Stephen: This is your host Stephen Sargeant, Around The Coin podcast. We have Sam Hallene, who's the investment partner at CMT Digital. This is a traditional VC company that got into blockchain extremely early, started dabbling in 2014. Sam joined them late in 2017, pretty much fresh out of school, and he talks a lot about the industry, taking chances on projects and initiatives before a category is built around them.

He also talks a lot about AI and the way him and his organization approach AI and the possibilities and opportunities. With AI and blockchain being connected. We give a little bit of a hint for you entrepreneurs, how to better pitch a VC, but you got to stay right to the end to listen to that. And we go into all the conversations around regulatory landscape, mass adoption.

We even talk about the Chainalysis Geography Report. This is an episode packed full of anyone that's in payments. Tech, crypto, or if you're just an entrepreneur and you want to pitch VCs and you want to hear directly from the VCs mouth, this is the podcast for you. Let me know if you enjoy it. Reach out to me or Sam @samiam2194, and we'll talk to you soon.

Stephen: This is your host Stephen Sargeant. We have a special episode today. We're going to talk a little bit about crypto investing on Around The Coin podcast. We have Sam Helene from CMT Digital. Sam, you're an investment partner. We're going to go into a little bit of your background, a little bit of what CMT Digital is, but maybe just like set some groundwork.

What is an investment partner and how is that different from any other partner maybe at a venture capitalist organization?

Sam: Yeah, I think I have the unique privilege of being able to learn from others all day, every day. I think I'll uh, learn from you a bit on this podcast today here and you know, an investment partner, I get to spend my time. Sourcing and due diligencing investments specifically in the blockchain and digital asset space.

Meeting some of the most innovative minds, I think, that are out there that dare to build with this incredible technology and, you know, build a reality that, you know, kind of only they can see. And my favorite part about my job is that I get to get into their minds and see you know, some of these incredible visions that we've, you know, Throughout the years seen materialize.

Stephen: That's amazing. Talk, you know, looking at you, I think the first thing that comes to most people's mind is how young you are. Then I looked at your background. It seems like you jumped right from school into an investment partnership. So there must've been some groundwork there, some soul searching, maybe some finding yourself in Europe.

I'm not sure. Tell me a little bit about your work during that time.

Sam: Yeah, absolutely. So do you want me to give you the background on CMT digital on myself? I mean, they're kind of, they're kind of like one in the same as you mentioned, but let me know.

Stephen: I want, like, you're in school, you're, I forgot, you're University of Michigan, so you're watching probably football or hockey. I think that, I follow college, you know, sports a lot. I think those are the two sports University of Michigan is pretty good for. And then you decide to get into, like, blockchain, like, tell me what you were doing at school, what you thought you were going to be doing maybe year one.

And maybe how that changed, what were some of the whispers for maybe some of the other technical students or like, how did blockchain get into your ecosystem?

Sam: Yeah, absolutely. Well you're right on both counts, big football and hockey school. We were also pretty good at basketball the year before I went to Michigan. We went to the championship in the year after I left. Michigan, we went to the championship. So, I missed I missed one of the championship games, but how did I get into blockchain?

Yeah, maybe I'll take a step back. So I was an economics and Spanish major. I loved econ because, It's more of an intuitive school of thought relative to kind of like hard and fast rules and ratios. And you know, as I was growing up, I always wanted to be in business, but I always gravitated more towards.

the philosophy of business and you know, what is it that makes a moat defensible? What is the you know, what philosophy makes founders successful and what ultimately makes, you know, businesses successful was more interesting to me than any given, you know, You know, Ratio or Covenant or or, you know, call it like Balance Sheet Metric.

Now, all of those are very important and I you know, have the pleasure of kind of living in both worlds. But I think a venture skill set, especially at early stages, you know, kind of gravitates towards that. And then I loved, I read the Bitcoin white paper in 2015, and I'd always struggled with the fact that money can be printed and has been, you know, usuriously printed throughout large timescales and, you know, when you look at the rise and fall of empires, you know, a hallmark characteristic of you know, a declining empire is the Abuse of money supply. And from that standpoint, you know, Bitcoin was highly interesting and I really I really, you know, fell in love with the technology when I read the Ethereum white paper and read about smart contracts and, you know, codified logic, arbitrary logic, you know, started to read about oracles in the early days and what they could do to bring real world data on chain and, you know, the possibility to really reinvent finance.

As we know it, and as you go further and further down that rabbit hole, you learn that, you know, really a lot of the world's infrastructure, financial infrastructure is, I mean, there's some parts of it that are extremely cutting edge and high tech, but, you know, like our banking infrastructure there's actually an article published, you know, maybe in 2016 or 17 around the search for COBOL engineers.

