Saffron Academy Podcast by Saffron Finance

April 17, 2021 Episode 1: Haseeb Qureshi (Dragonfly Capital)

Haseeb Qureshi is a managing partner at Dragonfly Capital, a cryptocurrency venture fund that recently made headlines when they launched their new $225 million fund to invest in DeFi, NFT, Ethereum Layer 2 solutions, and CeFi. Haseeb talks about his history as a poker player, the qualities he looks for when choosing to invest in a crypto project, his thoughts on the Ethereum arms race, and more.

https://saffronacademy.podbean.com/e/episode-1-haseeb-qureshi/

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Transcription

Dingo: Hey Everyone dingo here. And welcome to the saffron academy podcast. The objective of this podcast is to be an additional educational resource for our viewers, adventures outside the realm of saffron. In this, we’ll be interviewing some of the best, brightest, most tenacious and entrepreneurial minds that the cryptocurrency sector has to offer. We want to give listeners a glimpse into the minds of some of these incredible achievers, how they got into crypto, what their viewpoints are on certain projects and where they see things going in the future. Saffron finance does not endorse the viewpoints shared in these conversations nor should this be construed as any kind of financial advice. But we are interested in giving exposure to a wide range of brilliant investors, developers, entrepreneurs, traders and so much more. We really hope you guys enjoy this new segment. If you have an idea for a topic or a particular guest request, feel free to write into the show at [email protected] . I hope you guys enjoy this and I’m looking forward to seeing what kind of value this provides. Now, having said that our first guest is Haseeb Qureshi, a managing partner at Dragonfly capital, a renowned cryptocurrency venture fund. His track record is nothing short of extensive, he's accomplished a lot in such a short amount of time. In addition to his time as a managing partner he's also been a programmer, a writer, a teacher, a public speaker and not to mention a bit of a poker aficionado but we will get more into that during the episode proper. I'm really excited to have a chance to be able to interview him and I know you guys are going to love this one, thank you.

Okay Welcome to our inaugural episode, as you might have surmised I'm Dingo and you're listening to the Saffron Academy podcast I'm joined today by Haseeb Qureshi, a managing partner at Dragonfly Capital. Dragonfly recently made the news by launching their new 225 million dollar fund to invest in Defi, NFTs, ETH layer 2 solutions and more. But before we get into all of that, lets talk a little bit about yourself Haseeb, how are you doing?

Haseeb: Hey Dingo, I’m doing great, how are you doing?

D: I’m doing pretty good, we’ve been burning the candle at both ends coordinating with our guys in China and I was wondering how everything has been with you because I know you're in Singapore now, so how's everything going over there?

H: I'm from SF actually but I'm in Singapore at the moment I was in Taiwan earlier so I’ve been globetrotting a bit or rather as much as anyone can given the limitations on travel. But it's been really amazing to see that, in the last two years, year and a half, we’ve all been unable to see each other. And everything's been so digitally mediated it's kind of a bit jarring to be back meeting with entrepreneurs and builders and old friends again. But its been really wonderful and I miss it so much.

D: What do you notice about travel because I have not been out of the country?

H: It's not, it's not easy, everything is 10 times harder and slightly more nerve wracking. And the one downside is that vaccines are now being distributed in the US. And given that I’m a foreigner in every country I travel to, foreigners are always the last on the list to get vaccines. So if I want to get vaccinated I need to go back to the US, which I’ll probably do in a month. But other than that I mean, Singapore is a really burgeoning crypto community, its kind of become the new Hong Kong. So a lot of the exchanges and CeFi companies that were based in Hong Kong where they tend to have their international headquarters where they serve the pan asian market. Most of them have moved to Singapore because of more favorable regulations. So as a result Singapore has become this new hotspot for crypto founders and ideas. So it's exciting to see so much of a community forming here.

D: Yeah I think in the US as well, I think Wyoming I believe it was, was the big state trying to entice people to come over.

H: Yeah I don’t know well that's working. But there's always these entrepreneurial cities that are trying -- you know. Miami is actually doing a pretty great job, the mayor, I think it's mayor Suarez, getting a bunch of Crypto people excited and being very open to innovations and giving great incentives for coming over. But I will say I think in America at least, there's like 500 silicon valley wannabes, and really, there's only one silicon valley. It’s still the epicenter of tech innovation in the US, covid or no covid.

