How Web3 Is Changing Commerce and Governance (with Not Boring’s Packy McCormick)

AZEEM AZHAR: Hi. I’m Azeem Azhar and this is the Exponential View Podcast. Now, since I first owned a computer, it was 1981, and I was nine years old. I’ve lived through a few technology revolutions, the spread of personal computing in the 1980s, the growth of online services in the 1990s. My own entry to the pre-browser internet with its Gopher, Usenet groups and FTP servers came in 1991, a decade after I unboxed that first computer. Then came Web 1.0 And the promise of a user-owned worldwide network of knowledge and possibility. Which was then superseded by the social, commercially-driven Web 2.0, which brought with it a mass adoption of the internet. It might be the case that we’re currently experiencing another revolution, the emergence of Web 3.0 driven by blockchain technology. All these tech revolutions promised new ways of interacting with each other, with businesses and with institutions. Web 3.0 is no different. In today’s conversation with Web 3.0 analyst and investor, Packy McCormick, we explore what the implications are outside of finance, where blockchain technologies have so far found their firmest footing. Packy has been sharing his Web 3.0. journey via his own excellent newsletter, Not Boring, which lives up to its title, doing deep dives on a wide range of companies and issues this new technology raises. Packy, it’s great to have you on the show.

PACKY MCCORMICK: Azeem, it is wonderful to be here. As you know, I’ve been a fan for a very long time, so this is an honor.

AZEEM AZHAR: Well, it’s also my honor, because I really enjoy what you’ve been doing over the last couple of years. The last time you and I did this, was actually on Clubhouse. For listeners who may remember what Clubhouse is, it was the sort of the app du jour for several months and it seems to have disappeared.

PACKY MCCORMICK: We’re in this moment in time right now where all of the things that were du jour two years ago are really struggling, and Amazon, this morning, just got crushed on earnings. That was a beautiful moment in time. A weird, strange, beautiful moment in time, when everyone was getting together in audio chat rooms, but I think the concepts lived on. Twitter Spaces are popular, so Clubhouse did a service to humanity.

AZEEM AZHAR: It did a service, but it’s interesting that you make the point that Twitter spaces is doing well. But it came back to that kind of critical business decision of, are you a feature or are you a product entirely? Clubhouse had tried a lot of what I would call early 2020 social hacks, like riding on Twitter’s social graph to build an audience, hopefully big enough, before Twitter could respond and then Twitter actually did respond and now that’s where everyone is.

PACKY MCCORMICK: Because Twitter, until last year or maybe a year and a half ago, was the slowest product company in the history of the world. They’ve gotten a little bit faster. It hasn’t been particularly good for their business and now it’s getting acquired, but it was a safe bet to make that Twitter couldn’t move fast enough to copy that feature but luckily, they had some kind of periscope infrastructure left over and they were able to move pretty quickly to make it happen. But I mean, to me, there were a couple of challenges. One was, I think exactly that social graph issue. Where I go over to Clubhouse, and I had six people who would want to listen to me and so I just need to rebuild that thing from scratch. I think the content was similar enough and the type of people who like hearing themselves talk are also the same people who like hearing themselves tweet. And so it just fits, I think a lot better inside of something like a Twitter.

AZEEM AZHAR: That’s a really great observation. Well, let’s get to Web 3.0 because in the last couple of years, I noticed that you had really fallen into Web 3.0. You’d talked about this idea of the great online game, that all of life was a game that we enjoy the games because of their story structure and it kind of mirrors what life is like and that we are able in the digital world, on the internet, through the keystrokes, we enter to improve our personal and professional lives and that crypto adds fuel to this. Now, is that what drew you into your kind of love of Web 3.0?

PACKY MCCORMICK: Back in 2013, I read Fred Wilson’s blog post about investing in Coinbase and so I bought myself thirty-eight Bitcoin. Then I went to Oktoberfest, and I sold those thirty-eight Bitcoin to pay for that trip, because I’m an idiot and so that was a $2 million mistake. Then I avoided it for the next, I don’t know, seven years. I did a little bit of ICO buying, bought some Eth then and then of course sold it before it popped up. I’m not a good trader. What I think really attracted me back into the space, there were a few different things. I wrote a post with a woman named Sari Azout on a company named Fairmint that used crypto to essentially make the employee option and stakeholder option process smoother. That was kind of one where I was like, “Oh, that’s a little bit of an earworm.” Where yes, of course it is very weird that users of a product who are spreading the word can’t get any upside in that product. And the driver’s on Uber, kind of a classic thing to say now, but the drivers on Uber can’t get in the upside. Airbnb hosts can’t get in the upside. That was one little earworm. And then I was talking to a guy who was building a gaming startup and similar things were happening there where he was like, “Well, in this direct to Avatar economy, here’s how the value chain changes in different ways. And when you cut out the middle man, then more value accrues to both sides. More value accrues to the creator and the consumer.” My reentry into Web 3.0 was really more from the perspective of, what’s this kind of business model design space that gets opened up when you have this new set of primitives? As opposed to what (censored) point can I buy this week and make 800X. It’s really been kind of all along from what does this allow businesses to do perspective.

