Mike Townsend: In this episode of Around The Coin, I interview Kyle Ellicott, the partner at Stacks Ventures, and he's also the Co-Chair at Bitcoin Odyssey. He is a prolific writer. We talked about his project in 2018 that he maintains every quarter to create the crypto landscape. Kyle is deeply involved in hundreds.

Mike Townsend: Thousands of projects in the crypto landscape and definitely somebody to pay attention to. One of the most savvy crypto investors I've talked to. So here are Kyle's insights. Hope you enjoy. Here is Kyle Ellicott.

Mike Townsend: Kyle is, is a treat. I'm excited to chat with you again. It's been a while, obviously since we lastchatted, and just our, our pre-show conversation was fantastic. You're now focused at Stacks, Stacks Ventures in particular. Just to kind of lay it out, what's the day-to-day look like? What the, what are the typical types of companies or projects that get you most excited and, and how, what, what's the structure of the investment vehicle that you.
last chatte

Kyle Ellicot: Yeah. So let's, let'swind that back first off. It's great to hang out with you and have this conversation as well. As you said, the pre-show is a ton of fun. So hopefully this will be even more fun as well. So yes, I'm a partner at Stacks Ventures and also the Co-Chair of Bitcoin Odyssey Pledge, and so I'll break that down.

Kyle Ellicot: Stacks Ventures is the venture fund for the Stacks. Ecosystem. So Stacks is a blockchain ecosystem or network. So it helps to bring programmability and smart contracts to the Bitcoin network. It's a part of what we call the Bitcoin layers that help enable programmability to Bitcoin's network itself.

Kyle Ellicot: So you can think ofStacks liquid, and there's also RSK and, and a few others. Also, Lightning gets into that conversation as to how they enable fa faster transactions and payments. Through the Bitcoin network as well. So that's a quick overview of stack. On the venture side, Stacks Ventures, again is the venture fund for theecosystem.

Kyle Ellicot: So we are funding startupsearly stage generally just after the company has been formed, formalized thinkof it as precede all the way up through early series. So just around series A,maybe have a little bit of revenue, have a little bit of funding, but arelooking to add that technical integration Of Stacks and our smart contractslanguage, which is clarity or other pieces of the Stacks into their currentproducts or new products as well. And so we also have a early stage programthat goes beyond that funding as well. So we have what we call our founders orstartup lab. Part of me that is very focused on those who have just an idea.

Kyle Ellicot: So they can go in,start to find product market fit, and then they have the opportunity to talk tous on the venture side and also go through an accelerator program that we puttogether in addition to help. Really help integrate that technology. Not somuch just to start a company, but really to integrate this new decentralizingtechnology into, again, existing products or new products as well.

Kyle Ellicot: So we invest in about40 companies a year, give or take as well, and the entire landscape of Web3,we're looking at everything from infrastructure to scaling solutions to middle.So kind of those API connection points or authentication or other areas thatwe'll talk about all the way up through application layer as well.

Kyle Ellicot: And then in terms ofthe standard offering, we do 50,000, so five zero, 50,000 in each company forour initial investment as well, or up to $50,000 as well. So it's a quickoverview of, of the, the tax venture side.

Mike Townsend: Yeah. Yeah. I wasgonna ask one clarifying question. Is the Sure capital to invest coming fromLPs or is this more a foundation type structure where it's coming from theStacks Blockchain designated into a foundation?

Kyle Ellicot: Yeah, it's a, it's agreat question. So separation of church and state. So the foundation has theirown initiatives where they provide grant funding to projects looking to build,or again, help. Put together in those areas. So infrastructure or tooling ormiddleware. There's an outstanding grants program that they have that theyprovide, I think up to $150,000 for grants and then well beyond that for othergrants as well.

Kyle Ellicot: They also have aresidency program for those looking to get more involved in the ecosystem. Sovery similar to an entrepreneur in residence. Program they have that formultiple types of builders and, and technicals of like and then we are areseparate of that. So my partner, Trevor Owens and I are, are running togetherthe, the ventures group and then we have an entire outstanding team.

Kyle Ellicot: Around the world thathelped to run the accelerator program, also work with the teams and helped todo so much more in connecting the portfolio and, and new companies throughoutour ecosystem. And back to that on the technical side.  

Mike Townsend: Got it. Okay. So inyour case with the ventures, is the ca is the money that you're investingcoming from the token in some way? Or is it coming from LPs in a traditionalsense?  

Kyle Ellicot: Yeah, wonderfulquestion. So we, we have a very small group of LPs that came in, which were thecore members of the Stacks ecosystem as well, and including the foundation. Soit is separate because this is, they did come in all as LPs, so partners into afund vehicle for that fund to then be deployed into companies that are buildingin and around the ecosystem.

Mike Townsend: And so how does thatrestrain or empower you guys? So I would imagine you lean towards projects thatare building on Stacks or companies that are building on Stacks, but do you,can you invest outside of that or do you, What's the, the dynamic there?  

Kyle Ellicot: Yeah, it's a, it's agreat question. So from a thesis standpoint, right, A traditional VC fund, andwe'll just say in Web3, may invest in all areas, all ecosystems.

Kyle Ellicot: So stage, stage may bedependent, but ecosystem agnostic. We are slightly different. So we are anecosystem fund. So our job as investors and as the fund is to invest incompanies. Building in or with Stacks, so in the Stacks ecosystem or withtechnology in within Stacks as well. So we focus very much in helping to growthe ecosystem and fund those that are building in it as well, or bridging tothat as well.

Kyle Ellicot: So we have someprojects that have actually built on other ecosystems and are building toolingor looking to bridge over into. The Stacks ecosystem as well. So it's a verymore targeted thesis than broad, right? So your traditional Web3 vc, again, maylook at ecosystems on a whole, and we look at a very specific ecosystem in justa little bit on the fringe, which again we refer to as Bitcoin layers.

Kyle Ellicot: So those other partsof those layers that help to enable programability around BitcoinProgramability.  

