Live From DAS: Do VCs Still Matter? | Haseeb Qureshi & Mike Dudas

Okay, here are the detailed, narrative-driven show notes for the podcast episode "Live From DAS: Do VCs Still Matter?", tailored for Crypto AI investors and researchers.

Show Notes: Live From DAS: Do VCs Still Matter? | Haseeb Qureshi & Mike Dudas

Episode Introduction

This episode confronts the critical debate: Do VCs still matter in crypto, exploring the clash between traditional venture funding and the rise of community-driven launch models like fair launches and memecoins, offering crucial context for evaluating project legitimacy and market trends.

Disclaimer

Nothing said on Xerox Research is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Pokio Ryan and our guests may hold positions in the companies, funds, or projects discussed.

Setting the Stage: Why Question VC Relevance Now?

• Haseeb Qureshi (Dragonfly) and Mike Dudas (Sixman Ventures) dive into the contemporary relevance of Venture Capital (VC) – firms providing capital to startups in exchange for equity or tokens – in the crypto space. Haseeb outlines several recent trends challenging the traditional VC role:
• The proliferation of crowdsale platforms like Echo and CoinList, enabling broader community participation in early-stage funding. Crowdsales refer to methods where projects raise funds directly from a large number of individuals, often through token offerings.
• The explosive growth of memecoins, often launched via platforms like pump.fun, bypassing VC involvement entirely. Memecoins are cryptocurrencies inspired by internet jokes or cultural phenomena, typically lacking fundamental utility beyond speculation.
• The emergence of "fair launch" projects like Jupiter and Hyperliquid, which self-financed and distributed tokens via airdrops without dedicated VC allocations. A Fair Launch aims to distribute tokens widely to the community from the start, often without pre-sales to private investors.
• Mike adds a fourth factor: the perception that VC-backed projects often launch with high valuations and low initial supply (High FTV/Low Float), potentially disadvantaging retail buyers. FTV (Fully Diluted Valuation) represents a project's total value if all possible tokens were issued and circulating.

However, Mike notes a recent shift: "I mean I think that vibe shift has already swung back just because like meme coins are down so much from the high and VC coins have outperformed over over basically the last three months." This suggests market sentiment may be reconsidering the value propositions of different launch models.

The Counterargument: Why VCs Persist

• Haseeb argues that the anti-VC narrative is somewhat misleading. He points out that many successful projects on crowdsale platforms like Echo (e.g., Mega E, which Dragonfly backed) are themselves VC-backed. VCs often act as crucial validators or underwriters for these platforms.
• Haseeb emphasizes the signaling role: "VCs are basically I would say the single best signal of what should be listed on these sort of open community launch platforms." Retail investors often rely on VC backing as a quality heuristic due to the specialized due diligence VCs perform.
• Furthermore, platforms like Legion (where Mike is an angel investor) and CoinList are often VC-backed or incubated themselves, indicating VCs are embedded even within these alternative structures.

Challenges of Non-VC Models: Fair Launches & Self-Funding

• Both speakers highlight the practical difficulties of bypassing VCs, particularly with fair launches.
• Haseeb notes that prominent fair launch examples like Hyperliquid and Jupiter were anomalies, funded by independently wealthy founders capable of investing millions ($10M+ for Hyperliquid) over several years – a situation inaccessible to most entrepreneurs.
• He recalls the history of fair launches, citing Yearn Finance inventor Andre Cronje, who famously regretted the model due to community pressures and governance challenges.
• Projects attempting fair launches often struggle later, finding themselves with a traded token but insufficient team ownership or treasury funds to build a sustainable business, making subsequent VC fundraising extremely difficult. Haseeb mentions the Jupiter team's failed attempt to request more tokens from their community as an example of governance pitfalls when relying on token holders who received free assets.

The Value Proposition of "Good" VCs

• Mike Dudas stresses that building enduring crypto projects takes significant time and resilience through market volatility. This is where VCs, particularly "good" ones, add value.
• VCs offer patient capital and strategic support, understanding the long development cycles unlike retail investors who often demand immediate results and liquidity. Mike states, "...the value of VC is that we get it We're patient We understand what you're building and we can actually help."
• Mike distinguishes between reputable VCs (experienced builders, long-term partners like Dragonfly, Sixman Ventures – estimating only 15-20 such firms in crypto) and less desirable actors (prop shops, short-term traders).
• Strategic Implication: Investors should scrutinize the quality and track record of VC backers, not just their presence, recognizing that experienced, long-term partners provide more substantial validation and support.