Cobol is a dead programming language or going to be dead soon, but a lot of the bank infrastructure is written in Cobol. And and so they need, they're paying, you know, extremely high salaries to find these types of engineers to maintain these databases. Whereas, you know, blockchain doesn't really rack up a technical debt as it were, like, like one of these information repositories could.

So that was kind of my entry into the space. I

Stephen: Quick question before you go on, did the econ, you know, being an econ major, did it kind of mess with your mind that, you know, all of a sudden money was programmable was that like two competing philosophies or did that actually make more sense where the future of the economy is going to rest on being able to have these digital assets or easier ways To use the financial economy or alternative ways to what the traditional financial ecosystem was.

Sam: I think the notion of an accessible financial system, accessible through a smartphone or through a computer, you know, just an average computer, really appealed to me. And as a way to unify people. You know, the financial system. Now, I think that's an ideal. I don't know that will actually happen in practice and we can get into that.

Was pretty was pretty compelling to me. I was basically out of college by the time that I started exploring this idea further my, you know, my orange pill was the Bitcoin white paper for sure.

Stephen: And as you're, you know, getting into CMT, they're a traditional, you know, venture capital firm, traditional investment firm, but then they were just starting to dabble into Bitcoin probably around the same time you were as well. What was like day one there at CMT Digital? Was it like, hey, we have this ball rolling or hey, we kind of need some bright minds to kind of make sure we're putting in the right guardrails around some of these investments and projects.

Sam: Yeah, it was it. So the entire culture at CMT is super forward thinking. We learned about Bitcoin in 2013. Actually, our former legal counsel at the time brought us into this space and And was exploring the regulatory frameworks that were emerging at the time. So regulation before, you know, technology really, we saw the U.

S. Marshall Service auctions of the Silk Road coins in the 13 and 14 timeframe. We learned that, you know, a lot of the participants in these auctions were actually trading firms, much like CMT. And You know, that caught our attention and we wanted to be at least in the flow of information. So we figured we'd do our homework fast, you know, that was like 2014.

And as, as the firm learned up on the technology, it really was evident to us that this was a way to eliminate counterparty risk, which is, you know, a huge consideration in, in, in trading and financial markets, right? You think about it in the context of lending, but also in the context of an exchange, you know, if an exchange is insolvent or if your prime broker isn't insolvent, you know, then you can make all the paper gains in the world and make the best trades in the world.

But. To be able to settle those is, you know, won't be an option to you. And so, you know, from a trading perspective, it just made sense to us that a technology like this should exist. So we really dove in and, you know, started to buy Bitcoin in the 2015, 16 timeframe. We actually started a full time trading desk in the blockchain and digital assets space to capitalize on some of the opportunities that existed in the 16 and 17 era before we started investing on a venture basis.

I so we'll get into the venture stuff I presume in a little bit, you know, my, I joined in September of 2017 really right as we were starting to see more venture style deal flow. And I joined with the promise that you know, I would help out on the operations side of things.

And but the promise was that, you know, if I. Got all that work done, you know, then the treat for me, if you will, was that I would be able to analyze all of the interesting deal flow that CMT receives from being in capital markets for 27 years. And and so, you know, I was I, you know, learned the guts of, you know, operations at a trading firm, which, you know, is surprisingly applicable to the blockchain and digital assets space.

And then I got to Moonlight as a as an analyst. You know, my, my previous internships were in we're in private equity and you know, capital markets broadly. And you know, my recruiting cycle and what I was what I actually Where I worked before I, I joined CMT for a short stint was in banking.

So, you know, I had a raw skillset in that in that domain. But of course, nothing can fully prepare you for what you find in the crypto landscape. And I think a lot of the model of thinking is actually kind of like antithetical to, you know, the call it private like traditional private equity model of thinking.

So, you know, I've really had the opportunity to grow with this asset class. It's a young asset class. I've been, you know, in the space for roughly half the time that Bitcoin has existed. And I feel very fortunate for that.

Stephen: That's awesome. What was some of those early deals? Because if you're talking 2017, A lot of these, you know, blockchain projects, they're raising ICOs. They didn't really need your money, right? They had random people sending them Ethereum, totaling millions, hundreds of millions of dollars. What was the landscape like?

Were there still legitimate projects reaching out to you? Was it more of the infrastructure, the picks and axes type of companies that were reaching out to you? Or like, were you looking for companies that you're like, Oh, this seems interesting. They're building on Ethereum. Let's reach out to them. Let's see what they're working on and what their needs are.

Talk to me a little bit about that landscape and maybe even what you're seeing now versus that.

Sam: Yeah, absolutely. Yeah. I think in 2017, Most of the, and just by virtue of CMT having a background in trading, most of what we were seeing were, as you described, the picks and shovels of the financial infrastructure. So custody exchanges you know, brokerages, lending borrowing, the use case for digital assets that had found clear product market fit by 2017 was trading and speculation.

