Why the Best Investors are Builders with Avichal Garg and Ken Deeter of Electric Capital

This is DeFi decoded. The conversation show with the leaders, builders and investors pushing

the internet's next economic frontier, hosted by Alex Tapscott. This podcast is for informational

and educational purposes only, and does not constitute investment advice. Nothing discussed

on this show should be considered a recommendation to buy, sell, or hold any securities or digital assets.

The hosts and guests may own positions in some of the assets mentioned.

Listeners should conduct their own research and consult with qualified financial,

legal, and tax professionals before making any investment decisions.

Hello and welcome back to another episode of DeFi decoded. I am Alex Tapscott.

Crypto venture capital is evolving. This is no longer a market where money alone is the

differentiator. Increasingly, the edge comes from a deeper technical understanding. Whether

it's evaluating new blockchains, designing token economics, or navigating and understanding

the intersection of AI and crypto a big topic of this show, the best investors increasingly

look like engineers. You don't underwrite what you can't understand, and that's why firms

like Electric Capital, who bear capital with real technical fluency, seem to be well positioned

for what comes next. And today we're lucky to be joined by Avishal Garg and Ken Dieter of

Electric Capital, which is really one of the more technically grounded thesis driven investors

in crypto. And there are also repeat guests here at DeFi decoded. So for those who don't know

Electric Capital and its principles and founders, Avishal Garg is a serial entrepreneur and former

executive at Google and Facebook where he led product for a 400 person team, driving billions

in revenue. Prior to co-founding Electric, he was an early investor in several leading crypto

projects like OpenC, DU, IDX, Figma, and Notion. Ken Dieter is a general partner at Electric

Capital and a former engineering product leader with over 15 years of experience. Spanning systems

offered VMware and building core products like newsfeed at Facebook. More recently he's been

focused on applying AI with Inventure, developing custom LLM systems to power fund operations.

I gather that's at Electric Capital. So to my introduction, investors becoming engineers

and actually building stuff. We'll be talking about that as well. Electric is back some of the

most important infrastructure and application layer companies in the space from Kraken to near

protocol in Magic Eden. At a moment when AI is reshaping software and crypto is reasserting its

role as trust minimized infrastructure, Electric has been really articulating this vision of

user-owned technology. They put out a great report earlier this year, their 2026 sort of thesis,

describing a world where agents, capital, and data all become programmable and sovereign. So

we're going to dig into a lot of topics today, the intersection of agentic AI and crypto,

the evolving role of tokens and whether tokens are still interesting as an investment asset class,

and where the guys see the next wave of value creation coming in crypto. And in the technology

world more generally. So Ken and Abishel, welcome back to D5D-Coded. Thanks for being here.

Okay, I'm going through. I'm just having you like follow me around and go to meetings and stuff like that.

Well, I'm not totally sure where to start here, or who to start with, but Abishel, why don't I kick

it to you? So everyone's super excited about AI agents. And we've said on the show that it's great

that there are these tools that can do all this kind of interesting knowledge work, but they don't

really have a way to move money or to store money or to do transactions or enter into agreements.

But they can use blockchains. They can use stablecoins. They can use smart contracts.

Do you see the intersection of crypto and AI as being kind of inevitable?

Sure answers, yes. We've sort of long thought that. I think there's the way that it's going to

happen and there's the way that crypto people wish that we're going to happen, which are kind of

different. And I think the way that crypto people wish that we're to happen is that every agent has

its own wallet and a solver and in this holding tokens or something. I think in practice in

the near term, I think it's something that does happen. You get sovereign agents. But I think in

near term, you are more likely to have essentially command line tools and SDKs. And it could be wallets,

but kind of backing that is, you know, stripe and ramp and some of these sort of incumbents that

understand what's happening. And then behind that is actually where the money movements are happening

with stables. And so, you know, whether that's on ETH or Solana, you know, the stable ecosystem really

sort of is how that money movement ultimately ultimately happens, but kind of that intermediate layer

of who has the wallet and the wallet infrastructure and the payment gateways and all that kind of

stuff probably looks a little bit more more legacy for a little bit. But I do think that there is

this like emerging category of stuff, which we think of, we sort of talk about this internally as

user-owned software. What does it mean to own your own agent? You kind of see this with OpenClaw

if for anybody who's played around with that. It's sort of this idea that there's like a piece of

code that is not sitting on some remote server that's mine and I control it and somehow feels

different, qualitatively it feels different to have your own code running locally. And so,

I think that will be a segment. And I think that's like a very interesting and under-explored segment.

And I think that sort of sovereign agent universe could be potentially very interesting. It's sort

of like mirrors, and I think there are a lot of threads we could pull on here, but I think it mirrors

what's happening in crypto more broadly. In crypto, you have the institutionalization of crypto,

which is like stablecoins and layer ones and tokenization and Apollo is going to come in and

BlackRock is going to come in and build funds and tokenize private credit and move it on chain

and all this stuff. I think it's great. That's going to happen. It's going to make traditional

financial markets very efficient in 24.7 and more auditable and more secure, which is great.

At the same time, I think what you have and what has always made crypto so interesting from the

early days is kind of this like non-sovereign store of value third space, which is not the US

space and is not the Chinese space. It's this US dollar denominated thing that no other

no country controls and no country can kick you out of and no regime can kick you out of.

