Bankless - 184 - Why Facebook’s Stablecoin Failed, with David Marcus

Episode Date: August 21, 2023

David Marcus started a company that was acquired by PayPal, he then became President of PayPal (running the company), then he joined Facebook as VP of the Messenger app, and that’s when he started Facebook’s Libra project. Currently, he’s the CEO and Co-founder of Lightspark, a company that builds out Bitcoin Lightning tech. ------ ✨ DEBRIEF | Ryan & David unpacking the episode: https://www.bankless.com/debrief-david-marcus  ----- From whitepaper to being summoned in front of Congress in 3 weeks…what really happened to Facebook’s stablecoin endeavors and what can we learn from it? This episode is a post-mortem of Facebook’s highly ambitious crypto project from 2019. They tried to build a stablecoin but the U.S. government stopped it.  Topics covered in today’s episode:  1) Facebook’s Libra project…why did it fail? Who tanked it? The U.S. gov? The banking lobby? Why can’t the West seem to innovate its banking systems? 2) Why SuperApps won’t work? 3) Why our David Marcus thinks the money layer of the internet will be built on crypto…but more specifically…on Bitcoin! ----- TIMESTAMPS 0:00 Intro 7:20 The Libra Project  9:10 Facebook’s Involvement  9:59 Super App Thesis 12:05 Getting Government Approval  14:39 Messaging & Payments Intersection  16:45 Releasing the White Paper  18:05 Libra’s Government Reaction   19:50 Summoned to Congress Experience 21:25 U.S. Crypto Competition  25:40 Government Money Power Structure  30:00 FedNow  42:40 Will Twitter/X Become a Super App? 48:18 Bear Case for Super App 51:42 Lightspark 54:35 Bitcoin vs. Stablecoins 58:15 Why Lightning Uses Bitcoin 1:06:25 Bitcoin vs. Ethereum 1:11:37 The Future in 5-10 Years  1:14:40 Closing & Disclaimers ----- RESOURCES David Marcus  https://twitter.com/davidmarcus   Lightspark https://twitter.com/Lightspark   ----- Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures ⁠  

We're falling behind at a rapid rate that's actually basically compounding to us losing or being a losing path against other nations or regions that are making really solid progress. Welcome to bankless where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman and we're here to help you become more bankless. on today's episode, we have a post-mortem of Facebook's highly ambitious project all the way back from 2019. Facebook at that time trying to build a stable coin, but the U.S. government stopped it from white paper to being called in front of Congress in three weeks. What really happened and what can we learn and apply about crypto? There's two Davids on the show today.

We are guiding this conversation today by David Marcus, and of course my co-host, David Hoffman. but David Marcus is one of the architects of Facebook's stable coin project. A few things we get into today. Number one, Facebook's Libre project, why did it fail? And who tanked it? The U.S. government? The banking lobby? And why can't the West seem to innovate on its banking system? Number two, we talk about super apps and why David doesn't think they work, including Musk's most recent attempt with Twitter, aka X. Lastly, we talk about why our guest thinks the money layer of the internet will be built on crypto. But not just crypto. That's will be built more specifically on Bitcoin. Yep. And this is where the episode takes a turn into

debate territory. No, we didn't get into the full debate with David on Ethereum versus Bitcoin. You'll have to tune into the debrief for that. David, why was this episode significant to you? This episode threads a number of different subjects that I think are going to be increasingly relevant for the crypto industry. One is payments, of course. We know payments. But also social, messengers. Why do messengers and payments go together? And then what does the government have to say about that is the third variable? I think understanding the incentives from each variable, payments, messenger, and government regulation, I think understanding each one independently inside of its own style will help kind of carve out the path for where this ultimately goes for what will hopefully ultimately become crypto native payment applications, messenger applications that don't exist yet.

But I think if you listen to this episode, you'll kind of understand that these things are probably going to come together. and also the government's going to have something to say about it. So I think these are the themes to pay attention to and why this episode is significant. I know it was killing you, David, not to have the Bitcoin versus Ethereum debate. I really had to, like, plug myself. I saw you. I saw you. But the spice will flow in the debrief, of course, which is available, of course, for bankless citizens now on the premium RSS feed. Click the link of the show notes. If you want to upgrade, you can access that.

We're going to get right to the episode with David Marcus. But first, we disclose. Just one disclosure today. I hold Bitcoin. David, do you have any Bitcoin? Nope. No Bitcoin for David. No disclosures for me. We are long-term investors. We're not journalists. We don't do paid content. There's a link to all bankless disclosures in the show notes at all times. Let's get right to the conversation with David Marcus. But before we do, we want to thank the sponsors that made this episode possible, including Crackin, our recommended crypto exchange for 2023. Go check them out. Cracken Pro has easily become the best crypto trading platform in the industry. The place I used to check the charts and the crypto prices.

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Bankless Nation, I am excited to introduce you to David Marcus. David is an entrepreneur and tech executive in the world of payments and money. Now, I first ran across David in 2019. was the same year he testified in front of Congress on behalf of Facebook in support of this project called Libra. I'm sure many listeners remember what Libra is. It was also known as Diem. It was Facebook's first attempt at stable coins, and the U.S. government seemingly just shut it right down. A quick bio on David. Before all this, he started a company that was acquired by PayPal. He later became the president at PayPal. That means running the company.

