Partnered With:

A16z partners on market 'crash' : Many of the problems are due to lack of adequate regulation

Read this article in 23 Minutes

Chris Dixon: In my view, it's not just cryptocurrencies that are falling in the market.

The original title: "the Opinion | As bitcoins Busts, What 's the Future of Web3? And What Even Is Web3? & have spent"

Kara Swisher, The New York Times

Hu Tao, Chain Catcher

Chris Dixon is one of silicon valley's most enthusiastic Crypto evangelists. As a general partner at venture capital firm Andreessen Horowitz (a16z), he is currently leading a16z Crypto, a search for investment opportunities in the Web3 space. Last week, Bitcoin hit an 18-month low, Ethereum's value has fallen to a quarter of its November 2021 peak, cryptocurrency trading platform Coinbase announced it would lay off nearly 20 percent of its staff and cryptocurrency lending platform Celsius suspended withdrawals, and there have been black swan incidents.

Against this backdrop, Chris Dixon recently sat down with The New York Times' Kara Swisher to talk about Web3, Stablecoin, regulation, and the collapse of the crypto market. Here's an excerpt:

Kara Swisher: Can you give a brief explanation of Web3 and how it's different from Web2? Can you give a brief explanation? Maybe this concept can't be summarised, but give it a try.

Chris Dixon: 嗯，简单来说，Web3 是一种构建网络的全方法，Web3 网络不是由公司拥有，而是由用户社区拥有。所以，你知道，你可以拥有一个社交网络，通过 Token 和其他类型的机制，社区获得网络的经济优势，他们控制网络规则，从而结合开放的最佳特性，Web3 就像是整合了 Web1 的去中心化协议与 Web2 的先进现代功能。

Kara Swisher: in other words, there will be no Google in Web3.

Chris Dixon:I hope so. In Web1, no company benefited from the growth of the Web. I mean, there are individual companies on the network, but no company owns the network, right? In Web2, you have a group of companies that own the network. And I think we're in an era where four or five companies control most of the Internet. I think this is a bad thing for a number of reasons. I think Web2 makes the whole thing less dynamic and fun, but I think, more importantly, for creative people, if you do what you do, or if you're an artist, or you're doing it -- you're now being mediated by these companies that are very, very good at extracting all the money.

Kara Swisher: well, Andreessen Horowitz is going to be a big part of Web3.

Chris Dixon: Exactly.

Kara Swisher: There seems to be no doubt about that.

Chris Dixon: Exactly.

Kara Swisher: Yeah.

Chris Dixon:That's true. We are part of Web3.

Kara Swisher: But the crypto market doesn't seem to be doing so well these days. So let's talk about what's happening right now, and can you explain the cryptocurrency crash and how you evaluate it as an investor.

Chris Dixon: Of course. Actually, I mean, I guess my view right now -- I mean, nobody really knows the full macro picture. In my view, it's not just cryptocurrencies that are falling in the market.

I mean, if you look at the high-growth tech stocks, for example, they're actually down a lot, too. I don't know what's going to happen next, but it feels more like 2008 to me, I would say. It feels like a macro thing, with inflation and everything else. Again, I'm not an expert on this. I think the first to suffer are the highly liquid, high-growth stocks, like crypto and tech. So we'll see how it ends. But I do think it is

I think a couple of things are happening. So cryptocurrencies have certainly been very volatile over the years, no doubt about it. This is an emerging industry category. I mean, we put a lot of emphasis in the vc category on early stage technologies that are being built, but those technologies may not be very mature initially, so that's definitely a factor. But I think it's also a whole macro thing, and we'll see how macro economics plays out in the crypto market.

Kara Swisher: Ok. Let's talk about this crypto market crash. Bitcoin and the entire industry you've been investing in have been particularly hard hit than any other sector. Currently, bitcoin is around $22,637. (Note: this figure is BTC price at the time of interview)

As recently as November 2021, bitcoin hit $68,000. At the peak of cryptocurrency, the overall market cap was roughly flat at $3 trillion, but now it's just $1 trillion. Ethereum, by the way, is worth about $1,200, down from a high of $5,000 in November. How do you solve this problem as an investor?

Chris Dixon:Well, we have a venture capital model, right? So we're not a hedge fund, so we're not going to buy a bunch of stuff and bet on momentum and stuff like that. So we do this.

A very deliberate choice, by the way. We said very deliberately that we were going to be a venture fund. We want to take a long-term view. Our Limited partners (LP) are the same as the LPS in our main fund, which are basically over 12 years. We told them, look -- there's going to be bad news in the market, but I believe in crypto, and I'm going to devote my career to it, but you should opt in if you want, and we've actually attracted a bunch of LPS.