And so there was a lot of the future of this asset class hinged on creating robust kind of capital market infrastructure. At least that's what we thought at the time. And that was really the flavor of our initial investments into the space. So think things like Coinbase, Aerosex, BitGo, FalconX Silvergate Bank things like, like that.

As you get deeper into the space or as we got deeper into the space, the realization was really that this technology isn't everything. Technology, much like AI, we really profoundly believe that database and computational paradigm that, Blockchain technology brings with it will affect nearly every asset class and industry.

And with the luxury of investing on a long timeframe, that gives you a lot of creative freedom to, you know, think about, okay, what comes after infrastructure? And, you know, for us, some of the early You know, machinations in fund one were, was really blockchain meets, meets gaming. And so, you know, the investments that we made out of our first fund into the gaming space were Horizon Blockchain Games, which is a Toronto based..

Stephen: I'm in Canada. I know them. I'm Toronto based, so.

Sam: They're absolutely wonderful. And they just announced a large partnership today with Immutable. And then we also invested in Dapper Labs.

Stephen: You gotta love Dapper Labs. What's it called? I can't even remember what it is.

Sam: NBA top shots.

Stephen: yeah, TopShot. I know I spent quite a bit of money on it. I think I still have an unopened pack that I'm looking to go big on. I'm going long on that, not opening it up for maybe a couple decades, hopefully.

Sam: Nice. But yeah, I mean, like the, you know, the use case of gaming is something that we're still extremely excited about. You know, I think broadly where we're at right now, there's been just so much change over the last. Six, seven years, and we're at a place where in 2017, there were, you know, there's a, you know, always a problem.

You always invest on a probabilistic basis, you know, with different weights to different types of outcomes. And back then the weighting that Bitcoin would not exist in five years was certainly not zero. And it was something probably closer to. You know, 50 percent maybe. But we knew that if it did, it would, you know, that it would potentially radically transform, you know, our capital markets and database infrastructure

Stephen: I think that's an interesting point, right? Looking back, it's easy to connect the dots, especially with the price it's at today. But at the time it was like, yeah, you're risking all of your investments. And no matter who the jockey is, the, there might not be a, you know, a racetrack for the jockey or the horse to ride on.

So it doesn't matter how fast they run. There's no prize to be won, which is interesting. You don't hear too many people talking about like, yeah, we're investing in not only a company, not only a founder, but hoping that the industry will still be there by the time our profits are realized, Talk to me a little bit, you know, I just came back from a huge business summit in Las Vegas and they're all talking about EBITDA and Numbers and CAC and LTV, but you're early stage with a lot of these companies where I'm not even sure if they have revenue, it might even just be an idea, what are you weighing some of your decisions on?

Is it Where they are in the market, the total, you know, addressable market. You know, the passion, the founder, right, right. To run through walls, no matter the obstacle. What are you weighing it on? If you're not seeing a clear picture about revenue.

Sam: Yeah, I've heard it stated that, you know, venture investing or early stage investing is a combination of underwriting team traction, TAM technology in the blockchain space, probably, you know, regulatory is a big consideration to, to throw in there as well. When you're investing at the earliest stages, it's basically all team and and TAM. There could be thoughts around what a technological moat would look like, but it's a very big chasm to cross between when you ship a product versus what you ideate on what it will look like when you build it. You always encounter challenges in the process of shipping. technology or a product. And then it's the even bigger chasm to cross to get somebody to pay for what you're building.

And so I think this whole business is still a very much. It's a human business. It's underwriting founders with passions, you know, making sure that your incentives are aligned. And especially in the venture business where you're really looking for large outcomes. So you're looking for founders that are Are audacious enough to not settle for a outcome that perhaps is life changing to, you know, most everyone including myself, you're looking for them to settle for, not settle until.

You know, they've completely disrupted an industry or or built a, you know, an, a, an everlasting type of product. And so founders are very much ideologically driven and, underwriting at the earliest stages is searching for that. We also like to invest in outcomes that have, you know, we call it like a venture style skew, but it's.

If a few assumptions go right, then this business is in, you know, an almost monopolistic state at the end state. And it becomes very hard to compete, you know, whether that is, A compounding data moat, which you see a lot in the AI business, although it's present in the blockchain business. You know, I think a lot of the, like, moats that you see in blockchain are mostly around, you know, network effects which, you know, is a very, you know, well studied type of moat. But those are the things that we look for. You know, TAM is interesting because I think the best companies in the world actually. invent new markets. And so those are really fun to reason about. I guess what I can say is that we have a meeting every week with our entire team where we write memos and bring, you know, really really wacky concepts to, to the table.