And then he joined Facebook as the VP of their messenger app. And that's when he started the Libra project. And right now, he is a co-founder of LightSpark, a company that is building out Bitcoin's lightning technology. This intersection of Web 2, crypto, government, that's what we want to talk about today. David, welcome to Bankless. Thank you. And good morning. Good morning. Wow. I'm hyped to actually have this conversation with you because you came across my radar back in 2019 with the Facebook Libra Diem project. And I think that's actually a logical place to start if we're going to unravel the future of payments and how the government in crypto and big tech is involved. So let's start there as a case study. Can we first talk about

the Libra project, David? So can you give us some context? And then we'll talk about maybe what went wrong or what the roadblocks that appeared actually were. So what is this project for those who weren't familiar with it at the time? So Libra, I like to call it Libra. I feel like DM was not really its real name, but it ended up there. But so look, what we do. tried to do then was actually to try to bring to the world an open protocol for payments or money on the internet, which is still lacking as we speak today, which is kind of an anomaly and a shame. But basically what we tried to do is build really good tech for real-time net settlement of money on the internet. And one of the artifacts that was actually needed at the time to make it happen,

at least we thought so, was actually a stable coin. So the whole package was actually a technology, a blockchain that was basically the Libra blockchain, a smart contracts programming language, which was moved that's still alive today in different forms and on high performance layer ones out there and a stable coin. And basically the thesis was, if we're doing it from Facebook,

but then devolve our control and our governance over it, then we can actually really have a positive impact in the world. Unfortunately, no one actually believed the power dynamics behind it and the brand association with Facebook at the time was just not palatable from a political standpoint. So, yes, you were right. In your intro, the project was killed or shut down by the government. That's so interesting. So there's some details there to really unpack. Maybe you get to start us with this. So what was in it for Facebook? Like, why did Facebook even want to go down this project endeavor? Well, I think that, you know, if you think about Facebook and the role, the company has played over many, many years on all kinds of different contributions that have changed the direct.

of travel of technology. You know, more recently on AI or even in VR, you can see that there's a pattern there of trying to bring breakthrough technologies, then bring it to the masses and try to really help with the distribution it has to advance all kinds of different problems that people have had. And again, like, you know, right now very successfully so with AI contributions to open source and others. It feels like there's also a tie with kind of messaging.

And I believe you were part of kind of the Facebook Messenger. group as well. And we certainly see this pattern playing out in China super apps, the we chats of the world, the alley pays of the world. Is this kind of part of the inception of the idea? Here's what China is doing, some of the Chinese tech companies. And so if we just take messaging and we add the ability for an individual user to actually not just send communication messages, but to send money, then we've got a kind of a killer app combo. And this begins to look almost like a super app. Is that part of the thesis here? So I think China is in a totally different world

because it actually leapfrogged credit cards to go straight from messaging-based payments in WeChat and others. I don't think that's actually applicable to the West at all because we've had credit cards and modern payments experiences despite the fact that they're not built on modern rails for a very long time. But yes, when I left PayPal, so I was leading PayPal, I came to Facebook to actually build the messenger product

or build it into a standalone product when I joined. One of the first things I did was actually try to add payments to it. And, you know, this is a product that enables people to move money inside of Messenger in the U.S. right now, not globally. And as you know, WhatsApp is also part of meta now. And so the thought was definitely to try to enable global payments inside of those platforms to enable people to actually move sound digital money around the world in a really seamless and cost-effective way.

because we thought it would actually solve real-world problems at scale and really unlock a lot of value. So there was definitely a distribution play on the messaging apps, but not only on the messaging apps of meta that was actually super relevant at the time to us. So Facebook has this idea. They want to create kind of a payments application inside of its messenger app. And so the idea behind Libra is kind of boring. We can use some smart blockchain tech, combine that with smart contracts. We'll probably need a stable coin for this sort of thing. then what has to happen? So can you bring us forward to 2019? So does a company like Facebook have to like go ask for government permission in order to do this? Or like how does it work? Because here in crypto, we just like release code. Do you know, like we publish it on GitHub and then people, you know, run it on their nodes. You know,

Satoshi didn't go in front of Congress and ask for anyone's permission. But tell us how this works inside of a corporate environment. So look, I mean, when you build a project like this at the center of a company that, that reaches at a time 3.5 billion monthly active users and is at the center of public policy for all kinds of different topics. You can't just launch something like this and hope for the best. So there were a lot of rumors when we were building Libra. And the rumors were actually a lot of worse than the reality at the time. And so we felt like, you know, we had everything ready. So we're just going to issue a white paper that describes what. our intentions are, what the technology is, and where we're going with it.

And, you know, with that, bring more people along for the journey, but also engage with regulators all around the world in talking about the things that we didn't think through in terms of compliance and, you know, regulatory requirements. We thought of a lot of them, but, you know, different countries have different requirements and different approaches to this. So we felt it was going to be an open conversation. And a conversation, it was immediately, actually. I think, you know, we published a white paper on, I think, June 18 of 2019, if I'm not mistaken,

and I was testifying in front of Congress maybe three weeks later. And so that was a pretty rapid response. Wow. Three weeks later from white paper to in front of Congress, it's got to be a record. Yeah, yeah. I think that's a record that will probably not be beaten by anyone. But, yeah, that's what happened. Unpacking how you ended up in front of Congress so quickly, I think, is worthwhile. And I want to do that. but I actually want to start by talking about the intersection between messaging and payments. As someone who is intimately familiar with both, maybe you can articulate the vision as to why these things fit so well together. Because I think when people realize like, oh, Facebook is doing a blockchain,

there was like reverberations throughout the crypto industry. But maybe you can articulate the most bullish vision for why payments and messaging just pair so well together. Yeah, sure. And let me break that question in a two-part answer. So, like, the first part is actually messaging is a great place for payments because typically when you pay someone and you have to have a conversation about that payment or you have to, you know, someone has to ask you for money for you to actually send them the money. And so having a messaging app where you have a conversation where you know who you're talking to and enable that thread with transactional capabilities actually fits really, really well with the objective that two people in a conversation or even a group of people in a group chat have, a payment. So that's why it fits so well. And then the other part is actually, you know, how do you take this and make it available to hundreds of millions, if not billions of people?

Actually, interestingly enough, in early 2018, we went to see the Lightning Labs team in SF, and we looked at Lightning as one of the ways to actually do this. And unfortunately, the tech just wasn't ready for primetime and certainly not for scaling to the type of scale that Meta had with its messaging apps. And so we felt that at the time, the only way that we could actually make this work from a scalability and finality times and all of these things, at standpoint, we had to actually go build new tech. And that's what we did. So when three weeks later, after releasing the white paper, you end up in front of Congress, was that expected? Did you see that coming? What was the expected response to the release of the DM project?

