Fireside Chat: Y Combinator's Nemil Dalal | Dani Osorio & Nemil Dalal - YCombinator

That was so fun. That was like a really good high energy conversation. Thank you all for hanging out. Um the next up Oh, there's a chair. There is Danny Asario and she is going to welcome our next guest.

Give him a round of applause. Thank you. Thank you. It is my greatest pleasure to welcome Namil Dal from Y Combinator to the East Denver main stage. Give him a round of applause.

Neil is one of the architects of crypto infrastructure as we know it today. He was an early leader at Coinbase where he helped grow USDC from zero to its first billion dollars. He's also the co-creator of X42 which is a leading standard in aentic payments. Now he's a visiting partner at Y Combinator, which has quietly become one of the biggest institutional backers in crypto. Today we're going to talk about why Y Combinator is betting bigger in the space and what builders should be paying attention to.

Neil, we're really glad to have you here.

Super excited to be here.

Awesome. So YC is betting more aggressively in the crypto space than ever. I think you mentioned that you had invested in over a hundred startups in the space. So what gives you so much conviction when everyone else might be tightening up?

So I don't think people know this but we've invested in about a hundred startups over the last decade. The names you probably heard about are Coinbase, um, Axiom Exchange, uh, OpenC. These are all examples. But I think when we look at the next 10 years, we think this is going to be 10x bigger than we've seen today. And the reason is that I think crypto is permeating day-to-day life with stable coins, with tokenization, with agents.

Um, so those are the themes that we're really excited about. So recently we launched a request for startups specifically on those three categories. We actually, you know, worked with Jesse with other community leaders to be able to figure out the themes that we were really excited about. And so I think stable coins is near and dear to my heart. Uh, but we've seen a number of companies in YC that are just like literally just focusing on stable coins.

Half the time when I talk to them, I ask them if they're a crypto company. They don't actually don't think they're a crypto company. They're a financial company that's using crypto technology. And I absolutely love that which is that that's the next wave of really adoption that's going to happen in this space.

That's fantastic actually. And um you must look at tens of thousands of incoming projects. What stands out to you as a breakout company or a breakout opportunity?

So we get about 20,000 applications every 3 months. Um so right now it's application season and we're reading through them right now. Um and it's about 80,000, you know, 78,000 applications a year. We accept about 1% of the applications that come through. I think the things that we really look for, what one thing I think is surprising to people is half the time the idea is just secondary to how much we believe in the team are these people who have the right values.

They're super driven. They're not going to let obstacles get in their way. They're going to figure out ways to scale it. And so that's one of the things that I really love with early stage investing is a lot of times when you do later stage, it's all about the idea. How good is it?

And a lot of times I've seen ideas that I think are not good. Uh but I love the founders so much. they have an energy to them. They have an infectionness to them and that is like worth betting on especially if they're open to exploring and listening to their customers. So I think candidly like that's probably one of the biggest things that we look for.

Beyond that I think in crypto the things that we look for is like how um how scalable is this? How much is the market over time? By the way like example is that Coinbase was a tiny market when it launched. So the question is not what is the market today but do we think in one year two year three years this is going to be a really massive market and I think the cool thing with AI is it's rewriting like usage and growth of almost any product out there and so there's some adjacencies with AI that I think are really interesting in terms of that growth as well. So that's probably like another like that whole set of like what is the potential for that idea that they have um are they in the right are they playing in the right space is really critical as well.

Great. And when you're hosting your your demo days, um, which types of projects have you seen lately are getting the most traction?

So, I think stable coin is probably the biggest one that's been getting the most traction on the crypto side of things. Again, there a host of different AI things that you know, Y Cominator has as well, but I think stable coins a lot of it is around um, geographic coverage. So, for example, there isn't a good on and off ramp in Latin America. How do we think about providing that better? Can we provide dev tools in that market?

And I think there's some things that are I I think maybe one critique I would have in crypto is we spend a ton of time talking about infra. And I think that's critical, but I also think that without use cases, the infra cannot be funded. And so I think that like when I see some amazing technical founders, I also encourage them to build use cases and things like that on top. So again, we're seeing both. We're seeing I want to be able to so a spore is an example.

We're in India. I want to send money very cheaply using stable coins and it's a consumer interface and then we have something like blind pay and land America and they are an API that makes it super easy to be able to like orchestrate stable coins in the back end of your stack right and those are two very different businesses like one is end user focused one is developer focused we think both of those need to exist and bind pay I don't think it's too early I think the infra needs to exist now if if not yesterday and so that's why we're really excited about things like that

wonderful And um you know you recently mentioned that in that um stable coins is one of your biggest focuses and why do you think that the opportunity for stable coins is happening right now?