D: Yeah, it's very cool but I wonder about-- you know I have a background in video production and I know Atlanta really helped bolster their economy by having all of these tax incentives for hollywood and all of these other filming companies to help set up shop there. And I’m wondering is Miami going to be the first to capitalize on that, to drive that business there, is it going to be Wyoming? I think it’s kind of fun, anyone's guess now.

H: Well the one thing that's for sure, which is kind of emblematic of you guys is that at least in crypto: it matters less and less where you are. You know, crypto is such a global phenomenon that, if there's one thing that covid has taught us it's that physical location is no object to building something that is world changing. And so many of the protocols, I mean you guys are one of them, you're a decentralized team, the team behind SFI. That was something that venture capitalists in particular just did not believe in that two years ago. You now I remember because when the pandemic started in full force, call it in march, there were so many traditional VCs who were claiming that for funding, the tap is going to turn off until the next year until this is all over. Because VC’s have to meet people in person. You can't run the industry without in person meetings, it was sort of this enshrined almost traditional superstitious belief that in order to invest in something great, you need to meet the founder and go for a walk with them, look them in the eye, kind of see into their soul, and the moment the market started coming back you know in the summer, all that shit went out the window. And suddenly people were writing these 100 million + dollar growth rounds into companies and moving really fast and no one was meeting anyone in person. And suddenly you realize “huh, all this stuff that we thought was super important to what we do, turns out, it's nice to have but it's not essential. You can really do it without that. And I think crypto is a universe where we are clearly not going back to that world. Obviously we invested in you guys in the middle of the pandemic, and maybe for those who are not familiar Dragonfly struck up a deal to invest in SFI through the treasury, and we did that without ever meeting anyone in person. And we couldn't of course because members of the team are pseudonymous. But we were so excited about what you guys were doing, in this new world, this is how things are going to work. You don't need to meet the people in person if the product and the community is entirely digital in the first place.

D: Yeah that's a really good point. I always try to look at things like the glass half full And I look at covid, I look at the paradigm shift that its bringing to the world and I think that if there is a good thing to come out of covid, you're right, it has kind of normalized working from home and by extension, its normalized this sort of global work space where you can coordinate with people from across the globe. We’re doing it right now. And it's such a cool way to, at least for me in my own experience, kind of be exposed to different sorts of cultures and lifestyles and everything in between. I’d like to get a little bit, because Haseeb, you have such an interesting backstory, so lets dial it back just a little bit here and just talk a little bit more about how you grew up, maybe your education and then maybe some pivotal moments in your life that have influenced your decision to pursue investing and that sort of thing. Because I think there are a lot of people who are listening to this that are from varying walks of life, have varying amounts of capital, maybe they are playing with the idea of being in this new nascent industry. And they are playing with the idea of well what do I invest in, how do I identify something that is worth investing in, how can I make that distinction?

H: Sure sure, so I grew up in Texas, in a small town called Dripping Springs which at the time it was a town of about 2000 people. And I was pretty much the only brown kid who was in that school system, alongside my two brothers. It was an interesting place to grow up because it was one of those places that was so boring, that you sort of, your mind had to be elsewhere. And in a way that was a bit of a blessing in disguise because it led me to really becoming cognizant as an internet native person. And I think there's sort of a generation around the late 90s that was sort of a first fully online generation. And that was me I was right on the cusp of when that digital transformation was taking place so I remember as a kid kind of growing up in MSN chat rooms and AOL chat rooms. I must have been 11 years old when I just really started spending a lot of time in digital spaces and communities. And finding myself more interested in participating in that world, than I did in my own highschool and middle school. And so as I got older eventually I went to college, I had a pretty hazy idea of what I wanted to do with my life. I had an idea that I wanted to do something meaningful but I had no idea what that meant. I ended up actually when I was 16 year old I ended up getting into playing online poker. And that was somewhat random, how that started. I just had a group of friends who had invited me to play poker with them. And I had never played poker before, like maybe 5 card stud or something but not like real betting poker with money. So I played the game of poker and I had no idea what I was doing and lost a bunch of money . Well as a kid at the time it was money but it was like 5 dollars or something. And I was so frustrated that I didn't know how to play poker or understand the rules really, and kind of betting or folding or how any of this stuff worked. So I ended up going and reading a bunch of articles about poker and I learned that actually there were a bunch of people playing poker online who were quite young,college kids, who were making a lot of money and doing quite well using statistics and game theory and all of these things that were pushing them to the forefront ahead of the old guard of the traditional poker players who grew up in vegas and dallas card rooms. I thought that just sounded so cool and I was like I spent a lot of my time online anyway, I bet I can learn how to do this. So I got a start as a 16 year old playing poker online, I didnt have any money so I was doing it under my older brother's name. And I ended up going from 50 dollars which I got for free from an online promotion and I turned that into 70 thousand dollars over the course of a year.

