Imran Khan is a Core Contributor and Pilot of AllianceDAO, previously known as DeFi Alliance, the leading accelerator program for crypto and web3 projects. Imran is also a Venture Partner at Volt Capital and was previously at Microsoft.
We talk about his journey to crypto, how DeFi Alliance formed, why DAOs are hard, what he is excited about in crypto, incentives for teams and more.
The podcast is also available on your favourite podcast sources like Spotify, Apple and Youtube!
NA: Super keen to start with you know, how you entered the crypto world, what really got you into it and that process that you took to start going full time?
IK: Yeah, I got into crypto roughly around 2013 and it was primarily driven by, there are a few handful of key people that had started to advocate for Bitcoin. One of those leads was Marc Andreessen and he used to tout Bitcoin all the time on Twitter. In fact, he came out with an article that talked about the value proposition of Bitcoin and how it can change fundamentally for the human good. And so, I started diving deeper and realized, you know, Bitcoin is something that could really solve some of the key issues that we run into globally. And so started to invest in Bitcoin, participated in the ETH ICO. I was lucky enough to do, you know, I went out and interviewed and did a project for Coinbase.
It didn't work there but did a project there and that really kind of gave me the understanding of where we are in the space. And since then I went joined Microsoft, worked within Microsoft there, and then after Microsoft, we launched Volt Capital with Soona and then after that was Alliance.
NA: Gotcha. And then how did the concept and idea for DeFi Alliance come across and how did you go about executing on it?
IK: Yeah. The biggest problem back in 2017 was, you know, many of the DeFi startups were looking for product market fit, and product market fit and DeFi can mean many things, but one is, you know, ample liquidity.
Two is products that actually scale and three is being able to grow resourcefully. And so, on the liquidity side, this is actually a big challenge in DeFi one because smart contracts were unaudited. There wasn't really an incentive to provide liquidity which Compound engineered in early 2020.
And so, we're in this period where DeFi was there, but it wasn’t growing. And I live in Chicago and we're home to 60% of the market makers globally. So, we have Jump Trading, Cumberland and many others that are very active in the crypto landscape. In fact, if you look at all of the industries globally market makers were one of the first to adopt crypto as early as 2012-2013.
And so they were pretty savvy to begin with. And so speaking with them gave me a lot of insight into why DeFi wasn't on their list of opportunities and started to like work with them, connecting them to DeFi start-ups over time. And it turns out appetite grew both ways and we had enough demand from both sides that we launched a Chicago DeFi Alliance in early 2020.
And since then, we've created an incredible program that helps DeFi protocols, scale, connect with market makers, think about regulatory concerns, thinking about product feedback and then ultimately help bootstrap your network and community. And so that's kind of how we started.
NA: You recently went through the change of becoming Alliance DAO. How did that come about and what was the thinking around, becoming a DAO and, and how exactly is the program, any different, if it is compared to how it was when you were DeFi Alliance?
IK: Yeah. You know, transitioning to a DAO, you know, it sounds easy, but it's actually really, really hard. And the reason why it's hard is because, number one is regulation. So, a lot of the activities that we do in crypto, it's considered in some sort of like regulatory framework.
An example of this is investing out of a DAO, you have to have a structured fund in place that's compliant, and if you don't then investing out of a DAO just means that you're taking investor capital and you could use it in ways that isn't mandated by a fund and it's not validated or within the regulatory landscape that you reside in.
And so, there's a lot of work that goes behind what a DAO would look like from a perspective of jurisdiction and the regulatory landscape there. And then number two is how is it sufficiently decentralized? What we're seeing today is if you look at the DAOs in the space, many of them, they look like DAOs from the outside, but on the backend, they tend to be, you know, structured products.
They tend to be just like funds. They aren't, you know what I call what DAOs should look like moving forward. And I think a lot of this is on the regulatory side, which we are, I would say on the bleeding edge in regard to how we think we should design it. So, I would say number one is regulations is one of the biggest problems that I see in our transition to DAOs.
