Richard Muirhead - Why Web 3.0 Matters and How Europe is Catching Up In the Blockchain Sector

Full transcript: Richard Muirhead on London Real

2:30 Brian Rose: This is London Real. I am Brian Rose. My guest today is Richard Muirhead, the entrepreneur, speaker, technology investor, and co-founder of Fabric Ventures. You were an early adopter of Bitcoin back in 2013, and you’ve been at the forefront of technology innovation and investment backing Bitstamp and advising Pantera Capital on the third largest deal in the blockchain sector as the managing partner of Fabric Ventures. Your new 130 million dollar fund will be used to invest in, quote, the most daring and relentless entrepreneurs of the open economy on their journey to architect lasting protocols and platforms.

3:13 You have stated that user-generated content drove the second wave of the web and user own content will drive the third, and you frequently speak about why Web 3.0 matters and how everyone can profit from a greater understanding of the open economy. Richard, welcome to London Real.

3:28 Richard Muirhead: Thank you very much for having me here.

3:30 Brian Rose: It’s great to have you here. It’s nice to have a fellow Londoner in the studio, because we just started getting a live guest back here.

3:37 We had Stani Kulechov of Aave. I know you guys know each other. We had Antoni Trenchev of Nexo here last week, and it’s nice to see people from this city talking about, you know, blockchain crypto, DeFi, Web 3.0. You’ve been in investing technology for a long time. How is London doing in this space, would you say?

3:57 How do we rank? Do we need to improve? Are we getting there, and where do we need to go you know, to be a big part of this whole ecosystem?

4:05 Richard Muirhead: Yeah, so I mean, tech in general, or crypto specifically, or both?

4:08 Brian Rose: Yeah, let’s talk more crypto and blockchain and Web3, because that’s what you’re specializing in now.

4:14 Yeah, I’m curious.

4:15 Richard Muirhead: Yeah, now look, I mean, it’s a good question, actually. I was just ruminating on this a little bit earlier. A couple of people had said to me that seeing a bit of a flipping for, for London. Because it was a period a couple of years ago when, despite the fact that this is clearly a kind of locus of activity around artificial intelligence and for fintech and financial services, that actually the number of projects and activity around, should we say, decentralization web through the open web was a little bit muted.

4:48 And so, but it seemed now a lot of people are streaming out of fintech and looking at the way in which, you know, AI is great, but, you know, AI needs data, and so these new platforms can handle data in a better way. It seems to be falling into place for London. I don’t know. Maybe it was just because these other sectors were strong, and so, for sort of, kind of, the majority of people who were looking, you know, to build a new company or join a company, it made sense to gravitate towards those.

5:17 And so some of the areas that have been coming, chasing out behind London, so Berlin, Paris, Zurich. You know, in terms of Europe in general, folks there had more readily said, right, let’s go for the thing that’s truly on the frontier, where there’s a bit more kind of, you know, blue ocean to operate in, and let’s go for that. But I do, I do think London has these very fundamental strengths and obviously the capital proximity to VCs, you know, lawyers, or maybe the VCs and lawyers aren’t needed in this space, but we want to come, but I think it’s really kind of shifting up a few gears now.

5:55 But I mean, maybe we’ll, you know, we can talk about it more generally. I think Europe obviously has in tech in general has started to, you know, surpass China in terms of unicorn generation just recently, even if China was on a bit of a down. Uh, I think it’s clearly at least an upward trend in tech overall, and has some fundamental strengths in terms of this kind of libertarian, decentralized, open-source-inspired and driven movement that is the open web, and a lot of great projects, and has always operated in this slightly more distributed way.

6:33 So there are, you know, it is this, you know, set of sovereign nations that have great academic, you know, centers of excellence, upon which you can then, you know, talent breeds, and people are very self-determining and building their own, their own ventures in their own style, and have always contributed importantly to the kind of open-source software movement. Individually, historically might have ended up in a company that gets ripped out of here and taken back to America or something, but you know, increasingly not, and especially not in this, in this sector, because people embrace distributed teams, remote first, and so forth, and of course, that’s even accelerated through the pandemic. So it’s a great time, I think, for Europe on that basis, and we don’t need to care.

7:21 You know, I think there’s a rising tide for all of Europe, and it doesn’t need to be a kind of, you know, a competition so much between the major sort of digital city-states. What’s good for London is also good for Paris, and it’s also good for Berlin. I think, yeah, it’s a good observation, and, you know, back in 2014, I think 15, I started a parallel show, not London Real, but it was called Silicon Real, and I just got re-excited in tech. I actually studied tech when I was an engineer before I got seduced into Wall Street, and so I had about a hundred of the top founders and CEOs in tech.

7:54 I had to transfer Y guys on before they made it big. I had, um, the Stripe founder on before they got even bigger, and all these people, and the truth is when I looked them up later on LinkedIn, they were all in the Valley, a lot of the successful ones, and there was always this pull to the U.S. if you wanted to go bigger, and that was always frustrating about the UK and London. But now with this Web 3.0 concept, and we can talk about that, it doesn’t seem like that’s going to happen you won’t necessarily have that drain to either the capital or the consumers or whatever that’s happening now.

8:28 You have, like you said, that open mentality, and then you have a bunch of sovereign nations also super creative, which we can talk about that with NFTs later as well, and maybe this is the start of a new narrative where Europe can punch above its weight, but start punching maybe where it should be, or, you know, take its own place. Yeah, and bring something. I mean, every wave, I mean, well, first of all, if you take the super long view, I think it’s interesting, which is that there has been a bit of a supremacy of Silicon Valley, and maybe people are super aware of this, but, you know, that wasn’t quite by accident, and it’s not been forever.

9:03 I mean, there was, it was, has been sort of government funding of radar, and then obviously the chips that were important for the military-industrial complex, and all these one thing led to another in terms of the strength of the U.S. and Silicon Valley. But that only happened kind of effectively in a post-war, 70s, and Bell Labs. Yeah, that’s good. Oh yeah, 40s, 50s, you know, Fairchild Semiconductor, and and then, and so that doesn’t happen. There’s great Steve Blank writes, very thoroughly about it, and I don’t have it all memorized, but it’s, you know, you can go and look at the history, and it makes a lot of sense in terms of the sequencing, but it’s interesting if you, if you look further back.

9:43 Um, and this is to make it happens a little bit a personal element to the kind of anecdote, and this is totally kind of coincidental but, um, someone shared with me, a cousin shared with me a picture of my great-grandfather, uh, sitting in a car having just done a kind of country-side jaunt outside of Adelaide, and, uh, setting, I don’t know when he said the record or whatever, um, and, and it was, um, uh, and the car was a Dion, I want to say, and it was like it was in a, it was a French car, um, and at the time was a highly, super respected car. Gone now, I think, you know, totally gone, but the internals of it, the mechanics of the engine, were respected so much that they were actually being licensed to the U.S. car manufacturers at that time, and that fact, what that made me think of is how you would never have guessed that the kind of bear myths of kind of, you know, car production from the U.S. that have become so dominant for a period of time, we’re actually licensing a specialist technology from France 100 plus, you know, years ago, and how quickly the tables can turn, and I know that’s, you know, it’s only really 100 years ago to swing one way, and then maybe swing you know back like the other.

10:58 So, you know, back to this question of, you know, is this maybe an interesting time for Europe? I think with each wave of, in a particular kind of information technology, of software, you’ve seen it become increasingly global and democratized, the opportunity become increasingly global and democratized, because it is inherent in software, because, you know, you don’t need to build a, the actual fabrication of a, for a set of, you know, silicon chips in order to be in the game, because of software, because the, the great products are built from direct insight into the problems you want to solve and so you need to be close to the problems, so that makes it global. And also because, and I saw this myself from the first time I was involved in founding a software company back in 1995, the internet made it possible to appreciate the science of startups and the science of scale-ups from anywhere in the world because you can just, you know, at that point look it up on, um, uh, what’s called musk muscat or then and Alta Vista or whatever, but now you could Google it up, and you get your results and you can learn, obviously, everybody, everything, and it’s right there sitting on your sofa, and so I think that all of that has pushed it sort of around the globe, and we see that now accelerating with you know, Web3 and the open web.

