Did We Just Witness Crypto's Inflection Point in the U.S.?
The tone in Washington has changed abruptly with respect to crypto in the U.S. It is no exaggeration to say that this may be the most important moment for digital asset-related innovation in America to date.
In a few short days, SEC rules were overturned by Congress, the White House walked back its anti-crypto stance, the House approved legislation providing clarity around digital asset regulation, and the SEC approved the listing of Ethereum ETFs in the U.S.
With this backdrop, we welcome Rob Hadick, General Partner at Dragonfly, a $2.5bn crypto venture fund.
Dragonfly’s portfolio is a who’s who of leading crypto projects including Anchorage, Ava Labs, Blur, DYDX, Lido, MakerDAO, Matter Labs, NEAR, Polygon, Starkware and many, many more.
“My guess is that when we reach critical mass, the federal governments of these different localities will start to believe that they have to integrate stablecoins into the financial system themselves, and that will just put tailwinds behind the entire market. That could propel us to being as big or bigger than the Eurodollar market, which is $15 trillion.” - Rob Hadick
In this conversation, Rob and Will Beeson discuss the recent change in tone in Washington regarding crypto, the implications for the industry as crypto goes mainstream, the next 2-3 years of stablecoin market development, investing in CeFi vs. DeFi, the state of the current crypto VC market, investment dynamics as a top 5 crypto fund by AUM and more.
Thank you very much for joining us today. Please welcome, Rob Hadick.
Will:
It’s great to connect with you, to reconnect, really. I think we first met at a dinner in London earlier this year, which was great. It was around the Digital Assets Summit, DAAS, in London, which I thought was an excellent event. It was very focused on institutional use cases for crypto and blockchain.
Rob:
It was an awesome event. That was right around the time people were really starting to get excited again. I think volumes were just taking off into March, and you could see the excitement in the space continue to pick up. ETFs were starting to gain momentum at that point, and that trend has continued through March and April. Honestly, it has made me really excited to have this conversation with you today.
Will:
Great, likewise. I mean, there’s been some turbulence too. Prices were really strong at the very beginning of the year, then things cooled off a little bit. Meme coins have gone crazy, and now here we are. I don’t know about you, but I’ve been refreshing Google News today, waiting to see if there’s an Ethereum ETF update. Today’s the day that the VanEck ETF should be approved or denied. Yesterday there was a House vote on FIT21. This is a fascinating week.
Rob:
Yeah, it’s been a really exciting week. Last week, I think a lot of people were pretty down, especially around the Ethereum ecosystem. Price action, to your point, had been bad, especially relative to Solana and BTC for a while. I think people were just concerned that the U.S. regulatory regime was going to continue to put its foot on the neck of crypto, and that changed basically on a dime late last week and into this week. You mentioned FIT21, but I think this actually starts with SAB 121, which was the Congressional Review Act response. Essentially, it was a rebuke of the SEC and one of their rulemaking procedures by Congress. What happened was that late last week, Congress repealed SAB 121, which was a rule where the SEC had given guidance that banks would have to account for digital assets they custody as liabilities, making it essentially impossible for banks to custody crypto or get involved in the ecosystem.
That was clearly bad policy. It would make crypto safer and users safer if banks could get involved. The SEC’s rule was just a way to keep banks out. So, Congress, for the first time in a bipartisan manner, passed a rebuke of the SEC by repealing SAB 121. It passed the Senate with 60 votes, including support from 12 Democrats, like Majority Leader Chuck Schumer. That seemed to start a broader shift in the U.S. regulatory climate.
Before that vote, the White House had said they would veto the CRA if it passed. But that veto still hasn’t happened. Very soon after the CRA passed, we heard that the SEC was changing its tune on ETFs. For months there had been almost radio silence between the SEC and the issuers. Everyone assumed that the Ethereum ETFs were dead. In fact, I was on CNBC’s Crypto World last week, and I said explicitly that I saw very little chance the ETFs would happen next week. But that domino — the repeal of SAB 121 — changed the tune of the White House.
What we have heard now is that the VanEck Ethereum ETF is likely to be approved today, at least the 19b-4 filing. We still have to go through an S-1 comment process before trading can start, but it has really brought excitement back into the space. Then we had FIT21 pass, and just before we jumped on this call, another bill passed — a CBDC bill — that would prevent the Fed from issuing a central bank digital currency.
