The Web3 Login for Everyone - WAGMI Ventures podcast

Tanner Gesek from WAGMI Ventures hosted Dynamic's co-founder Itai Turbahn in a conversation about downstream possibilities from Dynamic for crypto at large, reaching early conviction on the authentication and authorization problems Dynamic is tackling, what crypto’s getting right (and wrong) in 2023, & much more. You can read more here, and listen below.

Read the transcript:

Itai Turbahn: 

The value here is that Uniswap as a value provider should exist regardless of whether you have a wallet or you don't. It should just be a way for you to convert thing A to thing B in an extremely market-efficient way or some real-world assets. Asset providers that allow you to buy T-bills, they allow you to buy energy-related things that allow you to buy real estate should just allow you to do that and leverage crypto rails, but you should not necessarily you the end user should not necessarily need to know about any of this complexity. Just like no one expects you to go to Amazon and know what OAuth as technology is, they just expect you to be able to click log in and have things work.

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Tanner:

Hey everybody. Tanner here with WAGMI Ventures. On today's episode, we have Itai Turbahn, co-founder and CEO at Dynamic. Hey everybody. I'm here today with Itai Turban, co-founder and CEO at Dynamic Itai. How are you doing today? What's up?

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Itai Turbahn:

I'm doing great. How's life?

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Tanner:

Life's okay. I'm glad we're chatting today. It's going to be a good conversation. So yeah, I'm grateful for your time coming on. So here to start, maybe I'd love to hear maybe two dimensions of your story. Maybe first just professional journey, what have you been up to? And then second, there's always that interesting parallel journey of how did you get into crypto, how did this world jump out at you as something that was worth your professional, professional time and professional ambition?

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Itai Turbahn:

Yeah, absolutely. Let me tackle the first and then I'll go into the world of crypto. But yeah, so professional journey-wise, so both myself and my co-founder Yoni, we grew up in Israel, born and raised, served in the Israeli Defense Forces Army Intelligence and then we actually met at MIT. So we both did our undergrads in MIT together. They're like two Israeli undergrads at MIT every year. So we had to be friends. It wasn't really a choice and we've known each other for 17 years at this point or 18 years. So we've known each other for a very, very, very long time. We've been long-time friends for more than I can remember, maybe too long I would say. But we've known each other for a while and after graduation, we continued kind of always hanging out and always thinking about startup ideas. So Yoni on his side went more on the engineering track, so he did a master's in computer science as well.

He worked at Google at Gil Group at even Financial as a VP engineering. And so on my end I mostly stayed on the product business track, so worked at IBM research, worked a consultant at BCG. Then my MBA at Harvard had a startup company, which was travel tech. And throughout all of this, we kind of kept jamming, and I'll come back to the crypto question in a second, but we kept jamming on startup idea. We actually applied unsuccessfully to AY Combinator I think in 2012 at one point. So a very long time ago. And we continue jamming, but if you look back to our history and look back to our text messages, I would argue that probably 75% of them were crypto-related. So we've been passionate about this space for probably nine or 10 years. I think we bought our first Bitcoin in 2012, 2013.

And for us, that was a critical component of our conversations. And so we continued working on different things. We actually got a chance to work together on the engineering side, the software engineering side at JUUL Labs. And then we worked at Commenter, which was a coffee company for a little bit, which I highly recommend for anyone listening to this podcast. I might be biased, but check it out. But at that point we said, look, we really want to start a company together. We wanted to start wood for a while, and it became very, very clear to us that the thing we're passionate about and we have been passionate about for a very long time as crypto. So it was a no-brainer to start a company there. And I'll pause here for a second, but essentially that's kind of our journey plus how we got into crypto. We can dive into either or dive into the crypto side as well.

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Tanner:

Love it. Yeah, that's perfect explanation. So let's talk about what dynamic is. That's kind of the culmination of all of this thinking together with yoni. So maybe tell us a little bit about what Dynamic does and really what your team seeks to enable with what you're building.