And then number two is what defines the community and how does that community interact with the core engine of the DAO? And what I mean by the core engine is that every DAO should be a product first DAO. If you're running a DAO with a discord, a multi-sig, those are great tools, but those tools aren't going to set you apart from another DAO.
And ultimately, so the DAO should have a superpower and that superpower is what allows it to do in terms of monetization. And that monetization will allow the community to grow because there's you know, kind of an area of focus for the DAO and the type of community that you bring on board based on that superpower is also very important.
And so, like just opening the door, allowing anyone to join your discord for us, it's a very big no-no. We should be hyper-focused on the community that you want to curate and then how will it enable your product to prosper? And so, we think a lot about the types of community members that we allow into our, into our program.
And I'd say finally it's about the way to incentivize and grow the community over time. I won't go much into details here, but there's a lot of work that needs to be done in a way that both helps the community, but then also it's done in a way that works well for the jurisdiction that you live in.
NA: Got it. No, super interesting. And I guess this builds upon something you tweeted a couple of days ago that you've come to the conclusion that most DAOs will probably fail. That's based on, you know, the points that you mentioned before, but how do you think that will come across and how quickly do you think we'll start seeing like these DAOs starting to fail?
IK: I think we won't see any spectacular failures. And the reason for that is because like most of the DAOs that are out will... So if you look at, like, if you read a Cobies article regarding web three attention. Attention fades in and out all the time. Maybe exciting one period may not be exciting and people forget about it.
When I ask people about yearn finance and the success that it had in early summer people have already forgotten about it. And so, to think about like the speed of iteration and product development in crypto is probably a 10X compared to any other industry and with that also is attention.
And the way I think about DAOs is similar in that nature, which is, you know, we'll all remember all the DAOs that were launched. And then the next phase, we'll all forget about all the DAOs that launched. And so, I think over time will fizzle out on its own and we'll think about whatever's hot on next.
NA: Yeah. Gotcha. I guess on a personal level, what areas are you currently most excited about?
IK: There's so many. The first for me is If you, and this is at the prescient with where we are the types of the living environment, where we're in right now, which is the fact that, you know, governments all across the globe have access to pipes, right?
Internet pipes, financial pipes, that could allow dis-allow people to participate in the global economy. And, and I think this is important because products should be built and it should be given to people. It should be accessible to anyone across the globe. It shouldn't be up to the governments to think that they can allow their citizens to use certain types of products.
It isn't up to the governments. It should be up to the people and I believe all of what happened the past two years, three years since, since COVID is the continuous stress test of why governments shouldn't be allowed to take control of people, you know, their citizens lives when it comes to financial decisions, whether it's product decisions, whether it's DNA decisions and I think more and more founders think this.
Yeah. And so the types of products that, that I'm most excited about is, you know, product design around users first that's accessible at any point at any time without any censorship resistance. And we're starting to see that today. There's a company called Glass Protocol that allows you to upload any video that you want without any censorship resistance. So you can upload a video and you don't have to worry about, you know, it being at taken down now there's opposite concerns on the other side of the tech content. And this is where I think community is incredibly important where they can vote in the type of content that you want or disallow content that is inappropriate for the community.
It should ultimately be up to the community to decide the type of content that you want. That's just one example of how I think about the types of startups I'm most interested in. There's obviously a lot happening in the NFT space and if you think about NFTs generally they create this interesting element on the internet that allows you to collectively own parts of content or ownership of different aspects of culture. And so an example of this is music.
Music for a long period of time has been ultimately owned by record labels. And now if you think about where we are in the kind of music industry space is a fact, a lot of that power is concentrated to streaming platforms. And I think the next iteration of this is going to be creating incentives in a way that allows artists to formally connect with the community directly while incentivizing both to continuously participate in the content that's been derived out of the creator in a way that's aligned with the communities as well.
