Episode 95: Fundamental Crypto Investing with Ramon of Flowtrack

[00:00:00] Ben: Welcome to the Alt Asset Allocation Podcast, exploring alternative investment opportunities available to the everyday investor. Here's your host, Ben Lakoff.

Hello and welcome to the Alt Asset Allocation Podcast. Today's interview is with Ramon about crypto in general. On his funds site, it says We invest in digital assets based on underlying technology fundamentals.

All the Benjamin Graham fans just puked all over themselves. As you can probably guess, fundamentals is a hot take in crypto. So I had to have Ramon on the podcast. He's a deep thinker and working through some really cool ways about thinking about fundamental value in tokens and crypto native business models.

There actually some good stuff. Before we jump into the episode, I'd like to take a second to thank you for all the great questions and feedback I've been getting. You guys rock, if you're getting some value from these podcasts, please drop me a line or share it with somebody who might appreciate it. I really appreciate those things.

All right, Ramon on fundamental investing in crypto. Enjoy

Ramon. Welcome to the Alt Asset Allocation Podcast. Excited to have you on today.

[00:01:17] Ramon: Thank you Ben. I'm really happy to be involved. It's actually my first podcast, so looking forward to the conversation. Nice.

[00:01:24] Ben: Well, you were a recommendation from one of my recent guests Greg on the CS of Seniors Fund of Funds.

He had good things to say about you and what you guys are doing with Flow Track. So excited to get into all things about the Liquid Venture Fund or liquid. Liquid fund in crypto, digital assets. There we go. Market and all things. But before we get into that, let's start off just your background and what, how you got into crypto.

[00:01:54] Ramon: Great. So where do we start here? So the more, let's start at the interesting place, which is that I was actually born in, in Jamaica. It's a fairly entrepreneurial family. And that actually led me to not choose the entrepreneurial path cuz I've seen what entrepreneurship looks like firsthand.

So left to the US was educated there, went to undergrad. Actually pre-engineering and then got really sick of theoretical physics as I was in a three, two engineering program. But and hopefully this isn't too embarrassing, I really love theoretical math. And more specifically, one of the classes that I really enjoyed was Discrete mathematics.

Because this concept that there were no correct answers. But only elegant proofs to get to an answer was, was fascinating to me. It's actually the course that I did worse in of my math courses. Right. And and, and I think there were harder courses. So it's so, it just, it just goes to show you how much I enjoyed it.

That's actually what took me to, to crypto and digital assets. I, I like to tell people there were many kind of crypto genesises moments kind of Easter eggs pluck them along the way. If you follow Steve Jobs, you can only look back ways to, to put together the dots. But I went off into Tradify, so I was an investment analyst at JP Morgan Asset Management.

I I did investment banking at Merrill. I have so many great stories from investment banking because I, you'll pick some times that were really interesting to be in Wall Street. So John th actually gave me my offer from Merrill Lynch. So I sat in his office, which had the gold kimona dragon, which kind of got him in trouble.

I was going to lunch one day and actually saw him over the head trader. At Merrill he was making a market in Merrill stock trying to save the company. We only figured that out after a couple of weeks. So, some great stories, and I have many more if, if you wanna grab a drink outside of this. But, you know, I did Wall Street for a number of years, went back to, to business school.

All along the way you know, I was always kind of curious about new technologies technology disrupted my dad's manufacturing facility. And so it left such a, a mark on me at an early age because we went from like really well off to like not so well off because. Of the entrepreneurial journey.

But ever since then, I've always been kind of paying attention to new technologies, mainly probably because of a fear of, of what that imprinted in my childhood that you have to be careful of something that's coming to disrupt. And so when Satoshi's paper came out obviously I read it. And, you know, throughout this whole journey, remember I'm in traditional finance and so I'm not telling people that I'm researching this stuff, right.

I don't wanna be known as pariah in the trash buy space. It's only acceptable now. In 2017, you know, I started trading the assets and you know, one of the things I did, I'm big on incentive structures. Again, why I've kind of gravitated towards the space is whenever I'd make some money trading, I'd actually give it to my.

So she could buy, you know, a pair of shoes or something, because then she could, I could keep the game going, right? She'd be like, oh, he does his little trading thing, you know, with this crypto thing, but at least I get some, some money from it. So I, I continued to trade and I was one of those people that.

You know, sold Ethereum thinking I've made so much money. Only to just kick myself a couple years later when you realize we were Ethereum prices. Right? So those are some of the things that took me to the space. When it got really serious though, is in 20, and we'll get a little bit personal here, Ben, but in, in 2010 my dad passes away kind of sudden.

But I, I returned to Jamaica to sort through his estate and his probate and, and all this stuff because I was the only sibling that could just independently like quit my job and, and sort through this. And I had helped him to put in place Quicken and all this stuff at the manufacturing facility. So I kind of knew, you know, what to do to unwind things to move them back.