D: Oh my God

H: And basically by the time I was 19 years old I was ranked as one of the top 10 online no limit hold em players in the world. So I made a lot of money at a young age, and the interesting thing about poker is that it teaches you a lot of lessons but one of the things that I really take away from it. I had a tremendous amount of understanding and empathy for the people who made a lot of money in crypto. The reason why I say that is that there are so many commonalities between the way that online poker was back in the day, back in the late aughts, and what I see from the young generation that's making a lot of money in crypto, especially around crypto trading. So for one it's devoted your career toward a weird and somewhat subversive way to make money that is not traditionally prestigious but is very very undercrowded. You know not a lot of people understand it yet, and you're not going to get accolades from your parents or from a significant others family, they’re not going to be very impressed to hear that you're a crypto trader or a professional poker player. But if you're smart and you’re analytical and you're willing to do weird things to make money, you can do really well as a lot of people in this generation have. For some reason they both tend to be quite male dominated, and I notice the cultures are both quite similar, there's a lot of self deprecations, people call themselves degenerates and same thing in the poker world, people lovingly call themselves degens. There's a lot of crossover and I know a bunch of people who are ex poker players who found their way into crypto as well although for different reasons for different people. And there's something of course about understanding and being able to take intelligent risks, over and over again that I think unites a lot of what I saw in the poker community and what I see in the crypto community. And another thing is that, because these things are such global phenomena, they are primarily held together by online cultures, as opposed to in person cultures. So even if you work for google or facebook, although its an online company, your primary culture is with the people around you. But if you're a crypto trader or a crypto defi farmer or whatever you call yourself, its similar to being an online poker player in that your community is the global community of all the people who do this together, and some of them are competitive and some of them help you and some of them hurt you and some of them share information but then they hold back information. It's very very similar and so that's one of the things that I feel like I deeply understand about crypto from my background as a poker player, but every generation I think has a hustle. That young really aggressive and somewhat subversive people are drawn towards that allows them to make a lot of money. And in the late 2000s it was online poker, and in the early 2010s it was fantasy sports and it seems like now crypto trading and crypto trading might be declining now, just because its gotten so much more efficient, now it's defi and defi farming and there will be some next thing, there will be some new frontier, whether its speculating on NFTs or some positive thing that is at this frontier that is finding creative ways to push edges that are farther out than what most normal people can see. So I was a professional poker player for a while, and quitting poker when I turned 21 and I went back to school and I didn't study anything technical, I studied english and philosophy. And I ended up moving to silicon valley, took a coding bootcamp and learned how to code and eventually got as job at airbnb as a software engineer working on payments. So thats where I first caught the crypto bug. I had known about crypto for a very long time because poker players, like I mentioned theres a lot of crossover there and there are a lot of poker sites that only accepted bitcoin to avoid international banking issues, and I had bought bitcoin before just to buy little things here and there to try it out. But I never really got the story, like it was just this sort of weird way to buy drugs online that was like cool I guess this should be a thing. But it was really when i was working on international payments at airbnb, that the crypto story really started to make sense to me. You know before I was at airbnb I had never touched payments before, but at airbnb its a very international company, its a travel company so you're paying people in 90+ countries in the world. And your perception about how international payments works, if you haven't spent any time in it, is that you swipe a credit card and your money just gets there and there's some digital pipes in between. But working on that system, you realize how the presentation of what's happening is completely disanalogous with what's actually on the backend. What's actually in the backend is that there is no international payment system. There's a bunch of different payment systems around the world that don't really talk to each other, that are all kind of janky and different, most of them are super old and kind of broken. There's CSVs being emailed at midnight every night and being manually reconciled every night. There's places where we can actually digitally pay people and so we are manually sending checks into PO boxes and someone is hitting an API letting us know it’s been picked up. You know there's all this jank on the backend to give the customer the impression that there's an international digital payment system. That its real time and 24/7 and you can just click a button on a website and your money gets there. But that's not really how it works, it's this giant mess, and just a big ball of spaghetti. And as an engineer, when you see that, your first instinct is “oh we should just throw this all out and start over” . We should build a system that actually comports to the needs that we have as a digital first global real time economy. As an internet company Airbnb is 24/7 but none of these payment systems are 24/7. Like why are they not? Why do they shut down on weekends? What the hell is this? And that was when I realized “oh, that's what crypto is” crypto is these engineers and philosophers and computer scientists and cryptographers and cyberpunks and economists. All got together and said “knowing what we know today about peer to peer systems and game theory and cryptography and monetary policy, how would you design a monetary system differently?” The thing that dawned on me is that all these different cryptocurrencies, especially in 2016 2017 is like why the hell are there so many? Why is there bitcoin and litecoin, ripple and feather coin and all of these random things? And it's like oh these are all different answers to the same question of how should a monetary system be constructed. And I at that point I basically was converted because I believe that what happens in this industry and look I’m not a bitcoin maximalist. I’m not convinced that we are all going to be paying each other with bitcoin or even Ether. But I do believe that what happens in this industry is absolutely going to change the trajectory of money. And the way we do money 50 years from now is not going to be the way we did money 50 years ago. So thats what convinced me to quit Airbnb and to go full time chasing the blockchain. So anyway thats my spiel about leaving Airbnb.