Mike Townsend: So what are themetrics that you, It seems in some ways you're kind of pulled in two differentdirections. One is you have explicit returns on the investments that you make,but then the other is maybe it's worth to take a higher risk worse deal if it'sputting money into a project that would convince them to build on Stacks.

Mike Townsend: Since presumably thefounders who the LPs put money, The, the fund are primarily incentivizedthrough their own, You know, I would imagine that the vast majority of theirwealth is still tied up in the Stacks blockchain. So similar to the founda, thefoundation's going to be 100% focused on growing the ecosystem.

Mike Townsend: No, no. I mean, grantsare free money, right? You just give money away. In your case, you have thestructure of a ROI of a VC firm, but really the kind of dual incentives isthat, what are the dynamics with that?  

Kyle Ellicot: Yeah, it's, it's a,it's a great question. I mean, we are not the only, Just to clarify for thelisteners, we're not the only ecosystem fund, right?

Kyle Ellicot: There's many mostlayer ones. In some cases, layer twos have ecosystem funds anywhere from. Ithink the smallest I've seen maybe is around four to 5 million all the way upto hundreds of millions of dollars. And part of those thesis similar to ours isto yes, reinvent, or excuse me, to invest in those that are helping to buildand sustain the network growth as well.

Kyle Ellicot: So, To your originalquestion, we do treat it very much as a VC fund would. So we're looking at, youknow, high quality phone founders, high quality projects and not just takingprojects just to take them to help the network grow, but instead, you know,doing our diligence and really looking at 'em as venture capitalist would andthrough that lens.

Kyle Ellicot: So again, looking atsolid founders, looking at projects that do have something to contribute, butalso it makes. For them to be involved in the Stacks ecosystem, to havedecentralized technology in full or some case as well. And then it makes sensefor the ecosystem for them to be. There as well and that they are solving areal problem and yeah, that they have more than one founder usually to them,even though we do look at solo founders and help match them as well if they'refirst time or second time as well.

Kyle Ellicot: But yeah, we've got awhole, a whole criteria that we have published out online, a blog post of allthat stuff that we look at, but we do treat it very much as investors and notjust so much of let's just stand something up.

Mike Townsend: Yeah. I mean, speakingmore broadly about just the patterns of how these projects tend to allocatecapital into the ecosystem with the goal of growing it, it seems like there'smaybe, I mean, tell me what you see.

Mike Townsend: If you had a projectthat was, had a hundred million dollars, maybe the, maybe, maybe say a hundredmillion in total market cap. Maybe the foundation is like, 20 million, maybethe founders have 10 million. The founders pool together their, their tokens.Then they fund a, a VC arm that's gonna, a fund that's gonna invest incompanies.

Mike Townsend: But then the, thefoundation is just giving money away. What, what do you think is the idealendpoint here? Do you think it's sustainable to have the grants, like justgiving money away or do you think this eventually moves, like foundationsrealize, Hey, this should be. Instead of just free money, we should be takingequity stake.

Mike Townsend: Otherwise, I've talkedjust a bit of context. I talked to a few different folks who have a similar structure,some run foundations, and they seem to be the undercurrent of what's going on.Seems to be that foundations generally across the board struggle with gettingROI on the money that they're giving away and that there are often projectsthat will throw a grant proposal in and they'll do the same grant proposal to.

Mike Townsend: Five differentblockchains and there, there no intention of actually building anything. And sothey win the grant high five, and then they go on to the next project and submitthe next one. And so unless you have skin in the game as a project, like, youknow, which makes way more sense to me on the VCR because now okay, you own 20%of the company or whatever it is.

Kyle Ellicot: So a lot's on winethere. So let's, let's maybe start with the. ecosystem and the fundsstructures, both grants and then capital. Why this is important for, for every,So I, I look at it slightly differently in my view is one of the things I lookat for framework for building mature venture capital markets, as I've talkedabout in many places around the world in my past is part of that structure isyou need the government.

Kyle Ellicot: In a traditionalventure capital sense, you need a government to be there to support and to kickthings off, bring entrepreneurs, bring successful founders, start to bringpeople to their local region, and from there, Those governments help toestablish programs that help to fund the initial entrepreneurs or formerentrepreneurs who have exited.

Kyle Ellicot: Business contributes.Those founders as they exit, start to become VCs. And as those VCs exit, youalso have Education or university programs that also are there part of thoseecosystems that help to provide grants that help to provide education, thathelp to provide programming, to make this a self sustaining cycle so everyoneplays a role.

Kyle Ellicot: So it's not just acheck. That's what you get. But that everyone has a role to play to make it atrue maturing venture capital market in a sense. And so from a, from a Web3sangle, I, that's how I kind of look at it, is you need all these pieces. Youneed the technology, the platform to build upon.

Kyle Ellicot: You need to be.Providing grant capital just like countries or cities or government oreducation programs do in some cases corporates as well. But then you needadditional capital to really fuel those businesses on a greater scale. Mostlybecause the grant programs are anywhere from six to seven figures or or less insome cases.

Kyle Ellicot: And venture capitalcomes in to add that additional fuel to take them a little bit further in theirnext step Then, As those companies. Mature, particularly in Web3. The idea isthat some of their technology will become open sourced. Then others can buildon. That then helps the network grow further and continues the network effect.

Kyle Ellicot: But then also maybethey have some type of alternative asset, whether that be something like a, Atoken, for instance, like an NFT, whatever it may be, that again continues tohelp grow. Further the network effect and maybe also the value of theunderlining token in the ecosystem that they're building on and the ideas thatthey do exit at some point and continue to fuel the ecosystem as is and thosenew builders, those new developers that are coming in.

Kyle Ellicot: So that's, that's oneway that I look at it that I think. No, go ahead.  

Mike Townsend: I was gonna ask you,do you feel that the foundation's sort of, not stack specific unless you wannacomment on that, but do you feel that there, the general structure is workinglike the, what you're saying is actually happening, speaking strictly from thefoundation's deployment of capital perspective?