12:20 Why is it excelling with open web? Let’s put aside the question of Covid and remote first, which clearly is a factor, also because it’s because a couple of things. One, you know, there was a shift towards the, you could argue, I guess, the supremacy of open-source software that at least I coincided first in the 90s, and open-source software had started as this kind of almost romantic movement of, like, you know, it’s just from a point of principle wrong that this should be, you know, owned in a proprietary way And so it shifted from that to, okay, well, if we can distribute databases over the internet and have them used by millions of people, maybe we can actually create a business model around that, and so my former partners who co-founded MySQL still arguably one of the world’s most sort of popular databases, they exploited that, and then, but that open source, you know, was incredibly powerful.

13:22 Those business models are a little hard to make work, and so we came into the age of what we could think of as Web 2, the second wave of the web, where people, companies, large companies, the ones were familiar with, Facebook, Airbnb, Google, Amazon, and so forth, take those open-source projects, build these incredible cloud-based, you know, services that we, upon which our kind of lives increasingly rely, and sort of to capture the software that way, and, probably sponsor a bunch of people to augment those projects, and then, you know, extract from us either through that margin you know, of opportunity that Bezos has, or obviously through the advertising that most, many of the other platforms use you know, that’s how it gets monetized, and we’ll come in to maybe what the kind of issues are, but, you know, open source.

14:10 You know, the principle of it being free for anyone to use is something that actually was stifled by that Web 2 movement. In Web 3, it’s, it is, you know, truly open source, and not just the open source software, but the open-source execution of that software and open-source data residing in those networks that are being built out there, and the reason that is now possible to do that is because of this invention of digital scarcity or digital ownership, the fact that you can build these networks and have the network understand the identity of an individual, have the network understand the identity of another machine on the network, have the network have baked into it incentives that are native to it to allow for the coordination of its operation, and that creates a business model, which means you can shun the previous ones, and actually a lot of the things that the inherent capabilities of the open source movement the fact that it’s kind of, you know, inspectable openly by many different people, and the fact that it’s forkable is incredibly valuable because it creates a kind of productive tension for those networks to be continuously innovative, and importantly innovative in the insta interests of their users, right?

15:37 Because otherwise your users are going to pull the rip cord and go somewhere else. And so that’s kind of two different things together: the open-source movement and the shift now to Web 3, which creates an opportunity for Europe, maybe even inspired by its kind of libertarian counter-culture, that in turn, sadly perhaps, was inspired by, well, hundreds of years of nation-state sort of, you know, battling, and obviously the last century in particular fighting kind of tyrannical forces on both the left and the right end of the spectrum. So I think, you know, great opportunity for Europe, and the glaring examples of, like, Web 2.0 versus Web 3.0.

16:23 Web 2.0, Facebook, for example. Everyone uses it. It has a lot of utility to everyone’s lives, but the winners of that are the equity holders and the Zuckerbergs of Facebook, and maybe the other example of Web3 might be Bitcoin for example, or something on a blockchain where it’s distributed, everyone has equity via the tokens, and its value goes up when the network expands, and like you said, if people aren’t happy with it, it can always hard fork and go somewhere else.

16:48 Those, like, two examples for people to start to get their heads around, but then also you don’t want to limit yourself to those, because Web3 means much more than indeed, and, like, so definitely, I mean, you don’t limit yourself even just to poor old Facebook as well, although, so you could take Twitter, but I think we’ve seen Twitter start to really, you know, make moves because, perhaps, because the inclination of Jack Dorsey to embrace this shift towards decentralization, whether it be use of NFTs or, you know, maybe looking at incentive structures outside of advertising and so forth but, you know, LinkedIn, I think it’s fascinating to see that Microsoft might actually already be acknowledging that LinkedIn is doomed effectively if the identity of individuals on it and their resume are owned by Microsoft, you know, it does not seem conceivable that in the future if you are from your kind of nursing home, so for your nursery to your nursing home, you’re allowing for your life to be captured in digital form in a resume that you don’t own, the identity that’s in the past, and the access and the control of that yourself, and rather it’s owned by someone over in kind of Redmond.

18:05 It doesn’t seem like that can possibly be the future, and you’re going to need to do that if your life is going to be conducted so much online, if you’re going to get your job, your next job, the next five jobs, by, you know, some organization out there recognizing anonymously your kind of potential and sending you information requesting whether you want to kind of be involved. Those that kind of deep job market, that’s what’s going to happen, and so I think that’s going to, you know, LinkedIn is going to transform, and so there are other, you know, and I think marketplaces like Airbnb, I mean, it seems, you know, you touched upon the topic of, you know, users, individuals, having equity in these projects, all of the users, individuals, but especially the ones who are the first ones to get involved, those first people who put their properties on Airbnb, you know, they’ve had just a tiny slice of Airbnb.

18:57 They’ve done very well out of it. Thank you very much. So that’s an example of how it can be done differently, and if you piece it together, the sort of secret superpower, the superpower of Web 3, is its ability to coordinate effectively strangers on a network to do really sophisticated things together from the point at which there’s just a few of them, solve the cold start problem, through, you know, the scaling of it, and then actually then to have built through that a community that leads to its defensibility.

19:38 So it’s a, and that, that whether if you don’t maintain the interests, as we’ve touched on already, of the users in that community, the, you know, you won’t have a good community, and it won’t be defensible anymore.

19:48 Brian Rose: Yeah, it’s fascinating to watch develop, and I’d love to get your thoughts of what it’s like to watch this space for the last couple of years, and see DeFi summer of last year and all those incredible things happening, right? I mean, you mentioned Airbnb, Facebook, Google, Apple.

20:02 I mean, they now take between 20 and 30 percent of all of the peer-to-peer transactions, whether it’s between an artist and you and me, or wherever you rent a house, and they’re not going to want to give up that, you know, multi-trillion-dollar revenue source easily, and so this transition from 2.0 to 3.0, I guess we’ll be bumpy inherently, and we are used to this whole world of equity owners, venture cap. I even asked Danny a question: is venture cap by definition Web 2.0? And this is probably the hardest to hear what he said.

20:33 Yeah, because, you know, yeah, and I’m curious to ask you that, because, you know, you’re out there creating value, investing in people, fostering these companies, but ultimately, you know, you want to return for your investors. You want the equity investors to win, but now you’re in a Web 3.0 space where also you win if the network wins, and so that’s you have to walk the line, as Johnny Cash would say. So how do you walk the line? And is VC inherently Web 2.0, and can you shake that off?

20:59 Richard Muirhead: Stani wasn’t sure, you know. He emailed all the VCs when he was in Helsinki, and they ignored him, and then he went, obviously, the route of the tokenization, and, you know, that worked out for him. There’s probably a thousand other companies where it didn’t. Yeah, yeah, exactly. And that’s fine also, because you know what that’s intrinsic to the kind of super early stage projects.

21:19 They then all work out, and we knew, had Stani before that. The name changed from Italian to, um, to Aave, and, but maybe before he’d done his tokenization and the initial raise he did back in 2017 or whatever, but, and look, we would, we, he’s one, he’s running and or he’s not running, he’s found it, and now part of the governance of, you know, one of the outstanding projects across Europe, and maybe we’ll touch upon that. So first off, like, you know, the most outstanding returns from a financial backer perspective, or financial contributor, to maybe put it in a half Web3 parlance, you know, it’s much less to do with titles, and it’s more about, you know, participation and contribution.

22:10 It, um, they come from where these projects where you get network effects, and the exciting thing about this space is it’s kind of like you know, this is a software platform optimized to solve the cold start problem, to get the network effects going, and then keep them going in a positive way. So that’s super exciting, but not just that, but you get layers of network effects. You get, like, you know, buyers, sellers, liquidity providers, validators, and, you know, financial backers, who are all kind of benefiting from an intermeshing set of kind of network effects.