So we’ve gone from, a week ago, having no crypto-specific legislation ever make it to the floor of the House or pass Congress, to having multiple bills pass in one week. It’s a really exciting time. I think what it highlights is that we, as a community of people who are pro-crypto, have been able to show that this matters. We’ve had our voices heard in Washington, and now the administration seems to be, at least in some way, listening to us. FIT21 isn’t perfect legislation by any means, but it’s a start.
Will:
Well look, as an American, this feels like it’s a long time coming. Personally, I’ve been really frustrated with the lack of regulatory clarity that has been offered at any point in the U.S. around digital assets. And I use the term digital assets because crypto can be such a polarizing term.
I am not — and I’m sure you’re not — in any way a fan of fraud, theft, crime, or graft, which unfortunately have become part of the mainstream characterization of crypto. But because there have been examples of bad actors over time, it’s been easy for rulemaking bodies and policymakers to promote a broad anti-crypto stance — this “anti-crypto army” concept we’ve heard from people like Elizabeth Warren — which is just a blanket suppression of innovation that is happening very actively in the U.S.
You’re seeing it every day. From where you sit, you’re seeing that innovation move elsewhere in the world.
And again, using the term digital assets — what we’re really talking about when we talk about digital assets is replatforming financial markets on blockchain. Financial markets and much more.
If we are not able to do that here in the U.S., we are putting ourselves at a significant disadvantage. There is zero justification for any sort of rule or policy that prevents responsible innovation in this space.
Rob:
A hundred percent. We see it all the time, to your point. There are a lot of incredibly smart people coming to our U.S. universities. They’re doing deep research here. They’re often conducting their PhD programs and funded research here. They’re meeting co-founders here. They’re thinking about solving large, global-scale problems here.
And then they’re looking around and realizing, this place does not want them. It does not want their tax dollars. It does not want the innovation they want to bring. So they leave.
These are people who are passionate about, as you said, replatforming financial markets or building open finance. They are passionate about bringing finance to underserved populations. They care about democratizing access to financial systems and about incentivizing open-source software innovation. But they just don’t feel safe here.
And it’s actually really sad. I have a couple of good friends — a husband and wife team — who are entrepreneurs. They founded a business together where they spend all their time thinking about how to make DeFi more accessible and easier to use for institutions and consumers alike. They’re dual citizens. They’re highly successful. They were educated at some of the top universities in the country.
Now they’re thinking about having their first child, and they’re looking around and saying, “We should leave.” They are large taxpayers. They’ve contributed enormously during their time here. And yet they feel like they have no choice.
We see examples like this every day, every week. And it’s just sad. It has nothing to do with crime or theft — it’s not about that. We can say we want to prevent crime, but instead, what's happening is we’re killing an entire sector of innovation that has so much more to offer.
It’s really unclear to us, from where we sit, why Elizabeth Warren has taken such a strong anti-crypto stance, and why she has been given the reins to push it alongside Gary Gensler and the SEC. But we’re really glad it seems to be changing. And we’re hopeful that a new, more supportive regime is coming.
Will:
Picking up from there and starting to focus in on your work as an investor, what do you think a sustained change in tone on crypto in Washington would mean for you personally as an investor, and for Dragonfly as a firm?
Rob:
Listen, I would say this. We are probably, inarguably, the most global fund that is crypto-focused or entirely crypto-focused.
We have this tagline — global from day one. We have half the team in Asia, and our approach has always been that you have to understand what is going on in Asia, what is going on in Europe, and what is going on in the U.S. to appropriately invest in this space. Because crypto is essentially borderless money in a borderless monetary system.
You have to understand how consumers and institutions want to interact, and how they want to interact together, to be able to invest thoughtfully in this space. And we're going to continue to do that.
That said, when we have discussions — like with the couple I mentioned earlier — or with other types of entrepreneurs, we regularly look at what might be a best-in-class team that’s innovating and have to say, this is not investable if they stay in the U.S.
And we might have that conversation directly with the entrepreneur and ask, have you thought about where you want to build this business, where you want to incorporate, where you want to live?
Sometimes they say, “I understand, and I might be willing to move.” Sometimes they say no.
But that’s a real conversation we have to have, and it shouldn’t be the case.
We do deep legal and compliance diligence on everything we invest in, but in the U.S. specifically, it’s become such a big part of how we have to think about the world.