AZEEM AZHAR: Yeah. I think that idea of the primitive is such a powerful one. The notion of a primitive, I guess, it’s like a Lego block. And there are some Lego blocks that are really, really useful to build with. One of my favorite Lego blocks is the four by two flat Lego block, because you can stack it to make a four by two brick. You can use it to kind of make bridges that are weak a bit stronger. It’s pretty innocuous. It can be turned one way or another, and that kind of primitive enables a whole set of new building. And sometimes it feels like with Web 3.0, the potential is that these new primitives, which are these sort of incentivization mechanisms enabled by these tokens that can somehow represent value in ways where there’s no double counting and there’s no easy repudiation allows us to build all sorts of exciting new things. I think back to Juno, which was a New York-based Uber competitor, where drivers earned restricted shares, RSUs as they drove because they were building the network. And of course, Uber bought Juno and then promptly shut down that scheme. The theory would be in the Web 3.0 economy, you wouldn’t be able to do that. That you would still be a participant. In that sense, it feels like a really powerful primitive, my four by two by flat Lego brick. But I still wonder about how far we have to go before this stuff starts to actually show a nice Lego construction.

PACKY MCCORMICK: I wrote an article about a company that I also invested in full disclosure, but called Braintrust, and I think that’s a really interesting example. It’s a user-owned kind of talent network. So, think somewhere between Upwork and Fiver and a Deloitte. So the average contract length I think is nine months. The average value is $72,000. These are engineering and product and design jobs, but the users own the network and have tokens that they get for doing different things like filling out their profile or referring people, and those tokens have utility importantly inside of the networks that they’re more valuable to people who actually use the product and participate than they would be to a financial investor from the outside. So say I’m looking for a job and I can stake tokens to move my application further up the list and make it more visible to employers that has real financial value. If it gives me a 10% higher chance of getting a $75,000 contract, that is a $7,000 value that you’re getting from that kind of pot of tokens, that to me as an investor in the product I actually don’t have access to. So, I think that’s a really interesting example that I like to use now. There’s more things that are kind of coming into play, but for other categories. I invested in one called DMO, which is doing that for ownership of your car data, and then a crossover of some of the things that you talk about. I mean, I wrote about Cello and kind of this ReFi movement, their agenda to finance movement the other day. And I think there’s some really interesting things happening there.

AZEEM AZHAR: Those are really interesting examples – the Braintrust one in particular, going back to $75,000 as your average contract size is quite significant. Then I think about why does that work? And does it work because the suppliers of that talent who are in product and engineering are technically sophisticated and the people who are buying those types of products are also technically sophisticated. The barrier for entry, actually, although it’s quite high, we’ve got people who are quite good at jumping them. That has a fit between where the product maturity is and the kind of people who might end up using it.

PACKY MCCORMICK: The interesting thing is actually the appeal ends up being to most users of the platform. It really feels very Web 2.0, and you can have it feel as Web 2.0 as you want. You don’t even have to think about your tokens. The take rate is lower than it would be on any other platform. So, you almost have this guarantee that unless the network’s going to collapse, unless you increase the take rate, the take rate will stay low. So, that’s actually the value prop now more than the tokens is, hey, come in, we have a structurally lower take rate because you’re also earning ownership in the network. So, you can keep more of your paycheck now or company X, you can pay less to us now for bringing you this talent.

AZEEM AZHAR: I love the way you’ve described that, because actually that brings us to the heart of this particular primitive, which is about incentive alignment and the idea that when you’re building sort of a Web 3.0 business, you have to do some token economics. You have to do some modeling to figure out how these incentives play against each other so that a trusted system can therefore emerge. Because the problem that we’ve run with in centralized platforms has been that you always, in a sense, start with low take rates. You start with great customer service, and as you win market share, those things start to disappear. The amount that Uber takes is much higher now than it was when it launched. And I guess we need to then figure out is what is the point at which these entities become sustainable. There’s a reason why take rates have to be where they are and let’s face it, they’re getting lower and lower. And you can go to an Upwork where the take rate is, I forget we use Upwork, it’s 20 or 25%. And that’s because it’s more of a marketplace model and Upwork is not certifying the work and you don’t get the training. And theoretically Upwork is competing with a Toptal and another marketplace and so on more of on a pari-passu basis, then you get down to Braintrust and you’ve got this much, much lower take rate because arguably there is no incentive to sort of go into kind of a predatory take rate as you get more and more market share, but you still need to be able to support the core infrastructure and the core operations to have you found founders think through what the economics of that aspect is. I mean, there must be some sort of sense of sustainability around those businesses.