22:44 I can’t do the math of exactly how those play out in every case, but people are, you know, that’s becoming a new science. But there are different stages to getting them going, and there is a stage when you’re trying to get it through, you know, bootstrapping, where some capital is kind of useful. You need to spin up some validators, you need to hire some people, or whatever, and so there is a role for some capital.

23:10 Brian Rose: So is it venture capital as we kind of knew it?

23:13 Richard Muirhead: Well, you know, I think you need to be comfortable with some very different aspects of these projects. You need to understand that you might be investing in a company into its equity when there’s just a handful of people, and they know what they’re going to build, but actually the equity you have is never going to intrinsically have any value at all. It’s just going to give you some rights to the tokens that will get created in the future that will represent your piece of the digital real estate that is the network that gets built, and other people will have share of that, and actually, inherently, importantly, that’s a pie that needs to be divided much more broadly than a venture capitalist might normally think about it.

23:48 Where, let’s take, for example, you want 20, 25% ownership out of the gates, so you end up at the, I post-IPO at 10 to 15%, and then that’s in your biggest result, is one that, you know, works for your fund economics. Right? That’s what you might typically look for in a VC. That’s the typical thing: you take 25 in the beginning, by time you get to IPO you have 10 or 15 percent. Yeah, hopefully it’s a deck of unicorn, and yeah, you’re happy, you’re extremely happy.

24:12 That won’t happen. That’s not what’s in this blockchain space. You’re not going to have that ownership, right? But at the moment, at least, um, there are some, you know, return some multiples that are both have been both faster and higher than you would typically see in venture, or generally see on an average, you know, generally see, but also, I mean, looking, and it’s so hard to say, because we’re very early in this game, and there’s a lot of new projects, and there’s a lot of, you know, there’s frontiers being kind of being pushed back.

24:40 You know, if you are, you know, if you’re up to speed with what’s going on, and you’re connected, and you’re valued as a financial backer, contributor, who isn’t just writing a check, but actually can help you connect with talent, connect with exchanges, think about the token economics that you’re building, and the business, specialized, you know, business model here can do all of those things, maybe run some validators, physically, give feedback, help bootstrap the kind of user side, whatever you might be able to roll your sleeves up and contribute. If you can do that, then I think there’s great projects to be involved in, but also there’s a different nature of these projects. You’re not really building, you’re not building a company, you’re building a network, and you’re building a network that is probably going to be intermeshing with a lot of other networks, because one of the, I talked about the superpower kind of open web being and Web3 or web through if you want to call it that, being, you know, its ability to solve the cold side problem and then keep network effects going in a kind of benign way.

25:48 The other superpower in this space is what you might think of as composability. So the fact that you can have networks running, say, containing credit worthiness of an individual, and another one that’s running this that gives you some information about, you know, availability of collateral to put against, against which you could, you know, make a loan, and then you, those could be live running services so they’re not just blueprints for software you could build. They actually, or not even just services that are empty, you know, shells that don’t have data and users and information behind them, but they should be both live running services, and you can compose them together into another, and another service.

26:33 And so the reason I say that is that you, when you build something, it gets intermeshed like that with other services, which gives us a kind of a support that you wouldn’t have had before, and also it’s a community you end up building. And so take Bitcoin, you know, nobody arguably has ever known who Satoshi Nakamoto is, and I’m sure he’s, say, she, they did that by design, understanding that that would help this, you know, be successful. And so that demonstrates that you can have a founder be present, even in a pseudonymous way, only for a couple or three years, and then vanish, and still the project can be super valuable.

27:19 So venture capitalists normally would, one of the biggest risks you have is co-founder risk, and do the co-founders stick around? So this is going to feist directly in the face of that. And but the same is also true of other projects. You can create enough momentum in the flywheel around the community and the talent and the software and the network and whatever that it has its own life, that would true of standing with Aave as well. And so going back to what, what are we kind of analyzing?

27:46 Is there a room for venture capital? Yes, there is, because you can be a financial backer if you’re prepared to understand how this new opportunity works, but it also looks quite different from venture capital in those different ways, and so you’re going to be rethinking fund composition and economics, and the profile of everything, quite quite fundamentally, right? Even your behavior, and what you call yourself, and you know, all that.

28:08 Brian Rose: So you have to innovate as a VC, and I’m guessing a bunch of your peers, which I think I had them all on Silicon Real back in the day, some of them aren’t as adept, maybe, to change, because maybe they’ve been doing this for 30 years and they’re used to being, you know, the gatekeeper.

28:22 Richard Muirhead: Well, I’m not going to pretend that I’m 29 anymore, and, and like, and although, you know, we definitely, um, will. I’d say we’re probably, can I say that, even I might be sort of ageist, but fairly openly biased towards teams who are of that age. I mean, there’s a, you know, uh, plasticity of the synapses, or whatever, that that tends to exist that, you know, ossifies, if I’m not mixing my materials metaphors or whatever, you know, over time. And so, and yeah, so it is possible some venture capitalists who are, that are not positioned to really change their perspective on things, but all, frankly, without sort of putting them in that kind of particular bucket, don’t have to.

29:05 Web 2 is still going strong. There’s still a lot of, you know, of the world to be eaten by software, but what’s happening now is that, then, this is where we like to think of it, that software, you know, we’ve talked about a little different ways of thinking about open web, but one other way of thinking about it is this is a new wave of software, and software that now can make and keep financial commitments, and that seems like a pretty kind of powerful thing for it to be able to do. But the other wave is still going, and this new wave is, you know, even though we’ve got a couple of trillion of kind of network capitalization out there, it’s like so baby, baby steps at this point in time, and there’ll be some baby trips, and, you know, and and so forth, and people will probably put their leg out and try and trip it up.

29:51 Brian Rose: Still they are, but it’s super early, right? And so if someone’s watching this right now and they’re, they’re a founder, uh, they’ve, you know, started a company that’s Web3-based and blockchain-based or crypto asset based, they’re probably thinking, okay, I can call up Richard and work on an equity investment, or I can go down the token route. I mean, there’s pluses and minuses to both. I mean, I was even talking to Dan Moore at Pantera, and he’s like, we almost arb the situation.

30:14 You know, sometimes there’s more opportunities and tokens, sometimes the, the more opportunity, VCs we still see lots of VC investment happening when clearly people could raise with tokens. So there’s still a lot of value to be added by the VC. If someone’s watching this right now that was like, standing back in Finland in 2017, and say he did have access to you, how do you advise them as to which to choose?

30:36 Richard Muirhead: Well, so pretty early on, we, we said a kind of a core competence for us has got to be, um, that we’re agnostic as to what the instrument is, because what we feel is that there’s, you know, that is one of the key elements of this frontier of innovation, is coming up with, um, what those instruments should look like.

30:53 So it would be silly, I would say, for us to say, you know, this is that the right thing for this particular business model is going to be equity, or the right thing is it can be this flavor of token, or this combination of different tokens. That’s what the entrepreneurs saw, you know, trying to decide. So from, so we would cut and slice and dice things in a different way, so we have an early-stage venture fund, and you know, you know, north of you know 100 million euros, and we, um, you know, although we’ve got a pocket for super early-stage investments, primarily we’re looking to get, you know, deeply involved in up to around about 30 different projects from that.

31:32 Brian Rose: Okay, so if I do the math, I can figure out you’re looking to invest two to five million dollars.

31:37 Richard Muirhead: Yeah, and so, like, there may be one or two in initially, and then there’s deeper in the ones that are kind of playing out, and you do sort of, we have follow-on strategy to it, reserves in there, but, um, but we, we don’t differentiate in there between you know, ones that may end up being equity based. So we’re fortunate enough to have invested in Sorare, which, um, you know, football cards, fantasy football, um, and they’re doing tremendously well, just the biggest venture around ever, 68 680 million, right?