Um so the the funny story about all this is that in 2018 when I was running USDC I went to every large company try to convince them to use stable coins and the attitude I got was it's a beta dollar why do we care? And the the crazy thing now when I look at crypto Twitter when I talk to people is just that every institution in the country is thinking about stable coins and realizing that actually this is significantly better than what they do today. So I think that awareness has crested in a way that is ne not possible 3 four 5 years ago and I think you candidly I think stripe was actually one that did a huge part of that uh with their acquisitions with their investment. I think Patrick Collison called it um rune stable like superconductors uh is what stable coins are just in that they're so powerful. So I think that's been one really big shift that is happening.

The other thing is that the use cases we're seeing for stable coin. So this is where I think it's controversial for maybe some people. I actually did like 20 office hours with teams today and one of the teams was a consumer stable coin startup. I'm actually more bullish on going to a coffee shop and buying my coffee with stable coins. I think that the utility and use case and the the challenges the interface are still there's a lot of issues there.

But I'm insanely bullish about enterprise payments where I'm sending them around the world. Uh and I want to be able to do that cheaply. I think stable coins are amazing for that. Another example is um Gusto and Deal. These are both YC companies.

Um they provide payroll for contractors. They both announced in the last several weeks that they're paying people in stable coins around the world. So, for example, if you're an Uber, you want to pay people anywhere in the world. You don't need need to build licensing in every single country. You can just use stable coin wallets and you can stable coins to be able to do that.

And so, all of these things like I think it takes a while to kind of like really get past the like this is beta to this is ready for prime time and we are absolutely seeing that today. And I think the one other thing I just say, we talked about this like offstage, is I think in bare markets, people get depressed. And I would just say is like when I look at adoption, I am insane. I'm more bullish than I was two years ago at the heights of the bull market. And I actually kind of get depressed at the bull market because a lot of it feels temporary in nature.

But what I'm seeing today in terms of adoption and awareness from people from the largest banks to small startups that want to build the next you know multi-billion dollar company that is just I think a step change from you know what the last decade that I've spent in crypto.

Yeah I firmly believe that bare markets are for builders. So you know welcome everyone who's still here hanging out. Um you had mentioned before that you think that founders shouldn't launch tokens before finding PMF and for some founders sometimes the token is the PMF maybe more in bull than than a beer but tell us a little bit about your perspective on that. Yeah. So, first of all, I'm super excited about tokenization, stable coins, equity, uh all these things.

I like I think that the power of blockchain is you can turn that the the uh cost of launching that to basically zero. That's awesome.

What I think there's a specific class that I call incentive tokens where um I think what happens is I've been meaning to put point a meme on it where like there are two choices like try to build a real business or launch token and hope that that turns you into a real business. And I think what happens is that it's very hard to buy yourself to product market fit. So for the same reason I I don't love teams raising insane amounts of money until they get some product market fit because I think it makes you less disciplined and you just keep spending money on things maybe you shouldn't had. I think the same thing in crypto is I would say that there's a whole cottage industry that's pushing you to launch a token. And the reason is there's free money to be had.

Like why not, you know? And I think that the question I always have is what like when I think a year or two years ahead for your business, what does that token launching mean for your business? And I would say maybe like 3/4 of the time it is really about momentary it's like a sugar rush

um and it's a hit of you know drug you're taking for a short period and it feels amazing but then the stats kind of go down pretty rapidly afterwards. And I think candidly like unis swap um avi they all launched tokens after they actually had the product working being used and valued by customers and then it was fuel on the fire. So the way I think about it is like a token is really it's one is a marketing strategy and two is like growth stage capital and if you try to like raise growth stage capital when you have no product market fit I think it can often end up poorly. Now that is not an argument that it's not right for anyone. I think there's some things where there's like a network effect that the token lets you get that I think and that if that if that can be persisted and sustained afterward after the token has popped and things like that then I'm super excited.

But I think that those cases candidly are far like far and few between and by the way I'm writing a founder a crypto founder builder guide for y cominator and so this is one of the t sets of lessons like being in the trenches over the last few years where I'm like we probably there's a lot of nuance to this decision. It's not like tokens bad full stop. It's like no tokens are amazing and then incentive tokens make sense in very specific you know amount of cases.

Great. And speaking of product market fit and you know what what's really happening today? Is it possible maybe that the integration with AI is one of the greatest PMF unlocks for crypto just going into um X42? What what did you feel was fundamentally missing from the payment stack that previously made machine toachine commerce impossible without a new open standard?

So um I think the biggest thing for a long time has been what is the use case for a machine to machine payment and I think there's this vision with internet of things where maybe machines would pay each other and that really never took off. So it it was interesting where we thought deeply about at Coinbase before I left, we thought deeply about 402. And the reason I say it is I for folks who've been around the space like their Bitcoin talk forums from 2011 that are talking about 402. My old boss Bali Shinavasan you know when he was at 21 in his company he tried to launch in 2016. I think the big thing that we thought about when we decided to like do this again was that is the world different and what we saw with AI was we saw an amazing amazing technology that probably needed access to money and it might be on behalf of users.

