Source: "a16z crypto"

Compiled by: Felix, PANews

Recently, a16z announced the establishment of a new cryptocurrency fund "Crypto Fund 5," with a scale of $2.2 billion, which will continuously deploy funds over the next decade, covering all stages of investment in the cryptocurrency field. This round of funding will focus on betting on application projects with real-world value, including payments, financial services, decentralized systems, and more.

In the latest podcast episode of "a16z crypto," four general partners, Chris Dixon, Ali Yahya, Guy Wuollet, and Eddy Lazzarin, gathered for the first time to discuss the current status, changes, and future development direction of cryptocurrency. PANews has organized the highlights.

Host: Perhaps we can start with why we are raising funds now. Chris, would you like to answer this question?

Chris Dixon: Yes. As you may know, we have had a cryptocurrency fund since 2018, and my formal involvement can be traced back to the investment in Coinbase in 2013. We are at an interesting time point in the development of cryptocurrency: on the one hand, in a negative aspect, market prices have dropped, some sentiments are negative, and some non-financial attempts have not developed as we or some hoped. On the other hand, many good things are happening. Notably, we have seen real mainstream appeal. For example, stablecoins have been growing, with currently $300 billion of issued stablecoins, and trading volumes comparable to large payment networks like Visa. Importantly, this growth is unrelated to hype. If you observe this growth curve, it looks more like the growth of computing networks or the internet, appearing to be a very healthy trend. This is largely thanks to the legislation passed by Congress last year, which provided a regulatory framework for stablecoins.

I believe regulation can do two things: first, provide builders with a clear path so they know what the rules are, and having this clarity is very important; second, provide protection to consumers. So they know that when they buy a certified stablecoin, if they put in one dollar, there is one dollar in the bank corresponding to that stablecoin, and the issuer will be audited and have appropriate safeguards, which is extremely important for protecting consumers and building trust in the market. Reflecting on the huge scandals of FTX and Terra Luna a few years ago, we have historical evidence of the dangers of unregulated markets.

Host: The term stablecoin carries significant weight here.

Chris: Yes, stablecoin used to be in quotes, but now it is a government-certified term. After the bill was passed last year, we immediately saw an increase in entrepreneurial enthusiasm, with new founders entering with new ideas because if you are a founder, would you want to risk entering an uncertain regulatory market and take on all the associated risks? No, you might go do AI or something else. So stablecoins provide a well-understood, well-regulated area with practical use cases.

What are these use cases? For example, companies like Stripe are heavily leaning towards stablecoins, and by enabling stablecoins, their business coverage expanded overnight from dozens of countries to over 100 countries. The fees for stablecoins are lower because you are only moving data bits, you don’t need to spend as much money. For instance, the fees for US payments are usually 2.5%, while cross-border remittances can be much higher. Today, we don't actually have a global financial network; we only have a patchwork of networks divided by various countries and banks, glued together by humans and outdated processes. Before WhatsApp, there were only SMS texts, which had poor interoperability and high fees, and then WhatsApp built a modern digital network on top of that. This is also how you should understand stablecoins; from day one, they have been a global network built on it.

The obvious trend today is that people are building lending markets on top of stablecoins, and lending is a natural application. We see that the second area of significant mainstream adoption is in financial markets. Perpetual contracts, which were originally a cryptocurrency concept, are now very popular as a way to gain exposure to various assets like stocks. We are also seeing great interest from traditional financial institutions and Wall Street. Every day or every week, companies talk about tokenizing stocks and bonds, moving the financial instruments of these massive markets onto the blockchain and modernizing the infrastructure. Stablecoins make up about 10% of the crypto world, and now that we have regulation there, I think we are very close to getting regulatory approval for the remaining 90% (tokens like Bitcoin, Ethereum, and DeFi). Congress has a bill called the "Clarity Act." If it doesn't pass, similar regulations from organizations like the SEC and CFTC are expected. One reason why cryptocurrencies have a bad reputation is due to numerous scams, and regulation will largely eliminate these phenomena. The cycle of new technology is at a low point, but the fundamentals are very strong. Our experience is that strong fundamentals combined with many investors shifting their attention to other areas create a favorable environment for investing in new funds, so we are pleased to have funds ready to go.

Host: So your reason is that the environment has matured. On the one hand, there is unprecedented regulatory clarity; on the other hand, from the product perspective, on-chain finance and stablecoins have indeed worked. As for the trends you mentioned, such as AI, this may be a question many entrepreneurs are thinking about: why not do AI instead of cryptocurrency?

Chris: By the way, I don’t think it's a binary choice. There is a lot of overlap between cryptocurrency and AI, and we are also investing in AI. But we believe there are opportunities in the crypto space too, and as regulation becomes clearer, those who previously did not consider crypto should reassess it.