And that is sort of like an internet native financial space I think continues to be very

interesting and has a lot of growth potential. And I think that will have its own agent ecosystem.

I think agents are really first order citizens on the internet and the first order citizens

in that financial market where in a lot of ways they're second order citizens in the traditional

fintech and financial markets. And so that is going to happen as well, but I think that will take

a little bit longer to play out. Whereas I think the fintech stuff and the local agent stuff

for using Stripe and using Ramp is very media. You can see that happening in the next 12 months.

Can we just double click on that? Because I think a lot of people do assume within the crypto world

that agents are going to be sovereign executing on chain using Web3 toolkit. But you're describing

something kind of in between where there's a bunch of companies who see this as big business

and are almost like building for agents where they're creating tools that make it easier for agents

to do business. The companies like Stripe and Ramp and these other gay ways and platforms.

Why is that? Aren't agents their machines they can read code? Why would they need to use

somebody else's software? Stripe versus doing stuff on chain. Like I understand why we would

people need convenience and ease of use and the ability to connect to their bank account,

like all that stuff is super convenient for a person. But why does an agent need that?

We should talk about that and I think I'm sure Ken has very specific thoughts. He's been

built in a lot of our infrastructure internally around how we were gentrifying the firm.

I think it's because most business today is conducted either between people or people in businesses

or businesses and other businesses. As legal containers, that is an entity that if you just

look at the GDP of the world, feel like the economy. All of the economy of the world today happens

between humans and other humans and businesses and other businesses and businesses and humans.

And so you have this legacy infrastructure and it makes sense that you just make that more

efficient and agents can plug into that legacy infrastructure. And then this new sovereign agent

universe is really, it's like an agent agent universe. And like that as a model for a market

or as an economy, I think one day could be bigger than the people to people and the business to

business economy. But that's starting from zero today. Because what we've done is we've

invented a new type of entity. For most human history, all you have is people or maybe the notion

of a family or tribe, but you really had individuals and you could say that's the person I'm doing

business with or that's the counterparty transaction. And then with the joint stock corporation

in like 1648, we kind of invented with the Dutch East India Company a new entity for the first

time, which was, which was, you know, you could put in capital and other people could go take

risk with that capital and then you could share the reward. And around 1850, like the US and the UK

kind of figured out, well, this is a new thing, you should be able to go to the government and

instead of going to the king to get a charter, and you should be able to do business, right? And

it opens up a whole set of questions like, well, how, what is the liability, right? Like if I have

a contract dispute, who's, how do we start? How do we sort that out? What's the case along that? Or

if this entity is implicated in some crime, let's say some extreme situation, like, you know,

somebody gets killed, who's liable at the end of it? Is it like the company in somehow liable?

We could take the assets of the company. Is it the people behind it? Is it the directors

of the corporation? And so we have to, like, sort all that stuff out from 1850 to, you know, 2000,

it took 150 years to, like, sort all the stuff out and gets into really gnarly stuff if you think

about it, right? Like, do corporations have free speech rights? We've kind of gone back and forth

on that over the last 150 years. Like, what are they allowed to say, and what are they allowed to say,

where can they say, and what are the bounds on that? And those bounds are different than what humans,

as entities can say, right? And we haven't sorted any of those things out for agents yet,

right? Like, does an agent have free speech rights if it's sober? I don't know, it's an interesting

question. So, to sort all that stuff out, I think, like, most of the economy is going to be

in this, like, people to people, business to business world. And that will take a decade, I think.

Yeah. Well, I know Ken's like jumping into the bit to jump in. But this is something that

we wrote up recently, because a lot of people are talking about, okay, well, you know, an agent

can use a stablecoin or an agent can open, have a wallet, right? But there's this whole, like,

business toolkit that was built for people that can't be used by agents. And the things you're

describing are really relevant, like putting aside criminal behavior. What about just, like, legal

standing? You know, an agent can't sue in court, because it's not a person that doesn't have

standing. And a lot of business relies on resolving conflicts, and sometimes you need courts to do

that. And so, that's just one example where there isn't a dispute resolution software for agents

that allows them to settle these kinds of disputes on chain. For example, maybe there is, maybe

that's something you guys are funding. And like, we should talk about that. But that's just one of,

you know, it's not just payments and how I store value. It's, how do I, how do agents co-own

something together for it's end? Yeah, I think it's, I think it's much more of a legal and regulatory

question than any kind of technology question. We'll say more about that. Yeah, I mean, like, look,

the parallel for me is like these DeFi smart contracts, right? Like, they were finally getting to a

point where maybe the SACs, you know, coming out and saying, okay, you know, these kinds of

things are okay and these kinds of things aren't okay. And, you know, I mean, I think just yesterday,

they were talking about like, you know, how are the front-ends implicated in this? And one of the

rules around that, right? Like, it took us all this time to figure that out, because smart contracts,

you know, especially the sort of the, the adminless ones, are this kind of like new thing in the world

that it doesn't fit cleanly into a human to human kind of business or legal rule set, right?

And so I think, I think we're just, you know, we're five years behind on the agency, right? Like,

what does it mean for this thing that can sort of like walk like a duck and talk like a duck,

but like isn't actually a duck? Like, you know, how do we treat it legally? And that's a, you know,

I think that the pattern that I generally see with these things is that, you know, it just takes

a while for us to get a sense of like how this thing behaves and what the risks around it are.

