Live From DAS: Are Tokens Dead? | Roundup

Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds, or projects discussed. [ding] Jens, how are we doing? Fantastic, is this thing on? [laughter] Good day. It certainly is. All right, well, I'm actually curious. I mean, we're going to talk about tokens, dramatic headline, or tokens dead. They've wanted that headline. But before we get there, I'm just curious, like, what have your guys take spin on DAS on the ground here? Respond in an unbiased way, you know? I forgot how many people wear suits to this thing. I felt extremely underdressed for the past two days, but no, I mean that is also like just a reminder of how much the space is. And yeah, it's been super interesting just seeing the amount of people that some of these really large companies have sent, including my old employer, Fidelity, has like a small army here. So that's always a good sign, but yeah, Zave. Yeah, I think it's the tempo launch last week was a really defying moment for the space, and it's very clear, you know, I'm speaking with people from Shopify to UBS, the different banks and enterprises that, you know, last year weren't moving into the space like they are right now, seriously. So it's fantastic to see, you know, we said for so many years that institutions would be coming, and now it seems like they're actually here. So now we go to scramble and workout. I've captured some of that value. Oh, God, now they're here. What are we going to do? Yeah, and they're actually using the chains. It's good. It's not, you know, the past, it's been like, okay, the ETFs are coming. So we're going to talk about the ETFs, right, people buying tokens or the tokens going up and down. And this year, no, it's the prices are, you know, very down, but that's not what people are talking about. They're talking about, you know, tokenization, they're talking about stable coins, agente commerce, which is great. Funnily enough, you come to a conference like this, maybe in the past, there'd be a little talk on Ethereum and Salona and these kinds of chains. This conference has felt a lot more like tempo, Canton, I saw a great tweet last night on the line to get into a Canton event, remind of the baritone event and to buy your. So yeah, that's, that's the new hot. Less baddies. Less baddies. That is such a good point. I mean, just as an organizer of this event for a number of years, there's always talks about Bitcoin, Ethereum and Rolla. That has been relatively, I mean, that's not what people want to talk about. Yeah, they don't talk game about the tech that much either. Right. It's very, very product oriented. Which again, I think is overall just like a healthy sign of maturity. Now, I think there's more juice to squeeze in the tech and I will nerd out with anybody here who wants to talk about tech. But over there, I got anyone. We got a taker. Yeah. All right. What I would love to talk to you guys about is this idea of tokens. So everything that's positive here that we've talked about, maybe just to set the scene a little bit like big themes of the conference, merging the rails of things like track fine crypto. It's actually getting more and more difficult. You have to squint. What is the line of finance versus what is the line of crypto? They're really beginning to merge. You know, you had really positive embrace of, you know, we had chairman Paul Atkins and Michael Selig of the, you have, you have, you have, you have, you see, FCC and CFC speak. Jonathan Gold of the OCC, the regulators are really engaged and activated and energized. Everyone's very excited about stable coins, RWAs, no one's questioning this very much and there's all this positive sentiment and engagement. On the token side of things, it's a completely different story. This is the tale of two cities that's emerging in crypto. This is why the sentiment is so much worse in the crypto native corners than it is in the institutional corners. The average token has done incredibly poorly, even of really good projects, I would say, in the space for a long time. And so, I think I'd like to just get your guys take on why that is. And maybe just as a provocative, provocative, you know, lead in here. You know what this kind of reminds me of is like a lot of blockchain, not Bitcoin. If you rewind the clock to 2018, the talking point of a lot of banks and institutions back then is all this blockchain tech stuff is going to work. But Bitcoin, now Bitcoin obviously worked very well since then, but most of the other tokens haven't really. And we're talking about a lot of tech stuff that there's no token to back or invest in or anything like that. So, with a blockchain, Bitcoin people write to some degree, they were just early. Maybe. I don't know. I think it just could be like macro conditions that more so than you can go and point that one single thing about tokens. Now all the problems with tokens that we'll talk about still exist and the good news is they're actually being addressed. But yeah, I think it's more a question of, okay, when like the market comes back risk on, do the tokens get a bid? Or is this actually like it, right, even in like two years? And it's all going to be, you know, the most successful projects are just going to stay equity. Yeah, I think it's probably a bit of both. I keep coming back to Canton, but I think this is quite a front runner in terms of what the future of crypto looks like. Yeah, Canton has a token, has a coin and the big institutions are happy using it, happy putting assets on that chain. And I think that's actually quite interesting. I think one thing that crypto natives didn't