In this episode of Web3 Unlocked, Kenzi Wang speaks to Andrew Durgee on the work Republic is doing, its various arms, the current market cycle, the impact of the recent Terra-Luna crash, and why Republic has zero attrition. Here are edited excerpts from the podcast:
Republic, in a nutshell
In July 2016, AngelList launched Republic - a spinoff focused on regulation crowdfunding from the JOBS Act. In 2017 when the ICO boom happened, Republic recognized it as a form of crowdfunding and started exploring the crypto space. In terms of structure Republic has four different companies - a holding company, Republic Retail, Republic Capital, and Republic Crypto.
The mission of Republic has been to democratize finance and increase access and inclusion. But unfortunately, the regulatory framework makes it very difficult for retail investors to invest in early-stage startups in the US. The framework is based on an accreditation system with a series of requirements that need to be satisfied for an investor to participate in an early-stage venture. These include an average annual income above $200,000 or an average household income above $300,000 or a net worth of $1 mn (not including one’s home) and a few other parameters that keep a lot of retail investors out.
“I fundamentally have a problem with the fact that somebody can go to Vegas and mortgage their whole house, but if somebody wants to put $1000 in pre-IPO Uber, that is illegal. We have an issue with these archaic regulatory frameworks made for the Great Depression and are trying hard to change them. ”
According to Durgee, the above is not complicated to execute from a regulatory standpoint. Once there is an increased education on crypto and services that facilitate these types of offerings, there will be a lot of development in this space.
Republic views crypto and Web3 as a vehicle to push the democratized finance agenda since crypto allows people to participate in tokenized systems before an IPO. Hence, people can take advantage of the upside in businesses with a lot of conviction.
Andrew’s Web3 Journey
Andrew has been in the Web3 space for over ten years. He was the CEO of The Coin Tree, a cloud-based storage, insurance, and payment processing platform for bitcoin, from Nov 2011 to Dec 2014. Post that, Durgee was in the hedge fund space and a Partner at TLDR Capital. In April 2019, he joined Republic.
“The Web3 concept is still very new. I look at the definition of blockchain and Web3, and it really comes down to the integration and onboarding of the user-face for non-crypto native users. ‘Three’ is actually just a rebranding exercise.”
Durgee’s work at Republic began in early 2019 in a period that could be described as “crypto winter” - a period of flat trading that companies usually use to build their products instead of focusing on the market or launch- activities.
“Because we built Republic in the winter, we can survive in suppressed markets. And we can thrive and grow in crypto summer. It allows us to have a solid foundation. We’re scaling in that hockey-stick direction, which is super exciting. What’s unique about what we do, is that we only build one thing at a time. We stay hyper-focused. Businesses that try to chase too many shiny things spread themselves too thin and then collapse when markets shift.”
Republic has built tokenization platforms for fortune 500 and fortune 100 companies and handles everything from designing, building, testing, and auditing to distributing and deploying the token ecosystem. To stay focused, Republic has chosen to work on one project at a time. The company first built Republic Advisory, after that the tokenization platform, and then the token-sale platform. On average, every project that goes through the Republic advisory arm is between $200 million - $2bn in asset size.
Andrew believes that, eventually, all public offerings will be tokenized. “It doesn’t matter if it’s a new cryptocurrency or equity in Space X. The inevitable reality is that all securities will be in a digitized tokenized form because it’s an optimal solution.”
Tokenization will simplify secondary auctions, unlocking a lot of liquidity.
The Bitcoin Crash
“One crash that always sticks out is when Bitcoin crashed from $32 to $2. I thought it was over. I remember I shut down all my mining rigs. I was running Radeon 7990s, and my place always sounded like a jet engine. So when it crashed from $32 to $2, I turned off everything and told myself, ‘well, that was fun while it lasted.’ Every crash we've experienced after that has felt nominal in comparison.”
The Luna-Terra Crash
The value of TerraUSD (UST) was wiped out in May when investors panicked and tried to pull out their money. Over $400 billion in value was wiped out in crypto market capitalization. UST’s peg was propped up by its algorithmic link to Terra’s base currency, Luna. Some blockchain experts say that wealthy investors borrowed vast amounts of Bitcoin to short UST.