Getting clear guidelines would allow us to step back and say, this is what works here, and this is how to build within the SEC and regulatory climate.
We’d be able to quickly form a thesis around what’s possible and what isn’t — instead of always trying to navigate gray areas or constantly worrying about whether innovation is even possible here.
I think it would open the floodgates for innovation.
And I think it would probably increase our focus on investing in this country.
Will:
I think you're totally right.
So much of the innovation right now is either focused on markets that are smaller than the U.S., or on use cases that are adjacent to the stuff that would move the needle the most.
The ability to really focus on the biggest problems in the biggest markets — with clarity — would potentially accelerate much-needed innovation in finance and in other parts of the economy.
Rob:
Absolutely.
The U.S. is obviously the driver of the global economy — along with China, it’s by far the biggest contributor to global GDP.
Our belief is that for any innovation to really take hold globally, it also has to happen here. And I don’t think that’s a controversial statement.
That innovation should absolutely be able to take place if we have a better regulatory climate.
And what will be good — almost undoubtedly — is that the big U.S. corporates who have spent a lot of time thinking about this space, but haven't fully committed, will see that as a green light.
All of a sudden, you’ll have big tech companies, big payments companies, and big banks saying, “Okay, now we’re really going to put our money and our time into this.”
Will:
So looking at a specific use case, stablecoins are an area that has really gotten a lot of traction — not just in crypto, but more importantly, in real economy use cases.
Everything from cross-border payments to people in hyperinflationary or economically unstable countries needing a safe place to save.
I know you've spent a lot of time looking at the stablecoin market. You recently led an investment in a company called Agora, which is building a new approach to stablecoins.
What do you make of the opportunity in the stablecoin space?
What excites you most there?
And then maybe we can drill down into some of the nuances.
Rob:
Stablecoins are the biggest product-market fit in crypto.
The opportunity set in global payments is undeniable. Stablecoins today represent around 160 billion dollars outstanding. It’s a big number when you think about it, but relative to even just the Eurodollar market — which is around 15 trillion — or broader global payments, it is still quite small.
One of the things we’ve seen in this space is the insatiable demand for U.S. dollars from emerging economies. These are economies with currencies that are inflating rapidly and eroding people's buying power and access to goods.
We complain about inflation here in the U.S. — and at times it has been bad — but when you talk to people in emerging economies, they say, "You have three or four percent inflation? I would kill for that. That would be life-changing."
They want access to U.S. dollars. They want to buy goods in dollars. They want to save in dollars.
Stablecoins have provided access to U.S. dollars in parts of the world where that access previously wasn’t possible in any real way.
We’re starting to see peer-to-peer payments, cross-border B2C payments in places like Turkey and Southeast Asia. If you go to a hawker market in Singapore — these food markets — a lot of vendors will take payment through Grab, the FinTech app.
And Grab now supports stablecoin payments.
You’re starting to see this world emerge where stablecoins have real product-market fit.
Today, there’s about 160 billion outstanding and over 50 billion dollars of monthly stablecoin transaction volume — and it's growing extremely quickly. This trend will obviously continue into the future.
Right now, the market is dominated by Circle and Tether, with Tether holding around 75 percent market share and Circle about 20 to 25 percent.
But there are issues with how they operate, and it’s not optimal in all cases.
We see this market — which I expect to grow tenfold from here in the near term, and much more than that longer term — as a huge opportunity.
And we think startups like Agora can really make a dent and take a lot of market share.
Will:
Maybe just framing it for the audience — generally the critique around Tether is opacity. There have been questions around their compliance with international law, facilitation of money laundering, and concerns around those areas, validated or not.
And then with Circle, the critiques are what, exactly?
That it’s a very centralized counterparty? Or that Circle’s business model is offering a non-yielding stablecoin, while they capture all the yield from the underlying collateral portfolio?
Are there other critiques that you see?
Rob:
Tether and Circle both have the same problem you just mentioned, which is around the economics.
Essentially, their model is: you give me a dollar, I issue you a digital dollar, and then I go and invest that dollar into a U.S. Treasury and capture the entire five percent yield.
It’s a fantastic business model.
Tether is probably the most profitable business that has ever existed.
Will:
It’s like 80 people, and they make something like four billion dollars a quarter in profit.
Rob:
Tether, to your point, owns the global market.
Circle is barely used outside of the U.S. or large institutions.
