other side, I think the growth opportunity is really, really massive. So first of all, like if you look at the credit card product, a year ago, they were doing $300,000 of credit card volume a day. Now they're doing three to four million a day. So that's 10x year over year. That's something that I think starts to hockey stick and actually grow a lot faster than it's even grown. And in the grand scheme of things, three or four more million a day is nothing. It's a tiny, tiny number.

Austin Barack:
[49:08] And then now that you have buyback starting on a programmatic basis, similar to actually how Venice has done it, so a certain percent of interchange revenue and other line items, you can start to look at what does this actually return to the token. And the majority of the token supply is actually fully circulating at this point. So there's very, very little pressure from emissions. So now it's something like equities or like, you know, Microsoft in the sense that there's structural buyback pressure with no new tokens coming to market. Blockworks did a really good analysis recently on, you know, their model for projecting growth. And they actually, to be conservative, cut growth rates in half from where they are today. I'm saying the opposite, that it should actually be faster. And they got to $21 million of buy and burns over the next 12 months. If you apply, let's say you use a number that's a little bit higher than that, say 30 million of buy and burns, I think can actually be quite a bit higher than that. And you apply a 30X multiple, which is very reasonable in the like neo brokerage world, you get to a token price that's over a dollar. And that's directionally 2X from where we are today.

Austin Barack:
[50:25] But that also doesn't factor in multiple expansion from there, from the fact that they're the category leader for on-chain Neo brokerage, but also a business that I think can actually grow a lot faster than that $20 or $30 million number. And a team that I'm fortunate to know and know how well they execute. So yeah, TLDR, I think it's got a lot of triggers that can drive it forward.

David Hoffman:
[50:50] The thing I think is cool about EtherFi is that it's fitting the model of a modern startup, which is... Don't have a big team and instead use big technologies. And so, you know, Ethereum, to me, they're just kind of packaging up Ethereum and selling it. Like, why are they doing a Neo brokerage? Oh, it's because we have tokenized real world assets now. We have tokenized stocks now. And it costs them almost nothing to evolve their product from a Neo bank to a Neo brokerage. Because Ethereum has evolved from a Neo bank to a Neo brokerage. And so Ethernet's like, oh, great, great assets you have over there, Ethereum. It'd be great if somebody just packaged this up and sold it to consumers. And so like they don't need, it's a very lean, slim, like a low CapEx business, I'm assuming. And they don't need to like bring on and hire out a whole new arm of the business to evolve from simply stable coin spending to being a neo brokerage because like Ethereum does so much of the legwork for them. And so it can stay lean while it can scale pretty high.

Austin Barack:
[51:57] Yeah, the cool thing is like, so you look at the evolution of neobank, neobrokerages over time and over time they make more and more of their money from interest income on borrows. If you look at NewBank as an example, they make 60-70% of their revenue from that. If you look at EtherFi today, it's still very early, it's 4%. And to what you were saying about like leveraging existing infrastructure, initially they were, using their own systems. And they were going like literally organizing deals, with potential lenders directly to be able to facilitate borrowers on the platform. And right now they have about $20 million that their users are borrowing for the credit card product. And they're like, wait, this is on-chain. Aave has actually built a pretty good product to do borrow lend. Why don't we just have our own instance of Aave v4, we can do a revenue share with them. They did an 80-20, so 80 to Ether5, 20 to Aave revenue share. And now we can run it with like a best-in-class product with a really lean team and really low costs because like, hey, this DeFi product already exists and it's pretty, pretty good.

David Hoffman:
[53:10] Yeah, it does feel like the modern reincarnation of like OG money Legos are like, oh, let me just plug that into my product and boom, now I have that.

Austin Barack:
[53:19] Yeah.

David Hoffman:
[53:20] Moving on, but this is going to be a last few questions before I let you go. Why do you think the market ascribes such a low premium to pump revenue? Or is that like a dislocation that is an opportunity in the market? How do you think about the value that a dollar, that the market gives a dollar for pump revenue?

Austin Barack:
[53:38] Yeah, so I think the perception is changing and that's part of, you know, why it's done well over the last, you know, couple of weeks. One of the reasons is people questioned revenue durability. They're like, we've seen this story before. OpenSea was an often touted example of like, generate billions of revenue. And then 12 months later, the business is doing like.

Austin Barack:
[54:02] 95% less. And I think what we've seen over the last two plus years is actually this revenue is pretty durable. It's not going anywhere. It's actually growing. This is something, not something that's fly by night. Maybe individual meme coins will go up and down, but this is like, to use like hyper liquids language, like the house of all finance, this is the house of all meme coins. And I think that perception around durability is changing. Part of that was people questioned like really the veracity of that revenue. Like, is it real, even though it's on chain, which is kind of funny, but like, is it being catalyzed in any particular way? And the reason is most of the people on crypto Twitter and most of the like, liquid funds or retail investors that are trading things, there's a surprisingly small overlap with meme coin trading, myself included. I'm not like a trencher on Axiom all day. So when people think about and see these numbers that even after 1010 last year continue to be really high, they're like, how is this still so high? Who are these users? I don't talk to anyone who's a user of this product, but I think it's just fundamentally different users. And once you understand that you're not the target user, it's easier to understand why this business is so durable. And then the other piece is just like, I think there's a negative association to meme coins.

