Translation: Interview Summary with 1confirmation Partner Richard Chen

Richard Chen is a crypto OG from Stanford University, graduating in 2018, and is also a general partner at 1confirmation. 1confirmation is a venture capital firm supported by Peter Thiel, co-founder of PayPal, Marc Andreessen, co-founder of a16z, and Mark Cuban, owner of the Dallas Mavericks.

Richard Chen founded the Stanford Blockchain Collective at Stanford, now known as the Stanford Blockchain Club, and graduated early to enter the Web 3 investment field. Since its establishment in 2018, 1confirmation has invested in OpenSea, Coinbase, Polkadot, Nexus Mutual, SuperRare, dYdX, and Cosmos.

Below is an interview between crypto@stanford and Richard Chen, extracted and summarized. Please refer to the original text for accuracy.

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About Cryptocurrency

What is your overall view on cryptocurrency and NFTs?

Richard Chen: I believe cryptocurrency is a grassroots movement from the bottom up, ideal for those who grew up in internet culture. It represents a generational wealth transfer from baby boomers to millennials. It's also a paradigm shift, showcasing a lack of trust in institutions, whether it's central banks for Bitcoin extremists or large tech companies for Web 3 enthusiasts. NFTs provide alternative options for artists outside of the entertainment industry monopolies.

What does Web 3 mean to you?

Richard Chen: I wrote about these assumptions back in 2017, but the main focus is on transferring power from centralized monopolies back to the people. It's not about Twitter fact-checkers deciding on appropriate content policies but rather the people making those decisions. Many controversial events of Twitter account suspensions, such as Nancy Pelosi's investment portfolio tracking and Dr. Robert Malone, clearly demonstrate this. The new Twitter CEO even stated that Twitter is not bound by the First Amendment, maintaining freedom of speech. Web 3 is an alternative to being serfs of feudal tech landlords.

Note: Here may have a response to Twitter: "Fighting against the 'Web3'! Jack Dorsey's tweets repeatedly blocked by a16z"

Where do you get most of your cryptocurrency information from? Any recommended accounts, blogs, or podcasts?

Richard Chen: Before the bull market noise, it used to be Twitter crypto tweets for me. I'm mainly interested in keeping up with the latest project announcements and releases, which they also publish on Medium or Mirror. I like curated channels like DeFi Prime and The Daily Ape Telegram news channels. Newsletters like EthHub, Week in Ethereum, The Defiant, and NFT Now are also good. I also have a crypto reading list that compiles the best articles on various topics for those looking to learn more about the field.

About Web 3 VC

As a VC at a risk investment firm, do you think new Web 3 funding options like ICOs and DAOs have significantly changed the VC industry?

Richard Chen: Not much has changed. Various projects conducted ICO token sales in 2017, then became IEOs on exchanges in 2019. Now it's called IDO initial decentralized exchange offerings, but it's the same old story. These projects are often done by traders seeking short-term profit rather than what long-term VC investors care about, which is product before price. It's a world different from what I'm familiar with. DAOs are like SPVs and angel syndicates in the traditional world.

Are ICOs and IDOs more suitable for quick projects rather than long-term ventures?

Richard Chen: Yes, very few ICO projects since 2017 have survived and succeeded. Many of the presale traders were looking for quick profits, then dumped tokens immediately after unlocking or listing on exchanges.

Do you think it's still the same now? Or should someone really looking to get into crypto projects try the traditional VC route?

Richard Chen: That would be adverse selection. If you do an initial token offering, you'll have a bunch of traders pretending to be VCs on your cap table. Funds like Alameda, Three Arrows, CMS, DeFiance, etc., will start ignoring your emails once they've made their profits. Or they'll short your tokens via derivatives exchanges to do delta neutral cash-and-carry trades. What you want are diamond hands and investors willing to fight alongside you in the years to come.

Are you concerned that many active VC tweets on Twitter are dominated by VCs, potentially overlooking the perspectives of actual builders?

Richard Chen: Yes, definitely. Builders are busy developing, and they don't have time for Twitter. The simplest way is to unfollow those trying too hard to be KOLs, posting ambiguous content just for retweets. You should actively reach out to developers building interesting things. I often do this—someone creates a cool NFT tracker, I'll directly reach out and engage in a conversation. Valuable insights come from conversations with developers, not chasing trends predicted by KOLs on Twitter. Additionally, behind these KOLs, there's a lot of unethical psychological warfare selling their holdings to their followers so that you can become their exit liquidity.