And until you get to that point, until you sort of have a broader understanding of how,

how to think about the thing, it's sort of like a, like a very gray area for a very long time.

And a lot of people have made a lot of different things. And I think we're sort of in probably

the early stages of that state now. I would say the agents probably really haven't gotten to

enough capability to like really make, you know, to really be sort of plausible. It's kind of like

financial actors until, you know, very recently, or even as autonomous actors, right? Because

ultimately agents are still being controlled by or stewarded by. Sure. I think we're seeing

enough, like, but you know, we've seen enough things like some of this auto research stuff that's

coming up. Like, if you give, you know, sort of an agent system, like a pretty clear goal,

yeah, it's pretty creative about like how it gets there these days. And so we're starting to see

some of this behavior. I don't think anyone's really tried to apply it to like, you know, try to

turn $1,000 into a million dollars kind of situation. But, you know, I think that's like, that's like

a minute, right? Well, wouldn't it be interesting if you've told an agent, like, turn $1,000 into a

million dollars? And the most efficient way it found to do that was to say launch a Ponzi scheme.

And you fraud a bunch of investors. And then who's liable? I mean, you all you said was go turn

$1,000 into a million, not go launch a Ponzi scheme at defraud. Yeah. Yeah. I mean, if you do that with

like a sovereign agent running on a blockchain with like, you know, a bunch of distributed GPUs,

like, what is that? You know, like, you know, like, we won't liable, like, yes. So there's a lot of

these, like, kind of legal questions that we haven't really contemplated. And unfortunately,

at the beginning, also, a lot of these things are just purely theoretical. And they actually, like,

you know, they, a lot of these things become, we realize that they're impractical for other reasons

that we didn't think of at the beginning. And so it's not worth all the, all the machinery of,

like, producing laws and regulations to, like, account for cases that are theoretically possible,

but will never actually happen, right? And so I think, you know, defies the same way, right? We've

seen all the ways in which these things break and don't break. And, you know, how, how people get

rugged and don't rugged and, you know, and, and that's really informed. I think a lot of the,

a lot of the way that we think about this stuff. Yeah. I was going to say something else, though,

you know, you're asking about, like, why do agents need these tools? Like, agents actually want good

tools as well. That's, that's sort of the one of the things that I've, I've realized they so

look different from, you know, like the APIs and things we'd have today. But agents can sort of

suffer brain damage in the same way that humans can if they have to use bad tools. That's how they

would use Stripe and Rand and these, and these, like, really, yeah. I mean, like, look, you can,

you can probably, like, ask them to go under the hood and be like, oh, go figure out some arcane API

and go do these things manually. But the more, more of that manual work that they have to do,

the more tokens they're spending to do this, right? And that, in fact, there is sort of

an efficiency frontier. So a lot of, a lot of building an agent system these, these days is,

okay, like what are the actual good tools that this thing needs that you can give it to, like,

make it really effective at what you're trying to get it to do? That's fascinating. Okay, Ken,

since we're on the topic of building, in the bio, I noticed that it said that you're now spending

a lot of your time building within electric capital, trying to make fun operations smoother,

you know, building capabilities. How much of your time now do you see yourself spending

coding or, I guess, not coding necessarily, but helping to build software versus doing investing

is this like a new thing or something you've always done, but you're, yeah. So maybe a shortback

story is like, I've always been, so we kind of jucked that on the global head of IT

at electric. But I've always sort of had a little bit of a, just a tendency towards wanting to,

like, work on tooling. And, you know, like, we've obviously had this kind of theory, I think,

in electric around, like, having this capability to build software should be able to put us in advantage.

It turns out there's a lot of, like, internal software that I've wanted to build for, you know,

the past seven years, that it just, like, when you're, especially when the team is small,

it doesn't make sense to have a GP spend all their time building software, right? But it turns out,

you know, now that you have opus and quad code and stuff, that equations kind of really flipped.

So, you know, there, I do consider, you know, I tell people, I'm on a little bit of a sidequest

right now, you know, it's not like I've sort of not talking to founders at all or anything like that,

but whatever free time I have now, I'm spending building some of this internal stuff,

and the amount of stuff that I can produce with that amount of time is just literally, like,

10 to 20 eggs that we could do before. And so, that allows a bunch of us, you know,

not just me, there's other engineers on the team to either run a bunch of these infopuses that, you know,

which just would have been impractical to build before, and now we can do that.

Well, you said that it was probably not a good use of your time before these tools were available

to be spending it all doing this because you got other responsibilities. But I feel like,

well, you just subscribed to something that a lot of executives and tech companies are talking

about doing more, like Toby Ludgees, the CEO of Shopify, or like Zuckerberg, they're all talking

about how they're like shipping code, and they haven't done that like decade decades because they've

been here. Is that for you, for them, I'm just curious, do you think that's actually good use of

their time to be doing that kind of work, or are they just doing it because they like, they love

exploring and experimenting with these tools? I sort of see two things there.

Certainly for them to calibrate on what's possible. I think that's extremely valuable, obviously,

because everyone needs to reset expectations on like what? When they ask someone on their team to

do something, if it's reasonable or not, they can only know that by like testing it out, basically.

Yeah, I think also like, you know, to the extent that you believe this stuff is going to transform

organizations, I do think leadership, sort of creating airspace for this kind of activity.

