Brad Stephens, co-founder and managing partner of Blockchain Capital, has been deeply involved in the world of crypto from the very beginning – starting with Bitcoin mining and eventually investing in major companies like Kraken, Coinbase, and Tether. In this interview, he shares how Blockchain Capital grew from its early days, offering one of the first crypto-focused venture funds and pioneering unique strategies like tokenizing a fund. He talks about the key moments that shaped his journey, the importance of integrity when investing, and his thoughts on where the future of cryptocurrency is headed. He also touches on how blockchain can modernize finance and the role that AI will play in the industry.

Stephens has spent over a decade shaping the landscape of crypto, and his vision for the future of digital finance is clear. He believes blockchain has the potential to completely overhaul traditional finance, making it more transparent and efficient. He also talks about how stablecoins are changing the way we think about payments and the need for more inclusive access to venture capital. Through Blockchain Capital, Stephens is not just investing in the future of finance, but pushing for a financial ecosystem that gives more people the opportunity to create wealth.

The interview below is the full, uncut, and unedited conversation I had with Brad Stephens. I hope you all enjoy it. 

David: From mining Bitcoin with your brother to investing in big name companies such as Kraken and Coinbase, what were some pivotal milestones along the way that shaped Blockchain Capital to what it is now? 

Stephens: When at one of the first Bitcoin conferences here in SF, there were only about 150 people there, and I think I had probably two thirds of them back to my apartment for, like, a little after party. And, I mean, you knew the entire ecosystem, yeah, like, you know the founder of Polka Dot (blockchain platform) there, Gavin wood, you had, you know, all the early bitcoin core developers and it was a teeny ecosystem. So that was more in the early days. It was more about just having a belief in Bitcoin, much less blockchains or crypto or anything like that. And I think we probably invested in two thirds of the companies that existed at the time, which were the Krakens, the CoinBases, the Ripples, the Circles, Bitgos of the time. 

And probably the key thing, because we were outsiders at that point; at some point you have to add value to an ecosystem in the early days and not just be about the money. So we started, essentially the very first venture fund for crypto. But we did it without taking fees or anything, but we went around the top 20 CEOs of the only 20 CEOs in the ecosystem, and said, “Hey, give us $50,000 of your equity, and I will give you a piece of a fund that’ll have $50,000 of the 19 other competitors in the space. So if you’re the CEO, and you’re early in 2012 in the space, you had your entire net worth just aligned with your own company.

So you’re early, as a CEO, but you might be wrong, because half those companies are out of business, so it was a kind of a hedge that most of the CEOs took this deal, and with that, they gave up a teeny amount of their equity, but they got exposure to all these other companies out there. So even if their company went bankrupt, they then had pieces of everything else, and they at least got the directionally correct upward motion of the industry versus kind of having all their eggs in one basket. 

And for us, it got us our first fund – we didn’t charge any fees – and all we did; it was kind of like “network and schmooze” to get all these people to give us a piece of their equity. But at that point we had “fund one,” and we had 20 of the first CEOs in the industry as investors in us and in our network. So it was a kind of a way to jump into the industry and add value and kind of get off the ground. So that was probably the most important thing we did outside of being a miner. I mean, being a miner was fun because it showed you how the industry worked. You really kind of understood what Bitcoin mining was, when you’re a part of it. I think at the peak in 2013 of our mining we’re maybe about 1% of the global Bitcoin mining network. 

David: Wow. 

Stephens: And now that would take 10s of billions of dollars to build out. I did it in my apartment. Very different age.

David: How many funds has Blockchain Capital had since then? 

Stephens: Our second fund we raised shortly thereafter, and that’s the first kind of traditional venture fund where you have taken management fees and stuff. That was a $11 million fund, which is now probably up 40x. It has Coinbase in it, along with Kraken, Bitgo, Circle. It is the only fund in the world that has a piece – 1% – of Tether (a stable coin). Tether is probably the single most profitable company in all of finance, with 100 employees, it makes more money than BlackRock. 

David: Wow, really? 

Stephens: But instead of having 20,000 employees, it has 100 so it’s a little crazy. 

Then in 2017 we did something a little strange. We tokenized our third fund. So instead of going out and raising money from high net worth individuals or pensions or endowments or sovereign wealth funds or things like that, we, much like the ICOs (Initial Coin Offering) that occurred in 2017 where you basically just publicly say: “Here’s my wallet,” and people would send you Bitcoin or Ether, and however much they gave you, you then gave them tokens back of a public value. We did the same thing. So we raised a ten million fund for fund three, but we basically sold 10 million BCAPs, so $1 for 1 BCAP; sold 10 million of them, and in about 15 minutes, we had our fund three. That is what we now call an “evergreen fund,” meaning it just goes on forever. So we didn’t distribute capital. So now it’s about 20x, but it’s a token. It trades on token exchanges or security token exchanges. So that fund just kind of goes forever. Most venture funds go from eight to 12 years. This one is just an evergreen, so it’ll just constantly come down forever. 