Yeah. So, I mean, I definitely expected both enthusiasm and a lot of pushback. And certainly, we have both. My expectation was actually that we would get a lot more pushback in Europe and other regions than in the U.S. just because it was kind of a U.S. centered, like, or started product or project. And it turned out that, you know, the U.S. was the most conservative in that sense and the most aggressive in dragging me in front of Congress in the early days of the project. Yeah, why do you think that is? What's the motivation for them to have been so conservative around this project? I mean, I think there was a lot of political influence there in a sense that, you know, they just didn't want Facebook in the middle of money, just generally speaking. And the reach of the company with its core products was just something that scared a lot of lawmakers, basically, at the time. My interpretation of that answer is that Facebook, with the social network that it has, combined with a payments network, also combined with its own currency, which is what this was, really started to infiltrate into the business model of the government. That's my interpretation of that.

I'll leave that interpretation to you. But I feel like, by the way, it wasn't even our own currency. It was really a stable coin that had by all of, you know, today's stable coin standards, a lot. lot more distributed governance and decision-making than any of the other ones out there right now. If you remember, we had like 28 Libra members who were part of a consortium that was behind this, and everyone had an equal vote in the direction of travel of the project, including its stablecoin. So, you know, I think, you know, it served as a blueprint for a lot of projects that came after, which is good. And, you know, I think that it was a fascinating and, you know, intellectually stimulating and challenging experience. So I don't regret any minute of it, but it was worth a shot. And now we're trying to do something on the Bitcoin blockchain

using Lightning for the purpose of trying to bring an open payment protocol for the internet. So still very stubbornly focused in trying to fix that problem for the world. So full circle. We'll certainly get to what you're up to it. I'm just wondering on kind of never having been summoned in front of Congress, like just on a human level. Like what's that like? is it nerve-wracking to just be brought in those, you know, congressional halls and to face various lawmakers and to be on the hot seat for whatever they want to ask and whatever political point they want to score? What's that like? What was your experience of it overall? Well, look, I mean, for me, the first part of it was actually, I'm an immigrant and an American by choice. And so for me,

there was a part of it, which was actually, okay, you know, this is actually an honor that I get to go and defend the project that I really deeply care about in front of our highest authority or chambers of legislature in our country. And, you know, that was particularly true in the Senate room, which is a very impressive room with, you know, marble adorned walls and a big seal of the Senate. And, you know, there are different modes of testimonies. And, you know, when you're the single witness, the entire attention of everyone is on you versus like a panel of experts testifying in front of Congress. So I had the honor of having that single witness testimony mode. And of course, it's intimidating. And you need to, you're representing a project that's much bigger than you and a company that's much bigger than you.

And so a lot of pressure is on for you to do the best job you can do to defend the project that you're passionate about. My feeling on the arguments is one of the strongest arguments, you know, I believe in general proponents put forward. But also still crypto really puts forward today is U.S. government, aren't you interested in exporting the U.S. dollar on top of like crypto rails or open internet standards? And if you don't do this, then go look at what some of your nation-state level competitors are doing, namely China, because they have an export strategy for their digital currency, and they are very aggressive, both domestically. They've got that whole system set up. I mean, we mentioned Ali Pay and WeChat, and the system seems to work fairly well from a technology perspective.

and they're aggressively trying to export all of that to the world. And so, Congress, if you don't wake up and let us do it or some American company do it, then you're seating this position over to your competitors. That, to me, was the most salient case. Now, you can put aside for a second, maybe we'll come back to this, whether the U.S. government was comfortable with big tech being the carrier of that burden. But that case in it of itself, it seems like the U.S. is still not jumped and snapped up, which is why aren't you interested in exporting the dollar on digital internet rails? Why did that land

or did it land in some small pockets? What's your take on that? So, I mean, this is something I'm really super passionate and can get really worked up about. But I feel like I'm a fairly patriotic guy, and I feel like I want the U.S. to win at technologies that are going to be changing the course of the equilibrium of power in, you know, a hundred-year timeline, right? And, And I definitely feel that the entire crypto industry and new payment rails and all of that is definitely one of those strategic things that we absolutely cannot afford to lose. And currently, as far as, you know, the regulatory world out there and the arbitrage happening, the fact that we don't have the clarity we need to operate and the fact that, you know, we're really not competitive. I think today the first Bitcoin ETF was launched in Europe. and we're still turning down all of the ETF applications out there

that would actually enable a lot, many more people to have access to digital assets and in this case, Bitcoin. And so I feel like, you know, we're falling behind at a rapid rate that's actually basically compounding to us losing or being a losing path against other nations or regions that are making really solid progress. On a core technology that is actually, I feel that, I mean, the problem is also that,

we as an industry have done a fairly poor job at explaining the real world problems that the technology solves and how it's actually becoming essential that people are empowered with real-time digital sound transactions that are global in nature that are interoperable. I mean, if there's an internet of money that happens tomorrow and we're not, you know, part of the discussion or we're not, you know, even part of being in the driving seat, that, And we would come to regret it. And I think that's a perspective problem that we've had as a country. And yeah, we're falling behind.

I think that if you're looking at what's happening now, even in Hong Kong, where China has kind of changed their worldview in terms of what's permissible in Hong Kong as a reaction to Singapore, basically dragging in the best talent to come and build crypto companies and new technologies, you can see the world changing. in Europe, the same deal or in the UK now. Those governments are trying to attract the world's best talents to come and go build there, and we're basically turning everyone away. Yeah, I mean, so put aside any beef the U.S. government might have with Facebook or its business model, but this basic idea, and this is why it's still very perplexing to me, David.