We have folks from all different types of disciplines. We have traditional venture capital we have more of a a trading type disposition from the founders of CMT. We have private equity backgrounds. We have a few folks, including myself, that are more on the crypto native side of things.

And, you know, when you step into that meeting, you you leave kind of, you try to leave all emotion at the door and try to reason through. You know, some of these concepts that, you know, may have never been really reasoned through to a large degree. And you know, I think what we've developed at the IC over the last seven years is really a trust.

A belief in each other and a respect that allows us to very soberly, you know, debate these ideas, but I couldn't do anything, you know, without my teammates, they're really It's really an incredible group and those are the conversations where, you know, we come to consensus or not, and it's more individually driven on, you know, I just have such an extreme belief in this founder that, you know, I want to take a swing here and and that, those those oftentimes have good outcomes as, as well.

Stephen: Can you remember anything that you didn't take a swing on? You're like half and half, half the team's like, yeah, let's go for it. The other half's like, hey, we've taken a lot of chances this quarter. Let's maybe wait for another round or see what happens. And now you've seen the company kind of blow up.

Is there anything that you're like, Oh, that looked really obvious at the time, but we were still met half and half. And now that we, you know, they fulfilled what we thought they were going to.

Sam: Yeah, absolutely. You know, I think, I, there's, there are certainly, you know, I'm pretty sure like Bessemer has their wall of shame or you know, like their anti anti like, I forget what they call it, wall of investments. And every VC firm has one. We have those as well. We we don't, you know, we don't dwell on and and You know, punish ourselves for those.

What we do is analyze them deeply and think, you know, where in the analysis did we did we potentially error? And you know, the venture the venture industry is one of. You know, the sins that you commit in this industry, I've heard it said are sins of omission instead of commission, meaning they're the deals that you didn't invest in to that, that you wish you would have instead of the deals that you invested into and wish you didn't so it's really, you know, recalibrating to, Just fine tune or hone in your pattern recognition when you miss one, but yeah we've missed we've missed a few.

Stephen: You have to be in this game, right? Like anyone that got rich in crypto has been wrecked on more than one project or got eaten up in a couple bull markets. It's part of playing the game. You can't get rich without losing some money in this game, I'm assuming. I actually want to talk, you said something interesting on CNBC that, you know, your company likes to invest in, you know, projects before a category is named.

Talk to me a little bit about maybe a category that was named after some of the projects. That you thought like, Hey, not yet a category. I think Dapper Labs would be an interesting one. There wasn't really a category. NFTs were a thing, but like, you know, that kind of cross section, the culture and sports hadn't been emerged yet at that point, in my belief.

Is there any other categories now that you're seeing that you're like, Hey, it's not yet the category, but I see a couple of players that they could be onto something. I know Soulbound Tokens. That Vitalik I came up with was gaining a little bit of traction before the last bear market, but we haven't heard much of it, but it's since.

Sam: Yeah, I think, so, so We like to get connected to founders through, you know, our founder network. We find that is oftentimes the best source of deal referral because, you know, they're thinking about ideas that are, you know, not just incremental, but 10 steps ahead of the curve.

And so oftentimes our best, you know, You know, chats are with our our founders are actually on the deal flow side of things. What we've been we, I think one of the areas that I'm most excited about is this DeFi 2. 0 category if you'll call it that, you know, I think where, from a timing standpoint, it feels as promising as ever right now that traditional finance is going to meld with the blockchain and digital assets space, and you see major players.

Really stepping up, whether it's BlackRock and even Larry Fink saying that he believes all financial assets will be tokenized. Stripe acquiring Bridge you know, Franklin Templeton launching digital money market funds. The list goes on and I think that there are certain elements of the tech stack that just must be decentralized.

Yeah, I think custody is going to so these assets are going to live on blockchains. But perhaps the order book on which they trade, you know, is not fully decentralized. Maybe it is at the end state, but if you're looking for latency that the top trading firms want, there are just physical laws of blockchains that, you know, almost preclude you from getting to these levels of latency.

So really DeFi 2. 0 is combining the best elements of centralized and decentralized finance. I think a project that really embodies this is Athena. Athena is a is a, has created a stable. They've created a new unit of value pegged to a dollar by going long Ethereum and Bitcoin and short the representative perpetual futures on both centralized and decentralized exchanges.

And so they've created this, you know, they call it the internet bond. And, you know, it relies on both centralized and decentralized infrastructure, but where it's, where it matters, you know, the counterparty risk is decentralized. And I think that this is uniquely enabled by blockchain technology.

I don't think that this type of product could have existed, you know, without you know, the Without Ethereum and Bitcoin, and I think that it'll be interesting to see it infiltrate into kind of mainstream finance. Another,

Stephen: things like the Bitcoin prices going up, is it harder for you guys to get on cap tables? I know like, you know, when the market's up, companies get a lot more pickier than they did, you know, last year or maybe even the year before. And they try to use that leverage. What is the scenario like when the price is up?

