🎙 "There is No Political Voice to the Millions of Crypto Users in the US:" Ryan Selkis
In this week’s episode we speak with Ryan Selkis, CEO and founder of Messari, one of the most popular crypto data and research companies. Ryan has been very vocal about crypto regulation in the US. We talk about how he believes the infrastructure bill was ...
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In this week’s episode we speak with Ryan Selkis, CEO and founder of Messari, one of the most popular crypto data and research companies. Ryan has been very vocal about crypto regulation in the US. We talk about how he believes the infrastructure bill was a catalyzing event for the whole American crypto ecosystem. He believes while there are think tanks and corporate-led lobbying groups, the space is missing a grassroots entity that gives a voice to the millions of crypto users in the US that so energetically came to life against this bill. That’s why he’s creating a group to help mobilize voters in the crypto community to support pro-crypto candidates.
We go into some of the predictions for 2021 that Ryan made in his end-of-year report. He believes Bitcoin at $100k by the end of the year is still possible, but he believes the more interesting asset is Ethereum. He says that as a consequence, he has increased his eth exposure so that he’s no longer underweight ETH relative to BTC. Ryan also talks about his DeFi investments and how he still can’t quite wrap his head around NFTs.
We also talk about how he got started in crypto by becoming an independent analyst, breaking the biggest story at the time, the Mt. Gox bankruptcy. We go into his transition from investing in DCG, to working on the operations side of CoinDesk and then starting Messari. Finally, we talk about what’s next for the crypto data company, and how it is placing much of its focus on DAOs, to both service these decentralized organizations, and also decentralize parts of Messari itself.
The podcast was led by Camila Russo, and edited by Alp Gasimov. Transcript was edited by Owen Fernau.
🎙Listen to the interview in this week’s podcast episode here:
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Camila Russo: So I definitely want to get to your background and how you got into crypto as I usually do with my guests at the start of the show. But seeing how we have such important news these couple of weeks, and how you've been really outspoken about it, I think it's good to start out with the US Infrastructure Bill that just passed the Senate yesterday. First, I want to bring listeners up to speed on it, if you can just kind of walk us through why this bill is so important to crypto?
Ryan Selkis: Sure. So the quick background is there's a bipartisan infrastructure bill, it's a cornerstone of President Biden's agenda to pass. It's, I think 1.2 trillion in total as part of the spending bill and then this infrastructure component is a sizable piece of that. And there is one provision that was included over the weekend, just a couple weeks ago, that essentially included crypto not as part of the infrastructure bill but as a tax offsets. So how some of these provisions were going to be actually paid for in the broader infrastructure bill, an important component was figuring out what the pay-fors were going to be from different new taxes or new fees, etc.
And one of the areas that the Senate identified was cryptocurrency tax enforcement in the US, which, I don't know how they arrived at that assessment or how they think about scoring that from a budget impact standpoint. But generally speaking, I think most people believe that the way that the language was written and in terms of feasibility of the policy as written, it was just technically unworkable. They had expanded the reporting requirements for crypto brokers, and included such an expansive definition of the term ‘broker’ that it would have basically applied to everybody that's facilitating crypto transactions. It could have been peer-to-peer validators, anyone participating in a proof-of-stake system, any developer that's helping to create and advance protocols that are doing the same in DeFi.
“They had expanded the reporting requirements for crypto brokers, and included such an expansive definition of the term ‘broker’ that it would have basically applied to everybody that's facilitating crypto transactions.”
And there was wholesale industry support for improved language, since scrapping the provisions outright was not really an option because it was a critical component according to the CBO that scored this, again we don't know how, to actually pay for the provisions and spending bill.
So there was an amendment process with two different amendments that emerged over the course of a week that were also bipartisan. And finally, those two parties did reconcile and come forth with an imperfect, but workable amendment that wouldn't completely shut down the US crypto scene. And ultimately, because of the Senate procedures, and how far along the votes already were, it was blocked by a lone Senator, 87 year old senator from Alabama, that objected not because he opposed the provisions that were being put forth, but rather, he wanted to attach a defense spending amendment as a condition for not blocking the otherwise bipartisan amendment that would have fixed some of these really deep problems yesterday.
A lot of folks have been up in arms, justifiably so, about how this has gone down, what it means for the industry. I'll leave a lot of that to the smarter folks on the policy side at Coin Center and Blockchain Association, and folks can kind of follow along with some of the crypto lawyers that have been outspoken about this.
