How Crypto Is Rebuilding Finance From First Principles

I'm here with Guy Wuollet, general partner at a16z crypto. Welcome to the show.

Thank you. Great to be here.

Today we're just here to get to know you a little bit better. You've recently been elevated to the position of general partner, one of four GPs that we have on the a16z crypto team. Before that you were an investment partner, but you've been in the crypto world for a while now. I was actually digging up some Guy Wuollet lore and learned that you were not even originally at a16z on the crypto team. You were on a different team, an intern on the go-to-market team for the enterprise team, and somehow from there you managed to make your way into all this crypto stuff that we do.

From a16z intern to general partner

So give me a little bit of the background here. How did you land on the enterprise team, and how did you then make your way from the buttoned-up world of enterprise software to the pretty wonky, wild world of crypto, which is getting more professionalized and suited up, as you say?

I grew up in suburban Philadelphia. My sport, or passion, in high school was rowing, and that's part of how I ended up at Stanford, where I went to college. There I very quickly fell down the computer science and then the crypto rabbit hole. I had programmed a little bit as a kid, but it was never my primary interest. I went to a very classic East Coast prep school, and we did not have programming or computer science classes.

When I was at Stanford I became very interested in crypto, and around that same time I was looking for a summer internship my sophomore year. After my freshman year I had worked in the economics department researching the impact of political power on nuclear energy cleanup costs. It was a super niche topic, and it was very fun reading and then digitizing the Department of Energy budgets that were physically on paper.

I didn't know about this backstory. We can get to this later, but you've also led our investment in Daylight, which is a decentralized physical infrastructure project that focuses on decentralized energy. So I am beginning to see some weaving of threads throughout your career here.

Yeah, I've always been fascinated by networks, be it the internet or the energy grid or the financial system. I think that's a through line of a lot of the intellectual interests I've had, and certainly part of what inspired me to get interested in crypto.

My sophomore year of college they had the student career fair, and I ended up talking to, I think it was Ben Gardner and Ronnie Harris, who were both on what at the time was called the market development team, and they were hiring interns. Ben and Ronnie were Stanford football. So I chatted with them for a little while and made a connection, and ended up getting an introduction to some other people on that team through a family friend as well. I ended up on the enterprise go-to-market team as an intern, which I did for two summers and the year in between.

This was in 2018?

Yes, yes. I was very interested in crypto, and I would say interested in the internet and networking, and crypto as potentially the future of that. So during my time as an intern on that team I initially tried to do more crypto-related things. I was fortunate to get to spend some time with Jesse Walden, who's now at Variant, but at the time was one of the investing partners on the crypto team, and then a little bit with Eddy, who I think joined at the beginning of 2019, maybe the summer of 2019.

My big project the second summer I was working on the enterprise market development team was trying to build a stack diagram, from the perspective of a chief information officer at a traditional company, to understand the crypto landscape. At the time there were lots of people building at the infrastructure layer, let's call it L1s, bridges, interoperability protocols on top of blockchains. Very few people were building a business or an incentivized decentralized network at the networking layer.

Part of the inspiration was: well, if the point of blockchains is to offer decentralized applications, something built on top of a piece of infrastructure can only be as decentralized as the infrastructure that underlies it. And if you think about the internet itself, in pretty much every country globally it's actually relatively centralized into a couple of tier-one ISPs, usually heavily regulated by the government.

There are so many really interesting bottlenecks and choke points with the internet. Carrier hotels, just a few really, really major ones that connect up all the wires; the undersea cables. People think of the internet as just being this diffuse cloud that's ever present, omnipresent everywhere. But it's tethered to reality through a few locations.

Totally. And usually we refer to the internet as a singular thing, which is also not as true today as it used to be. We have some fragmentation of the internet amongst different countries, especially where some foreign governments want to more strongly control the information in their society, an example being China and the Great Firewall at one end of the spectrum. But there are other countries that also maintain levels of control over their internet.

So I became very interested in: can we build a networking or an internet protocol that had native incentives? The same way Ethereum was a decentralized protocol that had native incentives, could we build something similar for IP and BGP? That turned into trying to build a research project around a decentralized internet service provider. I was part of the original version of what at the time was called Crypto Startup School, which turned into the Crypto Startup Accelerator, the program we've run a few times as a team. I was one of the participants back in, I think, the very beginning of 2020, maybe the end of 2019.

