Vlad Martynov on Ethereum ecosystem and venture capital in crypto

Vlad: Well, I think it will be blended way or hybrid models because, for some projects, DAO is the best way to raise funds. ICO is the best way to raise the fund and the DAO is the best way to govern the project. But there are some projects where obviously venture money is the preferable way because look,

The crypto market is not only like infrastructure or decentralized applications. The crypto market is like in the golden rush. It’s the whole infrastructure of many things like a company that is serving this kind of market. It’s a bank that started moving into DeFi, a kind of bridge between decentralized and centralized finance. Those different types of applications will help you to make an audit or security audit or these types of services will help you to do many, many things.

This is not only about this. For some projects, definitely, we are fully decentralized applications like in…

Let’s say as an example, in the prediction market, we invested in one company called Azura. They started through the decentralized platform to do sports betting, but then they eventually moved to predictive analytics. And for them, DOW is the kind of natural way to govern their business. fundraising is more natural to do ICO. But by the way, they still had a kind of hybrid model of how they raise funds. They use ICO, but they also use kind of tier one and tier two.

VC funds from which has which focus on the crypto market, which focuses on web3 applications like us.

Dorian: And how about token allocations? Do you see the future as being sort of like issuing tokens or a sort of equity? Do you see a blend between maybe issuing a token and giving a sort of traditional equity? Are there changes happening to that aspect of the…

Vlad: Well, if you talk about Web3, I think it’s moving to tokens, definitely. I think there is still, from time to time, the hybrid model where startups offer both investments or into equity and in tokens and sometimes both in equity and tokens. So, I think in the future, we’ll see more and more tokenized investments. So, but it will take…

Tony: In what sense, Vlad? Like real estate? What are we looking at when we talk about real-world assets and tokenization?

Vlad: Well, basically real world assets will have a digital analog, digital kind of twin like token and that will be more accessible. Will be, it will be, it will open opportunity for a lot of people to get access to these assets. It will be more liquid. It will have less cross-border friction.

So I think I have no doubts that tokens will dominate in a kind of value exchange transactions, not only financials but any type of value exchange transactions. And actually, we are not far away from this because I know that a lot of regulators are considering special legislation and liberalization of the tokenization of real-world assets, and the biggest one in the United States, for example, with the Trump administration and his desire to lead the blockchain revolution rather than to fight against it, as he said. And the whole working group he actually set up, the whole kind of people who around him, like Elon Musk or Robert Kennedy Jr., who are the biggest advocates for crypto, and David Sachs group, which is working on many things.

And I think one of the first biggest things in addition to what is public kind of attention has been drawn like national reserve into Bitcoin like this and that we’ll see a lot of efforts to tokenize real world assets, stock exchanges, know like commodity and real estate, just name it. So this is going to be a big thing. So we’ll see probably in a five-year time frame, maybe earlier, that tokenization will be all over.

Dorian: And how about other jurisdictions? You mentioned that, you know, in the United States, you’re a bit more optimistic. How about in other jurisdictions like Canada, Europe, and Asia? Are you seeing developments that are sort of mirroring the U.S. and other parts of the world?

Vlad: Look, over the last 10 years, most of the countries, they tried to kind of ban crypto and they didn’t understand it well, what is behind it. They put some regulations which were quite aggressive towards crypto. But there are only a few small countries that try to be liberal to crypto.

But they’ve been a little bit careful what the US regulator tells us, or if they notice us, if they allow us to do this. So now, with certain political statements from the United States that crypto will be liberalized in the United States, I think most of the other countries will do more and will not be as afraid as they used to be.

To go ahead and liberalize crypto. The only few exceptions might be countries like China, for example, right where different political systems system and they might be kind of behind the whole trend. But other than that, like the Middle East, Europe, North America, and South America, I have no doubts there will be a lot of developments in these regions.

Because South America already was pretty much in the crypto, much more kind of ahead of everybody. Middle East, also like the Emirates, is kind of ahead of everybody. Small countries like Montenegro, Georgia, and a few others like Thailand are ahead of everybody in terms of liberal isolation towards the crypto. So, and I think everybody else would join except a few countries which keep. Kind of a photocratic political system.

