Dialogue with the Founder of Delphi Digital: The Journey from a Small Company to a Giant in Crypto Research and Investment

Original Title: The Untold Story of Delphi Digital's Rise | Jose, Yan, Anil

Author: Empire

Compilation: Deep Tide TechFlow

Guests: Anil Lulla, CEO of Delphi Digital; José Maria Macedo, Co-founder of Delphi Digital; Yan Liberman, Co-founder of Delphi Digital

Host: Santiago R Santos, Investor

Release Date: August 24, 2024

Background Information

In this episode, Jason invites the founders of Delphi Digital to share their journey from a small research company to a giant in investment, research, and consulting. They detail their unique "umbrella thinking" decision-making approach, discuss the challenges of managing a rapidly expanding organization and portfolio, and provide in-depth insights into the current state of the crypto market. Additionally, they explore emerging trends in the crypto space, including artificial intelligence, gaming, and the potential impact of these trends on industry political changes. Finally, they express an optimistic outlook on the future of crypto and discuss the infrastructure needed to support its growth.

L1 Community and Culture

Jason initiates the discussion on the current state of the crypto industry and the story of Delphi Digital.

• Anil shares the origins of Delphi, recounting his experiences with co-founders Yan, MJ, and Kevin. They had previously worked at Deutsche Bank, and with their growing interest in the crypto industry, they decided to resign in 2018 to establish Delphi Digital, initially as a research company.

• Anil believes that being able to work in a vibrant and innovative industry while also achieving financial returns feels like a windfall or a kind of "cheating" good fortune.

• In the early days, Delphi's research mainly involved writing reports, but no one was willing to pay for them. As their in-depth reports began to gain attention, especially after Yan helped predict Bitcoin's bottom through comparative analysis, Delphi started to build a reputation.

• Anil also mentioned that a report they released on Ethereum in 2019 sparked controversy but caught the attention of Ethereum founder Vitalik, leading to collaborations with multiple protocols and boosting Delphi's consulting business.

Transition from Research to Consulting

• Anil continues to narrate Delphi's growth story, emphasizing the importance of their collaboration with Vitalik. They shared their models with Vitalik, which led to more consulting opportunities on various projects. Through partnerships with multiple decentralized finance (DeFi) projects, Delphi gradually established its influence.

• He recalls a conversation with Kane, who acknowledged the value of the Delphi team and emphasized their unique perspective in the industry. Anil believes that this cross-disciplinary expertise positions Delphi uniquely in the crypto market.

Diversification of Delphi

• Today, Delphi has evolved into a comprehensive company covering research, investment, and project development. Anil emphasizes that they always analyze from different angles when making significant decisions to ensure they can stay ahead in a competitive market. This diversified perspective and experience enable Delphi to continue growing in the crypto industry and provide valuable services to clients.

Exclusivity of the Ecosystem

Jason mentions MJ's departure to start a fund and inquires about the addition of other team members.

• Anil recalls the story of Tommy, noting that there were not many research companies in the crypto industry at the time, and Delphi Digital was founded in 2018. Tommy's collaboration with Delphi originated from a meeting with Anil and the other founders, which was initially planned for 30 minutes but ended up lasting three hours. Ultimately, Tommy joined Delphi, bringing his network resources.

Jose and Peirce's Addition

• Jose shares his initial encounter with Delphi. He was researching token economics and wrote a report on Ethereum. Delphi cited his research, and subsequently, Tommy invited him to participate in a podcast for a debate. As their collaboration deepened, Jose and Peirce gradually joined the Delphi team to work together on consulting projects.

Transition from Research to Investment

Jason asks when the team realized that investment was the primary way to generate profits.

• Jose and Yan indicate that the initial goal was to establish a foundation through research and then gradually shift towards structured investments. Due to their lack of investment background, they decided to focus on research first to build a good reputation and network. Although fundraising was challenging in 2019, they ultimately decided to use their own funds to launch the Alpha Ventures fund.

Initial Structure and Challenges of the Fund

• In the fund's early stages, the investment proportions among team members were roughly equal. Jose recalls that they invested almost all their liquid assets into the fund, even using credit cards for financing. Despite facing many challenges, they maintained a positive attitude, viewing the management of funds with friends as a pleasure. Throughout this process, their goal remained to advance the crypto industry, ensuring that every decision contributed to the sector.