But the long story short is we've got a missing leg of the lobbying stool and DC political machine for crypto right now, and that's a grassroots member-led advocacy organization and lobbying group. We have Coin Center, which is a think tank. We have the Blockchain Association and a couple of other behind the scenes, corporate sponsored, lobbying groups. But there is no voice to the tens of millions of crypto users in the US that, frankly, I don't think the Senate or Congress in general really appreciated until this past week.
“...there is no voice to the tens of millions of crypto users in the US that, frankly, I don't think the Senate or Congress in general really appreciated until this past week.”
And we saw some of that swarm descend on DC virtually, especially on Twitter, thanks to Crypto Twitter, and really, I think those Senators kind of recognized they kicked the hornet's nest. And I think one of the paths forward here as an industry is not to start things from scratch or undermine or do anything but invest more heavily in some of the groups that are working like Coin Center or Blockchain Association.
But we do need to add that kind of third prong of attack, that third leg of the stool to activate some of the more grassroots efforts across the country and in particular focus on primarying or competing with crypto candidates in every level of federal election from here on out. Because the one thing that politicians respond to is whether they get reelected.
“But we do need to add that kind of third prong of attack, that third leg of the stool to activate some of the more grassroots efforts across the country and in particular focus on primarying or competing with crypto candidates in every level of federal election from here on out.”
CR: Okay. So is that why you said you're looking to start this new organization, Digital Freedom Alliance, is that what this additional tool to work on in Washington is about? A more grassroots community-led organization?
RS: Yeah, that's exactly right. And whether it's something new, or whether there are other folks with political or lobbying experience that are already working on smaller initiatives that we or I in particular can help back, support and throw gasoline on the fire, happy to do that.
The premise though, is that we all seem to collectively recognize the power of the broad American crypto community. And there just needs to be a channel for that community to actually have its political voice heard. Money is not going to be the problem. Enthusiasm, certainly is not going to be the problem based on this past week. So how do you channel that in the right way and do the impossible, which is align all of the warring tribes in crypto around one advocacy group? Basically it's going to be very black and white and I’ve compared it to another political party, right? That is bipartisan, almost a questionnaire or crypto purity test. Are you on our side? Do you even understand the technology? And have you made steps to get informed about this entire ecosystem or haven’t you? And we're going to support candidates that have done the work, or you’re the opposition.
“And have you made steps to get informed about this entire ecosystem or haven’t you? And we're going to support candidates that have done the work, or you’re the opposition.”
CR: Okay. So is the idea that this group will help mobilize voters in the crypto community to support candidates that are pro-crypto with funds and votes?
RS: Correct. I should add one caveat here, which is that I think that this is a catalyzing event for the whole American crypto ecosystem, particularly the individuals that they want to get involved here. But a lot of this ideation was happening in real time, so I don't want to pretend that we have an entire organization that's already been built. Everything from the name, the general structure of an entity like this with what the core ethos and tenets and mandates would be, all of that was more or less happening in real time based on, be it both public feedback and some of the private conversations that I was having as a result of the pickup of some of these tweets of mine that were kicking the hornet's nest.
Impossible to Comply
CR: It certainly seems that it's something that's just very, very necessary and needed in Washington. Judging from how quickly everyone in crypto mobilized like you said, regardless of the different factions that there are in this space, of course everyone can agree that crypto needs friendlier regulation for the industry to continue thriving in the US and this bill does the opposite.
And to get into more of the specifics on what the actual threats that this bill presents to crypto, is that it’s essentially requiring, like you said, a very broad array of people, because this definition of broker isn't so well defined, even a crypto developer to pay taxes on transactions. But the implication here is that they also have to collect a lot of information on users on cryptocurrency platforms, which, in the case of DeFi, makes decentralized applications really just unworkable. It makes it impossible for DeFi applications to really comply with this regulation, because of the way that they're built, there's no information that developers can compile from their users.
RS: Yeah, and I think that's the issue. It's not that this was a new tax. It's not that this was a surcharge on exchanges. It's not that we're asking for preferential treatment from a tax policy standpoint. It was quite literally an impossible ask from the language of the bill that is now subject to interpretation from whoever is ultimately going to be responsible for the rulemaking and how this gets implemented.
But you can't just assume that the regulators will get it right during rulemaking because the statute says what it says. And right now, the language is just completely unworkable technically, and its most extreme case could push developers and some of the top project contributors overseas, which is counterproductive most likely from a tax policy standpoint anyway.
So I think there's still paths to reconciling this, because the bill now has to go to the House of Representatives. And I think that's where most of the attention is going to be focused the next couple of weeks is in reconciling some of the gaps here. And of course, there’s already a bipartisan letter in support of implementing fixes even to the amendment that was proposed at the 11th hour by the small group of Senators.