PACKY MCCORMICK: If we continue to use Braintrust as the example, I think in this case in particular, the interesting thing is you don’t lock your take rate at 10%. So, they’re at 10% now, and it’s not locked. They can have governance votes and people can vote to increase it. And if they say, “Look, 10% just doesn’t cut it. We’re going to fail. You all love this thing. If this doesn’t work, then you have to go back to Deloitte and pay 80% of your billable hours. We need to increase it to 12% or else this isn’t going to work.” I think the goal though is this idea of the minimally extractive protocol where it almost becomes a public good for the participants. If people want to kind of invest from the outside and try to make a huge return, they can. But that is a little more speculative. I think the things that are going to emerge that actually get long term sustainable use like a Braintrust are going to actually have a fairly thin margin that the protocol is able to take. They also have something here now where they’ll use Braintrust tokens to kind of pay certain things in the network. And so that actually creates some demand. There’s a model in which the price of Braintrust increases and before it was actually more speculative. But I do think it’s kind of finding that right balance where it almost becomes this public good for everybody involved. And then the people building extra value on top are able to also charge for their services but the protocol itself should not be taking an extra amount of money.

AZEEM AZHAR: But internally just close one thing for me, are the jobs paid for in Braintrust tokens?

PACKY MCCORMICK: So, the jobs are actually paid for in USD or whatever the local currency happens to be. They take care of all of that on the back end. They really want it to feel as easy as possible in the places where it should be easy and then use tokens to kind of enhance in the areas where tokens can be helpful, and I think that’s a model that more companies are going to be building with. The other just kind of interesting thing to close on here that’s a more generalizable lesson is that they’ve been building since 2018 and really have kind of come to the general consciousness late 2021. I think that coming out of this boom that we’ve just had the really good sustainable projects I think are going to start showing up in 2023, 2024. And I know that feels like kicking the can, but the people who are coming over from Web 2.0 to Web 3.0 and building real products, a lot of those products haven’t dropped yet. And so I think some of the more long term sustainable, actual good products are still on the horizon.

AZEEM AZHAR: This idea of it’s early days yet. And I often ask people the question, which bit of early days are we talking about? Are we talking about 1986 internet, which is sort of three years before the web and HTTP as a protocol showed up, are we talking about 1994 internet when Yahoo existed but on a server called akebono.stanford.edu? Are we talking the pets.com internet? Are we talking the Facebook internet? It’s all about sort of holding people to account, but it does seem to me that with the wall of money that came in perhaps brought forward people’s expectations about when useful things would actually start to emerge.

PACKY MCCORMICK: I mean, has money baked right into it? The first use case was as a peer to peer payment system. I think that does bring a whole host of expectations. I think that’s a very good thing. And Bitcoin is obviously proven it’s staying power and is very good at its kind of store of value use case. But I think that’s a very different thing than Ethereum. And I think it’s a very different thing than kind of the development that’s been happening on Ethereum in other chains over the past couple of years. I wouldn’t start the clock with the Bitcoin whitepaper, because I think that’s something that kind of service its purpose and the least conservative started with the Ethereum whitepaper.

AZEEM AZHAR: Because of the programability of the EVM.

PACKY MCCORMICK: Because of the programability. It’s like comparing kind of the internet to the first time somebody used a credit card or something. I just don’t think they’re the exact same thing.

AZEEM AZHAR: You know the first thing that was sold end-to-end on the internet was a terrible album by Sting. I think Ten Summoner’s Tales, it was called or something like that in 1994.

PACKY MCCORMICK: I did not know that.

AZEEM AZHAR: You don’t want to listen to it either, but sometimes great things can have these slightly in auspicious beginnings.

PACKY MCCORMICK: Where do you think we are in the cycle? If you have to pick an internet era, what comes to mind for you?