And so, we're going to start to see interesting dynamics there, whether it's DAOs that kind of purchase music, DAOs that ultimately own the infrastructure that enables artists to create music and then also monetize music. Whether it's just, you know minting platforms like Catalog that allow you to mint NFTs as a way to create alignment. But we're going to see a lot of cool things that are gonna be coming out of that space.
NA: Yep. No, I definitely agree, there's a lot of interesting things happening there. And what about DeFi? What are you seeing in terms of new development within DeFi?
IK: I think where we are in the DeFi space is, you know, DeFi has been around for about two years now, right?
It was one of the first sectors to be explored and within that mindshare went to all of the different areas that started to explore afterwards. So, with DeFi, you started to see like NFTs, then you started to see, you know, bridging infrastructure. Now you're seeing DAOs, now you're seeing it back into like music NFTs.
But ultimately what's happening with the DeFi landscape today, it's getting more complex. And so, you starting to see more and more DeFi protocols are either looking to aggregate many of these experiences into one protocol or creating exotic products that mirror products that we're seeing in the traditional market space. We're starting to see capital efficiency being worked on.
And what I mean by capital efficiency is if you look at like Aave, Compound, you know, you need to post collateral to take a loan out. And, you know, many of it is like, between a hundred to 300% collateral needed to take out a loan, but imagine if you could take collateral out on 50% of what you do. So, there are many start-ups that are working on this space. One is Spectral and Spectral ultimately is a start-up that will read your wallet history and assign a score of some sort, right?
And this score will allow you to take you know, what I would call loans that may be risky for anyone else, but for the person, for this person, he may have great repayment history and so he can take on a riskier loan knowing that, you know, he has paid off loans in the past and capital efficiency, I think can unlock a lot of interesting things.
And so like, if you look at like Aave, you know, let's say it has $20 billion in total locked value. Imagine if you only need a 10 billion to achieve the same goal. And I'll kind of make one more example, which is, Uniswap V3. V2 to V3, huge fundamental change, right?
You're able to provide liquidity on concentration bands, right? Between different price points, which requires less liquidity in order for you to achieve the same efficiency or slippage and that's huge, in my opinion. They went from like 50% in market share to 80% in market share of trading volume.
And so just imagine unlocking capital efficiency in regard to all of the other DeFi protocols you can achieve scale. And so I think that's one area that I'm most excited about.
NA: Yeah, no, I think that's a really interesting point. And when you're looking at lot of these crypto companies coming through the program, how do you, how do you assess the best ones that you start to admit in? Is there like specific core things you're looking for or is it a very case by case?
IK: There's many areas that we look for when we think about the types of founders that we want in our program. The first is founder’s resiliency. We do like a cultural test to understand the types of founders that would most align with our programming.
And what we found is, you know, those that are most resilient are the ones that will continue to succeed without any issues. And the thing is in crypto, let's take Andre as an example, he's been building in crypto for, let's say four or five years. Right. And he started receiving a lot of success after the launch of yearn and then all the subsequent products afterwards and he left.
And not saying this is a bad thing, but resilience is needed in order for you to continue building products, because, and I'm actually going to write a tweet about this, but if you look at like web3 founders versus web2 founders, they're fundamentally very, very different composites, right?
Web2 they don't receive liquidity for all the hard work they put in for ten years, if they're lucky. Customer feedback loop is very, very long. Like for them to just get feedback on a product could take them a year, six months a year. Right. If you think about like the community, we call it community, but it's actually not community, they're also your investors. And so, like not only do you have to like, make them happy as an investor, but you also have to make them happy as a customer. And it gets very emotional. What I call this as customer acquisition strategy on leverage because it can either help you 10X, or it can kill your product 10X.
And so being that close to the sun or to the customers can be very daunting on a founder because it's just noise for them and they have to be resilient. And so what we look for is resilience number one. Number two is, what we look for is creativity. And creativity can be, you know, out of box.
