Kyle Samani on Crypto's Role in AI, Consumer Tech, & Other Contrarian Views

In a wide-ranging discussion, Kyle Samani, Managing Partner at Multicoin Capital, shared his insights on the current state of the crypto industry, its intersection with AI, and the future of consumer applications in the blockchain space. This article delves into the key points discussed, offering a comprehensive look at Samani's views on various aspects of the crypto ecosystem.

The Current State of Crypto Markets

Samani began by addressing the current state of the crypto markets, noting that fundraising data across the board is significantly down compared to the previous year. Despite this downturn, there's a notable focus on infrastructure development, particularly evident at recent industry events like the Ethereum Community Conference (ECC).

However, Samani expressed frustration at the lack of interesting end-user applications being developed. He stated, "Pretty consensus view is not many interesting apps, lots of infra." This imbalance between infrastructure and application development is a concern for Samani, who believes that the industry has reached a point where building useful applications is possible on current platforms.

The Promise of Solana Gaming

Contrasting the infrastructure-heavy focus of ECC, Samani highlighted his experience at the Solana Games Day in San Diego. Despite initial skepticism, he came away pleasantly surprised by the progress in blockchain gaming on Solana.

"There were 40 teams representing games all playable, most of which should release in the back half of this year, most of the games that were there are already in public beta, of alpha or beta, of various forms," Samani reported. This progress in gaming development on Solana showcases the platform's potential for creating engaging, blockchain-based applications.

However, Samani noted that the crypto integrations in these games were not as revolutionary as he had hoped. Most games didn't fundamentally change the gameplay experience through their blockchain elements. The exception was a handful of teams experimenting with player-versus-player betting systems, which Samani found particularly interesting in the context of game streaming.

The Need for More Consumer-Facing Apps

Samani emphasized the importance of developing more consumer-facing applications in the crypto space. He argued that the industry has enough infrastructure in place to build usable experiences, and the onus is now on developers to create applications that resonate with mainstream users.

"I'm pretty focused on pushing everyone in our portfolio and around multicoin to figure out apps. That's really all that matters at this stage," Samani stated. He believes that the next big breakthrough in crypto will come from an application that captures consumer attention in a way that's easily understandable, even to those unfamiliar with blockchain technology.

The Ratio of Infrastructure to Application Development

When asked about the current ratio of infrastructure to application development in the crypto space, Samani estimated that it's roughly six to one in favor of infrastructure. However, he believes this ratio should be inverted.

"I think the market should be, you know, one to six, not six to one," Samani explained. This emphasis on application development over infrastructure highlights Samani's belief that the crypto industry needs to focus more on creating useful products for end-users rather than continually building new blockchain platforms.

The Importance of Consumer-Facing Apps

Samani stressed the need for a breakthrough consumer-facing application in the crypto space. He believes that such an app needs to be something that even people unfamiliar with blockchain technology can understand and appreciate.

"The bar in my mind is consumer, you know, something my mom, even if she wouldn't use it, would at least like understand it," Samani explained. He argues that the tools and infrastructure necessary to build such applications already exist, particularly on platforms like Solana and Arbitrum.

Challenges in Creating Web3 Social Platforms

The conversation then turned to the challenges of creating successful Web3 social platforms. Samani acknowledged the existence of projects like Lens Protocol and Farcaster but questioned their ability to compete with established Web2 platforms like YouTube or Instagram.

He argued that the key to success for Web3 social platforms isn't necessarily in the portability of social graphs, but in finding unique ways to leverage blockchain technology. Samani suggested that financialization of social interactions could be a promising avenue for Web3 social platforms to explore.

The Potential of Social Tokens

One area Samani finds particularly interesting is the concept of social tokens. While acknowledging that previous attempts at social tokens have largely failed, he believes there's still potential in this space.

"I think social tokens will be a thing and they map pretty well to crypto," Samani stated. He mentioned a new project called "Unlonely" (in which Multicoin is an investor) as a potential breakthrough in this area.

The Role of Speculation in Crypto

The discussion touched on the idea that speculation has been the primary driver of product-market fit in the crypto space. Samani agreed with this assessment to some extent, suggesting that successful social applications in the crypto space may need to incorporate elements of speculation to gain traction.

Data Collection and Compressed NFTs

When asked about the importance of data collection in social applications and the potential role of compressed NFTs, Samani expressed skepticism about viewing compressed NFTs as a feature. Instead, he sees them as a given necessity for enabling cheap transactions.

He highlighted the work of Driphouse, which has minted 16 million NFTs in just a few months on Solana. While the ultimate use case for such a large number of NFTs remains unclear, Samani sees value in experimenting with this scale of NFT creation.

The Evolution of NFT Marketplaces

Samani revisited his thesis on the verticalization of NFT marketplaces, which he had written about the previous summer. Despite the rise of platforms like Tensor on Solana and Blur on Ethereum, which seemed to contradict his predictions, Samani maintains that his overall thesis remains valid.

He pointed to Pudgy Penguins as an example of a project moving in the direction he had anticipated. Pudgy Penguins has created its own marketplace, integrating it with other aspects of its brand ecosystem. Samani sees this as a promising model for future NFT projects.