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Itai Turbahn:

Yeah, absolutely. So actually I'll tie it into what I just talked about, which is getting into crypto. So we've been passionate about crypto for a while and over the last couple of years our passion is it was very clear to us that is going to be the way that financial infrastructure globally going forward. It was very clear to us that over time an open infrastructure is going to win over a closed, slow moving infrastructure for financial transactions. And as NFTs came to be, as things of that sort came to be, it was very clear to us that it wasn't just financial infrastructure, it's also identity infrastructure and it's also everything on top of that. So communication, infrastructure, et cetera. So the concept of Shared Rail was really important to us and that kind of was the root for dynamic. It was very clear to us that the way in which you're going to interact with the world in five years and 10 years is not just going to be basic email login and calculation, it's going to be wallet based interactions.

They enable multiplayer mode between applications. They let you transfer money very quickly. They let every app essentially become a Venmo in a way. And so it was very clear to us that to enable those use cases you need of a web three first authentication company, a little bit like an auth zero enabled bunch of use cases in Web two by abstracting away the entire kind of user management side of something, you have to rebuild from the grounds up for every company. We thought, look, we need, there needs to be a company in web three that abstracts away that authentication and wallet management complexity for users. That's where Dynamic comes in. So the goal for Dynamic was essentially to be your all in one web three authentication company. And we started around December, 2021. We raised a seed from a 16 Z and founders a 16 Z and First Round Capital and we've been going since then.

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Tanner:

Love it. Okay, perfect. So I'm curious, you talked about from a high level obviously what you're working on and what some of the initial thinking was. I think I'm curious about conviction, especially as you're looking at across the landscape of Web three last year and the year prior. As you guys are evaluating potential problem spaces, what was it about this particular problem that felt like you had enough conviction that this would be worth the investment you knew that it was going to take to really tackle?

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Itai Turbahn:

Yeah, actually the conviction came pretty quickly in the sense that if you first all you needed to do to know that there was a problem in the way current authentication in web three, ignoring better wallets and bringing in more folks into Web three, just within web three, all you needed to do is click on any Connect Wallet button or any Mint in 2021 and 2022. If you experienced that once you knew there is a problem in how that experience works, it was broken, it worked 50% of the time. It worked with a subset of wallets. It was unclear what the difference between a connect and authenticate was. It was super confusing. Each wallet had a different experience around it and all of a sudden there was an influx of wallets, influx of embedded wallets. It was kind of a mess. So the observation for us was that, look, a hundred percent of folks in this industry are facing this, and if you're a big company like Open Scene Unis Swap, you might have resources to tackle this internally, but everyone else has to reinvent this and build this from the ground up.

And we obviously weren't the only ones that noticed this, right? So during that time, you would also see great libraries like Rainbow Kit or Connecticut come up that tackle kind of subset big subsets of this problem as well from their perspective to abstract this away. So the problem, it was a combination of really two things. A combination of look, this problem top down will exist in a very similar way to how it exists in web two and how it exists so that everyone in Web two uses an authentication provider, but it will actually exist even more in a more painful way in Web three because it's a fast moving space, standards are still being created. Everyone's facing a double challenge of handling their existing web three users while trying to increase their funnel and bring in folks that don't care about crypto to use their service. And so it was very clear to us that was an extremely painful pain point for folks over the last two years. It still exists as a pain point, but now you see companies like Dynamic come up and start to abstract that away with an actual SaaS service.

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Tanner:

Makes sense. Okay, cool. So I'm always curious, especially at this point in the conversation really what possibilities or downstream effects of dynamics succeeding get you most excited these days and has that changed from the beginning?

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Itai Turbahn:

Yeah, so when we talk about dynamic internally, we come back to a single point which is can we enable experiences that could not have existed beforehand? Dynamic succeeding inherently means that folks are able to build companies and experiences that weren't possible before. So as a good example, if we do our job correctly, you should be able to spin up a Venmo equivalent product or essentially based on crypto and based on crypto rails and works globally within minutes because we allow the abstraction of if you have a third party wallet, if you don't have one, create one with embedded wallets and pass keys and account abstraction. But that is a type of business that was extremely difficult to build before but now can potentially exist, right? There are types of businesses within real world assets, there are types of businesses within social fi that or Defi that could not exist or the hurdle for Normies to access those services was so high that they could not get their value proposition across if dynamic succeeds.

