Matt Huang - Investing At The Frontier - [Invest Like the Best, EP.420]

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Hello and welcome everyone. I'm Patrick O'Shaughnessy, and this is Invest Like The Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. If you enjoy these conversations and want to go deeper, check out Colossus Review, our quarterly publication with in-depth profiles of the people shaping business and investing. You can find Colossus Review along with all of our podcasts at joincolossus.com.

Patrick O'Shaughnessy is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc.

My guest today is Matt Huang, co-founder of Paradigm, a leading crypto investment firm with over $12 billion in assets under management. Before launching Paradigm in 2018 with Coinbase co-founder Fred Ehrsam, Matt was a partner at Sequoia Capital, where he led many of the firm's crypto investments. It is widely reported that Michael Moritz called Matt the only regrettable loss in Sequoia's history.

In our conversation, Matt shares his framework for navigating the often illegible frontier of crypto, how his early investment in ByteDance, now worth 10,000 times his initial capital, shaped his approach to identifying exceptional founders, and why he believes so deeply in crypto's long-term potential. His firm, Paradigm, not only invests in many of the leading companies in the industry, it also builds open-source tools used by most of the crypto world. Matt has a rare blend of IQ and EQ that allows him to understand technical complexity, bring together unique talents, and ride out crypto's notorious volatility. Whether you're crypto-curious or crypto-skeptical, I think you'll find his perspective valuable.

To learn more about Matt and Paradigm, I highly recommend reading our Colossus Review profile about them. Our managing editor, Dom Cook, spent time in their San Francisco office learning everything he could about them. You can find that excellent profile on our website at joincolossus.com and in the show notes of this episode. Now, please enjoy my great conversation with Matt Huang.

If you think about chunking your life up into early chapters, let's say up until you're a professional, what are those chapters? What happened during them? Why would you segment it that way?

1. The Family North Star

Let's see. I would say there's a childhood chapter where, probably like a lot of other people, the primary goal I had was getting into college. In hindsight, I think that's, for a lot of reasons, very depressing and not something I want to bring my kids up with. But that was a very primal thing in my life. Both my parents were PhDs and professors, and so becoming educated was the family North Star.

Directive.

Yeah. And I was very lucky. They were, if you think about stereotypical Asian parenting, very liberal relative to what you'd imagine as the caricature, so they were very supportive later in life when I took risks and decided not to go down that path.

But anyway, that was phase one. Phase two was probably a bit of a walk in the woods in college, naturally figuring out what's next. Phase three was building a failed startup. Phase four was learning to become an investor. And I think I'm now in phase five, which is building Paradigm and figuring out my self-expression.

In chapter one, what is the first time that you remember being consciously aware of this family directive?

It's one of those only-in-hindsight things. It was just the water at the time. It's funny, I reflect back on family conversations, and my parents would have friends over or introduce me to folks who they worked with, and every introduction would be almost like an honorific. They would say where that person went to college.

So very deeply, early on, it was ingrained that this was something that defined the value of a person, and I think that's deeply mistaken, but it was directionally what drove me at the start.

Did you enjoy college?

Yes, actually.

How?

So I went to MIT, and in hindsight, it's a super-special place. I actually didn't appreciate it at the time, but it's one of the highest concentrations of strange people on the planet. I think there aren't many of those centers of gravity. I think Silicon Valley is one, crypto is one, but they're relatively rare, and I think there's a lot of generativity and interesting, outlier-type activity that emerges from those types of places.

I also met my wife, which, again, I didn't appreciate at the time. But now, watching some of my friends navigate that post-college, I don't envy the environment people have to wade through.

Aside from meeting your wife, what was the most memorable day at MIT?

2. The Dropbox World Model

The most memorable one actually flows into the next chapters. Startups are so in vogue now, but back then, around 2008, startups were still relatively new. Maybe if you went to Stanford, it was sort of the default thing a lot of people were focused on, but certainly at MIT, most people were on the other typical tracks: finance, consulting, and HFT.

I remember I had a close friend who was a year above me, and he told me he was dropping out to join a little startup out in San Francisco called Dropbox. He was, I think, the sixth or seventh employee there. It broke my world model at the time, which, given my upbringing and parents, was this very strong sense that one must not only get into a great college, one must graduate and maybe even do a PhD.

But to drop out seemed insane. And yet this was someone I deeply respected and thought was tremendously capable. It wasn't someone who had failed out of his classes or was going to pursue acting or something way off the wall. It was a real moment for me because I then became obsessed with figuring out what the chain of thought was that would cause someone competent to choose that.

That brought me to discovering Paul Graham's essays and Y Combinator and learning about the entire Silicon Valley ecosystem.

I remember reading Paul Graham. There are these moments, or these windows, that can get opened for you to what might be possible. Walk us through what happens next in your mind and, literally, what you're doing with your time.

Well, talk about an act of extreme leverage. Paul Graham wrote some words on a website and, I think, shifted the world in a dramatic way, opened up the universe to teach nerds how to build companies—

Make stuff.

—and in a prior world where they'd be completely beholden to the MBA CEO. So I think that's just a generally interesting theme.

But yeah, for me it was very impactful because the meta-takeaway was very much one of agency. I was in a headspace of, "I'm going to MIT. My parents want me to do a PhD. I have to think about what I want to study and which places to apply to. What's the thing you should do during the summer to start making research contributions toward that?" It wasn't even clear that's the thing I should be optimizing for.

And I think one thing that was very liberating about reading PG was the sense that you don't have to ask for permission from other people, because that's what all the PhD programs are. You can actually figure out what you want to do and just go do it. There's this popular meme now: you can just go do things. And I think while it's a platitude, there's deep truth to it.

I found it extremely enlightening, and it reshaped my worldview of what I wanted to do. I was a math major doing applied math. I had learned to make websites growing up and messed around with Photoshop. A lot of kids did that. But I didn't really learn how to code or the principles of computer science.

Immediately at that time, I basically pivoted to a lot of the computer science courses, which actually counted for the math major. From there, I just started to learn everything about how one would build things, and then, with my roommates, started working on things that eventually led to the startup.

Tell us the story of the failed startup, the rite of passage.

3. The Failed Startup Rite

We applied to YC twice, and the first time we didn't get in. I distinctly remember flying out to California for the interview. We interviewed with PG, and then he called us that evening. Maybe they still do this; it was the same-day response.

He said, "We love you guys. We couldn't hate your idea more. Can you come by again? Let's brainstorm. Let's try to figure out something for you guys to do."

And we did that and still couldn't come up with something they were excited about. Then I think a week later, he released an essay, something to the effect of "Why Young People Have Bad Ideas."

You were inspiring.

Right. Exactly. So I do think we were falling down all the obvious traps of young people. You overrate your own problems. A lot of young people are attracted to the problems they have in college, but college students aren't very representative of the average consumer.

So anyway, from there, 6 months later, we had continued to build and hack on things. Eventually, by the next batch, we already had a prototype with users, and it was still a terrible idea, by the way. But if you remember back to that period of time, this was when streaming content was coming online for the first time, so Netflix and—

What year?

Hulu. This was 2010. And so we were building a TV guide website for that era. In hindsight, I think it's just not a good business and very concentrated. It was a 2-sided market where one side is extremely concentrated and the other side is super lazy, with low willingness to pay.

Just how you draw it up.

Yeah, exactly. So we went to YC, raised some angel and seed money, and continued to build. Eventually, it just wasn't working the way we wanted, so we pursued acquisition opportunities and ended up getting acquired by Twitter. And that itself was an interesting chapter.

What did you learn in that M&A?

In the M&A process? This was the era when they weren't acquiring the business; they were acquiring us. It was a talent acquisition. We interviewed there, Airbnb, and Palantir, and ended up choosing Twitter. It's probably the least well-run of the 3 companies.

I would say the most important takeaway for me is that I don't think there's a lot of things to learn from failure or a failed startup on a substantive level, but I think there are certain lessons. I certainly learn this now much more, or experience this now much more, as a parent. Some things you have to learn by experiencing them. You can read all you want and think that you understand them, but the aha doesn't really happen till you're in it.

