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Why Crypto Matters - Tushar Jain (Multicoin)

By Unlayered

Published on 2023-12-05

Multicoin Capital's Tushar Jain discusses the importance of crypto, DeFi's potential, and the future of blockchain technology in this insightful podcast episode.

In this enlightening episode of Unlayered, Tushar Jain, managing partner at Multicoin Capital, shares his profound insights on why cryptocurrency matters and its potential to reshape the global financial landscape. With a focus on freedom, trust, and innovative capital formation methods, Jain offers a compelling vision for the future of blockchain technology and its impact on society.

The Importance of Crypto: Freedom and Trust

Jain begins by emphasizing two interrelated concepts that underpin the significance of cryptocurrency: freedom and trust. In an era where surveillance and censorship have become increasingly prevalent, blockchain technology emerges as a powerful tool to preserve and enhance individual liberty.

"I think that blockchains are a new technology that enables greater freedom in the world because of their censorship resistance and permissionless qualities," Jain explains. This resistance to censorship is crucial in an age where the consolidation of power in large institutions poses risks to personal freedoms.

Equally important is the role of trust in our economic systems. Jain argues that blockchain technology can revolutionize how we establish and maintain trust relationships, potentially unlocking new avenues for economic prosperity.

DeFi: Reshaping the Financial Landscape

Decentralized Finance (DeFi) stands at the forefront of blockchain's transformative potential. Jain envisions a future where DeFi serves as the global backend for liquidity in financial services, with localized front-ends providing user-friendly interfaces and regulatory compliance.

"I see a future where DeFi is the global backend for liquidity for these financial services, but the services are actually provided by a localized front end," Jain predicts. This model could potentially combine the benefits of decentralization with the necessary regulatory oversight and user experience improvements.

The Future of Blockchain Architecture

Addressing the ongoing debate about layer 1 and layer 2 solutions, Jain advocates for a single, large global state machine. He argues that this approach, exemplified by networks like Solana, offers superior scalability and censorship resistance compared to layer 2 solutions built on Ethereum.

"I think it looks like a single large global state machine, because the problem with having many different layers and different components is it's just complicated," Jain explains. This vision aligns with Solana's architecture, potentially positioning it as a leading contender in the evolving blockchain ecosystem.

MEV and Its Implications

Maximum Extractable Value (MEV) remains a contentious topic in the crypto space. Jain offers a nuanced perspective, suggesting that while MEV cannot be entirely eliminated, certain strategies can mitigate its negative impacts.

"I think that there will be more experiments on eliminating or reducing harmful MEV. But I don't think it is possible to eliminate it entirely," Jain states. He proposes that faster block times, such as those seen on Solana, could significantly reduce harmful MEV by limiting the window for transaction manipulation.

The Role of Tokens in Value Capture

Jain challenges the conventional wisdom surrounding token value accrual, particularly in the context of Ethereum and its layer 2 ecosystem. He argues that Ethereum's approach of emulating Bitcoin's monetary properties may be misguided.

"Ethereum is looking backwards at Bitcoin rather than looking forwards," Jain observes. Instead, he advocates for a model where value capture is more closely tied to actual usage and utility, suggesting that high-throughput chains like Solana may be better positioned to become widely adopted forms of money.

Investment Philosophy and Market Trends

Multicoin Capital's investment approach focuses on seeking truth and monetizing it through strategic investments. Jain emphasizes the importance of original thinking and unique insights in identifying promising opportunities in the crypto space.

"We are truth seekers that happen to monetize the truth by investing," Jain explains. This philosophy has led Multicoin to explore emerging trends such as decentralized power grids, wireless networks, and innovative payment systems.

The Future of Crypto Investments

Jain acknowledges that the crypto investment landscape may evolve towards lower potential market caps due to reduced rent extraction and increased competition. However, he sees this as a positive development for the broader economy.

"By lowering the costs and lowering the rent extraction and lowering the margins, you enable new economic activity that wasn't possible before," Jain argues. This shift could potentially create more overall economic value, even if individual companies may not reach the same market capitalizations as traditional tech giants.

Regulatory Clarity and the Return of ICOs

The conversation touches on the potential return of Initial Coin Offerings (ICOs) or similar public offering mechanisms. Jain believes that regulatory clarity is crucial for this to happen, but suggests that such clarity may need to come from elected officials rather than regulators alone.

"I think at this point, crypto is beyond the level where just the regulator gets to decide. I think it's to the point where the elected representatives of the people get to decide," Jain states, highlighting the growing political significance of cryptocurrency regulation.

Qualities of Successful Crypto Founders

Drawing from his extensive experience in the crypto industry, Jain outlines the key attributes that make a successful founder in this space. He emphasizes determination and grit as essential qualities, given the unique challenges and volatility of the crypto market.