Dorian: And given all these changes that are happening, where do you see developments in the DeFi landscape, whether it’s point of sale, retail? I just saw something on X today that you can now watch seven minutes’ worth of ads in order to avoid paying Ethereum gas fees. Where do you see the future of blockchain development from a development and engineering standpoint, as well as a user standpoint and a UX standpoint? Where are you looking for? For changes and developments as someone who’s an investor and looking for opportunities in the space.

Vlad: I think there is one single thing that can make a huge difference. It’s a kind of game-changer. Look, today, one of the biggest challenges or gaps between decentralized finance and regulation is KYC. How to build a bridge between traditional financial institutions, which kind of makes KYC much harder than it used to be and requires a lot of things to confirm.

And basically, defy where people would like to stay private and not share information about themselves. So how to kind of confirm that there is a legitimate player with kind of clean money dealing during this certain transaction, right? At the same time, do not expose or share any data about this player.

So basically, this is where developers can, together with regulators, find the solution. For example, from a developing point of view, the zero-knowledge proof might be a technology that can at one time confirm that this is a trusted player and, at the same time, not share data, like extensive data about this player confirmed to financial systems.

By doing this, probably I should start, the biggest challenge is conversion from fiat to crypto in DeFi and back from crypto to fiat from DeFi, right? And so think about how traditional financial institutions like banks have this breach where DeFi protocol confirms this as a trusted player. So you don’t need to go through the whole KYC.

The only thing why I say it should be direction from both because financial banks need to reduce the requirements in terms of KYC. Need to be, like traditional banks, they need to return to what they used to be 20 years ago. If the bankers test this as a trusted player, it is a trusted player. I don’t need to, every time I deal with the bank to confirm and prove I’m a trusted player, right? So, and this is a kind of movement from a technology point of view. We truly have a technology that confirms with a trusted player.

But these guys, traditional institutions, they reduce the requirements, they return back to a different practice, which used to be like 20 years ago or 15 years ago.

Dorian: Well, so you’re essentially talking about a zero-knowledge KYC protocol, which, to my knowledge, does not yet exist. Are you aware of sort of new developments in this?

Vlad: Exactly. Yeah.

But you asked me about where the trend is and where the developers should put some effort into finding the solution. Where is the opportunity? This is an opportunity. The developers who will find the solution to basically that will be one of the biggest successful projects in the crypto industry in the near future.

Dorian: Okay. Yeah, I totally agree.

Vlad: But the technology is not enough. It’s important that the legislation and the regulator allow banks to have different practices. So if they continue asking you about the source of funding, they continue asking you about a number of things, which is crazy these days, then of course, even zero-nourish proof will not help.

Dorian: You think this is something that will be developed at the level of the wallet or the blockchain or like a bank? Like, where do you see this sort of development being built?

Vlad: Not the bank. Think wallet or blockchain. It’s very difficult to say, frankly speaking. I think probably at the wallet level. That would be my hypothesis. But, know, it’s a very complicated area to say something specific about that. My gut feeling says it should be in the wallet level, but I don’t know.

Tony: What kind of entrepreneurs impress you? As an investor, what are you looking for? What are some of the corners and aspects of the crypto sector that are enticing to you? And what is deserving of your capital? For the entrepreneurs out there listening to this podcast and tuning into Crypto.News, the show, what should they know from a guy like you?

Vlad: Well, I think it’s not a big difference from any high-tech startup. When investors look for certain projects, they look first of all for people and the product idea. So, by the way, crypto people are even more important than the product idea because there should be a much higher level of trust from the investor, from venture investor to the project team, to the founders.

So people, how passionate they are about what they do, how flexible they are in terms of like changing. like based on the market feedback, based on the community feedback. So how, if they share, what is their intentions?

If it’s just about quick money or the really excited about the whole idea of a decentralized future. So they understand this kind of permissionless, censorship-free internet is a much better place to be. And of course, we look at the skills profile and respect because let me talk a little bit about the problems and I experienced all the projects I saw which quite typical for crypto particularly during ICO time, but still a lot of projects like this these days.