I think the ambiguity of trying to create something new from scratch, the loneliness of the founder journey, and all the founder empathy stuff were probably the main takeaway. I think that's the biggest thing that has helped me from that experience.

If I could somehow go back to that time, whatever the last day of that chapter was, and ask you, “Matt, what is your worldview?” What do you think you would've said at that point?

4. The China And Crypto Pivot

Well, I knew I wanted to be in technology and building things. I was definitely not sure whether tech Silicon Valley was the ideal place to do that. I toyed with the idea for a little bit of going to build something in China because this was 2012. Silicon Valley, I felt at the time, was somewhat saturated.

Obviously, it wasn't, but the iPhone was released in 2007. You had a lot of mobile apps get built. I think 2012 was the year Instacart and Snapchat were started. Those are probably the last 2 big consumer outcomes that were mobile-first. I'm probably missing something.

And that's what I was interested in. The sort of enterprise isn't really interesting to me. I think it's super interesting for some people. It's not interesting for me. And so China felt like the place where you could have that level of compounded annual growth in the underlying space.

I thought, “Hey, I'm Chinese American. Maybe I'll have an advantage there.” When I took the trip, I realized, no, I'm not actually Chinese. It's a very different thing, but that ended up leading me to the ByteDance investment, and we can unpack that. But when I came back, the next thing I felt had that underlying, multi-decade potential to compound with tailwinds was crypto.

I have this visual in my head: somehow, what we were doing here was making a movie about you. The opening scene would be you landing in China on a plane on this 2012 trip, and that would be the opening vignette. Can we do it in audio that way? Can you go in crazy detail and tell us about this pivotal trip, literally in as much detail as you can muster?

I'll give it a shot. If you visualize it, back in 2012, every U.S. venture capitalist and company was trying to go to China. China was entering Hollywood. It was very much globalization at the forefront, and I thought maybe that's where I should spend time. I took vacation from Twitter, so this was a week-long vacation. I had some mutual friends with folks who were VCs or tech people in China, and they helped me set up a bunch of meetings.

And so I landed in Beijing, and I had been there before. The summer before MIT, I went there to do some language learning. But even in just that time, which was basically 6 years, the whole city was transformed. You land, and it's a massive city. It was very gray, but I just remember feeling the energy on the ground: this is a culture that feels like it's experiencing hypergrowth.

Whereas in Silicon Valley at the time, there was a lot of enthusiasm about startups, but even then the culture was a little, in some ways, complacent. And so that was very inspiring. I went from meeting to meeting, not expecting to make any investments, but just trying to learn. I met the Dropbox of China and the X and Y of China[?]. I remember rolling up to ByteDance, an apartment complex split across 2 apartments.

I had a translator with me. We went up the elevator, and there were very unassuming wood floors. I got pulled into a little kitchen where you could imagine a really old refrigerator that looked like it would be dirty inside, and a very simple, IKEA-like kitchen table with some stools. I was sitting there with the translator and the founder of ByteDance, Yiming.

One thing that was really interesting: we have a mutual friend, Graham Duncan, who talks about interviewing, referencing, and observing people. In reflection, it was a very unique experience. He would say something, and I wouldn't really understand what he was saying. Then the translator would translate it, and I could understand. But while he was talking, I could just—

See his affect, yeah.

I could internalize all of the nonverbal.

Huh.

I just remember having this very deep sense: this is an extremely competent, obsessed person who is also somehow balanced, not crazy, and not going to blow himself up, but also extremely aggressive and going to take over the world. I think that's a rare mix to find.

I also hated the idea, which was personalized news. This was pre-TikTok, pre-Douyin, so pre-video. Their primary business, and what built the company, was a personalized news app. I just remember that being an idea that basically hadn't worked in the U.S. Lots of people tried it.

I have a post hoc understanding now of why it worked in China, but at the time I hated the idea. But I came out of that meeting feeling like, holy crap, I've got to figure out some way to get behind this person.

How did you do that? Did you have $20,000 and say, “Here's $20,000. Let me invest in your company”? What was the literal conversation and mechanics?

We left the trip, and I chatted with a handful of other folks who were mutual friends with the investor who set us up. The takeaway I had from the trip was, that's the one. So that group basically begged the existing VC to figure out some way to let us in. They were really kind.

What was the valuation that you invested in?

There was a mix of shares, but $20 million and then $30 million.

What starts to congeal to get us into the more investor brain and investing chapter of your life? Was that a feeling like, wow, this is something I want to do over and over again? What changed in you?

I think at that point in my life, he might have been the most impressive single person I'd ever spent physical time with. I would read about a lot of impressive people, and that was very inspiring and addictive. Now, as a venture investor, you basically get to do that all day.

Going back then, you mentioned 2 attributes about him, which was that he was both not going to blow up—he was in control—but he was audacious and aggressive. Maybe just say a couple more clicks of detail about, if not those 2 attributes, try to describe that encounter a little bit more: what you saw and felt.

He had very high clarity on what he was trying to build and why. I was recently rereading Elon's 2006 Tesla master plan. If you read that document, there's just a tremendous amount of clarity on what the business strategy is. Yiming had that for this personalized news idea. And personalized news undersells it.

I think he saw it as what it ultimately became, which is the global marketplace for attention and media. Could we get in front of you the most relevant thing that you're going to want to see at any given point in time, instantly? Pre-algorithm, maybe you use social. Pre-social, you use newspaper editors to do that, but this was sort of the HFT version of the media marketplace. He saw that back then. It took me longer to fully grok it, but, yeah, the clarity and the aggressive ambition.

I think from day one, he was very focused on building an international business. At that time, every Chinese company was a Chinese business, even Tencent and Alibaba. That was the audacity: to even believe that you could do that.

I'm assuming you held the investment for a long time. I'm curious if you've continued to hold it. What I want to know about is what it's like to hold something like that, and we can talk about this with the crypto context as well.

Lots of mutual friends were early in Bitcoin. One notable thing I see often is that they were quite wealthy to start, which made it easier to hold, whereas for those for whom this was the first time they were having some smash success, at some point, if you're up 100× or something, you just sell. You've made so much money, and then that costs you a huge amount for not having held longer.

So have you held it, and if so, what did you learn holding something like that where the value is beyond any reasonable expectation you could have put on it at the start?

I have held most of it. Well, it's a weird thing where it was mostly illiquid most of the way. In contrast to crypto, it's a lot easier. I think by the time there were robust secondary markets and it was possible to sell, I wasn't comparing it to the basis. It was comparing it to its future potential, and at those points in time, it was always, “This could be on track to be the biggest company in China.” As an investor, it definitely messes with your head, though, in the sense that it's probably the best investment I'll ever be a part of.

What's the multiple on capital?

I don't have the full adjusted-for-dilution math in my head, but the secondary market today is trading around 200 to 300 billion. The simple math is that that's a 10,000x. Let's say it's a 5,000x.

Pretty good.

If a US company had those numbers, it'd be worth 1 or 2 trillion. So it'd be worth another 10x.

Yeah. Is that weird knowing that maybe you've made your best investment ever?

It is weird. Yeah. I find I'm increasingly zen about it, but let's not pretend that it was some great act of skill. I think I had some intuitions, and it was a good investment, but, like a lot of early-stage investing, it's saying yes once.

Yeah. I'm curious what they are. If I went 1 through 5 of the 5 most successful investments that you've ever made, how many of them shared some felt sense of the person's energy signature, in the way you described Zhang Yiming? And maybe list what they are.

Yeah. I would say all of them except for the crypto ones.

Of course, yeah.

And I think there, there's the analog of the energy signature of the community or the meme or—yeah.

Yeah. Give us a sense. What do you think the 4 other most important investments you've made are?

So I don't have a spreadsheet. For some reason, I don't track this.

You do it on vibes.

Yeah, exactly. If I had to guess, it would be ByteDance, Bitcoin, and Ethereum. And these are personal, or including the fund?

Both.

1 I deserve no credit for is Uniswap, which we could talk about more. Then there are some normal tech ones, like Instacart, for example. I was part of the seed round.