Because you guys have been in the market for a couple of bear markets and a couple of bull markets by this time. What do you see changing? What's the biggest trend you see trade changing?

Sam: Yeah, I mean, I think there are some pretty profound changes in market structure where the incremental dollar, the marginal dollar is flowing into the ETF complexes as opposed to necessarily direct inflows into exchanges. I also think this technology is performant enough now that the Centralized trading experience is very much rivaled by the decentralized trading experience.

I. e., you know, meme coins on Solana, you know, can be accessed with, you know, almost the same ease as as, you know, accessing a Coinbase account or Binance account. I'll be at a lot of the dollars flow through those accounts originally to onboard. And so I think that. You know, on the one hand we will see kind of a necessary marriage of what is traditional finance and and this new emergent decentralized finance.

But on the other end, we also see that, you know, perhaps this the actual rails on which all of this will, will ride are decentralized rails. So I think that's highly interesting. To answer your first question, that we try to provide a unique value proposition to our portfolio companies.

And we try to necessarily swim in the waters that are not as, as crowded. We position ourselves as a. Global firm with a real boots on the ground presence that will meet up with you in person or fly to whatever meeting that big meeting that you're trying to close and you think it'd be helpful for us to be at.

At the same time, we leverage, you know, really scalable assets, which are our expertise in trading and and security and other assets to help our portfolio companies navigate. Those types of decisions. We are deeply embedded in the regulatory conversations. We're members of the Blockchain Association.

We actively contribute to other working groups in the space and try to be ahead of the you know, the kind of the coin there in terms of what rulemaking is coming down the pipeline, specifically in the U S but abroad as, as well. And we really, we really try to be a partner to our entrepreneurs such that.

The first name that comes to mind when they see a deal or an interesting opportunity is CMT. And we feel really fortunate over the last seven years that we've been operating to develop, to have developed extremely deep. Robust, strong partnerships with our founders and so, you know, I think we are the space may get more competitive where the price of Bitcoin and Ethereum may rise.

But we're trying to. We're trying to bring light to the corners perhaps that people aren't at and that you know, and oftentimes it's a signal to us when others tell us like, oh, I wouldn't, you know, pay attention to that space or, oh, I've never heard of that.

You know, that, that's kind of like music to our our ears.

Stephen: How do you balance that though? Cause I know you have a long term approach, but there is like hype cycles, NFTs, Metaverse, you know, security token offerings. STOs was a big deal a few years ago. How do you manage long term with like, Hey, we have to take a chance at some of these things that have maybe, you know, that are hype right now, but we saw how quickly the Metaverse got removed from people's LinkedIn profiles.

Crypto in general got removed from people's LinkedIn profiles. How do you balance like long term sustainability, but also, you know, taking a chance on the flyer that something is hot, it's new, and others aren't willing to, you know, invest in.

Sam: There's this asset. And sometimes downfall that the blockchain and digital assets space may possesses, which is success can happen very fast. Liquidity can happen fast as, as well. When we underwrite our investments, you know, we're underwriting fundamental business value accrual. We underwrite them for, you know, in most cases, a, you know, a five plus year holding period. More and more entrepreneurs are exploring the benefits of tokens. Because they have interesting, well, they have theoretically kind of unlimited, you know, value accrual mechanisms and a lot that I think we haven't explored yet and a lot that is really interesting that, that is you know, active and working today and they have also at the same time the ability to have like viral incentive loops.

And it allows for quick success, as I had mentioned earlier. And so, I think, you know, the blockchain venture is probably not it's not the same as traditional venture from, you know, a requisite skills, skill set standpoint, where. I think you also, you also need to be able to respond on on the fly with changes in the environment and very actively monitor the positions as opposed to, you know, call it like a board meeting every quarter. So that's something that we've really tried to orient our minds around. And be opportunistic when we can be all while understanding that the power law is what's going to drive the returns for our portfolios and and trusting in that and having that, seeing that played out you know, through cycles and years past.

Stephen: That actually leads me into my next question because a lot of people have already said like AI has already gone through that kind of VC hype cycle already and a lot of them are saying it's you know the values are over allocated they want to stay away from it they're going to let it tone down a little bit where you've taken that approach where like hey they're just not seeing what we're seeing what are you seeing in AI right now that still makes an investable category for your organization.

Sam: Yeah, well, I mean, I think like empirically the dollars that have been spent in AI are massive. And there is, as we're building this. You know, corpus of infrastructure, a need to spend that. And I think that this will be persistent. I think, you know, I think it's very true that there is an AI hype cycle.