D: It's so funny that everyone I’ve spoken to seems to have this lightbulb moment, and it sounds like you got it much earlier than most. It seems like the people who get into crypto at least as the early adopter kind of way, they just really get into it and I can speak to that myself. I’m coming up on my second year here, so much shorter than your duration in the industry but I think my own external circumstances which you know covid and lock downs and all the money printing are going to help lead me to have a similar “aha” moment” Do you think it's this contagious thing that's like a mind virus almost where its like once people kind of dip their toe in the pond, they really run the risk of getting really into crypto once they understand like “hey all of these systems that we take for granted that we assume like you said earlier that they work perfectly and are intertwined are actually cobbled together and hanging by a thread and we need some new systems to rise up and replace a lot of that stuff.

H: I think so much of it is that, so many people I remember, and you have these conversations now, a little bit less than in 2017, where people will tell you “look, I just dont think bitcoin makes sense. Or ethereum doesn't make sense. None of this stuff can possibly be valuable or be money” And you ask them well you think this stuff doesn't make sense, do you understand how money works? And most of the time the answer is no! Because nobody teaches you how money works, nobody teaches you how the financial system came to be what it is today. We sort of assume that everything is rational but it's this very path dependent evolutionary process that led us to where we are today. And I think what you find without fail is that people who understand money and why the financial system is structured the way it is, the best, are the people who are most able to understand what is so compelling about crypto. That doesn't mean that they necessarily agree or that they think crypto will be the be all end all. But they understand it. And most of the time people who just have this instinctive reaction of “oh bitcoin, that doesn't work, no” it's usually because they don't understand money. And I think for myself, that lightbulb process, was me coming to understand money. And understand really what it was, as opposed to just simply this function in my life that is taken care of by the powers that be. And when you see how part of becoming an adult, if I can go here, is realizing more and more, that the systems of authority and tradition, sort of the way things are, realizing how arbitrary they are, that is the process of becoming an adult. Is realizing that the way things around you work, are right because they are this way, but rather they are right because this works. We wouldn't be here if the system we had around us didn't work. If it didn't work we wouldn't have made it. But just because it works doesnt mean its optimal. Doesn't mean that it's what we are going to be doing 20 years from now or 10 years from now. And you can see that from how much the world around us has dramatically changed in the last 20 years, but its even more obvious in seeing how things have changed in the last two years with the advent of covid. You can see how quickly and how much things can change, speaking about the thing with meetings. I don't think business travel is ever going to come back the way it was. Because we realize now how much we were bullshitting ourselves. About how much travel needed to happen. And in reality meeting someone on zoom or doing a podcast interview is great, its not 100% but its like 85% which is awesome. The same thing i think is part of how so many people they have their mind set around what crypto is transformed. Because it's just another element of these things you realize like ‘huh crypto sounds like this really sci fi idea'' of this kind of non sovereign community of online pseudonymous people who created money that's not owned by any country and they cant be stop blah blah blah, it sounds like something out of a sci fi novel, and the first time I really wrapped my head around with what's going on with Ethereum I thought “someone is making this up or this is just some weird corner of the dark net that no one really, ya know, it seems so far fetched” on first hearing, which is one of the reasons why, the thing that is honestly the most convincing about crypto, is not anything like “here's why it makes sense” or “this is more efficient” or “norm efficient” or “this or that” The most convincing things that convinces people about crypto, is just seeing it survive.