Yeah. Okay, so let's go to the pure investor chapter and Sequoia specifically. Tell me how you got to Sequoia. What is the bridge story? Then I've got lots of questions about the formative experiences there.

5. Sequoia Raises The Bar

So I was sitting at Twitter 1 day, and a random email appeared in my inbox, which was a recruiter reaching out about an opening at Sequoia. I had no ambition or intention to become an investor or venture capitalist. So I initially thought the email was a spam mistake. Why would they send that to me? Wouldn't they be looking at an investor or maybe a banker or something that might feed into the investment world? I didn't have a real understanding at the time of the varied backgrounds that end up in the space.

But I was intrigued and ended up taking the call with Pat Grady, who I think you know. As he was telling me about Sequoia, I just started to get very interested in it, and I met more and more of the team. I still think it's one of the highest-quality teams and cultures on the planet. Again, I was interested in investing, but I wasn't sure whether I wanted to do it. I decided to join almost purely based on the strength of the team.

Thinking back on that time, how many years were you there?

4.5.

In those 4.5 years, what changed? If I talked to you on day 1 and the last day, what was the treatment effect of Sequoia on you?

It was definitely profound. I'd say the biggest thing is probably exposure to high standards. It's probably the highest-standard place I've ever experienced, including startups that I'm involved in and including Paradigm—their ability to maintain extremely high standards. I think it helps to have the legendary history of Apple and Google and Cisco and—

It's an impressive wall when you walk in there.

Yeah.

The logo wall. It's quite something.

The posters and the S-1s, along with the absurd statistic of 20% of the Nasdaq—all of that helps. When your track record includes those things, even something that would seem like a great success to anyone else would be small ball. So there were many days when there were multihundred-million-dollar outcomes that would be viewed as a mediocre success.

I remember day 2 after I joined was when the WhatsApp acquisition was announced, and there was this very awkward champagne celebration in the lobby. They called everyone out there. There were all these glasses. Everyone raises a glass, nobody drinks. Five minutes later—

Everyone's gone.

They go back to their desks to work. So it's not a culture that celebrates often. But, yeah, I think high standards, and not just on the company or investment level, but on individuals' taste and individuals' standards for themselves. They aim to operate at such a high level that—I think Tyler Cowen has a blog post on this—1 of the free lunches is raising the ambitions of the people around you.

I do think cultures of high standards are this version of putting surplus out in the world. If you expose someone to that, you can permanently alter their standards for everything.

Does a personal anecdote stand out of you feeling the group or a specific person making you feel like, “Oh, God, I need to do better than I did”?

That question is somewhat framed in the negative version of it, which is, “You're doing poorly; you need to do better.” There's also another version, which is the positive flip of that: “You're awesome; we believe in you.”

I would say Sequoia, Doug Leone in particular, had a big impact on me. I think the 1st investment I sourced and brought to the firm, which we ended up choosing to invest in, was 1 I worked on with him. In that process, first, just getting to observe him work with that team, and then having him validate the opinions that I was having about the investment and what we should do with the company, was a very ambition-increasing, confidence-increasing experience.

But a lot of the high standards are unspoken. They're the habits and rituals that you see everyone else embodying. With a $100 million investment outcome, I was expecting everyone to celebrate. Instead, everyone's like, “This company was kind of a waste of time. Why did we waste 6 years for this middling outcome?” And so that just rubs off.

What do you do differently as an investor when the objective function is the next Apple and not a billion-dollar company that we forget about?

In some ways, it's daunting because the bar is so high, but in some ways, it's liberating because it's much easier to determine where it's not worth spending time. And I think, as an investor, the temptation to choose good over great—in terms of every level of zoom, the ways you're spending your time, making an actual investment, the company, your founder quality—is extremely great. Unless you have very, very high standards, you can spin your wheels for a long time chasing things that won't end up mattering.

There are so many incredible investors there when you were there, and obviously a lot of them are still there today. They're very different from each other, which is going to be a big topic of our conversation—this idea of a collection of mutants or something that I think you've done exceptionally well at Paradigm. What do you think are the keys to creating a group of people that are extremely different from each other, very heterogeneous, but making sure that they're working really well together?

There's a lot of different personalities at Sequoia, but there's also a very impressive level of consistency along some key dimensions. Another takeaway, going back to your prior question, from my time at Sequoia was that I think it was the 1st time I realized, very intuitively, that there were many paths to greatness, whatever you want to call it.

At Sequoia, there are many, many great people who, if you just looked at their track records or what they've accomplished, it's insanely impressive, and yet they're very, very different styles. That was very liberating for me—the realization that I can find my own way and do it the way I want to do it.

And that's actually a flavor of thing I think is really fascinating to follow. You see it in athletes or performers of all kinds. You can sometimes read in their interviews the moment that they realized that they didn't have to follow some existing mentor or some book of orthodoxy, but that they could figure it out themselves, and that ultimately became the catalyst for their greatness.

I want to go back to 2 key parts of the timeline. The 1st is your original encounter with Bitcoin and crypto, and the 2nd, related, is your decision to leave Sequoia and start Paradigm. Maybe start with the 1st one. Similar question around the TikTok thing: how and when did you 1st encounter it, and what did you see?

And I want to introduce the word legibility right now, which is, I think, going to be a big topic of our discussion in general. Bring us back to that. What was legible, what was illegible about Bitcoin when you 1st saw it? How did you 1st see it? Just tell us about it.

6. The Bitcoin Awakening

So I first encountered Bitcoin right when it launched in—

’09?

2010, yeah.

2010, yeah.

The white paper. I was in college at the time, and I internalized it as a really beautiful idea. It hits the intersection of computer science and math, economics, game theory, and the history of money, and it caused me to go down a bunch of rabbit holes learning about some of the tributary ideas.

Because if you look at the citations in the Bitcoin white paper, people had been thinking about this for a long time. It references a lot of old work. So it was fascinating, and I didn't have capital at the time, and it didn't seem like an investment. It seemed like a toy.

My next encounter with it was in 2013, and I think that's the first Bitcoin bubble that I participated in. I think there's a deep point here about the cohort adoption of Bitcoin. You almost need to lose money or be stupid the first time. Then, I find—and this was certainly true for me—you give up on it, maybe write it off: it's dead. Then when you see it come back, you start to wonder, because there are lots of bubbles and tulips and all this stuff. But the tulips did not have multiple successive bull bubbles over time.

Didn't keep coming back. Yeah. Right.

Beanie Babies did not have—

Right. There was no second wave.

—a second, third, and fourth cycle.

It's a key point.

And so there's a time-shifted cohort adoption curve if you think about the adoption of Bitcoin based on encountering it. 2013 was that first cycle for me. I was not a professional investor. I was day trading on my Coinbase account. I bought it at $200 or $300, it rode up to $1,000, and it crashed back to $600 and then slowly ground down from there.

Actually, right around that time is when I joined Sequoia, so this was right before that. It was a topic I was fascinated with, and when I was interviewing at Sequoia, part of the interview process was to put together a one-pager on a company you think we should invest in. I picked Coinbase, and I think it had 7 employees at the time. This was pre the a16z investment, so just Union Square and Ribbit.

I had a strong belief that it would be an interesting space, and this was probably the best company in that space. But after joining and after the crash, I kind of tuned it out. Bitcoin was just an asset, and there were some companies serving it, but it wasn't clear that it was this really generative software platform. And so it wasn't until a couple of years later that I reengaged after seeing the activity happening on top of Ethereum.

So what was the moment, assuming it was when you were at Sequoia, that you first thought, “I need to make a bigger bet on this ecosystem,” and that ultimately led to you starting Paradigm with Fred?

I had tuned out crypto. I still owned some Bitcoin, and I still followed a couple of Twitter accounts that would post the Bitcoin price every now and then. For a couple of years, they stopped posting the price, or maybe I missed those messages. But as it started to pick back up, I started to see those again. There were actually signs of life in this ecosystem.