Still Hope
CR: So to be clear, hope is not lost? There’s still the House, they're still the Supreme Court, if it comes to that, it's not like crypto in the US is ending right now?
RS: Well, no. The good thing about the American system of government, as dysfunctional as it is, is it's very slow. So this isn't like China. China is not necessarily a place that I would want to live. But the CCP is very effective when it cracks down on something and we've seen that with the crackdown on Bitcoin mining and the exchanges. And frankly, they're gearing up for the rollout of their own e-money, the DCEP currency and payment system.
“The good thing about the American system of government, as dysfunctional as it is, is it's very slow. So this isn't like China.”
On the other hand, we have some of the shenanigans that we saw this week, which slow things down and leave plenty of time for well-informed folks, not only on lobbying ends to do their job, but also for some of the staffers that actually have done the work and understand how these technologies work to fix some of the errors that were passed in the last minute here.
Moving from TradFi
CR: It's a system where there are more checks and balances, and opportunity to correct course, so that's a positive for sure. Okay. So, now back to your story: like I said in the beginning, you lead this very well recognized company, you founded Messari, and you've been in crypto since 2013, I understand. But I think not many people realize that you were on the traditional finance side before that. So I’d love to learn more about your background, where you came from and what got you interested in crypto in the first place?
RS: Sure. So I've talked about this a little bit. I actually wrote a thread on it earlier this week. But I did start in investment banking, and then venture capital out of school, realized pretty quickly that I wanted to be on the other side of the table for all the entrepreneurs that I was cold calling back then as a junior VC associate and started my first company in in 2011, focused on the payment space, but well outside of crypto. That happened to be my first introduction to Bitcoin.
That summer, there was something that some people might remember, the debtsequester in the US, which was another example of complete gridlock and dysfunction in DC. And at the time, Congress had a similar issue in the spending bill where they were going to implement across the board cuts to every aspect of government spending unless they could reach some type of decision by X deadline, and it's called the debt sequester. And of course, they blew through the deadline, and then they moved it back, and then they essentially just ignored it forever. So there were no real consequences for the dysfunction.
And after that time, S&P downgraded the US debt for the first time ever from triple A to double A. So at the time, there were a few ways to play that if you wanted to bet against DC, and bet on ongoing government gridlock and dysfunction. You could buy gold, which is the classic gold bug thesis and hedge that we're spending too much money or running up too much deficits. You need hard money. And there was a lot of overlap between those folks and the early Bitcoin crowd.
Then there was, you could short the dollar or short treasuries in particular. Or you could buy Bitcoin, and Bitcoin was kind of the new player in the block. At the time though, you had to basically be a developer or someone that really understood the tech to get involved, and I didn't pay that close attention to it, unfortunately. Because it just seemed a little bit too wild west and under the radar to really spend time understanding.
Shame on me. Fortunately, two years later, I got reintroduced to Bitcoin, Fred Wilson invested in Coinbase, Winklevoss twins came out with their ETF proposal, and I was winding down that same startup. All of a sudden I had some time on my hands, and kind of fell down the rabbit hole. So I became an independent analyst, and broke the Mt. Gox story back in 2014, so pretty quickly got to know everybody for better and for worse within crypto.
That ultimately led me to join Digital Currency Group as part of the founding team there, where I was working on seed investing for the first couple years. And then after we built out the team and raised a round of funding, I flipped back over to the operating side of the business, when we acquired CoinDesk, and I ran that restructuring.
So between those kind of first few roles within crypto, and then obviously starting Messari, I might be one of the only people, if not the only person in the world that's added all four of those seats at the same crypto information table between actual analyst, investor, media operator and now building data products.
“I might be one of the only people, if not the only person in the world that's added all four of those seats at the same crypto information table between actual analyst, investor, media operator and now building data products.”
Breaking the Mt. Gox Story
CR: That's super interesting. I'd love to just go back to you breaking the Mt. Gox story because you glossed over that. But I think that's so interesting. It was the biggest story in crypto and blockchain at the time. And you had this independent blog, I guess if it was today it would be maybe a Substack newsletter or something. But how did that happen? How did you get that story? As a reporter, I'm interested.
RS: Yeah, I mean, this has happened a few times. I mean, it actually just happened yesterday, because I actually knew about 10 minutes before Senator Shelby actually blocked the vote that he was about to block the vote, and I was furiously trying to get the details right from the source that I had in DC to actually get that information out before he actually took the floor. And unfortunately, it was too late.
“I actually knew about 10 minutes before Senator Shelby actually blocked the vote that he was about to block the vote, and I was furiously trying to get the details right from the source that I had in DC to actually get that information out before he actually took the floor.”