32:05 Yeah, it’s multi-billion dollar evaluation. Yeah, and they, and so, but that’s an equity play at this point in time, which is going to then build. There’s now a move to see what you can do with that data, and they’re, they’re going deep and tackling the beautiful game. Um, you may well look at other sports in the future, but I think they’ve got their hands pretty full with the beautiful game and just football or soccer if you’re in America. Yeah, exactly.

32:25 Okay, um, or Aussie rules, we would probably call it if we were, we would argue if we were back in Australia, but anyway, but, um, um it’s, you know, that’s equity, and that’s fine. We don’t differentiate, that’s the right call, but you’ve got something else. Um, we just announced an investment in an Angle Protocol, which is taking a, and it’s a, the next step in thinking about how to build synthetic assets, you know, in the digital realm, um, you know, using, you know, that cryptographic scarcity and in particular stablecoins, and in particular, standing with the euro, and, um, and so that’s a, that’s a token play, um, and so for us, we don’t just distinguish it, but we’re early stage, and whichever direction it goes, we do.

33:08 And so that means we’re also very happy going into equity that becomes tokens, and if someone has already got to tokens early, fine, but we don’t want to mandate that, because we want to get in at the point at which they’re probably still working that out, and they might want to work with us on that point. Now, later stages becomes probabilistically speaking more likely, how token is in place, um, and, but that’s, it’s more about being later stage, um, and, and that’s the distinction. There’s another, but there’s another way of thinking about it, which is there are opportunities that are not venture.

33:42 There are opportunities that are kind of more hedge fund-like or crossover fund-like in nature, where you can, you know, make an investment, provide liquidity to a network and earn yield, you know, so-called sort of yield farming, um, where you, you know, can lend out and get, you know, your, your crypto and get an interest rate on them. Um, uh, this takes us into the, some of the parameters, the the interesting components of decentralized finance. And so that’s distinct in our mind, and you know, we’d think of that as not Fabric Ventures but Fabric Capital, you know.

34:17 But it’s, and so, if that makes sense, is how we kind of navigate some of those distinctions, and something that’s playing out. Um, and of course, we’ve got our job is to have funds that make primarily most sense from the perspective of the entrepreneurs. Those are our number one customers, and our second number one customers being, obviously, the investors that we have that make sense for them in terms of where they want to allocate their capital.

34:40 Brian Rose: Okay, so you have separate funds for that?

34:42 Richard Muirhead: A capital-funded investment fund? Well, strictly speaking, we have one, one venture fund. Okay. Uh, but we have in mind where we’re going to go with the, the other, and we have a later-stage venture strategy, and then we have, I have in mind but, um, watch the space. Basically, yeah.

34:55 Brian Rose: Okay, and then the investment announced today, like a total of five million in an Angle, right? Was that a public token before that? Could anybody have bought that yesterday?

35:04 Richard Muirhead: No, there’s nothing. I mean, it’s, um, there’s, there’s some test networks, uh, but it’s, um, but that was via token, not equity, for example.

35:12 Uh, no, that, that’s the equity subject to future mapping to tokens. Okay. Yeah, so there’ll be, and that mapping is, you know, that’s as defined and through trust and governance between, you know, you, you’re basically seeking as much alignment as possible with the founders. You know, that’s, you want to be, will be helping them build the project, and so that’s what you seek. You know, upside, downside, that you’re kind of aligned with them.

35:35 Um, and, and look, to be, to be, and so they have equity, and then when tokens come around, they’ll have some piece of the tokens, but we’ll also, they will also be looking to put the tokens into the hands of lots of different other stakeholders, um, depending on the project. To make the project successful, it’s, it’s a kind of, it’s like, you know, the power of option schemes and equity that we’ve seen in Silicon Valley over the decades, but now on steroids, like you can, to allocate it to lots of different, you know, participants, including, you know, the users, the buyers, the sellers. Yeah, yeah, it’s incredible to watch, and I want to talk about maybe quickly DeFi summer and how that all played out.

36:15 Brian Rose: Burning question is, and maybe you don’t have to explain the example with Angle, but how does that process start to where you know back up the investment to say three months previous, or six months previous, or maybe not that one, maybe a smaller investment um but how would that process start? Like, do you get an email, do you get a warm intro, what opens your eyes, what doesn’t open your eyes, when do you say to someone, keep working, come back and see me in six months? I mean, I’m just, I think everybody would be curious.

36:43 You know, what goes through your brain, and how do you try to identify the people you want to work with?

36:50 Richard Muirhead: Yeah, I mean, at the end of the day, to be frank, you battle hard to do lots of work, so that when it gets to that point you have to do no work, but by which I mean, to do the work, so that the kind of, you know, the brand that you have as a firm and as an individual means that you know, when people, when you’re not in the room, as the saying goes, um, that folks go, hey, they would be worth working with, and so somebody asks for an introduction, because, you know, there’s by definition just a lot of activity. I love a lot of different projects.

37:24 That’s not to say you don’t continue to do the work of looking at them and scouring through them and doing that outreach, because that’s part of the work you need to do to show that you, um, you can be bothered, but that, but you understand that by doing that work you learn what’s going on out there, and therefore you would be a good partner. You can’t skimp or you know on the work or shortcut the work, but ultimately by doing the work you end up hopefully being introduced to the right people, and selected often through a kind of a warm intro, not through an, you know, old boys network or whatever, but somebody anywhere within the kind of portfolio or close community who you who helps you with discerning the signal from the noise, because you trust them, because of that, their view of the problem to be solved or the technology used or whatever it is.

38:14 And so, you know, whether it be somebody who’s running a course on computer science and cryptography who has these people in their class, and he thinks that it’s like Stella, or it’s, you know, somebody who’s, um, you know, running meetups around the space, and knows who turns up and who doesn’t turn up, and gets into a, you know, kind of pineapple juice conversation with him or whatever, you know, it could be any of those things that lead to the intro, and then I mean, you really kick in again to, I think, a very human process of kind of pattern recognition. But it’s not a, it’s, it’s, I mean, you can dissect it a little bit. It’s, you know, and I think it’s commonplace, um, from venture really.

38:55 It’s, it’s folks who are daring and relentless, uh, in a kind of really kind of walk the line, both, you know, confident but humble way, um, who understand that you can make massive markets as well as, you know, tear down, you know, existing big ones, um, and who are kind of good enough at saying no, um, that they can start with some seemingly trivial sort of entry point to the market and toy-like product even, and then think through okay, how that might scale, and what, the ultimately, in this case, maybe either a revenue-based or a token economics-based business model might be, and another element we can come up more and more, but have a bit of a charisma and energy and energizing capability, that you think that they will be able to hire people even better themselves for the next roll down, and so if you kind of see and feel that pattern, and, and really, you know, I said it before as I will say it again often, people who are, uh, some combination of, uh, uh naive and irreverent enough to, and foolish enough to try all of the, you know, this kind of endeavor, um, you know it makes sense, and actually people who have sometimes too much experience of, us of a space and think it should work in a certain way.

40:20 It’s just, it’s hard for them to get their heads around, um, you know, really shaking it up. They see too many problems. Yeah, they see too many problems. We’re always thinking of the thing if all of these things went right, how big could that be? Oh my gosh, they could be that big.

40:35 Brian Rose: Okay, and so you need a little bit of a cult-like figure to get the ball rolling and get critical mass and inspire people, but then you quickly, in Web 3.0, want that to be dissolved. I mean, we see this kind of with Charles Hoskinson, you know, Cardano. Like, he is probably the single biggest spokesman and regular spokesman in this DeFi space, and yet he admits, although some people might disagree, I mean, he’ll be on the show in a couple of weeks, that he’s trying to get himself out of this thing.

41:03 It will become something that’s nothing to do with him now, but in some ways now he’s useful to that extent. And then we can look at Vitalik, and we can look at Gavin, who you’ve invested with, Polkadot, and see how they all attack that problem. But you kind of need a little bit of that to start. Right?

41:20 Richard Muirhead: Yeah, no, for sure, you kind of gotta start somewhere, that you do have a cold start problem.