You know how, like in order for a founder to succeed in crypto, you have to be creative and creative can mean many, many things. Right. But it means like, how do you take something that could be very like, let's talk, talk about regulations. Regulations obviously is one of the hardest areas for a founder to build for, because it changes, every day it changes and your life is on the line. You could be jailed, you could be, and that's happening and nobody wants to be subpoenaed. And so, you have to create ways where your product is justifiable in the jurisdictions that you live in globally.
And then at the same time is able to be successful and that's very hard to do. And so we look for creativity. And then when it comes to the product itself, obviously we look at product and the type of product they're building and it, whether it fits within the overarching narrative of where we are headed towards and along with that, whether or not the product itself can be validated.
And then number four, I mean, there's many, but I'm just giving you high level of four points. And number four is the team because the team is going to be very important in regards to how you achieve your goals. The way I think about team is, the types of people you bring onto your team can ultimately dictate whether or not you're able to execute and solve the problems that are at hand, whether it's hurdles that you're going to be going to through as a team whether it's leadership, can the team ultimately source clarity in regards to where are they going to be building and how are they going to be building and can they cohesively build quickly enough so that they can get product market fit, speed execution, all of that matters. And so, team is like number four. So those are the four areas that we look for when start-ups apply to our program.
NA: Very interesting. And then I guess of the four points, one is about founder resiliency, fourth about team. How do you think about, you know, incentives when you're talking to founders and teams building out these projects. They’re in the early days? If you're trying to design like a token specific project, how do you really think about those incentives? You know, now when we see someone like Andre also leaving like crypto within a short timeframe, right? If we are comparing to web2 and the development times of having companies and exiting, how do you think about those incentives and having long-term focus, builders and teams?
IK: Yeah, I think we're quickly learning that, you know, incentives need to be given from a long-term perspective. Tokens are great.
But fundamentally, if you look at what happened in the 1999-2000 bubble or the internet bubble, people that IPOed, IPOed after building company within one to two years, and we had this burst. Anything familiar with that, yeah. So what happened? Well, the SEC came in, everyone else came in and decided that there needs to be a prolonged period, where products companies have to, and there's certain element of like checklist of the types of start-ups that can IPO. And over time that grew, right. So it went from two years to IPO after burst. It took four, six, now we're at like 10. Right. And I think that'll kind of scale into like more to that, 6 to 10, 7 to 10.
But that's what happened and because fundamentally, if you want to build a company that lives on for decades, then you have to create incentives in a way that aligns with that type of structure. And that can only happen if the founder is in it to win it for the long-term. And the only way you do that is prolonging the incentives.
So in fact, in our community I would say within our programming, every time we get asked this question, we tell all of our founders to do it as to create incentives as long as possible. And so, we've seen startups that have said two years, six months and we decided, you know, minimum is four years, minimum is four years.
And so, every founder that joins our program that did that, designed it have done at least minimum four years. And look, I'm an investor, right? Like you say, that we're investors and we all have our own alignment, but for me, we want to build start-ups that live on beyond our time period. Right.
And in order for us to do that, we have to create incentives in a way that can do that. And we want to build multi-generational start-ups and inner for us to do that we have to create the right incentives.
NA: I'm interested to hear like running into our final questions what would be, I guess the biggest advice you could give a new founder coming into crypto?
IK: I would And I'm going to say it because I think we're in the phase where we're getting a lot of web2 founders and FAANG employees coming into crypto is to one before you start a startup get involved in a community. Talk to other founders in web3, find pain points that you see fit that could be solved. It's very easy to build, you know, I want to join web3 and I'm going to build a product and the product is going to be, you know, what's missing, you know, DeFi for everyone.
So, I'm going to build a DeFi app. Funny enough, this is actually I get pitched us a lot and that gives me a signal, right? The signal is like you haven't and not saying this is bad, that you haven't spent enough time in crypto or web3 to understand all the pain points there are because there's so many pain points in crypto today.