And then I also noticed the activity happening on top of Ethereum. It wasn't just another digital asset like Bitcoin, but there were actually these projects like Augur, which was an early prediction market. I thought, “Okay, it's not just an asset; it's now an entrepreneurial platform.”

And so I started to spend time there, and Sequoia was very supportive of that. On behalf of Sequoia, we made a bunch of interesting crypto-related investments at the time. Honestly, I think what makes Sequoia great is its multigenerational team: for any given tech idea, there are 12 opinions, and there's this intellectual sparring to find truth. That was just lacking in crypto.

And so I ended up going outside the firm to find thought partners who could test my thinking and who I could learn from. Fred was one of those people. He left Coinbase at the beginning of 2017 and started angel investing. We ended up looking at a lot of projects together, and in that process found someone who—

At first, I'm sure you've experienced this: I sat across from him and started talking to him, and as soon as he started to articulate his thinking, I had a deep sense of, “This feels like someone I would want to work with in some way.” I definitely wasn't thinking, “Let's start something,” but maybe I'd try to invest in whatever next project he was going to do. And it was from there that the seed of Paradigm was born.

One of the often-repeated things, if you ask people about you, is they'll say, “Oh, yeah, Matt's the one partner who left Sequoia that they really didn't want to lose.” Ground that for me. What was it like to tell them that you're leaving? Did they try to keep you? How did it work?

First of all, I don't know whether that's true. I do know that it was very hard for me to leave. I remember having a very intuitive sense that when I got to Sequoia and experienced the culture—all the great personalities, the extremely high standards, the excellence that everyone strove for—I thought, “Wow, I could be here forever. This doesn't feel like a job. This feels like a place I could retire from.”

And then ultimately, I became obsessed with crypto. That's the simple answer. I really developed a strong sense that this would be one of the most important technical and economic trends over the next couple of decades, and that it was very important for humanity to develop this technology from a financial freedom, privacy, and individual sovereignty point of view.

It was the first thing that I really felt was a calling to try to make happen. So from there, intellectually, it was easy to see that this was the right call, but in terms of relationships and personally, it was hard.

So finally, we get to talk a lot about Paradigm and crypto and everything that's happening in the world today. Paradigm today is a $10 billion-plus asset manager focused on crypto. Maybe talk through what it is. How do you conceptualize what you want it to be and what it is? A high-level overview.

7. Building A Crypto Native Firm

Our founding insight around Paradigm was that both Fred and I had a shared belief that crypto would be one of the most important technical and economic trends. We believed that to invest in crypto required being what we call crypto-native. We sought to build that.

We didn't actually have a top-down plan. What that meant to us was making sure that we had the right group of folks who could navigate that uncertain future. Back to the legible-illegible point, I think crypto, even today, but definitely back then, is a frontier that's extremely illegible. It's hard to understand what is valuable and what will be valuable, and to separate noise from signal. It's a deeply technical space.

We knew that hiring investors from central casting was not going to be it. We were lucky with some of our first hires, who skewed us in a much more technical direction. Today, I would say there are 2 primary things that drive us at Paradigm.

The first is that we think of our mission as advancing the frontier of crypto. We care about investment returns too, but we're not primarily optimizing for that. I think if we advance the frontier of crypto, make crypto work, grow the pie—

Make a lot of money.

—get a little bit lucky, I think we'll also generate great investment returns. But it's really that first thing: this is an important set of technologies that really needs to exist. We think a lot of value will also be created.

The second thing is that we try to build a team that embodies being builders, not just investors. Part of this is just an aesthetic orientation. I think both Fred and I liked building things, and a lot of the early team did as well. We're oriented toward trying to figure out, on the technical or product side, where the frontier should be going.

But part of it is also that we think it's one of the best ways to invest in the space. Perhaps the analogy is somewhat like biotech, where it's so technical that you really need subject-matter domain experts to understand what's happening. That's not enough on its own because you have to mix that with a commercial sense too. But a lot has emerged from thinking of ourselves not just as an investment firm, but as a place that builds products and does research.

Yeah. The original chapter of Paradigm is so interesting because I think you raised hundreds of millions of dollars and effectively just put it all in Bitcoin. Can you tell that story? It worked out quite well.

When you put it like that, it sounds reckless. But part of the founding idea was to create a vehicle. We didn't even think of ourselves as venture capitalists. We wanted to create a vehicle that was very flexible and could participate in the value that we saw being created in crypto and contribute to that. It wasn't always clear what form that would take.

In the early days of Bitcoin, for example, there was always this question of whether you should invest in the Bitcoin startup or just buy Bitcoin directly. I think a lot of people got caught in that. The right answer was just to do both.

But I think it was very important to us to be able to participate across the stack: early-stage investments, currencies themselves, and tokenized protocols. We viewed the early fund as a barbell strategy between what we viewed as extremely high-conviction crypto monetary assets and early-stage startups on the other end.

How much did you raise? What was the initial couple of months of action?

The first fund was an evergreen fund that could hold publics, privates, and everything in between.

We raised $400 million. That itself was an interesting process. Crypto was somewhat hot the prior year, and so it was on everyone's radar.

This is 2018?

This is 2018, yeah, early 2018. It was still deeply controversial, and almost everywhere we talked to had plenty of crypto skeptics at the table. But we raised $400 million, launched in late 2018, and our plan was to start averaging into our highest-conviction positions, which were, at the time, Bitcoin and Ethereum.

Yeah. And that was, to orient people, like $3,000-ish Bitcoin, roughly?

Yeah. Basically between $6,000 and $3,000, and Ethereum was $100. In the year after launch, we raised another roughly $300 million to $400 million, so about $700 million to $800 million raised in total. Then we also have a venture fund that we raised in 2021 that was $2.5 billion, and we're in the midst of investing that now. We raised commitments for our second venture fund—about $850 million—earlier this year, or I guess 2024.

But not investing out of that yet.

Not investing out of that yet.

How about some stats on the team?

We're 65 people, mostly in San Francisco, with some in New York and some in D.C. The policy team is in D.C. What we call the investing and research team, which is the core group of folks making investment decisions and trying to figure out the future of crypto, is about 10 or 11 people.

Does that feel like the right size? That's a size I hear a lot: when you breach that amount, it ceases to be a team and becomes more of a structure.

You mean the 10 or 11?

Yeah, the 10 or 11. Can you imagine it being 20?

Well, we were 20 people on that team in 2021. In hindsight, I think it was too large. There are many different ways to build a successful investment team, and I think one of the most fascinating things is learning about how lots of other people do it. There are teams that are very large, but I think it definitely changes the dynamic of how a group of people gets to a decision.

I think at 10 or less, it is still possible to have a full-contact, mutual discussion and search for truth. The larger the room gets, the more people are self-conscious and afraid of saying something stupid or challenging someone more senior than them, or whatever. So it works for us.

It's an eclectic group of people, so not every person—in fact, I don't think there's a single person on the team who would be central casting for someone to be hired at another investment firm, for better or for worse. Everyone on the team has a unique entry into thinking about the future of crypto. We have engineers, researchers, and security experts.

What is happening that's builder and research activity that is very clearly not investing activity? What would I see if I came in and sat and looked over people's shoulders?

Very rarely would you see an Excel model. Much more commonly, a couple of people might be at the whiteboard hashing out some math. You have Georgios with his 3 screens, 200 tabs, typing code.

A lot of the work that we do is really in the weeds of the protocols and mechanisms that we think will be important for crypto. One of the reasons we spend time there is that we think they're tremendous leverage points. On the open-source side, the work that Georgios is doing—that code can be used across all of crypto.

On the mechanism side, the work that Dan Robinson, Dave White, and many others on the team are doing—those mechanisms are at the heart of protocols, such as Uniswap, that serve thousands of people, millions, hundreds of millions, billions, and trillions, actually, of trading volume, all from a single mathematical formula.

There's tremendous leverage in crypto in getting the mechanism right, and we think that will not just apply to what we've already seen, but that there'll be a frontier of new ones to invent. A lot of the team is focused on that, where those mechanisms ultimately manifest in products.