41:25 You’ve got the kind of empty room, or the one person in a room, a problem often, so inevitably that’s the case, and I, and I, um, you know, I think it’s foolish or incorrect to argue that there aren’t stages of the governance and execution of a project where, um, the ability to send, make centralized decisions and command and control and move rapidly in that sense, you know, the value of that does not outweigh the consensus that you might get from community and decentralized-based, you know, decision making. Um, I mean, like, decision making is tough, even individuals on their own, little and small groups and families. Yeah, but I mean, two things.

42:13 One, ultimately, the value of having there is value in having community-based decision-making, and that ensures that we can, um, have an architecture, have networks that truly are, can’t be evil in nature. You know, move away from the mantra that Google dropped two years ago, whatever it was, of “don’t be evil.” You know, you need that. It’s inherent in the stack. You need it.

42:37 It’s not just the decentralized computing nodes at the bottom. It goes all the way up to the decentralized decision making at the top, and at that point, um, that’s necessary, and it is important that whoever is kicking it off the ground, you know, in the project in the first instance generates enough transparency, enough trust at that point in time, that they will make that transition, because otherwise you won’t attract, at the beginning, the people who believe in that ultimate, you know, vision. Um, and so, and yeah, it doesn’t need to be done, and it’s non-trivial, and there are phases, decentralization of different parts of the stack, hardware, software, and, you know, governance and so forth, and even layers of governance.

43:20 Um, and, uh, and if you misstep and people detect that you’re either not decentralized enough, or not as decentralized as you said you were, that’s not bad, not good. Um, or, um, that you’re not going there quickly enough, you know, people will choose to, uh, well, indeed, decentralized autonomous organization speak rage quit from, uh, from the, the situation. Um, and, um, everyone leaves the protocol. Well, there’s, it, so it’s a little bit like a, it’s an individual’s ability to hard fork their value from a, from a DAO, and it was kind of put in place a little bit by, I mean, um, um, so many who put together Moloch DAO, and it’s, in a saying, like, at any point in time you have the tension of each individual being able to rage quit and take the value they have at that point in time to time with them.

44:09 It’s like, kind of, like, I got my parachute, let me go, and, and it’s kind of a little bit similar to the productive tension you get from forking. Um, uh, so, so, so, and, but it’s not the only mechanism. I think the DAOs, they’re incredibly sort of fertile space for folks to innovate now. How do you hire, manage, pay, fire, ask to leave, individuals involved in a community, you know, you know, uh, chatting away and contributing to or making decisions? How do you do that?

44:44 And how do you vote, and what’s voting mechanisms, and whatever? There’s a lot of, um, decisions of how to do that, and technology built around that. Um, as we see, I think the spread of these organizations, be interesting to see if anyone speculated yet, sort of, what proportion, if you took what a measure, like people employed on the planet, you know, and if we looked for 50 years in the future, what proportion of people would actually be employed per se by one or several decentralized organizations, where effectively there’s just, it’s a utility, it’s mainly a softer utility, loosely governed, you know, by the participants, and, and you, you reap the rewards of participating in it, you know.

45:28 Um, it’s interesting, more than 50 in 50 years, such a paradigm shift. You know, it’s just hard to believe it can happen, but it’s the way this is going. Well, and then there are great examples of how it’s kicking off in the whole play to earn space. So, you know, with, um, say, actually, Axie Infinity, which comes from the company Sky Mavis, um, disclosure one we invested in, and, you know, like, you know, 100x growth, in, and hundreds of multiples of growth in revenue in very short period of time, just like, you know, uh, months.

46:03 Um, and, uh, you know, in the metaverse, uh, where, you know, there’s a few interesting kind of facts. One is that you have to get, you have to own, uh, a piece of the metaverse, effectively, in order to have the right to then, um, you know, purchase Axies, which you then breed, but the better you breed them, um, the more you’re rewarded, and use the rewards to, you know, buy more Axies, and so forth. So there’s a whole, um, a cycle, um, uh, in the economics that drives, um, the value of the token that’s native to the platform.

46:41 Um, and, uh, but also interestingly, has created an, um, the opportunity for people to lend individuals who don’t have the capital to initially participate, to bootstrap them into the platform. And I think it may not be true post-summer now, but, you know, folks who obviously don’t have, you know, huge minimum wages, but folks in the Philippines were actually earning more than the minimum wage prior to the summer, um, playing, uh, this, this game. And I think, um, you know, it’s an example of, you know, a DAO effectively that you’re kind of plugged into and you can earn money from.

47:19 But I think, uh, although it is interesting how um, many different varieties of these games can be spun up, and, and, and you, you basically got this kind of game of, um, or this operation of matching the innovation around games. Think of it as a kind of huge decentralized game studio being matched with, um, players who judge the quality of the games and the gameplay, kind of intermediated by folks providing the capital to bring them together and get and bootstrap, you know, the game into sort of, you know, existence and operation, because you need the liquidity of players, and so forth, if it’s interactive or competitive, and so forth. And that’s interesting, because what was interesting to me when I first sort of stumbled across it, and there’s, uh, for firm, we help co-create Blackpool.

48:07 Is one of the ones providing those loans, effectively, and, and there’s another one we’re investing, called Yield Guild Games, doing the same. Um, but I, in my mind’s eye, compared this to Supercell, which created Clash of Clans back in the day, and famously did that with this cell-based model of innovation that celebrated failure fast, so you could get onto the next experiment, to avoid the kind of trap of, you know, hits businesses, where you go too far down one and never kill the failures, and you don’t get to the hit. But even beyond that, the thing that was interesting to me is that these are kind of quite intense knowledge-based activities, and, you know, surely it’s not just game playing, you know, that we could be doing.

48:51 It could be, um, and this is already starting to play out. It could be, you know, uh, and some people call them sort of data unions, people who collaborate in order to pull a certain slice of their data exhaust, and when pulled, it becomes valuable, and therefore they receive some value from that. But you gamify that, or you gamify something to do with the analysis of, you know, the genome, or whatever, some lofty activity, and you can now coordinate skilled people to do this, you know, at the right time, in the right way, um, at scale, which you could never, never do before.

49:27 So we should watch the gaming space because it’s telling us what’s going to happen. I feel like Elon Musk says simulation, but the gaming literally is a simulation of our life. The game will become a true simulation and will become super interwoven to it. I mean, I’m not, I, I don’t, I don’t have these kind of negative perspectives of where it’s going to go. In fact, quite the opposite.

49:47 I think the, you know, this is this whole movement is about, you know, individual, you know, empowerment. It’s all about the sovereign individual and everything they can contribute, um, to, you know, society, that, that if you have something at stake, if you have something to gain, if, if there’s, if you have free choice, if there’s transparency about your actions, around your actions, that all of these things engender, not just, you know, good behavior, but incredibly innovative, creative, perspicacious kind of behavior, you know, and that that seems like a recipe for a better, a better place rather than a worse place. Yeah, it does, and that happens in gaming through that transparency, through these characters, and clearly people are engaged with it.

50:33 So if you can tap into those same behaviors and those same ideas, yeah, then we can blur right into a DAO or a business, and then that blurs into, and it always starts with the game. It starts with the game. It starts as a toy, you know, in our lives, and, and lots of, um, you know, new technologies. And here it starts with the game, but I think, I mean, I don’t know where it’s going to go. I mean, that’s, uh, you know, we view our kind of contribution as just trying to get hot, you know, halfway there to understand where it might be going.

51:04 Yeah, and then you’ve got to meet the entrepreneur in the middle, and just enough to go wow, okay, that seems like you can be on to something.

51:11 Brian Rose: And I’m guessing you’re not a gamer, so you have to really push yourself out of your brain. So I don’t know how that happened.

51:18 Richard Muirhead: So we have definitely have gamers on the team. So, uh, um, uh, you know, Maxi, Ian, Julian, probably Guillermo, but you know, on the team who would all be, um, fall into that, uh, category.

