Bankless - 38 - The World is Waking Up to Crypto | Raoul Pal

Episode Date: November 9, 2020

🚀 SUBSCRIBE TO NEWSLETTER: http://bankless.substack.com/ ✊ STARTING GUIDE BANKLESS: https://bit.ly/37Q17uI ❤️ JOIN PRIVATE DISCORD: https://bit.ly/2UVI10O 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 👕 BUY BANKLESS TEE: https://merch.banklesshq.com/ ----- 📢 DEVS OR BUILDER? APPLY TO FILECOIN ACCELERATOR FOR $20K GRANT  ----- GO BANKLESS WITH THESE SPONSOR TOOLS: ⭐️LEDGER - BEST HARDWARE WALLET TO SECURE CRYPTO https://bankless.cc/ledger-20 💳 MONOLITH - GET THE HOLY GRAIL OF BANKLESS VISA CARDS https://bankless.cc/monolith 🚀ARGENT - OUR MOST RECOMMENDED DEFI WALLET https://bankless.cc/argent 🤖YEARN - YIELD-SEEKING MONEY ROBOT THAT FARMS DEFI FOR YOU http://bankless.cc/yearn ------ The World is Waking Up to Crypto | Raoul Pal Raoul Pal is the CEO and co-founder of Real Vision, which is a content production studio focused on democratizing access to financial knowledge. He is an investor with a sharp eye on the global macro environment, and has a strong grasp on the relationship between history and economics. Raoul is famous for being 'irresponsibly long' on Bitcoin, and has expressed similar favourable attitudes towards Ethereum and DeFi.  We start the episode asking about the role that Bitcoin fills in the current financial crises.  What about the current state of the world makes Raoul bullish on Bitcoin? Why does the world need it? Why now? - What are the factors that are influencing the incentives behind central governments printing money? Raoul is generally of the opinion that the money printer is going to be forced to turn on - Why forced? - How does the looming retirement crisis impact the valuation of Bitcoin? - Does Raoul think about how the U.S. might become really jealous of people taking their newly printing money and buying Bitcoin with it? Then, we turn the conversation to Ethereum, and Ether, as well as the Bankless thesis! Tune in! MORE CONTENT:  Real Vision: https://www.realvision.com/ Retirement crisis video: https://www.youtube.com/watch?v=5OFaZcC0lRU&t=1611s Reinventing the money system with Ethereum: https://www.youtube.com/watch?v=0cZtrX2EHtw Bitcoin is a life raft: https://www.youtube.com/watch?v=qL2LfVRl3J0 ------ Don't stop at the video! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website for resources http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState Follow DeFi Dad on Twitter https://twitter.com/DeFi_Dad ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case.

Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and 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. David, how are you doing after that epic episode? Absolutely fantastic, Ryan. Raoul Paul of Real Vision has a ton of different views and opinions. and theses about how this crypto space is going to unfold. And for those that don't know, Real Vision does just a fantastic job of producing content that is distilling and digesting complex information about the world economy, about finance,

into ways where people that don't have privileged access to information or specifically a financial background can really understand it. And one thing that is really exciting to me is that Raul and his company Real Vision are really putting a big step forward into the world of crypto. Raul is super bullish on Bitcoin. He's really interested about Ethereum. He understands Defi. And he's also making a ton of content around it.

So we wanted to get Raul on at the Bankless podcast to kind of hear about his thoughts and mental models and ideas about how the story of crypto is going to unfold as it relates to COVID, as it relates to MMT, as it relates to money printing and all the other theses and conversations. that we have on the bankless podcast. Ryan, what did you like about this episode? Yeah, it was just stellar. I think you summarized it super well. But one thing you said when we were having our after podcast conversation that kind of sticks with me is like Raul brought a whole new dimension to the types of things that we talk about generally, right?

And like we brought this other dimension to him. So it was almost a little bit of like a meeting of the minds, like almost a Venn diagram of new material that you wouldn't typically hear on bankless. he was talking about, you know, macro and he was talking about like, you know, a practical way to see how nation states and banks might fit into this new open financial paradigm. And we were talking about, you know, monetary policy of ether. And we're talking about how defy could be an underlying layer for these banks. And, you know, it was a really nice, I think, meeting of the minds in that way.