And then our fourth fund in 2018, that was 150 million. And then our fifth fund, $300 million. And now we’re just finishing investing out of our sixth fund, which is about a $400 million fund, but that one also had a growth fund attached to it, so later stage and much bigger investments, and that was about $200 million.

David: When evaluating early stage companies with high growth potential to invest in, what are some key characteristics that make a particular startup stand out as an interesting investment opportunity?

Stephens: I’ll say this: in this industry, especially crypto – it’s a little different for VC (venture capitalist) – the technical elements of understanding distributed systems, blockchains, analyzing smart contracts really takes – almost necessitates – having engineers on staff that can really dive into the code and do a lot of the deep forensic digging of understanding really what’s happening beneath the surface, which you don’t need to do in seed stages (early stage / startup stages) as much in traditional finance or traditional venture investing. We differ a little because Bart and I, my brother, who’s my co-founder, we are 49 years old, so in the crypto blockchain world, we’re like really really old. Most of our team on the research side, are between 20 and 30. They’re very crypto native, digitally native. So it’s a much younger person’s industry. 

But Bart and I are trained more in traditional finance, meaning we are people investors, so I care much more about the integrity of the CEO. Can the CEO sell? Can they sell potential employees to come work for them? Can they bring a good management team in? Can they sell their customers to use their product? Can they sell people like us, investors to give them money? So their charisma and their ability to get people bought off on their idea and their vision is critical and extremely important.

Back to integrity. There are a lot of frauds in this space. It’s really easy to do scams in this industry. Money moves without traditional borders, so you can get away with shenanigans a lot more than you could in traditional finance. So having a good read on someone – are they trustworthy? do they have the right morals? – is probably one of the most important things at the seed stage. 

Once you get a little further down, you can look at their metrics. Look at their revenue growth, look at their headcount growth, look at their traction with customers, look at if the customers come back and do bigger orders? You can measure all those things in the later stages. From the early stages, you don’t have those metrics, so you really just got to go and invest in the person sitting across the table from you.

David:  What is your perspective on the future of cryptocurrency? Do you see it evolving into a more mainstream financial tool, or will it continue to serve a more niche market?

Stephens:  When we did our third fund, the one that we did as a digital fund instead of a traditional fund in 2017, I thought that was the start of what was going to be, what we call real world assets RWs. This is taking traditional analog, legacy, traditional finance, and just making it digital. 

We’ve seen all music has gone digital, all video streaming has gone digital, all communications, I mean, every aspect of our entire life has gone from analog to digital in the last 25 – 30 years, other than finance. Finance is stuck in the mud using technologies and coding languages that were developed in the 70s on hardware, old metal boxes that were developed in the 70s and 80s, and has had zero evolution of going digital other than the thin front end to it. So you might use a Robin Hood app, and it feels all digital and feels mobile, and has all the elements of a modern technology, but immediately, once you buy a share of Apple, you’re going through legacy technology systems. It’s all the legacy architecture of what the stock market was 50 years ago. 

So we were thinking, with these blockchains that are essentially better, faster, cheaper, more transparent, safer, more secure, more auditable, that we would see a gradual shift of all of traditional finance going into these blockchain rails and going digital. 

But you have basically the last two administrations: regulators, especially people at the SEC like Garrett Gensler, that’s just saying: “No.” And it was a kind of regulatory capture. The existing incumbent banks, financial institutions, clearing houses, trading houses, they didn’t want change. They had their business. They had their products that, even with their 40 year old technologies, they were making profit. And they didn’t want anything to change. And then the regulators kind of sided them and didn’t allow any change to happen. 

Now, all these regulations are being lifted. Banks are finally allowed to touch crypto we’re giving licenses to be able to have ATSs, which basically allow for exchanges to exist for digital assets. So my expectation is that in the next five years, maybe max 10, every single financial product that used to be done in a traditional way will all be finally done in a digital way. This won’t look any different if you’re on your Robin Hood app. Again, nothing will change, but all the “plumbing” beneath the surface will move towards being on blockchains. 100% of it. There’s no reason why you’d use legacy systems anymore, when you can use these systems that are better, faster, cheaper, more transparent. Even the SEC will be able to audit who owns what shares in real time. Versus asking hedge funds to, once a quarter, send them a list of what they own, and they’ll have no clue what the hedge funds owned between those three months from the last time they asked them. They’ll have a literal real time audit of exactly: did you go over 10% of a stock and you didn’t file? Or did you go over 20%? Or you actually bought something before a merger got announced. And they can find insider trading or find all the illegal, nefarious activities. So I think everyone wins, and it’s a more transparent, fair system when we go digital. You just had to have the shackles removed and allow for this upgrade to the modern age of digital finance.