I'm wondering if you could shed some light on, you know, whether there's any underlying power structures behind this. But the U.S. in the 1990s was very supportive, very innovative with respect to the early internet, this open communications standard. And that's how we got Silicon Valley, right? The U.S. dollar is also the world's leading reserve currency. So the U.S. already has two major wins under its belt. It has Silicon Valley and the success of the internet. What did we do during the 90s? We basically just let the internet be the internet. We put some sensible regulation in place. We supported our tech companies. And then we got what we got today. I mean, American entrepreneurs just brought us to this place. That's a playbook.

that's worked. We also have the dollars. We have the most to lose if the U.S. doesn't stay ahead of the curve. So why is it so different with like money over the internet? Like why is there such a different posture? And I'm wondering here if you think that's because there's a different power structure. So the internet really didn't have a power structure in D.C. that it was competing with. And I wonder if maybe money has a power structure that it's competing with. You're on a podcast entitled Bankless. It was pretty clear kind of what our thesis is, is that there are a lot of banks out there with some interesting power structures and definitely some ties into government and D.C. Do you think effectively it's kind of like the banking lobby? I mean, if J.P. Morgan

or a major bank came with the similar strategy as Libra, would they have been lit in the door? What's your overall take on this? Well, so first of all, you're right that anything that touches money is different. I mean, there's no technological reason. for us globally being in the sat state we're in of how money moves today, the correspondent banking system, the fact that this is basically a messaging system that transits through many banking institutions with the batch settlements later in 2023 is ridiculous. I mean, you could actually argue that structurally, it's kind of shocking that everything that we could have converted into zeros and ones and that are moving on the internet the way that is moving is moving the way

it is, and that the only thing that is not actually digitalized at scale and moves on the internet the way that everything else is, is money, right? There's no technical reason for that. It's a structural reason. And so, yes, you're right that there's definitely a need or perception of a need of a lot more control when it comes to money. And there are ways to actually grants governments control over these things, but I feel like the status quo is something that generally speaking has served, you know, the establishment at large really well. And yeah, there hasn't been any change. I mean, if you look at the underlying payment networks of Swift, ACH, and the likes, and even like, you know, the very successful, arguably the most successful

fintechs of all times, like the visas of the world, all of these things are innovations that happen in the late 60s to 70s, right? And, you know, those are, for the most part, the networks and the underlying technologies that were all dependent on for global payments. So there's definitely other power structures and incentives that are at play here than just the technology that a bunch of companies

could actually come up with and basically unlock trillions of dollars of payments that are currently not happening today because of the limitations of our aging rails. I'm sure FedNow will fix all of this. And maybe Fed Now 2040 will actually add smart contracts or something like this. We can talk about that, by the way. I think Fed Now is actually a really good progress.

But it's going to help banking institutions move money faster for them or between them. And it's a U.S. solution. It's not a global solution. And so in Europe, you have SEPA and like a bunch of other countries, you have different. And those systems are not interconnected with one another. They're not communicating with one another. And so, you know, the Internet would not have delivered the incredible amount of value that it has if it wasn't a global open network that enabled everyone to access it and build on top of it, right? Right. I mean, Fed Now is basically like a private, it's not really a blockchain, but network for American banks. You know, that's all. It's very different than an open permissionless protocol.

It's progress, though. It's progress. I'm wondering if you think it's as simple as this. So we had somebody by the name of Richard Turin on the podcast. It's been a while, actually. You wrote a book called Cashless. It was my first kind of learning episode in terms of what China is doing with their digital currency. And his take was basically this.

In the U.S., we've decided that tech companies and banks have to be separate, and they can't become one. And so we have a tech industry and we have a banking industry. and our government gets very uncomfortable when these things start merging together. In China, the banks didn't want the tech companies to come eat their lunch. The Chinese government just said, we don't care what you want. Best solution wins. And of course, tech companies are much better at creating technologies and apps and solutions that actually scale and work.

And so what we have is the result of we have AliPay and we have WeChat, and they have eaten the banks lunch, basically. So it's back to your point of this being kind of structural. In the U.S., we've decided that our banks and tech companies should be separate, at least up to this point. In China, they didn't. As a result, China has a more advanced digital money system and digital payment system. Is that an overly simplistic take? I think there's more nuance than that. I think that in China, there's no problem of government control of different sectors of the industry or separate companies, right? They virtually control all of them. I think that in the U.S., it's a little different, right? Our top banks have been regulated to the Wazoo after the O-8 crisis, right? And so those big banks are de facto, you know, under the control and purview of the government. And so as such, it's kind of an interesting world where that level of guarantee of control is making a lot of people very comfortable that this is basically a group of entities that should be elected.

to do a bunch of different things under strict regulatory oversight and that, you know, if you have new entrants that are trying to do new things and that are big new entrants with a lot of scale, that, you know, they should be under a lot of scrutiny because of the risks that, you know, this might pause. I think, you know, if you would talk to a lot of the lawmakers that are on this side, that's, you know, basically their worldview, that they have a bunch of really regulated entities out there that they can really control and that, you know, within the bounds of that regulatory framework, they should be able to do things and then other new entrants that basically the same rights because they just don't have that same level of oversight or regulatory

authority over them. So, David, I'm getting the sense that there's a lot of variables about how the United States financial system and our regulatory system and our technology arm, each one presents its own variable. And I think in 2023, there's a void that has been created as a result of all of these things. Like the United States government is like, hey, Silicon Valley, don't touch the banks. These things don't touch, you know, can't cross this line. And then the banks get regulated by Dodd-Frank and all the post-08 crisis stuff. And then we also have the petro dollar, which is a variable here.

And I'm wondering if just like what void is left, maybe because of regulation, but it seems to be that crypto, especially inside of the United States, is trying to fill this void. And I'm wondering if you can help try and define the actual shape of this void and why it's here and why isn't it being filled by the rest of the non-crypto part of the United States. Does the question make sense? Yep, totally. Cool. Well, look, I think there's definitely a definite lack of competition right now that's hurting the most vulnerable people globally, just not only in the U.S., but also in the U.S. I think, you know, when we started the journey of Libra, we went and talked to a lot of people who were actually unbanked and asked them, you know, whether, why were they unbanked,

actually, and whether the problem was actually that they just couldn't afford banking or was it something different? And invariably, and by the way, we talked to these people when they were at cash checkout points, you know, and those money transfers locations where they would pay 10% to cash a payroll check, right? And basically, they would say that they would prefer paying a 10% fee to those cash checkout points rather than have fees levied on their bank accounts at the time they could afford it the least in unpredictable ways. And basically, they decided to be unbanked in the cash economy because of the predictability and them being in the driver's seat of when they're actually going to pay a fee for a service that they are accepting the full cost of, right? So you have a lot of