So, Guy, you've got a really interesting panoramic view, having gone at this from a number of different angles: all the way from coming up as an entrepreneur through our startup accelerator program, to being an intern on one of the other teams, to being an investment partner here, and now leading deals in various crypto startups. That's a unique kind of worldview that you've managed to capture for yourself.

Yeah, I think I was very fortunate to have a lot of happy accidents with the people I got to work with. Stacey on the enterprise market development team, when I was an intern in college. I was a TA for Dan Boneh, who teaches a lot of the cryptography and blockchain classes at Stanford.

Dan is a research advisor here.

Yes. Dan is the GOAT.

That's the correct way of saying that.

And then, I never started a company. It was much more of a research project when I was part of the accelerator program we ran. Coming out of that program, I worked with Protocol Labs as a researcher on their team. The focus of Protocol Labs is building Filecoin, which many people may know as a decentralized file-sharing protocol. One of the ideas was: we have this excellent large-scale engineering team; when we finally perfect Filecoin, what's the next project for the company? So there were ideas in that research group. One of them was called the Underlay, which was a partnership with MIT, and I think Joel Gustafson was leading that. There was a project called the Decentralized Energy Project.

Wasn't Ali involved with Protocol Labs as well? Did you overlap with him?

Well, this is a series of happy accidents, right? Ali Yahya, who's one of the GPs on our team, went to college with Juan Benet, who's the founder of Protocol Labs, and they actually started a company together before Juan started Protocol Labs. They had lived together and were very good friends.

So I worked at Protocol Labs on this research team. My project was trying to build this incentivized networking layer. I worked very closely with Evan Miyazono, who was the head of research, and I worked a little bit with Juan, although he was definitely more focused on Filecoin at the time.

When I finished my time with Protocol Labs I was doing a coterm, basically a fifth year, and I was very interested in building some crypto project or working in that space, but not totally sure how to materialize that. I thought I should just do the coterm and figure out whether this research project I'd worked on, first in the context of the accelerator and also with Protocol Labs, could become a startup. And then at one point Eddy Lazzarin, who's also one of the GPs on our team, called me and said: we're interested in hiring new investors from backgrounds that are not typical of venture capitalists; are you interested in interviewing for this? I thought about it very briefly, and then I was like, yes, absolutely, that would be fantastic. This was eventually a goal.

As a student who had interned at a16z.

Well, yeah. I think the context is useful, because the original idea of the general partners, the investors at Andreessen Horowitz, was that all of the general partners were very successful entrepreneurs or very experienced operators.

That was a basic, fundamental tenet of Andreessen Horowitz when it was first started. Everybody who was in an operator position had to have been a former founder.

Yeah. I was the intern that was interested in politely bothering people and trying to learn more. And the pattern of the investors across the different teams, the investment partners who work with the general partners, was usually someone in, let's call it, their late twenties or early thirties, who had worked at a high-growth startup, usually in a product or corporate development role. So it was a different background.

Anyway, I ended up interviewing with everyone on the team and found all of these touch points that in hindsight maybe seem very obvious, but were certainly not intentional. I had worked with Stacey as an intern; I'd worked closely with Dan, and if I recall correctly, Ali asked Dan for a reference on me, and Dan's comment was, "Guy is competent."

High praise coming from Dan.

From him, that's the gold star. And then I had worked closely with Evan, and worked with Juan a little bit at Protocol Labs, whom Ali knew very well. So we ended up having all of these touch points, and I was fortunate to join our team at the end of 2020.

When Chris was announcing your promotion to general partner, he mentioned that the team just kept running into you.

I think that's a very good way to put it. I would put it as: I was fortunate to keep running into them.

Bitcoin and cypherpunk roots

There's one part of your story that still remains a gap to me. You mentioned an interest in crypto, but the origin of that isn't clear to me. I know from working with you that you do have a sort of cypherpunk ethos and spirit, but it's never been clear to me where that came from and why you gravitated toward crypto.

I would say certainly in part by inclination. I was a bit of a, let's say, curmudgeonly child. I was not a huge fan of authority. So the idea that there was a new way to evolve the internet and help replace some of the existing financial services that maybe didn't work as well for everyone as they could was appealing to me. The original ethos of Bitcoin as a hedge against government inflation, a check on nation-state power, was definitely interesting to me intellectually.

I also remember, I think it was my grandmother, at the end of 2017. I was the tech person in the family, studying computer science, so usually the questions would be something like: the Wi-Fi is broken, can you fix it? Or someone got a new tech gift for the holiday, can you help set it up? And one of her questions, really offhand, was: should I be buying Bitcoin? I keep seeing this on the news. I understood a little bit about it, I'd talked to some of my friends from school, but I didn't have a deep understanding. So I read the white paper. I sat down, looked through it, and I ended up coming back to it every day for about a week, rereading it and trying to understand it better. That was definitely the initial inspiration.