And my mother would've never asked for help. And I get this interesting opportunity. Michael Lichen is a billionaire in Canada. And made a ton of money building I believe it was the I Fund sold to Man Life in Canada. Plowed in just amazing entrepreneurial fashion. He plows all of his money into like two things, specifically building a fiber optic network throughout the Caribbean and Latin America.

Not an easy thing to kind of contemplate and also buying the Barclays receiver. From the Jamaican government to grow that entity. They had gotten into a tremendous management there. I've learned a lot from those guys as well as Michael and Rob Edda, who was part of his team. But they asked me to come on board to lead, to essentially develop their mergers and acquisitions practice.

They had kind of tapped out in terms of where they were organically at the. And recognized that they needed to expand into the region to buy other assets, and I was there, they recognized I was there and I could fill that role. I, you know, I thought about it for maybe a half a day and then accepted you know, I did, I planned on coming right back to the us but it was such an interesting opportunity to do something that really you don't get the opportunity to do every day because it was carte blanche in terms of, and I was coming from investment banking where, You know, what you were supposed to do was fairly kind of laid out for you, right?

This was completely open green. And so I accepted it, but in typical fashion, and you learn a little bit about my personality, I, I went to subject matter expertise, so McKinsey was very much involved in the growth of that entity, and I turned to some of their senior guys and I said, help me to develop this practice because you must have some experience.

From building this and doing this with, with companies before. So we went off on this mission of piecing together companies, looking at insurance businesses, buying some, and that business, so to speak. I like to think I've played a part in growing that franchise because they're now a sprawling kind of regional player.

Very valuable. But one of the things that happened is I had to diligence a lot of these build businesses and look behind, like what, where some of the value was and what I saw. Completely old technology, right? And we're talking, you know, billions of dollars sitting on top of systems that weren't interoperable, that you know, was prone to crashes.

No one knew how to upgrade. No one knew how to customize. And that was a big eureka moment for me because of what I was following in the blockchain space. And so in 2020 when Defi summer happens, that's just the thing that tipped this thing over the edge, right? It it, that became a, this is, this is happening.

It's a matter of, of of when and not if at this point. And we went off and we launched flow track. So long story to even get you to the flow track journey. You know, I like that story because I, I would've never thought that all the random things that happened throughout, you know, those years would, would've led here.

Right?

[00:08:40] Ben: Yeah. Yeah. That's insane. When, when did you first see the Bitcoin White paper, like when you were working in Tradify?

[00:08:47] Ramon: Do you remember this? This? Yeah. This would've been like at the heights of the crisis, right? So you have to imagine, I was in investment banking in 2008, 2009 through to 2010. So it was, it was so early.

Early,

[00:09:00] Ben: yeah. I mean that, that like strong fear of technology kept you like finger on the pulse of what was coming up, which was pretty, pretty interesting when, when I, I wanna start, The tagline on your site. So when you go to flow track.com, it says We invest in digital assets based on underlying technology fundamentals.

I have my CFA Benjamin Graham fan. Fundamentals and crypto is like a pretty hot take and, and, you know,

[00:09:29] Ramon: it's, it's rat

[00:09:30] Ben: poison or whatever, but like let's double click on this and dig in a little bit more into what you're talking about with fundamentals, technology fundamentals with blockchain technologies.

[00:09:40] Ramon: Oh, it's a, it's, it's such a great question. And so I've read those books as well. Intelligent Investor and even some of the, the newer folks. Joel Green Block you know like I I, I'm a student of kind of the investor base. I can follow them even similar to how people follow, you know, LeBron or, or, or DJ or Tiger Woods.

Kind of looking at what they've done, how they've done it, and what we've realized in this space is that protocols, even though people look at them as technologies, are not dissimilar to actual business. Right. They just look and they feel a little bit different and they're, you know what? It takes a couple of white papers to really get what's going on, , right?

It's not, it's not an easy path there, but anything that has value that you hope to, to hold for any period of time, you have to be able to assess what it's worth. Even not in an intrinsic sense, though, we, we hope to do that as well, but even in a relative sense, relative to the other. Particular protocols that were out there.

And so from very early in this journey, and that's really led by, you know, Ben is another, he's a strategic advisor. Ben and I would've met at JP Morgan Asset management. And Ben was a director at the time. I was an investment analyst, but we worked within the same division where we had what was called a dividend discount model.

And everything was kind of run off that dividend discount model. And so we have a very kind of fundamental bent in terms of assessing value and we apply that same thing to protocols. And what that means is, you know, most people don't realize, but you can actually apply some of. You know, intelligent investor, Benjamin Graham, like metrics to this space as well.

There is a concept of a price to sale, you know, check token terminal, right? There is the concept of of a PE ratio. You have to really unpack it. But, but there is this, this concept, right? What, what we've realized though is the novelty of this space means that there's metrics. That have not been developed yet.

And so in the similar vein to how people had to develop the price to sale metrics and the PE metrics to analyze stocks we've had to develop our own metrics. And luckily there's been there's a lot of research out there. Other people have have done assessment things like mecal value and assessing network value and things like that.