Tether has built a lot of trust in emerging markets and among the trading community in crypto.
It’s for a couple of reasons.
People have been concerned about Tether’s backing for a long time, and I think there’s a possibility — when you look at how opaque they were at times — that they weren’t always fully one-to-one backed.
Today, they publish attestations, which are not the same as full audits, but those attestations show that they are fully backed, and then some. They have quite a bit of reserves.
The market got more comfortable with Tether after two key things.
First, last year, Circle experienced a depeg event when they had exposure to U.S. banks during the banking crisis — specifically Silicon Valley Bank.
People were worried they wouldn’t be able to access their cash over a weekend.
That dependency on U.S. banks made people realize Circle wasn’t as diversified or as riskless as they claimed.
Meanwhile, Tether didn’t have that issue because they bank internationally.
Second, Tether has always had a better brand internationally.
They’ve just been able to market better, and being run by non-Americans has helped them in emerging markets.
Tether has taken steps toward greater legitimacy recently.
They’ve been very responsive to U.S. regulators and law enforcement — freezing wallets linked to North Korea, for example.
Howard Lutnick, who runs Cantor Fitzgerald, publicly said he has seen all of Tether’s reserves — because his firm banks Tether — and vouched for them.
He wouldn’t have risked his broader business if he didn’t believe in their legitimacy.
Circle, by contrast, has always had strong legitimacy with institutions, but they’re stuck.
They want U.S. regulatory approval, but regulators are still debating whether Circle needs a banking license.
Meanwhile, they’re competing against JPMorgan Coin and other bank-issued stablecoins.
And they’re not able to really pursue retail or emerging market use cases the way Tether can.
That’s where Agora comes in, and it’s super interesting.
They can undercut both Tether and Circle on price.
Agora takes dollars, issues a digital dollar, puts the reserves into treasuries — which are managed by VanEck, one of the most credible asset managers — and custody the assets with one of the world’s largest custodians.
They focus only on working with businesses — exchanges, custodians, wallets — ensuring regulatory compliance.
And they do revenue sharing, which undercuts both Circle and Tether, but while still bringing institutional-grade credibility.
They combine Circle’s institutional trust with Tether’s global go-to-market strategy.
That’s why I see a big opportunity for Agora to grow and take significant market share.
Will:
That makes a lot of sense.
And because they’re working with businesses and institutions only, they’re able to operate internationally — but not in the U.S., at least for now?
Rob:
Right.
Today it’s only international, non-U.S. focus.
There’s hope that it will expand into the U.S. pretty soon.
Will:
To that point, looping back to one of the bills you mentioned earlier — the stablecoin bill — I’m not super familiar with the details.
But from a high-level reading, it sounds like — perhaps not surprisingly — it’s quite prescriptive about who can issue stablecoins in the U.S.
Presumably that authority would ultimately sit with regulated institutions like banks and similar entities.
Do you have any more context on that regulation, and what it might mean for stablecoin issuers operating in the U.S.?
Rob:
The big stablecoin bill that was heavily debated in 2022 kind of died off.
We might see it come back, but I expect it would take a different form.
That said, one of the ideas floated in that bill was that you would need a bank charter to issue a stablecoin.
That would essentially kill the ability for technology and payments companies to launch their own stablecoins.
Circle, for example, doesn't have a bank charter, so it would make things very tough for them on day one.
Same thing for Paxos, Agora, and others.
It would really cement the position of JP Morgan and other big banks — and frankly, that could kill a lot of innovation, because JP Morgan has no incentive to open up the financial system.
So that’s one of the big concerns I had about that bill.
I'm hopeful we’ll get something different, and I expect we will — either later this year or into next year.
We’ll have to see what form it takes.
The other bill I mentioned earlier is the one that passed today.
That bill prevents the Fed from issuing its own CBDC, because there’s concern that a government-issued CBDC could be used to spy on Americans and remove financial privacy.
And I tend to agree with that concern.
Will:
Got it. Makes sense.
Maybe zooming out a little bit but staying on the stablecoin topic —
Given all of this, I imagine you're playing a bit of forward-looking chess in your mind or with your investment team as you're backing a company like Agora.
It sounds like there’s an immediate opportunity — say, over the next 12 months — for them to be really successful.
But what do you think the stablecoin market could look like five years from now, given everything happening in Washington, the regulatory landscape around banks, and the ongoing innovation both onshore and offshore?