D: Yeah, seeing it persevere

H: That's right. You see it in 2015 and you're like oh this is crazy, bitcoin is at $200, insane. And then you see it again in 2017 it blows up like crazy and it collapses and you say I’m glad I ignored it. And then it shows up again and its not going to go away. People realizer now this thing is not going to fucking go away. You have to deal with it, you have to understand it. And that I find is by the most convincing argument in favor of crypto, is just that you can't argue against technology, you cant argue against the future, it just comes whether you like it or not

D: Yeah as much heartbreak as the 2018 crash I’m sure gave out to millions of people, I think it was overall extremely healthy for the industry just for investor confidence going forward

H: Agreed agreed

D: So lets dial back a little bit. Because I want to get to your time at dragonfly capital, which is in my opinion one of the most prestigious venture firms around when it comes to crypto and I’m really excited to hear about some of that. So you end up leaving airbnb. Walk us through that decision to get more involved in the industry, I mean I know you have that lightbulb moment but like what was your path forward from that, like what steps did you take?

H: Honest answer is that I had no friggin clue. I knew I wanted to be in crypto but I didn't know what that meant. I didn't understand the industry all that well. And you know my instinct when I’m entering into a new domain that I don't really know very well. I just go to immerse myself in it. Just steep my brain in the juices of whatever it is I’m trying to learn and let it sit there and soak stuff up. So I started spending a lot of time around people I knew who were already in the crypto industry. I started listening to podcasts, and reading and going to talks like anything that I could. I started building stuff and prototypes and coding up stuff I was learning about reading whitepapers, just pushing myself as deep into the industry as I could and at first very little of it made sense to me. As I imagine for someone coming in today, very little of what they are interacting with makes any sense either. Given how much more developed things are from when I started. I just kind of kept, even when I didn't understand things. Even when things were way over my head, which they were a lot of the time. I just kind of kept throwing myself in there until eventually, kind of like a child, you just sort of start to see the patterns and understand oh okay these two things go together, this is what lightning is, and you start to develop your concepts and you uncover more and more of the map. You know at first I wanted to build a company but then I realized I didn't realize what the hell I was doing. I didn't know what anyone needed. So you can't really build something till you know the problem that needs to get solved. And I realized I didn't understand the problems in crypto enough. And so I decided instead to go join a startup and to go work in the trenches and build up my intuitions that way. Actually I started before any of that doing some independent security research and me and buddy of mine Ivan, we ended up uncovering a fund running exploit against Bancor which if you remember was one of the first defi protocols that launched in 2017 and had a crazy ICO back then. And we published this vulnerability and that first got us some street cred in the crypto world. And then I joined this company called 21 which became earn.com which got acquired by coinbase. Thats where I got to know the CTO of coinbase Balaji Srinivasan and after that I was working on a stable coin startup where I ended up getting to know Naval Ravikant who was cofounder of Angel List and he runs a fund called metastable capital. And he ended up recruiting me to come on to the investor side and thats how I became an investor. Thats a long story I can go into that if you want, but I don't want the entire interview just to be the minutiae of my career.

D: No its just that you’ve had such an interesting path and I think thats a common throughput with a lot of people in this industry. They think outside the box they’re early adopters, they're big risk takers but sometimes those risks pay off. You’re right we could sit here and talk for another hour about your story...but

H: I feel like we should talk about SFI at some point

D: Yeah lets kind of shift this conversation a little bit. But so going forward the Dragon Fly Fund 2, that rolled out in March is a 225 million dollar fund to invest in Defi, ETH layer 2 solutions, NFTs and centralized finance. So I guess on a grand scale of things, what are specific things you personally look for when you approach investing and say hey I want to believe in these people, I want to put my money into watching this protocol grow. What are some key tenets you look for to identifying a project that has that kind of untapped potential.