I think nothing we've found, even in a small organization like us, there's this natural tension

among a lot of employees where they have a day job, obviously. They're being asked to do produce

whatever output that they've been doing for however many years, and there's this new thing,

and the unfortunate thing about the way that AI works is that you can't look at it and be like,

oh, this thing can definitely do the thing that I'm trying to do, right? You actually have to

work with it. You actually almost have to kind of have a developer mindset at the end of the day

to be like, can I mold this thing into actually doing the thing that I wanted to do? But it's

a big unknown, right? And it might take you hours and hours and hours to really figure that out

and learn the skills to do that. And so you're sort of like asking people to like, okay,

not be productive in the way that they know how to and go do this other thing, you know,

on the off-chance that, you know, maybe we can automate that thing in the future. And that's

actually a big ask for a lot of people. And so when the CEO comes and says, hey, I'm willing to do

this. I'm willing to put everything aside because I think this is such a big deal and set that

tone. Yeah. I think that's also a big part of it for these guys. I would add, you know, like,

I've been I've been hacking on this on the side just on another computer and it's fascinating.

I would add a couple things. I want absolutely understanding these things and understanding

where the frontier is because it moves so quickly that actually getting your hands already

changes how you think about it. It's like I was playing with the Gemma Form models, which are all

local. And you kind of get a sense for like, oh, actually, this is pretty good. Or you start to

get a sense for like, oh, wait, on this, you know, like MacBook M2 with 24 gigs of RAM, like, it

just barely doesn't work. And then you intuitively have a sense for like where it starts to break.

So I think there's actually like a lot of value in playing with it because a lot of these founders,

the current gen of founders are going to be like Patrick Carlson, you look at Zach, you look at Toby,

you look at, you know, whoever, every is quite young. And they all started as product people.

They often started as people who had their hands dirty in the product. And then over the last

decade sort of drifted from that because really everybody was like a scale game.

And this resets everything. So I think it's sort of people recalibrating to Ken's second point,

I think is like, we don't yet know what the structure of the organization is going to be. And we

don't really know if the people who have been successful previously are going to continue to be

successful. Or if it's an entirely different type of person that's going to be successful now.

And the only way to know that is to sort of play with it. And then all of a sudden you build

an intuition for like, oh, the critical skill is actually it's different. Like I can see why this

person would be really, really good and this person is longer good. And now as you retool the

organization, that that's a really, really, really valuable signal. The other thing I think that

is going underappreciated with the CEO's building and stuff is there is a long history of people

wanting to build tools for themselves because everybody's workflows are weird and unique and

different. Or they have little issues that they need to scratch. But the fixed cost of

producing software was so high that it didn't make sense to do that. You're going to hire, remember

there's a time maybe like 2010ish or something where like super rich people were hiring people to

build personal apps for them on their phone because they just had like weird, you know,

so some billionaire would hire somebody and pay them half a million dollars to build a phone app.

Well, you can just do that with cloud code, right? You can just have somebody spin up and have

tapped into your workflows. And so you've taken the fixed cost to close to zero to doing that.

And it doesn't need to be production grade. It's just like, let me spin up a thing that doesn't

XYZ little thing that I do all the time. Like I have a thing that's like, you know, checking

land prices in like a very weird way that I like to do on the side and it just like saves me two

hours a week. And I see a lot of that, especially when CEOs, because a lot of CEOs have weird sort of

trade-offs that they made in life to build and run the business the way that they do. And now you

can just spin up software. It's actually faster than trying to convince somebody else to do for you

or waiting for the market to do it. It's just faster and cheaper to do yourself. What do you see a lot of

that? Yeah, what you're also describing is how technology democratizes access to things.

So I'm right, you know, like a computer used to be something that fit inside the basement of a

large corporation and only two people could operate it. Now everyone can have one, right? Or, you

know, and that's true for everything. Website used to cost a quarter million dollars to launch a

website. Then it was Squarespace. Now it's just log code. Anybody can literally do it using, you know,

natural language. And I think the same might be true for apps and software, too, because like,

well, I think it already, it's obvious that it already is. I think it goes beyond so to add to

what Rachel is saying. One metaphor I use with people is that, you know, organizations so far,

you know, once they scale, they kind of look the same. You see different kinds of like specializations

among different types of people. And generally, you know, like the ratios are different. But, you know,

if you think about it as organs, right? Like the organs of the body are sort of generally the same

across most big companies. And this AI kind of stuff comes in. And I think it kind of turns everyone

in back into stem cells. Right? So like suddenly the the the the the axes on which we were

differentiated before in terms of our skills suddenly start to go away because hey, if I have a legal

question, maybe faster for me to just ask, you know, the model, if I have a finance question, you know,

and so suddenly you like, you know, who's actually good at what? And like, how do these things

fit together? And how do we differentiate and specialize? Like that just got all jumbled up. And so

we're all stem cells in a big pot again. We're trying to figure out what the right organs are even

going forward. And so I think, but I think that even applies to the CEO in a lot of cases, right?

Yeah. It's a great analogy. Yeah. Yeah. You want to jump in on that?

No, I think it's just it's just a really weird and fascinating time. And this goes back to like a

lot of folks have said this over the years, especially the last 12, 18 months, but it does feel like

one of those new like defies one of those organelles basically kind of back to this idea of like

how how do you actually move money around? Was this like baked and primitive in your finance work?