David: With the rapid advancement in artificial intelligence, what role do you foresee AI playing in the near future in the development of cryptocurrency and blockchain technologies?

Stephens: That’s such a great question. We discuss this basically every week, non stop without a good answer. The antithesis, or the opposite of that question, is one of those objects over there (the small museum of old Bitcoin miners and other old crypto related technologies), which is one of those World Coin orbs. I don’t know if you saw that orb that was kind of spread out there? 

David: Yes, yes, I saw it.

Stephens: So Sam Altman of open AI also started a cryptocurrency called World but used to be called World coin; it is proof of humanity. So probably one of the most important things we’re going to need as we move towards an agentic world, or full agents in AI, is we’re going to need to know who’s AI and who’s not. So at least in the interim, something like World coin can prove that you’re a human. Much like the blue checkmark on Twitter or X: is this a real person? 

AI’s use is just going to be everywhere. It’s going to be helping you understand tokens better, helping you synthesize massive amounts of data more, helping you analyze trends more. I think all of the research, and we have about 30 employees, 15 of them are all in research when they have the tools of AI at their hands. I mean, there’s going to be 10x better researchers, faster, deeper knowledge, more aware. And then it’s when do these agents start working with other agents, and start totally building businesses themselves. And you start getting almost corporate structures of agents doing whole divisions of work. I mean, it gets really fascinating really quick. And just how much of it is under our control versus more autonomous. 

You have seen some of these Twitter accounts that are totally AI driven, yeah? And they just run amok and say crazy stuff to crazy followers, and sometimes cause panics. So it’s really hard to know where AI is taking us. 

I do think when you have autonomous agents out there, they’re not going to use the traditional banking system. So if one agent wants to use the services of another agent, they’re definitely going to be paying in crypto, probably stable coins more than anything. So you don’t have to have the fluctuation of exchange rates. The rise of stable coins is probably the biggest, most important thing that’s happened in crypto, even though they’ve been here all along. People don’t want to pay in Bitcoin. People don’t want to pay in Solana or Ether. Their exchange rates are always moving. You get micro tax bills, and all of a sudden, you buy some Eth, and then you go spend it somewhere else and if the price of Eth went up by a few dollars, that’s technically a taxable gain. So you’d have to be reporting that to the IRS, when really, you were just treating it as a currency. So for a lot of reasons, a lot of these payment technologies, or belief that cryptos would act as payment mechanisms just didn’t occur. But with stable coins, where it’s just $1 in a bank and now a digital dollar on a blockchain, real simple – one to one – that’s opened up massive amounts of payments. That’s why you’re seeing Stripe get into this, Visa, and AmEx, and anyone that deals with payments is all hyper-focused on stable coins right now, because it’s just the future of digital payments. 

And then, if you’re the United States and you want to keep the reserve currency as the US dollar, that’s essentially the single greatest weapon the US has is people hold the dollar. Tether alone has 500 million people outside the US that hold Tethers. So talk about trying to get the US dollar in the hands of people internationally that are then aligned with our country. You used to just do it with countries. Great Britain would go and buy, a billion dollars of, US Treasuries. And then, Venezuela might go buy a billion dollars of our treasuries, and China owns tons and tons of our treasuries. So when these other countries own our treasuries, they align with the US, because they don’t want the dollar to go down, because that’s their savings. When you have individuals all around the world now, 500 million of them, owning the dollar, you have a lot of people that care about the stability of the US, more at the grassroots level, not just the country level. So it’s really good for global stability as well.

David:  That’s really interesting. You have kind of touched a bit on politics, which I’m going to go into with this question: in light of the new administration and the anticipated support of crypto, what are your thoughts on government involvement in the crypto space, and how might it impact market growth and innovation?

Stephens: We’ve had no rules ever from the government. They wouldn’t tell us what’s right and they wouldn’t tell us what’s wrong. I’ve been in this industry for 13 years, and I’ve never gotten anyone in the government to say what we can or can’t do. What they do is they’ll come sue you if they don’t like what you do, even though you had no clue what was right or wrong. So that lack of any set rules has been horrible. It’s like trying to play a sports game with no lines on the field and no referees. And it’s just a free for all, and if anything, people just walk away because no one wants to play a game with no rules. So just having some rules set in the ground, which are going to be official soon. Legislation is coming out in the next three to six months. Just to give us some market structure will be fantastic. Here’s an interesting thing: of our 200 portfolio companies, almost all of them have moved outside the US. And most of them have these rules where there’s only a few countries that aren’t allowed to use their products. If you’re in Iran, you can’t use the products. If you’re in North Korea, you can’t use the product. And if you’re there in the US, you can’t use the product. So that’s our company: North Korea, Iran, and the US are the three sanctioned countries from most of our portfolio companies. But people VPN do it, but you’re then forcing people to do illegal actions, to use products. So just having some rules of the road in this new administration is going to be great. 