One emerging story here that I'm realizing is you as a remarkable personality type on top of volatility—both team, asset class, and returns. You're in a unique structure that's kind of like a long-term structure, but the daily marks on crypto have been completely insane. Can you talk about that experience?

You mentioned the numbers earlier. If you just look at 2 points in time—money raised, money today—wow, amazing. 12x or 13x or something ridiculous. I'm curious what the painful sides of that have been, both on the team and on the performance.

It's a super-volatile asset class. You've got a high-variance team. It seems like you are this incredibly sturdy, calm presence on top of both those things. But I'd love to understand the hard, painful parts of that for you across the history so far, both team and assets.

8. Surviving Crypto Volatility

I think the assets are honestly a lot easier, because it's just a number. Volatility is a lot less concerning when you have clarity about the long term. If you look at the underlying volatility of our belief in, say, Bitcoin or crypto broadly, there are definitely ups and downs, but it's much less amplitude than the price. I think that's comparatively easy.

The organizational effects and the people effects are much harder. You get this throughout all of crypto, actually: the easiest time to hire people in all roles at companies and at Paradigm is when crypto is hot and it's in the news. If you think about the selection function there, it's also the people who may not be in it for the right reasons or may not truly believe in crypto on a 10-year horizon, but it's the hot thing today.

That's created a lot of thrash in times of volatility. More and more—we were always a bit oriented this way, but much more today—we're very focused on zeroing in on people who truly get it and are in it for the long term.

What was the largest peak-to-trough drawdown that you've experienced?

I don't know.

Do you know when it was, if not the percentage?

When it was was definitely in the aftermath of 2022 and 2023.

Say a bit about it. What was going on? What did you have to do? Did you feel caught off guard? Was this kind of like, “Ah, another one of these. I've lived through 5”?

On the public-asset side, our mindset is point-to-point, so we're less focused on the interim volatility. A lot of our focus was on how this was clearly going to impact the entire private portfolio and the runway for those companies—their ability to fundraise, employee morale, revenue, et cetera.

A lot of our focus was triaging to make sure that the rest of these companies in crypto would survive. Then we had a healthy amount of reflection about the 2021 era, because broadly throughout crypto, and also tech, it was a very abnormal time. Waking up in 2022 and 2023, a lot of the decisions we made in 2021 were ill-fitted for what we thought the next 5 to 10 years would look like.

If I were to somehow isolate the best criticism of Paradigm, what do you think it would be? What criticism of Paradigm would you hear and think, “Oh, fuck, that would actually land”?

I think the trade-off of having a deeply technical, very building- and research-oriented team is that we inherently have strong opinions about technical futures. If you think about maybe the idealized version of an investor, it would be much more agnostic. That's a conscious trade-off that we always have to navigate.

But I think a fair critique of Paradigm would be that sometimes we're too wedded to our technical views.

What's gone the most wrong in the history of Paradigm?

The most visibly wrong thing is probably us investing in FTX. I actually don't know the right takeaway on SBF. Were there yellow flags? He was a unique and differently shaped person, but a lot of the best founders are.

The other thing is that we did identify the core issue that ultimately ended up being the problem, which is the related-party nature of the market maker and the exchange. We actually drilled into that in our diligence and were ultimately lied to.

I think venture is very hard when a founder is willing to do that, because so much of the ecosystem depends on trust, and it's hard to diligence a lie. We had no reason to think he was lying.

Was that the point of peak personal stress for you in Paradigm's history? You seem kind of unflappable, but—

Yeah, probably in the immediate days after, when we still didn't—

We were figuring it out.

—fully know what was happening.

Yeah.

Yeah.

Maybe we can go into great detail on this concept of legibility, and the relationship between legibility and what you mean by it and investment opportunity. I know this is a topic you've thought a lot about. Can you just let us in on your thinking on this? Why is this topic interesting? What do you mean by legibility? How does it relate to investment opportunity?

9. Illegibility Creates Opportunity

I think there's probably an inverse correlation between how legible a space is—how understandable it is to others—and prospective returns. Almost definitionally, the more well-understood it is, the more priced in, so to speak, everything should be.

Silicon Valley is an interesting case study, because I think it's always kind of the frontier, but in some ways the ecosystem of Silicon Valley has become very legible, too. What used to be bespoke is a bit more factory farming today.

I think maybe the frontier of AI currently remains very illegible and a super-interesting space for builders and investors.

Software as a service is no longer illegible. Maybe the phenomenon of Tiger, Coatue, and everyone else pricing SaaS multiples to perfection is just the expected outcome. I think legibility has very strong gravity.

Or, put another way, I think making things legible inevitably reduces their accuracy. There's this idea of the map versus the territory. We come up with legible explanations of things to better understand them, and to better communicate and transmit ideas to other people, but they're always approximations of the fully textured version of reality.

I think there's often a temptation—I see this especially in crypto—to make things legible too quickly. I think there's a lot of value in tolerating the illegibility. For example, a lot of people are wondering, "What's the crypto use case?" First of all, I think we can get to that, but money and finance are the obvious ones. A lot of people are wondering, "Okay, what's after that?"

I think there's a temptation toward this term Web3, for example, which I think is useful in the sense that it's an analogy that helps tech people understand what might be happening with crypto. But it also introduces a lot of incorrect comparisons, too. If you're trying to build in crypto and you take the legible meme too seriously, then you might actually build something very wrong because you're misunderstanding the underlying complexity of what's possible.

It reminds me of that amazing—what's the author's name? James Scott or something—the Seeing Like a State book.

100%.

My memory of that book is that the top-down desire to make something understandable perverts the thing. You plant trees perfectly in a line. One generation of trees is great, but all the complexity that was happening in an organic forest is lost, and the second generation of trees doesn't grow.

By oversimplifying something that's not meant to be—or even just the way cities are laid out—should they grow organically from the bottom up, or should they be designed top-down? It's really hard to design a great system top-down. That's one way to remember that book. Does that book sit in your consciousness on the topic?

Totally. Maybe the modern version of that is seeing like a meme. The ecosystem selects for memes that are very simple because simple memes can gather a lot of power and energy and spread. You see this basically on the current topic on Twitter every day: people fighting over higher-dimensional versions of memes, and the memes causing people to misunderstand what everyone is saying.

But without the meme, you don't actually get—

The discussion.

—the discussion. It's not clear exactly what to do, but the same thing happens in the investing world. Peter Thiel has this hate of buzzwords. As soon as there's a buzzword for an ecosystem—

Stop.

—run away.

Too late.

Moritz has this great line: look for the interesting, conflicted bird; don't look for the flock. I think they're all getting at this idea that the outliers are going to be unique, and if you're investing by meme, you're losing all the underlying texture and complexity.

Is some of this an appreciation of what I'll call product optionality, where the world tends to interpret what might be possible with a product through the lens of existing markets and not appreciate the ways in which a new product or platform technology just creates things that we can't imagine, and that a lot of the return comes from that unimaginable part? Is that the reason why illegible things might produce better returns?

I think some of the most foundational platforms where generative, outlier outcomes can happen like that are the most illegible at the beginning. I think the internet was an example of this. Everyone today, I think, takes for granted how obvious the internet is.

But if you think about even just the idea of Google, the pitch for Google was, "This helps you search the internet." But what is the internet for? Well, Google is a use case of the internet. There's a circular reference there. It just turned out that, over time, more and more stuff ended up on the internet and became really useful.

Let's apply this topic to today. Ground us in your worldview of crypto right now. How would you describe it to someone who doesn't follow it?

10. Crypto Has Three Stages

I think of crypto as this very low-level change in how humans coordinate.

What does low-level mean?

Low-level in the sense of a very basic building block—a change at the bottom of the foundation of the building.

Throughout history, we've always coordinated through institutions that are centralized: companies, governments, monetary systems. Crypto enables us to do it in a decentralized way.

I think it turns out that the most valuable application of that is money. I think crypto is progressing in 3 rough stages: first, as money; second, as a financial system; and third, as a kind of internet platform. I think it's coming into focus most on the first 2: useful as money and useful as a financial system. The internet platform is probably the most illegible at the moment.