And if there's anything, right, so if I were to be sort of introspective and say, like, bankless the bankless thesis is fantastic. It's part of how I think the world will play out. And I think you do too, David. But sometimes there are times where we can err on the side of being a bit more revolutionary than maybe the world is ready for. And Raul comes from the world of existing bankers and things as they were. And he's still attracted to crypto and Bitcoin. But he's very pragmatic. And that's why I felt like this was a nice balance. We were coming to him with like, hey, the bankless revolution. And Raul is coming and saying, like, hey, like, this is how I think it's going to work out with the banks. And they're going to be cooperating with one another. And I felt like it

came together really nicely and should be a super interesting listen for folks that are tuned in. If there's one thing that Raul isn't, it's tribal. It's really hard to get away from tribalism in the crypto space. We do our best here on bankless to not be tribal. But I think it probably seeps in every now and then. We are crypto-native, right? So we have the crypto-native perspective. And sometimes it's hard to get out of the crypto-native perspective. And Raoul doesn't have the crypto-native perspective. He's coming from the outside in. And having those two perspectives, I think is really valuable to see what conversations happen when, you know, somebody out from outside of the world of crypto, who's as bullish on crypto as we are, I would say, comes in and

gives us his takes. And that's what we got here on the bankless podcast today. My favorite thing about Raoul is probably that he just has a curious mind. And he's willing to admit the areas where he's strong and he knows a lot. And he can articulate why he holds the positions that he holds on things like macro and, you know, wider economics and game theory, why he holds those positions. But he's not afraid to say like, hey, educate me on other areas or I don't, I don't dabble into the monetary policy of ether. Like he said that at one point.

And it's just super refreshing to hear some. someone who's strong on what they know and has a curious mind willing to and open to learn about other areas that they just haven't given much thought to. So I think that will come through in the podcast as well. One perspective that I really took away from Raul that I really enjoyed, again, coming from the outside of crypto is that he thinks this is much less of a revolution, right? We are not revolutionaries here in crypto. We're just building technology and that technology is,

useful and this technology is going to be used by banks and institutions and central governments. And where a lot of, you know, Bitcoiners will, you know, rally the flag saying, oh, they're going to, you know, MMT the dollar into hyperinflation and Bitcoin's going to go to the moon. Raul is like, well, no, these institutions are going to figure out the way to soften the blow, right? We are going to find ways to slowly step off of one system and slowly step on to another system. It's not going to be this violent, cataclysmic revolution. And I think that's an important perspective to take away. Absolutely.

And they're doing great work of Real Vision. It's doing fantastic work to educate the masses. It's some of the same work that we are doing here on Bankless. And it really takes an ecosystem. Speaking of ecosystems, by the way, we should mention the Filecoin Accelerator that is coming up. And this is for Defy developers and entrepreneurs who listen to Bankless. Filecoin, as you guys know, is a decentralized storage network.

And you can get a 20K grant. and up to a million dollars in follow-up funding if you apply for the FileCoin Frontier Accelerator by the 15th of November. The reason we mention this is because we think decentralized file storage is hugely important in the journey to get our front ends, the Bankless Front End servers that you see fully decentralized. And David, you're actually going to be a mentor on this. So you're lending the Bankless Nation help that way too.

Decentralized data storage. is just a fascinating subject. And it's definitely going to be a subject that we talk about in the future on the bankless podcast. Think for a second, a thought experiment. What happens when humanity has a persistent library of knowledge that it can always add to

that is outside the hands of any one individual, just a naturally emergently growing library of knowledge? And that's something like Filecoin with decentralized data storage can really enable. And that's something I'm really interested in seeing. And so that's why I've chosen to help out the Filecoin accelerator program by being a mentor. So if you're interested in applying, there's a link in the show

notes. You can click and go through the process. All right, guys, we're going to get into this fantastic episode with Raoul Paul. But first, we're going to talk about some of these sponsors that make this show possible. When you own crypto, what really matters is the security and ownership over your assets. Being a part of the bankless nation means having complete sovereignty over your crypto. The easiest way to do that is with a ledger hardware wallet. A hardware wallet is a little device that manages your private keys for you so you don't have to worry about proper private key management. Your ledger hardware wallet keeps your private keys private, but still lets you have easy access to your crypto. The combination of my ledger hardware wallet and Metamask lets me store my crypto assets