There's there's actually a thing you have I won't I won't mention who it's it's one of our

affiliate companies. And I was talking with founder recently and they have essentially built agents

internally that do compliance and finance for them. And so they are a like they're fast scaling

towards like a billion dollars in revenue. And their their entire business is like

three or four finance people. It's like really wild. And so these publicly traded fintechs

are talking to the CEO because they're just like wait a second. How is it possible? Like

yeah, we have 10x the people that you do at this scale. Like what is going on? Yeah, it's just

because they have much agents and they just automated everything. It's pretty remarkable.

Well, it makes you think that this could be the start of a new kind of turbocharged era of

entrepreneurship because a one person team a two person team was resource constrained before.

And maybe still is because you know cost money to use these these tools the way they're being used.

But it's a lot cheaper than hiring people. And like if a startup can grow 10 times as quickly a

big company can probably only address 10% or 20% as quickly, right? So it may actually help to

level the playing field where there was the I think you know you guys obviously you were at Google

before right back in the day. Like you know the Google could always throw 100 engineers at a problem

while it's like now as a startup you have the equivalent at your fingertips to

playing. So that's sort of interesting. I think there yeah, I 100% agree with that. I think there are

actually three, three effects that happen simultaneously. So one is the big companies become

much more efficient. And so you've seen this over over the history of technology is like revenue per

employee goes up or net profit. And I think that's just like accelerates that even more. So if you're a

big company and you know how to use this stuff like each person can do that much more so you can

be that much more efficient as a business. And for people who are scale minded or want to grow

other businesses or efficiency minded, I think you get more, more big companies with fewer people.

The second effect I think is that you get many, many more companies because the fixed cost of

producing software goes down to such a degree that entire markets where it didn't make sense,

like you could only build a $10 million revenue business, but the costs are running the business

from the fixed cost perspective would have been $10 million. Nobody wants to run that business.

Now if you get run that business for a million dollars a year, actually a lot of people will run

that business. And so all of a sudden you're going to get software and you're going to get products

created for much smaller markets that are not necessarily a venture scale, but that like

enterprising people all over the world to just go do, which I think is great because you've got

like there are a million products that should exist like every niche little thing. Like imagine

how many little small businesses have have problems that they're just you know doing manual labor

against like moving data around and like trying to like service. All of that sort of now is a huge

huge market in aggregate, but a lot of those are small businesses. The third I think is that

you get an entirely new category software which is not going to be a one like I think they like

one or two people doing a billion dollar businesses is interesting like makes for good press headlines.

It's kind of a trope. I think the really interesting thing is many of the people that are able to

create or want to create a billion dollar company don't want to stop there, right? And so like

what does that organization of the future look like? This is where companies like Hyper Liquid

are so interesting. It's like you can build a scale business with like 20 people, but if you're

ambitious you probably don't stop there. And so I think what you just get is like massive innovation.

So it's not just that like big companies will hire fewer people. I think what will happen is

some enterprising people will create entirely new small businesses that serve small markets.

And then the real interesting thing from a VC perspective is what are all of the businesses

that you can now create because the cost of running the business went so much of the cost in

a startup or a company is the communication overhead. And now that you can have a 10th as many

people you can be that much more efficient and pursue really really big markets actually.

And so the spillover I think is going to be you're going to get a lot more Hyper Liquid types

of businesses a lot more even types of businesses where the number of people in the business is small

but the business outcome is still huge, but those founders are really ambitious so they don't

stop there. And so what you'll get is like actually entirely new categories of big businesses that

just look different from the legacy guys. And then I think there's sort of a little bit of a spillover

effect that will happen here too which is you know most humans are not don't want to just like sit

around and do nothing. And so as all of this like labor supply gets unlocked I think a lot of

a lot of the dooms are like oh no we're going to be unemployed and it's just like that never happens.

Like people are enterprising or hardworking or smart. And so I think what you'll get is a spillover

and all of these other areas that have been really under invested in for the last 30 years.

So like now all of a sudden you know like space or arrow we're also investors in boom supersonic.

And boom is actually evolved to become a data center engine business because they're core

supersonic engine. It turns out is a great fit for data centers. And so like they're going to

market is going to be to build data center engines which will finance the supersonic plane.

But the whole Detroit you could go to. Right? There's still going to be a spike? Yeah.

Yeah yeah that's right. Yeah it was just this is a little bit of a detour but it turns out it's

like a funny twist in entrepreneurship. They built their supersonic test demonstrator.

Flu supersonic was the fastest non-military jet ever built.

Proved out a bunch of cool technology like a boomless supersonic where like the supersonic wave

bounces off the atmosphere it goes back into space. So you don't hear the boom on the ground.

Like really cool tech. As they were running all these like models and they did this test

they realized that the supersonic engine that they were building

has a really specific set of heat characteristics. And so it doesn't degrade at high temperatures

because it's designed to run at a higher ambient air temperature. But like the GE Vernova engines

are you know sort of degrade after about 80 degrees Fahrenheit ambient air temperature

because they're not really designed for high temperature environments. And so the performance

starts to fall off pretty dramatically whereas the boom jets don't. And it turns out all these

data centers are being built in like West Texas where it's always over 80 degrees Fahrenheit.

Right. So the boom engine. At least engines being used to push air into the data centers to keep it

cool. No no it's because the data centers can't get enough power off the grid.