"I think the most important is determination and just grittiness, keep going. That's really hard to do. This is one of the most psychologically difficult industries to work in in the world," Jain observes. Beyond determination, he stresses the importance of having a unique insight or perspective on market developments.

The Potential of Decentralized Networks

Jain expresses particular interest in decentralized wireless networks and power grids. He sees these areas as ripe for disruption, given the massive market size and the potential for blockchain technology to provide structural cost advantages.

"I'm definitely interested in talking to teams who build with a unique viewpoint on either go to market or technology or product or, you know, something in the decentralized wireless space," Jain states, highlighting the potential for innovation in these sectors.

Challenging Traditional Payment Systems

The podcast touches on the potential for blockchain technology to disrupt traditional payment systems. Jain views companies like Visa and Mastercard as rent-extracting entities ripe for disruption.

"I'm quite excited about different payments systems and mechanisms. We could see those big payment companies actually adopt blockchains in an attempt to defend their business. But what I'm what I want to see is their margins go down," Jain explains. This perspective aligns with his broader vision of reducing rent extraction in the financial system.

The Role of Open Source in Crypto

The conversation explores the tension between open-source development and value capture in the crypto space. Jain argues that while open-source projects may lead to lower margins, they can also enable new forms of economic activity that were previously impossible.

"I think you might see lower margins, but my hope is that by creating a better, cheaper product for consumers, you create more economic activity and everyone is better off," Jain states. This perspective challenges traditional notions of investment returns in favor of broader economic benefits.

Solana's Potential in the Evolving Crypto Landscape

Throughout the discussion, Jain's comments often align with Solana's strengths and architecture. While not explicitly endorsing Solana, his emphasis on high-throughput, low-latency blockchains positions Solana favorably in the evolving crypto ecosystem.

"I think the answer is something like a Solana, which is a global state machine that synchronizes is permissionless, has the censorship resistance guarantees to give people the freedom to transact that an L2 simply doesn't," Jain observes when discussing ideal blockchain architectures.

The Importance of User Experience in Crypto Adoption

Jain stresses the need for simplicity and ease of use in crypto products to drive mass adoption. He argues that most people don't want to think deeply about the underlying technology; they just want solutions that work.

"We over intellectualize things and think that everyone in the world wants to think as hard as we do about these topics and like they don't. They don't care. They just want easy, simple, fast," Jain explains. This insight has significant implications for product development and user interface design in the crypto space.

The Evolution of Blockchain Use Cases

The podcast touches on the appropriate use cases for blockchain technology. Jain suggests that blockchains are best suited for managing scarce assets and property rights, rather than for applications like social media that deal with abundant data.

"I really see blockchains as the next generation of managing property rights. And that inherently is for scarce things. You don't own things that are plentiful and infinite," Jain states. This perspective helps clarify the most promising directions for blockchain development and adoption.

The Potential of Data Ownership and Compensation

Jain discusses the potential for blockchains to enable new models of data ownership and compensation. He envisions a future where individuals can be rewarded for contributing their data to AI training models or other valuable applications.

"I think the way that blockchains can play a role in allowing people to own their own data is by allowing people to get compensated for contributing their data to something," Jain explains. This model could potentially reshape the relationship between users and data-driven companies.

The Challenge of Governance in Crypto Projects

The conversation touches on the challenges of governance in crypto projects, particularly in the context of token holders and value accrual. Jain emphasizes the importance of having clear revenue mechanisms for tokens to accrue value.

"I think that it all comes down to revenue going to the token holders. And that's the crux of the question. If you have some token that actually has a revenue mechanism, I think it can accrue value. And if it doesn't, it won't," Jain states. This insight has significant implications for the design of tokenomics and governance structures in crypto projects.

The Impact of Crypto on Global Economic Activity

Jain paints a vision of how cryptocurrency and blockchain technology could enable new forms of economic activity on a global scale. By reducing transaction costs and eliminating intermediaries, crypto could make micro-transactions and cross-border payments more feasible.

"For example, if you had to pay the Visa interchange fees and, you know, other fees, every time you send a transaction, that's why whenever you go to any website on the internet, they cannot pay you because it doesn't make sense when there's a fixed 20 cent or, you know, whatever transaction cost," Jain explains. Lowering these barriers could potentially unlock new economic opportunities worldwide.

The Role of Regulation in Crypto's Future

The podcast touches on the importance of regulatory clarity for the future of cryptocurrency. Jain suggests that meaningful regulation may need to come from elected officials rather than just regulatory agencies, given the growing importance of crypto in the global economy.