So I came to crypto through, one, the context of Bitcoin and being very interested in that, and two, through just being fascinated by the internet and thinking of blockchains as this generalization, this next era of how to build internet services that are not just open source but also have native incentives and can themselves be businesses, as opposed to pure open software standards. That was a lot of my initial interest. Some of that was purely technical and intellectual, and some of it was certainly ideologically inspired by this idea that you can use cryptography for social change, to change how society works. I think the best way to put that is being a cypherpunk, which I definitely identified as for a long time. There's maybe an interesting evolution of that, which we can talk about in a few minutes too.

From technological revolution to practical products

Industry-wide?

I think both. There's a quip I like about libertarians, which is that there's a good thing and a bad thing about libertarians: the good thing is they're right, and the bad thing is that they lose. And I think the history of crypto over the last few years is that for cypherpunks. The cypherpunks are correct, in that the purely decentralized systems have been significantly more robust and have achieved many of the social or ideological goals. But in terms of what has gotten the most market adoption, and what projects have been the most successful on a financial or mainstream basis, I would say it's the projects that are a little bit more pragmatic and have been willing to compromise on some of the ideological goals in order to achieve mainstream adoption.

You see this in a lot of technological revolutions. It's certainly true in open source as well. A lot of the current open source advocates have a different inspiration than the original open source advocates, but you see open source being significantly more popular today, and I would argue open source has clearly won.

Definitely. Linux is running on 90-plus percent of computers in existence.

Yeah. So I think crypto is going through this process too. An analogy we've talked about a couple of times is that it's not a mistake that we often refer to blockchains as a technological revolution. If you compare them to literal political or social revolutions, you need a strong activation energy to convince people to try to make a change and overthrow the incumbent. But at some point the revolution can't continue to revolt forever. There has to be a solution or a structure. Be it in the course of a political revolution in the US or in France, you have to govern at some point. For a technological revolution, you have to provide a solution or a service that everyone can consume, that's more mass-market than the initial core inciting energy.

I think we're going through that process a little bit in crypto, where there are some products that are very clearly targeted towards a cypherpunk customer who's making a technology choice on the basis of ideology. There are also a lot of projects targeting a consumer or a business that's making a choice on the basis of efficiency or platform risk or composability. All of those projects are valuable and viable and should exist. But crypto started with building products and services for people that were a little more ideological, and that certainly succeeded in the case of Bitcoin, which I think is valuable intersubjectively: Bitcoin is valuable because other people also think it's valuable. But there are a lot of products and services in crypto today that are valuable just because they're more efficient than an existing solution, or because they reduce counterparty or platform risk. I think there's a place for both of these, and both are very important.

This dichotomy, this schism between the cypherpunk ideological bent in crypto and the pragmatic, perhaps more professional interest in crypto, has existed for a long time. Years ago we used to say "blockchain, not Bitcoin." That was the rallying cry of the banks that were interested in using this technology for their own ends and purposes, but not getting into the crazy world of tokens and coins and such. What would you say is the balance today between those two forces, those yin and yang forces in crypto? Having been interested in this from reading the Bitcoin white paper, to trying to build your own decentralized ISP, to now as a GP at a16z crypto, how have you seen that shift within the industry? How have you seen these two weights on the scales? What's the percentage between them?

Well, it's interesting. We call the fund a16z crypto. I think the way you describe something is often very indicative of more than the literal description. Crypto is a shortening of cryptography, and also of cryptocurrency, and also of crypto network. Crypto is literally a technology that has no opinion on how it's used, in the form of cryptography. It is an asset class, in the form of cryptocurrency: trying to build digital money that's secured by cryptography as opposed to through trust, for example from a nation-state or a company. And it's also a way of building internet services, in crypto networks, building new digitally native networks on the internet that are maybe not explicitly financial, certainly not explicitly monetary in the way that cryptocurrency would suggest.

Why timing matters for crypto adoption

There's a time period for everything in life, and I think there's a time period for different businesses, or for different technologies, demanded by the market. A lot of the things that are being built today were very hard to build five or ten years ago, because the infrastructure wasn't there. The significant improvement in blockchain throughput, the reduction in latency, the reduction in cost and transaction fees, I think that's often overlooked or taken for granted. We went from something like Bitcoin, or even Ethereum, which was very slow and very expensive, to today: Ethereum L2s, Solana, new chains like Zero. Incredibly fast, very, very high throughput, maybe more throughput than we know what to do with today, very low fees, very low latency. That change in infrastructure allowed use cases that were more about efficiency than about digital money or an asset class.