foresee maybe a year or two ago was new infrastructure being built that would overtake legacy chains like Ethereum and Salana. And I think Canton would just continue to grow. Then you contrast that to chains like Avalanche and some other legacy chains that I think have done really, really well over the years. But maybe some of these layer ones were overvalued at some point in time, especially 2021, 2022 in the end for era. And now I would say it's not like they're failing. Like I think some of them have multi multi billion other outcomes. So there's still a lot of success in that alone. I think maybe just the differences today that the growth isn't really there as much. And if you're an institution and you have the option to deploy on some chain, I guess the question is like why would you choose Avalanche over Canton or something like that. I think that's not always clear why an institution would choose Avalanche over Canton unless there are incentives in play. I think it turned into a big game at some stage these these layer ones and yeah, the big institution which ends well in that big game. I would agree with that. I also, you know, I think it there's been a lot of talk about hyper liquid at the conference so far, which is really interesting in that it's one of the few tokens, which is actually performing. It's also the epicenter of this merging of tradfying crypto rails. It's also interesting in the sense that when you look at what's being traded, it's CL USDC and oil synthetic oil contract gold, S&P 500. Right. It's it's pretty interesting. Right. And that's blockchain not, you know, crypto again. Kind of the definition of it. Yeah. So maybe we can start to break down why has it been such a tough. Five or six years for tokens. You know, I showed some data on this before, but if you look at the median price performance of like if you were to look at the total market cap of crypto over the last five years and it looks like a pretty good chart. When you start removing Bitcoin and ETH, it looks less good. When you adjust for the amount of tokens and the inflation, it looks horrible. It's like the median price is down about 80%. And if it only gets worse the further the further back you go the better it looks, but even on newer launchers, it looks worse and worse and worse. So maybe to just throw out some reasons that this could have been the case. One, the regulatory environment made it incredibly difficult to operate these new like these protocol businesses. Two, there's just broken info like there's no transparency, just basic disclosures and it's, you know, created a lack of trust from an investor standpoint. It's also just we might have just started from way too high of a. None of these valuations really made any sense. So it's possible that we just started from far too high of a valuation and multiple standpoint and now we're rewriting. What do you guys think? Why has it been such a tough last couple of years? I mean, yeah, I think you hit on a couple of them. One way to look at this is like in this interim period where there is no incentive to launch tokens. You can see that there's a lot of things being worked on and maybe these are like post TGTG projects, but looking at what's being addressed right now as a good way to like understand what has been wrong for the past five or six years. And that's like, you know, token versus equity like singularity, right? Like just pick one and it should all be there. You should not have like two different sets of incentives and two different revenue streams. You know, the other one is like investor relations like what you're doing, right? The products that you're putting out like let's take this seriously. And let's actually like, you know, make an effort to have a relationship with our investors. I think streamlining, streamlining and simplifying governance, just getting rid of all this like decentralization theater that Dows had to deal with for a long time. That's all going away. And then the last one is like supply dynamics. Like I think it could be the case that the next generation of tokens launch at if they're, you know, like early stage, they're going to launch at an early stage appropriate valuation. Potentially with the whole supply, you know, actually unlocking on day one, right? And then having the ability to mint more tokens just like an equity would. These are things that are probably way better than having this existential, you know, unlock cliff, hanging over like the assets had for two or three years than everybody's trying to get out. You know what the other challenging part about this is, is the amount of tokens that foundations have at their disposal. So, you know, buy, so when the SEC went after Ripple, in that case actually Ripple, one thing that they did well was they did disclosures of XRP sales, that was used against them. That was the very first exhibit of why this is potentially security. Crazy. So, when actually foundations, even if they wanted to provide any sort of guidance about how that was going to get spent, they could not do it. So again, from the perspective of investor, I'm looking at, I'm trying to underwrite this token, a huge pile of uncertainties. It was basically pre-authorized but uneasue shares, maybe 20% of the overall token supply. That could get dumped at any minute and they literally can't tell me what they're going to do with it. Yeah. That's insane. I mean, how could you underwrite that? I mean, so much of it is built on trust, I think, as we had a chat about before. You have to really trust the teams are investing in that they're going to do the right thing, but