I would say the intersection of blockchain meets AI is interesting and fascinating to us. And I think, you know, as we go forward into our next fund tier we will. See meaningful dollars allocated to this space where I think the intersection, you know, really you know, comes to life is with on chain agents.

Or agents that pay each other with digital dollars or blockchain based dollars or other assets. I think we'll see this probably take off first, and we're already seeing it in these automated Twitter personalities and trading bots. But I think quickly we'll get to a world where you just have an AI sidekick that, you know, you do life with, like we all do life with our iPhones.

And. In that world, I think that blockchain based assets, you know, clearly non deterministic, you know, logic will help be the guardrails, or sorry deterministic logic will help be the guardrails for, you know, this non deterministic technology. I think, you know, the areas of like benchmarking and evaluation and making sure that what we're being told is true, especially in high value scenarios can be governed by a decentralized network.

I think we've got a ways to go on the. Decentralized compute in the decentralized compute space. But I do think that at the end state, at the limit is is going to be like a staple for our like a passive earning stream. And what I mean by that is right now it's pretty difficult to provide, you know, high quality computation.

Or comput like computational power that would meet the requirements of a of a large language model or a company that would be training a large language model. Just because, you know, you need high uptime, you need low latency you need homogeny of devices. And like the decentralized markets, it, you know, it's hard to provide that right now.

But we do see things like decentralized storage on our weave or filecoin, you know, working. And so, you know, that there's, there is, you know, incrementality towards that ultimate end state. And so I think, you know, it's just a matter of time before we figure that out.

Stephen: When like, you know, Filecoin is protecting the world's most, you know, you need the world's most accurate data, the world's most treasured information. You need some place, especially now with AI, you're gonna need some place where you can guarantee that the information that you're receiving hasn't been modified, adjusted.

I think that's what a lot of people are talking about. In five years, you won't be able to believe any videos that you see online. And, you know, there's some huge infrastructure plays there that where blockchain, as you said, will be the governance kind of layer for a lot of this. I'm curious to you though, because you mentioned moats a couple of times.

I have to imagine it's hard to build a moat when the technology is just moving so fast in ai. What are your thoughts? How do you judge what could be a winner? What might, even if they have a total addressable market somewhere, could leverage a lot of OSI or open source technology and ai to create, you know, something that you speeds past it.

We see not a lot right out the gate with a lot of these AI generated caption tools. Some of them look like early winners. And then, you know, you have these, it almost feels like Snapchat when they released the stories and they Instagram copied them and completely wiped out most of their market base.

What are your thoughts on that?

Sam: Yeah, I think data is the moat for a lot of these plays. And if you can't, and that's a really interesting kind of self reinforcing. type of moat. If you can have data funnels that are clean and persistent, and you can produce an output that encourages more of that data to be provided, then, you know, those, that's a real moat in my mind.

I think that the productivity gains that we're going to see from artificial intelligence are absolutely mind blowing. You know, I think, you know, I've heard it stated from people that I trust that the cost of tokens is declining at twice the speed of Moore's law. And so, you know, it, which is, it's just almost an exponential curve that's really almost unfathomable when it terms, you know, when it comes to.

You know, real use cases of this technology. So, and even in, in terms of building, you know, in, in terms of building the these foundation models themselves and these chips themselves. And and so I think that we're going to see a I think data is ultimately the moat. And and then like trust and truth is a moat as well.

Whether it be. You know, whether it be the like, as you had mentioned with DeepFakes, you know, having a blockchain authenticated you know, signature for content that you put out or having trust that, you know, data hasn't been manipulated and doing that through, you know, like ZKTLS pipelines, if you will, that's something that we're actively exploring.

Or just, you know, relying on blockchain, like going back to the core, like function of blockchains, which is like, they're just a truth machines. They they, you know, on a 10 minute basis or a 14 second basis or a sub one second basis pump out, you know, what the entire network believes is truth.

And and I think that's going to be profoundly important to in terms of a, in terms of a moat going forward.

Stephen: Talk to me a little bit about regulation. You mentioned it earlier, especially in the U. S., regulatory clarity not that great, you know, Trump promises to make it a little bit more transparent and focus a lot more on it, but you know, you're getting into regions like the EU with Mika Hong Kong, Singapore, Dubai have its own blockchain regulations, but also in the realm of AI.

You know, regulators around the world are trying to create some guardrails for AI. How much does regulatory infrastructure weigh in when you're making some of these decisions? Are you keeping an eye on what are some of the legislators in progress or going through the senates or the congresses? I

Sam: Yeah. I mean, I think a truism of technology is just that it always leads regulation. I think a fallacy that many make is that or a or a mistake that many make is that regulation will not ultimately catch up to. The technology, we believe that this will happen. in the United States and in other regions of the world.