A big component of this is also just social adoption, and regulation or legislation from the government. Certainly if you looked back a few years ago, stablecoins would have been a much higher-risk category, on the basis of technical risk, regulatory risk and adoption. Stablecoins today, with the passage of GENIUS, are maybe the safest and most obviously useful category in crypto from an efficiency standpoint.

Trillions of dollars of volume every quarter, and growing.

Yeah. A lot of this is just market maturity and timing. Something we talk about on the team often is that every idea is a good idea at some point. We take for granted that every entrepreneur will be correct in the fullness of time. But a very important question is: why now? Why will an idea that maybe previously has not succeeded succeed in this instance, and why not five years in the future or five years in the past?

The idea of stablecoins, I would say, is in many ways a fulfillment of the original idea of digital cash, going back to Hashcash or even PayPal. The original point of Bitcoin was a peer-to-peer electronic cash, not a form of digital gold. That was not the initial use case or idea. And I think today stablecoins, in the form of something like USDC or even something like Tether, probably fulfill the idea of a peer-to-peer electronic cash in a way that is clearly more appealing for payments use cases than these other predecessors.

So I think the ideology, or the culture, evolves in step with the technology. I certainly think this is true of the internet itself. If you go back and look at the public perception around things we take for granted today, like social media or online dating, they were not viewed in the nineties and the 2000s the way they are viewed today.

Online dating has actually flipped, where it's more common to have met your partner online than the reverse. But when I was growing up there was a whole social stigma around it. You might be embarrassed that you'd met somebody online, and now it's the norm.

Yes. So I think you have very similar dynamics in all forms of technology, and certainly in crypto. There's a fun website called the Pessimists Archive where you can go and look at the initial emotional or moral responses to technologies, going back to when the bicycle was invented. There was a moral panic, because it would allow people to move from town to town, and that would fundamentally disrupt the social structure of a community or of a country. Now we'd look at a bicycle as being incredibly banal. So in the fullness of time, these things that start out having some strong ideological or emotional reaction end up becoming something we take for granted, just a tool for use in society at large.

Token launches, liquidity and going public

I want to talk more about the timing question that you raised. It is the case in venture capital that companies are staying private much longer, decade-plus timelines, so positions are locked up and illiquid for a much longer period of time. But in crypto it's a little bit different, because tokens can become liquid earlier. So I'd like to understand how you think about timing the bets that you're placing, and how that window of when gains might be realized affects how you're placing your investments, what you deem investable or a potential fund returner.

Your question was about companies staying private much longer. In crypto, with projects building decentralized networks, you often have a liquid token much sooner than a centralized company building the centralized version of the product would go public. I think there are maybe two things here. The timing question is both: is it a good time for this specific idea or product or technology? And: will the team and project or company behind this idea have a publicly tradable asset associated with it sooner or later? These are different questions. We had many search engines before Google, many social networks before Facebook. When those companies went public, or had a publicly tradable asset, is totally divorced from whether that was the right time to start a social network or the right time to start a search engine.

These things get combined in crypto, because to build a decentralized network with incentives, you often need to have a publicly tradable asset associated with your project. So when you want to launch your product, in many cases the correct product decision is to have a publicly tradable asset. It's bundling these decisions: whether we should have a publicly tradable asset associated with our project, and whether we should launch our product now, whether it's a good time for this product. I think that is both an opportunity and a challenge.

Certainly there are people who would want the market structure of when companies go public in the US to be pulled much earlier, and we see some of the ideas in crypto really being around how a company's asset can be made tradable sooner. I think that's a bit separate from: if I'm building a layer-one blockchain, I have to have a native token to incentivize my validators, so when I launch my layer-one blockchain, when I launch my product, I also have a publicly tradable asset. There are pros and cons to having a publicly tradable asset. It's maybe harder to manage a startup if every day you can see the mark-to-market value of that startup.

You're less insulated from the market forces, the bipolar sentiments of the market.