Kyle Ellicot: Yeah, it's a, it's aphenomenal question. Let me first point out that right now we're here in, in2022. Some of the earliest ecosystem funds that I started looking at intracking were in late 18, early 19. We're, we're in a short time period of thatexperiment, if you will. And it's also a very early industry as a whole.

Kyle Ellicot: I mean, we look allthe way back to the, you know, genesis of, of Bitcoin. We're looking at the endof 2008, really, the beginning of 2009. We're, we're just over a few years,over a decade. With all of this, and so much has happened more so in the pasttwo years than it has in the, the decade plus before that as well.

Kyle Ellicot: So I'd say in somecases, yes, it is starting to work, but overall it hasn't been long enoughfirst to see the greatest effect of that and part of the issue there, it's notjust time, but also the amount of interest and I would say involve. That theentire world of venture capital has taken into Web3.

Kyle Ellicot: We look at 2021, wesaw over 30 billion invested in Web3 projects that represented just over 4%,almost I think four and a half percent of all venture capital dollars that wentinto companies for the entire year. That's a huge metric to the year beforethat as well. And even this year, we're on pace already, I think for more thanhalf.

Kyle Ellicot: Even with marketconditions as is, that's a lot of money. And that didn't all come fromecosystem funds, so I think. So I think as we're we're talking through this, I,I think right now everyone's trying a few different things and seeing what doesand doesn't work. And when we look at programs in all foundations, you know,from grants to residents or entrepreneurs in residents to their own fundingmechanisms, to separate mechanisms of funding to education programs, it's allneeded.

Kyle Ellicot: Especially in thisearliest days to really help those networks stand up to help thoseentrepreneurs build and to kind of see where this industry and those respectednetworks will go. And it also helps to incentivize to your other question,entrepreneurs to come build in those areas. And there's a little bit ofcompetition in that, right?

Kyle Ellicot: So one ecosystem mayoffer a million dollars, the other ecosystem offers a hundred thousand. Thequestion is where do you go? And I think what we're starting to see now is alittle bit, not fully, this is just my opinion, I'm waiting for you to give methe contrarian view, but as then I think we're seeing a little bit ofrebalancing where founders are starting to maybe look at ecosystems,communities, networks, technology, et cetera, all these buzzwords as to wherethey best fit, as opposed to where they may get the biggest check as well.

Kyle Ellicot: Hmm. That's one of alot of conversations I have with founders is, you know, should you be ablethere, should you build there? You know, make sure it makes sense. Because atthe end of the day, a blockchain network is becoming much more of a platformand again, part of your technology stack than it is just a place for capital.

Kyle Ellicot: Whether that's grantsor otherwise. So you really wanna make sure that you're picking somewheresubstantial to start and then expand out if necessary from there versus justtrying to go, go everywhere. That's my opinion.

Mike Townsend: You know, you're oneof the most, you're one of the most macro thinkers. At one point I saw somegraph or some chart you put together about all the players in the crypto space,and you kind of organized them by different categories.

Mike Townsend: Do you still think. Inin those terms when it comes to investing And are there certain trends thatyou've become privy to from doing and thinking in this way of thinking? Verybig picture categorical, you know, trends. At one point I think you had, like,you had DeFi. You had NFTs and you had, you had a bunch of other categories andI was blown away cause I didn't see anything. I like it at the time. But yeah.  

Kyle Ellicot: Thank you. I, firstand foremost, I mean, thank you. Uh, I'm glad someone's looking at it. I'lldrift aside. Yeah. Thank you very much for, for bringing that up. Yeah, so I,I, it has forever changed my methodology for thinking. To understanding technologiesand how they're developing or how their industry is developing to then how Ichoose to make investments either working with a fund or even individually aswell.

Kyle Ellicot: And so a little bit ofhistory, I a phenomenal mentor that help introduce me to the idea of landscapesand taxonomies and those structures on what it, how to look at an industry. Andbefore that it was just reading as much as I could, figuring out things and,and just kind of going. And that helped to really focus myself as an investoron building a thesis.

Kyle Ellicot: But before building athesis, you need to understand not only who the players are, but how does theindustry made up. So in the end of 2018 that's what I did. I looked at everyth.I looked at about 1500 companies and funds in the entire space over the threemonths of quarter four of 2018. I looked at everybody that said they were inthe industry that I could find and reviewed them.

Kyle Ellicot: I looked at whitepapers, I looked at websites, I looked at technical documentation. I wentthrough and reviewed as much other things as I could, you know, teams, whateverI could find to start to understand who the players were. And then start to adddefinition. So there are three categories, infrastructure.

Kyle Ellicot: Enterprise consumer,that's where I started. So who was building the tech, the infrastructure thatwould empower Web3 or then blockchain. So it was very specifically focused on,on blockchain and then who, who was building within the enterprise or forenterprise, and then who was doing the same for, for consumer.

Kyle Ellicot: And from there, howdid those companies get broken up? So subcategories or categories. So things.Blockchains, but blockchains have subcategories. So then you start looking atpublic versus private or, or permission versus permission list orinteroperability or interoperable. Then you look at scaling or L two solutions.

Kyle Ellicot: So you start to lookat all these deep intricacies and helps you to define where that market is orwhere that category part of me is. And then you can kind of see. Okay, here'sall these areas. Here's all these companies. As the last landscape I did, Ithink had just around 2000 companies and funds, after researching right aroundsix and a half, and now I've done about 8, 8, 8 and a half thousand plus.

Kyle Ellicot: But whittled that downand that to me, I could start to un understand. For me personally, it allowedme to start to understand where things were trending or where things wereopportunistic or maybe where things were a little. Overdone where we had toomany companies. And so maybe there would be a consolidation.

Kyle Ellicot: On the fund side, italso allowed me to understand, you know, who was venture, who were acceleratorand incubators, who was hedge, who was fund of funds. And then started lookingat their portfolios of how they defined their investments and their thesises.And the summary of all of this was to help me define a thesis.