What we also like to do is we we look at the metrics that we think make the most. And we are applicable. We apply our own knowledge base to them. I'll give you a great example. Tbl to fully diluted value is a metric that most people look at and like, because what they're really saying is a blockchain.

You know, the analogy is a blockchain is like a country and there's economic activity that takes place like GDP on top of that country, which is tbl. The issue that we have with that ratio though, in, in isolation is, Inherently, the, the, the, the TL is connected to the price of the token itself. And so it varies.

And so you have to figure out a way to unpack that to, to figure out where there's really true value. So one of the things that we've done is we've developed what's called a sticky coefficient, tl. Which essentially assigns a stickiness factor to that TPL on the blockchain. So you're asking, well how are you gonna really measure that coefficient?

Right. Well, this is where the math background and just common sense comes into place. So when you have a crisis like we did in May and April of this year you get TBL leaving the blockchain and you know, you get to the point where people are worried. The viability of that blockchain so you can actually observe that coefficient in real time, because the people that are still there, they're pretty sticky, right?

So that gives us tremendous confidence in terms of what that coefficient is, and more importantly, in a more normal cycle. What that value looks like across, whether it's assessing chains, layer one and layer zero blockchains, or assessing kind of the applications or the developer layer, what we call maybe layer twos that sit above that chain.

So that's an example of technology fundamentals. It's really applying. The same metrics that we look at assessing even stocks and figuring out what works or what doesn't work and, and how do we need to tweak those metrics, or in some cases develop our own, which, which we've done, we've had to do for the NFT space because that's, it's, that's a completely new concept, right?

So understanding how NFT play plays into market value and the price market value blockchain has been something we've kind of worked on over the last couple.

[00:14:04] Ben: Yeah, that makes a lot of sense. And I wanna double click on a lot of those a little bit later in the conversation. But I think where I wanna go now is like you know, all over your site, you talk about being long-term thinkers, which I appreciate, but like Let's walk me through like your vision of what the world looks like with blockchain and these technologies, adoption, and then I think we can back into like some of the strategies and things you're doing now to pick those winners presumably before they like play out into that longer term vision.

[00:14:36] Ramon: No, another, another great crus. Great question, Ben, because it actually plays very much into our thesis. So one of the things that we realized is we had to have a pretty you know, rock solid thesis in terms of how we see the space cleaning out. And even our team is developed around that thesis in the mix of what we call both crypto native knowledge as well as, you know, traditional knowledge across both, you know, venture capital.

Tech, sales, startups and kind of a mix of all and above. So one of the things we realize is that the, what we call the crypto native world and protocols have developed something that's truly efficient from a business perspective, right? So when you think. About like Amazon and pretty smart guy by the name of Jeff Bezos.

And when he built Amazon, he essentially said, Hey, this is an efficiency play on building a retailer, right? Because I'm gonna build a dig an internet native retailer, and no one will be able to compete with me from a cost perspective, right? It's as simple as that. We see the same thing playing out in this space.

Their business models are gonna be developed on these, these block. Which it will be really difficult to mimic those in a traditional sense, and you're going to either have to decide whether you're going to tackle this, and many people will. Many traditional industries will. Let me give you a great example.

Most people look at NFTs as jpx, right? What we see NFTs are potential for things like premiums and mortgages that sit on top of a blockchain and are trade. If you built a digital native you know, mortgage trader where the value, and you don't need all the bricks and mortar, you don't need as many people it's gonna be really hard to compete with that business.

Right? But here's, here's the thing, and I think most people in the crypto native world would see that. Here's what I would say the blind side that they're not seeing. You're still gonna need the regulatory side. You're still gonna need customer service, right? There's no world that those things evaporate or disappear.

And so, and I don't think one, it makes sense for a protocol to take on that work. One, because it destroys your cost advantage. And I don't think that they would want to, because there's natural advantages that most of these real world businesses have developed over a long period of time about how to do compliance, how to do regulation.

But more specifically, how to service the end customer. Right? And that's, that's really important. So ultimately, that long winded answer is to say, We think there's going to be some melding of you know, the subject matter experts between these, and this is, remember the, the genesis moment that I told you in terms of NCB and those companies backend in terms of what was taking place.

We see a natural fit of some of these protocols. To swap out the back end, the old, it's been there for ages, right? That and, and make some of these new businesses just highly more efficient and for them to concentrate on the things that they really should be concentrating on, which is customer service, regulatory compliance.

I mean, look at Coinbase and like what's taking place with them. Having to understand compliance and regulation. You know, I get why Coinbase has to do that. I don't get why Ave should have to do that, right? It's, it's not in their core competence. The, the, the killer business is Ave partnered with JP Morgan, right?

And JP Morgan being able to create efficiencies, concentrate on the things they're good at, which is managing customer and regulation, and are they getting the benefit of all those users on the block? That's how we see the future, and, and I'll give you even another specific use case in terms of. So what we see for kind of this new blockchain tech, right, because we're looking at the whole sphere, right?