And so, spend time in crypto, learn, talk to other founders, that have been building in the space for a very long time. Find an area that you're most excited about, don't just build crypto because everyone else is building a crypto, build it because it aligns internally with your north star.
Everyone has their own north star in terms of excitement. My north star is ultimately building for a civilization that doesn't rely on, intermediaries and ultimately allows them to access financial products, services across the board without any intermediaries. And I think that's very important moving forward.
But yeah, find your north star and then validate your idea and build out an MVP. And the MVP will guide you to the rest.
NA: Right. No, I love that. I think there were some amazing points. And finally, and I think this might be a little difficult for you, but could you talk about the latest investment? You know, you or Alliance DAO have made and why did you make it.
IK: The latest investment that we made. Ah, I will give you one. It's not public yet. But I'll say it anyways, Paper.xyz. They are essentially building an on-ramp/off-ramp for NFT marketplaces. And, and if you look at what's happening with OpenSea, OpenSea is an incredible marketplace.
It offers you know, NFTs from a to z. But there's also a lot of issues. And the issue is obviously is because of its growth, right? Everybody is depending on the same level of support, but when you have, you know, let's say 25 million people that all want access to the same product, obviously there's going to be, you know, some disruption in the product that's being delivered which is a great problem to have in my opinion. And so over time, the way I see that NFT marketplace or NFT space is that it will unbundle. They'll unbundle in a way that is going to bring NFTs in different verticals. It's going to bring it to life.
So what I mean by that is if you look at all, if you look at the geography across the globe NFTs mean very, very different things in many different regions. And here’s a cool signal that I saw, which Azukis, right? Azukis in parallel attracted east Eastern investors and Western investors.
That was quote unquote, the first NFT that brought both communities together. And it also tells you something else. It also tells you that most of the NFTs that had success, didn't attract the Eastern communities. Why is that? Well, they have a different culture, right? They have different visual aesthetics that they're attracted to. They have different values. And if we're talking about NFTs being cultural phenomena, then obviously culture is going to become a large part of how we see NFTs. And if that's the case, then we can easily deduce that and like OpenSea could become unbundled and we'll see different geographic marketplaces.
And then we'll also see different verticals. You need a checkout solution that allows anyone to buy NFTs. And so that's what Paper solves. Paper will allow anyone to create a checkout solution that allows them, their customers to purchase NFTs and checkout in two to three steps.
And this is a big problem today. Like you need on fiat on-ramps/off-ramps you need, certain types of licenses, you know, different infrastructure that's provided and being able to create an easy out of the box solution that allows any developer to write a few lines of code and create an a checkout per space is very powerful.
And so Paper is one of those investments I'm very excited about that we did recently.
NA: Very cool. No, I definitely see it and it sounds super interesting. And that's all the questions I had for today and run thanks so much for coming on. Really appreciate your time. And I think we've learned a lot today about, you know, Alliance and your thinking around a lot of the interesting things happening in crypto. Where where's the best place that people can find you online?
IK: Yeah, you can find me on Twitter at Lmrankhan. It's an L instead of an I because the I was taken. So I ended up capturing that Twitter handle, but you could probably type in Imran Khan Alliance DAO, and you’ll see me come up.
NA: Okay, fantastic. We'll put those in the, in the notes as well. But yeah, thanks so much for jumping on.
IK: Yeah. Likewise. Thank you.
Follow me and Imran on Twitter here!
Disclaimer: The Inquisitive VC is provided for informational and educational purposes only and is not intended to provide commercial, financial or legal advice. Nothing in this article constitutes an offer of securities or regulated financial products or financial services to any persons or a solicitation to buy or sell any tokens or securities or to make any financial decisions. Do not trade or invest in any project, tokens, or securities based upon this podcast episode. The host and guests may personally own tokens or be an investor in projects that are mentioned on the podcast.
Imran Khan - AllianceDAO