Kyle Ellicot: On investing withinthe category of Web3. And I broke that model from just blockchain to thenevolved it into Web3 and, and split it to also include landscape itself for ds.And that's an interesting kind of breakdown is with Web3, and particularly whenwe look at blockchains, we talk about decentralized applications in my view.

Kyle Ellicot: that is the future ofof applications. But what I realized having done a developer in my past isdeveloping applications in the days of web two, or historically, not to datemyself too much. It was very linear. It was very clear cut, how you woulddevelop an application, no matter the language. There was an order and aprocess to that and a result that happened.

Kyle Ellicot: But decentralizedapplications, every time I looked for a technical map, it just looked. Chaos. Imean, it was straight lines to then, you know, lefts and then rights. It lookedlike a crossword puzzle all over the place. And I thought to myself, there'sgotta be a little bit more order to this chaos, a little bit more structure.

Kyle Ellicot: And so I built a, alandscape focused around a taxonomy around depths so that someone could readfrom left to right, the initial pieces that it would take to build either part.Or excuse me, to build a full decentralized application or to leverage piecesof a decentralized stack, because not everyone needs to be decentralized dayone.

Kyle Ellicot: I think that's kind ofa misnomer. We still have instead there's pieces of that very much that couldbe used. Storage is a great example. Compute being able to leverage APIs,wallets, for instance. A lot of these pieces, they're there and I tried to helpbreak those up so similarly, broke 'em up into layers 1, 2, 3, 4. And then hada developer platforms that help you do all of that in one. And putsubcategories to, to each of those. So that someone, again, could read fromleft to right the pieces that would, would take up to make up a d in sense. Andto me, it forever changed how I invest in how I look at markets.

Mike Townsend: And when you say the,the linear approach to traditional web development versus the more chaoticapproach, are you referring to what exactly the tech stack or what is, what ismore nonlinear or chaotic on depths?  

Kyle Ellicot: Yeah, so. A technicalstack. For, for instance, if you go to build a, a webpage, there's a fewlanguages, a few, there's a structure, a tree structure on how you're gonnacode that on it's basic level.

Kyle Ellicot: And once you're alldone, you have CSS styling that will help make it look all beautiful. You havegraphics that you'll enter in and you'll hit a button to say, Publish. I'msimplifying. Boom. There you go. Mm-hmm. . Mm-hmm. . You start to build amobile app. It was a little chaotic in its early days, and then it got verystreamlined.

Kyle Ellicot: And now we have softwarethat you can do it through a browser. Click, click go, and you have a mobileapp. With decentralized applications, we didn't have that. Instead, like if youlook, I think at, I believe it was Ethereum that put out kind of initialtechnical stack of all the pieces you would need to build a decentralizedapplication.

Kyle Ellicot: It was all over.Instead of going up and down, there was pieces on the left, there was pieces onthe right, there was arrows that go all over the place. And to me, having been aformer developer, it. , I couldn't follow it. I may just didn't seem as Yeah,Yeah. Structured as it should.  

Mike Townsend: Yeah. These are thingslike a login button or what are the, You're talking about components of the appitself? That would be kind of disjointed.

Kyle Ellicot: Yeah. So componentslike for instance if you wanna choose. A blockchain, right? Do you, first off,do you need a blockchain? Is the, is the first question.

Kyle Ellicot: But more importantly,what are the blockchain networks that you can start to use as your platform tobuild on top of do you need companies that will help to run node structures foryou? Do you even have notes then from there? Going up a level to like layertwo, Do you need someone to help scale?

Kyle Ellicot: Do you need addedsecurity or protection? Do you need to do data processing on or off chain? Doyou need to have authentication methods? So do you need to bring in forinstance identity? So to centralized identity, did do you need to bring inidentity? Do you who helps to make smart contracts?

Kyle Ellicot: Smart contracts? Youknow, what languages do you use? Yeah. So I tried to put all that together.Yeah. And again, a left and a right so that you could see that like, Mike, forinstance, you could go, you know, I really wanna build an app and I wannaleverage storage. Just again, simple example, I wanna leverage decentralizedstorage to really create this distributed network of all the file sharing thatwe're gonna have in this app.

Kyle Ellicot: Well, from left toright, you could say, Okay, maybe I don't need a full blockchain. I don'treally need this scaling solution. I just need this little box. Right here. Andthat little box category called storage shows a handful of companies that youcan choose to work with and start. Or maybe you're like, Hey, I wanna build aWeb3 app from the ground up.

Kyle Ellicot: I wanna build a damp,totally decentralized. From day one, I am all in. You can find your spot on theleft. Pick your blockchain. You can go from there and if the network, theecosystem doesn't have all the tools, you can pick your next spot. Do you needa scaling solution? Do you need storage? Do you need compute?

Kyle Ellicot: Do you need thesepieces? What smart contract language? We use Solidity for Ethereum Virtualmachines or evms or the Ethereum network, or we'll use Clarity and what willyou do to help compile that? Like all these tools, it was hard to find allthose as well in one location. So I tried to do my best. Give a starting pointwhich it now has exploded.

Kyle Ellicot: There's so manycompanies, so much, each of those categories we've been talking about now havetheir. Taxonomy their own landscape as well.

Mike Townsend: Where would you pointsomebody who is looking for this now? I imagine that somebody must bemaintaining a kind of ecosystem type landscape overview of different companiesyou know, fundraising, traction, differentiation. Is there a place now or, orsome, somebody maintaining this?  

Kyle Ellicot: Yeah, so I, I maintainon a quarterly basis and try to provide an updated version.  

Mike Townsend: Oh, you do?  

Kyle Ellicot: To. . Yeah. To the, tothe world. So follow me on Twitter @kyleellicott. Shout out. That's my momentof fame right there. But also you can go to to networks.com will drop the linkin the description notes. I'll provide that to you. Mike. Also, Messari does amassive amount of these in a lot of the subcategories out there as well.Mm-hmm. , and there's a handful of other c. Or like research firms that do areally good job of producing these on a, on a further micro level.

