It was a dark and smoky night this past Tuesday in San Francisco. The fires of Northern California had blanketed the tech mecca with some of the worst air quality in the world. The streets were empty and the town had a surreal cyberpunk post-apocalyptic feel, but that didn’t stop Boost VC’s Adam Draper from partaking in an epic “AMA” (“ask me anything”) with the Crypto Underground.
Down a dimly lit alley, in the basement of a coworking space, dozens of blockchain founders gathered to hear insights from one of Bitcoin’s biggest proponents. Draper, who was an early investor in Coinbase, talked about how its co-founder Brian Armstrong introduced him to the concept of digital currency in 2012.
“We met at Red Rock Coffee in Mountain View and what he said to me was, ‘At some point, the world is going to be on one financial infrastructure’ and basically my entire life the last six and a half years could be summarized in that one statement,” Draper said. “I invested in 100 crypto-related startups and every single one is about building bridges to connect the world’s financial infrastructure. I grew up with the internet, understanding innately how to connect with anyone all over the world. Why wasn’t there this other mechanism for value? Why are there all these friction points between us doing trade with one another?”
‘Now real value is being generated’
Draper talked about what it was like to get in early on Bitcoin. “If you were around in 2013, 2014, 2015, it was a grind and depressing because crypto wasn’t a thing,” he recollected.
“Bitcoin never saw max growth until Ethereum came along as a competitor. Last year was all about Ethereum. What it did really well was build a community of developers that were global, talented and passionate, and they created the ERC-20 smart contract that allowed anyone with an idea to fundraise from all over the world. Suddenly, there was a market for the most insane thing someone could come up with that was a network. You stuck your hand out and you raised money. Companies that shouldn’t have did and companies that should have did. It democratized venture capital and gave entrepreneurs access to money. The reason why 2017 was the year of the ICO was because before the Ethereum uprising every Bitcoin startup had been rejected up and down venture capital lane,” said Draper.
“It went up and it went down. Now real value is being generated—but it’s still super early. We’re not sure what it’s great for and what it’s good for. We’re in the first half of the first inning. Before, we were walking into the stadium and now we’re in the game.”
‘The goal is really globalization’
Draper told the entrepreneurs in the audience, “If you’re not thinking globally, then technically you’re do it wrong. You can do what you’re doing in whatever country you’re in, but the goal is really about globalization and I truly believe that still today everyone is undervaluing what it means to have four billion people connected to one network. I don’t think people get it yet. We still have crazy growth with the internet and communications, and now we have this financial layer. We’re building the digital world.” He added, “We haven’t solved a big enough problem yet. We need to get to scale to see how cool it really is.”
Dapps v. Infrastructure
Draper talked about the ongoing debate of where to invest right now: dapps versus infrastructure. He referenced the position recently taken by venture capitalist Fred Wilson and the team at Union Square Ventures:
“A common narrative in the Web 3.0 community is that we are in an infrastructure phase and that the right thing to be working on right now is building out that infrastructure: better base chains, better interchain interoperability, better clients, wallets and browsers. The rationale is: first we need tools that make it easy to build and use apps that run on blockchains, and once we have those tools, then we can get started building those apps… Our hypothesis is that this is not actually how things play out. We are not in an infrastructure phase, but rather in another turn of the apps-infrastructure cycle. And in fact, the history of new technologies shows the apps beget infrastructure, and once we have the infrastructure we need, we begin to build apps. It’s exactly the opposite.”
Agreeing that dapp investment is essential right now, Draper said, “We host a Dapp Night at Boost VC for our developers.” He added, “A lot of people don’t understand how dapps work. Dapps are not apps. Dapps are the flight against the corporation. Facebook and Apple will be brought down at the hands of dapps.”
Referencing his Medium post in which he wrote, “Dapps are to apps as pizza is to cheese,” Draper discussed how iPhone apps are subject to the whims of Apple’s centralized decision-making process. “If Apple does not like you, you do not get in.”
By contrast, he stated:
“Curation in the decentralized world is different. The protocol layer (i.e. Ethereum) is a set of rules that are preprogrammed with who gets to vote, then the community who run the Curation Dapp vote. Users then enjoy this decentralized curation when interacting with the dapp through one of the user-facing interfaces or clients built for the Dapp. ETH is the protocol: Augur’s peer to peer oracle+prediction market platform is the dapp: Anyone can build a client with a new UI or business model for prediction markets on top.”
He explained that since dapps are peer-to-peer networks that power the user interface, each dapp is its own marketplace of buyers and sellers and thus creates a free market app store for every crypto project.
Geo arbitrage the friction points
Draper addressed the supposition that where there are pain points slowing everyone down, that’s where the money can be made.
“Biggest problem is jurisdictional corporations. When an international crypto company asks, ‘Where should I reside, where should I bank?’ I say, ‘It would be nice if you were a Delaware C corp. but I don’t think that’s where this is going. Do you even need a bank?’ We’re fundamentally changing is what it means to be a company. The remote work movement is a part of that.”
He cited Binance as an example of a company that took advantage of geographic mobility to suit its interests. “They had to change their country seven times, finally landed in Malta. They took the risk of jurisdictional arbitrage and won. That’s going to happen with lots of startups. There are going to be tons of companies that launch this way, as nomads.”
“Up to this point, there’s never been competition for banks or options for the people against a centralized government. Global financial infrastructure needs to happen. Borders need to be less. We need to understand what government does. Citizenship definition is changing.”
Draper discussed how progressive governments around the world are starting to compete for residents citing Estonia’s crypto-friendly e-residency program for companies seeking an EU base, “My dad was e-resident number four!”
Bullish on stablecoins and STOs
A fan of MakerDAO, Draper is bullish on stablecoins. “Stablecoins are necessary. People are pointing at stability and saying I don’t trust it. The only way networks end up working if they have velocity and trust. People need stability, they need to understand that the price today is going to be the price tomorrow,” Draper said, adding, “Fiat-backed and gold-backed stablecoins are being looked at and probably will succeed in 10 years because it’s the thing people are used to. It looks like everything else. Same reason why STOs are going to be very popular. They have something like an STO called an ADR (American Depository Receipt). It’s the first thing regulators can look at and say, oh yes, I know this.“
‘You can’t regulate something you don’t understand’
When asked his thoughts on operating within the context of uncertainty, Draper responded, “I’m seeing fear, I’m seeing loathing, I’m seeing Las Vegas.”
“Regulators make crappy product managers,” he said. “If you walk away with one thing, don’t fear the opaqueness, you won’t build a good product. If you’re building, do not build regulation first. What would the regulators say? They’d say, what does this button do? They’re trying to embrace the change but they’re leading us with obscurity. You can’t regulate something you don’t understand.”
‘Who is your customer?’
“If you’re building and connecting the world in some way, that’s a big market, but if you’re not listening to your customer or don’t know who your customer is, you have a huge problem. Who is your customer? Every morning you wake up, go talk to them, once at least; a thousand times is best.”
“I want people to come to me and say hey there’s a problem here that needs to be solved. Those are the projects that will sustain. I don’t want to back the hot deal today. I want to back the deal that changes the world tomorrow.”