H: I think it's, investing has a lot of different frameworks that people apply to it. I think the most common breakdown are sort of 3 components of early stage investing are: team, product and market. Team: kind of obvious right? You want to back brilliant early adopting aggressive founders. And even in the DeFi space where of course many of these projects are decentralized or anonymous there's a community element to it, at the end of the day, there is a generally limited number of people who are driving the majority of the work. And betting on great visionaries who have a clear sense of where this thing ought to go is a big part of investing. Second thing is product. You know, what they are building, how good is it, is it usable, is it delightful, is it 10x better than its competition? And the third thing is market. You know you might build and amazing tax optimizing software which is great, but how big of a market is there for that? Like if you build the best tax optimizing software in the world, thats pretty good. But is it as big as building the next Ethereum? Probably not. So market is always a question that modulates-- even if you knock it out of the park and you become an absolutely dominate protocol or company, how big can you actually get? which is ultimately as an investor thats what Im thinking about because i'm thinking about, how do I invest in the most important protocol or product of this generation. And ultimately the size of the market is the cap of how big that outcome can be. So every different investor has a different weighting of how they think of team vs product vs market and I think at different stages those 3 points on that triangle become differently important right? At the very earliest stages, investing is almost all about team. Because often times you're pre-product and you're investing in someone and they just have an idea or theyre like “look me and my two friends have this thing that is a sketch of a demo and we have some mock ups but we need some money to quit our jobs and do this” Well in that case it’s pretty much all team. A lot of times the market is poorly defined or its very likely they are going to pivot, so market isnt as strong of a question and product, there is not product. As a company develops or a protocol develops, then I think it sort of shifts towards product where its like “ok you're starting to really show your chops and its less about the founders and great story or really charismatic energy thats driving the project forward” and more of a “okay what did you actually build?” Does it work, do people want it, is it usable, are the metrics growing? And as a company or protocol gets more and more mature then the question really becomes about market right? So think for example something like in DeFi, Nexus Mutual, Nexus Mutual right now is the market leader in defi insurance or on chain insurance. And so when you're betting on Nexus Mutual, part of it is betting on product, part of it is betting on team but its much more so betting on market right? Its a question of these guys are the market leader right now in insurance. Maybe they’ll stay the leader, maybe they’ll lose the spot, but so much more of a bigger component of the question is “where is this market going” If this market is not going to grow then it really doesn't matter how much better they do. Because they are not going to increase the size of the market. If you think this market is going to 10x, 100x, because more and more people are going to come onto DeFi and more and more people are going to need insurance then well okay probably the market leader is going to continue to be the market leader and that significantly raises the ceiling on what this thing can become. So thats sort of the way that I think about how to approach investing, it depends on the stage and it depends on the particular type of company it is right? So DeFi vs CeFi so to speak

D: Yeah thats really interesting just hearing that broken down and clearly that is a framework and method that is not only effective but has been incredibly successful for dragonfly. You guys have been backing Compound and Maker and initiatives and protocols. So, I guess I will pivot to this question, that criteria that you mentioned and those guidelines for identifying what protocols you see potential in, and what protocols you believe in the fundamental of, how does that translate into your decision to invest in Saffron Finance?