Mike Townsend: What, what's the takeawaynow? So we're in September, end of September, 2022. This year has been kind of,it started off with a bang, then it kind of crashed around May. There was a lotof big implosions of projects. How do you describe the, maybe briefly where weare, but more interestingly where you see us going from here?  

Kyle Ellicot: Yeah. So I think rightnow we're in a phase change. You know, a lot of people will say it's time tobuild. We're, we're back in another winter. A lot of terms that are beingtossed out there. Mm-hmm. , I think we're really in a phase change again forthe industry. And I've, I've tracked these a few times over where we go in twoto three year cycles for the markets generally three. Three years for venturecapital and about the same from a development standpoint.

Kyle Ellicot: So every two to threeyears we have a huge kind of step back is what it feels like, but it's reallyjust a, a change and a big boost up. The last one we saw was the ICO boom in2017, coming into kind of the tail end of, of 2019. Where things were just,what just happened? Was kind of the moment, and then in 2020 we saw a littlebit of this early testing around DeFi summer as it was referred to. And at theend of 2020, we started to see the beginnings of the NFT boom, where the yearpreviously we saw about 62 million in NFT sales to then all of a sudden seeing200 plus million dollars to then going into billions of dollars and, and thenon a yearly to then a monthly basis and then some.

Kyle Ellicot: And so every, everyfew years we have this space change. And right now coming into. 23, I thinkwe're going into that next phase change. So everything right now is a littleshaky, a little off. There's a lot more focus on developing newinfrastructures, which also tend to happen during these changes, where we startto recognize where the gaps, where the opportunities, what needs to be filled,what needs to be better developed or improved upon.

Kyle Ellicot: From the last cycle ofthe past two years. And just to clarify, when I talk about cycles, I'm notreferring to digital assets and their prices going up and down. I'm justtalking about the development and the building of these, of this technology andof this industry. So right now, So we're kind of in the shakeout.

Kyle Ellicot: We had a lot ofbridges between networks that were hacked during the year. So my expectation isthat we're gonna see a lot more focus around security, around auditing, aroundan improvement of connecting networks to the underpinning infrastructurethat's, that's helping those. We're also gonna see in a lot of improvementaround.

Kyle Ellicot: The infrastructure wehad in those last two years improved for scale ability because one of thethings that we do want or hope. All part of this industry is that we can bringnot just tens of thousands or hundreds of thousands, but of users, but tens andhundreds of millions of users. And as we move into the future of this industry,we start to bring in things like gaming at scale or we do enter into metaversesand virtual.

Kyle Ellicot: And again, part of thedecentralized stack is included in that. It has to be able to sustain, sustainthat type of user base. It has to be able. Sustain and, and have throughput forthe amount of transactions, financial or otherwise that may happen, and those,that infrastructure, that technology has to grow.

Kyle Ellicot: We're also in a phasechange where I think some web two based or previous applications are startingto enter into these new worlds, starting to integrate things like non fungibletokens in their entirety, not just from an art collectibles or momentsperspective, but really a true. Digital twin of something once physical that'snow non fungible in the digital sense.

Kyle Ellicot: And so a lot of this stuffwe saw and we tried in the last two years, and now it's improving on that and,and pushing up forward. The other thing that's happening right now is,regulation and a lot of talk around the future regulation of all assets in thisspace from a digital perspective. So yeah, that is another big thing that'sgoing on that's kind of resetting a little bit of this space change.

Mike Townsend: Yeah. How closely doyou pay attention to their regulatory proposals or guidelines prior to them? Doyou get involved with those conversations or what are your thoughtsgenerally?  

Kyle Ellicot: Yeah. So not involvedin the conversations. There's, there's people smarter and, and more focused onthat than I. Yeah. I do keep an eye on it. You know, I've been tracking CentralBank digital currencies or CBD CS again since 20 18, 20 19, and reading some ofthose initial white papers looking at. Some of the early ecosystems like Libraformally Collibra and, and then Novi as well as it evolved, how all those wouldwork together for a future.

Kyle Ellicot: Cuz again, my thesiswas betting on the future of decentralized applications and the industry ofWeb3 as a whole. So I kept track of a lot of those. And there's some greatcompanies and groups out there that have put together trackers to monitor thatin a much better way. As I, but I try to keep my closest eye on most of it asit impacts so many things as well.

Kyle Ellicot: Mm-hmm. , because itmay not just be the digital asset, so said token, for instance, but maybe there'ssome discussion on how say applications are run or even how things likedecentralized finance maybe handled or processed as well. There's a lot ofimplications and layers to this idea and conversation of regulatory discussionsthat we have yet to unsee, or excuse me, yet to, to really see unveiled atthis. Unveil at this point.  

Mike Townsend: How about NFTs? Do youfeel that They certainly seem to be a vehicle from massive speculation. Unlikeyou know, like DeFi would say less so, you know, cause you just DeFi you canbuy the token of a DeFi project or, or market, but you ultimately it's kind ofa tool or a market. And even, even the currencies themselves, like NFTs seem tobe this kind of Like golden calf, so to speak. It's the thing that you think isgonna become the ultimate of value. People's kind of the center of the bullseyethere. All of that changed massively when valuations imploded.

Mike Townsend: How do you, what doyou make of the technology and the, the general short term, like a few yearsout midterm. Prospectus with NFTs. Are you, are you excited about it? Do youfeel like there's a lot more to excavate here or, or do you think this was likelargely a, a, a barrier that we bumped into and it was kind of interesting andthere's nice applications and art and other areas, but like overall there's,there's bigger, better cheese to go after.