51:28 Um, I’m, I, I’m not a versatile gamer. I, I went down that route, but maybe because I just know that if I continue to game, I’d spend too much time actually gaming, um, uh, or maybe I got distracted by sport or girls or something. It’s a part of the space I need to look more at. Um, but it actually brings us to a good conversation about the metaverse, and I’d love to talk about just three things. First of all, you know, maybe talk about how us humans interact with technology in the first place, because then that goes on to talk about this concept of the metaverse, which goes on to talk about NFTs, which, like gaming, are this big blaring sign that something important is happening here, that maybe a lot of people wouldn’t understand that this is real, and this is a new paradigm.

52:13 Marshall McLuhan, and the medium is the message. This is a whole new conversation, and then I’d love to talk about tokenization, because you have some really interesting thoughts. You said tokenization is to ownership as digitization was to content, um, and I’d love you to talk about that, but those are three different things, but I feel like, no, I mean, look, I think we can start with that, because when, when we sort of framed that up that way, um, we were at the time trying to convince people that, you know, what was about to happen was at least as big as Web 1 and Web 2, and that to say, hey guys, think about what you thought of the web in the early 90s, and I had a, uh, throw a minute, a good friend of mine, um, you know, he was asking the right question, a good friend, Rob Beer, back in the early 90s.

52:59 We were looking at the web the first time, and I was getting exciting, excited, and he was like, yeah, but, you know, is it, how different is it from kind of, you know, taking magazines and putting them on videotapes, and or, you know, isn’t it just take your marketing brochure and put it online? Like, what difference is that really going to make? And look, it did take a long time to argue, to 10 years, to shift from that, um, you know, I think we’d call it now sort of skeuomorphic, um, uh, webification of existing things, so taking something that exists in today’s real world and doing it in the same way, and just, but on the web, like a marketing brochure, and for, to shift from being unidirectional to becoming a conversation, and, you know, having, you know, blogs and social media, and so forth.

53:44 It took a bunch of time, but clearly it generated, you know, huge amount, a transformative kind of value ultimately. And so we were nudging people to think, like, okay, that was the webification, you know, of content, digitization of content and presented on the web. What’s happened now is that the, the fundamental innovation is this ability, uh, to own your identity and your data, own pieces of content yourself, every single piece of content you created.

54:15 You know, it’s that ownership revolution that’s that’s happening, and effectively your everything is, you know, is being tokenized. There’s a totally unique token representing you. There’s, um, and then tokens representing types of things, and then there are tokens that are fully fungible by money, you know, uh, and depending on the quality of the economy behind that money, will influence the the kind of the value. Um, and that’s, it’s obviously its own kind of a topic in and of itself, but, um, and so that’s where we viewed it.

54:53 And, um, and so when we come to thinking about, um, the, the metaverse, um, and come at it from the perspective of today’s existing media, if you think about a sword in a game, or you think about a TikTok that an individual creates, or you think about, there’s one individual TikTok, or you think about a photo on Instagram, or you think about a music that someone streams, or a ticket that someone buys and then goes and uses to visit a concert. All of those, or, let’s go beyond media and into, to kind of other parts of the quote unquote real world. If you think about, you know, a house, um, that all of those can be tokenized in a non-fungible way, where, you know, there’s one, or there’s a set that are all kind of broadly the same, or still might be numbered or whatever, but all of that is being, is being captured, and it’s, it’s taking what has been done through, you know, Bitcoin and other forms of now tokenized, or, you know, crypto money or currency, and saying, let’s, let’s, let’s apply it to all of the other assets in the rest of the world.

56:01 Um, and of course, it’s got you know, people got excited now about its use within the metaverse, in gaming, and they got excited about its use in the context of art, and, you know, those other types of collectibles, including sort of football cards. And those are exciting, and it’s gonna extend to other, to media. It’s gonna you know, you think of it this way. Um, I went to a concert on Saturday night, uh, you know, I bought a ticket for it. Um, I actually went there, um, uh, it was in Paris, and then there was, um, you know, a bunch of artists that were there, there were other people who were there.

56:37 There’s an incredible data set around, you know, the fact that I did that. Now, if, if my presence there, and, and that could be reflected in the ticket and the artists I actually listened to, I even walked over and spent more time there. There’s so much data you can gather about that, and then it’s possible for that to then be, to be used in a privacy-preserving way by the artists who were there, or by the organizers. It was, in, it was a global citizen live event, so I think, in a, in a pretty good cause, it’s effectively like a, a loyalty point that you’ve now there, got, got, but that is fully programmable, it’s data-rich, and, and can, it can be used, uh, in a way that respects your privacy by lots of different stakeholders, but, but also you have, you want that, you know, you want that, because that means hopefully that, uh, if there’s some, uh, it was an incredible act called Christine and the Queens there on Saturday night, who were kind of revelation in terms of her energy, and so forth, and, um, so maybe now I do want to hear about, you know, um, when she comes to London, I do want to, um, maybe have an, uh, an opportunity, because I was so enamored with her performance on Saturday night.

57:48 I wanted, going to be involved in that. So that’s one silly example of the kind of rich, you know, information that could be tied into it, which totally changes, has the opportunity to totally change the relationship between that artist and all of the kind of fans and creators, in a way that’s sort of dynamic as well, over, over time. Right? Um, so I think that, so I hope they give some, some idea of what we see as a kind of the opportunity, um, with, you know, non-fungible tokens, and how they can, um, uh, you know, when you touched upon it earlier, they have the disruptive capability to change um, the relationship between, you know, the record companies, you know, Apple iTunes, um, and, uh, the artists and the fans fundamentally, you know, taking out the margin for sure, and there’s some great projects like Audius, you know, really kind of pushing on on that.

58:39 Um, but it’s going to require reconfiguration of people’s activities, uh, for sure. It’s also really hard for us to conceive, as humans, this tokenization of ownership, because in the past, what have we owned? First of all, most people don’t own anything, and rarely were encouraged to. Maybe you own a house, but you probably didn’t even own assets or a business, except if you were entrepreneurial. And so we don’t have this mindset to even conceive of all the different asset ownership or token ownership or all these things, so when you talk about that, it’s still hard to see where the value is sometimes.

59:12 Right? Yeah, well, I, okay, loyalty points, the way or the other way. So I think value, that one question, conceive of how one gets used to doing it. Another question, I think, ultimately, and for me, this links back to one of the ways in which I think about DeFi. I think I have a bit of a thesis that defines, in about DeFi versus TradFi or centralized finance, it’s actually, it’s ultimately about zero phi, um.

59:37 It’s about how finance should, should absolutely disappear, um, and so should these, these, you know, these non-fungible assets we’re talking about that you might want to benefit from and accumulate over your life. It’s that if all of these things are represented in software, um, and if you’ve got like these highly liquid markets in terms of access and distribution, and highly innovative markets that can be created in a DeFi world, because all of the underlying building blocks, Legos, are composable. Um, you know, ultimately, kind of infinitely, um, and the data is there to do that, and they’re perfectly regulated and compliant, because actually they’re going to be much better in that sense than any of the existing marketplaces, for sure, despite what you might hate reading in the press.

1:00:21 Um, and if that’s the case, then, every, and if we exist in a world where whenever we kind of want something, we probably interact with some kind of digital utility. All of those decisions about financing it, or getting insurance, or borrowing or lending, or whatever, will just sort of kind of take place in the background. They’ll be kind of submerged into that kind of software substrate, or fabric, that we kind of exist in, you know, that we exist within.

1:00:49 And so when it comes to those assets, I don’t think you’ll think about it. You’ll do whatever you do, and you will accumulate those assets as a result of it. And it also ties back to the way we’ve tried to frame up some of it in some of the writing at Fabric as well, um, of what we’re going through. You know, this is getting us back to the point where you benefit from your activities, and you can, you know, implicitly trust everybody you interact with, just as you did back in the village, where you know you go about being a good citizen.

1:01:28 Um, and you go about doing it and trusting the people you interact with, because it’s a village, and there is that trust bond of trust. We’ve gone through a phase where we scaled up to the city and to the globe, where you can’t trust in the way, in individual, individually you can’t do that. You have to rely on third parties to trust. Um, and, you know, and that comes with friction. It comes with that concentration of market power.