This is a re-imagination of how information is ordered, secure, made transparent, and interacts with payment reels. Right? And that creates a whole potential for different use cases that people didn't think through before. Quite topical. I'm not gonna talk politics right at all, but I will say that I can absolutely see voting, sitting on top of a blockchain.

It makes complete sense, right? You need transparency, immutability. Which garners trust for the end constituents. People, you know, there, there's kind of this lack of trust of, of governments taking place. What better way to kind of increase that trust by building a technology which basically says, Hey, this is transparent.

You're gonna be, be able to see everything on the ledger. We can't change what's there, and by the way, it's gonna be semi instantaneous and really efficient. Right? So that's kind of how we see this space Long.

[00:19:02] Ben: I would kind of sum that up as like the melding of these crypto native and tradify services built on top of like this

[00:19:11] Ramon: efficient peer-to-peer,

[00:19:12] Ben: instant value transfer, public, transparent, permanent blockchains.

[00:19:16] Ramon: Right. I. Hundred percent. A hundred percent. I think you said it better than I did. I took a long, long time.

[00:19:21] Ben: I just put a bunch of freaking buzz words into one sentence. You actually explained it, double clicking on that a bit. When thinking about like the rails that it's built on, do you have strong opinions of this being like, App specific blockchains or like one God chain to rule them all with multiple layers.

Thinking through things like privacy, like how do the, all of those kind of bigger themes fit into this macro thesis?

[00:19:48] Ramon: Yeah. So I'm gonna be just completely transparent with you about kind of how, how we think. So you know, we are, we obviously have to have a thesis on the space, but a lot of. Drives our thinking is also based in data and what we're seeing, right?

So whether that's actually looking at the implicit design or actually what's taking place and where are users going, where are the developers going? What's taking place in the space? So, I mean, no surprise, you can see what's taking place with Ethereum, right? And you know, most of the value is there.

They've chosen a interesting pathway, so I'm sure you're aware of the the blockchain tri. We have a thought about where you need to go. The path you need to take in that triangle, right? And we think that path starts with security because you're asking value to be, to, to sit on top of you, right? And, and where it goes.

You, we can have a philosophical discussion about whether you go more towards e centralization or more towards scalability, but clearly Ethereum you know, you know, hopefully I, I do not want to upset any Maxs out there, but, Again, we're, we're just looking for the truth, right, in terms of what's taking place.

But clearly Ethereum has a lead in, in what's taking place. I do think that you know, Solana's quite topical this week, but like I do think. You know, there still is some interesting use cases for so Salon and we, we believe them. So we're pretty excited about what's still there. I know lots of people kind of question what they've built and kind of left them for that and kind of looking at some of the newer chains that are coming up and Sweden, things like that.

But we, we, we definitely do believe in Lindy affected technology. Technology are kind of the opposite phenomenon of carbon-based creatures, right? The. The more they hang around is the more likelihood they're gonna be successful. The more we hang around is the more likelihood we're gonna croak.

Right? Like, it's just, it's just a completely inverse relationship, right? So you know, when you see people kind of lead things for dead, like Solana. You know, we think that's interesting just because of what they've had to go through. And then the other thing people don't think through is there's, there's scale benefits and, and early benefits of the early blockchains.

We think of having to build in quiet and relative obscurity. Outside of the fact that things, you know, publications like the FT and Wall Street Journal are now following these blockchains, and it's gonna increase the likelihood that people try to hack a blockchain when you're in a pretty nascent kind of infant stage versus people who have the chance to do this for years without people trying to legitimately hack their blockchain every week.

So we do think that there's some skills there, there's some scale advantages there, or maybe just advantages of just doing this in the quiet versus doing it in in, in public. Hopefully I answered the question. I

[00:22:24] Ben: A lot of these things are super interesting. I went to an Aptos meetup in New York a couple weeks ago when I was there, and like their whole pitch is, we're like Solana, but better for developers and like they're just beating that drum as hard as they can, which is.

Super interesting way of going about it. But I think now we can come back to like how you're investing the assets. 50% blue chip defi, 35% blockchain infrastructure, 15% small and midcap from, from your website, which, you know, fluctuates I'm sure, but like, let's talk. Some of those metrics you are tracking or ways of like valuing and determining position sizing whether it's momentum or like you're looking at custom metrics like developer activity, tbl and, and those sorts of things when making these moves in your portfolio.

[00:23:22] Ramon: Oh, sure, sure. So there's there's kind of Two early points I need to make to, to, to answer that question, which is the first is that we you know, I don't think it's kind of custom, but we call it the flow stack. But we, we, the way that we invest, we really like to look at that base infrastructure layer first, because, you know, blockchains are hopefully modular, right?

And the whole point is that you're going to be building on top of them and. Whereas we've told people, you know, we've mentioned to you know, people who have asked that, you know, we do see opportunities to invest in kind of app specific things that could make you 400%, you know, very quickly. But we're in it for the long term and we're, we really do believe in the space.

And so we really do focus on how the stack stack is being. And what that just means is, you know, starting from layer zero, layer one. The second part of this stack, and I'm sure other venture capital players think very similarly is what we call the developer layer. So an example of that may be layer two.