Right. And and so what you're doing is you're burning natural gas to power the data center

because you can't plug into the grid and have reliable energy. And so there's this whole market

like one of the big bottlenecks right now in the data center side is the energy side of it.

How do you get enough engines? And so like GE Vernova is now like a 40 50 60 billion dollar

company. It's like a very large company and they're just back over for three years like you just

can't get data engines. And you need those engines to power the data center to power all those

GPUs because the power drop coming out of the grid is not large enough. But but going up the stock

here a little bit you know I think the the thing is a business like a like a boom or a nuclear

businesses or you know space businesses from a cost to capital perspective it was really hard

for the capital markets to finance those things. When you could invest in SaaS in a so capital

efficient and then you could IPO business with fewer employees for like 10 billion dollars.

Meanwhile here's this like really heavy capex thing like why would you put money towards that

and you're buried in the capital stack the first 10 million dollars is buried in the capital

stack. Now all of a sudden the AI agent stuff I think has this this sort of spillover effect

where all of those things start to look really compelling because they actually have a moat

right like atoms are a moat all of a sudden. And so all of a sudden I think not only will

like the dollars shift over to other interesting areas as a second order effect. And by the way

regulatory is a moat as well which is why I think like DeFi and Fintech and crypto start sort of

even more interesting as well. But the people will move over right because because if you can't be

in these like hyper commoditized businesses that don't need as many people because they're pure

software where do you go I think you start moving into these other areas that have real moats

and atoms and regulations are real moats. And so I think you'll actually see like talent

start to move over into some of these other areas which I think is really not good too.

Yeah. So you know you will get like few employees and big companies but there's like these

these amazing three spillovers of more more innovative businesses like smaller businesses

targeting niche markets more entrepreneurs building big businesses with fewer people that are

entirely new people and talent moving over to atoms and derogatory businesses like all of these

spillovers I think are actually extremely that positive. Yeah I mean so that's a fascinating

description of the current state of things and and actually if you look at where the money is

gone just in the last couple of years where is it going it's going to data center cap X so there's

already the most most of the big capital flows here have been directed towards building literally

building stuff and I can see that being an area where there's a lot of growth and I think I think

you may have the point but just to emphasize that that it's also because these asset light software

subscription businesses are way less reliable they're less bankable than they used to be because

of all the disruption that's coming from from cloud code and these other tools. One other point

I just want to make Avishar and Ken to get your point of view on related to what you just said

which is that you said that you know it may be really easy to build software for like to build small

companies as well as really really big companies and I wonder like as a VC you know VC's rely on

the power law where you know they make 10 bets and they hope one is an absolute grand slam

and makes the fun right and maybe a couple of the others do do okay along the way and a lot of

that is because like you're you're making these investments in these companies you may be the first

dollar in but that because they require so much capital they're subsequent rounds you're getting

diluted down you have to follow one but what if you could make a million or two million dollar

investment in your company and that was it that was all the capital that went into it and then in

the end it's worth 50 million bucks or something well that would be great right but because it doesn't

require all that additional capital I wonder if it changes the nature of these things so that you're

not always chasing like absolute like you're not always like whale whale hunting or elephant or whatever

that there's other ways to to make money or maybe or maybe because they create so many interesting

possibilities you're still chasing the big one because the big one could be really really big right

maybe it's still that I'm not sure yeah I think at least for us and and our style of doing

business yeah I think we go in the like let's go find the 25 person company worth 25 billion dollars

and that's just sort of what we're what we're wired for having worked at these big outcomes and

having started companies and so we kind of have that muscle but I think you're 100% correct that

there is absolutely now this as a second-order effect of what you just talked about there's a new

type of capital market need and the current markets may not provide for that need and so

somebody could step in there like family offices could step in there it might be that you know

we passed with with jobs act and like the the crowdfunding stuff that happened like 10 or 15

years ago all of a sudden that might actually be viable because a lot of the things that people

were were financing off that the biggest I interestingly have I don't know if people know this

one of the biggest outcomes of all time from a crowdfunding campaign was Coinbase because nobody

wanted to invest in Bitcoin companies back in 2012 2013 and so they had to do a crowdfunding

campaign and and I think it was something like he put in a thousand dollars into Coinbase on their

crowdfunding campaign you made a million dollars at the IPO crowdfunding into equity was like an

angel that's something yeah yeah exactly yeah yeah yeah yeah so Coinbase Coinbase interestingly now

if a crypto company yeah yeah from the biggest outcomes of all time from a crowdfunding campaign

to props to Brian yeah but you know it's historically that the challenge with the crowdfunding

platforms was that you were investing in like beverage companies and like boarding companies and

like restaurants and the failure rate is just super high and they're actually capital intensive and

they're not great margins usually and so they were just not great investments but you're

absolutely right that now I've said if you could invest in like a software business that one person

starts and runs with a bunch of agents and makes ten million dollars a year for some niche and it

has like 30 percent net margins and spins cash all of a sudden the crowdfunding platforms might

might be really well positioned which might mean that like the average retail investors could

stop start dropping a thousand or a couple thousand dollars into these things and actually have

you know pretty great returns so it's probably not a VC game but I think I think you're right that

there is some sort of like capital market thing there that that potentially ties back to crowdfunding

ties back to DeFi like that might be a great thing for the global capital markets and stablecoins

that you can imagine that that's actually a platform that's that that's a very sort of crypto user

owned community owned like the ethos on the vibe of that feels very crypto to me yeah that you