Yeah. I think a lot of these things manifest in crypto but are not specifically a result of crypto. I don't think companies are staying private longer because of crypto. I think companies are staying private longer because of the legal and disclosure requirements to go public, and because of the availability of capital in private markets. Those two things are not directly related to crypto. People look at those as opportunities and ask: can we take advantage of that market structure and build product within crypto to address it? But lots of decentralized networks need to have, or would benefit from having, a publicly tradable asset. So in many cases, as a crypto founder, your hand is forced, or encouraged. Whereas there's probably not a huge benefit to going public at Series B if you're a traditional high-growth startup today.

Backing founders for the long term

Part of what I'm asking is how the idiosyncrasies of crypto and the timing-related elements, the potential for earlier liquidity than in other domains, might affect the type of project that you invest in. Imagine tokens were illiquid just as long as equity in a traditional startup. I might surmise that a person would invest in projects that are perhaps more ideologically bent, because you have this longer timeframe, a longer window in which to see the revolution unfold and a huge transformation of the world. People underestimate how much change happens in ten years, whereas they overestimate how much happens in one year. So I wonder how the varying time horizons might affect the actual ideas that you find investable.

Yeah. We have a long time horizon for our investments, and I think in many cases it takes a long time to build something really valuable. We think of investing in blockchain and crypto projects no differently from investing in other categories, from a venture capital perspective. We want to work with the best teams and people over a very long time horizon, be that five, ten, twenty years.

One idiosyncrasy of crypto market structure is that if you launch a publicly tradable asset, sometimes there's a very high valuation for that asset, and there's some question as to whether that's good or bad. I think the good version of that is founders and teams that view it as an opportunity: this is a fantastic fundraising quirk of the market structure, where now I sometimes have a lot more capital available. So I think what is probably needed is better transparency and disclosure, the same way as in public markets. If I'm the CEO of a public company and I would like to sell shares of my company, I have to disclose this. That would seem to be a valuable thing for crypto projects as well.

So I would almost say that investing in founders who are somewhat ideological is a defense against the idea that, if your startup is priced ahead of progress, you would sell a large portion of your startup and buy a boat or beachfront property or something. It's more the idea that the most successful founders tend to be people who are either deeply passionate about building something on a long timeframe, or are doing it because it's their true calling. It's a very weird set of preferences, as a founder, to want to make a giant amount of money over a long timeframe. The utility-maximizing rational person that economics would model does not have those preferences. So the people who tend to build fantastically successful things, ironically, are not very financially motivated, but view building something very valuable as the pathway to convince and encourage other people to participate in their journey of building something big and meaningful. That's also a unique kind of person or psychology: someone who wants to build an incredibly valuable product or business, but is not really interested in the spending power of the money themselves.

So that's certainly something we think about. But I think you can tell fairly straightforwardly whether someone is interested in the thing for itself and loves the process of building a company, or is just super competitive and wants to have the highest return possible. If your only goal is to make a giant amount of money in a pure EV-maximizing, rational way, then maybe you're not the perfect fit to build a startup over the course of ten or twenty years. If your goal is to use the fact that we live in a capitalist system and a market-driven economy to help build something fantastic, and to attract talent and partners and customers, then I think that is a much better fit.

How Guy evaluates founders

You said it's pretty straightforward to tell these people apart, but I don't think it is. I think that's the nature of venture capital: making these decisions and trying to parse who is who, and their motivations, and whether they've got what it takes. How do you tell these founders apart? How do you identify who has the essential qualities that lead to success?

As a general comment, I think people are usually actually very honest. It's quite hard to portray preferences or opinions other than the ones you really believe. Every individual filters someone else, or their comments, through their own personal perspective, and the tricky part is being totally neutral with regard to the comments or the outcome. So people tend to tell you the truth, and you only get misled, or have the wrong impression, if you allow yourself to be biased in your reaction to what someone else says. I actually do think it's pretty straightforward to figure out what people want if you are completely and totally open to accepting the answer at face value.

A simple and uninteresting answer to your question is that you should do a lot of references. If I'm recalling correctly, there's an interesting study that asked people to complete a personality test about their friends, and asked total strangers to view the subject's house or apartment and then fill out the personality quiz. Your good friend will actually be worse at predicting the correct results of your personality quiz than a total stranger just looking at your apartment or your house. Which to me says there's actually a ton of information in very simple, straightforward things, and your own personal biases, or your imagination about who someone else is or who you want them to be, tend to get in the way of making a correct assessment, much more so than any lack of information available to make the judgment or choice.

What commonalities have you found among the founders that you esteem?

Very magnetic people. That manifests in a lot of different ways, not always in the classic I'm-great-at-working-a-room-at-a-party sort of charisma. But the sort of people who tend to attract talent are the sort of people others really want to work with. I think that's almost a universally shared trait.