But on the money side, Bitcoin is the most valuable startup created in the last 15 years. Most people don't think of it as a startup because it's competing in a highly unconventional market—the market for money. It doesn't have a conventional corporate structure, team, or CEO.

But if you step back and think about that, I think it's remarkable that it even happened in a completely new industrial organization. Satoshi dropped a 9-page white paper, wrote some initial code, and then the whole ecosystem—

Now it's trillions of dollars.

—grew up around it. It's not just the most valuable startup. I think if you told us at the start of Paradigm in 2018 that nation-states would be talking about and actually adopting Bitcoin—

In treasury.

—we would have thought you were crazy. We thought it was possible someday, maybe in 10 or 15 years. So, honestly, I've been very surprised by the growing legitimacy of Bitcoin as a monetary asset.

It's not just at the government level; it's at the institutional level. In 2017, Larry Fink called Bitcoin an index of money laundering, and now he's on CNBC once a month talking about how it's the future and it's digital gold.

Jerome Powell, at a conference the other month, was asked whether they would ever adopt Bitcoin or whether it was a threat to the dollar. He said, "No, it's not a threat to the dollar; it's just digital gold." Even the acknowledgment of digital gold, I think, 5 years ago was deeply contrarian.

If you think about the adoption of any new monetary asset, it is this process of building acceptance and legitimacy. That is the actual KPI. Price is an output of that, but the primary input is how many people actually believe that this might be possible.

Let's just linger for a few more minutes on Bitcoin as money. Why is that important or interesting? What's its market cap today? Like, north of—

Just under $2 trillion.

So let's say it's one of the biggest companies in the world in some way, but money separately. It feels like if you stacked it up against Amazon, Google, Microsoft, and the other multitrillion-dollar assets, it's the most maligned ever. Aside from maybe Satoshi himself or herself or whatever—themselves—it doesn't feel like it has these sterling champions along the way. There are some shady champions, or shady characters, along the way.

Why is it valuable or interesting that we have it, from your perspective? It's a basic question, but it seems important to get your answer on.

I think the idea of money that is non-sovereign is valuable. I'm not someone who believes that crypto or Bitcoin should replace all fiat currency. I think they actually coexist quite nicely, and the rise of stablecoins is a great example of that.

But I think it's very useful to have an alternative. We used to have that in the form of gold, and people adopted gold for that purpose as a hedge against hyperinflation, fiscally irresponsible spending, and so forth.

Bitcoin's not just that. It's also something that can help individuals and families preserve wealth in some of the least safe places on Earth. Whether it's people escaping Ukraine or Venezuela or other nations in distress, crypto has started to play a much bigger role there. So, just from a humanitarian level, I think it's a very valuable tool.

Gold solves some of the issue, but it's physical, heavy, and inconvenient. There are lots of reasons why a digital version is superior.

Do you think that it's valuable as money, or just as a store of value? Money implies a means of exchange, a unit of account, and a store of value.

I think today it's primarily a store of value, or maybe more accurately, a bet on a future store of value. Over time, it may find some transactional use, but I don't think that's necessary for it to be really useful and interesting.

Do you think that Powell, Fink, and their ilk understanding it as digital gold is extreme legibility, and therefore the available return in Bitcoin itself relative to some other options is quite low? It's sort of won in some sense.

It has one in a way that's exceeded what I would have predicted a handful of years ago. But I think we're still early in the degree to which that really is understood, despite some of the commentary around it.

One rough way to think about the adoption of Bitcoin is: how many people around the world, weighted by dollar amount, believe Bitcoin is something they should own? Then there's the other axis, which is what percentage of their portfolio is in Bitcoin?

I think we're getting to a point where a lot of institutions are starting to think, "Okay, maybe we should get off zero."

Maybe it's 1% to 2% to 5%. You even have Fidelity recommending baskets that have that weighting. I don't think we're going to get to, or should get to, people being broadly 100% Bitcoin, but I think it'll be much higher than where we are today.

So let's go to the second basket, the programmable financial system, which I think is the term you used. If Bitcoin is still young but more mature—people probably have some legible conception of it as digital gold or whatever—what about stage 2 of a new financial system? Where are we in that story? What's possible today, and what gets you excited? Just your commentary on that, and then we'll go to the most illegible part, or the frontier.

I mean, one remarkable thing about stablecoins, which are, for the most part, dollar-denominated tokens pegged to the US dollar, is that they live on blockchains. I think over the past few years, stablecoins have grown to over $200 billion on-chain, and they're starting to be used in real use cases outside of crypto. They were originally conceived as a way to facilitate crypto trading. It's how you on-ramp to certain exchanges abroad and get dollars in and dollars out.

But now companies like SpaceX are using stablecoins to move money around, and a lot of others will have this corporate treasury use case where they'll generate revenue in some country, let's say in Africa or Latin America, and want to repatriate those dollars back to the US. They'll use some local exchange to trade the local currency for stablecoins, and then they can just send those stablecoins over the wire. That's ultimately a cheaper FX transaction than doing it the other way.

Yeah. Stablecoins are so interesting because it's like a perfect control experiment. It's a dollar. It's not meant to replace, be better than, or outperform a dollar. It's just a dollar. So really, what it is in some pure sense is the technology part—the programmability, et cetera. What are the key core features of the technology now that we've abstracted away a price consideration? What are they? What's about them so important? What does the industry structure of stablecoins look like?

It's a payment rail that's 24/7, global, and programmable. I think those are pretty key. I think it's amazing that we live in a world where the internet is 24/7, but payments close over the weekend. In some sense, this is just modernizing finance and payments in a way that we're already used to with the internet.

A lot of the fintech innovation has actually been product and go-to-market innovation on top of antiquated backends. You can think of crypto as building a new finance backend from the ground up. I think one way to view the programmable financial system, or one frame on it, is as a two-sided market between assets and programs. Every financial activity we undertake through a traditional institution or through an app is some kind of program. There's logic that governs who pays whom, and maybe there's an escrow or maybe there's a payment condition. Think insurance, mortgages, or payroll.

All of these things are payments with programming on top of it in an abstract sense, and all of that is possible to build on these new crypto rails. But there's a bootstrapping problem because most people don't trust or use the rails. There aren't a lot of assets there, so there's this bootstrap between assets and programs.

I think what's interesting about stablecoins is that we've been bootstrapping crypto-native money for a while—Bitcoin, Ethereum, Solana. With stablecoins, we now have a very widely used monetary asset, to your point, without any of the volatility or crypto baggage. I think for the first time, we're starting to see people build all these different ways you can program and use them. Ten, 20, or 30 years from now, it seems inevitable to me that basically all of our financial transactions will run through rails like this in some way.

What's a good example of a creative way that you've seen stablecoins be used that wouldn't have been possible in traditional finance?

I think a recent and topical example is prediction-market platforms, which are contracts that say you deposit X dollars, and if X person wins the election and you bet on that person, you get paid. If the other person wins the election, you don't get paid. That logic is represented in a smart contract. There's a crypto-based way of resolving that event, and so that's an example of something that wasn't possible before.

It self-settles—

Yeah.

—based on the outcome.

Yeah.

If we shift into the third gear, what feels to you like the most fringy part of crypto today? Now everyone's heard of Bitcoin. Lots of people listening to this have heard of stablecoins or used them. What do you think most people listening either won't have heard of or won't use, but you are interested in?

Well, I think a really interesting frontier, which is still super fuzzy, is the intersection of AI and crypto. In a lot of ways, if AI is intelligence, crypto is a way of coordinating intelligences, and that's really what money is. It's a database of value, and we shift it around. That's the coordination mechanism of capitalism, say.

It seems to me that I have a hard time visualizing AI agents, if they really take off, primarily transacting through traditional systems. Crypto is basically tailor-made for computer sentience to use. Right now, a lot of people are focused on the idea of just agents paying each other or paying for things on the internet. But I think an interesting step further is that you could think of crypto as ways to construct markets for participants to engage in.

If you wanted to run some kind of auction or allocate a scarce resource through purely programmatic means, crypto is made for that. I would envision a world in which AI agents are basically constructing more elaborate ways of coordinating with each other beyond just payments.