could finance those things and ultimately maybe even some percentage of those backers are agents

themselves right so it's just agents getting on other agents to do stuff yeah the only thing I'll add is

like you know part of what you put part of what you learned sort of trying to build like

agentic automations within a VC even is that the structure of any particular investment firm

and the types of investments they do are like pretty coupled right so at the end of the day for

example like you know let's let's say there were a thousand small you know businesses like this

that that could work like you know if you have a if you have a partnership of like you know five

six GP you just can't cover that many founders right you can't you can't help that many companies

all at the same time it's just like the human bandwidth is ends up being the constraint

but you know who knows with if we automate everything else of what everything else that the fund

does you know away then maybe there is a world where where that works or maybe even like you know

the advice that the you know like half of the advice that a founder would need from a VC is

actually just you know an agent accessing a database and you know kind of pulling out you know

know how on how to do something right then maybe then a capital platform scales in a very

different way so the only asterisk I generally agree with what Avitual said but I'll the only

asterisk I'll put up there is that like the AI stuff you know in so much as investment is a very

kind of like knowledge oriented business the AI stuff is going to probably disrupt that at some

point in the future too and we don't know what the shape of that of that firm on the other side

looks like quite yet yeah so on those two points that you just made around new kinds of capital

formation or new opportunities in the market let's talk about tokens for a second because tokens

as a primitive are a new form of capital formation right they're a way to raise money they're a

thing that can accrue value in a network and there was a time I think when we first started chatting

that a lot of people felt when a startup launches it will launch more likely as a protocol or

as a token based project because maybe that's just a more efficient sort of mouse trap it seems

like now there's a lot of bearishness around tokens as a value of cruel mechanism as a thing that

you know I don't know just a lot of bad vibes right now I think people are still pretty bullish

on Bitcoin and I think they feel you know if there's institutionalization an AI adoption that

Ethereum and Solano will do well but beyond that not beyond those three but beyond maybe the top

tender so we should startups be tokens you know I think there's a question a lot of founders are

asking themselves now whereas I think there was a time when it was like of course you launched

the token because there's so much embedded upside from that so what what's your take on on tokens

today um maybe I can stand with this I think there's a couple categories of tokens so to answer

your question very directly I think people are too bearish on tokens now so there's a time maybe

the last time we talked I was like guys like not everything needs to be token right now I'm like

hey guys like actually some things deserve some things deserve to be tokens um and I think there's

three categories basically I think there are um the store value tokens and I think currently probably

it's a it's a relatively small basket of things Bitcoin obviously I think you could make a case that

potentially uh uh eth we think is likely in that store value category we did a we published

a paper on this maybe two years three years ago something like that and why we think that's the

case um and eth is roughly where Bitcoin was in our opinion something like 2020 2021 you know it's

roughly 10 years after launch and and Wall Street is just starting to get its head around it um

you might be able to make the case like a monero or or as you cash it's sort of like in that

category it's just been around forever it's Lindy like it's you know people understand supply

mechanics and it's private so it sort of sits adjacent to these guys yeah but that category

stuff I think is relatively small the second category I think is infrastructure and I think I would

put like salana and near monad into kind of this category worth I think it's hard given the the

way those things were created and launched to put them in the same camp as a Bitcoin or an Ethereum

store these are that immaculate conception cause of things um the ultimately DC back um but that

doesn't mean they're not valuable I mean if you look at Amazon Amazon is a two point seven trillion

dollar company um and you know Databricks is a hundred fifty two hundred billion I have

hundreds of billions of dollars kind of company um and so infrastructure can be tremendously valuable

right like most of Amazon's market cap from AWS is from AWS it's not from the retail business the

retail business doesn't make any money um and so I think infrastructure that powers global

finance is tremendously valuable or infrastructure if you look at something like near

and that powers the agentic economy and where agents can be first order citizens tremendously

valuable and so you know they I think there's that category of infrastructure um you know you you

need the infrastructure providers to have a stake in it you need the uh developers on top of it

to have a stake in it like as an ecosystem I think it makes a lot of sense for the token to be able

to redistribute that value strategically and then the third category is essentially um it's like

the closest analog we have is that it looks kind of like equity but it's equity into a token

network so there's no common enterprise so it's not really equity as the way the SEC would describe it

but it is a thing that needs to live and it needs to live autonomously and it should take fees

to sustain itself and it should take those fees and and pay people that are developing that are

working advancing and so on and so this is things like uh they more foe pendle um you know things that

that are actually useful um and exist on chain um and I think the thing that people don't fully

appreciate about those latter two categories the infrastructure camp and the and the defy tokens

that take that take fees um and can't please chime in um on this because I'm sure there are lots of

examples that you think of but I think what people don't fully appreciate is that with the stablecoins

ecosystem emerging that it is of course the fintechs are going to benefit from the stablecoins

but like who holds all these stablecoins ultimately it's actually a lot of people in markets that

don't have access to good financial products and the reason they want tether or they reason that they

want usdc or sky or whatever is that they don't want to be in their local fee occurrences because

they're getting inflated away so if you're in Nigeria if you're in India if you're in Vietnam

you're used to 10 or 15 or 20% inflation relative to the dollar and the dollar is also getting

inflated away because of all the money printing right so first order of business is just like get out

and get to dollars and so this is like the best mechanism ever invented to get access to dollars