there's not a lot of recourse or repercussions if they do something wrong. And hopefully with this new regulation we were talking about just before as well in terms of clarity and all of that that hopefully comes in in the next six to a month. That should set some standards, I think, for what you can and cannot do, whereas in the past this was very, very unclear. I think most investors have had problems with dealing with teams that have had both a token structure as well as an equity structure and I think fundamentally that's been one of the biggest problems in the space. And I would maybe even argue today, like, polling market itself from what I understand, equity and token, even in this day and age, with regulation coming and all that. And token holders didn't have any rights and to this day they still don't really have a lot of rights. And we've seen M&A, like Axelar, etc. they buy the IP and token holders get nothing. And so I don't think this has changed a whole lot. That's like the more bear case for tokens. I'm still bullish tokens long term. I am. Do you think it's well to add to add to some of that? I mean, I think one of the things that's been, people really underplay this. They're like, when you list these, what's wrong with tokens, there's always ends up being like issue four or five. Building a startup is hard enough in one cohesive entity. Building it in three of, like, oh, I've got my marketing, you know, my sales and marketing department and major upgrades over here. And then they can't talk to my R&D, my product and devs over here. That's not how I would have just say it's impossible. I don't think that's a possible thing to do. It's like more than what. And it's not a, you know, there are quietly have been some teams that have different structures around this. You started to see a couple teams like, I don't think it's gets enough credit, but Morfo actually just, they dissolve there. They don't have any equity. They just, they figured out this PBC type structure where they only have the token. And so they're able to operate in a way which is actually highly advantaged compared to some of their peers. I just don't think it's possible to do. But also I still think this dual token equity structure, you know, there was a team recently within the last couple weeks. They have openly stated that their objection is to IPO, but then they just launched a token. How that shouldn't fly anymore. Why should that fall? Well, honestly, like, at what point is it kind of unethical? Right? I mean, even behind closed doors, you know, I've had conversations with teams where they're like, we have no intention of driving value to the token. Okay, why do you have one of these things? I mean, I don't know. What point is it an ethics question? I think the token game is so different to the equity game, though. So I think a company could theoretically played both games very, very well. I mean, we've seen before in the past that some tokens have outrageous valuations that don't make sense. It's worth a billion, two billion dollars. There's no one using the chain. And a lot of the tier one exchanges actually have a say in the valuation, what it starts out, the market makers and a lot of these tokens just trade whatever market makers say they trade out and it's just them trading against each other. There's no actual real buyers. And they're in the several hundreds of millions of dollars. So if you're a project and you have a massive chunk of supplier with the token, but you also have an equity in a real business and you can make money on both, I guess the incentive is to launch the token. And then this sort of this thing that people buy and trade, but they have no intention of actually delivering any value to. So I think some of it to blame in the token markets is still exchanges. And I'll stand on that forever until something changes and I'm kind of surprised that that's not being regulated as much as some other things like securities, et cetera. So I think until you change that game that has played and also some founders that I've worked with in the past, their whole business is actually made from trading fees at the token. It's not even made from the product itself, like they're literally employing a team from people trading the token on exchanges. And when you ask them about PMF, they're like, they don't have any actual legitimate response. So that still happens in the space quite frequently. Yeah, so that will self select out and like the market will filter for that. But yeah, I think there's like some very happy second order effects of there being a period right now where there is zero incentive to launch tokens. One of them is what I was saying earlier is like all of these things are going to be addressed by the time that there is now and into like the incentive to launch tokens comes back. Second one, and I can say this from like my seat right now, is that I mean, if the products are going to market, just without the token. So that means that when you, if there is an incentive to launch a token and say like two years in the future when the market comes back or one or two, they're going to be more mature products, right, that are more easily like the market can actually underwrite them. They have like fundamentals and users and data. And the second piece is there's so much overhead like literal cost and effort and distraction of launching a token, especially if when you're trying to do that at the exact same time that you launch your product. I can tell you right now it's hard enough to like launch a product that finds PMF in the early stages, especially as like an