1:01:55 It comes up with corruption, and also lack of accountability as well, lack of opacity, and lack of accountability, and you don’t see the fees and all of these things. And also, on all that, and I always think this is the most important thing, even bigger than all of those, it comes with a brittleness, because everything gets baked into these centralized structures, and you can’t change the product, the organization, or whatever. We’re moving forward to something that is much more agile, it’s much more many-to-many mesh of interactions that can be reconfigured in a more organic and sort of biological kind of way, effectively, and makes it adapt to the future.

1:02:32 We’re more connected, but we’re all, we know, we’re suffering from this massive disconnection. Totally. But we’ll wander around this future, you know, global digital village, and we won’t have to think about what we’re doing, because the interactions will be via the, um, and we’ll, whether we’re, you know, buying our milk or you know, hiring a car, or getting into a car, and we’ll trust it’s gonna go where we want it to take us, and that will be charged the right thing.

1:02:59 And actually, of course, you know, I was thinking about this as I came back on the Eurostar. The craziness, obviously, at the moment, of kind of like, you know, here’s my test, with my two anti-Covid pass from France, and then, you know, here’s my passenger locator form for the UK, and then here’s my ticket for the Eurostar. But really, all I should do is, like, if you’ve, if you’ve done what you need to do and it identifies you, are you? Right? Yeah, it should just know that immediately.

1:03:27 Then it’s just done, and you walk through, um, and, um, you know, maybe it’s not that kind of the first use case, or the kind of most noble and worthy one, that’s just for people trying to get across the Channel. But I mean, as an example, that’s how it should operate, and that’s how we’ll operate. So hopefully we’re getting back to the hunter-gatherer tribe, where you couldn’t hide.

1:03:48 Brian Rose: Right? You better contribute, otherwise, exactly, you’ll be thrown out of the tribe, you won’t be able to eat, won’t be able to reproduce.

1:03:56 Yeah, everyone’s held accountable, probably, bring the best version of themselves.

1:04:00 Richard Muirhead: Yeah, well, exactly. And it’s interesting, because people throw their arms up around privacy, and obviously it’s a very controversial sort of, or kind of, you know, people and subjective kind of space. But you could argue that private, some elements of privacy are an invention of kind of urbanization. You know, that people didn’t have privacy about a lot of a lot of things, um, and maybe in many respects that was good, to you know, to your point.

1:04:24 Um, but you know, for sure, probably you may want things, some things, to be private, and make those choices, but you’ll have to make that effort. But I think hopefully, you know, if we believe in the kind of dynamic, that the dynamics of the system would describe, we’ll find the kind of right balance between the two, and certainly avoid, um, some of the downsides of what we’ve seen in this, you know, yeah, the first phase of capitalism. I was just downside to too much privacy.

1:04:52 Brian Rose: I had a guest on London Real, name Wes Watson, who spent 10 years in the California penitentiary, and, um, he learned a lot of lessons being there. First of all, he learned what lockdown really is. He was in a cell for about 18 months, and he was laughing at us last year, but he said you’re on blast every day in the pen, because everyone can see what you’re doing, and the currency in the pen is your program. Do you have the discipline to wake up early, do your physical routine, all that stuff?

1:05:16 And that becomes how you get respect. And he said it’s good, you’re on blast, which means everyone’s watching you all the time. There is no privacy, which means everyone can see your character, which means you probably show up. So we never talk about the downside of privacy. But um, this is really interesting.

1:05:33 Let’s just cover DeFi before we wrap up, because we haven’t talked too much about crypto assets, DeFi. I know you guys invest in a lot of different places in the blockchain, in the NFT space as well. What do you see right now, as a snapshot? Obviously, the DeFi summer last year happened, and I had Robert Leshner and Stani, and I said it was pretty amazing what you did, because you saw the fact that when you gave these tokens into your community and incentivized them to use it, that it just had this massive explosion.

1:05:58 And I used to work in finance doing similar things, and I was one of 10 banks in New York City with ten thousand employees and a direct line to the Fed, and we innovated, but we never shared the, uh, the value of the innovation with our customers. And I never saw anything like that, but we saw it with the, with the summer, and the DeFi. I know you’re thinking in the future it’ll be no-fi, so it’d be like breathing. We don’t think about it as a separate category of finance, which is a really interesting concept.

1:06:24 What do you see now, and does everyone focus too much on the price of Bitcoin and the next coin, and should we be thinking about really something further out?

1:06:33 Richard Muirhead: Yeah, so a couple of things for me. I, I kind of grogged, should we say kind of the potential as it happened, because the very first project I did in my kind of professional life was working with a building society, Britannia Building Society, here in the UK, um, and working on that loyalty scheme, and working with loyalty scheme in an, in an organization which is a mutual, so it’s owned by its customers, and working out how could you, you know, and so we, we attempted to model that back then, which is effectively modeling token economics, money effect.

1:07:06 It was modeling that, but without the ability to encapsulate that in, you know, a trustless cryptographic form, and just get running on a network. It all had to be administered centrally, or whatever. Right? So I got it immediately. I was like, okay, wow, you know, that’s going to be super powerful.

1:07:26 And but also, you know, it’s true, there are many financial institutions where you don’t reward the, you know, the customers in that way, but of course there are some where we always have those cooperatives. Those mutuals have done that, have existed very successfully, and do exist for very good reason. But I think we now see an opportunity to revert back to that in a number of different ways. And some of the power of it is that even some of these platforms, before they have started paying fees to the users, but just on the promise that they will, are able to see the accretion in the value to the to the token.

1:07:58 And we touched upon that earlier. There’s a trust that that’s the direction it’s going. Um, so that’s pretty pretty interesting. But so where are we now? But I think, like, 180 billion, um, of value locked up there, and about you know, three or four million, maybe, users.

1:08:15 Gosh, you know, it’d be interesting to try and, you know, measure that, so you can say, yeah, yeah, no, we’re effectively nowhere yet. And a lot of that is people who are already native to the space, and that’s still very much reflected in the user experience by and large, and even in the apps itself, let alone kind of a combination of different platforms. Um, and even in, in, in kind of more consumer-facing things like, sorry, that we’ve discussed, still the user experience, that if you know, to the early majority level and the laggards are like, what, you’re kidding me?

1:08:48 Um, and so, so I think we’re super early. Um, and you know, we’ve seen a lot of, sort of, US dollar-denominated stablecoins. Now can I hopefully see, you know, euro, that’s going to make a difference, and other, um, you know, denominations. I think you know we’ve seen, uh, a spate of, you know, lending protocols. We’ll see the next generation of those for sure.

1:09:13 Um, we’ll see improvements to the kind of on-ramp. We’ll see, you know, permission pools, possibly from Aave, and and we’ll see improvements in products like Ramp, which deal with, um, you know, fiat on-ramp in the Web3 app itself, and that’s, that’s one of our investments. So I think, you know, all of those will kind of contribute to, um, the maturing. I would have said, you know, if we measured in Lego bricks, we’ve maybe got five percent of the Lego bricks built.

1:09:42 So it’s, it’s, it’s very early. One of the things I wrestle with, on a fundamental basis, and trying to kind of express, or kind of, you know, discuss with people, is, you know, if you kind of take a risk-adjusted approach to operating the space, you could be, um, getting yields in the kind of tens of percent per year. And anybody from the, you know, crypto space would say, have, have said to me, that either um, you know, you have two options. You either you’re going to get that kind of yield, um, for eleven and a half seconds, and it’s going to go, or, um, you don’t know what you’re talking about.

1:10:30 And, um, so the question is, well, why are those yields in existence now? We need to kind of address, full on, the fact that one of the reasons they are there is that you’ve got lots of different projects who are investing at, kind of, losing money, you could say, on some measure of accounting, in order to attract people to their networks, you know. And that happens in early-stage companies where there is the potential of being enormous, and not all of those projects are going to work out.