Now layer three vital is such a gig brain. Like I, I didn't even realize we were gonna get there. And then what we call the consumer layer, which is really kind of the app layer specifically. So it doesn't mean that we won't make an investment at the top layer, but we really have to understand how that stack is being built.

We think from protection of kind of, you know, cause we're built really for an institutional customer but protecting institutional wealth, we think that's the most prudent way to do. So that's the first part. The second part is we really had to build a tool to really think through a repeatable process that gave us what we call an edge in terms of the research.

Because what we realized really early on is we were spending so much time reading white papers. It's a 24 7 game in terms of like the research and all the information. So we quickly would like to get to the winners of this. And what we've developed is what we call the flow track decision Engine Decision engine.

I don't want people to, cuz obviously we're in the tech space, so don't think of this as like a fully automated AI tool straight out of the box. We have visions of getting there, but really think of this as an investment process which allows us to quickly decipher what are the most important protocol business models that are out.

And, and let me unpack that a little bit. So there's really three things that we look at is what we call r a, which is a total addressable market. Really we're looking for big projects over a five to 10 year span. Right to, so that we can really, if we, we would like to own the best names, they have to have a large enough total addressable market, right?

So, and we do some interesting things like risk adjusted so we can look on an apples to apples basis. So that gives us the first filter where we should be concentrated. Once we have that filter, that gets put into what we call our factor model. So our factor model is really a number of different factors that we believe make a, a truly winning protocol business model.

So some of those are regulatory risk competitive mode. I'll give you a great example. You know, most people talk about com competition to uni swap. But their liquidity mode is real, right? And so it's quite interesting when you hear, you know, people talk about you. Everything can be for and, and things like that.

But there's actually most that have been developed in this space, and they're fairly apparent to us because we spend a long time thinking about them and analyzing them. But they're also things like protocol security, which some of these factors have come in and out. We experimented with them and the correlations between them.

But protocol security has never come out because we think it's so important. And we started, and this is a great evolution of this cycle to explain to to people, but we started. Essentially really having to assess this almost from hand in the air type thing to looking at audit. Going through kind of the, the green, yellow, red check boxes, what issues were resolved to understanding, well, what's the priority of who's really good at doing the audits, and then scaling them to even their players now that have worked with us and, and we use to basically fill out those factor model scores.

The other thing that we find really interesting is network effects, right? So those are things that we. And I'm trying to answer the question at the same time, but we can look at real world quantitative metrics like developer activity, you know, love Electric capital. We're such big fans, you know, some of the free work that they do is just incredible for Alpha.

You know, looking at user growth, transaction momentum, understanding how many independent marketplaces are you trying to scale At the same time, two way marketplace. Easier to develop network effects, four way marketplace, lot harder to develop network effects. So you really have to unpack and figure out what to score.

There is. That ultimately gives us a kind of a, essentially a score and it ranks the protocols for us. So very quickly in a very easy process, and we've been doing this for a year and a half, you can get to those, those protocols. Here's the interesting part though, Ben, we. That tells you what to buy. And we thought, okay, we're students at Benjamin Graham and Buffet and all this stuff, so that, that's gonna be easy.

We'll just buy you know, the best protocols and we'll ride into the sun. We'll produce good rest of returns. Well, this market is pretty volatile. And there's a lot of inefficient things and what we call tail events that take place that it doesn't matter if you, you've bought the best thing, right?

If you don't know when to buy and you're not assessing some of those things, you might be in trouble. And so this year has been quite instrumental for the evolution of our decision engine because what we did is we became a part part fundamental and part momentum. We shied away from it from a long time.

But the reality is that momentum plays a big role in this. We've seen how it's improved our decision making how we were able to you know, you know, assess and make quicker decisions. And so two of the factors that we now include are macro momentum. And there's some specific things on a macro side that are probably more important for a crypto specific portfolio, like liquidity in the traditional finance level, but also stable cleans in inside the crypto ecosystem, right?

So assessing where those movements are happening and the inputs to those movements. Very important for developing momentum on a macro site. On the crypto momentum side. It. It's, it's your, your plain vanilla crypto momentum signals. It's things like plugging into Twitter's fire poles and seeing tweets.

It's number of news reports for scaling solutions. It's, it's, so, it's, it's that the macro was much easier to integrate. The crypto momentum has been one that has, we've integrated lately and, and we like what we're seeing and and we're, we're, we're probably going to start with the automation there on the momentum side because it's actually easier than some of the other things that we're doing.

So hopefully that answers the question. But o other metrics. Network value. You know, I mentioned you know, TBL to FD fully diluted value. We look at price of sales we look at profitability, believe it or not you know a distributed network is a lot different than a traditional business.

I, so I'm gonna, I, I know you didn't ask this, but I'm gonna throw this in because I know you're like a huge fan of like the traditional like investing metrics. So like Buffet and Charlie. Talk a lot about investible businesses in an inflationary environment, right? They, I mean, they've made so much money like doing this and they're, I mean, they're, they really understand this, right?