Rob:
I think stablecoins are just going to continue to grow massively and proliferate.
I expect that by 2030, we’ll be at a minimum over a trillion dollars outstanding — and that's about an 8x from here, maybe a little less.
I wouldn’t be surprised if it’s a lot more than that.
My guess is that once we reach critical mass, the governments of different localities will start to realize they have to integrate stablecoins into their financial systems.
That will put even more tailwinds behind the market, and it could propel stablecoins to becoming as big — or bigger — than the Eurodollar market, which is around $15 trillion.
For you and me, the consumer, I actually don’t think it will feel that different from how we interact with money today.
Most of finance is already just bits and bytes on a screen.
You log into your app, move money around, but behind the scenes you're waiting a few days because of correspondent banking systems.
You deal with lost wires, double checks, lack of transparency.
You constantly have to follow up and make sure the transaction actually finalized.
When stablecoins become more integrated, they’ll be embedded in fintech apps, payment providers, even cross-border services — much like how PayPal is trying to use PYUSD in their Xoom product.
It’ll mean lower fees, instant settlement, better transparency.
But otherwise, the user experience will feel pretty similar — just way better behind the scenes.
Now, the really interesting part of this is geopolitical.
There’s been a lot of concern in the U.S. about stablecoins and what they mean for the U.S. dollar.
But I’ve always been a proponent that stablecoins are actually great for the U.S.
We’re at a time where the biggest buyers of U.S. Treasuries and agency bonds — China and Japan — are reducing their holdings.
China, for example, offloaded over $53 billion of Treasuries and agency bonds just in Q1.
Post-Russia sanctions, China is worried that their U.S. assets might not be safe anymore, so they're diversifying.
We’re seeing U.S. dollar proliferation slow or even reverse — something that hasn’t really happened in a long time.
Stablecoins offer the U.S. a way to export the dollar into a new type of market — to continue dollar dominance, which is good for national security and good for U.S. business broadly.
Regulators and Congress need to understand that.
Stablecoins are not a threat to the U.S. dollar — they’re one of the best tools we have to reinforce it globally.
Will:
Stablecoins are not the only part of the crypto world that you look at — as interesting as they are.
What else are you excited about right now?
Rob:
I might give you a less sexy answer than some of your other guests, but I continue to be really focused on DeFi.
To what we talked about before, crypto has its roots in money, and it has its roots in finance.
Right now, financial services don't work for a lot of people in the world.
There’s a blind spot around that here in the U.S., because in many ways, financial services work fairly easily for Americans.
But it’s a very different story elsewhere.
Bringing DeFi and on-chain finance — the immutability, the transparency, the access to different types of products that don’t otherwise exist, and offering all of that cheaply — I believe that's going to continue to take off.
A lot of what we've seen so far has been around what people call the "casino" — people gambling or speculating on tokens.
But the long-term core use case of DeFi isn’t just the casino.
It’s about providing open, accessible financial services to people around the world.
I'm also really interested in digital identity.
That’s going to be incredibly important — especially with the proliferation of AI agents, where proving humanity and verifying identity is becoming harder.
Having verifiable credentials that are tamper-proof will matter more and more.
An important offshoot to that is zero-knowledge proofs.
ZK proofs allow us to scale crypto while preserving digital privacy, and they have massive implications for identity systems too.
Beyond identity, they also unlock the ability to build financial applications that are privacy-preserving — something that hasn’t been widely achieved yet.
I think zero-knowledge broadly will be a huge tailwind for application development in this space.
Will:
Question for you — you see so many different companies.
This is actually a question I’ve asked a few different people recently, because I’m still trying to fully wrap my head around it.
You talked about DeFi being one of the areas you’re most focused on.
It seems to me that there are different approaches to building in DeFi.
One is the fully decentralized model — DAO-led from the beginning, open-source infrastructure, community-first type play.
Another is an equity business that builds a protocol and monetizes it in a more traditional way.
Sometimes value accrues through a token launch.
Other times, you could evaluate a DeFi project through more of a fundamental lens — thinking about transaction fees, DCF modeling, long-term market growth, things like that.
How do you think about it as an investor?
Or maybe the better way to ask the question — what’s the optimal structure?
If a founder wants to build in DeFi today, what’s the best way for them to set up their business — to make it investable, to give them the best control over execution, but also to ensure maximum reach and adoption?