“It was a highly sophisticated attack. It was well-orchestrated – clearly well planned out, and required an insane amount of money to execute. So how people are looking at algorithmic-based stable coins will be very different going forward. And chain redemption mechanisms are going to go through some reiteration.
People have a fear of bridges, right? These bridges have been hacked, whether it was Wormhole or Ronin. Those are just the ones that people know about. But the truth is, we need bridges. Just because we've had problems with bridges doesn't mean we shouldn't keep building them; they're an essential component.”
While Republic had very little exposure to the TerraUSD system, there are others who this crash has wholly crushed. Durgee believes that we have not reached the bottom of the cycle yet. More losses will likely be ahead since people will be looking for liquidity, and crypto is exceptionally liquid. However, he estimates that the markets will bounce back quickly.
“The market has been running hot generally, and valuations have been getting out of control. You're talking upwards of $100 million seed round pre-product, pre-revenue tokens. I mean, it's just that it's gotten crazy. And I think the markets have been looking for a reason to reprice and retrade some of this stuff. So you're going to see valuations come down. The problem is when you do a huge seed round, where do you go from there, right? Huge seed rounds are not as beneficial as you may think. It becomes tough to go to the public and make a public sale. So I encourage more organic growth. Only call on capital as you need it.”
One of the most significant differences in the crypto ecosystem between 2017 and now is the amount of cash available in the market. Even with market corrections, much capital is still available. The market is also better regulated compared to 2017, making it easier for financial institutions to deploy their capital.
Advice for Founders
“A friend of mine once snuck me into a Virgin Atlantic party, and I ended up meeting Richard Branson there. And I asked him what advice he would give a serial entrepreneur, and he said, ‘You don’t need every customer, and you don’t need every investor’. And I hadn't thought of that before, you know, but he just basically said that. Deep down inside, when you take that particular customer, or investor, even though you know, it’s not a good idea, but like, you want the money so bad, that you do it anyway, and it ends up being a problem.”
Durgee recommends that one should choose to work with people that enjoy spending time with them. It’s not a 9-to-5 job. It’s a 24/7 job, and you will spend more time with coworkers than your spouse. Because it's a global market, the markets are open 24/7.
“Like everything in life, it is about expectation management. First and foremost, you are a custodian for LPs assets. I'm not a big fan of speculating on other people's money. So I think that as a fiduciary, your responsibility is to be a good steward of that capital as best as possible. If you're running something that's more short-term, it's a smaller fund, and you're going to be pulling liquidity out of that, that is your fiduciary job. If it's a longer strategy plan, you’re trying to drive as much value out of the assets you're controlling long term. Know that you'll have to sell these tokens eventually, right? So, work with the project and market makers; there are many ways to exit your position without creating unnecessary volatility.”
Secret Sauce for Success
“I think people energize me. I truly love my team. No one's ever left in the three and a half years since we started Republic Crypto. No attrition. In tech, that’s crazy. In web3, that’s unheard of. So I think my secret sauce is people - I just love people.”
Web3 is very community-driven, which is something Web2 struggled with. The reason the industry moves so fast is that everything is open source. There is no competition, as you would see in web2, as most companies work together even if they compete at some level. There are almost no exclusivity deals in crypto, and people are not signing non-compete agreements.
“I think the reality is that the world is becoming increasingly interconnected and more sophisticated. And web3 is an opportunity for people to have more and more control over their financial and just asset well-being.”
Here is a list of the selected time stamps on the different topics discussed during the podcast:
1:00 - 02:23: About Republic
02:35 - 06:08: Andrew’s journey in Web3
06:51 - 09:34: Republic’s entry into the crypto space
09:44 - 10:47: Reg A
11:30 - 13:00: Republic Crypto
13:30 - 16:27: Securities and tokenization
18:31 - 23:32: Building Republic
24:19 - 27:56: Surviving Covid 19
29:51 - 31:56: The Luna-Terra Crash
32:34 - 34:49: Current market valuations
35:51 - 42:02: Advice for founders
42:44 - 46:15: Crypto Mega Funda
53:01 - 53:57: The concept of the supercycle
55:00 - 56:34: Advice for young graduates
57:02 - 59:41: Fund Strategies
01:03:01 -01-05-56: Andrew Durgee’s mentors
01:06:20 - 01:10:15: The secret sauce for success
01:12:09 - 01:14:44: On Web3
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