infer project. To then also be dealing with like all the backroom games of exchanges and market makers and all that crap, you just get distracted, right? And so the teams can actually create better products because they're not distracted by that. And by the time they do want to launch a token, they'll have a real product, right? I'd argue you can't do both. Yeah. I mean, some of our portfolio companies that have launched a token recently, they spend maybe one or two months, the entire team just thinking about the token launch. It's terrible. The product's like it's pushed to the side and it's all hands on neck for the token and nothing happens with the product. And obviously they lose sort of themselves and the race to build something actually especially invaluable. And by the time they've launched the token, you know, there's been such mayhem in that launch itself, they're kind of like so burned out from it, then they have to pick up the product again after that. And then the token's kind of trading down. So it's like, was the effort actually worth it? Like I'm not even sure. I don't think it, but before you have PMF absolutely not. I don't see how it possibly even could, you know, there's a sequence again, looking at it. So one of those things that wasn't ever totally broken, the way the average life cycle of a company made a lot of sense. You raised from VCs in the beginning, they don't demand all this work. You don't have to manage a public instrument. The lift is very low. You should be spending 100% of your time trying to find PMF. By the time you start to think about going public, you have found PMF. You probably have hundreds of hundreds or maybe thousands of employees at this point. You have a lot of infrastructure around you. You have an executive team. You are theoretically the CEO of that business is more competent than a year and a half year old founder, or a founder who's been doing it for a year and a half, not a year and a half year old founder. Pre-pre-seed. But the challenge actually is just the time. I don't know, I've heard a lot of thought went into the timing of these. Maybe that's a charitable way of, well, yeah, exactly. That's charitable. That's charitable interpretation. The less charitable interpretation is that everyone was incentivized to get the token out the door as soon as humanly possible. That's where I think a lot of both founders, like uncomfortable part here as both founders and VCs were complicit in this. Yep. Yeah, I don't think you can forget how much VCs pushed this on founders in the past. I think one big change that is different now compared to maybe in the last few years is that a lot of these VCs that pushed founders to launch tokens are no longer around. They haven't been able to raise new funds and the more legitimate long-term sustainable VCs asked of the round and they're happy holding onto assets that can compound a value long-term. That whole game, I think, has stopped. The other thing we haven't mentioned yet is quite often in the past team might be at kind of C. They raise one round and then they realise they're not going to raise the next round because they don't have enough PMF. The only option they feel they have is launch the token. They obviously can raise some capital through that. But I've actually never seen that work. I think every team thinks that they can do this, like, well, but I've never seen it work actually properly. It goes back to your point where you want to make sure now on this day and age that your product is actually being used and then it's actually. This is like the arrested development meme. They think it works for them but they dilute themselves. But I think it's just my word for it. I mean, yeah, the bear case for tokens not really coming back is the ones that do find PMF and thus would launch with a great token like we're talking about can just access capital in the private market and stay private and just ride that out for as long as possible. Like we're seeing outside of crypto. That's the real question is like, is there tangible benefits for the product, for growth, for, you know, the long-term health of the project to decide to launch it, like a token with real ownership and rights properly versus thing private. The Lockworks co-founder, Michael of Palito here. Quick break to talk about something we've just learned. launched blockworks investor relations. As the market shifts toward institutional capital, investors want more transparency, more standardization, and a higher level of professionalism. But the traditional IR model is slow, manual, and not built for how crypto works. If you're building on chain, your data's already live, your business is already transparent. The challenge is turning that into a clear, credible story for investors. That's exactly what we're solving with blockworks IR. It's a single platform that brings together real-time analytics, branded investor portals, and hands-on advisory support so you can communicate what matters. If you're an on-chain business looking to level up your investor strategy, check out blockworksinvestorrelations at blockworks.com/investor-relations. All right, back to the episode. So now that we've said everything that's wrong, can I actually set the stage for-- you know, the question that I want to ask you guys are tokens ever going to come back? What might that look like? Maybe to set the stage for the bulk case for tokens from here. One, you know, we were talking about this the other day. It is incredible. There's not an overwhelming amount of private market money that's trying to find its way into crypto hands. It is probably