Then I would say people who really like the process of building something and do it for its own sake. I think the reward for good work is more work. If you are doing something for the goal or outcome at the end of the work you're putting in, you will probably do something else when you have finished. And again, it's not that hard to tell when someone has decided, "I will be unhappy until I achieve my goal." That's very different from, "It would be awesome if I achieve my goal, but I'm just going to be really happy in the process of trying to achieve it." I think people who really enjoy the process of building a fantastic project or startup or company tend to have a better outcome than someone who's really focused on achieving the outcome.

There's a good parallel in sports. You could look at Andre Agassi's book, his autobiography, where he made some version of the comment that he hated playing tennis and worked so, so hard. And then there's Djokovic's answer to what inspired him to play tennis, and he'll say some version of: well, I really just like hitting the tennis ball. I think the founders who tend to succeed really just like hitting the tennis ball.

The prevailing culture will tell you that people tend to succeed if they're highly competitive and super focused. There's the quote from Succession: you have to be a killer. I think a lot of very successful people just really like doing whatever they're doing, and are doing it for the sake of craftsmanship, for the quality of doing the thing itself, as opposed to for the competition or the result. That's probably generally true, but I think it's particularly true in startups, where the thing that makes you succeed is often totally unobvious, and you would only be deeply knowledgeable about it or focused on it if it was personally very interesting and compelling to you. It's always very easy in hindsight to say: well, I had this perfect plan, and I worked very hard, and I got very lucky. I think people tend to be bad at describing why they succeeded, as opposed to having a proper introspection about their path.

Where Guy sees opportunities in crypto

So we've talked a little bit about what it takes for a founder to succeed, but let's talk about what categories you're interested in. Looking at the crypto landscape today, where are you focusing your energy and attention?

I think the obvious opportunity today, building on a blockchain, is building better financial services. Blockchains are a wonderful general-purpose technology for building networks on the internet, but in the short term the applications that have the strongest product-market fit are mostly financial. I would say a lot of what is working is a second-order effect of interest in either stablecoins or perps, and that's a lot of our interest and focus as well: building better payment mechanisms using stablecoins, and not just for people in the Western world who have good access to financial services.

I think blockchains are a new distribution rail and coordination mechanism for capital markets and for investing. A lot of the opportunity over the next couple of years is to build new markets. I would say a significant portion of the Western economy is focused on, let's call it, information technology or financial markets, and I think blockchain is the literal convergence of those two ideas.

To be more specific, we're very interested in payments and lending and credit, and in building new exchanges and building layers on top of exchanges, things like prime brokerages or trading terminals or aggregators. We're interested in prediction markets and perps; we're interested in derivatives broadly. Other structures like options, futures and forwards I think are all very interesting. We're also interested in the intersection between crypto and AI. I think there are compelling opportunities to build new wealth management products for people who have significant wealth but would not qualify for a private wealth account at a big bank. And there are probably a lot of interesting consumer products to be built in crypto moving forward as well. We had a whole wave of interest in digital collectibles through NFTs, and interest in building more equitable and efficient creator economies. I think a lot of those are very good ideas and will work. The timing, I think, was a bit unfortunate, and we remain very interested in those ideas generally.

New markets for energy and compute

I'm personally quite interested in physical infrastructure markets and networks. Often these are called DePIN projects, or decentralized physical infrastructure networks. Specifically there, I think energy networks and markets, and compute networks and compute markets, are quite compelling. Obviously the tailwind there is the significant improvement in the quality of AI models, the bottleneck for having abundant intelligence being, I think, very literally energy and chips. Some part of that is definitely a pure technology question: how do we build better forms of energy generation and storage? How do we build more efficient chips? But some of it is a markets question as well: how do we efficiently allocate capital, and finance or underwrite these assets? I think blockchains have a big role to play in that, especially beyond the largest big tech companies. If you want to participate in compute and energy markets as someone other than the Mag 7, the best place to do that will be on a blockchain. That's been an area of interest and focus for us.

Stablecoins and finance's digital transformation

Why are stablecoins and perps, perpetual futures, gaining so much traction right now? What is it about those products that people are so interested in?

With stablecoins, I think people are interested in dollars. The US dollar is a fantastic product. It has incredible product-market fit, especially amongst people who live in a country with high inflation, or with strong capital controls, or with a central bank they don't like. The commercial adoption of stablecoins is often based largely around efficiency.

