Managing a Crypto Fund (with Kyle Samani from Multicoin Capital)

Ben Gilbert (0:00)

All right, LPs, welcome back. It's been a little while. We are excited to have another awesome guest here on the LP show, Kyle from Multicoin Capital.

This is especially appropriate, given our recent spate of crypto-focused episodes with obviously Ethereum and Solana. So much exciting stuff going on in the space.

Kyle and Multicoin have been one of the most successful crypto-dedicated funds over the past few years. You are the first crypto-dedicated investor that we've had on the show. You were the first check into several projects that now have a multi-billion dollar market cap, including, of course, Solana, which we all talk a lot about. But Kyle, welcome to the show. So great to have you.

Kyle Samani (0:51)

Hey, Ben and David, thanks so much for having me on the show. It's an honor to be the first crypto fund on the show.

After hearing so many other well-known investment firms here, it's kind of like a dream come true. So thank you for letting me be on.

Ben Gilbert (1:02)

Thank you for joining us.

David Rosenthal (1:04)

Our pleasure.

Ben Gilbert (1:05)

Let's just jump right into your theses at Multicoin. As we understand it, you have three crypto mega theses.

Can you tell us about them? And then maybe let's walk through each one.

Kyle Samani (1:15)

Sure, happy to dive into these. So on our website, we have these kind of outlined like at one of the main menu items at the top. If you want to dig into them more. But really the three core theses that guide our investments have been and we expect will continue to be over the next decade, what we call open finance, which is really a super set of DeFi, web three, and then kind of the opportunity for non-sovereign money. So I'll unpack each of those. In the case of open finance, the simplest way to think about it is kind of just DeFi stuff, which if you've been poking around crypto, DeFi is probably the largest and most well-known sub sector within crypto. And obviously kind of the well-known team is building their Uniswap, Compound, Aave, Serum, those kinds of things.

And then I think the opportunity for DeFi is relatively clear to most finance folks once you dig into it and kind of get past some minimum threshold of understanding.

But if I were to simplify it as much as possible, I would really say, really the core innovation of DeFi is making all financial assets, whether they're equities or bonds or FX or commodities or whatever, interoperable and composable with all other financial contracts.

David Rosenthal (2:26)

Ooh, Kyle, I'm going to play Definition Master. So interoperable and composable, what do those mean?

Kyle Samani (2:33)

So composable meaning you can use, like, let's say a crypto token as collateral to take out a loan, would be kind of the simplest definition, looking at kind of composable and then interoperable. Well, that's more interoperable, I guess. And then composable being more like, hey, you can use the LP token, like if you're a liquidity provider in one of these systems, you can use that as collateral in another system, which provides very interesting new ways to rehypothecate assets that just provides more capital efficiency than was possible before.

Ben Gilbert (3:03)

The way I kind of think about it, tell me if I'm right or wrong here, is sort of like, kind of like in programming, like you can use the outputs of something as inputs into something else. Is that a fair definition of composability?

Kyle Samani (3:16)

I would say that's, in programming terms, that's good. In financial terms, I would actually just say, allowing any asset on your balance sheet to be theoretically rehypothecated into any other position.

Which historically has been, on a technical basis, basically not possible and only been possible by basically kind of merging balance sheets with some larger entity that can kind of offset risk and margin and do all those things for you. And now you can actually have the assets do that themselves because these assets are interoperable. They're interoperable with each other.

David Rosenthal (3:47)

We're already into like my most recent realization about crypto land as someone who is not endemic or native to the space, which is there is always a programming mental model and a finance mental model in order to sort of understand something that exists in crypto because it has just fascinating parallels to both.

Kyle Samani (4:05)

Yeah, I mean, in many ways, we're just building a new set of financial rails, at least pertains to DeFi. And so being able to understand both the programming concepts and the financial concepts and how those things interrelate is kind of key to success in the space.