On the other hand, I don’t really want the government getting involved too much. Like I don’t think they should be buying crypto. I think it’s fine if they confiscate some bitcoin and they want to hold on to it instead of selling it, and I think that’s a smart idea with that strategic reserve, but we shouldn’t be going out there, taking taxpayer dollars and buying a bunch of random crypto. It just doesn’t make sense. It should be in the private industry, not the public. So I’m excited about the administration. It is pro crypto, pro innovation, gonna give us some rules, and then hopefully take the handcuffs off and allow companies to innovate and flourish. So it should be a golden era.

David: About the Bitcoin reserve: Trump has now officially made the Bitcoin reserve, and he has plans to utilize crypto to address the American debt crisis. How do you foresee the government is gonna leverage crypto to tackle such a significant economic challenge?

Stephens: And I don’t think it’ll address any of that. 

David: Really? Why not?

Stephens: At least it won’t address it directly. It definitely will indirectly. 

I mean, look at the Bay Area. We are the source of innovation for the entire country. Go down the list of all the biggest tech companies in the world that are paying the largest amount of taxes, that have created the wealthiest people, that are then paying the lion’s share of all the taxes – the Bay Area is probably responsible for a third to a half of all the taxes generated by our country. And if we push all that innovation offshore, we’re are in big trouble. We’re not going to have that tax revenue 10, 20, 30 years from now, and we’re not going to have the biggest companies in the world coming out of the US. So at least bringing these companies back can make it a safe place to build businesses. You’re going to get wealth created in our country. You’re going to have tax revenues in our country. And that type of growing our way out of debt, is the only real way to grow our way out of debt. You can’t tax your way out of debt if you don’t have growth. So our growth is critical, and that means you need to bring these companies back. So that’s probably the biggest change that needs to happen, is we’re not pushing innovation offshore.

David:  What does the future look like specifically for Blockchain Capital? Are there any specific areas or projects you are particularly excited about?

Stephens: I think back to an earlier comment, we just were hiring more and more engineers than traditional financial analysts. And I think if I was to fast forward one, two, three, years, I think having a vast amount of what we do now, is going to be done by AI, and realizing how we’re specializing and using these tools, I think our workflow, our processes, our sourcing, our almost every single aspect of what we do here will be radically augmented and shifted through AI. So that’s going to be the biggest change out there. 

The other idea, we get our capital from big pensions, endowments, and really huge pools of capital. I’d like to move back towards what we did with fund three. Our fund three that we raised in that 15 minute window, we had some investors give $5, we had one investor give a million dollars. We had 76 countries represented, and there were about 1000 individuals. So instead of venture capital just making money for the already existing wealthy to be more wealthy, it’d be really, really nice making things more equal and accessible to all, to be able to lower the barrier of entry and allow for someone with just a small amount of money to participate in these types of funds, as well as the wealthiest people in the world to participate. So I don’t think there’s a kind of democratization that I think needs to occur. Yeah, of access, the concept of an accredited investor is actually punitive; it enables the wealthy to get wealthier and those below the accredited line to have no access to this type of wealth depreciation. And I think that change through blockchains will be able to enable it.

David: What advice would you offer to aspiring entrepreneurs who are looking to enter the blockchain and crypto tech space, what key factors should they consider before embarking on this path?

Stephens: The greatest thing about this industry is there are no barriers to entry. If you want to take $100 and go turn it into 100 Tethers or USDCs or some stable coin you can. Or you want to go participate in every new Defi app. You can go get involved with meme coin pumpings. You can go buy an NFT and join a community. Most of these quote companies are really just protocols. And these protocols are communities, and these communities are built by the individuals that participate in them. And if you go get involved, like for example, there’s a new derivatives exchange that’s taken off called Hyper Liquid, and it’s now a $8 billion company. But it never took any venture capital money, never took any outside money. They just created a really good product, the community got involved, and everyone who participated used the product and helped the product. 

And I think that this really is the future of venture capital and finance, in which the users of the product should benefit when the product goes hyperbolic. The early Uber drivers should have been paid in Uber stock and gotten rich with the Uber stock and gotten one share of Uber stock every time they did a ride, instead of just being paid hourly. So that kind of shift away from the management team and the venture capitalist hoarding all the wealth from a successful company; you want the community to reap the benefits. And that’s what these distributed blockchains are doing for these protocols. So anyone who really has a passion to get in there and try these protocols: try these new products, get involved with the message boards, find a way to help out. You can jump in without even having a job and actually make money by being associated with companies or protocols that take off and do well. So it’s almost like everyone can be your own venture capitalist with your own time, as long as you’re helpful in the community and help make something become something really big.

David: Thank you. That’s it. Thank you so much for your time!