When you see something like what's going on with AI, and you've built a firm where the mission is to push the crypto frontier forward, how do you weigh the temptation of, "Wow, here's a new enabling technology, a general-purpose technology. Maybe we've had 25 of these in human history. Here's a new one. What if this one's bigger than the one I'm working on?" And not wanting to go jump feet-first into the biggest enabling general-purpose technology—is that a consideration that you've had?

Well, one, we have a team that is very curiosity-first. Part of our process is that everyone on the team can spend time looking at and investigating whatever they want, and so we have plenty of people who are super fascinated by AI. We actually spent some time going down that rabbit hole exploring it, and ultimately decided that, one, we're definitely interested in the intersection. I think right now might be some of the most interesting times in that space.

But also, I think there are extreme returns to specialization, and there's also a sense in which AI is something everyone's working on, and it's going to be fine with or without us. I think crypto is a very important technology that needs to coexist with AI. To your point, there aren't a lot of great champions, and we believe it's very important for us to work on it to make sure that it actually happens.

Can you give us your perspective on comparing crypto to other technology infrastructure build-outs that you've studied historically, and the kind of boom-bust nature? I'm thinking here of Carlota Perez. The fact that there are speculative manias could actually be a great thing because they lay capacity for the next generation of entrepreneurs to build on, whether that's fiber in the 1990s or something.

It seems like, for a while, crypto had so much incoming interest and builders, and a lot of that was driven by the very public pricing of the underlying assets. A critic might say, "Look, this thing's just a casino. It's unregulated gambling on ideas." If you compare today's pipes and infrastructure in crypto—I'm a couple of years stale on this, I'm realizing. I remember being super interested in all this detailed technical stuff in the last cycle, and then this cycle I kind of lost touch of it.

I'm curious: Has the speculation brought sequentially higher and more valuable infrastructure? Has the boom-bust been a good thing in the traditional sense of boom-bust cycles, or is it something different in crypto because it's just so speculative at times?

Yes, I think the speculation has been productive. You could debate the ratio of speculation to the utility that's been created and compare that across trends, and crypto, I think, is definitely more speculative than typical. But that's in part because assets that one can speculate on are part of the core thing being enabled and the core form factor.

Within crypto, I think of speculation in 2 ways. One is that it's actually very core to the adoption of any new monetary asset, because to believe that other people will eventually accept some asset as money is inherently a speculative act. You can have fundamental reasons for believing that because the supply is fixed or it has certain technical features, but ultimately, your belief hinges on belief in others.

I think that makes people uncomfortable sometimes, and I see a lot of people very confident that Bitcoin, for example, cannot possibly be money or gold. I think it comes from this place of an inherent distaste for speculation versus trying to inspect it more carefully. Then, yes, there's the Carlota Perez idea of speculation as a bootstrap, and I think we have seen that play out productively in crypto.

For example, a lot of the stablecoin activity that's possible now—$200 billion in stablecoin assets, lots of stablecoins being used outside of crypto, whether it's cross-border payments, access to USD in countries that struggle with their local currency, corporate payments, and so on—is enabled by the infrastructure work that was done over the last 2 or 3 years. If you look at Ethereum L2s like Base or Solana, we have stablecoin transactions that are extremely cheap and fast now. Whereas in 2017 or 2021, those same transactions would have been $10 or $100 to send as a mainnet transaction. So I think we're in a completely different place on the infrastructure side now, mostly invisible to the broader public, but manifesting in real applications like stablecoin payments being possible.

The answer to this is sometimes easier when you get away from the U.S., and these things have become very useful, whether it's El Salvador putting its treasury in Bitcoin, cross-border payments, or storing value in places with hyperinflation. I really want to press you on your view of the mission for Paradigm and its support of the crypto ecosystem, and what I'll call the unfinished business. You personally, and probably lots of people on your team, are now at the point where you don't need to do this. Sure, maybe you earn great returns, but it's pretty clear to me that that's not your motivation. It's a byproduct of the work you're doing.

You talked a little bit about the mission of pushing this crypto frontier forward, but I'd love to get more into asking why. Why does that matter to you, and how has that answer evolved over time? What is the why today relative to what it was in 2018? I'm sure lots of things in 2018 that you might have said have happened. You even said some of the things that have happened you would never have predicted—governments using it in their treasuries, et cetera. So, orienting today, at the beginning of 2025, why? Why are you doing this? What's the point?

11. The Case For Economic Freedom

I don't want to come off as if I don't care about investment returns or being a good steward on behalf of LPs. But I do think the mission that animates us is making sure that crypto technology can succeed in the world. If we look at the internet, the idea that we have end-to-end encrypted messaging today—WhatsApp, Signal—I think is a contingent fact. There are many possible universes in which we don't have that. It's not something that was inevitable, and it's something we could possibly lose, or have come close to losing, many times.

Putting the political dimension aside, there's a lot of discussion about the idea of free speech and censorship. I think these are some of the questions of our time, and that's just on the side of information and transmitting information. But I think if we look at the fact that there is no free speech without economic freedom, because you can use economic violence, country to country or country to citizen, to punish speech, I think we saw this in the case of the Canadian truckers, if you remember that incident.

I think economic freedom is one of these underrated frontiers where we are slowly walking our way into possible totalitarianism, in terms of how much financial control our governments have over people. Everyone in the U.S. looks at China and says, “That looks like a very—

Patrick O’Shaughnessy

Dystopian.

—dystopian system.” Social credit scores, full visibility into finances, one system. I don't think they fully realize the same thing is happening in the West. So I think it's one of the more urgent problems facing freedom in the West, alongside the speech issues.

A common characterization is that only criminals need encrypted messaging, or only criminals need privacy in their financial transactions. I think it's increasingly clear that this is something that affects everyone, and it's not singularly political in the sense that it's not a right-or-left issue. For example, I think in the aftermath of the first Trump presidency, a lot of people in the MAGA world lost bank accounts. Now, with the Republicans in power, a lot of people on the left are worried about people being able to access abortions and get proper healthcare without financial surveillance of their payments. These are issues that touch on all sides and this ultimate question of individual freedom and sovereignty.

Patrick O’Shaughnessy

I like your framing of us looking at China and thinking one thing. Can you detail that a little bit more? In what ways do you observe financial and economic freedoms being under attack or under duress in the West, most notably?

I think the most obvious recent example is the set of debankings that have happened: Operation Choke Point 2.0, which Nick Carter and the crypto community have done a really good job cataloging. There was also Operation Choke Point 1.0, which happened prior, primarily with marijuana and gambling.

Patrick O’Shaughnessy

Can you describe what those things were?

They're ultimately the government saying, “These activities are technically legal, but we don't like them.” And so they apply various kinds of bureaucratic pressure onto the banking system to refuse those people as customers. I think the law should be the law, so if some activity is illegal, then let's make it illegal. But when activity is legal, I think it's incumbent on the system to enable that legal activity to happen, should it want to happen.

I think of crypto as much like we would look at the Chinese control of media—as something distasteful to us in the West—and the free internet as something that seems more moral. The internet is a very useful check on that type of totalitarian control because, through VPNs or other technical techniques, people in China have access to the real internet and can find out information should they want to. That alternate system doesn't exist yet for finances, and I think crypto is building that.

At a minimum, I think it's a check on the degree of overreach of the traditional system, but I think it's also a very important alternative. In the long run, I think we also get more efficient systems, more innovation, and lots of positive effects. It's not just a political defensive point, but that political dimension is a very important part of what's being built.

Patrick O’Shaughnessy

I love the answer. Connecting it back to you and the team, what is the story behind why you personally care so much about this? It's a great answer. If I read that answer without an attribution, I'd be like, “Yeah, it makes sense.” I never feel like, for people really pushing the frontier as you guys have, a good rational answer is enough. What is the story behind why you believe everything you just said so deeply?

Well, I'm not fully sure. I suppose I've always had somewhat of a skepticism toward authority. And so when I see authority exerting itself, it does make me wonder, “Is this the way we want the world to work?”