AZEEM AZHAR: I think that we are somewhere in the 1994, 1995 period. And what I mean by that is back then it was a real hassle to get online. You had to download something called the Trumpet Winsock, if you used a windows machine, because there was no TCP/IP stack on windows machine, and you’d have to go into the DOS prompts to kind of activate it. And then you’d run a dialer again, all through DOS. And the connection was at 14.4 kilobits a second, and everything was so slow. I ran through my ISP, my own mail server on my laptop or desktop computer. I forget what I had at the time. So, the On-Ramp was really, really sticky and complex. And then you had these things like AOL and Prodigy and GEnie, which was general electrics online service which kind of wrapped everything for you in a sort of easy to use way, but you were paying quite a lot for that privilege. And as no analogy is perfect, but the fact that it’s really complex to get on and even something like Axie Infinity, this sort of potentially really popular game is expensive and difficult to get started for the average person makes me think that we haven’t yet figured out the On-Ramps and maybe the On-Ramps will come from things like Coinbase and Binance and so on, or maybe not because maybe those guys will actually find enough interest in just maintaining their own semi-open world gardens which I think is what you’re starting to see with the way that people spend time in there, and it’s quite far away from kind of applications that you are talking about. I think that just means we’ve got a few years of building, but we’re in these sort of accelerated times. A few years might be not 10, it might be four or two or five.

PACKY MCCORMICK: Speaking of applications that might be onboarding people and they’re still a little bit confusing and sticky. Have you seen STEPN at all? Have you followed what’s been going on there.

AZEEM AZHAR: I haven’t. No. Tell me STEPN.

PACKY MCCORMICK: This is taking off. It is a 24 billion fully diluted value asset that was, I think, trading at less than a cent a few months ago and has just completely captured the public imagination. What it is, and I don’t know nearly enough to understand even how the economics work, but people don’t seem to think it’s a complete Ponzi is you download this app to your phone. You can buy a different type of sneaker using Solana. You can buy either a walker, which you get points every time you walk between, I think zero and four kilometers per hour. You can buy a jogger, which gives you a little more points if you go between four and call it ten and then ten plus for the running shoe, and you only get points in those vans, but you can buy all three and then you can breed them. Kind of all the kind of Axie dynamics, except it encourages you to walk or to run or to get out and get active. It is sweeping the ecosystem. I think a lot of people, both who are kind of crypto native and not have downloaded this thing, because they’re like, “I’m walking around, why wouldn’t I get rewarded for that?” And you can easily see, I think probably exogenous capital, which is always an important piece of this coming from one, people just buying their speakers, but two insurance might want this information or there’s some societal benefit here that you just need to figure out who pays for that.

AZEEM AZHAR: It’s quite interesting. You think about something like STEPN you could imagine that the whole aspect of the tokenomics could be attracted away for the typical user. You could get a celebrity endorsement or you could get, I’m a Brooks training sneaker guy, you could get a Brooks tie in, or a Nike tie in if you want something even sort of a bigger brand. I’m curious about how the underlying economics of all of that works. Is it that they will have aggregate data that they could then sell on to insurers or health companies at some point. And do I as a user have or need any sense of the governance, because one of the aspects of the promise of sort of Web 3.0, is that not only do I get some of the economic benefits, which is what you get with loyalty points, you have advantage card miles or whatever it happens to be, but I also get some of the governance benefits so I can participate in that way. I would be curious about whether if you make On-Ramps really easy you need to deliver those benefits to the end user.

PACKY MCCORMICK: I think in this case, my gut says that most people will want to make money for something that they do anyway. So, the economic will outweigh and they won’t want it to be taken away from them at some point, when they’re used to making money for doing something they did anyway. So, governance will probably be important then, and you need to get it in front of people now before they get rug pulled later. But I think it’s come for the economic state for the governance in a case like this, where it’s an activity that people are doing already and just getting a little extra bonus for it.

AZEEM AZHAR: One aspect that both of STEPN but also of Braintrust, is this idea that there is a positive externality that is being delivered. In the case of STEPN, it will be improved health. In the case of Braintrust, it will be that this marketplace, it works better for the providers of talent and capability. And these are sort of public goods. I think it’s such an interesting opportunity within Web 3.0. It’s a bit that makes me most optimistic. The challenge with public goods has been that they will generally be underprovisioned because of the free rider problem. Mancur Olson wrote about this in the 1970s and the issue is that because of public goods to public good, anyone can participate in it. We normally rely on our governments to provide our public goods and they do in some cases a good job, in some cases a less good job but certainly that’s always a space which is highly contested politically. Seems like it’s a potential, this emergence of new classes of public goods. And that’s quite far away from the view that everyone’s in it for themselves. Is that part of your hope, your optimism?