never-- at least the last, maybe post FTX or something like that. But it has never been harder to raise than it currently is. At the same time, we haven't fully fixed it yet, but the valuation is looking a lot better on a lot of these companies. And also, even though some of these businesses might have launched token before they had PMF, these businesses are about four or five years more mature than they used to be. And there's been a natural culling of the pack because the ones that couldn't hack it have died. And so, you know, if I were to try to construct a bulk case here, and then finally, you have clarity where you-- this crazy kabuki theater hand-ringing is about to be done. And you can actually provide value back for the first. So, you know, watching-- you know, if you were participating in crypto in like 2020 to 2021, you just look back in 2019 and I'm like, I could have bought these things at this price. And it's possible that that's sort of the situation that we're looking at. You got to pick the right assets. You can't just close your eyes and throw it dark. But it feels to me like we've answered a lot of these challenges. And we might actually be entering a bull market for token zero. Well, I think you can't forget where, like, right in the middle of a very bad Bamaka right now. And if you follow the four-year cycles, which, you know, whether or not that's true or not, there's definitely a world I can see in maybe six or 12 months time where the market starts looking a lot better. Token start coming back. And then it's very sentiment-driven tokens. Like there's a little momentum that comes from belief, et cetera, that equity obviously doesn't have. And so, you look at someone like BlackRock, I'm pretty sure. It was which port, Uni tokens at some stage or is about to buy them BlackRock, Uni, and then Apollo and more for-- Exactly. So, like, these kinds of things are happening in the buying tokens. They're not saying Uni swap by equity, which I think they did have equity at some point in time. They're buying the tokens directly. And I think we spoke before about more for-- or some of these other DeFi protocols, pushing more of the value into the token, not the equity. So, they're going the other way completely. It's very confusing right now, because, like, I work with, you know, more pre-seed startups that, you know, some of them are finding sort of PMF now. And they're more like products. They're like abstracting crypto, as you guys know, and abstracting AI, et cetera. But they really use a facing. And I can't see a world where they need to launch tokens. I mean, they could. Some of the token launches might be, like, network effects, et cetera, things you can't build with just equity alone. But on the flip side, I think more protocols, infrastructure, I think that they'll continue launching tokens as long term. Like, I can't see a world where that doesn't happen. But the application layer, I think we spoke yesterday as well, that pump fund was kind of the first at the frontier of capturing a lot of that value in the equity entity. And then launching a token as well, obviously, later on. But I think that is going to be a trend that continues as well around applications actually trying to alter the equity and agree with that. Well, the other thing, when I first saw those announcements for Uniswap and Morph, I was like, what's interesting? Why are they buying the token? But then I remembered, it's very common. It would be very common for a large strategic partner, like this happened with ICE and Polymarket to take a big equity stake in the business. Morph has no equity. They only have tokens. So the only option for Apollo to do if they want a partner and take this financial stake and have a stake in the business is to buy the token. And actually, I don't think that-- I think that we'll look back and say that's an obvious-- because if you're a token project right now, you really only have two sets of buyers. You've got the liquid funds. And then you've got these big strategics. And I think that they're going to be more and more and more important in the coming years here. I also just, on the point on the exchange side, too, I think the incentive for exchanges is actually shifting in a much more positive direction because they make a lot of their money from trading tokens. There's kind of Bitcoin and ETH. And then you have the long tail of tokens. If no one wants to trade these things, if they're down only, there's only-- their revenues are going to drop off. I think they're actually incentivized to do the right thing here. And yeah, I think they're incentivized to do the right thing. I agree with that. The exchanges are kind of like-- everybody hates the investment bankers for breaking the IPO and making the incentives terrible. I think that's basically the equivalent of centralized exchanges sometimes when they're extremely predatory. We've seen the past four token projects. The last thing I would say I haven't mentioned is post clarity. If you have assets that actually do have regulatory approval and meet regulatory requirements, they could be distributed through brokerages. And the ability to buy these assets more easily with the place where you're already buying your equities, I think that could make a large difference in addition to institutional buyers actually buying these public assets in size. I mean, ideally, as a token investor myself, a lot of this value accrues to the token itself as opposed to the equity. I think as an investor, it's more liquid, especially if you want to go on primary markets to get that token out, you can get it out a lot