Do you think most VCs active on Twitter really know what they're talking about? People like Andreessen, Chris Dixon, Ali Yahya seem knowledgeable. But there are many new KOL VCs. Have you had a chance to interact with them and assess their understanding?

Richard Chen: Talking to those KOL VCs, they are often quite mundane because their thought leadership is merely amplifying and regurgitating what others have said.

It's hard to find people with original ideas, but Chris and Ali from a16z definitely come to mind.

I also respect risk investors who stick to their beliefs in hypothetical concepts. For example, VCs who invested in Axie Infinity and Sandbox early on in 2018/2019, patiently waiting before the gaming boom.

Now, these KOL VCs are FOMO-ing into valuing the unfinished gaming products at $100 million.

Other Highlights

What do you think sets 1confirmation apart from other funds?

Richard Chen: The biggest point is that we make very few investments, less than once a month on average, resulting in a small and concentrated portfolio. Because we don't spray and pray, we have time and space to work closely with founders, providing top-notch post-investment services. This is how we win deals. For startup founders seeking our money, we tell them to check with founders we've worked with and ask who the most helpful investor on their cap table is—they almost always say us. Focus rather than picking the right companies is also the biggest driver of fund returns, as I've mentioned in my thoughts on portfolio construction.

For example, I develop products for the portfolio. I built a SuperRare Twitter bot with 25k followers, an underrated marketing strategy, and created a passionate community of artists and collectors. There are many Dune dashboards, with the OpenSea dashboard being the most famous and frequently cited in the media. For DeFi projects, we were early liquidity providers, building simple arbitrage bots before professional MEV traders came in. Product strategy thinking is also a big question, and I believe only by understanding the historical context of this industry can you give good advice and match effective and ineffective patterns from the past.

We also provide a lot of help in token distribution, token economics, compliance, and regulation. Especially for U.S.-based teams, regulation is the biggest challenge tokens face, as it's a legal gray area. Depending on the lawyer you consult, you'll get drastically different opinions, and bad lawyers can cause significant harm to the company. We have excellent relationships with the best lawyers in the crypto field and connect them with our founders.

1confirmation has invested in some great projects like Ethereum, Cosmos, Polkadot, Coinbase, OpenSea, etc. What's your evaluation strategy for potential investments?

Richard Chen: It's primarily 1 Market, 2 Product, 3 Team, and 4 Community, not necessarily in that order. In the short term, the community and memes are the biggest drivers of cryptocurrency prices, so some investors say fundamentals aren't important. But memes are fleeting, and in the long run, what you really want is a passionate user community, not just anonymous Degens talking about prices.

Ultimately, what excites us is new use case products driving the crypto space forward, products that are 0 to 1 rather than 1 to N. This allows us to invest early in categories like DeFi with dYdX and MakerDAO in 2017 or NFTs with OpenSea in 2018 before they became significant trends. We don't want to be pigeonholed into specific verticals but consider what products users like, helping us stay ahead.

Any recent investments you're very optimistic about or looking forward to?

Richard Chen: Catalog, which we invested in June 2021. They are a music NFT marketplace. Unlike art, collectibles, or games, music NFTs haven't taken off yet, but the transaction volume growth is surprising; although the absolute numbers on the y-axis aren't huge, it reminds me of what I saw in SuperRare and cryptoart early in 2020 when it was still nascent but showing growth. I believe music NFTs will have a similar breakout moment in 2022.

Any advice for newly graduated entrepreneurs?

Richard Chen: You should ask yourself, "Even if cryptocurrency prices plummet by 90%, will you still persist with cryptocurrencies?" I think founders from Stanford and Silicon Valley types, in particular, because they often are opportunistic. Ultimately, it's because they are talented, have many choices, and can choose between cryptocurrencies and traditional tech. If you're talented but lack conviction, then there's actually no intrinsic motivation to struggle through several years of a crypto bear market.

In our portfolio, almost all the worst-performing investments are from Silicon Valley mercenaries who transitioned in 2019. Their crypto fantasies shattered, they transitioned too early, and then they were done a year later. I believe you have to be a missionary, not a mercenary. Don't just aim for quick wealth; have patience and focus to weather through several bear/bull market cycles.