Kyle Ellicot: So I, I think we'reheaded to the bigger, better cheese in, in a positive way. So looking at, Imean, the first NFT was 2014 and, you know, then we really started to see themhit scale. And again, that, that 2020 range, and I think what it did in itsearly days was open up a whole new world for creators and artists alike. Ithink we can all set our differences aside and agree on that. Right. It reallyempowered creators in, in a way we haven't seen, or, or if anything, allcreative industries their artists have been craving for. I think that opened upa floodgate of opportunities. Then we started to see how it could open up theworld.

Kyle Ellicot: Collectible momentsand also change experiences along with memberships. And that was a lot of whatwas tested over the last two years now where I think we're going. And this iswhy I am so excited about non fungible tokens, not necessarily the NFTs from acollector standpoint but NFTs in general, the technology.

Kyle Ellicot: Again, I think that inthe future we're gonna look at. Everything, once physical will have a digitalrepresentation, a digital twin, and one way to handle that is going to be nonfungible tokens. That could be anything from a driver's license, as we've seenin various countries around the world. I believe it was South Korea thatstarted to do that first to kind of digitize licenses and create them as anNFT.

Kyle Ellicot: We're gonna see. Moretied to a non fungible token, like an experience. So think your, your futureticket to almost any event could be mm-hmm. , an NFT as an underliningtechnology that has that built in. But it's not a, it's not something that youmay sell on a marketplace in its simplicity. Instead, it, it's a digitalticket, just like you would have in your wallet now from Ticketmaster.

Kyle Ellicot: And it has anexperience that tied to it, so you get special access, it ties in your seasontickets, it ties into your membership, whatever it may be. And so I think.There's a lot of untapped potential there. We're also seeing the NF NFTs enterinto the world of like mobility and automotive. We're seeing them in manydifferent industries right now, being tested and trialed around. I think, tome, that's where the exciting future comes is just that digital twin whereeverything physical has its digital replication and it's all in NFT. Causeagain, it's non fungible, right? So you can't yet replicate it. It's not thevisible, it's just one of one, right? Instead of a fungible token like that, asan example, Bitcoin that can go.

Kyle Ellicot: Point zero zero zeronon fungible, token non in its space is just one of one. Now there are thingswhere we have fractional NFTs, so shared ownership as well. So maybe there is afuture where part of a deed for real estate, which is a common example, isutilized and that's a fraction. Fractionally owned smart contract underlays it,boom.

Kyle Ellicot: I also love the ideaof intellectual proper. Right. If you take a patent for instance, such ascollecting dust, which most of them unfortunately are, or a piece of creativework, and you take that, you create it as a, again, an NFT, it's one of onethen from there you're able to take it to a marketplace and allow whomever tobuild on top of it or to leverage it or to purchase the rights to it.

Kyle Ellicot: And then you as thecreator forever get a royalty. Again, very simple example, but. Right now,those patents. Good one. Some of that creative work just sits on a shelf, sowhy not be able to monetize that? Yeah. In some way. Now the last piece iswhat's kind of been put out there? Vitalic, I believe. And a few others wrotethe initial white paper description on this and a blog post, which was SoulBound Token or s SPTs.

Kyle Ellicot: And that's the ideathat a, a non fungible token of sorts is provided to you and it's a tied to youforever. It's not something that can be passed on. So I can't Kyle pass it onyou, Mike. For instance, it's, it's forever attached to me or, or you in theopposite. I think that we're starting to see the beginnings of what those, thattechnology really could be.

Kyle Ellicot: But I, I think it'smuch more than what we just saw the past two years, that past two years,brought some creative ideas and some wild trials and errors. But I think the,the best is far yet to come around that industry. Who are you think aboutgaming. Yeah, I was just gonna say gaming. Think about gaming and, and gaminggaming assets.

Kyle Ellicot: Another example that'squite used quite often is being able to cross assets between games under thesame franchise as well. That can open up huge potential and just the world ofgaming as well. But anyways, plenty of ideas. Yeah, ideas.  

Mike Townsend: Yeah. Yeah. Whatinvestors do you look up to the most and why?

Kyle Ellicot: Oh, wow. Yeah, that'sa great question. Great question. That is a very good question. It's rare thatI'm lost for words on an answer. I have a few individuals that are very privateto me who I've been lucky enough to meet, lucky enough to learn from and haveguided me through my venture journey as well.

Kyle Ellicot: And they each know whothey are and a shout out to each and every one of. As well. And those are,those are the cores that I look to. There are some great funds, there are someoutstanding investors out in the world. Bill Gross for instance, is, is one, Imean, we've seen what Andreessen has been able to do.

Kyle Ellicot: We've seen all thesegreat funds and I think they're all great in their respected areas, but thereare so many VCs out there and so many outstanding ones. I don't think I woulddo enough people justice if I named names, but I do, and I'm very lucky to havea core group that have helped me along my way or that I work with on a regularbasis as. So, okay. Not shy away from question. Are we gonna get, I don't wannayeah, I don't wanna offend anybody, but not mentioning names. So I'm gonna, I'mgonna hold back.  

Mike Townsend: Oh man. No one wouldgetting fun. Let me ask it to you this way. What would be the, what would bethe, the types, the attributes of a person, psyche that would make thempredisposed to potentially becoming a good specifically like Web3 or crypto?

Mike Townsend: Cause that's reallywhat I'm, Right. Like when you say, when, when you say a person's name, I careless about giving them praise or you know, high fives. But really I wanna knowwhat is it about their tactics, their approach that seems to differentiate themmore so than others? Are they, You know, And different people may havedifferent approaches that are also successful.

Kyle Ellicot: Yeah. That, Okay.That's a great question. I can appreciate a shout out to you. Before thatquestion, I'll give you praise for that. That's a great question, . So in termsof attributes on the Web3 side, so seeing and working with a lot that have comefrom traditional and just thrown right in to the industry first as those thatmaybe had started or had an engineering background is, is one thing.

Kyle Ellicot: So, One attribute Ithink that really helps investors specifically in Web3 that I look at or wannawork with is someone who's either built something, doesn't matter if it wassuccessful or not, but has actually built or worked with a team in thisindustry at any point in its life cycle. Because it is crazy.