But one of the things that they talk about is, shouldn't have lots of CapEx you know, can't be subject to not being able to, you know, move pricing in an inflationary environment. And so I did the challenge of like last week, like think, cuz I invest not just in, in this space, I invest across the whole spectrum.

And I can't think of a better business to invest it in this environment. In a distributed network, your CapEx is already gone. It's done at the foundation level, right? You don't have a lot of people because this is really code, and so you don't have to worry about inflationary effects on salaries and paying staff.

And if you're doing what we're doing by looking at the, really the high product market, The things that people cannot do without in this space because there's just no natural substitute. I'm willing to bet those people have pricing power, right? So you know, we just think the space is, is hell interesting and you know, we think other people will, will join us as well, both from a.

Crypto native as well as a fundamental side, see the value in investing.

[00:31:43] Ben: Yeah, no, I think that's super helpful and like a crypto momentum, macro momentum these things are fickle as well, so certainly, certainly not easy. The last thing you said about finding product market fit, I have this conversation with a lot of crypto people at the moment because I feel like for me personally, there's very little projects in the space that have true product market fit.

Like a lot of them is like temporary incentives or mercenary capital kind of leaching from one to the other. Talk a bit about some examples of, if you can talk about examples, if not, you know, categories. I think that might have true product market fit and also have like this high tam sort of profile within the space.

Are they strictly limited to defi or are there other ones outside of that? Yeah, so would be curious your thoughts.

[00:32:37] Ramon: Yeah, it tells me that you really do understand the space, by the way, the fact that you went directly to product market fit. We, we spent a long time, maybe two weeks ago assessing that metric and trying to understand like the differences between kind of.

How do we delineate between kind of competitive mode and product market fit? Because in some instances it's really a moat that you have and, and not that you've kind of nailed product market fit. Right. And that moat should not be token incentives.

[00:33:05] Ben: So, and that mo is also fickle at times as well. I mean, you're

really, you are, you are.

Correct.

[00:33:11] Ramon: And so I, you know, I'm gonna, Give you this one. I think product market fit is probably the weakest kind of area here within this space. How we've kind of, you know, thought through this is the idea of ecosystem in investing. So most of the most valuable business in the world now are actually ecosystems, so let's.

Let's unpack it in terms of like, Ave and I'm probably not, I hope I'm not gonna get in trouble with the lawyers, but like let's just talk about any, I didn't say we own it. I just said we're just talking about,

[00:33:40] Ben: oh, and to be fair, like Ave is one of the biggest defi blue chips, so use it as an example.

[00:33:47] Ramon: Yeah. So it's really interesting what they're doing. Right, because, you know, code can be for. So you can instantly kind of replicate what people are doing. And you know, while we do think that there's some natural what I would call competitive modes in terms of the teams and their ability to ship products, right?

Even if you can fork to code product market fit is still an important metric. We actually think that building out ecosystems right helps you to get the product, product market fit quicker. Right? And when you think about Apple's ecosystem which is, you know, I'm gonna, I'm gonna pick on Warren Buffet again cuz he doesn't like this space.

But I think if someone explained to him what was happening in crypto and in the Apple Sense, I think he'd probably be invested. So, you know, obviously building out Horizon t. You know, my dad's manufacturing business was all about vertical integration and tech is, is mostly about horizontal integration because you're trying to build an ecosystem that makes it really difficult to have switching costs in for people to leave.

You know, if, if Apple fell off face of the planet tomorrow, I mean people, it would be anarchy, right? Like to me that's huge product market and, and part of the reason is because they've built this ecosystem, right? Switching between. You know, the headphones that make it easy to interact with the iPad, which is integrated into the software.

You know, Steve Jobs, and I don't think he gets enough credit, Tim Cook, for kind of growing this thing, have developed like a tremendous product, market fit and competitive all in one. We see similar things with like what a is doing in terms of horizontal scaling. You know, they're launching a stable coin, which will give them some natural advantages, but they're making it harder for people to come out of the ecosystem.

Right. And if they've done this well, They will do product market fit pretty well. So like, that's, that's the best answer I can give you. But you are a hundred percent right. It's probably the weakest area inherent of kind of how crypto is designed. But, but also just it's, you know, It. They're not a lot, it's not like, you know, the business people learn code.

Right. The code people are doing business. Right. And so, but, but I think they're doing a great job. Right. But it's, it's, it just, it, it means the evolution happens in a different way. Right. And, and ultimately I think when you start to get into things like, you know, scaling and and what we think is like usability and ui, ux on top of some of these, you start to get kind of better product market fit because you're gonna start to get things that people like really value and cannot live without.

Right? We're not there yet. Right.

[00:36:10] Ben: Yeah. Well, and I mean this lack of moat is kind of what propels this space as a whole forward so quickly. It's open source code and for ability, and these devs can look at this code and say, oh, you know, I can iterate on that and change this and it will improve, or it will change the dynamics in this way, or change the incentive structure or whatever you want.