"I think it's to the point where the elected representatives of the people get to decide, because that is the source of all government power, is its government, you know, by the people, of the people and for the people," Jain states. This perspective highlights the increasing political significance of cryptocurrency regulation.

The Potential for Decentralized Power Grids

Jain expresses particular interest in the potential for blockchain technology to enable decentralized power grids. He sees this as a massive market opportunity, given the universal need for power and the ongoing changes in how we generate and distribute electricity.

"Everyone in the world need power. Right, there's no like ambiguity about the size of the market. And clearly, the way that we generate power is changing and it needs to change. And so that presents an opportunity because when there is change is when there's opportunity for new entrants," Jain explains. This vision aligns with broader trends towards renewable energy and decentralized infrastructure.

The Future of Payments in a Blockchain World

The podcast explores how blockchain technology could reshape the payments industry. Jain envisions a future where traditional payment processors like Visa and Mastercard face increasing competition from blockchain-based solutions.

"I'm quite excited about payments because I see Visa and MasterCard is huge rent extracting entities that are just, you know, they're collecting attacks on all transactions," Jain states. He argues that blockchain technology could significantly reduce these transaction costs, benefiting consumers and enabling new forms of economic activity.

The Importance of Unique Insights in Crypto Entrepreneurship

Jain emphasizes the value of unique insights and perspectives in identifying promising crypto projects. He suggests that the most successful ventures in the space will come from founders who see opportunities that others have missed.

"I think the other piece that I would add to this, if I could only choose two attributes, is determined and has a unique insight. Has some unique view on how a market or a product or something is going to develop," Jain explains. This perspective underscores the importance of original thinking in the rapidly evolving crypto landscape.

The Evolution of Investment Returns in Crypto

The conversation touches on how investment returns in the crypto space may evolve over time. Jain acknowledges that as blockchain technology reduces rent extraction and increases competition, individual projects may not achieve the same astronomical valuations seen in traditional tech companies.

"I think there is a mitigate to that, which is by lowering the costs and lowering the rent extraction and lowering the margins, you enable new economic activity that wasn't possible before," Jain argues. This perspective suggests that while individual returns may be lower, the overall economic impact could be significantly larger.

The Potential for Blockchain in Emerging Markets

Jain suggests that blockchain technology and DeFi may find particularly fertile ground in emerging markets, where traditional financial systems are often less developed or accessible.

"I do think that freedom is more valuable to those who do not have it. That's why I expect things like DeFi to take off in emerging markets more than I expected to take off in developed markets," Jain explains. This insight highlights the potential for blockchain technology to drive financial inclusion and economic development in underserved regions.

The Importance of Scalability in Blockchain Design

Throughout the conversation, Jain emphasizes the importance of scalability in blockchain design. He argues that high-throughput chains like Solana are better positioned to handle the demands of a global financial system than layered solutions built on slower base layers.

"The limiting factor there is a single threaded nature of the EDN. It's not necessarily going to be solved by having a single L2 that has everything," Jain states when discussing the limitations of layer 2 solutions. This perspective aligns with Solana's design philosophy of building scalability into the base layer.

The Role of Blockchain in Preserving Freedom

Jain frames the importance of blockchain technology in terms of preserving individual freedom in an increasingly digital world. He argues that as traditional systems become more centralized and surveillance-prone, blockchain offers a crucial counterbalance.

"I think that as we have moved into the internet age, as we've moved into this modern era with information and connectivity everywhere, what we are seeing is actually a decrease in the amount of freedom in the world, because surveillance is easier, censorship is easier," Jain explains. This perspective positions blockchain technology as a vital tool for preserving civil liberties in the digital age.

Facts + Figures

  • Tushar Jain is a managing partner at Multicoin Capital, a registered investment advisor focused on cryptocurrency and blockchain technology.
  • Jain identifies freedom and trust as the two key reasons why cryptocurrency matters.
  • DeFi is envisioned as the future global backend for liquidity in financial services, with localized front-ends providing user interfaces.
  • Jain advocates for a single, large global state machine as the ideal blockchain architecture, citing Solana as an example.
  • MEV (Maximum Extractable Value) is acknowledged as a persistent issue, but Jain suggests faster block times can help mitigate its negative effects.
  • Multicoin Capital's investment philosophy focuses on seeking truth and monetizing it through strategic investments.
  • Jain predicts that crypto investments may lead to lower potential market caps due to reduced rent extraction and increased competition.
  • The potential return of ICOs or similar public offering mechanisms is discussed, with regulatory clarity identified as a crucial prerequisite.
  • Determination and unique insights are highlighted as key attributes for successful crypto founders.
  • Decentralized wireless networks and power grids are identified as areas of particular interest for future blockchain applications.
  • Jain expresses excitement about blockchain-based payment systems challenging traditional players like Visa and Mastercard.
  • The podcast discusses the tension between open-source development and value capture in the crypto space.
  • Jain suggests that blockchains are best suited for managing scarce assets and property rights.
  • The potential for blockchains to enable new models of data ownership and compensation is explored.
  • Jain emphasizes the importance of clear revenue mechanisms for tokens to accrue value.
  • The podcast touches on the growing political significance of cryptocurrency regulation.
  • Jain expresses particular interest in the potential for blockchain technology to enable decentralized power grids.
  • The importance of unique insights in identifying promising crypto projects is emphasized.
  • Jain suggests that blockchain technology and DeFi may find particularly fertile ground in emerging markets.
  • The conversation highlights the potential for blockchain technology to drive financial inclusion and economic development in underserved regions.