It doesn't have to be fully autonomous every time. But we saw that there's a huge value and use case to it. And the other side is I look at the blockchain and I'm like this is the world's best like value movement API that has ever existed right and this is an open global API that also works for microp payments and so that I think gave us a lot of excitement around like maybe this time is different and so we that's what we did was we actually like we debated like should we talk about pay walls and things like that we're like no this is an AI ccentric moneymovement platform that and it's candly it's not anything I've done. It's like literally the people who built the blockchain. So, Vitalic, the early builders of, you know, Satoshi and others and then the people who built the stable coins, all this like initial layers that need to be there.

We were just like, there's one missing piece missing from this, which is that I want to be able to access it from the internet. I want to use it as part of HTTP. And so, anyway, that that all came together. And then I think the last thing I'll just end with here is that the like one of the feedback I have for founders here is um and this is a Brian Armstrong quote. So I I totally love it which is that action leads to information.

And the story of Coinbase was it started as a Bitcoin wallet. And all his users were like I actually I maybe want it but I actually I want to buy and sell Bitcoin because there's he had his mockup like a buy and sell feature and they're like that's what I want. And basically he took that advice and learned and did it. And so same thing I'd say for all founders here is that if you're doing it I would just suggest is like there's a lot of value to launching quickly learning from the market and learning from your customers and not ignoring their feedback. And the reason I bring it up in 402 is we launched it and the most amazing thing was then Cloudflare reached out and they're like we have a problem.

The problem is that the entire websites of the world being scraped for AI for free and suddenly the ad model is breaking down. Can we work together? We're already thinking about 402 and we were thinking of starting with centralized, you know, things, but actually crypto makes a ton of sense and it's global and actually we might want to launch our own stablecoin which, you know, the net dollar that they're thinking about. And so what was really cool is we launched it like literally the way we launched it was kind of like MCP where like we had no partners on day one. Literally, we expected a few startups to use it and we reached out to them and said like, "Hey, this thing's available."

And we just try to ship locally every week. Uh, and you know, huge props to Eric Reppel, who's the the creator of the technical creator of Expo 2.

Yeah, he's here. I met him this morning.

Amazing. Yeah. So, I think that like that idea of like us throwing it out and then realizing how many like-minded people were out there. And by the way, the last week was Stripe announced that they were supporting it. I'm excited, you know, for others as well.

And again, honestly, 402 is just one part of the broader agent stack. Uh, so I think they're going to be things like uh refunds. I think it's going to be their identity. Really excited. We had a good panel with the RC8004 team um at the Ethereum Foundation as well.

That's super cool. I mean, speaking of use cases, um I heard the news this morning about you guys investing in sponge building infrastructure for agents. Do you want to tell us about this?

I actually did not know anything about Yeah, this is not but what I will what I will say is um we announced that we are offering all startups the ability to receive their funds in stable coins. Yeah.

So, every 3 months

with yield.

Um, so we're going to just send it to them and then they get to decide what they do, which I would not be surprised if a lot of people use onchain wallets and get some form of yield, you know, as part of that. But I the thing I don't think people realize is this is not just crypto YC founders. Any founder in YC can elect this. And every 3 months we have to send $90 million to startups, right? And so this is like the start.

And ideally, this is maybe a way to bring some of them on chain. And I wouldn't be surprised if the future rounds, you know, are like in that way as well. And so that I actually think like we we don't talk enough, but capital raising like crypto has shown how amazing it is for capital raising and then capital transfer. And I think that's what we're, you know, really excited about as well. This is probably just a starting point for what we're going to do there.

What do you think of this new wave of people are calling it like neo finance?

Um, I I I think I like the term. I I think that honestly a lot of the crypto terms are a little like loaded around crypto and I think the vision I have and I think a lot of people have is that crypto is going to be everywhere but it a lot of people are not going to realize it the same way like I don't know like I use the internet I don't need to know the details of HTTP or like how SSL works um but the reality is that that those power those technologies are super super critical and so same thing is that I think I like the idea of like a neo finance or neo bank um and I'm excited for like the new wave of that is

great. And uh one last question is that if you could redirect every builder in this room towards one opportunity, what would that be?

I think one framing is just that there's a lot of infra and I'm really excited for more and more use cases. So if you're building that, you know, would love to see those applications in YC, but there like I think Jesse said this in his last moments was like all the foundations are there. The people in this room in this in this building have built the blockchains of the future. They built the wallets of the future. They built the stable coins.

Now I think a lot of it is like what problems in the real world can we go solve? And it's not like we need another 50 infrastructure things actually like a lot of it's there and the future stuff is going to keep being built as that stuff grows. So I would just really really push people in in that direction.

Amazing. Thank you so much.

Thank you so much Danny.