Kara Swisher: So essentially, these people give you the purse and you take it.

Chris Dixon: You're right to say that. Yeah, LPS are the ones who give us money. So we had a group of investors who chose this model. I mean, they're big institutions, I don't know the exact numbers, but they're probably putting 0.1 percent of their endowment and other things into these kinds of projects -- they know it's venture capital, right?

Kara Swisher: You're already a $4.5 billion crypto fund.

Chris Dixon:Yes, that's our new fund.

Kara Swisher: Focused on blockchain investments?

Chris Dixon: Yes, we just finished raising our new fund.

Kara Swisher: Yeah, it's about time. Have you received a lot of phone calls today, this week, or recently?

Chris Dixon: From limited partners?

Kara Swisher: Yeah.

Chris Dixon:To be honest, I didn't get a single call.

Kara Swisher: Really?

Chris Dixon: Yeah.

Kara Swisher: Don't they look at the market and say, "Oh, oh, my god."

Chris Dixon: In fact, many of our LPS have been working with A16Z for over 10 years. We spend a lot of time trying to educate and make people understand things. I'll be hosting some kind of webinar or something at some point and probably talking to people and things soon. But no, I think our limited partners are very patient

Kara Swisher: So they're not freaking out now? After all, people get scared when the market plunges.

Chris Dixon:Don't.

Kara Swisher: So, are you still bullish on the crypto market? Is it time to double down on your ideas?

Chris Dixon:Yes, I am very bullish on the crypto market. I mean, the way I look at encryption, you know the history of the Internet and technology, I think it's two separate processes that happen. On the financial side, I think cryptocurrency prices were too high last year, and of course, I think they've fallen too low this year. That's my understanding. I'm not offering investment advice. But it seems to me very unstable in a way that doesn't entirely make sense. On the product and technology side, I think about: What is the pipeline for a good product? What about the infrastructure? Is it constructed? So you think, I put blockchain into history, and if you go back to World War II, every 10 or 15 years or so, there's a new wave of computing. I spent a lot of time thinking about it and reading its history.

Each wave has what I call a incubation phase. In mobile computing, for example, we see the emergence of companies like General Magic. I think it was' 93 or '94 or something, right? That's so early. I was watching Die Hard the other day, and for some people -- not die Hard, is it -- lethal weapon.

Kara Swisher: You've seen this before. But let's keep an eye on this news. I would like to compare it to something else, like the fact that crypto bank Celsius stopped withdrawing money from its nearly 2 million users, or the fact that cryptocurrency exchange platform Binance temporarily stopped trading. It feels like we've all seen "It's a Wonderful Life," and we know what a bank run looks like, right? What do people think when that happens?

Chris Dixon:Well, I think we should talk about regulation, and I think a lot of the issues here are around not having enough regulation of these things. We are not directly involved with Binance, Celsius or Terra or any of them, but my point is that in general we have very little guidance from the regulators who have been doing what is really called law enforcement regulation. So selective regulatory action, I've been on Coinbase's board for a long time, and the thing that frustrates me the most is that they spend a lot of time and money complying with the rules, and then they always have some kind of offshore competitor that flout the rules. What's going to happen is that, for whatever reason, regulators are spending all their time on Coinbase. Let's take Stablecoin as an example, and see how Terra Luna has made headlines, right? I think the U.S.D.C. is the gold standard for stablecoins.

Kara Swisher: Explain what USDC is. Is the dollar?

Chris Dixon:USDC is a $1 blockchain Token because they actually have $1 sitting in the bank, right. And it's audited. Like, is it perfect in terms of regulation? I don't know. Maybe they can upgrade a little bit.

Kara Swisher: USDC is considered the safestStablecoinOne of the?

Chris Dixon: Yes. But I mean, they do have a dollar in the bank. That's very, very different from some of these so-called unsecured stablecoins, which have nothing in the bank. Yes, the unsecured Stablecoin is just backed by another token. Then they had a run on the bank. So I think in a smart regulatory system, it's the regulators who distinguish between those two things, right? They say, well, there are rules.

If you're going to call yourself a Stablecoin and you're going to market it and you're going to say it's safe -- and I think that's the worst part, is marketing to the consumer -- you need to do some things, but those rules don't exist.

Kara Swisher: So, let's talk about 2008 analogies and mainstream cryptocurrencies. How much of the current market rout is a recognition of systemic risk? Some have compared it to the financial crisis of 2008. Do you agree? Some argue that the crypto market is still a small area, given that real estate is a $43.4 trillion industry and gold is worth $10 trillion. Of course, those have experienced great volatility, especially housing.