But I think because I've never been an actual journalist and I don't have the same rules or editorial oversight, I guess, maybe self-preservation skills, if you're being a cynic, to not shut up about those things, that there's been a few times where I've had information like that fall into my lap and just acted on it. So Mt. Gox was certainly the most extreme example. But that was an instance where people knew that I was well connected and that I had a small platform, and more importantly, that I would run with it and that they can trust that their identity wouldn't be leaked, as a source of those documents.
Because remember, at the time, CoinDesk was only about six months old and there wasn't really any kind of crypto media to speak of. So I was probably the closest thing to a friendly outlet that could have gotten that out in the wild and gotten it out quickly. Because there was a real time sensitive element to their announcing bankruptcy, basically within six hours, I think was when the market would have opened in Japan.
Investing as Business Development
CR: Oh, okay that’s so interesting. Alright. And then so, back to the third part of the story, you got into crypto through investing in different startups, and then with the Digital Currency Group, and then, getting on the operating side of CoinDesk. In this period, and through now, you've invested in over 20 startups. I'd love to get some of the lessons that you've learned and what do you look for in founders or in projects when you're considering whether to write a check?
RS: Sure. So to clarify, there's been different phases of my investing. So when I was investing in DCG, this was 2014-2015, that was a lot of equity investments, a lot of infrastructure, so some of the early global exchanges that are now kind of regional epicenters for their own crypto industries. And when I was running CoinDesk, I was not investing. And for the first few years running Messari, I was also not investing, because in both those cases focused on building or in the CoinDesk case, rebuilding on the operating side.
So I started angel investing again, end of last year, because one of the things that I think it's just strategically valuable for me to do just running a company within crypto is using that as a business development tool as well, and partnerships and other alliances that could be not only interesting investments for me as an angel investor, but potentially interesting from a partnership perspective with Messari.
“...I started angel investing again, end of last year, because one of the things that I think it's just strategically valuable for me to do just running a company within crypto is using that as a business development tool...”
So again, I've probably looked most closely at other data infrastructure companies, other NFT and DAO infrastructure companies. And then of course, I've done a little bit in terms of DeFi investments as well. But more often than not, there's always some strategic value that people can use their imagination and think about how we might be thinking about alignment with Messari in the long term. But it's really a broad mandate, and I just look for good teams that are executing and that have a good community of backers. I'm just along for the ride and hopefully punching above my weight as an individual in their rounds.
Messari’s Origins
CR: Nice. Oh, I see. It's an interesting way to look at it. It's like your investments are instrumental to Messari growth as well. They're strategic for Messari in the long term. That's cool. Okay, so about Messari, what led you to start the company?
RS: So this is back in 2017, the ICO market was on fire. Q4 2017, for those that were around, was a pretty wild time. It was surreal how vertical everything went. And the real genesis of the company was my co-founder, Dan and I wanted to short the ICO market, because we just saw the valuations and eventually, you recognize you don't want to short it, but you probably would want to buy options that would give you the downside exposure.
And as you start kind of going down that rabbit hole, there's not enough infrastructure in place for actually shorting the market, there's not enough derivative infrastructure. And some critical inputs to that infrastructure are just reliable data feeds and reliable reference pricing for all these assets that were basically going vertical on very limited liquidity. Some listeners might remember Dentacoin as the meme coin that was a billion dollar cryptocurrency for dentists. And that was the environment we were in.
So when we took a step back, we recognized that the more interesting long term opportunity was not in shorting all these overvalued assets, but instead building the data architecture and the ingestion engine to actually help people discover diligence and ultimately participate in these new protocols and on these assets that actually had some fundamental value underpinning them.
“...when we took a step back, we recognized that the more interesting long term opportunity was not in shorting all these overvalued assets, but instead building the data architecture and the ingestion engine…”
So the first year after we formed the company, it was a straight shot down from 20,000 to 3,800, and the euphoria dissipated from the market, we kind of flipped on a dime. A lot of folks washed out. A lot of people turned over within the industry. And we kept building and built out a really valuable market intelligence platform that now covers long-form research and profiles on these assets, dozens, or hundreds of data points depending on which asset you're talking about, and then an events and governance alerts system that is used by now several 100 enterprises that covers several 100 of the top protocols and their assets.
So we are continuing to double down on that market intelligence platform and continue to build data tools and research tools for the crypto market and crypto native professionals. But we're also starting to see much more institutional interest, as you can imagine, as big banks, big funds start to look beyond just Bitcoin and Ethereum. And even if they're not investing yet, they're at least getting smart on DeFi and Web 3.0, and basically, where are things heading next in this cycle and how can they position their companies to be competitive in this market?