Rob:
I don't think it's a one-size-fits-all.
I don't think there is necessarily an optimal structure.
What is true is that you have, like you said, different types of go-to-market approaches and different types of ethos around building.
In some cases, it makes complete sense to have a centralized equity business operating a tech stack for accessing DeFi.
You might be dealing with institutions where there are strict KYB standards, where the institutions themselves are highly focused on OFAC compliance, where they want clarity about who is on the other side and what their exposure looks like.
In those cases, it makes sense to have some centralized control, and equity is the right structure.
More broadly, though, DeFi — as people generally think about it — is meant to be decentralized.
It’s right there in the name: decentralized finance.
And for most of what people associate with DeFi, decentralization over time is important.
What we often see is that there’s a period at the beginning where, if you want to ship quickly and innovate fast, you might need to be centralized for a time.
That’s fine.
What we really focus on is whether the founder has clarity of vision.
If you're a founder, I want you to be clear:
- Are you building DeFi?
- Are you building CeFi?
- Are you accruing value to a token?
- Are you accruing value to equity?
If you're clear about which model you're pursuing, and it fits the opportunity, that's fine.
We invest across both models, and we believe we’re best-in-class investors on both sides of that.
What I also want from founders is a strong bias toward shipping quickly.
Ship fast, and then decentralize if that's your path.
Or ship fast and stay centralized if that’s right for your business.
But don’t get caught in between.
Because getting stuck — trying to hedge both ways — is a real risk.
And part of that indecision comes from how unclear the regulatory environment has been here in the U.S.
If we get more regulatory clarity, I think that will actually help founders be more decisive.
So, all that to say: there’s not one right answer.
But you have to have a very clear vision for how you're going to accrue value and which path you’re committed to taking.
Will:
What’s your AUM at Dragonfly? How big is the fund?
Rob:
Our regulatory AUM right now is around two and a half billion.
Will:
How much of that is deployed versus dry powder?
Rob:
So, just for a little bit of context, we’re currently investing out of our third venture fund.
We also have two venture funds that are fully deployed already.
And we have a long-only, low-turnover liquid fund called Metastable — that existed for a long time and we took it over.
That fund is almost always fully deployed into the market.
The two earlier venture funds are fully deployed.
Our current venture fund — Fund III — was $650 million of committed capital.
That fund is about 85% deployed right now.
So we’re pretty fully deployed, with around $80 million or a bit more in dry powder remaining.
Will:
Numbers like that make you among the larger crypto funds, right?
Among the crypto-focused funds?
Rob:
Yeah.
I think it’s probably Andreessen, Paradigm, Pantera — there might be one or two others.
In terms of current fund size compared to our peers, we’re kind of right there.
We’re somewhere between top five and top ten in terms of size.
Will:
That has some practical impacts, right?
Which means you need to invest in potentially big outcomes to move the needle.
If you're investing in broader tech, maybe it wouldn't be that difficult to generate returns on $650 million, but investing in crypto, maybe it is — because at the end of the day, it's still quite a small market.
What implications do you think it has for the way that you and your partners think about the sorts of companies you're investing in, whether that's the stage, or certain other indicators, based on the fund size?
Rob:
Yeah, you have to take it into account.
I think a lot of people in crypto have done a bad job of understanding that portfolio construction matters and sizing really matters.
I have a background in more traditional institutions before doing crypto, and we always talked about positions — especially at the hedge fund I used to work at — in terms of percentage of the fund.
Because that's how you figure out how much conviction you have, and whether a win would actually matter for the fund returns.
What was true of crypto broadly in late 2021 is that people were just doing party rounds.
Everybody was taking a little bit of allocation, and then something might 100x — but if you 100x a million dollars in a $650 million fund, that's great, but it doesn't actually move the needle for overall fund returns.
The way it's changed for us is that we've had to be really thoughtful around how much we own, what our minimum ownership percentages are.
We have to lead. We can't really just follow on into most deals these days, except maybe for very, very late-stage ones.
And we have to be really judicious in supporting our portfolio so that founders understand how to think about sizing from different investors.
Because a lot of times we'll do a deal and the founder will say, "Hey, we want to bring in all these people."
One of the things we've said — and I think this is broadly true — is that if you bring in 15 different venture funds, it doesn't matter enough to any of them individually.
You don't get the support you need.