PACKY MCCORMICK: I mean, I think my optimism you’ve captured it ahead of me and better than me and kind of exponential age and just kind of the large thesis, the kind of overarching thesis of your work, but is that we have these affirmatives like, I wouldn’t have predicted StepN. Maybe you predict Braintrust, maybe you predict [inaudible 00:22:11] Uber certainly and maybe you don’t predict the next thing and the next thing and the next thing. And then you also don’t predict how that interacts with other things. So like when I get very, very crazy, it’s like, wow, I wonder if you can design an experiment with new economic and governance models in this little kind of playpen that is cryptocurrency and then one hundred years in the future where we’re colonizing asteroids, you have these little economic governance models that are actually ready to go for people to experiment with on these asteroids in the future that are at least kind of these viable alternatives. And so to me, I think it’s this kind of coming together of all these different forces that are happening and the total unpredictability of that. And of course there’ll be bad actors, but I think a lot of entrepreneurs will build things for good that we can’t sit here and predict right now. And to me, that’s where a lot of the optimism comes from.

AZEEM AZHAR: Today, we live largely – I think the phrase that the Financial Times correspondent Rana Foroohar talked about as a sort of a makers and takers economy, and most of us are takers. The beauty of the original internet, the internet that I came across in the early nineties was that you could be a maker and everyone was a maker, and as the network effects got captured and the economics turned the way they did, we increasingly became takers of our technology. In some cases I don’t really mind, there is some dynamic of human history, which is about the degree to where there is a democratic, a sort of a police participation in the decisions that get made. And we got to this sort of great breakthrough point in the 1930s at least in advanced Western economies where you didn’t need to own land, and you didn’t need to be a man in order to participate equally in society. Now that wasn’t so true in parts of the US until the late 1960s. But one of the interesting notions about some of the technologies that I write about as well as the sort of Web 3.0 stuff that you’ve been thinking about is how it creates new avenues for democratic participation. If you move outside of crypto, I’ll throw out two other areas, which I think are quite interesting. One is with renewable power, power generation. You needed to have two billion dollars in the past to put together a combined cycle power station somewhere. Now, you can do it with $15,000 and you can share your car battery with your neighbor when it’s off time, and now you’re starting to say, well, listen, should power generation be governed at a national level as it is in many countries, or should it be a bit more local? Should there be room for a new type of democratic participation, whether it’s enabled by crypto or not? I wonder whether some of this is pointing towards a sort of great revival of our notion of democracy and our notion of citizen participation.

PACKY MCCORMICK: Did you read the John Haidt article in The Atlantic?

AZEEM AZHAR: Yes.

PACKY MCCORMICK: It was a couple of weeks ago. He had the great line that there is a direction to history and it is towards cooperation at larger scale. And I think that what you’re saying kind of gets to this, that whether crypto or just kind of the technology tools that we have at our disposal, it allows kind of the people to cooperate directly without the intermediaries that we might have needed. Not there’s not a role for institutions. I wrote about a company called Primer yesterday, which is kind of rethinking early childhood education.

AZEEM AZHAR: Just in a sentence, Packy, what is Primer?

PACKY MCCORMICK: Primer is the home for ambitious kids. And it’s a combination of online clubs around topics like writing and storytelling and math and physics and nature. In addition to what they just launched are these micro schools where you show up in person eight hours a day with a teacher on site and best in class teachers over video teaching across different subjects.

AZEEM AZHAR: So, it’s kind of peloton on for bright kids sitting on top of a token.

PACKY MCCORMICK: No token in Primer.

AZEEM AZHAR: No token in Primer.

PACKY MCCORMICK: Kind of assumption here is that all kids are bright until we’ve kind of talk about kind of protecting the downside versus maximizing the upside. At least in the US, a lot of the education system’s job is to kind of shrink the gap between top and bottom. And the easiest way to do that is to lower the ceiling on the top as opposed to raising the floor on the bottom. Their assumption is get kids early enough, lean into their curiosity and every kid is going to be bright at something. How do you take advantage of that to then deliver all the other concepts that might be a little more dry? And so it’s another example of, hey, before we would’ve said, “Hey, you live in the school district. You need to go to this school, sorry.” Now people, again, kind of have choice on where they’re going to be educating their kids. And so I think more and more and more, there’s just these little things happening that instead of a top down choice, there’s this kind of bottoms up decision making happening. And hopefully we have the tools to do it in an intelligent way and to make it easy.