The Intersection of Crypto and AI

A significant portion of the conversation focused on the potential intersections between crypto and AI. Samani highlighted four key areas where he sees potential for crypto and AI to converge:

1. Decentralized GPU marketplaces
2. AI agents with crypto wallets
3. Privacy-preserving AI computations
4. Decentralized training data marketplaces

Of these, Samani believes the most immediately important is the creation of decentralized GPU marketplaces. With the recent surge in demand for AI computing power, Samani predicts that GPU shortages could last for up to three years.

The Potential of Fully Homomorphic Encryption (FHE)

Samani expressed particular excitement about the potential of Fully Homomorphic Encryption (FHE) in the crypto space. FHE allows for computation over encrypted data, which could have significant implications for privacy in blockchain applications.

"I have come to the view with a pretty high degree of conviction that broadly speaking if you want to enable on-chain privacy the correct cryptographic primitive is FHE not ZK," Samani stated. He believes that FHE could be particularly useful for enabling private transactions in DeFi applications.

The Future of Spatial Computing and the Metaverse

The conversation concluded with a discussion of spatial computing and the metaverse, prompted by Apple's recent announcement of its Vision Pro headset. Samani believes that Apple's approach to spatial computing differs significantly from that of companies like Facebook (Meta).

While skeptical of Apple's current stance on crypto integration, Samani predicts that this will change in the future. He believes Apple will eventually embrace crypto as a strategic move against competitors like Google and Facebook, whose business models rely heavily on aggregating consumer data in the cloud.

Conclusion

Throughout the discussion, Kyle Samani provided valuable insights into the current state and future potential of the crypto industry. His emphasis on the need for more consumer-facing applications, the potential of blockchain gaming on platforms like Solana, and the exciting possibilities at the intersection of crypto and AI paint a picture of an industry poised for significant growth and innovation.

As the crypto space continues to evolve, Samani's perspectives offer a roadmap for where the industry might be headed. From the verticalization of NFT marketplaces to the potential of fully homomorphic encryption, there are numerous areas where blockchain technology could make significant impacts in the coming years.

The key takeaway from this discussion is the importance of focusing on end-user applications and real-world use cases for blockchain technology. As Samani puts it, "That's really all that matters at this stage." As the industry matures, it will be exciting to see which projects and platforms can successfully bridge the gap between the complex world of blockchain technology and the needs and desires of everyday consumers.

Facts + Figures

• Fundraising data in the crypto industry is significantly down compared to the previous year.
• There were 40 teams representing playable games at the Solana Games Day in San Diego.
• Most of the games showcased at Solana Games Day are expected to release in the second half of 2023.
• The current ratio of infrastructure to application development in crypto is estimated to be about 6:1.
• Samani believes the ideal ratio of infrastructure to application development should be 1:6.
• Driphouse has minted 16 million NFTs in just two or three months on Solana.
• Samani predicts GPU shortages for AI computing could last up to three years.
• Multicoin Capital has made investments in two companies working on Fully Homomorphic Encryption (FHE).
• Apple's Vision Pro headset is set to release next year, marking their entry into the spatial computing market.
• Samani estimates that bot traffic already accounts for the substantial majority of internet traffic.

Questions Answered

What is the current state of application development in the crypto industry?

According to Kyle Samani, there's currently an imbalance between infrastructure and application development in the crypto industry. While there's been significant progress in building infrastructure, there's a lack of interesting end-user applications. Samani estimates that the ratio of infrastructure to application development is about 6:1, but he believes this ratio should be inverted to focus more on creating useful applications for consumers.

How is Solana performing in the blockchain gaming space?

Solana is showing promising progress in the blockchain gaming space. At the recent Solana Games Day in San Diego, 40 teams presented playable games, most of which are expected to release in the second half of 2023. While Samani noted that the crypto integrations in these games weren't as revolutionary as he had hoped, he was pleasantly surprised by the overall quality and potential of the games being developed on Solana.

What is Fully Homomorphic Encryption (FHE) and why is it important for crypto?

Fully Homomorphic Encryption (FHE) is a cryptographic technique that allows computation over encrypted data without decrypting it. Samani believes FHE could be crucial for enabling privacy in blockchain applications, particularly in DeFi. He argues that FHE is better suited than Zero-Knowledge Proofs (ZKP) for maintaining privacy while allowing developers to reason about the system in familiar ways. Multicoin Capital has made investments in companies working on FHE, indicating their belief in its potential.

How might crypto integrate with AI in the future?

Samani identified four key areas where crypto and AI might intersect: decentralized GPU marketplaces, AI agents with crypto wallets, privacy-preserving AI computations, and decentralized training data marketplaces. Of these, he believes decentralized GPU marketplaces are the most immediately important due to the current shortage of GPU computing power for AI applications. He predicts this shortage could last up to three years, creating a significant opportunity for crypto solutions.

What is Samani's view on the future of NFT marketplaces?

Samani maintains his thesis on the verticalization of NFT marketplaces, despite recent trends that seemed to contradict this prediction. He points to projects like Pudgy Penguins, which has created its own integrated marketplace, as examples of the direction he believes NFT projects should take. Samani argues that as the focus shifts from pure speculation to genuine engagement with NFTs, more projects will move towards creating their own specialized marketplaces that integrate with their broader ecosystem.