Q&A with Layer1’s Alexander Liegl: How Grin could be the most important crypto launch since Ethereum
Grin is the dominant coin to make censorship-resistant money belong to the user, not the issuer
Layer1 is the first activist investment and infrastructure platform for cryptocurrencies, taking concentrated bets on promising blockchain protocols and builds critical technology to support its global impact. Now, the platform is supporting Grin, a highly-scalable privacy coin.
CEO and co-founder of Layer1, Alexander Liegl, is a serial entrepreneur with a career focus on the intersection of technology and financial markets. He graduated from Stanford University with a double major in Applied Mathematics and Philosophy. He was the first-ever undergraduate analyst at Stanford Management Company, the university’s $25B endowment fund. At the end of his sophomore year, he founded Bessel Capital, an institutionally-funded quantitative hedge fund that specialized in trading volatility products and derivatives.
After hearing about Bitcoin in 2012, Liegl became obsessed with the concept of non-sovereign, censorship-resistant money and had a small-scale mining setup in college (while taking advantage of the free electricity in his dorm).
Before founding Layer1 in 2018, he was first a research analyst at Protégé Partners and then later became CEO and co-founder of the AI-powered fraud detection platform for government tax agencies, Apex Labs.
As cryptocurrencies emerged at precisely the intersection of tech and financial markets, Liegl found that it was a natural next step for him.
How did Layer1 come to fruition?
On one hand, when investing in traditional markets, your power as an investor has always been limited: if you purchase some Facebook stock, you essentially do not have any impact on their engineering or product decisions. There is no way you can contribute to the company’s technology stack as an outsider. Even if it was certain that your work would increase Facebook’s value, and thus public valuation, the company’s technology stack is proprietary and closed-off to outsiders.
This, too, holds true for private markets: if you are a venture capitalist, you are not able to significantly alter the trajectory of a company beyond connecting founders with talent, supplying capital, or deliberating business strategy. Activist investing is the exception, but this pertains solely to business strategy and executive board decisions, which, again, leaves no opportunity for the contribution of value-generating engineering work.
On the other hand, the financial incentives for engineers in major cryptocurrencies are weirdly misaligned: because these are free-and-open-source projects, contributors are largely volunteers. This means that they either need to be highly ideologically committed or have extremely significant investments in the currencies they are working on, such that their engineering contributions may increase the value of their investments such that their time is well-spent. (One of the outcomes of this misalignment is a proliferation of low-value ICOs, which is an easy cash-grab for engineers in this space.)
As a consequence of the misaligned incentives, there are actually only very few engineers on many of these projects. Regardless of what metric you go by to value cryptoassets, i.e. whether you measure value by market cap or estimated net capital inflow, this market offers extremely outsized returns on engineering manpower.
It is noteworthy that most cryptocurrencies are poorly differentiated from one another. If product differentiation is an outcome of engineering power, then it stands that at the economic margin, additional engineering power produces a super-linear appreciation for a given currency. It is also noteworthy that the market dynamics here are such that a superior product (cryptocurrency) will not just induce some investment (capital inflow from outside the ecosystem), but will actively drain from inferior coins. If crypto on a whole appreciates in the future, then the most appreciation will be had by the currencies with the best technologies (which may be abstraction layers beyond the core protocol, such as Lightning). Consequently, activist investing is the dominant strategy for the cryptocurrency asset class
How does Layer1 work?
Layer1 is an infrastructure and investment platform. We take concentrated bets on promising blockchain protocols and then build critical technology to support their global impact. We believe that the crypto investment company of the future needs to be radically different from status quo: an engineering organization first and an investment fund second.
As the first activist investment company in the space, we actively support our investments with an engineering-first approach in order to align incentives between open-source developers and investors. Developers can work on projects they are ideologically passionate about and investors have exposure to asymmetric return profiles. It is analogous to a hybrid of Blockstream and Polychain.
How is it changing the capital space for cryptocurrencies?
The fundamental paradigm-shift we have observed is that cryptocurrency investors have market-moving power. Not only can they purchase cryptocurrencies expected to increase in price over time, but they can also actively shape the fundamental technological value of those assets. In comparison to conventional asset classes, like stocks, cryptocurrencies add an additional dimension to the opportunity set for investors. Consequently, investors recognizing and taking advantage of this novelty can influence the outcome of their own investments.
The rationale that underpins our conviction in the Layer1 investment strategy is that: firstly, cryptoassets are highly suitable for activist-style investing because cryptoasset projects like bitcoin, ethereum, etc. are open-source. Anyone can contribute, including teams of organized engineers deployed by a strategic investor.
Secondly, cryptoassets are technologically still very early-stage. As an investor, it is not satisfying to rely on unaccountable volunteers on immature projects. By actively contributing to the underlying technology, we not only create alpha as an outsize return on the time of our engineers, but we act defensively for our investors by contributing to the competitiveness of the underlying asset and by having dedicated engineers contribute to these cryptoasset projects.
This strategy has a long-term positive feedback loop where profits enable hiring further engineers, which give us more market-moving power. Over time, we want to bring in-house the sector’s most important engineers, and to perpetually improve our positioning to give us as much market-moving power as possible.
Could you tell us more about Grin and why it is the first altcoin that Bitcoin maximalists are excited about?
Launched on January 15, 2019, Grin is a highly scalable and private cryptocurrency that, due to its exceptional technical innovations and anonymous development team, has drawn significant interest – it seems analogous to Bitcoin in 2008. Grin has no pre-sale or ICO; its supply is issued only by mining its novel Cuckoo cycle Proof-of-Work algorithm.
Grin is an implementation of the Mimblewimble protocol, which uses proven-and-tested cryptography to let Grin be the first coin to offer scalable privacy. Grin’s fair launch, anonymous founder and development team, and strong privacy guarantees make it the first altcoin that Bitcoin maximalists are excited about. Its genesis and ethos is highly similar to that of Bitcoin, which creates a mythology around the coin that is fascinating to many developers and investors.
How are you planning to help grow the Grin network?
We are an engineering organization first and an investment company second. Therefore, we see our contribution to Grin from a hands-on and engineering-first angle. We are devoting engineering resources towards daily open-source development by Layer1 engineers that support the core developers, building a turnkey cold-storage custody product, establishing mining infrastructure, and researching Confidential Assets to enable asset-issuance on top of the Grin blockchain.
What are your plans for Layer1?
Layer1 wants to have exposure to the full cryptocurrency stack. Therefore, we are developing technology ranging from mining on layer 0 to infrastructure on layer 2 and above. We want to support the coins we find promising with an unparalleled depth and breadth in engineering resources. In the future, we plan to leverage our full-stack approach in order to be the category-defining cryptocurrency investment company.
Are you actively looking at other digital assets to get involved early with?
Our current focus is 100% on Grin. There are some other projects we find interesting, however, at the moment those are only high-level considerations.
Anything else you would like to share with our readers?
We believe that Grin is the most important cryptocurrency launch since Ethereum. It is the first coin to offer scalable privacy while preserving the ethos of open-source development and meritocracy. From a 30,000 foot view, the world is moving towards increasing interest in privacy. There is a tectonic paradigm shift happening where technology-enabled privacy guarantees are switching from via negativa to via positiva.
Grin is the dominant coin to make censorship-resistant money belong to the user, not the issuer. And due to this reason – being a catalyst for the order of magnitude improvements towards default privacy – it is the most important cryptocurrency launch in recent history.
We want to thank Alexander for taking the time to answer our questions. We look forward to hearing more about Layer1 and Grin in the future. To learn more about Layer1 and Grin, visit https://www.layer1.capital/ and https://grin-tech.org/.
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