The Power of Coordination in Crypto

At the heart of cryptocurrency and blockchain technology lies a fundamental concept that drives innovation and progress: coordination. Santiago Santos, a prolific investor and co-host of the Empire podcast, emphasizes that coordination is the bedrock of every system. From healthcare to finance and government, improving coordination leads to better outcomes for humanity as a whole. Crypto, according to Santos, is revolutionary because it solves a coordination problem that the founders of the Internet acknowledged they didn't want to solve – the ability to move money as easily as we move information.

Santos explains, "Crypto is fundamentally explosive, like revolutionary from that standpoint. And I don't care if you believe in Bitcoin, Ethereum, Solana, whatever. At the end of the day, it really is. I think everyone can fundamentally agree on that premise, which is if you can improve coordination, then you start unlocking so many different possibilities that work."

This improved coordination is not just about financial transactions, but about creating a system where value can be exchanged more efficiently and securely. The implications of this are far-reaching, potentially transforming industries and creating new opportunities that were previously unimaginable.

The Evolution of Crypto: From Bitcoin to DeFi

Santos's journey in crypto began in 2012 when he stumbled upon Bitcoin. As a student of game theory, he saw the Bitcoin white paper as a new chapter in optimizing payoffs. Over the years, his understanding of crypto has evolved, and he now sees it as a way to improve coordination across various systems.

The evolution of crypto has been marked by several key developments, with Decentralized Finance (DeFi) being one of the most significant. Santos joined Parafi, one of the first investing funds in the space, in February 2020, just before the "Black Thursday" event that saw crypto lose a third of its market cap in a single day. Despite this tumultuous start, Santos and his colleagues at Parafi recognized the potential of DeFi to solve a major problem in finance: counterparty risk.

"When you can build systems that don't require trust or trust minimize and minimize counterparty risk, it is a very big unlock," Santos explains. This insight led to Parafi focusing heavily on DeFi investments, a strategy that proved successful as the "DeFi Summer" of 2020 unfolded.

Maintaining Conviction in Crypto

One of the most challenging aspects of being involved in the crypto space is maintaining conviction through the ups and downs of market cycles. Santos attributes his ability to stay committed to the space to several factors:

1. Documenting and learning from mistakes
2. Developing a framework that combines venture investing with hedge fund strategies
3. Writing publicly to invite criticism and improve his process
4. Using the technology and protocols he invests in

Santos emphasizes the importance of using the protocols and technologies one invests in. He cites his experience with MakerDAO, a decentralized stablecoin protocol, as a key factor in building his conviction in DeFi. "Using that, minting and going through that process was probably the thing that gave me the most amount of conviction and insight into DeFi being a thing before it was DeFi," he explains.

Solana: A Game-Changing Blockchain

While Santos has been involved in various blockchain projects, he has developed a particularly strong conviction in Solana. He sees Solana as solving critical issues in blockchain technology, particularly in terms of scalability and user experience.

Santos states, "I think there's a 20% chance that Solana flips ETH," and later adds, "I see no reason that the Solana market cap won't match Ethereum's at some point in the future." These bold predictions are based on several factors:

1. Solana's focus on solving latency and information issues
2. The team's understanding of the type of client that will use the blockchain
3. The rapid development of beautiful, user-friendly apps in the Solana ecosystem
4. The potential for Solana to attract more usage and improve its economics for validators

Santos explains, "I just think Solana, what has got extremely right is the scalability component. Like you are seeing it in real time, you know, intended with hearing out a totally say that understanding, okay, hardware requirements are not as important like you overcome the security."

The Scalability Trilemma and Solana's Approach

The scalability trilemma, a concept often discussed in blockchain circles, posits that blockchains must make trade-offs between decentralization, security, and scalability. Santos believes that Solana has made the right choice by focusing heavily on scalability.

"Merck recently the weekend was tweeting about the scalability trilema, you know, this idea of decentralization security and scalability. And they're not mutually exclusive per se, but you have to make some trade offs at least initially. And I just think Solana, what has got extremely right is the scalability component," Santos explains.

This focus on scalability has led to tangible benefits for users and developers. Santos notes that if he were to introduce someone new to crypto, he would likely send them to a Solana app because "it's faster, it's better and it's cheaper and the user experience is not that dissimilar from a web to it. In fact, it might be even better."

The Importance of Open-Source Development

Santos draws parallels between the open-source software movement and the crypto space. He notes that open-source systems are incredibly powerful because they allow for faster discovery of information and services compared to closed systems. This empowers individuals in a meaningful way, as competent and knowledgeable people can surface information and contribute regardless of their formal credentials.

"You don't need a college degree to be discovered in crypto. If you're smart, if you're putting out good ideas, you can contribute," Santos explains. This meritocratic approach to development and contribution is a key strength of the crypto ecosystem, allowing for rapid innovation and improvement.