Surviving the Bear Market
CR: Very cool. So I'd love to get your thoughts or your experience on how it was to be a founder building a newly launched company in crypto in the bear market? How did you make it through? And sorry, did you start with Messari with your own capital? Had you taken on outside investment at the time?
RS: Well, we raised some money in 2018, mostly to get some of the top crypto investors on board as partners and almost like it was an extended business development team, we want to have good global reach. And part of the reason for that is we want it to be very closely connected with as many global token projects as possible, beyond just our limited window in New York, and with our relationships in the US in particular.
So we ended up raising from about a dozen crypto funds, many of which have gotten significantly larger as you can imagine since then. But it was a small round. And then we added a good contingent of investors in a seed round in 2019.
CR: Okay. So you were still able to raise during the bear market? So, at least it wasn’t that bad.
RS: Yeah. When we raised money, in January of 2018, that was pretty much the height of the market, right when we first launched. In 2019, that process took a long time, and it was very painful. And we have more than one near death experience in 2019. But at the end of the day, we pulled out to the other side and with this fundraise, the series A that we just closed and announced last week.
That whole process cover-to-cover was about three months from when we decided to raise and about two months cover-to-cover from first meetings to the final close. So just a markedly different fundraise environment and results versus where we were in the bear cycle, for sure.
Point72 Ventures
CR: And this latest round is so interesting, because it was this huge hedge fund, Point72’s first crypto investment. I’d love to get some of that color and backstory on how you got them interested?
RS: So just a minor clarification. Point72 is a really large hedge fund and asset manager, the investment and new partners we took on record Point72 Ventures, which is an affiliate venture-focused fund, and it was their first crypto investment.
So I think, one of the nice, if unintentional parts of our story as a company is, we have served, now as the first entry point for two very strong traditional investors. One in Uncork Capital, Jeff Clavier from out of Silicon Valley, and the founder of Uncork Capital joined our board in 2019. And it was his first crypto investment. He's made one or two additional investments since. And then Adam Carson from Point72 Ventures joined, obviously, it's their first investment.
And I think in both cases, those were not necessarily crypto native investors, but they were interested and wanted to have a good kind of strategic foothold in the market. Because they understand and know how to grow picks and shovels businesses. Neither one of those organizations was necessarily going to invest in the next DeFi token, nor were they structured to do so.
But I think the general thesis was, if the crypto market does well, what are the infrastructure businesses that will do well? And within the information vertical, obviously, we're one of the higher growth companies in that space and have a significant amount of upside ahead.
Institutional Interest
CR: Very cool. No, congrats on that. Wanted to talk about your end of year report. How long have you been doing that? I think I've read the two past ones maybe. But I think it's become something people look for?
RS: I think I've done four. The first one started as a tweet thread and then turned into a short report. But they were mostly tweet length bullets. The next one, I was front-run by Arjun from Paradigm who dropped his on New Year's Day, as I think you knew I was working on mine and was about to publish mine a couple days later. And his was very good, that kind of took the wind out of my sails that year. So I don't count that one.
And then the last two years, I've written it as a capstone report of sorts for all the other research that our team has done at Messari. It takes a long time, I'm not sure if I’ll have the bandwidth to do it again this year, but we'll see.
CR: So I wanted to talk about some of the calls you made. I mean, we're more than halfway through the year, which is crazy. But so far, like which calls in your report are looking to be right and wrong?
RS: Well, you're putting me on the spot because there's 120. So there's a lot to choose from. I don't know if you want to be more specific or just kind of call me out here. I think the general thesis that institutions are coming and we've kind of crossed the chasm in terms of adoption and awareness. I think that's proven to be true. I think, more corporate treasuries, more large financial institutions and more of their clients, importantly, are very seriously considering Bitcoin as a portfolio hedge or at least some component to any balanced credible large investment portfolio.
That was something that started to pick up steam around the middle of last year. We knew it was going to be a big theme this year as well. And sure enough, MicroStrategy has been relentless in terms of buying Bitcoin, obviously Elon Musk and putting Bitcoin on the Tesla balance sheet was a big story. And it's no longer even news when you hear a large institution or institutional investor actually make their first purchase or integrate with another crypto company to support some type of crypto service or clientele.
“And it's no longer even news when you hear a large institution or institutional investor actually make their first purchase or integrate with another crypto company to support some type of crypto service or clientele.”
