Dialogue with Dragonfly Capital partner Haseeb: Most DAOs are neither decentralized nor autonomous

Original Author: Crypto@Stanford

Original Title: 《Haseeb Qureshi》

Compiled by: Biscuit, Chain Catcher

Dragonfly Capital is a cryptocurrency investment firm with over $2 billion in assets under management. Its managing partner, Haseeb, wears many hats, including investor, founder, software engineer, and even professional poker player.

Recently, the Stanford University crypto community Crypto@Stanford conducted an exclusive interview with Dragonfly Capital managing partner Haseeb, sharing insights on the current state of investment, DAOs, and the so-called "pirate founders."

Entering the Crypto Industry

C@S: When did you first become interested in the crypto world? Do you remember who introduced cryptocurrency to you?

Haseeb: Many poker players got into cryptocurrency early on. After "Black Friday," many offshore poker sites were shut down, and online poker had to migrate to sites that didn't require dollar settlements. As a result, many players had to accept Bitcoin. This is how many poker players first encountered Bitcoin in 2013. I was aware of Bitcoin early on but didn't really understand it; at the time, I thought it was just a way for people to settle debts when they couldn't use dollars. My first use of Bitcoin was in 2015 when I bought modafinil (a drug that enhances focus) with it.

C@S: How much are those modafinil pills worth now?

Haseeb: A lot; it's my personal Bitcoin pizza. The first time I really bought Bitcoin was after Donald Trump was elected. In fact, Trump might have been the catalyst for my deeper exploration of crypto technology. Because when Trump was elected, I thought, "How do you think the whole world is going to collapse? How do you bet that things are really going to go wrong?"

What really deepened my understanding of cryptocurrency was Ethereum. When Ethereum started skyrocketing in 2017, I was a software engineer at Airbnb, dealing with payment fraud issues. At that time, Airbnb provided payment services to people in over 60 countries worldwide. As an Airbnb user, when you swipe your credit card, you have the experience of "the entire financial network knows about it."

In reality, the global payment system doesn't handle the backend of payments. There are many different payment systems around the world, most of which cannot communicate with each other, and all these systems were built 50 or 60 years ago. When these payment backends couldn't meet the demands of a globalized, real-time, and 24/7 online digital world, I realized, "We should build a new system for the world we live in today."

I believe this new system should be cryptocurrency. By understanding peer-to-peer systems, cryptography, distributed systems, monetary policy, and programmatic approaches, how would you build a financial system today? All these different ideas were re-mixed into cryptocurrency, and I understood that the way we handle money in 2080 cannot possibly be the same as how we handled money in 1980. That's impossible. And the way we make money today is the same as we did in 1980. So, this made me believe that cryptocurrency will change the world.

C@S: Brian Armstrong also started in Airbnb's payments team, right?

Haseeb: Yes, I worked on the same team as him. A few years later, I found some blockchain code from Brian that was completely different from Airbnb's engineering standards.

C@S: Over time, how have your views on crypto and Web3 changed?

Haseeb: I initially thought Bitcoin would go to zero, and Ethereum would win because Bitcoin doesn't really do much, and many holders are Bitcoin extremists. Ethereum is very developer-friendly; it does what Bitcoin can do and even more. So initially, I viewed the crypto world with a developer-first mindset. However, later on, I gained a deeper understanding of Bitcoin, which changed that perspective.

There were many events that changed my views. For example, I initially thought enterprise blockchains had unlimited scalability, but now I believe enterprise blockchains are still BS architecture. I was very optimistic about central bank digital currencies at first, but now I'm quite bearish on them, and similarly, I'm very bearish on corporate tokens (like Libra). However, one of the most significant changes in my perspective recently has been regarding NFTs. When the NFT space took off at the end of 2020, I was convinced it was a bubble. It was probably last summer when I changed my mind and started to realize that NFTs would survive, but I still believe there are many cyclical and bubble-like aspects to the NFT market.

C@S: You describe yourself as an altruist; how do these beliefs support and intertwine with Web3 beliefs?

Haseeb: I would say these beliefs don't overlap much because I don't think Web3 is a moral endeavor; it's more of a necessity rather than a moral dilemma. From a utilitarian perspective, I don't think Web3 has many obvious benefits for the world. It's like how you view social media, "Is this good or bad for the world?" I believe social media is beneficial for the world, though many disagree. But if you're observing the emergence of social media, regardless of whether you believe it's good or bad, it's going to happen. The structure of social power will change over time, and that's one way I view Web3.

Life as a VC

C@S: Can you tell us how you became a venture capitalist?

Haseeb: This is a recurring theme in my life; I often end up in unexpected situations. I never wanted to be a poker player growing up, but I ended up getting into it and became very good at it. The same thing happened with investing; at the end of 2017 and the beginning of 2018, I was working at a startup focused on building stablecoins.

Later, I was introduced to Naval Ravikant, co-founder of AngelList and one of the earliest fund founders in the crypto space, MetaStable Capital. He encouraged me to enter the investment industry, saying, "I think you should leave your current startup and focus on investing. Investing is more interesting; you get to see everything happening in the space, you have to predict the future, and it's more of an intellectual challenge. Plus, investing is the best place to observe the development of the crypto industry." My first reaction to his suggestion was that I knew nothing about investing. He said that what a good investor needs is judgment; you have to make the right decisions about everything. He could teach me other things, like the structure of trading and how to pitch entrepreneurs.