The Future of DeFi and Blockchain Technology

Looking to the future, Santos sees continued growth and evolution in the DeFi space. He believes that as more users come into the ecosystem, it will improve the economics for validators and invite more participation, creating a positive feedback loop that strengthens the entire system.

Santos challenges teams he invests in to consider what other ecosystems can offer that Solana cannot, especially with upcoming improvements like Firedancer. He states, "To this day, I've not heard a very compelling answer as to why you'd go somewhere else other than there are a lot of liquidity and users on Ethereum."

This perspective highlights the potential for Solana to continue growing and potentially challenging Ethereum's dominance in the smart contract platform space.

The Role of Speculation in Crypto

While some criticize the speculative nature of the crypto market, Santos sees speculation as a necessary component of technological revolutions. He argues that speculation provides the motivation and resources necessary for continued development and innovation.

"Speculation is a component that is a kind of a prerequisite. You see it in any technological revolution point me to any movement throughout the history of mankind that hasn't had speculation as a fire that keeps people motivated," Santos explains.

However, he distinguishes between speculation and gambling, emphasizing that while speculation involves making informed predictions about the future, gambling risks jeopardizing one's ability to continue playing the game.

The Importance of User Experience in Crypto Adoption

One of the key factors that Santos believes will drive crypto adoption is improved user experience. He notes that the evolution of apps in the Solana ecosystem, particularly post-FTX, has been significant. The focus on creating beautiful, user-friendly applications that rival or exceed the experience of traditional web2 platforms is crucial for attracting new users to the space.

Santos explains, "If I were to send someone web to that is new to crypto, I would send them probably to a Solana app because it's faster. It's better and it's cheaper and the user experience is not that dissimilar from a web to it. In fact, it might be even better."

This focus on user experience is not just about making things look nice – it's about reducing friction and making crypto applications accessible to a wider audience. As more user-friendly apps are developed, the barriers to entry for new users will continue to decrease, potentially leading to exponential growth in adoption.

The Multi-Chain Future and Interoperability

While Santos is bullish on Solana, he also recognizes the potential for a multi-chain future. He discusses his interest in the Cosmos ecosystem, particularly the Inter-Blockchain Communication (IBC) protocol and the concept of shared security.

"I still think it's a multi-chain world. And I think IBC is fundamentally really interesting piece of technology to connect these chains without compromising security," Santos explains. He sees potential in technologies that allow for interoperability between different blockchain ecosystems, as well as solutions that address the challenges of bootstrapping security for new chains.

This perspective highlights the importance of not being maximalist about any single blockchain, but rather recognizing the strengths and potential of different approaches to solving the challenges in the space.

The Role of Traditional Finance in Crypto

As the crypto space matures, the role of traditional financial institutions becomes an important consideration. Santos discusses the potential for companies like Coinbase to become major players in the financial world of the future.

"Coinbase is going to be one of the largest financial institutions in the world. They're the next 10 years. There's really no reason why they can't extend their offering," Santos predicts. He sees Coinbase evolving beyond just being an exchange to become a fully-fledged financial institution, particularly one that caters to younger, more digitally native users.

This evolution of centralized crypto companies into broader financial institutions could play a crucial role in bridging the gap between traditional finance and the crypto world, potentially accelerating adoption and integration of blockchain technologies into everyday financial services.

The Importance of Running Slow to Go Fast

In an interesting parallel to his investment philosophy, Santos discusses his approach to marathon running. He emphasizes the concept of "running slow to go fast," which he believes has applications in both athletics and investing.

"When I train for so many years, I would, this is a notion of I need every training. I need to push harder and harder and push the limit," Santos explains. However, he learned that constantly pushing to the limit increases the risk of injury and burnout. Instead, he adopted a more measured approach, focusing on consistency and gradual improvement.

This philosophy translates to investing as well. Santos emphasizes the importance of survival and not taking unnecessary risks that could put you out of the game. "Most important thing survive. Never do anything gambling compromises that ability because you can do stuff that, like in investing, never do anything that will put you out of the game," he advises.

The Summit: Rethinking Goal Setting

Santos shares insights from a blog post he wrote called "The Summit," which challenges traditional notions of goal setting. He uses the analogy of mountain climbing to illustrate his point:

"Say that your goal is to climb Everest. You as a climber, I think the best climbers, like have the goal, I think you always need to set a goal to give you some sense of direction. But how attached you are to that goal, I think is the difference between a phenomenal exceptional climber and a not so exceptional."

He argues that while goals are important for providing direction, they should be flexible and not compromise one's core values and principles. This approach allows for adaptation to changing circumstances and maintains a focus on long-term sustainability rather than short-term achievements.

The Importance of Staying Curious and Open-Minded

Throughout the discussion, Santos emphasizes the importance of staying curious and open-minded in the crypto space. He notes that his conviction in crypto has only grown over time, not because of price movements, but because of the continued influx of talented people into the space.

"As long as I continue to see smart driven, smarter than me people coming to the space to build, I'll be here," Santos states. This perspective highlights the importance of focusing on the underlying technology and human capital in the space, rather than getting caught up in short-term price movements or hype cycles.

