Emin Gun Sirer, a Turkish-American computer scientist, is one of the leading intellectuals in crypto today. Founder of the Avalanche blockchain, a top challenger to Ethereum, the world’s largest multi-purpose decentralized computing platform, Sirer sits at the frontier of the next level of blockchain development and adoption. However, the trillion-dollar crypto crash happened just as Avalanche was gaining traction, causing a 76% drop in the price of its native token AVAX. Additionally, the project was a collaborator with the Luna Foundation Guard (LFG), led by South Korea-based Do Kwon, which oversaw the $55 billion collapse of the LUNA token and stablecoin TerraUSD (UST).
In this interview, we discuss how Avalanche is adapting to this new bear environment, the longer-term implications of the LUNA/UST collapse, and what investors should really think about when choosing between projects to back.
Forbes: Obviously, this is a really interesting time for crypto in general. But before we get to some of the more current issues, I think it’d be helpful for our readers to just get a sense of Avalanche. What was your impetus for creating it and how does it fit within the world of crypto?
Sirer: Avalanche is, simply put, the most innovative blockchain platform device to date. It represents the best technology that we know from a scientific perspective for building blockchains that scale and are customizable. There are two main breakthroughs behind Avalanche’s design.
Number one is a new consensus protocol that is far faster than any of the others that are in existence today. It represents the third biggest breakthrough in the space of blockchain consensus protocols, which are the very drivers of blockchains. They determine their performance characteristics and are typically the things that actually represent bottlenecks to the fast execution of transactions on chains.
The second breakthrough is the design that is based on what we call subnets. That is to say, different, unique, individualized blockchains that are specific to use cases. This method of building specific blockchains for specific uses addresses one of the biggest burning needs in this space. All of the existing chains that came prior to us were essentially one-size-fits-all chains. They were monolithic chains: one set of nodes did everything for everyone. Avalanche is different. It’s designed from the ground up so that you can have a specific blockchain, for example, for use by American citizens, or for issuing securities compliant with European law, or for creating new chains that are much faster than the default normal cases. That way you can create many different kinds of use cases.
Forbes: Ava Labs, which you lead, is a for-profit entity. Can you share revenue or any other numbers to give a sense of traction?
Sirer: We are a private company. We don’t make those public but we are thriving. I can share with you the number of people in the company right now. It’s around 180, and we’re growing. I think by the end of the year, we should be 250 at least. We’ve been in this hyper-growth phase for some time now, we’re doing really well. As I mentioned, we have multiple revenue sources, and we’re well-capitalized for the next I don’t know how many years. So we’re in a very good situation as a company, growing fast.
Forbes: AVAX is down 76% year to date (as of the time of the interview). That seems to be par for the course for most altcoins and Layer 1’s given the way the market’s going. I’d love to get your thoughts on what you think is happening.
Sirer: In this space, there are a whole bunch of things happening. So the macro conditions are what they are, right? We printed a lot of money across the globe, and now everybody wants to contract the money supply. All asset prices—not just crypto but also equities—have gone down. That’s sort of where we are. They [the Fed], I think, cranked up the interest rates a little too fast a little too aggressively. They signaled aggression, and that caused a pretty big setback in terms of asset prices. That’s where we are. What’s going to happen next? I think it’s anyone’s guess. It’s unknown whether or not we’re going to go into a recession. If we do go into a recession, and there are many different factors that might contribute to that—the war in Ukraine, increase in commodity prices, increase in food prices,—these would all be reasons for central banks to back off of the aggressive policies that they’ve been pursuing in the last few months and to go back to a looser policy. And if they do, I think we’re going to see a leveling up or maybe even going up that suddenly takes people by surprise. So that can happen. What else can happen? I don’t know. Price is not something that I’m supremely interested in. I’m building, and everybody I know is building.
Forbes: Are you seeing any meaningful impact on your business from the drawdown and are you doing anything to recalibrate aspirations for this year or elsewhere?