earlier than what you can get it out, obviously, with IPO and equity. So I can definitely see a world where, as the assets expands in crypto, we have thousands of assets now you can invest in. It's never been easier to launch assets. The pool of investable assets gets smaller and smaller. I think over time you have like polymark, it'll have a liquid. Some of these major names popping up. The industry is consolidating in real time right now as well. And so I think for me, tokens would never go away. If anything, I can see more experimentation getting done when the regulation comes out. And then I can see it's two months. And I'm very optimistic on how tokens look long term. They're going to look like some will look like equity structures. And that's going to be great for the space. And there's going to be actual enforceable rights that those token holders get. I do think that there's still room for some token experimentation to be done to gather network effects. Obviously, AI is making modes much tougher to come by right now for any startup. And I do think that tokens can be used as a way for startups to actually overcome some of these things that AI does to their business in terms of network effects with what they can achieve with the token. All right, final question for you guys here. What do you think the-- what do you think the next bull market for tokens looks like? So in the past, this space has had very-- I call it high-- almost like beta. Like, you literally could be a monkey to dartboard and buy whatever-- like, when there's a bull market, it's often-- actually, there's the negative incentive, like the stuff that's the hypeiest, the furthest away from any prospects of revenue. Like, that gets rewarded the most. And then there's just a crash. And then we do it all over again. Is that pattern going to hold and stay the same? Do you expect something different when this bull market for tokens does come back? What do you think? I could see basically the cream rising to the top. And the tokens that everybody knows will get-- will address clarity requirements, basically get approved through that framework. Those will get a bid's first, I think. And then projects that have just been waiting to launch a token for the right time and do have great metrics. Those guys are going to come next. And yeah, I don't know if it's going to be like-- I don't think it will be like throwing it at a dartboard and you win. If we do, then we're-- that we probably haven't fixed the problems, frankly. I think the token bull market starts when clarity comes out. I do think this is actually the institutional bull cycle. And I think things can get really crazy, really fast. So right now sentiment is really low. I think all of us can admit that. But I do think there's a lot of capital on the sidelines, especially from big institutions, tradfires, et cetera, that wants to get exposure to some of these tokens, but they just want to make sure that when they invest, they can trust that the assets they're investing and will hold value long-term. So I'm excited about many of the apps products infrastructure that we have right now in crypto. I think infrastructure is consolidating, but we're really at the very start of the application era. And I think there's going to be some amazing app tokens to invest in quite early that launch tokens over equity as well in this next bull cycle we have. So I think it's kind of crazy to say right now, and you have to be half insane to believe in tokens coming back. But it's not going to be better like all tokens coming back. But there will be probably 50 to 100 assets, I think, in crypto that are tokens that do really, really well in the next five to 10 years. I think if you can spot them in this bear market, if they're out already, or if you spot them coming out in the next six to a month and hold onto those, I think you do actually will. I agree with that. I think just from my perspective, maybe to close here, I think consolidation. I think one thing that crypto has never had is even if you were to look at the internet companies and the dot-com bubble as an analog here, most people who made money in the internet didn't do it, maybe made a little bit in the dot-com bubble. But really, where all the money was made and long grind up, I mean, technology's been [BLANK_AUDIO] basically a bull market for the last 25 years. I'd rather be investing during that time than, you know, hoping and praying during the IPO or the, the doc on bubble. I think we're about to move into that. That doesn't mean that every project has to win. I think there'll be consolidation. You can already see it happening across multiple sectors in the market today. And what we've never had before in crypto is you never had the opportunity, if you're a crypto investor, to invest in something which is generating a lot of revenue. Right? Like you've never, literally projects have never competed on that vector before, which is insane. But now that the option exists and I think that generally people would rather buy something that they think might go up 20 or 30% a year, but it's pretty sure and you can look at it and be like, this is a real business, this is a real thing. Then take punts on 1000Xs that all go to zero over time, which is what has been the case. I actually think both will happen. I think when the bull market comes back, that speculative side of crypto, I don't think we'll ever truly go away. And I think both of them can feed up each other to be absolutely. I agree. All right, guys, that's the time we have. Thanks very much. This was fun to do live. Hey, everyone. [MUSIC PLAYING]