1:11:02 So one part of that is, you know, they’re taking, um, the value that they’ve got, through, probably through, the accretion and the value of their token, and giving them to participants in the network through the yield. Um, and that’s, that’s true, but that’s also okay, because we touched on again, it’s like, you know, if you’re early in there and you earn that yield, actually you’re now becoming, you earn a piece of equity in this platform, and actually you’ll appreciate, in, if you hold on to it rather than just expecting to get out of it, you’ll appreciate it over time. And this is, this is going to be actually good for the network in its operation.

1:11:35 So there’s a lot of good reasons for it, but I think there’s some reasons above and beyond that, you know, DeFi composed of these different primitives: stablecoins and lending protocols and credit score checks and all these things that are coming, interest rate swaps, and so forth, um, and, and embedded probably in applications that you, you know, just use because you want to do something in life. Um, they have, on, you know, this unprecedented potential for kind of product innovation. In my mind’s eye, I think of a kind of an envelope of product innovation.

1:12:07 If you think of the parameters of the product, even in a financial sense, kind of like term and interest rate, and, and you know, size, and, and so forth, you know, uh, you know, there’s this huge envelope, but at the moment most of that’s unaddressed, even for the existing beneficiaries of the financial system, let alone the world’s seven billion people. And so, first of all, that’s going to get addressed, because you’ve got kind of, permissionless arbitrary innovations going to take place. Secondly, actually, rather than the compliance and regulation side of things being a problem, actually, as mentioned earlier, it’s one of the key features, not an Achilles heel.

1:12:48 It’s like Achilles’ sword of this whole space, because it’s, you know, it’s transparent, it’s data-rich, and it can be automatically making sure every transaction is compliant from a sort of both compliance and tax perspective. But what’s that going to do? Well, KYC/AML is an incredible burden on the financial system right now, and it slows down innovation and adoption and all of these things. So that’s going to unlock value. On top of that, you’ve got this ability to access, you know, on a borderless basis, um, you know, any side of the marketplace that you’re kind of building.

1:13:24 So distribution and access is absolutely transformed, and just plug into, you know, the particular type. You know, if you want, you go and find somebody who’s got a certain type of collateral and wants to, you know, to get a certain type of loan, you can just go programmatically plug into that and pull that into your app, and make, and just, and go. We’ve never had anything like that before. And so taking all those things together, um, you know, coupled with kind of building blocks for things that we just haven’t had in TradFi, like there’s one, uh, super fluid, like, streaming, uh, cash flows, streaming programmable cash flows.

1:14:02 So you don’t get paid at the end of every month, just every, you know, millisecond or block that you’re active and doing any activity. The value streams to you, you know, understood. And okay, now I have that component. How do I rethink what I’m doing on many different fronts? So if you take all of that together, that’s, you know, I don’t want to get hyperbolic, but trillions and trillions of dollars of value to be unlocked.

1:14:24 And my point being that, given that level of innovation and opportunity, the kind of risk-free rate of return in that universe is not minus, you know, 0.75 per annum. It’s something much bigger than that, and so there’s a, there’s a path to a sustainable set of returns in the DeFi space. The justified thing, I think, some of the, uh, in the big investments people are making, and what that number is, is probably math beyond my capability, but I think it is sustainable, and that makes your DeFi people a little more comfortable, I’m guessing.

1:14:57 Brian Rose: Yeah. Um, a couple final pieces. Is regulation going to be something that’s going to significantly slow this space down, or do you think, because it’s global and there’s a network effect, that we will find a way to bridge the gap, find, you know, I mean, Brian Armstrong just went to Washington, DC, and the SEC refused to meet with him. Um, Gary Gensler is actually a really smart guy. I taught him, taught at MIT.

1:15:17 I’m actually going through his course right now, on the OpenScore software. He clearly sees the value, but obviously there’s all this government posturing. I guess, to make it brief, do you think this will significantly slow us down in the next five years, or do you think we’ll find a way?

1:15:34 Richard Muirhead: Uh, we’ll find a way, uh, but yeah, it will, it will sure cause some hiccups, some, some, uh, road bumps. Um, but you know, the thing to remember, I think, from it is that you know, the intention, the attention that it is getting from, uh, folks that need to deal with these questions.

1:15:50 And let’s be clear, like, we do not want money laundering, um, to be causing harm to people around the world. Nobody does. No, not that money laundering isn’t taking place in a totally rife manner in many other situations. Not that the best sort of, uh, format for that, you know, and for a lot of nefarious activities, remains probably the greenback, dollar bill, um, uh, but we do need to pay attention to it, and, and, and they do need to also position and posture and make it clear to people that they are paying, they’re going to do something about it.

1:16:26 And so I think some of it may be huffing and puffing. I hope what comes out at the end of it, and it doesn’t happen by people, uh, you know, not speaking up, and, and people taking a position. Um, uh, portfolio company Messari, and Ryan Selkis, is taking a very strong position there, and might even run, apparently. Um, you know, we need to do that. But and there will be conversations and battles, and it’s very deep.

1:16:53 We’re backed by the European Investment Fund. We’re, you know, working with the FCA here in the UK and CSSF in Luxembourg, and we have been, therefore, exposed to some of the kind of deliberations at the European Commission level about you know, projects, endeavors like MiCA, um, and, and more stuff that they’re considering. It’s very sophisticated. The right people need to be looking at it from every perspective. Um, but at the end of the day, the attention is being paid, and what that tells me is that ultimately we’ll, we’ll get to the other side.

1:17:26 So it’s, it’s, uh, I think they call it the kind of honey badger phenomenal phenomenon. It’s like, you know, or Nietzsche, and even as well, like, it’s each time we see that the, uh, centralized institutions, uh, do what they can to influence the outcome, and, and because the shift towards decentralization continues, it shows when you get to the other side, it shows how strong it is, and increases the probability that it will continue to be the case. Um, so, um, so I’m, I’m optimistic for sure.

1:17:57 How big the road bumps are, I’ll have to see.

1:18:00 Brian Rose: Yeah, we have a front-row seat to find out. Final thoughts, and how do people contact you to pitch you, if they want to?

1:18:08 Richard Muirhead: Uh, final thoughts. Thank you very much for having me.

1:18:12 I, I’m, you know, it’s, uh, um, I feel, uh, lucky that I spent a couple of decades building software, and then I’ve found this in a particular, um, lightning rod and movement to kind of be involved in, to contribute to. Um, and if there are folks out there who are, uh, doing the real hard graft of, you know, building the software code and, you know, building out those communities, um, and, and taking care of them, and, uh, I think they’ve got something. I would absolutely love to hear from them.

1:18:46 You can, Richard at fabric.vc, easiest way, or outreach to me. I had on Twitter, and my DMs are open. Happy to hear from you. There you go. Um, we could talk for another hour, but I’m going to get you on your way.

1:18:57 Brian Rose: Uh, really appreciate the perspectives you bring to this ecosystem. Honestly, I think you’re like a shining light here in London, with like great ideas, and you’re in touch with the regulators, and you have experience, obviously, an investment from the European Union. I mean, this is all powerful stuff, and you’ve also, you know, invested with, you know, Polkadot early in the day, and so you’ve been here in this space for a while, and I think you have some amazing ideas, um, some of which I haven’t even seen articulated, with some of the funds in America.

1:19:24 So, um, I think we’re in good hands here. I appreciate that, and you guys are actively investing every few days. There’s a new announcement, so, um, it’s busy out there. It’s busy out there, and it’s just great to see, you know, it’s just great to see all the action, and you guys are really plugged into some really interesting spaces. I’m gonna really have to spend more time on the gaming space and get in there.

1:19:43 I got my Oculus at home, but that’s a very different thing when Grandpa puts on the Oculus. So I want to get into that. I really appreciate the time, and, uh, to be continued. But this is an exciting space, and I wouldn’t want to be anywhere else. So, uh, we should always, let’s have you back in the future, and uh, next time, uh, we’ll see everybody here on London Real.

1:20:02 Thank you so much. Thank you. You.