So it allows you to quickly iterate and experiment at this crazy rate. But the negative is, you know, moats are a difficult thing in this space, so it is what it is. So you talked about 2020 defi, summer being kind of the pivotal moment to get you back into the space and like light bulb of, this could be, could be something really, really special here.

With all that you're looking at kind of Could be like the next potential, like Defi, summer catalyst to kind of get the next big adoption within the space.

[00:37:09] Ramon: Yeah, for us everyone's gonna have a different answer to this question, but for us it's, it's scalability. And it just, it's just how we've kind of looked at this investment process and, and, and what's taking place.

We think the use cases increase as well, but for us it's scalability and, and that is directly related to. What we see happening in the space. Obviously the tradeoffs that Solana had to make and their innovation in terms of design was interesting. But we're, what we're seeing now is security is solved and we're now moving.

Decentralization is still fluid, right? Because most people don't realize that there's still some tradeoffs taking place, even in the centralization as you kind of climb up this scalability curve. But we definitely do see that this is gonna be a big theme for 2023 from our. View and we think this is going to usher in kind of the next wave of applications, definitely interest, right?

And we're talking about having, you know, cost to interact on the blockchain, decrease you know, throughput increase in, in almost every instance that we've seen of technology scaling and cost reduc. It, it's taken a big leg up in this space and so we anticipate that's what's going to happen now.

So that's why for us scaling is, is, is pretty much it. There's some other themes. Haven't spent a lot of time on kind of the maybe app specific themes, but definitely scalability for us is a big one.

[00:38:30] Ben: Have you read that 2018 union Square Ventures piece on the myth of the infrastructure phase by any chance?

[00:38:38] Ramon: No. No, I haven't.

[00:38:40] Ben: I'll send it to you, but it's it's interesting. I mean, basically the premise there was like the light bulb is the app, but the electrical grid was the infrastructure. So you don't need the infrastructure before you build the app. The counter, you know, he was basically saying like, we don't need all this infrastructure.

We need those apps. We need those light bulbs that people are using. So it's like we've kind of put in the horse for the cart, but then the counter there is like you know, before you had the camera in the mobile phone, you couldn't have Snapchat and before you had GPS in your phone, you couldn't have Uber.

So it's like there's this conflicting theories on like, we need more infrastructure and that will allow these apps and this developer activity and innovation that we don't have until we have the infrastructure versus the reverse of like, Don't build out all the infrastructure you need these like apps that actually work.

Right. It's interesting. It is like to think around those very, I'll link it in the show notes. It's a 2018 piece. Okay, great. Was was pretty interesting. When, when. Also thinking about like these these next phases. I forgot to ask when you were talking about some of these like the, in the factor model itself I'd be remiss if I didn't mention like in light of pre of current events like treasury, mismanagement.

I have an angel investment of mine in my portfolio that had 80% of their funds on ftx. So like, it significantly changes the trajectory of that company that I was very bullish on. Very, you know, now they have. Significant less funds. So is something like treasury management cuz even these like treasuries doing kind of degen things to earn some yield, does that fit into your factor model in any way?

At this point?

[00:40:30] Ramon: It, you know, it, it does. But this issue of like, you know, centralized exchanges and risk and that, that is a new thing. That we probably need to start unpacking and thinking through again, tail risk, and you just never would've imagined this would've happened. We do spend a lot of time looking at the treasuries.

You know, what, what they hold. You know, how big they are, their ability to withstand and not actually have to raise more capital you know, coming from the traditional world that absolutely makes sense to us. Right? You know, just, and so we do spend a bit of time looking at that. It's not an implicit factor in the factor model.

But it goes explicit. So it's not an explicit factor in the factor model, but it's implicitly there in a number of the factors because we do research on the treasuries and have to assign scores to some of those factors within the model. Right? So, you know, we look at, you know, things like, you know, uni swaps, treasury, and even their governance and how they develop a foundation.

Things like that are very important to. There's a number of research tools that we really like in the Space MA's governance. Governor feature is incredible because it pushes all the updates. So we watch that like, you know, the old school guys used to watch tickers, right? Because we think that governor governance is important.

So understanding how many times you know, the blockchain goes down in the last couple months, understanding what's taking place with votes and, you know, Frequently you know, are these votes happening? How are they passing? You know, what type of issues people are looking at, at the Dow level is absolutely important to us and is, is very much a part of what we're doing.

But this, this new tail risk in terms of like, Things on the exchanges. It's quite interesting, like having to sweep all our centralized exchanges this week, like it was, was a new thing for us, right? We normally keep, have a threshold of what we leave there and we we're just like, well, we don't know what's going on, so we're gonna sweep, sweep all the exchanges.

[00:42:31] Ben: Yeah, and I mean, it's easy if everything's on one blockchain, on how to manage it, but across all these different blockchains, and it's a, a centralized exchange is easy for that, right? You have 20 different blockchains, like, I don't want to have to worry about. Best practices with private key management with all of them.