How Founders Build a Brand

Jason mentions that Delphi Digital has no external investors, which gives them more flexibility in decision-making.

• Anil emphasizes that this independence allows them to boldly explore ideas that other companies might hesitate to try. Even without external funding, they still manage hundreds of millions in assets.

Decision-Making Process and Team Collaboration

• When discussing investment decisions, Anil points out that Delphi's decision-making process is conducted through a "collective wisdom" approach. They engage in in-depth discussions within the team to ensure everyone can express their views. While early decisions were made through a committee, as the team expanded, each department now has its own leader responsible for decisions in specific areas.

Challenges in Investment Decisions

• When discussing specific investment cases, Anil mentions the investment experience with Axi. While many funds chose to sell before the price reached $10, the Delphi team decided to hold on, partly due to the internal confidence and market outlook. Anil explains that the close collaboration and mutual trust among team members enable them to remain united in the face of market fluctuations.

Growth and Structural Changes of the Team

• As the team has grown, Delphi now has about 100 employees divided into three main departments. Anil believes this structure allows each department to operate more effectively while still maintaining overall communication and collaboration. They regularly engage in broader discussions to ensure all members are aware of market dynamics and their respective investment strategies. This flexible decision-making process and teamwork enable Delphi to quickly adapt to changes in the crypto industry and make informed decisions.

Advice for Application Developers

Team Collaboration and Optimization

• In the podcast, Jose mentions that initially many believed their team model wouldn't work, but in reality, it has proven very effective for their committee team. Due to limited funding, they had to discuss every issue in depth to fully understand the potential for failure and prepare adequately. Over time, they gradually understood the strengths of team members and optimized their roles to ensure everyone focused on their areas of expertise.

Team Division of Labor

• Anil explains that their research is handled by him and Kevin, while Jose and Luke manage the lab, and Yan and Tommy focus on venture capital. This division of labor ensures balance among the team, and they communicate almost daily.

Employee Participation in Investments

• Yan introduces the situation of their third fund. They have consistently focused on early-stage investments, as this is where they see the best returns. As the company grows, they hope to allow high-performing employees to participate in fund investments, thus establishing a small fund that gives employees the opportunity to invest according to their preferences. This approach not only maintains investment flexibility but also allows employees to gain more liquidity in the company's growth.

Discussion on Selling the Business

• Jason asks whether they have considered selling the research or consulting business, to which Anil responds that they have indeed received some surprising offers, reflecting signals from the market cycle. Although they have received some very attractive offers, there are differing opinions within the team. Ultimately, they realized that compared to stocks of other companies, they have more confidence in their equity in Delphi, thus leaning towards retaining their existing business.

Importance of the Research Business

• Anil emphasizes that the research business is crucial for them to identify investment opportunities. Their research team is instructed to go beyond surface-level information and seek out new trends that may emerge in the next six to twelve months. Additionally, they require the team to conduct in-depth research on each topic to ensure the depth and accuracy of their analysis.

L1's Differentiation Strategy

In-Depth Research and Team Collaboration

• Anil emphasizes that their research team can conduct in-depth analyses primarily due to their comprehensive understanding of each project and their research methodology. They are eager to share specific reports,

• to showcase their research depth on projects like Athena and Celestia. Jose adds that the synergy between different businesses creates an overall value that far exceeds the sum of its parts. The work of the research team is not only more actionable but also seeks investment opportunities and trends from a venture capital perspective, ensuring that research is not merely academic but has practical investment value.

Token Sales in Consulting and Venture Capital

• Jason raises the question of how to handle token sales during consulting or service projects, such as relationships with the founders of Axe.

• Anil states that they typically hold most investments for the long term, but it is reasonable to cash out at the right time when token prices surge. They communicate with the team in advance to ensure that the sales process is slow and cautious. They rarely fully sell off an investment in a project, maintaining ongoing attention to early investments.

Maintaining Trust and Transparency

• Anil believes that maintaining a trusting relationship with the founding teams is very important. They are not just investors but active partners in the development of projects.

