Josh Chen (Princeton ’14) on Basis and the Evolution of Cryptocurrencies
Hey awesome reader,
I’m very pleased to bring you the thoughts of Josh Chen ‘14, who co-founded the cryptocurrency startup Basis with classmates Nader Al-Naji ’13 and Lawrence Diao ’14. Cryptocurrencies are notoriously volatile, which is one of the primary reasons people rarely use it to pay for things (other than sketchy Dark Web stuff). Basis aims to solve this problem by creating a token whose supply will expand and contract to keep its value at about a dollar, thus making it practical for everyday transactions. To date, the company has raised $133 million from investors including Lightspeed and Andreessen Horowitz.
1. Where did the idea for Basis originate from?
In our junior year at Princeton, my two co-founders, Nader and Lawrence, discovered Bitcoin. We immediately thought to mine it (think free campus electricity). This was pretty basic back then — Nader was able to mine 23 Bitcoins on the rig shown, and Lawrence was even able to mine a Bitcoin on his laptop.
This got us pretty excited and led us to explore various ideas related to Bitcoin — Nader took a class on American Economic History where he learned more about monetary theory (ECO 370 with Prof Bogan), and we considered writing up a trading strategy to arbitrage Bitcoin across different exchanges. However, before we got to that, the Mt. Gox hack happened. This came as a huge blow to us, and made us think the risks around Bitcoin made it a tough bet at the time.
Fast forward a couple years to early 2017, and we had all taken various jobs in industry. (Note: This is something I’d highly recommend, especially if you want to start a company — there’s so much to learn from other companies that have done things well.) Nader has always been one to explore various projects in his spare time, and around this time, he started a blog where he would write about his various ideas, from whether to rent or buy a home to a layman’s guide to Bitcoin. The latter thread inspired Nader to reflect on where crypto had progressed since college and on how the space might evolve to become more mainstream.
One key theory Nader had was that price volatility was one of the biggest blockers to mainstream crypto adoption. Namely, while Bitcoin might serve as a valuable “digital gold,” Bitcoin’s price fluctuations made it hard for anyone to use it as money — if Bitcoin’s price was $1000 one month and $2000 the next, it’s hard to pay salaries in Bitcoin, set prices in Bitcoin, make loans in Bitcoin, etc. Nader thought about and researched this for some time, and then wrote a blog post on the topic. This eventually evolved into the Basis whitepaper, led Nader to quit his job at Google, helped him raise a seed round, and drew him to bring me and Lawrence on as his co-founders.
2. What was the moment or series of events that made you and your co-founders realize that Basis was worth betting your career on?
I don’t like to think of starting a company as a move that risks your career. If you set out to create something of value, and if you treat the people you work with with integrity, you aren’t risking your career. You’re building it.
This isn’t to say there aren’t risks in starting a company. You might lose your income for a period of time. You might not get your old job back. If you fail, you’ll disappoint those who bet on you. So of course you’ll want to mitigate these risks, whether by building up savings or by working like a dog and treating your partners fairly.
That said, as far as the personal side of these risks goes, I’d say Princeton students are generally blessed with incredible safety nets, especially a few years into their careers. If you fail, you can generally pick up where you left off. This is a superpower that gives you immense opportunities.
In fact, the biggest risk for most Princeton students is probably the opportunity cost of failure, i.e., you miss out on a few years of career growth in your existing track if you start a company and fail. However, if you’re worried about this, then you almost certainly don’t care enough about the company you’re building. Turn around, build up more of an edge, and build more of a credible faith that you will create value for the world. Once you do this, you’ll see your career risks disappear.
3. What experiences at Princeton inspired you to go into your field and contributed the most with developing your entrepreneurial skills?
Number one is friends. My friends at Princeton have moved on to do some very interesting and fun things. They challenge me and have exposed me to many great opportunities.
Aside from this, I’d say the skills I deploy the most in my work today are (1) reasoning from first principles, (2) trusting that reasoning to make bold bets, and (3) drawing buy-in from those I rely on. It’s actually hard for me to say that I directly learned very much of this at Princeton.
However, I do believe Princeton indirectly gave me many opportunities (some through the friends I mentioned above), and furthermore exposed me to many things I would’ve otherwise had no conception of. I went to a large public high school in California where I was the only student in memory to go to Princeton. I would have a very different idea about how the world worked had I not gone to Princeton.
Some of these opportunities included classes such as Ed Zschau’s last semester teaching High-Tech Entrepreneurship (EGR 491), which I recall squeezing into by sitting into every class until he let me in. I also tried to take the toughest classes I had an interest in, such as Ramon van Handel’s Stochastic Calculus (ORF 497) and Robert George’s Constitutional Interpretation (POL 315). I served as USG Tech Chair for a year, which helped me learn how to be a better leader. My internships, including my first summer experience through the Keller Center, were also incredibly valuable to me.
4. With all the developments and potential of blockchain, where do you see the banking industry in 10–20 years and how does Basis fit into that future?
The first crypto wave was centered on crypto trading (or some may say, crypto “gambling”). Many projects gained a following based on the promise of decentralization. However, decentralization as currently implemented does not offer most users sustained value over existing centralized services, and now that retail interest has died down with inevitable bust, this wave is largely over.
I believe the next crypto wave will come when some projects are able to launch products that successfully leverage blockchain technology to deliver user value. This can come from decentralized projects for which decentralization offers better guarantees for users that deliver differentiated value on day 1 (I’m bullish on Orchid Labs, and do not own any share in it), and also from centralized projects that can tokenize real-world assets to expand access to trusted investment products. The former requires much technical and community-building work. The latter is a heavily regulated space. These are the obstacles that must be overcome.
I can’t speak about Basis at the moment, but I do hope to share more soon!
5. Book(s) that you think should be required reading for every person on the planet?
It’s hard for me to suggest books that work for everyone, but recent books I enjoyed were Regulatory Hacking, House of Debt, The Power of Habit, and Bad Blood. I found Hillbilly Elegy an interesting, though less related, book as well.
The first year out of college, I really enjoyed reading autobiographies, with Total Recall (Arnold Schwarzenegger) and Losing my Virginity (Richard Branson) being the most memorable.
I read most of my books on Audible at 3x speed, which I find very useful for absorbing a lot of material quickly.
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This interview is brought to you by Kelvin Yu ’21. Reach out to him here for questions or comments.
That’s it for this week. As always, if you are involved with entrepreneurship in any way, role, shape, or form (VC, engineer, founder, etc.) we’d love to talk to you :)