As a broader comment, I think stablecoins are the first version of modernizing the existing financial system. We have a digital, or a modern, financial system in the US, but I find it very interesting that at every big bank, or at a lot of the fintech companies, the title of the person focused on blockchains is head of digital assets. And again, I think the words we use to describe something are often very indicative of some underlying truths. The implication is that if you have a head of digital assets, then the rest of the bank is focused on assets that are not digital, right? The entire world has been put on a computer and on the internet. Everything is computer, other than the financial system, which is insane.

That's not literally correct. The way you interact with, for example, public equities is probably through Robinhood or Interactive Brokers, an app on your phone. But I really think there's a version of blockchains, and how you would describe them, that is taking the same transformation, literally the digital transformation that cloud services made on IT, and bringing that same digital transformation to finance. Stablecoins and blockchains are a digital transformation for finance and for Wall Street, the same way that cloud services were a digital transformation for most businesses.

It's very interesting if you talk to someone who, for example, works at a bank's CIB and focuses on blockchains: when they say crypto, they mean crypto as an asset class. They mean Bitcoin, Ethereum, Solana as crypto tokens. When they say blockchain, they mean blockchain as a technology. So the quip from 2018, "blockchain, not Bitcoin," is very literally true for them. But that's like saying "gold, not the internet." It's a non sequitur. You should offer gold to your wealth management clients if you're an asset manager, because that's an interesting asset, but you shouldn't fail to take up the internet because you're offering gold as an investable asset to your clients. You have a type error, in computer science speak.

And I think that is finally happening. People are finally getting it. A lot of the bottlenecks were just the performance of blockchains as infrastructure back in the 2018 timeframe, the lack of regulatory clarity, and the lack of social adoption or understanding around the technology. So it feels like we're finally at a tipping point for institutional adoption of blockchain financial services, and the first version of that has come through payments and through cash, in the form of stablecoins. A stablecoin is just a tokenized representation of a dollar. If we have clarity, I think that could unlock the idea that you would tokenize traditional assets, traditional securities, and that those would operate on blockchains, and that you would have a real movement for capital markets on chain, the same way you've seen a real movement for dollars on chain in the form of stablecoins.

Why perpetual futures are gaining traction

You were asking a bit about perps. Why do people like trading perps? Perps are, I think, an incredibly intuitive derivative product, especially for retail investors. They're also unique in that they provide high leverage, but they're a delta-one instrument, meaning that if the underlying asset moves x percent, the perpetual future will also move x percent, times the leverage you've taken out. So as a product structure, I think the perpetual future is very interesting, and I would argue significantly more intuitive and understandable for a large swath of investors.

I also think perps have brought the ability to access investments, especially in the last year, globally, that are otherwise pretty hard to trade. Obviously retail investors want leverage, and perpetual futures have provided that to investors in an intuitive and often more capital-efficient way. But with real-world assets trading on perpetual futures exchanges, I think a lot of that interest is that it may be hard to invest in the underlying asset, or to invest in the underlying asset with leverage, and the first time this has really been available is through a perpetual future. In just the same way that a decentralized version of an exchange is interesting compared to a centralized exchange, I think a decentralized derivative contract with this delta-one exposure, where you're trading directly against another counterparty as opposed to against a brokerage, is particularly interesting.

We can come up with a bunch of reasons why people are adopting perps and why they're interesting, but the truth is it just is true. Any time there's that level of incredible product-market fit, I think it's as important to understand that it is as to understand why. And it very clearly is, for both stablecoins and perps today.

What tokenization changes for Wall Street

You talked about how finance is finally undergoing this digital transformation. What is the advantage of digitizing an asset, or tokenizing an asset?

One, I would say, is efficiency. In every sense the internet was better than physical mail. In every sense Excel is better than a physical paper ledger. Maybe a way you could frame why digital assets are interesting to Wall Street is that a lot of Wall Street runs on Excel as opposed to on the internet. And what if all of a sudden you had an Excel sheet that everyone could access and everyone agreed on? That sounds interesting and relatively straightforward to build, but this idea that everyone can access it and everyone can agree on it is actually incredibly hard. Traditional financial firms have this broad set of integrations, and it's hard for anyone to upgrade unilaterally. So I think blockchains provide a Schelling point for much of the financial industry to upgrade in lockstep.