• Yan adds that the environment and timing suitable for selling tokens are also crucial, as they need to avoid negatively impacting prices.

• Jose further points out that they only consider selling tokens when there is a significant change in the investment thesis, which is usually a decision based on opportunity cost.

Separation and Coordination Between Businesses

• Jason expresses concern about potential conflicts of interest between venture capital and consulting businesses, while Anil and Yan believe that their investment and consulting businesses are relatively independent, effectively avoiding such situations.

• Yan emphasizes that although the team is small, they can leverage other resources to provide more value in both investment and consulting, ensuring that no conflicts arise between the two.

Current Development of Crypto Business

Future Vision and Flexibility

• Anil states that making five to ten-year plans in the crypto industry is unrealistic. Their success lies in their ability to adapt to changes and maintain resilience. Their goal is to accelerate the development of the crypto industry, making it faster and better than it would be without them.

• Anil also mentions that the research team is exploring community features, such as inline comments and Alpha Feed, which will allow the research team to add value to the community alongside other members.

Project Incubation and Resource Integration

• Anil introduces their work in Labs, where they incubate projects by proposing ideas, forming teams, and providing resources (including token design and legal compliance). They are currently focused on advancing existing projects rather than adding new incubation projects, making this year a crucial one for them.

Investment Strategy and Market Dynamics

• Yan states that they will continue to invest and flexibly adjust their strategies based on market conditions. Their investment range spans from liquidity venture capital to both early and late-stage investments, with strategies evolving alongside market changes.

Synergy of Research, Investment, and Incubation

• Jose summarizes that research is about discovering alpha in the industry, venture capital is about investing in those discoveries, and Labs utilizes intellectual capital to fill market gaps. They are incubating some new projects, such as Legion, aimed at reviving the ICO model to allow ordinary investors to participate more fairly. Additionally, they are incubating Gabe Shapira's new project Metalx, which aims to enhance the flexibility and efficiency of decentralized governance. Jose hopes that in the next decade, Delphi can continue to discover opportunities and drive the development of these projects.

Future Outlook for Application Ecosystems

• Yan points out that compared to previous cycles, not all assets are rising at the moment. There are increasingly more tokens in the market, while ordinary investor participation is declining, leading investors to be more cautious in their selections. He mentions that past strategies are no longer effective, and many investors have learned this lesson, especially after experiencing token price fluctuations and survivorship bias.

Speculation and Market Sentiment

• Yan also notes that the growth of meme tokens in the market has affected the capital inflow to other projects. As more people engage in meme speculation, this behavior becomes more enticing, causing funds to be drawn away from other potentially valuable projects. He believes that the current market environment is more suited for short-term trading rather than long-term holding, with many investors adopting more transactional strategies.

Market Anger and Culture

• Jose points out that many long-term holders have suffered significant losses during market fluctuations, leading to a sense of anger in the crypto market due to this survivorship bias. He emphasizes that despite the market's volatility, the principles of decentralization and anti-censorship remain core values of the crypto industry.

Analysis of Market Cycles

• When discussing market cycles, Yan believes we are still in the early stages, and future trends will depend on several factors, including the upcoming elections. He thinks that whether it is Harris or Trump's presidency, both could have different impacts on the market, but Bitcoin still has significant upside potential.

Optimistic Outlook for the Future

• Anil expresses an optimistic view of the future of the crypto industry, believing that the government may play a positive role in promoting crypto development. He mentions that the progress of ETFs and changes in the political environment could bring new opportunities for the crypto industry.

• Anil emphasizes that some catalysts in the current market, such as Trump's attention to Bitcoin, could lead to positive changes for the industry.

• Anil advises investors to reduce overtrading, focus on major assets, and maintain good mental health. He encourages people to step out of the virtual world, pay attention to real life, and maintain a positive mindset to cope with market fluctuations.

Importance of Interoperability

Multipolarity of Global Markets

• Jason and Jose discuss the current economic environment and its impact on cryptocurrencies.

• Jose mentions that as the U.S. retreats inward, the world is becoming multipolar, creating conditions for the long-term success of cryptocurrencies. He believes that as global markets change, traditional financial systems may be disrupted, especially in the way assets and commodities are traded, with more transactions occurring on-chain.