Like to pull 'em off. Come on. It's not easy. Yeah. But you know, it's, we're early. So these are some of the infrastructure pieces that need to be built to kind of take us to the next level. I get that. You do a lot of talking to. Institutions talking about like the prospects of crypto, which I think you've elaborated on quite nicely, why you're bullish, why this has potential.

But I'd be curious, what is the most like common narrative that you hear, that you disagree with when having these con conversations?

[00:43:20] Ramon: Oh man, I disagree with

I hope I don't get anyone in trouble here. It's probably the view that they're, they're not believers of the asset class. They don't think a hundred percent. They, they do believe that there might be a use case and that there's some percentage that they're wrong, and this thing actually materializes it to something significant.

But at the same time, people do not invest. So that's a little bit strange to me because, and I'm not you know, doing it in a kind of self-promoting way, but I sat on the other side at JP Morgan asset management and I think about probabilistic outcomes all the time. So if, you know, it's actually one of the arguments I use, but if, if you think that you are 99% right, that this space is just garbage will never go anywhere in like two.

And there's a 1% likelihood that, that I may be right, or our team may be right in terms of where the space evolves and what it becomes and how significant it becomes. You know, my view is you have a fiduciary responsibility to invest 1%. That's just how I think about it, right? Because when we have conversations with pretty smart endowments that are fairly large and sophisticated that have been invested in this space since 2017, the things that we're hearing.

We are concerned about the disruption of our tech portfolio, which makes up a significant portion of our investible assets. And, and, and I think that's a really, in fact, when I heard it, I was like, wow, these guys are really, really sharp, right? Because what they're thinking through is our, this, this space actually makes our exposure to tech way more risk.

And to hedge that exposure, which is like second level hedging and thinking we need to have some allocation to this piece as a hedge on tech. And I think that is absolutely brilliant from an asset allocation perspective. That's crazy. Yeah, crazy, right, right. I I, I didn't think of it. I'll crazy smart.

Yeah. But I think, I think, you know, it's no surprise why, you know, these are you. Billion dollar endowments, they're thinking through this, these issues, right? And, and they're looking to increase exposure. So I find that, I find that fascinating, but that, that's probably the toughest thing for people to, if, if you're a hundred percent sure of something no problem.

Right? But if you're unsure you know, my, my job as an all allocator, even in the spaces to understand, you know, probabilistic outcomes in and what's the likelihood of something materializing and understanding the long tail risk, but all that factors into just asset allocation and how much you're actually invested versus not.

So, No, that's

[00:46:06] Ben: a, that's a great answer. When thinking about these long tail risks or like thinking about what could go wrong whether it be defi regulations, like what's the thing that keeps you up most late, late at night sort of thing with the space?

[00:46:19] Ramon: Yeah, it's and I'm gonna sound a little bit like a decentralization maxi by saying this but we're not we think decentralization is a continuum, but decentralization allows us to sleep at night.

Cause we think there's some implicit security elements and risks in the, in the, in the portfolio by focusing on a decentralized portfolio. And so I would say the toughest thing is you know, we're at, at an inflection point in kind of blockchain design of moving into scalability. And so there are trade offs that are taking place to achieve that.

And there's way more way smarter people in me that are making these decisions, thankfully, but, If I had to think through kind of what makes me nervous, nothing keeps me up at night, by the way. I sleep great. I have a seven month old, so like if I get a full night of sleep, that's fantastic. But the, the one thing that I would think through is is, is, you know, what is, are the trade offs that are being made?

To, to get to the end goal. You know, have people thought about the, the tail risk and the edge cases, so to speak, with those trade offs? Luckily, for most of the, the, the things that we're, we're looking at, we think, to answer to that question is they are taking it into account. So, but, but that, that's one of the things that we, we do pay attention to.

[00:47:28] Ben: Yeah. Makes sense. Ramon I thoroughly enjoyed the conversation. Where can my listeners find out more about you or where would you like to send them in? Any kind of parting words as we close

[00:47:39] Ramon: this one off. Great. So the, the website is great. Www flow track fund.com. Email me directly. It's r a m o n flow track fund.com.

I'm still answering emails directly, right? So whoever, whichever method people would like to learn a little bit more about what we're doing and, and you know, how we believe just to have a conversation about the ecosystem and people are so, We're always happy to have those conversations. We believe that you know, this is going to be a humongous space in a couple of years, and so we're happy to kind of start those conversations early.

[00:48:14] Ben: Awesome. Well, enjoyed it. Thank you so much.

[00:48:17] Ramon: Thanks, Ben. Been a real pleasure. Have a great weekend.

[00:48:21] Ben: There you go. First off, thank you very much for listening all the way through. I hope you got a lot of value out of that conversation. As always, you can find show notes, links, and [email protected].

Please share this with anyone you think might be interested and drive any value from this conversation. And as always, you can reach out to me for any feedback or questions. Please give the video a like or even better subscribe on YouTube or your podcast player of choice. This really helps others find the podcast or the video as well.

Thanks a lot. Hope everybody has a fantastic day and stay safe out there and invest wisely. Cheers.

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