Patrick O’Shaughnessy

Where did that come from? I'm going to chase this to the end.

Ugh.

Patrick O’Shaughnessy

What early authority figures gave you that? What experiences of authority do you remember as potentially questionable?

I don't fully know, but my hypothesis would be possibly my mom or parents. That makes it sound like I have some bad relationship with them or something, but I think I intuited early on, in really small-stakes situations—not in a way that matters—the trade-off between agency and authority. Now I see it on the other side as a parent.

I'm sure every child and every parent ends up in some situation where the child feels like it's unfair, and maybe it probably is unfair from some objective point, but it's the parent's call. I think that can make one skeptical of any system that allows one party to coerce another. I think I developed very early aesthetic and intuitive skepticism of authority and the ability to coerce, and I have a very strong mindset that one should be able to choose one's own path.

Patrick O’Shaughnessy

If I could bring your whole team here—the investment research team—do you think that any of them would have a drastically different answer on their motivation for why they're devoting their lives to pushing this specific frontier forward?

I think everyone will have different motivations, but I do think there's a shared underlying vector in this direction. A lot of us are working on it also out of raw curiosity. It's just interesting, and I think you have to be really in it to fully experience this because, from afar, the speculative noise is much louder. But it is just breaking down ways that humans coordinate into their most atomic constituent parts and figuring out how to enable better and better versions of that in different, unique combinations. I think it's just a fascinating frontier.

Patrick O’Shaughnessy

What are the primary colors of those interactions, the way that people coordinate?

I think a lot of crypto is this new kind of security technology that can secure different types of human coordination. And one interesting thing to look at is that when people think about security, they think about preventing something bad. But security is also a huge enabler of things that are good.

Countries with strong property rights do a lot better than countries with weak property rights. If you look at the microscale and just think about something like physical retail, we have these big-box stores today, like Walmart, that probably wouldn't have been possible without many different kinds of security innovation. For example, the idea of a cash register that tracks all of the payments and locks the drawer so that you can trust the cashier not to steal your money.

And in a mom-and-pop store, that's actually a problem. For a long time, the only people who could operate the cash register were people in the family that ran the store, because those were the people you could trust. Or think about security cameras that watch parts of the store, allowing it to be much bigger than what the cashier could look at themselves. Or tags and security balusters that automatically detect when you've taken something out of the store without paying for it.

These are all security technologies that prevent something bad. And you could say, "Well, you could just make shoplifting illegal." You can do that, but the cost of enforcement is just too high. So one thing that security technologies do is reduce the cost of enforcing these things that you don't want to happen, thus enabling more GDP and more economic activity. And I think a lot of crypto works by removing the intermediary and creating security around contract rules that you put on-chain, lowering the cost of enforcing these transactions that you want to be able to facilitate.

Patrick O’Shaughnessy

If you think about your Walmart analogy of all these security technologies that come together to enable Walmart, which is this amazing thing for the world, what missing pieces are there? Where are we not yet secure that you wish we were, and that maybe crypto could solve in the more near term?

One thing that comes to mind is the emerging-markets use case, and I think a lot has been said about that: access to a great currency, whether it's USD or some other cryptocurrency, rather than your local currency hyperinflating. But I think it's underrated how stablecoins could be useful to U.S. consumers. If you go on the Chase website and look at the interest rate paid to Chase savings accounts, I think it's—

Patrick O’Shaughnessy

It's crazy.

Zero point something percent.

Patrick O’Shaughnessy

Yeah. It's crazy.

And this is with Treasury rates at 4% or 5%. So I think the incentive for retail banks to pass along that yield somehow is broken. It's a very easy proposition to say, "This is a stablecoin." When we get stablecoin regulation, there will be much stronger controls on the asset base that can back them. It will be very safe, it's not a fractional reserve system, and you'll get basically the full yield.

That's a strong value proposition for everyone in America who has savings, rather than letting someone else earn all the spread. So I think that's one area where I'm excited about solving an existing inefficiency.

I'm probably most excited about exploring what might be newly possible. One abstract framework is this idea that permissionless platforms enable organic, bottom-up innovation and an explore function that doesn't currently exist. I think YouTube is a very useful analogy. It used to be that cable companies controlled content programming, and you had 50 or 100 channels, with some sort of editor figuring out what people wanted.

With YouTube, we basically explored every possible permutation of human entertainment and discovered all these new verticals, whether it's unboxing or watching other people eat, and so on. We're probably not done. We're probably still going to find new ones in the future, especially as the culture changes.

That same thing has not happened in the financial space. There's such a high fixed cost to financial exploration. Either you have to start a company to list a new futures contract, or you have some startup costs around it. When crypto rails are more mature, I think we will see this breadth-first search of all kinds of different financial use cases that weren't possible before.

I want to talk about regulation and politics as it relates to regulation. How would you describe the state of crypto regulation today? What do you hope changes? What might change? I don't have a good enough sense, other than that it's drastically different, how the public talks about this, how governments talk about it, and how financial firms—the Larry Finks of the world—talk about it. We haven't gotten Jamie Dimon yet, but maybe we will.

What is the state of regulation, especially here in the U.S., from your perspective? Maybe touch on the global picture as well. What is its trajectory, do you think?

I would say the last 5 years of working in crypto in the U.S. has been fairly radicalizing when it comes to the competence of our bureaucratic institutions. I think many different people come to this insight from different paths. COVID and the CDC were one example for people.

But seeing the behavior up close is very illuminating, because the Aaron Sorkin, The West Wing vision of government is super-competent, smart, funny people with the best of intentions. That has not been our experience thus far. I think some of this is going to become public in hearings around the debanking and other things that have happened.

I am very excited about the shift in sentiment on these political dimensions. I think we're likely to enter an era where regulators view this as the enabling and innovative technology that it is, rather than thinking that anyone who touches it is probably a criminal.

If you think about the idea of custody, it's such an interesting issue for me. Early in my exploration of crypto, there was always that phrase, "Not your keys, not your coins." If you're not self-custodying the Bitcoin, to keep it simple, it's sort of defeating the purpose of the thing itself. So if you're keeping your money at Coinbase or something, you're not really participating in this radical new system.

But it just seems like the tendency of humans is toward more centralized custody. I want to be able to call and yell at JPMorgan when something goes wrong. I don't want to have to be the one who deals with it. And what if I screw up? I want a throat to choke. Can you talk about custody and how you think about the spectrum of what's important and what it should be?

Everything you just articulated is fair and right. There's a lot of value in people providing services around crypto custody, and most people don't want to have to be responsible for their own key material. But I think the important thing is to have the option.

The option to exit is a really important check on the system. This is true in the information world too, where most people are going to use Gmail and Outlook for their email. But if you want to, you can use ProtonMail or run your own mail server. That option is important at the edges or in really unusual scenarios. I think that insurance policy is just a very important thing to have in the system.

This has been incredibly fun. Thank you for doing it with me. I know this is not something you look forward to doing, but I've always known what was going on with Paradigm from afar, and I feel like I understand it—and you—so much more now. It makes me much more excited about the next 5 years of things I see you guys do. I feel like I'll have an appreciation for how that might have happened, which is so cool.

My thing is just finding people doing their life's work, and I feel that this is it for you, or at least has a high potential to be. So thank you for doing it with me. My traditional closing question for everyone is: What is the kindest thing that anyone's ever done for you?

Two things come to mind. One is that—and maybe this is trite—but my mom was a PhD in computer science at Caltech under Carver Mead very early to the what would become the parallel computing revolution, and eventually a professor at Yale and BU. She dropped all that to raise me and my brothers.

For a long time, I wasn't even aware that there was another option. And then, for a long time, I was confused by that because she was at the beginning of something so interesting. But now, especially as a parent, I understand it much more. I do think it was the ultimate act of kindness, and my brothers and I tremendously benefited from it.

The second, I think, is that one of the kindest things anyone can do for anyone else is believe in them and raise their future ambitions. Doug Leone did that for me. Many other people did as well, but especially Doug. He had no need to do that, and I'll always be grateful to him for it.

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