If you really want support, you kind of need to let someone like us — or one of our competitors — take that big chunk, have that minimum ownership, and really care about you.
Then you matter to the fund, and we can put the full force of our firm behind you.
We have to make that clear with people now in a way we didn't have to before.
But honestly, that's how it always was in Web2 VC — it just kind of got ignored for a period of time in crypto.
Will:
Is there such a thing as growth-stage crypto?
Rob:
You know, it's a good question.
I think people debate this a lot.
There was one fund called 10T that existed to only do crypto — or "digital asset ecosystem" — equity-only businesses.
That part of the market has been really tough.
We saw in 2021 a lot of big TradFi investment firms — KKR, General Atlantic, Tiger, Coatue, all these guys — come into the space and start investing in those types of businesses.
But the public markets haven't really been open for tech more broadly in a couple of years — let alone crypto — and that part of the market has been pretty challenged.
I think you have to be really thoughtful in that space.
It does exist — there are equity-only businesses in crypto that need growth capital at the Series B+ stage.
But just being a generalist investor writing big checks into those companies — that hasn't really worked.
Those investors didn't, and often still don't, think fulsomely about how the crypto market actually evolves.
We do some of those growth checks, but it's just not a big market today.
And there's very few of us that do it thoughtfully.
You know, Forecaster just announced their deal with Paradigm — it was a $150 million...
Will:
$150 million or something — that’s what they raised?
Rob:
Yeah, $150 million — exactly. At a billion-dollar valuation. And that's an application-layer product that has real users today. That was kind of one of the first deals where you could see, okay, there's real token value here, and it's getting done in a growth-equity style. And that is coming back.
Previously, we had only seen those types of big token rounds happen in pre-launch L1s and L2s.
Which aren’t really growth, as we think about them — because they're still essentially pre-launch tech products.
But now we're starting to see growth-stage crypto deals come back.
And I'm excited for that.
Will:
The cynical view on the L1s and L2s is that people have capital to deploy.
It's hard to deploy a lot of capital into many crypto projects.
It seems to be easier to deploy large amounts of capital into new L1s or L2s, and therefore they serve a purpose almost.
But no one really seems able to answer the question with much clarity:
Why is this going to win over Bitcoin or Ethereum or Solana, or whatever it is?
Zooming out from that point — given the small number of true growth-sized rounds — does that make them really competitive?
Rob:
You would think so, but we actually haven't found that to be true.
I’ve actually found seed-stage deals to be more competitive.
And the reason is this — none of the crypto funds, or almost none of them, are actually big enough to write a $100 to $150 million check.
So there’s still an opportunity.
We co-led a deal with Paradigm last year, for example.
There are still ways to do co-leads at that scale, because only a handful of funds can really write those checks.
In a really, really hot deal — particularly in L1 or L2 — you do sometimes see intense competition.
But at the application layer, it hasn't been nearly as competitive yet.
And a lot of those businesses are still equity businesses.
Seed deals, on the other hand, are incredibly competitive.
There are probably 300 firms looking at these things.
And people have learned the wrong lessons from crypto.
They believe that if you do a token deal early enough, you get liquidity — so it's de-risked very quickly — and you probably can't lose money.
So they're willing to pay crazy valuations because they saw that model work if you were early in 2017, 2018, 2019, 2020.
Seed deals get massively priced up because people think, "I'm going to make money no matter what."
That said — to make a slightly different point you raised earlier — there's probably only $300 to $400 million of really good deals a year.
Maybe a bit more when we get these $150 million Forecaster-type deals.
But there’s not a ton of really good deal flow yet, because crypto is still a relatively small market.
And the amount of capital raised by venture funds has meant that people are piling into deals at valuations that just don't make a ton of sense.
Being judicious is incredibly important — for us, and for anyone serious about investing in this space.
Will:
Well look, that brings it full circle.
If we get the regulatory clarity we’re looking for, and the changing winds in Washington really unlock innovation at scale —
suddenly from $300 or $400 million of deal flow a year, it’s 10x that, fast.
And that would be very exciting.
Rob:
Absolutely. I cannot wait.
There’s nothing I like more than putting money into a hungry entrepreneur who's going to build something incredible, and then watching them go through that lifecycle.
So the more innovation we have, the more exciting it’s going to be for me.
Will:
Amazing, Rob. Thanks for connecting.
This was a really great conversation — I really appreciate your views.