AZEEM AZHAR: I’m going to pick up on Primer in a second, but I want to go back to the Jonathan Haidt’s piece. Jonathan Haidt does talk about this sort of direction of greater scale of cooperation. I mean, the way I think about it is in terms of scale, scope and style. Scale as in, we can increase cooperation and sort of democracy at different scales. Supernational national city community and also things that are bigger or smaller that are not connected to geographic boundaries or national identity. For example, participating in a DAO or in an open source project that sort of might cut across sort of geographies and cultures and so on. That is enabled by sort of education and new types of technologies. The second is the scope. The scope is about where we can apply this idea of democracy. It is about enabling democracy in something like an Upwork competitor or in a Dropbox competitor or in a hedge fund competitor in the case of Numerai. So, you have these additional scopes where we hadn’t previously thought that democratic governance could operate. And then the third, I think, is this idea, the broadening of the styles of democracy. The style being, what are the types of decisions that can be taken, how does that decision emerge? Does it happen in a DAO style back and forth? Does it happen in a deliberative process? Does it happen in a voting process? Does it happen in a staking process? And that is actually a demonstrating an expansion of the realms of possibility of democracy. That’s kind of the thing that makes me, probably because I believe in humans, I believe in what we can do.

PACKY MCCORMICK: Amen. It almost reminds me of, and this is going to sound like way more highlighted than I wanted to for Web 3.0, but almost reminds me of watching Hamilton and then thinking back to kind the early stage when young people were super excited about thinking about how you govern things, and that has not been the case, at least in America for a very, very long time. And now suddenly by kind of putting tokens and money in it, we’ve tricked a generation of smart, young people into designing new governance structures and new ways of making decisions as groups and coordinating and all of that, and some of them are going to be terrible ideas. I think probably a lot of the early DAO attempts, the way that they govern themselves probably don’t make a lot of sense. And they are maybe a little bit too loose and unstructured and all of those types of things, but some of those ideas are going to be really good and ideas that wouldn’t have been thought of otherwise. And hopefully we can take those kind of new ideas and apply them both in Web 3.0 and beyond Web 3.0. And I think if you can experiment on how you govern, that is one of the most important things you can possibly experiment on.

AZEEM AZHAR: And experiments in governance are really expensive, because they’re often surrounded by bloodshed and loss of livelihood. So, I think this is something that makes sort of the mainstream quite uncomfortable with a lot of these areas because there are these experiments and they’re quite challenging that one way that I read it though is I see the traditional political dimensions represented in a lot of different crypto projects. I see a lot of people who are coming from the left, the kind of trade union, commons mutuality movement. Of course, you see lots of libertarians showing up. You see people who really believe in the kind of work of the economist Elinor Ostrom and the idea of the commons. It’s a really rich group. What’s quite interesting, these projects are actually in a sense competing in their bundles of values as well as in their bundles of functionality.

PACKY MCCORMICK: Yes. I think that’s a hundred percent right. And it all looks, I think very silly from the outside and I think partially because a lot of it is, but I was involved in the ConstitutionDAO effort.

AZEEM AZHAR: This is to buy a copy of the US Constitution.

PACKY MCCORMICK: This was to buy one of the 13 remaining copies of the US Constitution, raised $47 million in just about a week. And from the outside, to me, one of the things that always happens in this and it’s happening to Elon Musk right now with this $44 billion. When anybody raises a large amount of money and does something with it, everybody else says what the other things that you could do with this money. It’s like, why would you buy a copy of the constitution when you could cure cancer? Well, first we’re not going to cure cancer with $47 million. But second, the important thing here is not buying the copy of the constitution, it’s getting a group of people both directly involved and the people who are kind of viewing from the outside excited about this new way of making decisions as a group and governing and experimenting and all of that. So, that I think is kind of what makes me optimistic and my optimism, I think also makes me view the situation that way, if we’re being fair, but is that each of these are these experiments of people kind of playing with value and governance.

AZEEM AZHAR: Experiments of this type do make people uncomfortable. And one of the things I think we have to do is we have to get society comfortable with a future of lots of experiments. I make the argument in my book that we are entering the exponential age and we’re going to require these new general purpose technologies. We’re going to build off them. And the past models don’t necessarily work. And that’s not to say the past models weren’t good, but that model ultimately has run out of steam. And I think the way computer scientists or machine learning people think about it is the idea of balance between exploration and exploitation. You get to a local maxima and you exploit the hell out of it. Once that’s been exploited, you need to find new ways. We enter a time of exploration. Exploration naturally means experimentation and experimentation means things will go wrong. It means loss. Exploration means learning. Learning means mistakes. Mistakes means losses.

PACKY MCCORMICK: Is there a kind of a way that you think about good mistakes and bad mistakes. Are all mistakes good or do they need to have some other feature to be a good mistake?

AZEEM AZHAR: I think a repeated mistake is not necessarily a good mistake. I think that there’d be a reasonable hypothesis that underlies the exploration that the scale of the cost of the mistake should be connected, not necessarily the scale of reward, but what was needed in order to make that learning. If I want to check whether the curtains are fireproof, perhaps burning down the whole house isn’t the right thing to do. And I think there has to be some balance, but I don’t think it’s obviously clear to me that we should worry if experiments kind of deeply go wrong.