The Future of Blockchain and Crypto

Looking to the future, Santos remains optimistic about the potential of blockchain technology and cryptocurrency to transform various aspects of our lives. He sees the current state of the industry as still being very early, with significant room for growth and innovation.

"I think we're very early still and that has always been kind of a very humbling experience," Santos reflects. This perspective is important for both investors and builders in the space, as it suggests that there are still many opportunities to create value and solve important problems using blockchain technology.

Conclusion: The Ongoing Evolution of Crypto

As the conversation wraps up, Santos reflects on the journey of going through crypto as "magical," regardless of which specific projects or coins one ends up believing in. He emphasizes that the value of being involved in crypto goes beyond potential financial gains:

"I do believe in crypto in its future, but even if crypto didn't work out, like the amount of intellectual capital and the people here, they're going to find something else. And I want to be around these types of people."

This sentiment encapsulates the broader impact of the crypto movement – it's not just about creating new forms of money or financial systems, but about fostering a community of innovative thinkers and problem-solvers who are working to reshape various aspects of our world.

As the crypto space continues to evolve, it will be fascinating to see how projects like Solana develop and potentially challenge established players like Ethereum. With visionaries like Santiago Santos helping to shape the future of the industry, the potential for transformative change remains high. Whether you're an investor, developer, or simply an interested observer, keeping an open mind and staying engaged with the latest developments in this rapidly changing field will be crucial in the years to come.

Facts + Figures

• Santiago Santos discovered Bitcoin in 2012 and saw it as a new chapter in game theory
• Santos joined Parifi, one of the first investing funds in the crypto space, in February 2020
• "Black Thursday" in March 2020 saw crypto lose a third of its market cap in one day
• Santos believes there's a 20% chance that Solana flips Ethereum in market cap
• Solana's focus on scalability has led to faster, cheaper, and better user experiences compared to some other blockchains
• The scalability trilemma in blockchain involves trade-offs between decentralization, security, and scalability
• Open-source systems in crypto allow for faster discovery of information and services compared to closed systems
• Speculation is seen as a necessary component of technological revolutions, including in the crypto space
• Santos predicts Coinbase will become one of the largest financial institutions in the world in the next 10 years
• The Inter-Blockchain Communication (IBC) protocol is seen as an important technology for connecting different blockchain ecosystems
• Santos ran three marathons last year and plans to run three more this year, completing the six major marathons
• The concept of "running slow to go fast" is applied to both marathon training and investing strategies
• Santos wrote a blog post called "The Summit" challenging traditional notions of goal setting
• The crypto space is still considered to be in its early stages, with significant room for growth and innovation

Questions Answered

What is the fundamental concept driving innovation in cryptocurrency and blockchain technology?

Coordination is the fundamental concept driving innovation in cryptocurrency and blockchain technology. Santiago Santos emphasizes that improving coordination leads to better outcomes across various systems, from healthcare to finance. Crypto solves a coordination problem by enabling the movement of money as easily as we move information, unlocking new possibilities and potentially transforming industries.

How does Santiago Santos maintain conviction in crypto through market volatility?

Santiago Santos maintains conviction in crypto through market volatility by documenting and learning from mistakes, developing a framework that combines venture investing with hedge fund strategies, writing publicly to invite criticism and improve his process, and using the technology and protocols he invests in. He emphasizes the importance of hands-on experience with protocols like MakerDAO in building conviction in the potential of DeFi and the broader crypto ecosystem.

Why is Santiago Santos particularly bullish on Solana?

Santiago Santos is particularly bullish on Solana because he believes it solves critical issues in blockchain technology, especially in terms of scalability and user experience. He cites Solana's focus on solving latency and information issues, the team's understanding of their target users, the rapid development of user-friendly apps in the Solana ecosystem, and the potential for Solana to attract more usage and improve its economics for validators. Santos even predicts a 20% chance that Solana could flip Ethereum in market cap at some point in the future.

How does the concept of "running slow to go fast" apply to both marathon training and investing?

The concept of "running slow to go fast" applies to both marathon training and investing by emphasizing the importance of consistency, gradual improvement, and avoiding burnout. In marathon training, this means not always pushing to the limit but focusing on sustainable, long-term progress. In investing, it translates to prioritizing survival and not taking unnecessary risks that could put you out of the game. This approach allows for compounding effects over time, leading to better results than constantly pushing to extremes.

What role does speculation play in the crypto space, according to Santiago Santos?

According to Santiago Santos, speculation plays a necessary role in the crypto space as a component of technological revolutions. He argues that speculation provides motivation and resources for continued development and innovation. However, Santos distinguishes between speculation and gambling, emphasizing that while speculation involves making informed predictions about the future, gambling risks jeopardizing one's ability to continue participating in the market. He sees speculation as a "fire that keeps people motivated" in driving progress in the crypto industry.