Interview with Kyle Samani
Demand for blockspace growing by 1,000,000,000x, new Solana-based projects, what most crypto investors get wrong, and more
For our inaugural Substack newsletter, we're interviewing Kyle Samani, co-founder and Managing Partner at Multicoin Capital. His firm has achieved exceptional returns since its founding in 2017 and is one of the most vocal supporters of Solana.
We at Solar are of course very bullish on Solana and its ecosystem. However, we see one potential risk to SOL, the token: Solana's super-low fees, which while great for user experience, could lead to value not being accrued to SOL holders. You said on Twitter that you believe fees could go up over time, with demand for block space increasing by 1Bx over the next 10 years. Could you talk a bit more about that?
One of the major learnings from the tech industry is that when you decrease the cost of doing some behavior, you typically increase the frequency with which that behavior is done. Sometimes, a 10x reduction in cost doesn't lead to a 10x increase in behavior, but a 100x or 1000x.
The best recent example of this is Uber. Thinking about Uber as a taxi company was wrong. Thinking about Uber as a car replacement was a better frame.
And so when I think about crypto, I think that every single human on earth - which is now approaching 8B people - will have a private key and transact on a public ledger. And I think they'll be transacting multiple times per day. And I think there will be lots of machines with private keys too, and those machines will also be signing messages and broadcasting them on public chains. And so I'm just wildly optimistic that demand for blockspace is going to grow 1,000,000,000x over the next decade. And if that happens, I am just not worried about a fee model in the system.
Exponential growth in demand solves all problems.
What projects and tools are you most excited about, in the Solana ecosystem? Are there ones you like where they wouldn't even be possible on other chains, due to high fees?
There are a few things live on Solana today that are simply not possible on Ethereum. The first is Serum, and the second is Audius. Audius was on Etheruem's xDAI chain, and they left because they exhausted the capacity there. Solana is the only chain that can support Audius. Sam's story with Serum is known, so I won't belabor that point.
Beyond those, Multicoin has made ~7 investments in the Solana ecosystem already, and we are actively looking at more now. The teams coming out of the most recent hackathon are quite impressive, and we are actively in discussions with many of them.
With the growth in Solana, do you see Ethereum projects launching Solana versions? Or do you think the Solana ecosystem will continue to be mostly home-grown?
We spent a fair bit of energy last fall trying to convince Ethereum based teams to build natively on Solana. Our success rate was 0%. It's possible that the success rate would be higher today, but it seems that the Solidity-focused engineering organizations building out smart contracts on Ethereum are either unable or unwilling to build out Rust-based systems natively on Solana. So I am skeptical that there will be many successful ports.
It's possible that someone launches an EVM on top of Solana, which would make it easier for Ethereum based development teams to transition over. But I don't that will be sufficient. The UX for Solana-native applications will be better, and I think native applications will win.
What are your thoughts on the Solana Foundation owning about half the token supply? Is that a major risk? What can be done to lower that risk?
This is simply not true. The Solana foundation owns ~80M SOL, which is about 16% of the current supply. I don't think this is a major risk.
[According to Transparency Report #2 published on Solana.com in June 2020, the Solana Foundation and Solana Labs together owned around 220M SOL, back then. A portion of those tokens was sold in the recently announced $314M raise.]
Solana's base layer doesn't have privacy features like Monero or Beam. What are your thoughts on that? Are there projects you like building privacy on Solana?
I don't think base layers should have privacy by default. This is important so that everyone in the world can audit the money supply. Privacy can exist in zk pools built using native smart contracts. I'm not aware of any serious efforts doing this yet on Solana, but I think this will pick up steam in the next few months as the ecosystem accelerates.
Also on privacy coins, markets don't seem to value them highly, with Monero's market cap at "only" $4B. What are your thoughts on this phenomenon?
No real opinion, other than what we wrote a few years ago.
How do you see current valuations of Solana-based tokens? There are some tokens with a total supply market cap in the tens of billions; are those overpriced?
I used to believe in the terms "undervalued" and "overvalued." But I've been in crypto long enough to know that those words don't mean anything. My general advice to people is that if you like a protocol and you want exposure to its long-term success, you should probably own that token. That is the most obvious thing to do, and is generally sensible (though there may be some exceptions out there).
Talking more broadly about market conditions, how do you see crypto markets today? Are we going into a 4-year cycle again?
I don't believe in time-based cycles. I also think that this time is different, so relying on prior models is likely to be erroneous. We don't spend much time thinking about cycle timing because that is not our expertise.
Finally, to ask the Peter Thiel question, what is the most important thing you believe in, that most people in crypto disagree with?
Blockchains should be designed from the ground up to be optimized for a particular thing. In the case of Solana, that is DeFi. In the case of Arweave, that is permanent file storage. I think it's a logical error to optimize a blockchain for maximum censorship resistance, and then try to tack on DeFi at the end. The DeFi platform that's going to win is most likely to be the one that is designed to be the best DeFi platform.