So I think the big directional that we're still in a bull market at the end of last year was not obvious, because I think when I wrote the report, we were trading somewhere in the teens for Bitcoin and then we obviously went up four times from there. I also think that this most recent dip, I'm actually more excited than ever that not only are the long term prospects pretty bright, but it feels like there's still quite a bit of room to go in this particular cycle. So I don't think that we've already seen the top and things are going to fizzle out, or it's going to be a long go sideways market, although I'm personally prepared for it, because I've lived through it a couple times.
I think that kind of directional enthusiasm for this year, and the duration of this bull market is something that's held up well.
ETH the More Interesting Asset
CR: I think you had the call of Bitcoin at $100,000 by the end of the year, do you still think that's going to be the case?
RS: I mean, everybody puts out price predictions. It's everyone's favorite parlor game. I don't know. I certainly think we could hit it. We're running out of months. But it doesn't take that long for the markets to rally and for Bitcoin to go from 40-something thousand to 100,000. And we've seen that historically: it moves at lightning speed once momentum starts picking up. So there are definitely signs that that could be the case.
I think the more interesting asset right now, and obviously, the more interesting narrative, is around Ethereum and kind of everything that's happening with the upcoming switch to proof-of-stake, 1559, the explosion of DeFi, and continued use of Ethereum as the reserve currency for all of decentralized finance to a certain extent, at least in terms of like settlement.
So that I think I've historically, I don't want to say underestimated, but I've been underweight personally of Ether until the last couple of months, in which case I've caught up quite a bit. But part of that is narrative driven, part of that is the circumstances on the ground have changed, and it seems that many more institutions are warming to Ether than were first interested in Bitcoin, because there's some underlying economic activity that people can wrap their heads around.
“...it seems that many more institutions are warming to Ether than were first interested in Bitcoin, because there's some underlying economic activity that people can wrap their heads around.”
CR: So you're saying your exposure to Ether has now caught up with your Bitcoin exposure? Where is it, are they equivalent? Or do you have more ETH than Bitcoin at the time?
RS: I'm no longer underweight ETH I’ll leave it at that.
CR: And that's kind of relative to its market cap or?
RS: Uh-huh.
CR: Okay. So I guess you still own more Bitcoin?
RS: For now.
CR: For now. Do you think with all the activity on Ethereum, do you think it'll outperform Bitcoin this year?
RS: I honestly have no idea. The risks that were presented in this infrastructure bill, going back to the early part of the conversation, would seem to have a larger negative impact on Ethereum, at least temporarily. But I generally think that there's just too much of a groundswell of support for Ether, for Ethereum, in terms of all the new applications that are being built. And where all the market activities are happening. I'm equally bullish on both communities. We'll see how they perform from a real returns basis.
Blindsided by NFTs
CR: Okay. And what has been the most surprising to you so far this year? And if you want to tie that to your end of the year report, something that you weren't expecting, or that you got wrong.
RS: NFTs are interesting, really important primitives. And I'm super excited about that infrastructure that’s getting built out. I invested in a few companies that were focused on the infrastructure side, like OpenSea. I haven't invested really in NFTs themselves because I don't understand the collectibles and virtual games markets, just the same way I don't understand the legacy art market. But I do understand that the infrastructure that supports that is going to be here to stay and critical to the evolution of that, anything related to the NFT market.
“I haven't invested really in NFTs themselves because I don't understand the collectibles and virtual games markets, just the same way I don't understand the legacy art market. But I do understand that the infrastructure that supports that is going to be here to stay…”
So I don't know that anybody at the beginning of the year would have predicted that you'd have pixelated JPEGs that people throw up as their Twitter avatars and those proprietary digital rights to those same avatars would be trading for millions or tens of millions of dollars. So that certainly is one of those crypto bubbles that we know is not sustainable, but it's going to go through its own little mini hype cycle. I just, I never possibly could’ve imagined that we'd see that much in the NFT market in particular.
ICOs made sense for from a hype cycle perspective. DeFi made sense from a hype cycle perspective, even if they were overvalued, you kind of understood where the real value is going to be. But NFTs have blown my mind, for sure. So I'm still waiting for someone to properly explain the sustainability of NFTs to me, but I guess I'll just have fun staying poor, because I've been on the sidelines for quite a bit so far.
CR: Oh, interesting. Okay, so you think it's a bubble and you don't see maybe as much long term value in NFTs as some of the their supporters or advocates or investors?
RS: Well, I don't want to go that far. I definitely think that there's a lot of long term value in digital collectibles and kind of digital provable IP rights over digital assets. I think it's just like anything else, it's probably a market that's getting too hot, too fast, and those asset prices will correct. But correcting from some of the insane levels that we're seeing today does not necessarily mean that the market is going to zero, it just means that it's going to settle at a new higher low, and then it will get built out more slowly and surely over time.