For the last several years, we've been, the United States had been losing blockchain talent to, to to the rest of the world to key pockets of innovation globally in the blockchain arena. I think. With this election, there's strong signaling that this will be reversed. And I think it happened just a few minutes before we hopped on this podcast, but something like 18 states are suing the SEC.

For broad overreach of their goals, perhaps. I didn't get a chance to read the entire complaint. But we are seeing now a hard push for change and for regulatory clarity. I'm the most excited I've been, ever, to invest in the blockchain and digital assets opportunity and one of the largest reasons for that is the regulatory clarity that we're I think that we're going to gain in the United States and that's all, that's what we were asking for.

That's what we've been asking for the last You know, really since the inception of this technology, since CMT got into this space, is regulatory clarity. We want rules of the road, but we want, I think, rules that are coherent and ideally that use blockchain technology to regulate, you know, blockchain technology as opposed to applying old technology and old standards to you know, tech to a a technology that really couldn't have even been reasoned about, you know, when the rule books were made.

Stephen: think you make a good point there. Is there any trends that you're picking up on, whether it's deal flow coming in, any jurisdictions standing out? We know LATAM and APAC regions have been, you know, flooding in with whether it's meme coin culture, whether it's, you know, beating hyperinflation. What are your thoughts?

Any trends that you're seeing come across your desk? You're like, Oh, like this region is really picking up or this region is seeing a lot of startup innovators. Anything that you can share with the audience?

Sam: Yeah. It's always interesting to see the chain analysis reports come out. Chain chain analysis recently released their 2024. Crypto Adoption Index, and the countries that are adopting at the fastest rate. I think this year, India was number one and Argentina was in the top five. It's, you know, it's, I think it's a signaling, I wouldn't go as far as to say validation that this is, this technology has.

Is accessible. It's accessible to folks that may not have a bank account or are at least, you know, call it underbanked, and whereby they have access to some level of financial services, but you know, it's really difficult for them to sleep well at night. You know, knowing where their money is stored or if they, or they feel they need to spend it or store it in something else because they can't store it in a traditional bank in context like you and I would think about.

So that's really exciting. That's, I wouldn't say that's a new trend, but I think that, you know, at this point, Bitcoin has hit product market fit. And I mean that in a few ways. It's now being talked about on a government level. And there are talks of a strategic Bitcoin reserve. I was reading that Polymarket has a 30 percent odds, a 30 percent probability that the US develops a strategic Bitcoin reserve I think in the year 2025.

So, you know, there's that's in the conversation. Yeah. You know, I wonder where that, those odds would have been at. Even 12 months ago our founder, our portfolio company founder, Jack Mallers, likes to say that Bitcoin is the most recognizable brand in the world. I believe that's true. And so really for the first time, Bitcoin is becoming a globally consensus technology From the standpoint that people are starting to trust it.

They're starting to associate positively with it. It's starting to become normal and boring to talk about in social circles. And

Stephen: about Bitcoin, it's like, oh, who's the grandpa in the room, right? Like, now it's like, if you're not dealing on some Solana meme coins that make no sense, that you're not cool and It's funny that you bring that up because that's exactly where it's gone from. It's being talked about in a positive light from people that aren't speculating like that are, you know, by people that are, you know, professionally speculating for lack of a better word it's not being talked about with crime as much, you know, Chainalysis, obviously we're big fans here, clients of of mine, but you know, those reports really help you kind of see, like there's a lot going on, especially cause that reports on the grassroots level, what's really happening.

In these organizations, you have a company, a portfolio company, probably don't know all your portfolio companies, but Busha is one that I saw there who also was on a Chainalysis podcast. And, you know, I look at a region like Nigeria where you can't just go into your bank and get US dollar funds. It's, you know, it might take weeks, if not months, if you are able to get it.

And you start thinking, well, how can they play international vendors? How can they operate small businesses? What are your thoughts about more of these countries needing to adopt that crypto as they're kind of almost like fiat currency because the fiat currency itself is being devalued at such a rapid rate that they need to get their funds in stablecoin to avoid completely annihilation of the funds they're holding.

Sam: Yeah, Boosh is an amazing company. The team is fantastic. We've worked with them for close to three years now and they're the first. Nigerian exchange or brokerage company to be regulated by the Nigerian SEC, which is a huge accomplishment because the previous regime was highly anti crypto because it it took away one of their levers to control capital outflows, and so the Naira was rapidly devaluing, and a large reason for that was people were saving in stablecoins which I think is profound.

That you know, every day Nigerians are going to money tellers and choosing to save in stable coins. So I think that this is like a ground up movement and I think that in Nigeria you know, Boosha being regulated, being being a trusted player is going to do phenomenally well. And, you know, they're starting to see more business use case starting to see, you know, more everyday commerce.