PACKY MCCORMICK: The way that I’ve framed this a little bit before is just the difference between kind of downside protection and upside maximization. And I’d just be curious to kind of think if you’ve given any thought to, if there was maybe a point in time when downside and maximization actually was probably the right thing to do, because survival wasn’t guaranteed. And if you think that we’ve flipped to a spot where upside maximization is more important because we are in an exponential age. And so upside is so much better than kind of protecting a downside.

AZEEM AZHAR: We do have one deep urgency, which is the climate crisis and we have to exploit into that with the technologies that we know of. Carbon pricing and renewables and transitioning to electric vehicles and so on, but we also need to do some deep experimentation because there are things that we don’t necessarily know. But this question about downside minimization, I think is really important. And it connects slightly to the Primer story that you talked about with early childhood education, which is that you and I speak from a point of vast and incredible privilege and protection and buffers and resilience in our lives. And I think we have to also ask questions around what is the cost and a process of experimentation for those who are much more vulnerable, which is essentially 60, 70% choose your percentage of humanity for whom there is not enough space to experiment through to solutions that necessarily work. And that would be one of my concerns with a lot of these things. How should we think about those types of problems?

PACKY MCCORMICK: It’s certainly the main feedback that I got on the piece was around this question of, does this matter if it’s not accessible to everybody. Technically it is. They’re starting in Florida, where from a financial perspective, you can go to the Primers micro schools for it for free. I think there’s just a broader point on who has the knowledge that this thing exists. There’s another angle to it, which is kind of a comfort with the new thing or whether you see a new technology and dismiss it, or are skeptical of it or scared by it, or you welcome it. And I think that’s an attitude shift that to your point comes from we’re both very lucky that we’re privileged enough to, if we get excited about a new technology and it doesn’t work out, that’s fine and we’ll be all right. I think for something like a Primer, there’s real classes that you’re getting that are taught by really, really good teachers and there’s teachers on site and all of these things. You can, I think, feel comfort that you’re getting kind of the core of an education, but then the upside there is that if you’re really passionate and curious about one thing, you can really go deep on that thing. And so to me, it’s more of a, how do you put everybody in the mindset where if they do get access to something new and novel for free they’re in a mind space and a place where they can dive in and take advantage of it. On the other side, I would not say that if you are living paycheck to paycheck, you should put one of those paychecks in a random coin and try to 100X that investment. I don’t think that applies across everything, but I do think that we should probably, as a society do a better job. Most journalism’s job is to kind of dunk on the new technology that’s coming out and point out what could go wrong with this thing. And I think that scares people away. And I think it’s frankly maybe the new kind of irresponsible journalism is when you poo poo on something too much, that could actually be really good for some people you’re preventing them from using something that could have a benefit in their lives.

AZEEM AZHAR: You are obviously optimistic about Web 3.0 and you’ve invested in dozens of things. What is the evaluation process of a Web 3.0 team?

PACKY MCCORMICK: Yeah. I think a lot of it at this point, a lot of the investing that I do is earlier stage. I do a little bit of later stage and that ends up looking an awful lot like normal kind of later stage investing wood, where you can look at the metrics, you can look at the growth, you can look at their unit economics, you can look at whether the whole thing is a Ponzi or not, and make a decision that way. But in the earlier stage, it, I think looks an awful lot like investing in an early stage company elsewhere where you have the team and in Web 3.0 that kind of means either somebody who’s been building in the space for a while, or very talented Web 2.0 Engineers who are coming over and have demonstrated that they’ve just gotten obsessed with it and learned solidity or learned Rust or learned whatever language they wanted to learn. Is the team very, very strong. And there’s also an interesting thing happening now where Coinbase mafia is spreading out into the world. And so a lot of those end up being kind of easy checks and then does the idea make sense and is it in a space that’s not completely crowded and so like tools for DAOs or kind of new wallets or things like that. I’ll make some investments in, because I think there are some really exceptional players there, but you need to be wary that even very smart teams might have just gotten attracted to the same thing that a lot of other people did at the same time. Is it a good idea in a space that’s not kind of too oversaturated yet? And then for me, I kind of apply a couple of other additional ones, which is kind of who cares if this thing succeeds, so will it matter? And in Web 3.0, I think that’s interesting because it’s not just the direct impact, but it could also be, wow, this is a really interesting new primitive that’s been added into the mix. And then too, I like things that might help onboard kind of those next billion users. And so I do some infrastructure, but a lot of things that are a little bit more consumer facing.

