Stefan Cohen on Bain Capital Crypto's investment thesis: hyperstition, Worldcoin, and stablecoin regulation

the headaches of out of home advertising. Only adqu combines technology out of home expertise and data to enable efficient seamless ad buying across the globe. Our next guest is from Bane Capital, Stefan Cohen. Welcome Ultradom. What's happening guys everyone? Great to meet you. Welcome to the show.

Good to meet you guys too. Thanks for having me. what's uh give us give us a quick backstory on yourself and then there's a bunch of stuff to talk about. Yeah. Uh quick background on me. So I've been at Bane for 10 years now.

Um I joined from one of our portfolio companies in the data center software space called Turbonomic that we I was an early employee there post series A.

We sold that business to IBM for a couple billion and yeah and uh I um yeah I joined BCV as a partner u focused on early stage investing and about five years ago we decided to spin off a dedicated crypto business uh being capital crypto which I'm one of the co-leads on and um has been a really really fun and interesting run.

We've been investing in the space for about a decade now. Awesome. uh what is uh like the crypto strategy? Is it is it a mix of of privates and uh and and you know active trading like what's what's the actual strategy? Yeah. Yeah.

So the this the setup is kind of the core premise when we launched the firm was that um we thought that a lot of value would acrue to protocols and so um we felt like we needed a flexible mandate to be able to buy liquid crypto and also invest in early stage projects. Um so the fund is very flexible in that manner.

We have liquid tokens that we purchase on the open market and then we also have you know seed through series CD investments that we've done. Um you know we try to not be active traders. because we don't think that's the most the most productive use of our time.

We we think of these as like kind of longhold positions that we'll we'll build real concentration in.

How has uh it felt like for so you know when you think about the you know not not deep history in crypto but let's say like 20 2020 to 2024 it felt like the the tech I mean the technology was just handic like being handicapped by the regulatory environment.

you had this mix of, you know, as an investor, you'd be investing in you'd invest, let's say, on a on a SAFT or a safe plus a warrant and then there's these sort of like two assets.

You have a token that's trading and then you have like the actual equity in the company and that always felt like there was some key areas that it that it made sense, but then a lot of points were like what what do I actually own here? Where's the value going to going to acrue?

um with a updated regulatory environment meaning that kind of feels like you can do almost anything now. Uh how where is where is value going to acrue?

Are we going to see company uh you know crypto uh projects really try to tie the equity value to the token or are we still going to see these kind of like dual uh dual approaches? Yeah, I mean I think it really depends on what folks are building.

you know, my um you know, the sort of like early premises of investing in crypto protocols, which are these like decentralized apps or blockchains themselves, was that the tokens kind of are like equity-like looking instruments where um based on the usage of the protocol, they acrew they they acrew fees through usage and then they have a cash flow profile and you can kind of fundamentally value them and they're not owned by any single party.

they have, you know, governance rights where they kind of vote on code contributions to the application or the blockchain that they're tied to. And I think that core principle hasn't changed. Um, and so for for those types of protocols, that's very true. I think structurally things have shifted.

You know, we um had to do a lot of sort of heroics uh pre this administration to ensure that we were protected from a regulatory standpoint when we were doing token launches. And so a lot of these teams would basically have like an equity company.

You'd be issued token warrants and then at the point of issuing the token, you would have an offshore foundation um that would actually issue the token itself and the investors would have rights to that. Um we have I think most projects right now kind of have that legacy model.

Um I don't know that many are actually trying new and different models for what they do. I guess what what I was trying to get at is like how do you what's what's after the sort of foundation model?

Is there enough regulatory clarity that we that that uh that that these uh that you could establish kind of a new model or is it now been workshopped enough and trial enough that it actually is the right model for the future and that I I think the model works fine.

And I mean I I suspect people will try other different structures but um you know the fundamental problem with the model is you end up with this like equity company that often often times doesn't have any real value associated with it and um there is some you know we've had to deal with some things with legacy portfolio companies where they either need to shut those down or sort of allocate their balance sheet over to the foundation.

But that seems to not be like the the fundamental shift from a regulatory standpoint right now. I think the the fundamental shift is that founders are now emboldened to be able to go build again which is really exciting. Uh tell me about the hypersstition investing thesis.

I've never heard any VC put that in such uh you know stark terms before. Yeah.

I think there's sort of this like um consistent pattern that we've recognized with the most outstanding founders and companies that we've had a chance to work with which is that um their ideas are are initially disgusting and really hard to believe.

you know, it's sort of a you if you think of this like, you know, this this bell curve of of companies at the beginning, it's like offensive and then once you get closer to mass market adoption, everyone's kind of like, okay, yeah, that that makes sense.