And that's, you know, incredible to me that their clients are choosing to use digital dollars to transact as opposed to the other options that are available to them, be it card or cash or, you know, traditional, Rails. So it's something that you know, we, in our, you know, probabilistic distribution of outcomes, you know, we definitely had on the bingo card, but to see it happen, you know, this fast, it's it's pretty amazing.

Stephen: And we see the importance about being registered. There's a lot of exchanges that have come into the region. They've been met with, you know, a lot of controversy, a lot of So when you're not registering with these authorities and you're, you know, they're, you're getting their customers. It's a huge issue, I think, in a lot of these industries, especially blockchain.

To wrap up though you're raising your fourth fund. Is that sort of like how, is a VC raising funds sort of like how a project would try to raise funds from a VC? Is it a very similar process? Is it kind of, is it kind of ironic in some way where now you have to raise funds the same way the companies are trying to raise funds from you?

Sam: it's a fun experience to be able to raise a fund. to get to talk about what I do every day on a day to day basis. This is our fourth fund. We have we have wonderful investors that have trusted us in this in this new and emerging and evolving space. You know, we're an SEC registered investment advisor.

So, um, we're in extremely, you know, regulated and we are we strive as, as hard as we can to provide the highest quality of service. So it is it's fun to be able to tell people our story and to paint a picture of where this technology goes.

And I, every time we go out to raise. The crypto fluency upticks, you know, materially, and and so, you know, we have really smart investors that send us deal flow and like to spar kind of intellectually on a lot of the ideas that we're working with. And and so, you know, it's a great honor to be able to even have those relationships.

So, it's a lot of fun. And. Yeah, it's, you know, fortunately we have folks that, that are that that want to invest with us and and, you know, being on the fourth vintage that they've kind of come to know what to expect. From a process standpoint and and they know us as an organization.

And so, you know, it's I have nothing but the utmost respect for entrepreneurs that are raising funds, especially raising for the first time because it's no, you know, it's no easy task to, You know, really put yourself out there and kind of, dictate what what you're all about and, you know, why you're raising and why you think what you're doing is going to be impactful.

And so I commend anybody that That does it. And you know, perhaps this opportunity to raise our fourth fund allows me to better empathize with the founders that raise capital. But I think that they're doing the hardest job in the world. Especially if they're, you know, solo founders.

I, we have 20 people plus here at CMT Digital that you know, help and support and, you know, incredible ways. And, you know, if you're just a founder or founding team. It's like Elon Musk says, chewing glass and staring into the abyss. So, you know, nothing but infinite respect for the founders that we come into contact with.

And, you know, that's why we wake up every morning excited to try to support and try to try to you know, maybe take a little bit of that burden off. But but it's it's a true pleasure.

Stephen: Awesome. We're out of time, but I just want to Is there any quick tips for founders that you see? A little something that they're doing that you're like, oh Great presentation, you know, great numbers for as much as they could have. And, but you're like, Oh, if I could just tweak this one thing, I think it would be at least increase their opportunity for success.

Is there one thing that you see people do that's like a constant trend? And you're like, Oh, I don't know, like maybe it's inflating numbers or, you know, not getting the exact TAM right, or over embellishing on the TAM. Anything that you can like pick out one quick tip to leave a founder with. I

Sam: I mean, I think you need to get the point across in like the first two slides or else interest can start to, to drop off. You know, I think that a, it depends on the context in which you're presenting to a potential investor, but you really need to be fast at getting out the message on why your project is is differentiated and going to be profoundly impactful.

A lot of, like a lot of times. You know, and that's an intellectual exercise in and of itself, in articulating that and really distilling down and knowing and understanding where you differentiate. So, you know, really put that into put thought into that. And if you do, you'll also refine your idea.

Further and and if you can clearly articulate where you have an edge and you're truly passionate about what you're doing, then you'll be able to raise funds and and attack the idea with with kind of full vigor.

Stephen: love that. First two slides, very important. I don't think I've heard that yet, where people are they're probably long winded into getting the point. They like to build up the hype a little, they watch a little too many, too much Sharks. They might be building it up a little. Sam, where can people find you?

Where's the best place to get in touch with you? LinkedIn, Twitter, where can people get in touch with you?

Sam: Yeah, I'm at Sam I am on on on Twitter. I'm on LinkedIn, Sam Helene. But you know, I mostly I'm going back and forth on On Twitter and Telegram. I'm Sam, I am on on Telegram as well. So, it's been a real pleasure. I really appreciate you having me on and asking great questions and just having a great conversation.

And and appreciate the opportunity.

Stephen: This has been fun. It's really interesting to get deep into the minds of VCs, especially one that, like, really where you were born into this, it seems like straight out of school. So it's awesome. Thanks so much, Sam.

Sam: Yeah, thank you. Thanks for your time.