AZEEM AZHAR: What does product market fit look like in Web 3.0? Product market fit is the sort of the je ne sais quoi for an early stage investor, maybe like a series A investor rather than a seed investor, but what does product market fit look like in these projects?

PACKY MCCORMICK: It’s a really good question because I think in Web 3.0 way more than in traditional startups, you can fake what would look like a product market fit by kind of baking money into things. But I do think that the general definition of product market fit and the general test that 40% of people would be devastated if they couldn’t use your product anymore. That should be something that you still strive for in a Web 3.0. And I think with the fact that liquidity is cheap and that you can go make money in other places, that’s still actually a really good test, even though you can bake money in. Sometimes you need to look at things beyond just superior growth metrics, because those can be pumped, but do you have a passionate community of people who are actually using the product and getting excited about it, whether or not the money’s kind of there. And often a lot of these products will start out with an early beta community before they introduce a token into play. So, if you can find passion there before the tokens there, obviously people have an expectation, they might make it one day, but is the thing fun or compelling or useful enough that people are still using it even if they don’t care or expect much out of the token?

AZEEM AZHAR: I mean, I think that’s a really important point. So you have to look beyond the sort of raw money velocity and the sort of excitement that’s happening around the token. I think that’s something that people who are perhaps not looking at Web 3.0 regularly, sometimes miss. It’s that what’s less interesting is the token price and the discussion about how it’s going to grow. And this is particularly the case with lots of these sort of DeFi tokens that might be allowing you to earn these sort of insane yields. It’s more about who’s participating, how are they participating, how intense is it, how much does it matter to them? What is the wait list when they come in and try it out? How many times they come back, are they still coming back a month or two months later? It looks like it’s quite traditional to a sort of a Web 2.0 lens, but there must be differences.

PACKY MCCORMICK: For me, I think kind of the way that I’ve written about Web 3.0 most of the time and the thing that I got excited about originally was Web 3.0 businesses still have to follow kind of the same rules of business and many of the same kind of frameworks that are the classics, I think still do apply. The trick is, does the token or does something about the project does its openness. Does the fact that you can build on top of data that otherwise would’ve been closed off? Does something about Web 3.0 enhance kind of some of the features that you’d normally look for in a business or not? I think one of the interesting things over the next couple of years is as some of these early projects get traction and then get competed against what do the most look like on these businesses when everything is a little bit more open when capital can move freely between different projects. I don’t think we’ve had a reckoning there yet, but I’m really interested to see for some of these like early kind of popular projects, how they’re able to kind of build and defend their modes.

AZEEM AZHAR: You and I both have a newsletter, coming back to newsletters, even running yours for a couple of years and writing is thinking, so your thinking must have evolved over that time. What do you think is the biggest evolution, the kind of the single thing that you now know and now articulate that starting this process a few years ago, was in your Rumsfeld quadrant of unknown unknowns.

PACKY MCCORMICK: That is a really great question that I don’t have a really great answer to, but I came in thinking that the kind of point of not boring was to combine just kind of humor and lightness with topics that business strategy concepts or economics concepts or what’s going on with these public companies and that by delivering this medicine through candy almost, and that was kind of going to be the style of the newsletter. My optimism has gotten kind of a stronger foundation around it as I’ve continued to write the newsletter and instead of kind of lightness and humor, which still exists in the newsletter, the real thing that I’m trying to deliver is this idea of being optimistic about the future and the fact that the unknown unknowns they often turn out to be pretty good. And the curve on the cover of your book, I think describes it well, that things are kind of getting at least faster and faster and in many cases better and better. And so I think that’s probably been the biggest change is just every industry that you look across, we’ve talked about Web 3.0 and schools and energy and climate and all of these industries today. And I would say in each one of them, there’s just unbelievably cool stuff happening. To me, that has been the thing that has changed the most is I’ve gotten even more optimistic as I see the same thing happening in a bunch of different industries.

AZEEM AZHAR: Well, Packy, thanks for that very healthy dose of optimism.

PACKY MCCORMICK: Thanks for having me.

AZEEM AZHAR: Well, thanks for staying with me to the end of this conversation. If you found it insightful, give us a five star review. It makes me smile and it helps others like you find this podcast. For more crypto blockchain peruse the podcast feeds, there are so many discussions. Trent McConaughey, Sergey Nazarov, Do Kwon, so many other names for you to explore. This podcast was researched by Chantal Smith, produced by Fred Casella and Marija Gavrilov, edited by Bojan Sabioncello. Exponential View is a production of E to the PI Eye Plus One Limited.