Sirer: Lower prices are what they are. What’s the impact on us? The thing I care about is the sentiment in my community. I think they understand that we are subject, like every other asset, to macro conditions. Things can go up and down. We go up and down in tandem with others. That’s fine. Overall, we see a lot of strong demand for AVAX. I don’t really see a problem or anything of the kind. Bear markets are actually really good for separating the wheat from the chaff. As you know, there’s a lot of junk. Even in the top 10, there is junk, right? Give those chains some time, and their communities will come to see that those chains are not going anywhere: they’re technologically dead ends. I keep counseling everybody to just put their heads down and work. Don’t pay any attention to what the markets are doing, and in the long term, people who build are going to be rewarded.
Forbes: Can you talk a little bit more about the Avalanche Rush program? Perhaps you could share the amount of funds that have been distributed, traction, products that have been onboarded?
Sirer: Absolutely. So we set aside $225 million worth of AVAX or so at the time of our announcements. As the DeFi situation improved, as the chain improved, and as the world came to understand that AVAX is here to stay—it has fantastic technology that just works,—then the value of the coin started going up. So the value we had set aside, the amount in dollar terms, ballooned from $220 million, or whatever that was, to really large numbers, because we went up substantially after the Rush program came into effect. Of the coins we set aside, we’ve used only a fraction. So we are, I think, maybe 1/3 in of the coins. We still have substantial coins as part of the Rush program that we haven’t deployed yet because we haven’t had to. The rise in the coin price allowed us to deploy far less than we initially allocated. What happened as a result: well, Aave came. It was one of the first applications that came to us. Then suddenly there was a flood, and just about every other dapp came to Avalanche. Plus the natives started appearing. There are quite a few native applications that are absolutely fantastic.
Forbes: As you know, most Layer 1’s launched these massive incentive/adoption programs. You kind of hinted at what you think makes yours unique…
Sirer: Steven, before you ask the next question. You know why they launched those programs. Those are all copycats. They came after us. They saw the success of Rush, and they’re copying us. This is a common theme among the techies. Avalanche is simply the most “copied from” chain. We are where people want to get to. Ethereum 2, when it comes, will be behind Avalanche today. We are far ahead, compared to just about any other chain. Not everybody is a copycat. For example, Ethereum did not copy what we did, but many other chains did copy us, with mixed results. It’s not sufficient to just throw money at the problem. You have to do far more in terms of…Well, I don’t want to give away the secret sauce here. We have to do far more. Unless you have everything sorted out, it doesn’t actually pay off.
Forbes: Copycats or not, as you see them, there’s a lot of money going around—though now, with the downturn, there’s a little bit less. If you have a really good project, you can say, “well, I can go to Avalanche, or Cardano, or Algorand and all these other ones” and kind of pick the best offer. It’s almost like a whole separate ecosystem of funding that some of these teams are going through. How hard is it to deploy that capital responsibly?
Sirer: Let me share with you one insight that is important, that sort of underlies all of this. Back in the day…I will say back until a few years ago, there was a particular venture funding ecosystem, and it got flipped on its head. Until a few years ago, we would go to VCs in Silicon Valley, or in New York City, or wherever and would ask them for some seed funding, etc. There was a pipeline, and the people who sat at the top of this pipeline were the VCs. Recently, that got flipped. The new bright energetic projects are not going to those sources—they’re coming to us. They’re coming to the ecosystem funds. I found myself as a steward of a bunch of money that we had deployed, acting as a VC essentially. And VCs started putting money into our fund because they saw that this is where the young energetic people were going, and they needed to be in close connection with different platforms. They wanted to take advantage of that synergy and get access to the deal flow. So that set me up for your question. There are lots of things that you can do, and there are many chains out there that are doing the “spray and pray” approach. They’re throwing literally 5 million, 7 million at projects just for essentially being able to fog a mirror or being able to present, you know, 12 slides as part of a deck. That’s not how we have done things in a bull market but especially in a sideways market like we are in now. You have to be careful and you have to be selective. Luckily, I am surrounded by the best techies in the blockchain space. When it comes to being able to identify good technology and good teams, I think I have great support. We’ve done a pretty decent job of rewarding the new dapps that are coming online.
Forbes: I want to pivot a little bit here. Obviously, the Terra/Luna debacle was major news in the last week or two. I’d like to get your thoughts on it and maybe step behind the scenes and get your perspective on how your token, AVAX, got into LFG’s treasury and what’s happened to it since.