people that are left behind. I think at the time, it was nearly seven or eight million households. in the U.S. that were completely off of the banking rails, which is, you know, pretty staggering rate, if you think that all of them should be able to afford a simple, basic account that would enable them to actually move money in a seamless way, in a digital way, right? So, yeah, a lot of people are left behind. I also think that a lot of transactions and a lot of money movements that, you know, could happen globally and domestically are not happening because of the structural inherent costs of the rails or the current pricing models that are out there. And that basically traps a lot of value and GDP, so to speak, inside of the constraints of the current system. And that's just because

there's just no competition or very little competition. And the competition is really on the margin for the very few bibs here and there, targeted typically to merchants or to larger institutions. And actually, there are lots of really good crypto answers to that. I mean, the role was definitely one proposal of how you would do that with a very, very low-cost global payment protocol on the internet that would enable anyone to actually move money around. I like this answer because I hear it subdivided into two different parts. There is just the fees that people are taking to the face just because that is what they will accept in order to participate in the financial system at all. But then the other half of the answer I think is

slightly more interesting just because it's a little bit more emergent. As in just like the way that our current payment networks are built inside of America, there is a constraint on the way that payments are expressed in the economy because they're confined by a regulation, the banking sector, and the lack of ability of being inside of Silicon Valley, inside of FinTech. And so there's a lot of just like unknown ways in which economic activity could manifest if our payment networks were actually able to support and enable this kind of economic activity. But I think what you're saying is that they're not simply due to the constraints of A, the form factor, or B, the regulation. And so we actually don't know how much GDP is latent inside of the United States economy,

simply just because we don't actually have the payment form factors that can unlock them. Yeah, that's correct. Even better said than I did. But yes, that's what I meant. Mantle, formerly known as BitDAO, is the first Dow-led Web3 ecosystem, all built on top of Mantle's first core product, the Mantle Network, a brand-new, high-performance Ethereum Layer 2, built using the OP stack, but uses Eigenlayer's data availability solution instead of the expensive Ethereum layer 1. Not only does this reduce Mantle network's gas fees by 80%, but it also reduces gas fee volatility, providing a more stable foundation for Mantle's applications. The Mantle treasury is one of the biggest Dow-owned treasuries, which is seeding an ecosystem of projects

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Stater has partnered with over 40 leading protocols on these chains to bring defy utility to their liquid-staking tokens. Stater is actively building integrations and partnerships across Ethereum to bring the same great defy utility to the ETHX token. While smart contracts are always a risk in defy, the ETHX smart contract has received three independent audits and has a million-dollar bug bounty with Immunify. Go to staterlabs.com slash eith slash stake to access the stater staking protocol today. Part of the thing that drives me crazy, and I think many, you know, listening in crypto crazy, is that it feels like the U.S. government, and I'm speaking broad strokes as an apparatus, like kind of the bureaucrats in Washington don't get it. But honestly, the bureaucrats in Washington don't seem to get this.

I mean, that the current U.S. financial system, money system, kind of sucks. Like, it really does, all right? We pay 3% on our payment transaction. Why? I mean, God bless Visa, but like, and you mentioned, you know, China kind of skipping the credit card phase and going straight to digital. They pay like just 20 bips per transaction. Even less than that. Yeah. I still have a checkbook, David. Okay, I still have a checkbook. Why? Because some of the bills that I pay actually don't take digital payments. Which, by the way, a checkbook is basically your private key on a piece of paper that you give to everyone, by the way. Yes. It's absolutely insane. sane. Meanwhile, you know, I look at kind of the we chats. It's all QR codes. That's the way it should be, completely digital, completely QR codes. It just feels like the U.S. isn't acknowledging, neither the banking sector nor kind of U.S. bureaucrats, actually acknowledging how bad the banking system sucks. And that frustrates me. And I think that is why we're seeing adoption in crypto.

It's just because this is an open alternative that people can use to bypass the existing crappy system that we seemingly have to live with. You're not. your head. I'm guessing you agree with this. No, I mean, I feel like, look, people want solutions to their problems. And so actually, let's move out of the U.S. for good measure in terms of giving more salient examples. If you look at Argentina or if you look at Venezuela or if you look at countries where clearly the central bank and the government has devalued currency, had monetary policy that led to hyperinflation to the point where basically,

your money that's in your pocket is burning a hole in your pocket by the time you can actually spend it. So you get your payroll, you get like a wad of cash, and you run to spend it immediately because anything that you can buy is actually going to hold value more than the banknotes you have in your pocket, right? And if you look at what happens in these countries, you have a lot more crypto adoption because people are looking to actually have a fair store of value for the legal hard labor that they performed and that they deserve to keep the value of, right? And so they go and figure out solutions. And to your point, crypto, Bitcoin, stable coins in this case, and different wallets are a solution to a real world problem that in this case is actually, you know, super, you know, life-threatening for all of these people because they just can't afford to make

ends meet and to put food on the table of their families. If they don't do that, then crypto is answer for these people. And so that's the kind of the more extreme world that exists outside of the U.S. where they don't have the benefit of having sound good money, which arguably the U.S. dollar really still is compared to all of these currencies out there. Well said. And I completely agree. Another potential solution for this, though, is that another tech company, like a meta, like a Facebook, stands up and says, no, we'll fix this. We will actually build the super app. We'll come kind of the messaging, and we'll combine the money, and we could do it. I think recently it's been interesting to me post Elon Musk's acquisition and running of Twitter some of his product

direction of turning Twitter into a super app. And I'm not sure exactly what super app entails, but for me, most basically, it entails kind of social and kind of like finance money. It's both of those things together. At least if you're going to compete like the Chinese super apps do, that feels like a working definition of super app to me. Let me ask you, David, do you think that something like Twitter, X, I guess, we should call it now, is going to be successful on this type of super app endeavor, or will they face the same roadblocks that Facebook did? I mean, I think we'll see. I think it'll depend on what they decide to go tackle and how. It's back to my previous comment around, you know, the fact that it's a question of control and