H: So we have been tracking the risk tranching space for a while, I mean we’ve been tracking DeFi for a a long time. So I think I mentioned literally the very first thing I did in crypto was uh, poking around bancor which was the very first DeFi project on Ethereum. And early in MakerDAO we invested in Compound pretoken and investors in 1inch and a bunch of the early generation of DeFi projects before DeFi became really hot and so its something we have been thinking about for a very long time is how is risk going to be packaged and sold within DeFi. Buying and selling risk is one the most common activities that happens in traditional finance. For good reason because there are some people who have high risk appetite and some people who have very low risk appetite. And being able to transfer risk from people who cannot afford to have that risk for example a fast tube business that needs to minimize their exposure to weather risk in their supply chain because they run a very tight margin business, to a financial speculator who is able to offset that risk or take on some of that risk in exchange for a premium. That is one of the most common activities that happens in finance, is ultimately the buying and selling of risk. So in DeFi naturally as DeFi matures, naturally one of the questions is “How is risk going to be bought and sold in DeFi '' And up till fairly recently the answer was “we don’t know”. Theres no real way to buy and sell risk in DeFi. It wasn't that long ago that we started to actually get perps in DeFi. For a long time there was no professional swaps on most of these DeFi. Certainly no on chain ones. And then you know I think FTX kind of kicked off a trend of launching lots of perpetuals on DeFi coins through centralized venues. But for a long time there was really nothing. And so seeing what SFI was doing in risk tranching, you know risk tranching is one of the oldest methods of being able to buy and sell risk because just think about debt, the way debt is structured is that debt is senior to equity right? So if a company gets liquidated the first thing that happens is that they pay off all of their debt holders, and then everything else goes to the equity holders, that's tranching. SFI we saw was the first and most robust solution to the question of “How to do risk tranching on chain” and we just thought, I mean kind of looking at those 3 prongs, market? Huge! Absolutely the buying and selling of risk is going to be a huge huge thing in DeFi. A big part of the reason for why you are not seeing more adoptions from institutions from retail, from whoever, is that DeFi is really risky. And it's hard for people to control that risk. And having tools for people to be able to offload that risk, and somebody who is able to take it on in an exchange for premiums, that's such a fundamental financial activity, that that is absolutely going to be essential if DefI takes off. So markets are big. Second thing, product? Dope. Obviously SFI V1, still early and still a lot to figure out. But you were the first guys to get it working. It was the first protocol that we saw that was really doing the thing that it said on the tin. And so we were just tremendously impressed by that. And its a hard problem and there's still a lot to figure out and to solve. And then to go to number 3 which is the team. And we just saw that the team was absolutely fantastic. And they had been iterating on this and working on this problem before anyone else did. And they had built a really vibrant and powerful community. So to us, SFI seemed like a really natural project for us to throw our weight behind. And I just want to caveat all of this. That this isn't investment advice, I didn't say anything about the SFI token, but we are very excited about the SFI project.

D: Yeah well thank you so much for those kind words. I was really floored and I still am floored on my day to day too, just being around with these incredibly smart people all the time and interacting with them. Psykeeper, I don't know, that guy is a genius and incredibly humble too. So I’m really proud of the team and I’m glad that echoed.

H: Yeah he's incredible.

D: So going ahead from that, and I know one of the other big cornerstones of the Dragonfly Fund 2 is investing in ETH layer 2 solutions and I was wondering, I kind of have been looking at this space myself, and I have been throwing some interest here and there in terms of ETH competitors. What are your thoughts on that sort of stuff? Do you think it's this digital arms race? Do you think Ethereum will still reign king? Do you think theres some sort of potential maybe for a lesser protocol like ADA (Cardano), avalanche or polkadot?

H: This is a good question, I think to some degree two years ago I was really unsure what the answer of this question was going to be. I shouldn't say I was really unsure but I was 70% confident ethereum would win and 30% who knows. Now its more like 90% that Ethereum wins and 10% of who knows. And the who knows could be any number or players, whether its avalanche or neo protocol or something, even something farther down the list, I don't think BSC is in the running for that but I do think BSC is still an important part of the pantheon of block chains. I think a lot of this comes from the fact that ethereum is just built such an incredible network effect over the last two years especially with the advent of defi. And so much of what makes ethereum what it is, is not even about the technology. If you think about it, Ethereum is already something like, depending on how you count it, like 6 to 8 years old. Because ethereum was originally being worked on in 2013. That's when the whitepaper was originally worked on. Then they actually launched in 2015 properly which is now 6 years ago. So ethereum is old technology. Its been iterated on, and improved on in marginal ways. There's a reason why Ethereum 2 is a complete rewrite of Eth 1.0, because ethereum 1.0, it basically is like the MS DOS of the crypto operating system. And inevitably it will be displaced from the top, the question is by what? Is it going to be Ethereum 2.0? Is it going to be one of the layer 2’s, such that layer 2 systems on top of ETH 1 that then migrate over to ETH 2 where you're mostly spending time on the layer 2 you're not really interacting that much with Eth 2.0 directly. And you're just jumping from layer 2 to layer 2, sort of like jumping from different servers in a video game. That might be the way that ETH 2.0 and the future of ethereum looks. And thats actually the future that vitalik described in a post that he did late last year. So, its a little too early to know for certain, but I think what we do know is that ethereum has such a powerful network effect. Such a powerful community. You know we talk about network effects very loosely but blockchains are literally networks, so if anything has a network effect its certainly a blockchain. Part of the reason why so many of the projects have to build on Ethereum is not just because of the tooling and the community and the daily active users and the TVL and all of these other things that makes ethereum what it is. But the most obvious thing especially for something like saffron, where you guys are a financial protocol, theres this old joke: this famous bank robber finally gets caught by the police. And the police ask him “why did you rob the bank” and the robbers answer is “well thats where the money is” And in a way, thats why everyone has to build on ethereum. Because thats where the money is. So if you're financial protocol, and you want to do something really big, you have to go where the money is. And the money is on ethereum

D: Yeah I echo a lot of that sentiment. Do you think that other competing technologies like Eth competitors might even be integrated in some sort of form in 2 Eth? Like if they don’t replace it outright.