Kyle Ellicot: It is very fast paced,more than any industry we've seen. There's a lot of new technologies, a lot of,again, break things, fix things, break things, and I think it's really. Crucialto your core as an investor to have some of that knowledge. Now, theengineering thing I mentioned is also great because from an engineering'sperspective, for me, you know, I, I used to look at code all day.

Kyle Ellicot: So for, for someonethat does that, you have a little bit of an edge to be able to look at, say asmart contract to see what it looks like, what it doesn't be able to read anaudit in detail, in depth, and be able to ask those technical questions thatmight otherwise get forgotten. So, Working in the industry is incrediblyimportant.

Kyle Ellicot: Having that engineeringbackground is a huge plus. It's not a requirement, it's just an added layer oftechnical due due diligence as well. And then lastly, I mean, having a chanceto get your, your hands dirty in the industry. What I mean by that is, istesting and trialing all these different categories and technologies andapplications we've been talking about. You know, purchase an NFT, understandwhat an NFT is and you know how to use a marketplace. Do some, some things inDeFi. Really start to experience this. Maybe run a node for instance. And a lotof the stuff you can do very technically or you could do not so technically aswell.

Kyle Ellicot: And I think having.Involvement in a team, having hands on experience trialing some of this stuff.And engineering, again, is always an at a plus. The other piece is also knowingwhat happened in the past. So looking at web one in its early days really throwus back for a minute to then web two, to then web 2.5 and what I mean by thatis, Looking at eCommerce to then social and mobile to then now, so that you cancompare and contrast. Because one of the things that is also important is notjust knowing historically what has come, but how is this all different? How arethe business models. Different or are they the same?

Kyle Ellicot: And how do tokenstructures, for instance, work similar or not? So similar to SAS as an example.There's so many pieces of, of that that continues to get unraveled the furtheradvancing these these companies go. So I hope that that helped to answer again,in summary, you've worked. The industry at some point, at some stage with thecompany, doesn't matter if it's coed or failed, you did it.

Kyle Ellicot: You've gotten yourhands dirty and tried various technologies and continue to push yourself to doso. You have a little bit of lens on the the past to know where we're going inthe future. So looking at those business models, so applications andquestioning what you're seeing in front of you and how is it different, how isit from an infrastructure standpoint gonna add value to a platform?

Kyle Ellicot: A layer one orotherwise, as we saw platforms built in the past as well.  

Mike Townsend: How do you think aboutindividual like consumer type portfolio distribution? You know, like are you moreon the philosophy of if you're, say for the people who are not activelyinvolved, this is like, you know, under one hour per week type involvement, butalso believe strongly in the mission and the general technical direction of, ofWeb3.

Mike Townsend: Are you on the camp oflike, keep it simple, put it all in Bitcoin, Ethereum. Is there some otherapproach that you would give, you know, somebody you loved or a friend of yoursto make? Like one, one piece of like, There's always a little bit of irony herebecause any piece of widely distributed advice is typically.

Mike Townsend: Not advice worthtaking, or at least really hard to implement advice. But one I feel like in thepublic markets is if you're not gonna be involved with daily trading of equities,put it in the market. Like buy an an index, fund, an ETF for the s and p orNASDAQ or something. And that generally tends to be over time better than justpicking companies yourself or trying to, or even putting it in a fund andgiving it to other people to manage, you know, something like, 5% of assetmanagers don't even outperform in the market is, do you?

Mike Townsend: Yeah. What's yourgeneral philosophy for people who are not spending significant time investingin a portfolio, but want to get into and invest in crypto?  

Kyle Ellicot: Yeah, so this is 110%not investment advice. I'll repeat that. This is 110% not investment advice.Yeah. It's really, it's more of a philosophy.

Mike Townsend: It's like a, it's likehow you think about Yeah, sure.  

Kyle Ellicot: I'm, I'm with you onthe same page, just stating it for all that are listening because I, I think itis important and, and the reason for that is, It is very different than we'veseen in traditional, but not so much. And what I mean by not so much iseveryone should be doing their own research.

Kyle Ellicot: Just like from apublic market standpoint, if you're gonna go buy a stock, you generally havedone hopefully some sort of research to decide. Whether or not you're going topurchase that stock, that index, that etf, whatever it may be, you've hopefullydone some research to make that decision. And so I think it's very, very, veryimportant for everyone to realize that when it comes to digital assets of awhole, that you're doing similar research, that you understand how high riskand high, how high volatile.

Kyle Ellicot: These assets are, andthat you're willing to take that risk. Now, from an equity, or excuse me, froman asset standpoint, we don't yet have ETFs approved here in the states. That'salso something that's being discussed at an aggressive level, continues to getpushed out every 30 days. There's a due date and then all of a sudden it getsextended to 30 days.

Kyle Ellicot: And we've seen that. Ithink it set it out for an entire year now. But there are, you know, trusts outthere. There's gray Scale has a few just to name one company. There's plentyand you should do your research to look at those. But that's also one vehicleto start in. From the public market side, from the private mixed market side ifyou will.

Kyle Ellicot: There's plenty ofassets. The cores that always get talked about are refer to are Bitcoin andEthereum. And from there there's several layer ones that have their own tokens.There's layer twos, there's applications that have their own tokens, but youneed to do your own. Research any bit of time in any way, shape or form lookingat any of these, even the companies themselves as well?

Kyle Ellicot: I think, you know, itgoes back to say that you know, Bitcoin was the very first, It was still is oneof the most notable names and also largest holdings. For most, I think it stilldominates over 60. Percent of the total market cap of all digital assets aswell. So I mean, that's something to be said.

Kyle Ellicot: It's been around sinceagain, the end of 2008. The network is still the most stable and has been heresince then. So. You know, take that for what you will. But again, if you'relooking at making investments in digital assets, do your own research, there'splenty of opportunities to get in, or excuse me routes, vehicles to look at, tomake those investments. But like anything, start small. Do your own researchand understand the high risk that you're, you're accessing into.