Usually, it’s very genius, sometimes very genius, sometimes just very good developers who believe that technology is everything they need to be successful. So, and they came with sometimes good ideas, sometimes strange ideas, but anyway, they come to us and say, okay, we need money. This is our product.

We need your money. We don’t need to hear from you for the next three years. So I ask, okay, do you have a business model? No, we have to economics. When we look at economics, see, okay, economics is basically a location table. How my tokens go to different hands, right? Okay. I’m saying, do you have a financial plan? Do you have basic stuff? No. I say, how are you going to run the business? How are you going to run the business? Oh, we don’t need it. We’re encrypted. I say, well, the fact you encrypted doesn’t mean you need, you don’t need to be having a business model.

Another question could be the product. Okay, you have a product idea. Have you validated somebody needed? No. Well, probably before we spend a lot of money, we need to kind of validate that people like it, people will use it even for free, and then we need to validate if people are ready to pay for that. Oh, we don’t need it because we have amazing community hundred thousand people on telegram or somewhere

In this court, etc, and they’re gonna love our product when we launch it, when you’re gonna launch it, we don’t know, but we keep running our community with a lot of promises. Anyway, we don’t we don’t like that. We want people who respect any technology it is very good, and I’ve been there for 25 years, and I’ve been through at least three disruptive technologies and I invested and came up with my projects in the early days with this technology.

It’s all good. It changed business models, but you cannot say it’s completely disconnected from what it used to be before. So you need to inherit some good things and some fundamentals. By the way, some fundamentals never changed. You need to make a profit one another way. Even if you make a profit and share everything with your community, you still need to make a profit to reward them. So.

And people, for some reason, forget about that. They say they have technology for the sake of technology. Great. Anyway, that’s why I expect people to respect some basic things. People are passionate about the idea of a decentralized future, about their own product, at the same flexible enough and ready to adjust if necessary, if the market provides you feedback. So that would be in.

Dorian: And speaking of tokenomics, are you seeing changes to the sort of way that issuance is being developed, whether it’s through vesting periods and unlocking? And if so, what are some of those changes that you would like to see as an investor when it comes to, you know, having a clear tokenomics structure that makes sense for not only investors but also retail and other participants in the market?

Vlad: Good question. I definitely see change because in the past, in the early days of ICO, the issue of talking to investors, there were not really lockups or lockups for a short period of time. Right now, the market has different lockups for one or two years quite often. So, wasting period much longer than it used to be.

Dorian: Will we see changes to the system where perhaps lockups are conditional to token performance? for example, CZ had a tweet the other day, and he gave a speculative idea for a token issuance where he suggested that perhaps 10 % of tokens can be unlocked and sold on the market, but only based on the condition of the token hitting a certain price. are you seeing sort of like these sort of dynamics and it’s like, you?

Vlad: Look, I don’t see dynamics, but I definitely… Well, there are some minor, but not fundamentals. I would like to see a change in economics because basically, I think, as of now, the system is kind of broken for investors and for the market in general because look, what happens usually, founders kind of get money from investors, issue talking to them, go and make listing and then sell…

And I mean, right after listing or within a short period of time listing when investors wait for a year or two in a year or two project go, I mean, the price for the talking go down and basically both retail investors or even kind of venture investors, they don’t make this money.

So I think that definitely needs to be certain changes which reflect certain values of the business, which reflect certain resilience of the business. the connection between talking and lockups should be… By the way, this comes down to the financial model comment I made earlier. When we talk with our potential investors and the companies in our portfolio, we ask them to build a financial table and forecast where we connect.

Certain talking allocation to the business metrics, like you have revenue, you have a profit or whatever it is, your treasury, wallet growing, et cetera. And then there is a correlation between the amount of talking on the market with kind of, let’s say, let’s call it profit made. And particularly if you have a buyout kind of system or burn system.

like you kind of build a correlation between profit and the tokens on the market, then it’s healthier for investors and for the market that you don’t issue a lot of tokens unless you have a good profit. anyway, I think there are a lot of changes that need to be implemented or introduced so the whole economy will be a more healthy place for investors. But now, every second project like

founders made money, investors stay at least for a long period of time with these stockings because in a year or two, the price usually much lower than the first two months after listing.