Host: Ali, you were the first full-time employee of the crypto team in 2017, when the first crypto fund was initiated. What has changed over the years? Also, your background is in AI research at Google Brain, perhaps you can talk about the intersection and integration of these two tech trends.

Ali Yahya: I think the biggest change is cultural. In 2017, it was actually still very early; people thought cryptocurrency started with Bitcoin in 2009, but as a developer and entrepreneurial ecosystem, it actually began with the launch of Ethereum in 2015 because programmability opened up possibilities. But early on, it shared the cultural values of the Bitcoin era, where the atmosphere was shaped by cypherpunks and anarchism, believing that "code is law" is superior to government law, attempting to establish a parallel financial system that could completely replace the existing one. A huge change occurred since the ICO bubble of 2017.

In terms of infrastructure, we have developed from 14 transactions per second on Ethereum to tens of thousands of transactions on modern blockchains, capable of sending money globally in under a second for less than a cent. We have also seen innovations like lending protocols and stablecoins. Now, a decade later, the atmosphere has dramatically changed: there is a strong feeling that for cryptocurrencies to succeed, they must cooperate with the existing systems rather than attempting to overthrow them. Moreover, there is now a greater focus on fundamentals and solving real-world problems. The most successful founders are no longer ideologically rigid, but are more focused on products and GTM (go-to-market strategies) and are more pragmatic.

Host: So it was once a revolution, but now it seems to be a compromise, or reality has made people realize they cannot completely discard the old system. Guy, I’ve heard you describe it as cryptocurrency entering the "suit and tie" era, and today Eddie is even wearing a suit jacket. Guy, tell me what this "suit and tie" era means?

Guy Wuollet: You can win a revolution, and then you have to figure out how to govern. Cryptocurrency won the revolution, and after years of attempts similar to the "Articles of Confederation," it is now in the process of trying to write a “constitution” and establish a lasting system. Personally, I was once driven by early ideologies as a cypherpunk, but I later realized that this neither brought the business success we were pursuing nor met the social or ideological goals, and that notion was dispelled. The whole field has shifted from "we are writing smart contracts in hoodies and slippers in our mom's basement" to "we are putting on suits and ties to meet with large banks that are seriously considering replacing core ledgers with blockchain." I think this is an incredible progress rather than what some may consider a "surrender."

Host: What would you say to those who think this movement has lost its spiritual core?

Guy: Don't let perfect be the enemy of good. The process of striving is often more interesting than reaching the destination, and now that we have won the process, we are looking for new goals. I would also compare it to the open-source movement, which was originally an ideological movement. Later, when GitHub was acquired by Microsoft, some might say it deviated from the original concept, but today the default for code is open source. The composability of open-source software has led to tremendous success in the tech industry. There is a huge difference between theory and practice, and this is an excellent time for pragmatic builders in the on-chain space.

Host: Eddie, as an early participant, what are your thoughts?

Eddie Lazzarin: I respect and agree with the tone here. But I would reconstruct it as an expansion of possibilities rather than surrender. A few weeks ago, I had AI write a command-line tool to control my Zcash wallet and directly transfer Zcash into my Coinbase account with a single command. This is both the most cypherpunk thing I've seen and also compatible with traditional systems, completely anonymous programmable money under my direct control, which then instantly connects to my bank account; this is what I think the future looks like. Much of the pressure facing this field is to provide concrete value immediately for institutions and individuals, which clearly requires smoothing some edges. It is a pragmatic shift; it is simply a matter of focus changing.

Host: What excites you the most today?

Eddie: Too much. Everyone in tech is excited. I'm enjoying the mental thrill of AI over the weekend. High-quality crypto APIs, calling smart contracts, which used to require me to stop everything and dive in, can now be sorted out and generate runnable code in the background just by talking to the terminal for a few hours. The big theme in the crypto space over the past five years has been programmable money. Have we given up on programmable money? Absolutely not. We now have programs we can write with a few sentences, combined with programmable money, enabling us to have money as fast as spoken conversation. AI gives us direct control over software, making money easier to be controlled by humans. I am extremely excited.

Host: Guy, you have spent a lot of time in the on-chain finance field. What excites you the most?

Guy: The incredible growth of stablecoins requires a whole new ecosystem for capital formation. Stablecoins are searching for high-yield opportunities, and traditional participants in the credit field are also seeing the efficiency advantages of blockchain. After the 2008 financial crisis, the lending market shifted from banks to private credit funds. This type of credit had longer terms and exposed issues like repeated collateralization or large-scale redemptions last year. Now, building new lending products on-chain is very compelling. In traditional finance, if you borrow against an asset, you need to file UCC (Uniform Commercial Code) to avoid repeated collateralization. Private credit funds have also faced redemption storms due to mismatched durations. We are now focused on on-chain products, as many long-term trends are driving real interest in on-chain credit, bringing in a surge of quality talent and adoption from traditional players.