They also answer a lot of questions that seem obvious but are, under the hood, very complicated. Who owns this shared spreadsheet that we're running a lot of finance on? Who gets to make changes to how the spreadsheet works, or gate access to particular parts of it? Who gets to write to or read from the spreadsheet? What are the costs for that? You could try to come up with answers to those questions as an individual institution, but it would be very hard to get everyone else to agree on them. Blockchains provide a lot of good answers to that through decentralization. And even though I think much of Wall Street would not say they want decentralization, I think they want the effects that decentralization brings: in censorship resistance, in governance, in the reduction of counterparty risk and the reduction of platform risk. These are all things those customers understand very well, but they would probably use entirely different words to describe the same ideas.

So the hope is that at some point we don't have crypto and blockchains and digital assets. At some point we just have financial services that happen to run on a blockchain, because that's a good way to operate them. In the fullness of time, the success for a fund like us, and the success for crypto as an industry or a movement, is that we stop saying crypto. Maybe we say cryptography, or token, or these other words. But when you go and try to buy food, you don't say, "Well, now I'm going to use the internet." You don't go online. You have an Apple Watch, you have a phone in your pocket; you are currently online. I think that is the place blockchains and crypto need to get to: where if you're using financial services or a network on the internet, you just happen to be using the blockchain, because it's a good way to coordinate those products and services. We're not there yet, but I think we will get there.

How long does that transformation take to unfold?

I think it will probably take many years. In the next couple of years I think we'll see a broad shift of cash dollars to stablecoins, and a broad shift of capital markets moving on chain. My guess is that this will be a ten- or twenty-year transformation, or perhaps longer. If we use the internet as an analogy, I think we're still in the early stages of the internet really being properly and fully adopted. Maybe when we zoom out, this is a hundred-year process of adopting the internet, and blockchains are a core component and part of the internet tackling financial services as a network, and tackling lots of these network-based businesses and marketplaces.

Oil painting and the pleasure of making things

So when you're not thinking about financial and tech infrastructure plumbing and upgrades, what are you thinking about? What do you do for fun, outside of your job? You said earlier that if you gave a stranger access to your home or apartment, they might be able to know you better than a friend knows you, or than you even know yourself. What would people glean about Guy Wuollet if they were to see your home?

I think the thing that would probably surprise people the most, and I suspect will surprise you: my apartment looks like I teach sixth-grade art and I'm very proud of my students, because there are these sort of haphazard paintings all over the walls. I picked up oil painting last year, and that's been one of the hobbies, or creative outlets, that I've really enjoyed.

What do you do, still lifes or landscapes?

It's all very abstract and intentionally not good. A lot of the things I do in life are highly quantitative and objective. It takes a while, but the process of being a good venture capital investor, or working in a financial role, is very quantitative and very objective. I love the fact that if you paint something, it only really matters if you are happy with it. I think that's the process of art, which is very much not how markets work, right? The market has an opinion. And it's fun to not care about other people's opinions in a specific context. So both the idea that it's a fun, playful outlet for my inner child, and the fact that it's just supposed to be interesting and pleasing individually, as opposed to something that's a very rational market, are compelling to me.

The smallest hill to die on

All right, I'm going to give you one final question that we can leave off on, which is: what is the smallest hill that you will die on?

I think most men's pants are too tight. And you can tell this generationally. I find it hilarious that there's a certain sort of middle-aged man that wears skin-tight Lululemon ABC pants. A couple of years ago I figured out I'd been buying shoes that were the wrong size and pants that were the wrong size literally my entire life, and I suspect there's a large group of people who just do not buy the right size or fit for themselves. I think that's probably a small hill to die on: that most men's pants do not fit very well, and you should find pants that fit.

How do you do that? Go to a tailor, or just go up a size?

I think probably starting in the early 2000s there was this era of skinny jeans and pants that sat very low around your waist, which work well for a particular sort of style affectation if you are rail-thin. Most people do not have the body type, or the general aesthetic consistency, for that to make sense, but these became incredibly popular. Also, all T-shirts are way too long. In many cases they're three, four inches too long. They should end slightly below your belt line. Instead they're way too long, and if you look at pictures of men's clothing being modeled, often the shirt will be tucked in, or it will be at an angle where it's pulled to the right level, because the shirts are all way too long. So I think, generally, this very specific high-fashion aesthetic, which is interesting and cool and definitely works for some portion of people, has led to most men's clothing that's mass-produced and bought off the rack not fitting particularly well.

All right. I didn't realize you had such strong opinions about sartorial choices.

I really should not have said this publicly, because now my pants are not going to fit and I'm going to get roasted.

Yep, totally. Well, thanks so much for your time.

Thank you.