And our fundamental goal is to allow these companies to focus on the actual innovation and abstract away the entire onboarding process. And we're successful if more of these companies are able to thrive and kind of build giant businesses that leverage essentially crypto rails, but don't necessarily create a crypto focused experience, right? The value, and I'll give an example and sorry for the long monologue of an answer, but the value here is that unis swap as a value provider should exist regardless of whether you have a wallet or you don't. It should just be a way for you to convert thing A to thing B in an extremely market efficient way or some real world asset providers that allow you to buy T-bills that allow you to buy energy related things that allow you to value real estate should just allow you to do that and leverage crypto rails. But you should not necessarily, the end user should not necessarily need to know about any of this complexity. Just like no one expects you to go to Amazon and know what OAuth as technology is, they just expect you to be able to click login and have things work. So that's kind of where we're spending our time and if we're successful, that's what we'll see is more of these businesses being enabled.

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Tanner:

Super cool vision there. So makes a ton of sense. So I'm curious too, I guess at the beginning of this process there's always surprises, right? Good and bad. I think I want to fixate kind of on the good surprises here where what were maybe one or two things that once you guys got started you realized, oh man, this is turning out to be maybe a bigger problem than we thought or any category of surprise. But what would maybe one or two of those surprises be that were positive for dynamic?

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Itai Turbahn:

Yeah, that's a great question. I think there're a couple. The first one is experiencing bear markets from the outside looking in previous bear markets, folks get a sense of, hey, crypto is dead, right? So bear market in I think 2015 Bear Market in 20 19, 20 20, the sense from outside looking in is always, hey, crypto's dead. But one of the big and hugely positive surprises we've seen is that the amount of builder activity is growing, growing the amount of inbounds we get every month, the amount of cool new things that are being built is fundamentally growing and it's growing very quickly within the crypto industry. We call this internally builders or building, which is this really cool surprise because again, from the outside looking in, it feels like, hey, crypto's out of the headlines, folks that look at crypto prices, prices not something we focus on, but prices, I dunno, fluctuate or whatever.

And folks get a sense of, hey, crypto is in this huge winter, but if you look internally, builders are actually fundamentally building lots of innovations happening in the market. And that's this really cool surprise because it means, hey, in this dire of a market, there's so much activity, there's only massive upside here, and that's really, really cool. It's both really cool because we get to work with these companies every day and we get to work with founders that are building cool stuff. But it's also really cool because there's a disconnect between the narrative and what we're seeing from being inside and seeing some of these really cool things being built. So that's kind of fundamental surprise number one, surprise number two is the sheer sides of the market. We are getting more and more bullish on the fact that we think everything turns into a wallet.

In five years we thought it will take 10, we now think it'll take five. You can see anywhere from the visas of the world to the Nikes of the world double down to the, I think if Fidelity had articles about Bitcoin double down on everything crypto because there's this really interesting understanding of hey, shared rails are actually fundamentally better for the industry and they can create a bunch of this innovation. So the second positive surprise for us was how wide of a breadth crypto has and how ingrained it is going to be in our day-to-day life. And we thought it'll take longer. I actually think it'll take a shorter period of time. I think if folks open their phone in five years and click on any app, it will have a crypto component to it. It won't necessarily look like crypto, you won't necessarily know it's crypto, but when you transfer money from one thing to another, when you take an asset from game A and use it on game B, it's going to have those crypto rails in the background and the speed in which that is being adopted is accelerating. And that was a huge second surprise to us, just this sheer breadth of potential breadth of this market of everything becoming a crypto wallet.

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Tanner:

Love it. Okay. Very cool. So making a quick transition here kind of on the way towards maybe zooming out and talking about the space a little bit, but you had recently tweeted counterfactual addresses is one of the coolest concepts in AA wallets. And I was curious, what is a counterfactual wallet and why are you so excited about it?