Austin Barack:
[55:27] But once you start to think about it as just like another type of speculative product, just like prediction markets or short expiry options or like casino games that have been durable, lotteries are huge. People know they have, unless you're like counting cards, a negative edge playing blackjack or like any other casino game. And they come back because there's variance. and I think people are coming around to the idea that like.

Austin Barack:
[55:56] There is a reason that people will use negative EV products. If like for the total user base, it's negative EV, that doesn't mean that you won't use it because then lotteries shouldn't be like the massive business that they are. So I think that's why it's traded so low. And I think that's, you know, that's changing. One other piece, of course, is there's an equity part of the business and there's a token part of the business. It's not exactly clear what you control as a token holder. Initially, they had 100% buybacks, That wasn't guaranteed for any amount of time. Then earlier this year, they said, we're going to do 50% of revenue into buybacks and we're going to do it for guaranteed 12 months and we can use that other 50% to grow the business and reinvest. That's something that is subject to renewal next year. For a multi-billion dollar asset that they own a ton of and are trying to build a generational business, I don't think they're going to abandon the token, But, you know, that is something that's a risk that, you know, I think like depending on where you think that's going to end up, you can probably have your buyback multiple like 6 to 10 or 10 to 14 based on like how do you handicap that risk. But yeah, that's just another component as well. And hopefully with Clarity

Austin Barack:
[57:17] Act, that's something that makes it a little easier for them to be explicit.

David Hoffman:
[57:22] Awesome. When you look forward to 20 at the end of 2026 and 2027 and really to the next cycle, how do you think this legacy of this incoming cycle will be defined? Which is a weird question because I'm asking you to go forward and then look backwards again. But we're firmly in a new era of crypto, like the hyper infra age is firmly behind us. Like, I think the excitement around new chains, be it layer twos or layer ones, is mostly a thing of the past. But nonetheless, there seems to be plenty of energy and excitement in different pockets of crypto. So just how are you thinking about like what the future of crypto looks like for this next cycle?

Austin Barack:
[57:59] Yeah, so like one interesting chart, I think also BlockWorks chart, is... And for much of crypto's history, execution layer infra revenue generated like 95 plus percent of total crypto revenue. Now it's actually applications are generating about two thirds of revenue and about a third is generated by execution layers. I think that continues to move in that direction. And we're going to see 90 plus percent of revenue generated by the applications. I think we're going to find the most enduring tokens be applications and money. And so that doesn't mean that Bitcoin is going anywhere. It also makes me incredibly excited about something like Zcash, which is serving like a different type of user. And in many respects, it's the original ethos of what crypto was 10 plus years ago. And I think why it's resonating with so many OG Bitcoin holders and why it's seeing like these structural inflows.

Austin Barack:
[58:56] I think ETH is actually in a very interesting place to potentially be money, depending on what happens with Bitcoin, with quantum, the amount of like concentrated ownership and risk related to Bitcoin ownership from strategy and other elements. So it actually makes me more curious about like.

Austin Barack:
[59:16] Ethereum from a money perspective than I've been in a very long time. I looked at it from a revenue perspective for a while, which made me think that Ethereum was quite overvalued. And I think it has this interesting optionality that's kind of coming back a little bit. But yeah, I think it's going to really be about applications, usage, and money. And when I say usage, obviously Ethereum is highly utilized. You have things like Base and Robinhood that are highly utilized. But when you think of blockchains with the most activity, I think you have to look at Solana. Solana is what's enabling POMP. It has the most spot activity on chain. They're right now going through this transition where it's incredibly utilized, but they're not generating a ton of revenue because there's not like the MEV that it had back in the day.

Austin Barack:
[1:00:08] But I think it's one of the most compelling bets for crypto adoption. It's just like you have to watch how that evolves quickly over time. But yeah, looking back, I think it's going to be a story of what are the zero to one applications that have really found this intersection of crypto and the rest of the world and what's the money that's resonated. And that's why I think, you know, the venices hyperliquids pumps eats or fives bitcoin zcash you know at center of the world are are going to be the things that people look at and say like, wow 2026 had some good entry points.

David Hoffman:
[1:00:47] Awesome this has been great thanks for coming on the show

Austin Barack:
[1:00:50] Great to be here.

David Hoffman:
[1:00:51] Bankless nation you guys know the deal crypto is risky but not risky enough the institutions have landed so we are going even further west this is a frontier it's not for everyone but we are glad you're with us on the bankless journey thanks a lot