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I love seeing people unpacking. They're beautiful bankless visa cards. It makes me realize that the revolution is here. Search Monolith in the app store. All right, guys, I hope you're ready because we're about to bring you Raul Paul of Real Vision. Bankless Nation, we have a really special podcast today. Today we're going to talk crypto, macro, central bank currencies, defy, Ethereum, Bitcoin, and everything else we can think of with Raul Paul, who is a macro investor. He's an economist. He's the CEO and founder of Real Vision. He's influenced many of the ideas in the bankless program. We've got so much to talk about today. We're glad you're with us. Raul, welcome to Bankless. How are you doing, sir? Good to be here. I'm in the Cayman Islands. I can't complain, although it's been raining solidly with all these tropical storms for about three weeks now. So one day,

the sun will shine again. Well, as the weather is getting colder, I'm certainly envious of the Cayman region. You know, we're also like a day away from the U.S. election. I want to start with this question. I'm not going to ask you to predict who's going to win Trump or Biden, but it is certainly the case that a Biden versus Trump world will look a little bit different. And it's also the case that no matter who wins, they're going to be, the leadership of the U.S. is going to be forced into some inevitable decisions just due to macro pressures. I'm just like stuck in the wheel of history. So I want to ask this question to kick things off. What do you think will happen no matter who wins?

I think no matter who wins, there's no surprise to anybody. I mean, the IMF have been pounding the table about it. Everybody has is there will have to be more fiscal stimulus and more monetary stimulus. this virus is not going away. It's going to weigh on growth. Now, whether that comes via lockdowns or just human behavior where people try and avoid getting ill, because don't forget, we've got 76 million baby boomers in America all aged over the age of 60. So prime candidates for getting ill, they have all the wealth in America. So you lock those people up at home, whether voluntarily or because of mandates, consumption goes down and the economy weakens over time or remains subdued over time. We're seeing

that in Europe too. So I think that whatever happens, we're going to see more spending. You are famously bullish on Bitcoin as one asset, as I think a result of some of these macro trends. What about this state of the world makes you so bullish on Bitcoin, sir? Well, it goes back to when I first got interested. I was in Europe in 2012 when we almost lost the banking system and we almost lost the whole European Union. I'd also gone through the 2008 crisis. But by 2012, I realized something had to change because the inevitable outcome to everything was more printing. And I knew that this was going to become untenable over time, that the financial system itself was creaking at the seams because of this debt super cycle

that we'd had for so long. So I had been writing in global macroinvestor and talking on Real Vision for some time to say, listen, crypto and macro are going to collide at some point in the future and it's likely to be the next recession. I didn't imagine this recession was going to be this bad in terms of how much stimulus is needed to put the global economy on a life support system. So when you look at this and you look at there is no other outcome but more, then you can only imagine that fiat currencies overall will lose some of their purchasing power against hard assets. Now, I know there's a whole kind of shit fight goes on about the US dollar's going to

collapse. I don't believe in that. I believe that the dollar goes higher before it goes lower, but it's the overall basket of fiat currencies. And the easiest way to show that is against gold. So if you, I've got a basket 27 currencies versus gold and gold just kind of steps its way higher every time the printing presses go. It's harder to look at with Bitcoin because Bitcoin has some other magic too. So if you imagine gold is like a reserve asset, and Bitcoin has that, but Bitcoin hasn't yet reached full price discovery phase because there are two elements of it is, one is the adoption curve. So, you know, that will give it more value over time and the stock to flow model, stuff like that, which is basically the adoption curve. But also it's the value of the future

technology, you know, what stake does this have in the future financial system? And the only answer can be a lot more than it is today. And so I've never found something that is a pristine reserve asset, a true store of value, that has an adoption curve like this, where Metcalf's law applies, and has future technology embedded in it that allows a different future. So it's a call option on the future and a fantastic security asset now. And that's why I realize that this may well provide all the answers. Now, I don't think Bitcoin will provide all of the answers. I think Ethereum and a bunch of the other crypto, I think the whole digital asset space is the future of everything. And again, Bitcoin acts as the easiest most liquid call option on that too.