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Itai Turbahn:

Yeah, absolutely. So what we're seeing in the market, so taking half a step back, I think one fascinating discussion that's happening now is the discussion around embedded wallets, right? Meaning you go into a website, you log in with your email, your social or your phone number show BDF profile. So your Google or Facebook and you create an account and that account can be a wallet. Through that experience, you might add a second factor, like a Paki, like a face ID or a touch id. But essentially you have logged in through a full web two experience and you've got a wallet on the other side of that, right? You have completely abstracted away crypto. And one fundamental and super interesting discussion that's happening now is what is the right technology stack to create that experience? And we're seeing folks kind of consolidate into this really interesting technology stack, which is ies, meaning face ID or touch id, that Google and Apple are pushing really hard.

But then an additional layer, which is an account abstraction layer, which turned that wallet that was created in the background into this really smart wallet into a wallet that lets you add rules, meaning, hey, if this is coming back to the Venmo example that we had, this person that logs in can automatically transfer up to a hundred dollars to a friend, but over a hundred dollars, they need to explicitly sign or I'm creating game and I want to sponsor the gas fees of the blockchain while they play. So all these experiences are created by the second part of that. What we're seeing is the ideal stack, which is the pasky account abstraction stack. So they're created by the account abstraction stack. What's called on the more technical side for listeners is the ERC 4 3 3 7. So the ability for you to create account abstraction, the account abstraction, and I'm getting a little bit more technical here, but account abstraction is essentially turning your wallet, the embedded wallet that you created into the smart wallet with all those rules that we talked about.

But it costs money because you have to deploy it on the blockchain and you have to pay gas to deploy it. And then it comes back to economics. I have a free user, they just signed up to my account, how much money do I spend to acquire that user? So it comes back to any web two company lifetime value, customer acquisition cost, and deploying that smart account costs money. Now, all of that was a prerequisite to explaining counterfactual addresses. Counterfactual addresses are this really cool concept which let you create, get a wallet address for a user while still not paying that gas fee while still not deploying that contract on chain. So essentially it defers your customer acquisition cost as a developer, as a website until later in the process. So what that actually means to a customer is you go into a website, you log in with your email or your social account, social media account, you create your account, you can start getting things sent to your account, to your wallet, but only when you want to pull something out and sign a transaction, you essentially pay a gas fee or the website pays a gas fee.

So that's what counterfactual addresses are. There are ways for you to start interacting with your wallet before you actually have to deploy it and pay a bunch of gas fees, et cetera. It's this really cool concept. There's both a really cool mathematical concept, but it's even more cool in the sense that it lets you create experiences with lower customer acquisition costs, which is a critical concept in any business. Very

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Tanner:

Cool. Okay, that makes a ton of sense. So I'm curious, what do you think crypto is getting right in 2023 and where do you think we could be doing things a little bit better? Granted we're in this kind of crazy market and still kind of dealing with the consequences of last year, right?

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Itai Turbahn:

Yeah, absolutely. I think there are a couple things. I'll talk specifically about embedded wallets, which I think is where a lot of innovation is happening, but then I'll mention a more broad point. Specifically, crypto has swung from one side to another very quickly. What I mean is it's swung from the concept of I have a single account, my ma a mask and I use that across all services and the name of the game is getting me set up with the single account and then I can access my unis swap and my open see and so forth and so forth. That is swung very quickly over the last year to the opposite, which is I am a website, I just want people to log in, I'm going to create a website bound wallet and folks don't need to know about meta mass, they don't need to know about Coinbase wallet, they just interact with my site.

On the one hand, it simplifies onboarding on the other, it kind of ruins the magic of crypto, which is you can log in everywhere with a single account, you can essentially do single sign. And so that swing has probably gone too far from one direction to too far the other direction, that pendulum and what we'll see I think over the next year or so is ultimately a little bit of a pendulum swing back, which is, okay, I've created an account and embedded wallet, it's on the site, how do I use it across sites? So that pendulum swing moved from one extreme very quickly as crypto went into a bear market and everyone said we need to increase the number of customers we have by bringing web two users to the complete other side, and now it's going to swing back a little bit to be a little bit more aligned with the overall crypto vision.