oversight, right? So if you're building really, you know, new payment experiences on top of the existing rails, then it's probably fine. If you're trying to bring in new, more efficient, more open rails, then it's a lot more complicated, especially if you're a tech company that has a lot of distribution. You know, one of the reasons we decided to actually go build on top of Bitcoin is because it's already live, it's open, it's censorship resistant, it's neutral, internet money. And we believe that, you know, if there's anything that's actually going to withstand the various tensions and pressures, it's going to be something that's open, not controlled by any one entity, one person, not having one person that has an outsized voice in the direction of

the protocol or the community. And that's why we decided to build on top of Bitcoin and build it on lightning, because we believe that's basically the only thing that will withstand that kind of pressure. So if you're looking at it from the network side, that's the key thing. It's like, really, can you make something that actually really looks and behaves like the internet right now be an efficient way for people to move value around? And again, I think that if you're just like on the front end and you're just putting a nice app that enables people to do something on existing rails, then, you know, that's a completely different thing. Taking the stance that a super app is kind of a logical conclusion, like an inevitability. I'm not sure if that's a whole entire other

debate. I'm not sure I agree with that, by the way. Maybe we can poke into that, but let's take this on faith that just like the Chinese Eastern model of just like put everything into one single app and grow its network effects is like a logical conclusion of apps and say that, you know, inevitably in the West, in America, we will find a way to get there. Would you say that the window of opportunity is closed for a Western super app to exist? that also uses fintech for its payments. So like if we're going to get a super app in the West, it's going to have to be built on top of a more disruptive non-US native payment rails like

Bitcoin, like crypto, for example, like do something like DM, rather than just like building on top of Venmo or PayPal or Visa. Would you agree with that statement? So first of all, let me just be the less enthusiastic person for super apps in the West. Again, I think that what we've seen in China is really specific to China. China basically before WeChat became a giant super app that enabled them to do all the things that it enables them to do was mainly a cash economy. There was very little to no credit card penetration. There were no real efficient ways for people to move money around. And as we discussed earlier, if you're in the middle of a conversation,

that's a really good place to initiate payments. And so it leapfrogged to becoming a super app. And because it had like payment capabilities, then you could build all kinds of commerce applications that actually lived inside of the same app. I think structurally in the West and in the U.S. We're in a very, very different place. And that's why I'm not sure that super apps

will ever become a thing in the U.S., right? I think that we go as consumers to different apps for different use cases. and different apps have a job to be done for us. And I think that breaking that paradigm when there's no significant better way of doing things within a super app is just not going to happen.

That still doesn't answer the problem of, okay, how do you actually enable people to move value between those apps, between consumers and those apps, between these services in a more seamless, effective way, at a subatomic unit of a currency, that you can't move today

and in a global way, which certainly cannot happen today. So I think those are more exciting problems to work on. And yes, for those problems, you definitely need new capabilities, new rails, new open, interoperable rails that are currently not adopted. I mean, there's no winning protocol for money on the internet at this point.

So we've talked a lot so far, David, about big government, the U.S., Western government, We've talked a lot about kind of tech companies as well. And we've just hinted at crypto and what crypto can do in this whole space. Now I think we want to turn the conversation to crypto. So what role does crypto really play? And what specifically are you building at Lightspark?

Like what open standard are you building on top of and what are you hoping to achieve? So yeah, let me start with the latter part of your question. So what we're building at LightSpark is basically tools and software to, facilitate or accelerate the adoption of the Lightning network as an open protocol for payments on the Internet that would enable all of the things that we discussed earlier, very cheap, low-cost, interoperable open payments on the Internet in a very native way to the Internet. And we picked Lightning because we believe, as I hinted at earlier, that the underlying network that can transport this money can only be a network that is basically behaving

like the internet, and that's not really controlled by any one entity or group of companies or where a single person has an outsized voice. And when you look at it that way, the only network that actually fits the bill, the only asset that also fits the bill is Bitcoin. It's way harder to build on top of it than, you know, building on EVM. But it's worth it for that specific use case. I think for other use cases, EVM is a lot better, and building on Ethereum is a lot better. But for the case of true neutral censorship-resistant intranet of money or money of the internet, like native digital money for the internet, Bitcoin is really the only show in town. So that's where we're building it on top of it. And so Lightning is a channel-based payment

system, which is very unintuitive because typically we're not used to locking liquidity in channels, rebalancing those channels, finding routes through channels of third parties to actually find a destination in a really efficient way. And that's what we've been working on, trying to make basically lightning behave exactly like you would come to expect from an enterprise standpoint. We're not a consumer-facing company. We're just building tools that will enable large-scale and smaller-scale companies to send and receive value natively on the Internet in a predictable, reliable, easy way. I'm wondering, was there a cost-benefit analysis between choosing to use Lightning Network versus something like stablecoins? I know you put a ton of emphasis on like shared open standard, no company behind the currency, etc. But there's been a pretty clear division between payments in crypto between Bitcoin and stablecoins, where stablecoins are just predominantly the unit of account for actual payments inside of the crypto industry.

And so there's like, I'll call it the purest side of things, which is like, okay, we'll do the lightning network on top of Bitcoin because it is the immaculate currency, Satoshi stepped away, no one, no parties, all of that stuff. But then there's like, okay, stable coins, you're kind of beholden to USDC or you're beholden to Paxos or someone. But it also is the thing that is being used as payments. So was there like a kind of a cost benefit analysis? And maybe you can walk us through that. Yeah, so, I mean, for the record, I'm actually all for stable coins on top of lightning when that becomes a thing. And there are a number of work streams that are out there to make that happen. I think my problem is actually, if you're dependent on one stable coin or one assets to be the native core settlement asset of payment network, then you have a problem because the algorithmic stable coins don't work. In my opinion, I really believe that it'll never. work. So stable coins need to have a reserve and someone controls that reserve. And if someone controls that reserve, then it's the single point of failure of your entire payment network if you're solely dependent on it. And so the way we look at the world and the way we're building is basically that a fraction of a Bitcoin on top of lightning is a little bit like a TCPIP packet for value. This is basically the transport network for the value that you're trying to transport from point A to point B. And so you can definitely do that with Bitcoin.

natively and move Bitcoin around, but most people, to your point, don't want to transact in Bitcoin. They want to buy Bitcoin and sit on it for the longest possible amount of time. And so what we need to make happen is basically enable those transfers in Bitcoin, enable transfers that are basically converted at the edges into whatever fiat currencies you want, so that basically you're sending dollars to another place in the world that wants pesos or whatever it is, and they get it. And Bitcoin is completely abstracted from the transaction. or you want to add stablecoin.