Sirer: The Terra situation is highly regrettable. As you know, Terra started out slightly before we did, and it just blossomed. It ended up attracting a lot of the money and a lot of the growth in the space that would have gone to either AVAX, or maybe Solana, or maybe one of the other latest generation, high-speed chains. A lot of it started going to Luna. At some point, we were getting choked by Luna/Terra’s fast growth. Now, many other chains, seeing this, turned into copycats: “Oh, we’re going to do an algorithmic stablecoin, the exact same thing that Luna is doing.” We were smart enough to notice that we couldn’t do that. For many, many reasons. Running an algorithmic stablecoin of that kind, with those kinds of feedback loops, takes an enormous team with the operational ability to keep that peg. We knew that we did not have that ability, and I can tell you for sure that there are no American teams that actually have the regulatory structure to maintain the peg. From a legal perspective, it seemed super risky.
Forbes: I think one of the first times that you really came to prominence in this industry was around the time of the DAO hack, when you were involved in identifying and disclosing one of the key vulnerabilities that ended up getting exploited by the hacker. That was a watershed moment for the industry as a whole, leading to the creation of Ethereum Classic and an existential crisis for Ethereum at the time. How would you compare its impact with that of the Terra/Luna downfall?
Sirer: I think it’s right up there. I think it’s much more significant than the DAO hack. The DAO hack was a moment of reckoning for Ethereum, for where they wanted it to go. And it was an opportunity for the broader industry to think about what it means for things to be algorithmically guaranteed. People realized that some things that they thought were algorithmically guaranteed are really guaranteed solely by social consensus. That was the DAO hack. I would compare the Terra/Luna crash to Mt. Gox. I think the Mt. Gox crash was far more significant. It affected more coins, more people. Terra/Luna is a similar situation: lots and lots of people are affected across the board. UST and Luna were the only two coins that crashed, but there are funds that were holding UST and Luna. When they lose so much on one side, just because of portfolio theory they end up having to sell some of the other coins on their balance sheets. We ended up taking a hit. As an industry, we ended up learning a valuable lesson about algorithmic stablecoins. What I fear though, is that this kind of event just invites in regulators. I think very highly of the ones in the United States, but take a look at the way they regulated the web in Europe. Every time I go to a website, I get that cookie warning. It’s just not the way it ought to be. That should all be part of my browser. I should never have to see any of that. They’re going to come in with heavy-handed regulation, and it’s going to be really problematic for us. That’s one of my worries. We’ll see. The aftermath hasn’t really sorted itself out yet.
Forbes: Anything I didn’t ask about that you’d like to share or mention?
Sirer: Sure, there are quite a few things. Number one, the markets will go up and down. This is what they do. People who are in this space are used to this. The thing that makes the space exciting is the volatility. You could always just hold a Treasury bond. I can’t imagine anything more boring. You could always hold Facebook stock. Again, I can’t imagine anything more boring. In this space, we’re going to see ups and downs—it’s just part of the nature of these coins. So that just comes with the territory. There’s a bunch of new people who came into the space in the last year or two that haven’t seen a market cycle yet. I think my advice to them is to say, “Look, this is part of the natural swing of markets.” The second thing I would tell people is that at an exchange, at a centralized exchange especially, all of these tokens look the same. They are tradable, even when the network is down. You can go to Binance and buy a coin, even when that coin’s actual platform is not working that day. And there are chains out there that are going backwards every day. They all look the same. Please do your research. There’s a huge difference between the systems that bring something new to the space, that are innovative, that actually work versus the copycats, versus the MeToo coins, versus the coins that don’t actually work, versus the hype coins. So those are the two things. The third and final thing, maybe, is that I see, from my vantage point, a huge push from the institutions. I used to see this because I was a professor: they would come to me and say, “Hey, we’re thinking of going into the space.” I knew when the hedge funds were coming in. I started to see about a year ago that the large retirement funds started to come into the space. Financial institutions are taking an interest. Bear markets are a fantastic time. I’m super excited to be working with some of the financial players in the space to build institutional, custom-special blockchains for the world at large that go beyond the regular crypto. We’ve always seen the space as a nonzero-sum space, we’ve always worked to grow it. That’s where my eyes are set right now, and I’m really excited about the future to come.
Forbes: Thank you for your time.