Acknowledging VC Flaws and Criticisms

• Haseeb candidly addresses valid criticisms of the VC sector, noting a frequent lack of accountability and honesty.
• He points to past industry failures VCs heavily promoted, such as Play-to-Earn (P2E), NFTs, Terra, and FTX, where many firms failed to publicly acknowledge mistakes, eroding community trust. Haseeb notes, "...being able to talk lucidly about it is something that most VCs just do not do and I think that's one of the reasons why a lot of VCs have lost trust..."
• Mike adds the critique of hypocrisy, where VCs might advocate for decentralization publicly while concentrating control in projects they back (citing the Uniswap fee switch proposal) or funding numerous, potentially redundant Layer 1 blockchains (L1s – foundational blockchains like Ethereum or Solana) while issuing moralistic statements.

Debating Crypto Infrastructure: Oversaturation or Necessity?

• The conversation shifts to whether the crypto space suffers from too much investment in infrastructure, particularly L1s and Layer 2 scaling solutions (L2s – protocols built atop L1s to improve speed/cost).
• Mike expresses skepticism about the constant funding of new L1s, suggesting some investments might be cynical plays on market structure rather than genuine needs.
• Haseeb strongly refutes the idea that infrastructure development is complete, arguing that current blockchains are far from ready for mass adoption, citing recent Solana performance issues under load. He asserts, "Are we done building blockchains? Right? Is this the final form?... if we want more than 10 million people to be using public blockchains we're not done." He believes continuous innovation in scaling (like Monad, which he angel invested in) is essential. RPCs (Remote Procedure Calls), mentioned in the context of Solana's issues, are ways for applications to request data or actions from blockchain nodes.
• Mike acknowledges Haseeb's point partly because Dragonfly also invests significantly in applications (like Athena and DPIN - Decentralized Physical Infrastructure Networks), indicating a balanced perspective. However, he maintains that the market structure can inflate infrastructure valuations based purely on VC signaling, even if underlying value is questionable, pointing to the poor post-launch performance of many L2 tokens.
• Strategic Implication: For Crypto AI researchers and investors, this debate highlights the ongoing tension between funding foundational infrastructure (potentially enabling more complex AI applications on-chain) versus applications that demonstrate immediate use cases. Assessing the viability and necessity of new infrastructure layers remains critical.

Token Sustainability and Lessons from Play-to-Earn (P2E)

• The discussion explores the difficulty of creating sustainable token value, using the P2E boom and bust as a case study. P2E models reward users with tokens for gameplay.
• Mike reflects on investments like Stepen, where the initial "move-to-earn" concept failed to create lasting economic sinks (mechanisms to remove tokens from circulation or lock them up). He argues that in many crypto games, speculation on the token became the main product, hindering sustainable game economies. Simpler models with constant flow (like NFT marketplace Magic Eden or launchpad Pump.fun) have fared better. He mentions a new project, Football Fun, aiming for a liquid token model around fantasy sports.
• Haseeb emphasizes the need for the industry to learn from P2E's failure, criticizing the collective delusion around unsustainable economics. He states bluntly, "...Play to earn doesn't [__] work... Like giving people free tokens to play your game is [__] stupid..." The core lesson is that economic systems must make sense from the start, requiring real buy-in and effective sinks, not just inflationary rewards.
• Strategic Implication: Evaluating tokenomics requires rigorous analysis of value accrual and sinks. For AI projects considering tokenization, ensuring the token plays a fundamentally sound economic role, rather than just incentivizing usage through inflation, is paramount for long-term viability.

Memecoin Mania: Passing Fad or Evolving Trend?

• The final topic addresses the future of memecoins.
• Haseeb views the memecoin phenomenon (low-cap, rapid-turnover coins) as distinct from established coins like Doge. He believes the associated "financial nihilism" was destructive and is waning as participants recognize the extractive elements (snipers, insiders). While predicting another potential rally, he thinks the game will eventually fade into a niche activity, much like some people perpetually engage with older game mechanics or NFT mints. He quips, "...there will be some cohort of people who will just keep playing this game forever... even when it stops making money..."
• Mike offers a different perspective, suggesting memecoins will evolve, potentially integrating with creator economies ("TikTok with money") and representing tradable attention or community affiliation. He sees this as part of a broader shift towards intangible value (brand, IP, attention) and believes a significant user base will persist, driven by the allure of speculation and high returns.
• Strategic Implication: The divergent views underscore the uncertainty around memecoins' future. Investors and researchers should monitor whether they evolve into more structured attention economies or remain purely speculative, high-risk assets, understanding their potential impact on broader market sentiment and capital flows.

Conclusion

The episode reveals VCs retain crucial roles (funding, validation, patient capital) despite challenges from new launch models, though discerning "good" VCs is key. Understanding VC quality, funding trends (infrastructure vs. apps), and evolving token models (like memecoins) is vital for Crypto AI investors navigating market signals and identifying sustainable projects.