So that is one thing that I think crypto has not a hundred percent got right over the last year that I think everyone will course correct and that's fine. It's part of innovation, right? The second thing, and I think we're getting better at this is, and this is more of a general point I, I'm a huge fan of the tech side of crypto, but the money side of crypto less. So there's a lot of talk that happened in 2021 and 2022 about prices of things. And I get it, it's an interesting concept as an asset class, but that's not where the crypto innovation is. The crypto innovation is around shared rails, around the ability to share financial rails, share identity rails, share social rails with things like forecaster and lens. That's the innovation. And I think it will serve the industry well to talk more and almost exclusively about that side versus the prices go up, prices go down side of the business and the asset class side of the business.

I think that is the technology side of crypto is so interesting. It creates so much opportunity for rethinking how we do things. I hope that the industry, and I think one thing we've historically gotten wrong is talking a little bit too much about the first side and a little bit too little about the second side, which is the technology side of crypto where we get an incredible amount of really cool technologies of very sophisticated math related technologies, like zero knowledge proofs and multi-party computation. That's the interesting side of crypto. I really hope that more folks both talk and cover that side.

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Tanner:

Love it. I'm in total agreement with you. So maybe a couple last questions here for you. First question would be, what advice would you maybe want to impart to someone who's brand new to the space as a founder? Something maybe one or two things that you feel like are kind of your hardest one wisdom. What would you want to impart in that kind of conversation?

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Itai Turbahn:

Yeah, I would say the following, which is, and for any founder listening, please discount what I say because as a founder, I've learned that founders in general are usually wrong. Everyone's usually wrong. No one can predict the future. So my advice, take it with a grain of salt. It is advice that of the thing I learned and it might not be relevant for you. Dear founder listening with that said, what I think the one advice I would say is business fundamentals are business fundamentals, whether they're in web three or web two, at the end of the day, your job as a founder is to create a business that delivers value for customers and in turn delivers values for your employees and for your investor. And that means thinking about business models that make sense can pass regulatory scrutiny and can deliver value is critical. And that's not a web three specific thing.

Always start with what is the value I'm delivering my customer? Can I generate money from that and can I build that into a big company? And so I personally believe that businesses, especially B two B businesses should be in the business of generating money and revenue because that makes everything a little bit easier. And so that is the one advice I would give founders is as you start a company in web three, do not for a second think that regular business rules of business logic and fundamentals don't apply to you. At the end of the day, you need to build a company that generates money, that creates value for its customers and everything else follows. That's my one advice. Make sure you don't forget that. Make sure you focus on that and make sure you're solving a painful enough problem for someone to be willing to pay you money.

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Tanner: 

Love it. Great advice.

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Itai Turbahn:

Yeah, I'll say this is when you give something away for free, you never know whether you solved a big enough pain points.

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Tanner: 

Yep. Yep. Great advice. Okay. Itai, what is your team working on right now and what's the best way for people to follow along on the journey or maybe get involved themselves?

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Itai Turbahn 

Yeah, absolutely. So first, we have a very active Slack community, so everyone should go to dynamic.xyz slack and check it out and ask questions. The team is focused or focusing a lot of its time today on what I described earlier as what we think is the ideal wallet abstraction stack, which is IES plus account abstraction and letting folks just create accounts and interact with Crypto rails in the background. You can go to our Twitter account, you can follow me on Far Caster. Again, these are all shameless plugs. You can check out dynamic xyz, our docs or our change log to see the latest. We also have a very active blog post, but in general, if you, I will end with this, which is if you wake up in the morning and say, I want to assign a few of my engineers to rebuild authentication, you're probably misusing your time. That's not a good use of your time. Please offload that to folks like Dynamic or others. They're great companies in the space that can abstract that away for you so you can focus on the key parts of your business and those are the things we're working on. Those are the things we'll spend in the next couple months is figuring out all these experiences that have not been fully baked yet and enabling hopefully new kinds of businesses that could not have existed before.

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Tanner:

Amazing Itai, thank you so much for the time. Super interesting to chat with you and hear everything you guys are working on and I'm excited to follow along on the journey myself. So have a great start your week here and take care.

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Itai Turbahn:

Thank you so much. Thanks for having me.

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Tanner:

Yeah. Alright, take care.

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