Chris Dixon: I think as of today, the total market value of all crypto assets, including Bitcoin, is about $1 trillion, which is half the value of Apple stock. But, I mean, literally, the crypto market is minuscule in the global economy, tiny, nothing compared to housing, credit, stocks.

Kara Swisher: But from your perspective, is this the "moment of 2008" for cryptocurrencies?

Chris Dixon: Well, when I did it in 2008, I thought about it more -- I mean, as I talk to friends in the financial world who are much broader than cryptocurrencies, I mean, I haven't seen such negative sentiment since 2008. It's like the end of the world. I don't know if you've had that experience, but I'm surprised at how negative people are.

Kara Swisher: Yeah, is it too early to tell how great encryption is?

Chris Dixon:I'm not saying encryption is great. But look, I think -- let me say something else, I think there are really two factions in the crypto industry, right? There is a faction that we think we belong to, and this is what I described earlier, the Web3 Builder faction. Then there is the other aspect, which I call the casino. I generally don't like people who bet on encryption, and I don't support them. I don't like these ads, I don't think they talk about innovation, they send the wrong message. I don't think these things are good, I don't know if they need to be regulated or anything.

I think core technologies are very important, and in the short term, we need some smart regulation. I want to see balance so that we can still build what I've described. We can build social networks and markets and all kinds of new things. And, look, I think this is the most important thing to balance the power of big tech. There is no other credible disruptive competitor -- in my opinion, there is no other disruptive technology in the world right now that has a real chance of beating these companies, other than Web3.

Kara Swisher: But Jack Dorsey (what I call crypto evangelist) is also against people who invest like you. He's against centralization.

Chris Dixon: We were hit from all sides.

Kara Swisher: So let's talk about this idea of fraud and fraud. We meet a lot of people who say, cryptocurrency is a massive scam? There is also a lot of plagiarism. Could you talk about it in detail?

Chris Dixon: Yes. Look, as I mentioned, I think regulation is going to be good. I think there's a lot of that. I mean, look, there's a lot of problems. We probably have 80 crypto investments right now, and they're all real entrepreneurs, and they could pass any test of any vc firm.

For example, we invested in a company called Uniswap that pioneered this thing called a decentralized trading platform. I won't go into the details. But what happens immediately is they get copied, because everything is open source, so they get copied by Sushiswap, right?

Meanwhile, Uniswap, they're in -- I'm in New York, they're in New York. They're on the streets of New York. They are all in the office. They are the most serious, geeky, great entrepreneurs you will ever meet, and they have a team of lawyers. And then they have all these cheating clones, so I think it's necessary. Frankly, it's frustrating, but it's also competitive.

Kara Swisher: They have to deal with it. You actually see it in at least some related issues, as you said, in one of your most recent investments, copy clone, OpenSea. It's like eBay for NFT. Blockchain validates a lot of fraudulent encryption security vulnerabilities, but is not actually secure. When it's open season like this, how do you handle it? What is the mechanism for doing this?

Chris Dixon:So, OpenSea is an example. We invested in them about a year and a half ago, and there were 10 of them, and now there are hundreds of them. If you look at their executive team, they recruit from Facebook, you know, senior people from Facebook, Lyft, a whole bunch of other places. In 2020, Opensea GMV numbers were low, but in 2021 they reached tens of billions of dollars, and they are growing at a phenomenal rate.

Look, if you know Devin and the CEO, OpenSea, they're very, very serious, well-meaning entrepreneurs who are building things as fast as they can. But it's not perfect. It's growing very fast. Look, I'm biased, but I think some of the stories only focus on the negative.

Kara Swisher: Can you explain to people who don't know what DAO is?

Chris Dixon:Of course, the DAO is -- decentralized autonomous organization, basically a blockchain-based Internet native organization that can -- whatever the organization can do. They can build software, they can, you know, play esports, they can do anything. But they are a group of people who come together.

I think it's pretty cool, if you think about it -- for me, Wikipedia is one of the great wonders of the world. The fact that a group of people on the Internet are completely anonymous can get together and create what I think is a really good source of information.

I think it's a miracle that we have this crowdsourced encyclopedia, but Wikipedia runs out of money every year, right? Wikipedia as a product doesn't really need any product development, thank God. Yes, if they try to build one, they will end up spending all their investment and losing the game. So the DAO is exciting, and we now have a great Internet native behavior, a group of people coming together. Unlike in the past, they can now have resources. It's an investment opportunity. That's how I see it.

Kara Swisher: Anyway, Chris, thank you so much for doing this. I really appreciate it.

Chris Dixon: B: You're welcome. Thanks for inviting me.