Backing DeFi Blue Chips
CR: Yeah, makes sense. Okay. And then on DeFi. First, are you investing in tokens using DeFi protocols? What's your experience with this space?
RS: Yeah, I've been investing in DeFi since last summer. But I generally buy and hold, and focus either earlier stage or just on holding long term investments for a pretty simple reason. I've got a day job, it keeps me pretty busy. So just keeping up with everything, I tend to take my cues. And I learn a lot from the Messari team and what our analysts are digging into every day.
“I generally buy and hold, and focus either earlier stage or just on holding long term investments for a pretty simple reason. I've got a day job, it keeps me pretty busy.”
I'm almost converted on NFTs, but I just don't really have time to execute a trading strategy. So again, thinking about long term bets, and long term infrastructure has generally been my strategy. Otherwise, almost all of my time and attention is going into scaling out the actual product that we have a team that we have in Messari.
CR: What are some of your long term bets in DeFi?
RS: I don't know that I should answer this. I'm not sure how much booktalking I should be doing in this format. But I will say I've invested in some of the top decentralized exchanges, because I just believe strongly in Uniswap, Sushi, 0x. The emerging DEXs, I think, are going to consume a sizable percentage of trading activity long term and they’ll rival some of the large centralized exchanges. I think both are going to exist, basically, in perpetuity because people will always want collapse services that the likes of Coinbase or Binance offer, and not have to worry about custody, things like that.
But I'm hyper bullish on DEX and I have been for a while, even dating back to the 2019 theses when we were in a much different market environment. And then I think the major lending and asset management protocols are all interesting as well. So what Compound and Aave are doing, and then what Yearn has been able to accomplish the last couple of years, I'm pretty bullish on.
So across the board, I'm still stuck in the November of 2020 investing camp, of owning the blue chip DeFi assets. And my plan is just to hold those ETH, Bitcoin, and then a portfolio of angel investments for the next several years.
Messari Building for DAOs
CR: Okay, sounds like a pretty solid strategy to me. So to wrap up, what's next for Messari? What's the long term vision? What are some exciting things that you are working on now?
RS: We talked quite a bit already about the core market intelligence platform, the research and data services that we've been building, basically, for four years. When we zoom out, though, I think there's a massive opportunity in providing enterprise level information services, not only to institutional investors, and crypto exchanges and infrastructure companies, but to decentralized organizations themselves.
“I think there's a massive opportunity in providing enterprise level information services, not only to institutional investors, and crypto exchanges and infrastructure companies, but to decentralized organizations themselves.”
And I think we're just starting to see the very early stages of a DAO services market emerge, where people are trying to answer the question how can you actually scale a community? How can you scale a decentralized protocol and ensure that the community is able to scale and the rewards from that protocol are distributed fairly?
The 1.0 of that is how do you reward your users for participating in the network? You can either give them airdrops, or you can reward them for providing liquidity through yield farming, and things like that. But we're getting to the point where DAOs have sizable treasuries now that they can allocate for strategic initiatives. And some of that is going to go towards developers. Some of that as well is going to go towards business partnerships. Some of it just has to go to people, right. There are people that need to fulfill marketing functions, IR functions, they need to build data dashboards, they need to fund lobbying as we saw with the DeFi Education Fund.
“...we're getting to the point where DAOs have sizable treasuries now that they can allocate for strategic initiatives.”
So how those funds ultimately get spent, what services are ultimately fulfilled, and then how treasury spending is monitored and performance is monitored for any vendor that's fulfilling services for decentralized protocol and organization. That's ultimately the combination of a talent network and an information product, right. The information product, you need the benchmark, you need to understand how these treasuries work, how effectively they're being managed, and just generally, what the best practices are around spending money for different discrete tasks.
And then you need to actually just identify the individuals that are capable of being hired and have some type of reputation scoring system so that a decentralized community can ultimately hire people more effectively. Because if every single time you want to hire someone to write a research report, or to build a data dashboard, or apply for any type of funding, and it becomes an ecosystem wide proxy vote, it's just not going to scale, because you're never going to have people that are opining on every single micro decision that these decentralized organizations are responsible for.
“...if every single time you want to hire someone to write a research report, or to build a data dashboard, or apply for any type of funding, and it becomes an ecosystem wide proxy vote, it's just not going to scale…”
So I think about that as the next kind of big area of focus for us. We've got a really high growth, sustainable business just on that core data and research side. But so many of our existing customers and data partners are these DAOs and token graders that more of the enterprise management and diligence tools are going to be geared towards those entities and their communities, not just our traditional finance counterparts that are used to paying for Bloomberg terminals.