Dorian: You also have Vitalik’s ear. You are a Vitalik whisperer. Can you tell us what insights you have learned from your recent conversations with Vitalik?

Vlad: Well, actually, our talks lately are primarily about decentralized governance and direct democracy, and this is a big passion I have. So, we talk about network states a lot. Talk about, I mean, when practically this might be possible when people will have more power to make an impact on rules of the society they live in, reducing the role of governments and these types of things.

One thing is a theory in a network state, but another thing is when and how practically it can be implemented. So, this is my primary theme for discussions with Vitalik. However, of course, I participate in certain events, sometimes closed events.

And I hear about, for example, this story, where we just talked about zero knowledge proof as a solution for KYC. That’s one of the topics we discussed in Zuzalu event last summer in Georgia. For example, another topic is abstract accounts, where the crypto wallet should be so intuitive and close to online banking applications.

So if you still lose your… let’s say seed phrase or password; you can still get access to your money. So these types of things we also discussed. By the way, it’s also a big opportunity for different startups and also a big thing that can increase mass adoption of crypto so as soon as we have the solutions intuitive and good enough.

Dorian: Can you explain what the concept of network state is? I understand it as being a sort of a new political philosophy that is looking at the blockchain as a sort of decentralized global network, but politically and economically, and how do you define network state?

Vlad: Well, I define that in a decentralized environment, people have the right to vote for certain decisions. They can form their community, countries, cities, whatever you call it, both in the digital space and in the physical space. And they have this, let’s say, talking, which give you rights to vote for certain decisions, they make decisions like collectively, and they also act collectively, executing these decisions or reaching certain goals. Regardless of where they’re located on earth and regardless of what political countries they carry passports from, regardless of whatever it is, like if they become a part of the community, let’s call it network state or digital city or whatever it is.

And they’ve got certain rights to make a decision and certain rights to act collectively, then they become a part of network state. And by the way, they can be a part of different countries and network states. It could be one country which is trying to achieve and save, I don’t know, Wales, another country which gets together, community get together to achieve another goal, right? And within this country, there is also currency.

There are also certain governance rules, there are certain things, and that’s the way it is. But you also mentioned how it’s going to work together with kind of current classical traditional countries. Well, I think we discussed quite a lot. Mean, with a growing number of digital normals, which is by itself representative of very intellectual part of society and they travel all across the globe, and usually it’s relatively wealthy people and some countries they are competing to get these people in their country even for a short period of time so they stay one-two months.

And because they create a lot of values by staying in the country, opening businesses in these countries and spending money in these countries. So I think one part is like, if network state issued digital passport, which confirms your identity, that you are a trusted person, confirms that many, many other features and characteristics.

This passport, a digital passport issued by a network state, is good enough to accept, for example, this person into a country without any visa, for example, right? Without any passport because like basically the confirmation by, let’s as,y 100,000 people community, which understand your track records or behavior within this community is probably much more important than

a piece of paper issued by the centralized government who probably knows nothing about you. So I think, and if that happens, then a lot of countries would be happy to embrace these people and provide different types of services. There are different grants and programs in Portugal and the Emirates where they try to attract talented people to their countries. And this point of integration between network states and the physical countries. So that’s one part.

Dorian: And can you explain a little bit about what Zuzalu is and how this relates to the network state and the actualization of the network state?

Vlad: Zuzalu is a pop-up city so-called. This is, let’s say, a community that comes to get… Well, first of all, we do a lot of things digitally, but also come together from time to time in one place and spend together, like, let’s know, one, two months, depending on event, spend together to discuss high intellectual questions about decentralized future and longevity, and also talk about how certain great ideas or technology or both can be implemented in real-time and how they can be implemented, introduced, and experimented. So they can make an impact, show the way, and show examples what is possible even withinthe current set of things with what we have.

Today on earth within current financial political system and and all challenges we have. So, I think this is how I would define it. And of course there is a lot of networking, but I think the most value is people discuss it, this matters on a very detailed level and plan how to implement it. That would be. And then they collectively do a lot of experiments. They are collectively between these popular events where we come together physically.

Between this, we do a lot of things remotely.