Questions Answered

Why does cryptocurrency matter?

Cryptocurrency matters primarily for two interrelated reasons: freedom and trust. In an age of increasing surveillance and censorship, blockchain technology offers a way to preserve and enhance individual liberty through its censorship-resistant and permissionless qualities. Additionally, it provides new ways to establish trust relationships, potentially unlocking new avenues for economic prosperity and coordination on a global scale.

What is the future of DeFi according to Tushar Jain?

According to Tushar Jain, the future of DeFi involves it serving as the global backend for liquidity in financial services. He envisions a system where DeFi protocols provide the underlying infrastructure, while localized front-ends offer user-friendly interfaces, handle KYC requirements, and provide customer support. This model aims to combine the benefits of decentralization with regulatory compliance and improved user experience.

How does Jain view the debate between Layer 1 and Layer 2 solutions?

Jain advocates for a single, large global state machine as the ideal blockchain architecture, citing Solana as an example. He argues that this approach offers superior scalability and censorship resistance compared to Layer 2 solutions built on slower base layers like Ethereum. Jain believes that the complexity introduced by multiple layers and different components can lead to developer and user experience issues.

What is Jain's perspective on MEV (Maximum Extractable Value)?

While Jain acknowledges that MEV cannot be entirely eliminated, he believes there are ways to mitigate its negative impacts. He suggests that faster block times, such as those seen on Solana, can significantly reduce harmful MEV by limiting the window for transaction manipulation. Jain also draws a parallel between MEV in crypto and high-frequency trading in traditional finance, arguing that the blockchain model may be more egalitarian in distributing these profits.

How does Multicoin Capital approach investing in the crypto space?

Multicoin Capital's investment philosophy focuses on seeking truth and monetizing it through strategic investments. Jain emphasizes the importance of original thinking and unique insights in identifying promising opportunities. The firm encourages its team to think about what is now possible that wasn't before, or how markets and user demands might evolve over time. They prioritize good decision-making processes over outcomes alone.

What qualities does Jain believe make a successful crypto founder?

According to Jain, the two most important qualities for a successful crypto founder are determination and unique insight. Determination is crucial due to the psychological challenges and volatility inherent in the crypto industry. Having a unique insight or perspective on market developments is equally important, as the greatest companies in the industry are likely to be built by those who see opportunities before others do.

How does Jain see the future of blockchain-based payment systems?

Jain is excited about the potential for blockchain-based payment systems to challenge traditional players like Visa and Mastercard. He views these established companies as rent-extracting entities and believes blockchain technology can significantly reduce transaction costs. This could not only benefit consumers but also enable new forms of economic activity, particularly micro-transactions that are currently not feasible due to high fees.

What role does Jain see for blockchain technology in emerging markets?

Jain believes that blockchain technology and DeFi may have a particularly significant impact in emerging markets. He argues that freedom is more valuable to those who don't have it, and many people in emerging markets face restrictions on their economic activities. Blockchain technology could provide these individuals with access to financial services and investment opportunities that are currently unavailable to them.

How does Jain view the potential for blockchain in decentralized power grids?

Jain expresses particular interest in the potential for blockchain technology to enable decentralized power grids. He sees this as a massive market opportunity, given the universal need for power and the ongoing changes in how we generate and distribute electricity. Blockchain could potentially facilitate more efficient power distribution, enable peer-to-peer energy trading, and support the transition to renewable energy sources.

What is Jain's perspective on the future of crypto regulation?

Jain believes that meaningful regulation for the crypto industry may need to come from elected officials rather than just regulatory agencies. He argues that cryptocurrency has become too significant an issue to be decided solely by regulators and that it should be addressed by legislative bodies. This perspective highlights the increasing political importance of cryptocurrency regulation and suggests that broader public engagement may be necessary to shape the future regulatory landscape.

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