Another point is building new forms of markets. Ali mentioned that cryptographic technology is coordinating technology. Blockchain has proven to be extremely good at building new markets. Perpetual contracts can now operate on high-quality traditional assets (stocks, commodities), not just limited to network tokens. Additionally, we have seen emerging markets that the traditional world failed to serve well, like GPU computing power, data center construction, solar panel power, and even the pricing of oil occurring on-chain. Just as it was once assumed that new projects would be open-sourced, now the default choice when trying to establish new markets or exchanges is to build on-chain, a force that is currently underestimated.

Host: What value do traditional financial players see in on-chain activity?

Guy: They are focusing on extremely low latency, good capital liquidity, and markets being open 24/7. Moreover, the decentralization we often talk about, if rephrased in terms of specific trust assumptions, actually reduces counterparty risk. That is, the platform risk in the tech space. This is not just a financial issue but a broad social issue; cryptographic technology provides the best answer to counterparty risk.

Host: Chris, in your book, you describe a more open and fair internet. What do you think about how most applications are trending towards high financialization?

Chris: Technology promotion will gradually unfold across different use cases. For example, the most powerful killer application of AI right now is writing code, and there will be more in the future. In the crypto space, finance can be seen as one of the easiest achievable results because for many places in the world, the fundamental financial barrier is very high, making it relatively easy to cut in. My goal is to enable a billion people to become daily users through stablecoins and similar means, and with that foundation, adjacent services will naturally evolve. So, I expect that the vast majority of use cases in the coming years will still be finance-related.

Host: Ali, combining your experience in AI research at Google, what are the most interesting overlapping areas between AI and cryptocurrency?

Ali: Let me tell a story. When I was at Google X (Moonshot Factory), I suggested exploring cryptocurrency, but I was mocked. Then I moved to Google Brain, and when I was preparing to resign to join a16z, the team was trying to dissuade me, with some quoting Charlie Munger saying I was going to trade "manure." In the past, the AI community and the crypto community were completely at odds. AI is about centralizing control over data and compute to build omnipotent systems; while crypto is about empowering individuals, disrupting power structures, and creating global free markets. But this is changing. The existing financial system was not built for AI intelligences. In the near future, 99% of transactions will be conducted by AI intelligences. It is hard to imagine those transactions occurring on SWIFT or credit cards. Stablecoins are not only fully programmable and nearly free but are also the perfect way for AI intelligences to become primary economic participants. Compared to Visa charging 16 basis points per transaction, intelligences have no preference; they have a strong motive to completely bypass Visa.

Eddie: I completely agree. If you want AI intelligences to help you save money every month, they will directly reconstruct and optimize the software layer at various stages. They will tend to pay as you go rather than subscribe, and all of this ultimately points to the crypto system.

Ali: On the other hand, cryptocurrency can help combat deep fakes generated entirely by AI. For instance, the proof of personhood from Worldcoin can help you discern whether the other party online is a real person or an intelligence.

Host: Predict what the internet will be like if most transactions are completed by intelligences in the future.

Ali: A sci-fi vision is that fully autonomous AI intelligences will have cryptocurrency wallets, able to spend money, receive money, and even raise funds. They create value by providing services, writing code, and essentially exist as autonomous entities. There are projects establishing frameworks for intelligences to pay for compute power and self-sustain. Given the growth curve of AI, it is not far-fetched to imagine them going out in a capitalist society to create value within five years.

Host: Guy, when you are fundraising, what do you hear everyone is most interested in?

Guy: Everyone is focused on AI, contemplating where other software fits into the AI world. The crypto space is almost entirely building network effect businesses; you can't just throw together a few lines of code to build USDC or Hyperliquid. This is an effective path for project establishment, and our LPs have noticed that. Interestingly, they are also inquiring about capital calls for funds through stablecoins, which I find encouraging.

Host: You mentioned that establishing highly regulated stablecoins is actually extremely difficult, which creates a certain moat.

Guy: Yes, five or six years ago, the highest status in the crypto space was held by researchers, but now what is most needed are strong GTM (go-to-market strategy) efforts. In a world where AI intelligences replace humans in operations, intelligence becomes increasingly commoditized, and network effects and proactive cooperative networks will generate more long-term and lasting social impacts than pure software.

Host: Ali, regarding your viewpoint: "Privacy is not just a moat; it may be the only moat in the crypto space," please explain.

