OG Olaf Carlson-Wee on Why His Crypto Thesis Is Stronger Than Ever - Ep. 598
Jan 23, 2024
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Olaf Carlson-Wee, Founder and CIO of Polychain Capital, shares his deep crypto insights as an early Coinbase employee. He discusses how the launch of spot Bitcoin ETFs signals a significant market shift. Olaf emphasizes the role of cryptocurrencies as an 'incentive vortex' challenging traditional currencies. He critiques Worldcoin's distribution strategy and explores the innovative potential of Eigenlayer for Ethereum. The conversation also dives into the importance of fair token distribution and the captivating intersection of crypto and AI.
Crypto constitutes an 'incentive vortex' that will replace country-backed currencies, according to Olaf Carlson-Wee.
Scalable infrastructure, such as Arbitrum and Solana, will enable the development of innovative applications in the upcoming bull market.
Criticism of the crypto industry often stems from opinions on capitalism, money, and markets, which are inherent to any monetary system.
Deep dives
Incentives and Working for Crypto
The episode delves into the concept of incentives in the crypto space, highlighting how individuals can become wrapped into the incentive mechanisms of cryptocurrencies like Bitcoin. The speaker emphasizes that individuals ultimately end up working for these autonomous protocols. The discussion reflects the idea that cryptocurrency and traditional monetary systems are interconnected, with both systems relying on incentives to drive individuals' behavior. The speaker also mentions the importance of perceiving cryptocurrencies as a backbone of financial incentive that can sit beneath existing applications like social media or video games.
The Bull Market and the Role of Infrastructure
The upcoming bull market in the crypto space is discussed in this section. The guest highlights the importance of scalable infrastructure in unlocking new applications and novel features during such market cycles. Projects like Arbitrum, Solana, Celestia, and Eigen Layer are mentioned as examples of infrastructure that will enable the development of innovative applications. The guest predicts that the current bear market phase will introduce more scalable infrastructure, particularly in areas like crypto social networking and crypto-enabled video games, offering financial incentives for users beyond the traditional investment vehicles like Bitcoin. They also anticipate a more public and widely observed bull market in crypto due to the increasing mainstream interest in the industry.
Criticism of Cryptocurrency and Intrinsic Value
The episode touches upon common criticisms of the crypto industry and provides counterarguments. The guest highlights that people's criticisms of crypto often stem from their opinions on capitalism, property, money, and markets. They emphasize that money is a socially constructed and imaginary system that only holds value in the context of a social agreement. They argue that many of the accusations made against crypto are not unique to the industry but are inherent to any monetary system. The guest also discusses the attitude towards decentralized stablecoins, saying they offer durability and security, but centralized alternatives like stablecoins offered by entities such as Justin Sun's TRON may provide practical use cases for emerging markets.
Modular Approach vs Monolithic Approach in Blockchain Architecture
The speaker discusses the benefits of a modular approach to blockchain architecture, citing Ethereum as an example. In a modular stack, various teams work on different components, such as core protocol development, layer two systems, and data availability. This approach allows for diversification and reduces dependence on a single group or person. In contrast, a monolithic approach, like that of Solana, may offer a simpler user experience in the short term but lacks the long-term scalability and security of a modular system.
Eigen layer and the Future of Ethereum Ecosystem
The speaker highlights Eigen layer, a technology that allows third-party infrastructure or applications to plug into the security offered by Ethereum staking. This enables new applications to secure data without having to launch their own tokens or bootstrap their value. Eigen layer is expected to launch in the first half of 2024 and has the potential to unlock a range of applications beyond what is currently imaginable. While early applications are likely to involve secure middleware services, the speaker believes it will lead to a broader blockchain SaaS ecosystem in the future.
Polychain Capital founder and CIO Olaf Carlson-Wee has been through every single bubble in crypto history, from Bitcoin’s rise past the single digits in 2012 to the ICO craze of 2017 to 2021’s NFT mania, and he says his main thesis about crypto has remained consistent since the beginning. That is, that crypto constitutes an “incentive vortex” that will replace the world’s preoccupation with country-backed currencies.
Carlson-Wee, who was the first employee at Coinbase, joins Unchained to discuss the significance of the launch of spot Bitcoin ETFs, how he successfully navigated all the industry blow-ups in 2022, the challenges of balancing incentives for early adopters versus new users, why EigenLayer is so significant, why Worldcoin’s distribution strategy is a “disaster,” and the strange places that the intersection between crypto and AI could take us.
Show highlights:
Why Olaf sees the current market as the cusp of another bull run and how his thesis has remained consistent since 2011
How the launch of spot Bitcoin ETFs marks a significant milestone
Why criticisms of the crypto space are really criticisms of money in general
The fundamental differences between Web3 applications and the Web2 ecosystem and why they matter
The importance of fair token distribution in enhancing the value of Web3 projects
When Olaf expects Bitcoin to replace legacy financial systems
The areas and technologies Olaf and his fund are keen to invest in
Why Olaf thinks a modular blockchain architecture is superior to a monolithic one in the long term
How EigenLayer is innovating to enable new types of applications and whether it competes with Celestia
How Polychain managed to avoid being hurt by the major market blowups of 2022, including Terra and FTX
The evolution of the space from an ideologically driven to a more pragmatic approach
The significance of incentive design in crypto ecosystems and the trade-offs involved in system design
Olaf’s perspective on the recent rise of points systems
The growth of privacy-focused crypto projects and the potential for private blockchains to become the norm
Why he thinks Worldcoin’s distribution strategy is a “disaster”
Olaf’s interest in the intersection of AI and crypto and potential developments in this area