But my point is actually that you shouldn't depend on any of these things to actually make the network work. At the basic layer, your TCPIP packet needs to be this neutral thing that no one entity or person controls. So that's how we see this thing actually working over time. And so you have neutral settlement asset, neutral settlement network, not controlled by anyone, open, subject to regulations in various regions that are relevant

to the region and, you know, the endpoints that are basically regulated endpoints that are using the network can actually fulfill those regulatory obligations at the edges. But then you have a truly open and interoperable network and you choose to use whatever asset actually solves your problem best, right? Fiat, great, stable coins, great. That's basically the way, but not dependent on one thing. So I think bankless listeners will know, you know, David and I and bankless, we are big fans of Bitcoin and the Lightning Network and anything that helps us go more bankless, obviously. And we're also huge proponents of Ethereum and have done a ton of episodes and a ton of work inside of kind of that ecosystem. And I hear bankless listeners asking this question.

So I want to relay that question on their behalf and also on my and David's behalf. Why not Ethereum? Some context for that question is I actually do think that Ethereum can support kind of the money type use cases that you're talking about. We've been proponents of, you know, ether as an asset, similar to Bitcoin like money. Bitcoin has some other attributes like Immaculate Conception. I think you could get into sort of a debate about that. But at the end of the day, most free market folks will tell you that the world will select the best money, right? You're kind of not up to you or I or like podcast debates. We're not going to select the money. Time will tell. You know, the most effective money will be selected for. But anyway, Ethereum went through kind of a state channel type of phase. And it never really took off. So I remember state channel technologies that are comparable in some ways. to Lightning on Ethereum, what it's called Raiden. There's lots of just different attempts at state channels. The reasons it failed are kind of partially lost to me now, but some of them are capital efficiency was very difficult. And it just proved that there were easier ways to kind of scale payments.

You know, Ethereum's been going into kind of a layer two type of direction as late, which is a bit more robust than just a state channel style payment network. So anyway, the overarching question is why lightning, why Bitcoin, why not Ethereum? Okay. So first of all, I want to make an opening comment. I think in our industry, we're all totally insane for being so dogmatic about one thing versus the other. I think we're so self-inbued in, you know, EVM is better, Bitcoin is better, a new layer one is better. and if we just take a little bit of elevation altitude and realize how meaningless we all collectively

are compared to the real world out there, it would do us a lot of good because we could then elevate and be like, okay, like this is not a religion. We're not swearing allegiance to like one chain or another or a protocol or another. We're all here to solve problems. And there are very many problems that we need to solve collectively. And if we just focused on working and picking the best solution for the problem at hand, instead of fighting each other all the time, then I think we would all be better off as an industry. So that's my plug for, we're all working towards the same goal. Let's stop being dogmatic about how we actually solve the problems. Now, and by the way, I'm not a laser eye Bitcoin person at all. I believe that there's good stuff that

Bitcoin actually provides and is unique for, and we're going to talk about it in a sec. And I think there's a gazillion things that Ethereum is actually much better at and will solve different kinds of problems. The reason I actually believe that Bitcoin is the way to go for all things related to money and payments is a multiple step thing. So the first one is what we've discussed. Like there's no leader or visible leader. of the movement. That's not true of Ethereum, right? We have Vitalik, and I'm a big fan of his. I think he's done amazing work, but he has a very, very powerful voice in the ecosystem. And I think if he thinks that a change in the protocol is actually going to bring something better for all kinds of

different reasons, people will listen to him more than any other random person working on it. So that's one. Two, the proof of stake approach to governance is solving many problems and is actually good in terms of incentives for all kinds of different things. But I think that the reality is human nature gets in a way and the vast majority of people actually don't care about the direction of travel of the protocol and they're going to do delegated stakes with large exchanges that will have also a predominant voice in how the world is going to look like. And their core business is, is actually not money movement, it's trading, and they're regulated entities. And so as such, I feel like that's a weakness of the overall network in the governance. That works great for tokenized assets, for trading, for decentralized compute, for NFTs, and for all these things, which is what it should really be. But if it touches at the core payment systems that we talked about, it's a weaker setup from a governance standpoint and presents more of a surface of attack.

And then lastly, there's Bitcoin the asset itself. So Bitcoin the asset itself has no equivalent out there in terms of liquidity against other assets, whether it's Fiat or other assets at exchanges or other trading companies. And that in itself, if you're trying to have a neutral global settlement asset out there, is a huge deal, right? Because then the spreads between the actual settlement asset and the currencies that people want to touch or trade in is actually quite tight compared to other assets, including EAT. And that's a good thing. For all of these reasons, it's actually worth, you know, really powering through the pain of building over a channel-based payment system, which to your point hasn't worked before, yes, for capital efficiency reasons, but that actually can be solved. But mainly, I think, because it's way too complex to actually manage and operate, which is exactly what Lights Park does, is actually remove all of that complexity for people.

In the same way that you would think of, you know, back in the early internet days, like, you know, BGP routing and all of these things were really very complicated things, like so much so that even now, if you'd ask people to explain it to you, it would be hard to happen, like to find someone who's actually able

to have a cogent answer through that question. And so it's hidden now in the low layers of a Cisco router or whatever router it is, but it just works. I think we can do the same thing with the Lightning Network, make it really work, and remove all of that complexity,

and that's what we're focused on. And so that's a long, winded answer to your question of why Bitcoin, and the fact that I think that actually it would do a lot of good if we figured out ways to unlock all of that Bitcoin liquidity

for all kinds of EVM apps in a way that's not wrapped Bitcoin in a way that's actually, can we actually build an effective ways to bring all of the innovation, all of the energy, all of the technological advances that are happening on Ethereum and Bitcoin liquidity together, I think if we were able to figure something there, we would all benefit from it. I know we don't want to enter in the world of dogmatic tribal fighting,