So, I left the startup and joined MetaStable, which is how I started investing in cryptocurrencies. I remember in my first week at the fund, I bought the book "The Intelligent Investor" and read it from cover to cover. Naval's insights were absolutely correct; the difficult part of investing is learning how to make the right decisions. If you have that ability, everything else can be learned on the job.

C@S: What specific points do you look for when investing?

Haseeb: It depends on the stage the company is in. If we are looking at seed-stage startups, we focus more on the team and insights. Generally speaking, investors look at three core aspects: team, product, and market. I believe that when you are at the seed stage, we are looking for the team and insights. Insights are somewhat like the beginning of a product. So, if you have insights, you will have some unique perspective on a new area or business you want to solve. For me, that's what I want to find in seed projects. In later stages, more signs are needed to prove that the idea is indeed effective.

I think there are generally two types of very successful founders in the crypto space. One is the traditional type of founder, like those from YC. They are smart, energetic, often work at well-known tech companies, participate in hackathons during college breaks, and may have started a company at 15. The other type I call "pirate founders." Pirate founders never invest in anything outside of cryptocurrency. These founders tend to be quirky and unlikable. They often don't go out, live on Twitter, and like to use pseudonyms. They are very passionate about the crypto world and have very unique opinions. While they can be difficult to get along with, they are really good at doing crypto.

C@S: Can you give an example of a pirate founder?

Haseeb: One example I would mention is Vitalik, who was essentially non-investing when he founded Ethereum. He dropped out of college and was obsessed with creating a secure virtual machine on the blockchain. There are many similar founders who are now very successful. For instance, Hayden from Uniswap and the folks from 1Inch are also of this type. We tend to support this type of founder because early teams are really important.

C@S: Do you think the ICO/DAO funding model has changed the way Web3 VCs operate?

Haseeb: Honestly, not much has changed. We occasionally provide funding for DAOs, but I actually find this complex form of capital a bit off-putting. I think over the past five years, there have been various narratives, like "because ICOs can distribute fairly, VCs are disappearing." Now we have DAOs, but VCs still haven't disappeared. Therefore, venture capital firms are filling some important niche markets and providing valuable services across many different markets. If you think that with smart contracts, VCs are no longer needed, you might be mistaken; those successful projects have all worked with VCs. That's why VCs have existed for hundreds of years, and even with the invention of DAO organizations in the Web3 world, they can still survive.

C@S: We see that Dragonfly participated in the founding of BitDAO; can you talk about BitDAO's mission and why you decided to join?

Haseeb: The mainstreaming of the concept made me a bit wary of DAOs. When anything in cryptocurrency becomes mainstream, the fidelity tends to drop significantly. DAOs are a great example. The original intent of DAOs was decentralized autonomous organizations, but nowadays, most DAOs are neither decentralized nor autonomous, and many aren't even organizations. Now, any group with a multi-signature and a Discord channel claims to be a DAO, and I believe most "DAOs" will ultimately disappear when the cycle ends.

That said, I think DAOs are a fantastic concept. However, creating a truly self-sustaining, censorship-resistant, and autonomous DAO requires a lot of work. BitDAO is currently one of the largest cash-flowing DAOs. A complex DAO has a lot of cash flow and many different plans, which will ultimately be broken down into many subDAOs. Additionally, almost all large DAOs (like Uniswap and MakerDAO) have most of their value in the form of their native tokens, which is akin to a company's unissued stock rather than a true component of the DAO treasury, whereas BitDAO has a large non-BIT asset base. For this reason, BitDAO is seriously trying to build a truly meaningful DAO with cash flow.

I want to conclude by saying that building a DAO is harder than building a company. The constraints faced when operating a DAO are greater than those for a company. A company can handle business more directly and centrally. If you don't consider this trade-off, you might not be building a true DAO. Almost all cryptocurrencies that have become DAOs (like MakerDAO or Compound) started from a centralized point and became more decentralized over time. Now this logic has reversed, which is more of a disadvantage than an advantage for these organizations.

C@S: Can you share some of the most successful and most regrettable investments you've made?

Haseeb: I was initially involved in the seed round investment for Avalanche, which is an investment I'm very "thankful for." The goals they were building back then were very different from what Avalanche is now. At that time, there was no vision for the C chain, and no one thought EVM would become hot again in 2017. The original vision for Avalanche was to create a new consensus protocol that would have many subnets for other blockchains, like BTC Avalanche, Zcash Avalanche, etc. I thought it was so crazy and radical that I wanted to give it a try. As for the second part of the question, I think it's missing out on the Series A investment in Uniswap. The day the UNI token launched left me in deep soul-searching, but I learned a lot from that investment.

Predictions for 2022

C@S: Do you have any bold predictions for Web3 in 2022?

Haseeb: The first bold prediction is that the Ethereum merge will not happen in 2022, and when it does happen, Ethereum's market cap will surpass Bitcoin's.

C@S: If you could add an extra 8 hours to your day, how would you spend that time?

Haseeb: If I really had an extra 8 hours every day, I would spend more time on Web3 programming. That might be a daydream, but one thing for sure is that there would be more meeting time.

C@S: Last question: who is the smartest person currently working in Web3?

Haseeb: That's a great question. I think it's @samczsun.