Dorian: Yeah, it seems like there’s such a sort of techno-utopian ethos to Zuzalu and even the network state. But I’m curious, what are some of the risks that you see with creating a decentralized network state? I mean, we’ve had so many stories of different forms of hacking, and you mentioned longevity and even biohacking. mean, it seems to me that there can be a lot of issues with that too.

Tony: And it seems like the hacking is getting worse and worse. We just had the largest on record. I mean, for a guy who’s very focused on legitimacy in this space, it seems like a very overrun sector with illegitimate people.

Vlad: Yes, the hacking and the whole security is an issue in general for the industry. What can I say? I mean, people are working to reduce the risk of hacking and improve security. And this is like a big area, an important area.

Dorian: Are there leaders in the Zuzalu utopia? Is there a UBI component to it? Is this like an anarchist space? Is this a communist space? Is this a libertarian space? mean, in terms of the political ideology of Zuzalu, is it something that you’re trying to create a utopia or are you trying to create what kind of utopia? Is it a libertarian utopia? Is it a communist utopia? Is it a blend of them?

Tony: The impression is that it leans toward a very alt-right political agenda.

Dorian: But it seems like there’s a UBI component to it. Seems like, you know.

Vlad: Look, we never discuss, we never put the label on this. I can tell you my subjective perspective. I think libertarian is a more accurate word to define again from my perspective. Maybe some other members of Zuzalo will say, no, no, no. I don’t think anybody would say it’s a communist utopia. Maybe somebody will say, no, it’s anarchy. But I don’t think it’s anarchy. I think it’s more libertarian. But I wouldn’t say it’s a utopia.

Basically utopia, it is just theoretical ideas that probably never happened. So, very low probability it happens. think people, it’s not utopia because we discuss what is already exist. We discuss decentralized finance because we discuss DAO. DAO it’s working, and it’s in several projects. That’s the only way to run the project is through DAO.

There are certain things very innovative and sometimes could be could sound and look radical. But look, the whole Ethereum on certain days and the whole Bitcoin would sound radical, like a few years before it was launched. And probably at early days, even Ethereum, lot of people, very few people who believes in DeFi and decentralized finance, it will exist and it will grow. Right.

So I think I wouldn’t call it utopia, but it’s definitely a libertarian kind of flavor all over in topics we discuss in Zuzalu.

Dorian: I did have one final question, though, with respect to everything you said, just to sort of wrap up. And I wanted to tie this back into the role of prediction markets and AI and where you see the future of blockchain with respect to this intersection between, let’s say, blockchain technology, AI and prediction markets. Are we seeing a convergence of all of these things that will supercharge the industry?

And if so, what’s your sort of take on?

Vlad: Absolutely. We’ll see the convergence of these three segments. But specifically, I would mention the importance of convergence of AI and blockchain, because this is two disruptive technology and they can help each other. I mean, big time. First of all, AI, if it’s centralized, can turn into something like centralized social media, which they are quite often used by politicians.

They can cancel you, they can de-platform you, and a lot of censorship, by the way, is going on in social media. This is a kind of tool that politicians use to manipulate people’s perceptions and people’s minds. And AI is much more powerful in doing so. So, if we keep centralized AI, that might be a bad thing. So, decentralized AI could be a completely different story because it would be more transparent.

Under the control of the community and many, many other things can be good. At the same time, for blockchain, you mentioned hacking, you mentioned security as the biggest challenge. If we have AI, which is particularly for retail investors or just simple users who are not tech-savvy users, AI can help big time to make audit smart contracts and make them objective. So to without human error or human intentions, to miss a certain back door.

And AI can help to onboard any non-tech savvy person in a safe manner into the wallet, into DeFi exchange, into many other DeFi or decentralized online tools and applications. I think, I mean the emergence or convergence of AI and blockchain will be a huge thing and will create a lot of good for people and for both technology and industry.

Dorian: There you have it. Vlad Martinov, thank you very much for your time. And we’re looking forward to part two, which will be your exclusive conversation with Bibi Vitalik Guderian. Thanks a lot for your time. Thanks a lot for your time. But maybe see you in the network state at Zuzalu.

Vlad: Thank you very much, Thank you. Bye-bye.

Tony: Thank you, bye!