And then usually there's like a trough of illusionment where everyone's lost faith in it and maybe that was like, you know, post2021 crypto in a way.

Um but there's been this consistent theme with founders which is that um many that are starting out that have sort of these these these views of what the world should look like and how the world should be sort of shaped around their values and principles um in the beginning seem seem kind of unreal.

And uh we increasingly have have learned that like the the real art to this is uh to investing um with these sort of longtail outcomes is to work with those founders and believe in them and believe in them with capital not just not just with um you know our our you know our belief as a group but um we we're really like in in search of those types of ideas and you know I think the the two examples that u we really point to one was Crusoe when they were raising their seed financing it It was kind of an unbelievable idea which was like we're going to go off into the oil fields and build data centers that are capturing flared natural gas and um we'll scale those to eventually uh handle AI level compute.

I mean it's sort of it was it was so it was so crazy that at the time like they actually had to go and build a box in at the time it was in Colorado to show that the the model actually worked.

And you know more recently um we've had the privilege of being involved with Worldcoin which u you know outside in is this um is this this sort of decentralized identity network but the real notion is that in the future and I think we're starting to feel this more and more now um it's very hard to tell what's real and what's not on the internet and um we we sort of view that this like this model of trust in the internet is breaking right now and one of the core premises of trust is like are you even talking to me right now?

Um, you know, did I tweet the thing that I tweeted earlier? And um, and so this notion that proof of humanness and proof of identity in a sort of globally distributed internet native way is very important.

And so um, we're we're on we're on the hunt for those types of ideas and and that's part of what makes the the job really fun. Do you believe in the Landian idea that capitalism is uh a a timetraing artificial intelligence? I don't know that I've heard this idea. You'll have to you'll have to explain it to me.

The idea is that uh artificial intelligence existed in the future at some point and and built a time machine and came back and invented capitalism because capital acceleration will by nature create artificial intelligence and and that is the Landian acceleration path that we're on. I don't know.

I'm getting too deep in the weeds. I like it. I mean, I like it. the, you know, one of the things that I I'm always kind of struck by uh is is is how like innovation breeds solutions. Sure.

And and you know, AI is like obviously a manifestation of that, but you know, even in the crypto world, like stable coins weren't really invented to solve the US debt issue, but like a byproduct of inventing these like digital dollars, the debt across the entire world. Yeah. Yeah.

And so, you know, I'm sort of like I continue to just be like hit in the face with these moments where like, man, it's almost too perfect. And so, maybe maybe that's right. Yeah. Uh, stable coins are now regulated in the US or or have a framework.

Uh, and which is wild thinking about the stable coin businesses that were started when there just was no real clarity. So, uh, you know, obviously credit credit to them for for um having faith.

How do you think foreign governments will respond over time to USDC and and and USDT and other stable coins getting gaining adoption in there?

Um because like as an American, the idea of sort of like outsourcing our debt problem or or spreading it around the world sounds sounds great, but uh if you're a foreign government, you know, you want people like Turkeyy's paying 40% uh you know, on their bonds right now.

uh and uh you know if if everybody in the country can get access to that I mean I guess that's a mechanism for them to get people to keep their capital in the in the Turkish system but um but yeah how do you expect foreign governments to respond?

Yeah, I mean it's an interesting one because like on the one hand they already were doing it right. they were buying our debt all over the I it's just it's more recent than not that other governments have sort of been you know moving out of US treasuries.

Um but you know the what I what I view as happening right now is really we're transitioning from sovereign governments owning our debt to um other people holding our debt right it's like if you think about what like really what's happening with stable coins is that businesses and individuals outside of the US particularly right now I mean I think over time the US will become more of a center of adoption here but um but really the like $250 billion of issuance is just people and businesses offshore for that want uh a more stable access to dollars and um I think government some governments obviously will try to do capital controls and prevent that from happening.

Um I think many view it as if they can plug into the system well like Brazil in particular is um I don't know if you guys have tracked what's happening with new bank and pix and stable coins but there's you know there's quite streamline interoper interoperability there and um if if users have to transact in local currency in that economy then they're forced to go back and forth but certainly some governments will take an adversarial view of it.

Yeah but some governments have more gain than lose so they'll take it which is great. Yeah. Yeah. Yeah. Yeah, play that eagle sound, Jordy. There we go. America, thank you so much for hopping on. Thanks for joining, Stephan. We'll talk to you soon. Good to see you guys. Thanks so much. Bye. Uh, go to getbazzle. com.

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