Ali: All along, privacy has been an afterthought in the crypto space because we were busy solving other scalability issues. But now most blockchains are fully transparent; if it remains this way, it can never become mainstream. Who would want their salary and their company’s balance sheet visible to everyone? At the same time, as cross-chain interoperability becomes seamless, blockchains lose strong defensive mechanisms because data is transparent; others can easily copy your state and fork or migrate. Privacy changes that; application data being encrypted increases the switching costs significantly, thus forming stronger network effects. In a world where it is easy to fork and migrate chains, privacy may become the only avenue to maintain strong network effects.

Host: You mean that due to the increase in computing power and space, basic infrastructures like blockchain space have been commoditized?

Ali: In the long run, due to the "Jevons Paradox," even if AI increases transaction volume a million-fold, we still need vast capacity. However, blockchains with security and privacy will still maintain a premium and network effects, so they will not be completely commoditized. Currently, the technology to solve privacy issues has matured. There are solutions like Tempo/Arc that adopt trusted centralized nodes; there are those based on trusted execution environment hardware; and there has been a 10 to 100 times improvement in zero-knowledge cryptography over the past decade, which is also the focus of our research team’s Jolt project led by Justin Thaler.

Host: Zero-knowledge proofs have been around for decades. Why are they so interesting now?

Ali: They solve the scalability dilemma. Traditionally, every node had to repeat the work of every other node. Efficient zero-knowledge proofs allow one node to do a lot of work while all other nodes can directly verify, which allows the system to scale horizontally from 14 transactions per second to millions.

Host: Open permissions, democratized participation, low-cost computing, privacy protections, etc. — this sounds very cypherpunk.

Eddie: As Chris said, the pace of things evolving is unpredictable. Cryptocurrency has inevitably become part of the financial system since day one. Now we focus on the impact of technical changes, such as how AI changes software cost structures and how privacy brings about defensive changes. We must always keep pace with these changes in investments.

Guy: Interestingly, the current demand for privacy is not just motivated by personal desires like those from Zcash, but increasingly from large-scale institutions. Large institutions like banks and hedge funds are urgently requesting zero-knowledge proofs and robust privacy guarantees. This feels like a wonderful return: an idea that originated from individuals is now addressing practical issues at an institutional scale. Technology is the true driving force behind social change (improving living standards, productivity, etc.), and we are very confident and optimistic to continue betting on this.

Host: Chris, regarding the concentration of power in the AI industry, what can cryptocurrency do?

Chris: The early internet was decentralized, allowing anyone to create websites, but over time it became severely consolidated and monopolized. Because AI is extremely capital intensive, there are only about 4-5 leading labs in the US, which will further exacerbate monopoly and consolidation. For example, I once invested in Stack Overflow, and because its data has been used to train AI, its website traffic has drastically decreased, like the canary in the coal mine. Cryptographic technology is currently the only reliable means to counter this concentration, offering a fair competitive environment that allows two people in a garage to create businesses on par with large companies and benefit consumers.

Host: Guy, can you elaborate on how crypto responds to the centralization challenges from AI?

Guy: First, due to AI's presence, identity and personhood proof have become difficult and important online. Second, the biggest bottleneck in developing models is access to computation power and data. Cryptocurrencies have proven to be an excellent mechanism for crowdfunding or coordinating GPU and data collection, helping to combat oligarchic labs. I am very optimistic about building the calculus of power markets on-chain, with GPUs as "thinking sand," which may be the most important asset in human history. Whether individuals can own access to computing power is a very important open market leading to the future.

Host: Finally, what achievements signify success for the new crypto fund?

Eddie: I hope to see concrete, mainstream adoption benefiting the public, seeing software empowering humans and machines owning assets in new ways, and substantial enhancement in market competition dynamics.

Ali: Ten years from now, I hope to see a billion people interacting directly or indirectly with blockchains every day. I hope most financial activities in the world move to the blockchain. And that we successfully transform AI agents from tools into prime economic players.

Guy: I hope that crypto technology can provide a new type of bank account with stablecoins priced in dollars for billions of people on earth without basic savings facilities. In addition, I hope this can accelerate the construction and production speed of open markets in energy and computing.

Chris: The core also lies in achieving the first billion users through financial use cases. With the upcoming regulatory clarity, we aim to attract world-class entrepreneurs into this field to build financial services. The logic summarized in my book "Read Write Own" still stands: even if the appearances of technology applications are unpredictable, the core essence behind technology (decentralization, providing platforms, etc.) remains unchanged.

Reading recommendation: a16z report: 9 charts to understand stablecoins, Asia has accounted for 2/3 of the global market

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