but there's a few things that I have to say, or else all of my Ethereum friends will get mad at me for not bringing it up. The proof of stake is centralized governance angle. What I agree with is that that's actually just a technical inaccuracy. In fact, the Ethereum-specific flavor proof of stake and proof of work have the same level of governance over the chain. People conflate proof of stake with on-chain governance, but really it's just a randomness mechanism and a decentralization mechanism. Because you own shares of Ethereum, you get to process a certain amount of transactions, but that doesn't give you any sort of control over the direction of the chain. It's meant to be as governance minimized as proof of work. It just

gets conflated very, very frequently with other delegated proof-of-sake systems like Salana that do have on-chain governance. So I just kind of want to throw that one out there. I feel like that's where it is now. I feel like, you know, where it's going in terms of concentration of power, I think is a different question. And we would say the same things about proof of work minors. No, no, of course. Yeah. I just think that the difference is actually that the proof of work minors and the hash rate distribution is actually, I think, more fungible, as in it'll move around and the difficulty will adjust versus, like, regulated exchanges that are delegated for the sake of proof of stake that, you know, are very

tangible and, you know, unmovable objects. So I think, I mean, we can go on for a long time. Yeah. Yeah, we could. Yeah, we totally could. We could totally have end this episode. We could make this of Bitcoin versus Ethereum podcast if we wanted to. But we've done that before, David. Yeah, don't worry. No, but actually, that's exactly not the point. I think, you know, I mean, my perspective, like that's my own personal point of view, is that like there's this immaculate conception thing called Bitcoin that is going to be just great for money related things, specifically targeted to moving value globally in a seamless, really, you know, cost-effective, interoperable open way. And then there's going to be all kinds of other innovations that are

actually required to happen that will happen on Ethereum. And we need both to succeed for us to achieve this goal of, you know, more efficiency, more decentralization, more power back into hands of people. And we need both of these things to succeed. I mean, there's a kind of an interesting angle there where, for instance, like, you know, in most parts of the world, collateralization of assets for access to capital is completely messed up, right? It's like, you know, bureaucracy, corruption, all kinds of different things get in a way of you collateralizing your house or your car or any asset that you own for you to unlock access to capital and basically get to prosperity.

And so, for instance, like, that should be the focus of NFTs. Like, NFTs can be that collateralization asset, that collateralized asset that exists on chain that you can provably say is yours. And then you should be able to unlock access to capital by doing that. I would love for more people to work on that rather than attaching JPEGs to NFTs. But that's one use case. When you think about, like, financial freedom and opening more capabilities through these technologies, that's one thing that actually.

actually, Ethereum will be much better at than Bitcoin. But then the mechanism by which the capital is dispersed and you have access to money and you move it around, then you make the economy more efficient and you unlock all of that GDP that's stuck in archaic rails, that thing is more a Bitcoin thing, right? So, but those two things, you can see in this example, how these two things could work much better together than separate. I think part of the reason, David, you're saying that, or part of the reason I see that this isn't a religious bet, even though I would totally argue that many crypto tribes are making religious predictions and making religious bets. But the good thing about all of this is we get to see who's right. In the end,

don't we? We can make our bets, basically, on the assets that we choose that we think have store of value type properties and monetary properties. And as entrepreneurs as well, we can make bets. And I think it is notable that you're making a bet on lightning, the state channel technology. One thing I will say is back to kind of like the shared values that we all have. I think that bankless has the shared values of a decentralized, open, permissionless money system, right? And to the extent that lightning embodies those values and makes that happen, we are incredibly supportive of that. And so we're all making our bets and trying to work towards that future. And on that, I think we can certainly stack hands. Absolutely. So David, as we kind of close this out, last question, question for you. So as you zoom out and think about the long term for all of this, if you're successful, if crypto is successful in general, if we start to separate money from state, payment from state, and even from tech companies and the way that we're all hoping and planning to, what does the world look like in five to 10 years? Well, first of all, I don't think that I'm in the camp of people

who want to fully separate money from state. I feel like actually my own personal objective is actually make the underlying rails really efficient, really open, really interoperable, and enable more people to have access to them. I think that the world where actually good governments cannot control their own monetary policy, et cetera, this world where it doesn't exist would be chaos. Ah, so you are definitely not a laser-eyed maximalist then. No, no, I'm not. I'm definitely not. So here's my view on this. I feel like those technical... and the fact that there are alternatives that people can actually go to will be a very helpful check and balance to keep everyone honest on the other side. The fact that there's no alternative is

bad for everyone. And I think that, you know, if you're a good government, you have good monetary policy, you look after the interest of your constituents, then everyone will choose to continue using your thing. And that's great. If you're Venezuela, then, you know, I'm, all for Bitcoin being an escape valve for people who are basically getting screwed over again and again. You want to force the competition. Yeah. I mean, you want to have alternatives for people, and those alternatives can actually be regulated because, like, no one wants, you know, actually bad money laundering, terrorists moving money around and all these things, for which, by the way, those new networks are a lot, a lot harder for them to operate because, like, they get caught a lot more than on the traditional system.

So you don't want like total world chaos. Like you want like a check and balance and alternatives that are really solid alternatives for people. And I feel like there's a measured path here of those things being well regulated to protect consumers and to enable governments and good governments to conduct monetary policy and to control their country to some extent. I think that's important. And so, you know, there's kind of a technological angle of like, unlocking all of these capabilities for people while enabling good governments to do their work. And I think that's where I stand personally. Yeah, I agree with that.

And I think that's where if we get out of this whole crypto experiment, that the world has another option other than fiat in which to digitally store their value. Yeah. We win that. Not to say that everything is 100% crypto, of course. And then we also achieve a banking system based on open, credibly neutral, permissionless internet-style decentralized architecture. architecture. I think those are the wins that we're all searching for. I'm on the exact same camp here. This is exactly the way I think about things. Well, David, we wish you much success then and much luck. You are one of the rare breeds of Bitcoin builders who are pioneering lightning and best of luck

with that. I'm very excited to see the progress in the weeks and years to come. Thank you so much. And thanks for having me. Risk and disclaimers. Of course, Bankless Nation, got to let you know again, none of this has been financial advice. Crypto is risky. Ether is risky. So is Bitcoin. But we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.