and most of the world actually does one dollars and then all of a sudden you're sitting on some

dollars and you think to yourself oh wouldn't it be great if I could get some yield in dollars

so I'm not getting inflated away and if the base rate is like three or four percent in treasures

okay let me at least try to get some of that make it two and a half percent and then you say

wait a second shouldn't shouldn't I be able to like make money too and and you want to put money

towards things that that take fees and dollars you want to you want to take you want to put money

towards things that generate return and grow in dollar terms but you can't really access U.S. equities

right like most of the world if you if you've ever seen that diagram it's like they draw a circle

around like kind of India Southeast Asia China and they're like you know three fours of the world

lives in this circle like that entire circle does not have access to U.S. equities yeah

yeah right and so what happens when you give that three fours of the world access to dollar

producing assets I think what they do is they say I want dollar producing assets and all of

that capital moves over yeah in the in the lowest friction ways and so the way that will ultimately

manifest is that these things will have I think of did is people figure out that these things are

are the easiest way for most of the world to access a dollar producing asset and the multiples

that people will be willing to pay will be much higher than you've traditionally seen on the stock

market right because like what is it what is like a PE multiple at the end of the day you can

transform that into some sort of expected return right so there's a there's some IRR there

and some return profile you're you're underwriting and this is where Howard Marx will tell you like

when the stock market is at a 25 PE your expected return is 0% right but you can sort of like convert

at PE into a into a return profile and what we saw in 21 without the money printing was if you

give people 0% interest and they're worried about inflation they're going to bid up the PE

ratio is like crazy on all these stocks and so what happens when you have billions or trillions

of dollars of capital coming in from people who are not in a 0% interest regime they're in a

negative 10% interest regime right like they're losing 10% a year and so what is their willingness

to bid up and what does that PE need to look like for these people and I suspect that actually

people are going to be willing to pay very very high effectively PE's on this cash flow because

their alternatives are so terrible and they don't have access to like tier you can't get a

Schwalm camp right so so structurally I think people are undervaluing this idea of your tokens

and DeFi tokens that's what actually losing entities because most of the world does not have access

to good US dollar cash flow of insurance yes I see okay yeah because I was going to say there's

another argument to be made there that that was a very bullish case for platforms like I really

who are absolutely easy for those people to invest in more familiar assets like maybe it is

by Morpho but people all everyone thinks it's a great idea to buy Google or Nvidia stock right like

if you live in any places you'd die to get access to that right everybody wants a US dollar bank

account once they have it they want a US dollar brokerage account as you say right and I just think

that's something that is really under it's not well understood it's well it's well it's talked about

a lot in crypto circles but I don't think it's really people don't really grasp the potential there

that also you know we're not talking about a farmer in Congo buying stock like there are a lot

of there's a lot of money in India and China and stuff East Asia like a lot of money and still

there's a lot of disconnect between these markets and though and those potential investors

yeah I think you're probably right I mean my view is similar tokens there was a sort of a token

euphoria period when everything was a token and a lot of projects had some pretty lofty nose bleed

type valuations and I think now I know of a couple projects that are looking to retire their

token and roll it back into equity to simplify their capital structure and to me that feels like

a signal that it's gone too far the other way and yeah yeah can'ts right yeah I was going to say

I think there's like a couple things going on there one is that I think part of the tricky part

of the history is that we started with Bitcoin right we started with this like store value thing

that actually has the way that you value Bitcoin is actually very different from any of these

other categories all yeah all of them it's it's a it's a one-of-one in my view it's like yeah yeah

you know maybe you argue eats in there you know yeah but we tend to believe that but yeah it's like

there definitely was a period where everyone was like oh everything is going to be like

Ethan Bitcoin which was clearly not the case right like in hindsight and so I you know I think

you know there there was a long hangover from some from realizing that's that's sort of not true

you know I would say these days at least in the conversations that were involved and we do see a lot

more kind of questioning of fundamentals and business models and you know the other side of this

is just the regulatory side right it's like there was a long period especially under against

that where it was like there was no way that you could come out and even hint that there would be

any kind of like revenue you know distribution to token holders or fee collection or anything

like that right I mean I think with clarity you know hopefully we have to at least some some

workable model around this but you know we're still we're still like trying to figure this out you

know I think the irony of all this is that we might get like tokenized us equities before we figure

out how tokens actually should work right yeah but that's kind of where we are right and so I you

know I tend to think that once once that part gets cleared up then suddenly you know like if we

can have tokenized equities then clearly being a token you know like the the digital form factor of

it isn't the issue right it's like it's all the other rules that are around it right so if we can

just get get to that part of it then I feel like actually all this stuff a lot of this stuff unlocks

for a lot of people yeah by the way this my argument is also extremely bullish for tokenized

equities for the exact that reason yeah yeah absolutely guys what a great conversation I mean we could

just I feel like we're just scratching the surface but covered a lot of ground always really

appreciate your insights and the historical perspective and global perspective that you both

bring to what's going on today I think helps to really flesh it out for listeners and certainly I

learned a lot during the conversation so thank you both for joining us we appreciate it yeah

thanks thanks okay that's it for this week's episode of DeFi Decoded I'm Alex Tapskot make sure to

like follow subscribe the podcast wherever you get it and make sure to follow Ken and Abyshel on

Twitter and lecture capital as well we will drop their handles in the show notes for this episode

until next time have a good one take care