Future of On-Chain Transactions

• Jose envisions a future where all assets and commodities are traded on-chain. He believes that as the market becomes more isolated, on-chain transactions will become the only global permissionless market. He emphasizes that while the current market is dominated by memes, more diverse assets will enter on-chain trading in the future, necessitating the establishment of corresponding infrastructure to support this transition.

Potential of the Gaming Industry

• When discussing the upcoming cycle, Jose points out that the gaming industry will be a key area for attracting users. He believes that gaming can bring in a large number of new users, especially since many members of the crypto community are gamers themselves. He mentions a recent investment in a game called Godzilla, which he believes can showcase the tremendous potential of combining crypto with gaming.

• Yan adds that the development cycle of games is long, and although the market has high expectations for short-term feedback, excellent games can continuously attract users. He also mentions Hi Topia, a Minecraft-like game aimed at improving user experience and providing better monetization for content creators. They believe this game will be an important tool for guiding a large number of users into the crypto world.

What Are the Standards for Successful Applications?

Two Development Directions in AI

• Jose mentions that there are two distinct trends in the field of artificial intelligence (AI). One is a model dominated by large tech companies that own all the models and computing resources, monetizing through their products (like WhatsApp and Office). He believes that while these companies dominate in the short term, more small specialized models may emerge in the future, potentially trained on large models to meet specific use cases.

Demand for Decentralized Intelligence

• Jose emphasizes that as intelligence and computing power become the most important global resources, the market's demand for decentralized intelligence will continue to grow. He believes that current AI resources are primarily controlled by a few centralized entities, thus necessitating a decentralized and censorship-resistant form of intelligence. This viewpoint aligns with Bitcoin's philosophy of decentralized currency, aiming to avoid manipulation by centralized powers.

Trends Among Ordinary Investors

• Jason notes that AI, as a mainstream narrative, will continue to attract the attention of ordinary investors. He predicts that ordinary investors will seek investment opportunities in the AI field, with Nvidia currently being the only obvious public market investment option. He believes that as interest in AI increases, investors may turn to related tokens in cryptocurrencies, such as Akash and Render, to gain indirect exposure to AI.

In-Depth Research and Market Understanding

• Jose suggests that for those wanting to gain a deeper understanding of AI applications in the crypto space, reading Delphi Digital's reports will be very helpful. These reports provide theoretical and practical reasons for decentralized intelligence and insights into which sub-markets in the crypto space are most attractive. He emphasizes that these resources help investors build confidence and understand the potential of the AI field, rather than just staying at the surface level of buzzwords.

Competitors of Monad and Berachain

Decentralization Trend in the Crypto Ecosystem

• Jason raises the point that the current crypto market is experiencing a trend of decentralization, where previously different crypto assets often moved in sync, but this is changing. He inquires about which blockchains might stand out in the upcoming bull market as leaders in activity and returns.

Choices of Major Chains

• Yan believes that Ethereum and Solana are the more consensus choices. He points out that if considering Layer 2 solutions, Base is the most obvious choice, as it can reach a large number of users and provide additional incentives through Coinbase's user base. He thinks that while Layer 2 solutions may have some negative impact on Ethereum, they also provide more opportunities for finding successful applications.

Execution Environment for Successful Applications

• Jose adds that Layer 1 and Layer 2 are essentially testing grounds for successful applications. Every successful application will ultimately want its own execution environment to better control consensus and execution. He mentions that projects like dydx and USDC have already begun operating on their own chains, indicating that successful applications tend to pursue finer control.

Diversity of Solana

• Jose also notes that multiple specialized Layer 2 solutions have emerged on Solana, operating independently to avoid inheriting design choices and trade-offs from Layer 1. He believes that the current interoperability experience between Layer 2s is poor, but this does not indicate a lack of demand for synchronized atomic composability.

Building a Stablecoin Ecosystem

• Jose believes that stablecoins are the "killer application" of the crypto market, and building a complete chain around stablecoins is a reasonable direction. He mentions the launch of Athena Chain as a great example, demonstrating the potential of building ecosystems around stablecoins.