H: I do believe they already are. Most of these other layer 1’s, not most, but many of them, they have EVM compatibility. So you can just port contracts directly over. BSC is the most obvious one where Binance Smart Chain is literally just in Ethereum form but avalanche for example, NEAR has one upcoming, a bunch of layer 1s, Tron, have this property-- EVM which is the virtual machine of Ethereum which is all the computer instructions so you can take contracts written on ethereum and just dump them onto another blockchain and they just work out of the box, they have that property because ethereum has become so dominant. Ethereum contracts are the lingua franca of blockchain smart contracts. So you know its kind of an uphill battle for those smart contract chains that don't have EVM compatibility such as solana or polkadot. I think Solana has EVM compatibility on their road map but right now they don't have native compatibility. So in a way the answer is already yes. Already they have bent their architectures to say “hey we work with ethereum and the ethereum tool chain” but in addition to that so many of these block chains have ethereum bridges. I remember back in 2017, so much of the story of polkadot r and cosmos was that there is going to be generalized blockchain interoperability and it was such an important problem because theres so many blockchains and they all need to talk to each other and you can sort of imagine a kind of map of America and a bunch of different states, and every single state or city rather is like a blockchain, and every single city needs to fly to every other city. That is the world we thought we were going to have to live in, where you need this complicated flight map where it shows how each city is going to talk to every other city. So like hows Zcash talk to Monero which is going to talk to Tezos which is going to talk to ethereum blah blah blah. But it turns out the actual world we live in is one where theres a bunch of different paths to one place, which is ethereum. Everybody has built a bridge to Ethereum, avalanche has a bridge to ethereum solana has a bridge to ethereum, binance has a bridge to ethereum, everybody bridges to ethereum and nobody bothers bridging to anyone else. Which tells me more like we’re in ancient rome. Where you have this huge tree of paths that all go to one city which is Rome, and that today is ethereum. Thats the world we actually live in with respect to blockchain interoperability. Which tells you something about the real structure of what is the dominant blockchain and what are the shipping channels, the trade channels that really matter in this new world that we’re seeing. The only trade channel that really matters is the channel between your blockchain and ethereum. And it seems unlikely to change any time soon but we’ll see.

D: That is such an interesting point that I hadn't really fully considered, I’m really glad you brought that up for us and our listeners. As we close out this with respect to your time, I’d like to just ask whats one thing you wish you knew earlier when you started your investment journey into crypto, even before you became part of an institution but you know even as a retail investors, whats some sort of piece of wisdom you can impart onto our listeners

H: Thats a really good question, let me think for a question. Things I wish I knew earlier...I think for me something I wish I knew earlier, when I started investing I was so terrified that I didn't know what I was doing and that I wasn't really qualified to do this. Because how could anybody be qualified to invest into crypto, the things was just barely invested a few years ago like bitcoins only been around for 10 years. Theres these funny postings saying like “oh we want 10 years in crypto” and its like, yeah but crypto has only been around for 10 years. I guess one thing that took me a long time to internalize, is that you don’t really need anyone's permission or approval to be good at this. You just have to do the work. And I think it took me a long time to really interalize that and it's something I try to pass on to people at Dragonfly, is that you don’t need anybody to approve you or any credentials in order to be great at doing this. Crypto is so specific and its so new and weird and nuanced and multidisciplinary. The only thing you need to do is the work. If you do the work, you learn how the stuff works, you spend your time in the trenches, you read the whitepapers, you play around with the contracts. If you know it better than everyone else does then you can be really successful in this space. And thats the beauty of crypto is that its one of the few things that is truly meritocratic, you either get it or you don't. And if you don't get it, it doesn't matter. No credential or no having gone to some university or having worked at some company is going to save your ass if you don't actually get it.

D: I love that. That's a great one to go out on man. I really appreciate you taking the time out to talk to us.

H: Of course, this was really great. I really enjoyed talking with you Dingo.

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