CR: So would this be a way to track how DAO treasuries are spent with Messari data? Is that what this would look like in practice?
RS: Yeah, I think that’s the lowest hanging fruit. But I think we have a massive community of analysts that have been working with us through our analyst hub. And essentially, the v1 of that is building a decentralized sell-side research army that's going to do all of the ongoing coverage and produce the equivalent of the quarterly reports for these decentralized organizations.
“...the v1 of that is building a decentralized sell-side research army that's going to do all of the ongoing coverage and produce the equivalent of the quarterly reports for these decentralized organizations.”
The same analysts, though, can be very productive service providers, or contributors to these DAOs for things like this risk-scoring treasuries, and treasury management policies, fulfilling marketing duties or investor relations, duty serving on grants committees, serving as governance proxies, doing all the things that don't scale, and that you cannot automate that require some type of revenue bull, you know, human eyes on and decision making on. All of those, I think, are things that can ultimately run through the marketplace that we're building.
And almost all of those decisions are going to be powered by some of the data and research that we already have for the same end organizations. So they work hand in hand. You know, everything that's going on with a specific DAO proposal through our governance tracker. You understand what the benchmarks are, what the typical behavior is for other entities in the same sector that are of similar size, that have similar sized treasuries, and you can actually figure out not only what best practices are, but who's performing well within these communities of service providers that cater specifically to DAOs. So we're very early here, but I think DAOs are going to start to spend a tremendous amount of their treasuries as these tools are emergent that make it easier to unlock them.
“So we're very early here, but I think DAOs are going to start to spend a tremendous amount of their treasuries as these tools are emergent that make it easier to unlock them.”
CR: Yeah. There really needs to be more benchmarks and transparency on what these DAOs are doing, how they're spending funds. Because it's ironic, a lot of these platforms, the information is out there, but there's very, very few of us tracking all this. So we'll be great to have all that data and information out there. Okay. And then finally, 10 years from now, how would you see Messari?
RS: It's going to be a lot bigger. And I'm sure more components of it will be decentralized. So if you think about our products in a nutshell, we have this tremendous data ingestion machine that can pull on-chain data, markets data, third party API's, events data from social media or any third party news source. And then we've got front end tools to visualize them. And then we've got a community of analysts that are ultimately responsible for putting them all in context and actually writing up the reports that make it easier to digest.
That core data ingestion infrastructure is what we're going to be hiring a ton of engineers to help build out over the coming quarters. The front end tools, same thing, we'll build some of those ourselves. Others, I'm sure will be built by third parties leveraging the same dataset.
And then on the analyst side or the contributor side, there's no way that we will own that entire market. So what we're trying to do instead is we're trying to open up as much of that information as possible, and ensure that it's possible for a community of contributors to actually leverage our tools and these data inflows that we have, and ultimately build out the full investor relations or community education library so it's easier to access these protocols. I think ultimately, that looks like some combination of a Bloomberg terminal and a talent marketplace for white collar DAO contributors.
CR: Oh, very cool. Okay, so like the decentralized part will be the talent and content research?
RS: Any services that can be provided to a DAO. The easiest one for us to start with is research coverage, because we're already a research company. But it just so happens that analysts make very productive workers in sales and accounting and finance and marketing and across the board. So I think about it as like the non-technical, non-development spend for decentralized organizations. Hopefully, a sizable percentage of that runs through Messari long term.
CR: Very cool. I love how your focus is on DAOs and providing services to DAOs, and not necessarily to just traditional firms. So yeah, very forward thinking.
RS: It’s a little bit of both by design, right. So, I think some of this information can be repurposed. But it's also what makes our business more resilient in the event that we have pretty sizable corrections, or if we have some regulatory setbacks or things that would otherwise slow the market down. We already have this subscription core that is more focused on non-DAOs, and the exchanges, custodians, traditional investors.
And then on the other hand, we've got this other marketplace that we're building that's got tremendous potential, and basically is our long term bet that in 10 years, DAOs will replace many companies. And getting ahead of that, how do you build the tools and communications architecture to not only ensure that that happens, but ultimately help provide the talent and fuel to staff those organizations and communities?
“...we've got this other marketplace that we're building that's got tremendous potential, and basically is our long term bet that in 10 years, DAOs will replace many companies.”
CR: Very cool, super strong vision. Alright, Ryan, it was a pleasure chatting. Thanks so much for taking the time and for coming on the podcast. Super fun.
The Defiant is an information platform focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Spread the word and share!