Mike Townsend: Gotcha, Gotcha. Okay.So it sounds like kind of, if I'm distilling it down, Emphasis on do yourresearch. Bitcoin Ethereum probably make the most sense for someone who's lessthan an hour a week investing.

Mike Townsend: So research with under60 minutes a week, probably gonna be enough to like read the Bitcoin whitepaper and put it in Bitcoin Ethereum, which I, I tend to think, like, thereason why I asked that question is if I had asked that question a year ago.Hopefully people who are professional crypto investors could at least start tothrow the yellow flag and say, You know, we might be over indexed and overinvested in NFTs and the market might be not doing its research, and therefore,given that people aren't doing the research, they're just putting it in becausethe prices go up and people aren't actually receiving value.

Mike Townsend: Maybe it's, maybewe're in a boom cycle. And I think the, the inability or that, like the,effectively what, there's a massive amount of value in investors stabilizingthe market from being, from speaking their truth about what they genuinelybelieve to be the patterns. Because one thing you can't observe as a consumeror as a retail investor is you can't see behind the scenes.

Mike Townsend: Of these companiesreally, you know, like in the way that an investor could, and you certainlycan't see the trend. So I think investors kind of carry the unique perspectivethat they're sort of like behind the scenes seeing what's going on across theboard full time. And in some ways I think it's like, it's really a massiveservice that investors can provide to say, Hey, this scenario we really shouldbe paying more attention to as an, as an ecosystem, like lots of upwardmobility potential or, Hey, this is too hot. We need to like chill down. Andwhat happens is not everyone sells. Like say the biggest andreesen came out andsaid we're in a massive bubble like, Somebody will sell, but not everybody, butat least it trims the ups and downs, right?

Mike Townsend: Like it at least likecurbs the, the, the, the depressive points and the explosive points. So that'swhy I asked the question.  

Kyle Ellicot: Well, so, so commentto this for half a second, so, Sure. So, yeah, just a quick comment. So this isalso an area of opportunity I, I'm seeing start to evolve a little bit from theventure side, just to clarify. And that is on chain diligence or on chainanalytics. So we do have a few companies in the industry that are notable namesthat are. That data in, in some ways. So not just showing a chart going up anddown of an asset, but also what's happening within ecosystem. What's happeningwithin a network?

Kyle Ellicot: What, how many smartcontracts have been deployed? How many are active? You know, how many usersfrom adapts perspective? There's dap.co. There's There's DAP Network, there's DRadar, there's a ton of, of great ones that just look at decentralizedapplications and their activity. But then from on chain analytics, you've gotchain analysis, you've got nas you've got Dune you have some that are veryspecific to, there's, there's respected ecosystems.

Kyle Ellicot: So at Stacks, we haveStacks on chain as an example that help to show this information and wherewe're moving towards. More improved user interfaces. So UIs that hopefullyeveryone will be able to, to look at whether they are building, whether they'rejust monitoring the, the network traffic for every, for any reason they'reworking in security, regulatory or compliance and risk, that they're looking atall parts of this from any part of their business.

Kyle Ellicot: They're able to seewhat's happening in real time, and that's one of the things that. People havegotten excited about, even from an investment standpoint, is that you can see alot of this activity in real time and in a transparent way. Where as in publicmarkets, for instance we only see things as they're released and in a certainhour range.

Kyle Ellicot: And I mean that from acompany standpoint, not just from a, an equities or an asset standpoint. Sowe're kind of in this again, back to the phase change. We're in thisinteresting world where more data is being provided with better unit userinterfaces to make it more transparent to everyone. Again, from that builderlevel, all the way up to the user level of an application on what is actuallygoing on.

Kyle Ellicot: As well, which I thinkis gonna be exciting and fascinating. And from a diligence perspective for VCs,for venture capitalists, I think you're gonna see a lot more traditionaldiligence that we've, we've talked about and we've all done, and I'm sureyou've had other investors talk about on your show in the past.

Kyle Ellicot: But we're also gonnasee more around on chain diligence and looking at really what's happening inreal time and monitoring those investments that we may be deciding to make andthen monitoring them after the.  

Mike Townsend: Yeah, good point. Howabout are there any people in particular that you pay attention to either onTwitter? Not necessarily people you personally know, but just people puttingout great content. Either a Twitter, medium subs, YouTube, any just contentproducers in the space that you you think are worth consistently payingattention.  

Kyle Ellicot: Yeah, there's a handful and I'm, I'm happy to share more names for, for you to put into the tothe show notes. So Ryan, the founder of Messari, I, I can't speak Kylie enoughof him. I mean the, the team and he himself, what they put out is justphenomenal bar none. It's, it's a go-to place for all industry research thatI'm not already seeing or collecting myself as well. They just acquired acompany Dove Metrics that did a lot of aggregation around venture funding.

Kyle Ellicot: They used to put out alot of great content and now have, have become a part of that team variant. TheVariant Fund does a great job along with Paradigm in putting out solid contentfor the industry to read. There's a ton of accounts. Darren, I think was formerSpartan Group. I'll fact check that for you.

Kyle Ellicot: Follow him. There'salso a partner at Light Speed. She does a phenomenal job of breaking this down.Lisa, who, I'll share you her on Twitter as well, one of the best in thebusiness in terms of explaining tokens. Token structures also has a few bookson the subject, and there's probably about, and there's probably 20 more thatI'm, I'm forgetting their names and mentioning being on the spot right now. Butthere's a slew of names out there that put out great content.  

Mike Townsend: Awesome. Well, youmentioned the two great ones there. Yeah, yeah, yeah. Kyle's been a lot of fun,man. Congrats on all the progress so far.

Kyle Ellicot: Yeah.

Mike Townsend: I hope you guys keep crushing it. Thanks so much for topping on.

Kyle Ellicot: Thank you.

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