Here on the bankless podcast, I think we are also very bullish on crypto specifically as its technological merits, right, regardless of the macro environment. But before we leave to talk about the merits of crypto as a technology, I do want to stick on the macro subject for a little bit longer. And, you know, people are learning that the COVID crisis is lesser of a health crisis and much greater of a financial crisis. And there's something different about the COVID financial crisis that's different from previous financial crisis. Financial crises, they happen. But this one is a little bit different that specifically has a stronger relationship to something like hard assets and hard money. Raoul, your explanation of the

macro state of the world, I think is one of the most salient that I've heard of in the space. Maybe you could give us and our listeners an explanation as to why this COVID financial crisis is unique as a financial crisis and why that uniqueness is relevant to Bitcoin specifically. To start at the end, it's the end game, and I'll come on to why. So this crisis starts like every other crisis. Every recession basically looks the same. You have the realization, and that's called the liquidation phase, when everyone goes, oh, out of these assets, I don't know what's going on. Then you get the hope phase, when everyone says, ah, it's not going to be that bad, it's okay, it'll be all over and done with. And usually that's when everyone starts pricing and reflation and return to normal. And then those dreams are shattered and you have normally it's kind of the phase where everybody gives up and says, oh my God, okay, this is pretty bad. In this case, it's somewhat more unique. And I call it the insolvency. The issue is here is, and I've been again writing about this for close to 10 years, we were going into the next recession with the largest ever amount of debt. Then add COVID.

which was the largest ever drawdown in GDP. And so the recovery from that takes longer than people expect. People want to extrapolate a V-shaped, but it's clear it's not that. So why does that matter? Well, time matters when it's a debt-driven recession. And it matters because you impair cash flows, because GDP growth globally is still down like four or five percent year-on-year. So forget all these Q on Q numbers. They're just nonsense. It's year on year. Basically, everyone's cost base have stayed the same and their cash flows have deteriorated massively, if not entirely. So that leads to the rise of bankruptcy. Small restaurants, they can't afford to pay the rent. They give up. Their landlords then give up and then people start getting tipped out of jobs and then they can't pay their mortgage or their rent and so on and so on and so. so it goes. So the insolvency is bad. It's bad also for corporations because we're seeing a shifting business model away from the old businesses like GE or AT&T capital intensive, heavy old

businesses into the SaaS business model where you don't need much capital and you don't meet many people and you don't have high costs. So you're seeing a destruction of businesses accelerated by this crisis. So all of this is happening, which is terrifying in itself. You've the banking system that never really recovered from the last crisis, particularly in Europe, because debt is saddled and the velocity of money doesn't work, i.e. money doesn't flow around the system because of new regulations in the banks that have stopped it happening. But you've reached this point just as interest rates were at zero. So what the hell do you do? That's when it gets interesting, because now all the optionality is for massively increased quantitative easing,

and negative rates. Because if we'd started this recession with rates at 4%, we'd have a lot of room. This was what everybody feared in the first place, was going into a deflationary environment with rates at zero. And that is why this is such an interesting macro environment, which is terrifying because what it can only mean is that savers get penalised,

and that's through the debasement over all the fiat currency. And that's why it's so incredibly powerful for Bitcoin. But also on top of that, if the financial system is broken, if the Europeans end up having to nationalize their entire financial system, we've already seen the central banks going to central bank digital currencies. It's all coming. It's all part of the same thing, which is we need a plan B, we need a parallel financial system, and Bitcoin showed the way.

So one of the things that you frequently discuss is the looming retirement crisis. And how does that play into the macro environment and what we are seeing play out? Yeah, again, into this, something I've been writing about for 10 years, is these baby boomers, the great thing about demographics is predictable. So the baby boomers were going to hit retirement, 65 years old, and they hit it last year. So you've got the largest generation of people on earth with all of the savings in the stock market, hitting retirement at exactly the same time. And once you coincide that with a recession, things get ugly.

because firstly they're incentivised to sell down their assets. And we're seeing that because these guys held active portfolios and value portfolios, and those just keep getting destroyed versus growth. The millennials, on the other hand, have been throwing money into 401ks into passive vehicles, and that's been stretching the valuations of growth. So that happens. Bond yields go to zero. That means basically nobody can afford to retire because there's no fixed income.

the baby booms don't realize this because nobody's telling them the truth. The fact is they can't retire, but they're going to have to somehow do it, but the money that got is not enough. So they are going to be, if the market sells off again, they are going to be incentivised to try and liquidate assets. My guess is the central bank will try and stop that at all costs, much like the Japanese have done, because that is the whole pension system. But the pension system is essentially insolvent.

And that's at state level and at private level. people's 401ks. People don't have enough money or don't have the money they think they have to retire. So that means that you end up with net sellers of equities, which we're seeing, net sellers of housing. At the same time, the interest rates have gone to zero and the financial system's creaky. People can't get access to money and people getting tipped out of jobs. It's really not a good mix. Can you get out of this? Possibly.

But it's going to take a bloody miracle. Does this hit all nation-state economies equally, or are there some economies, some nations that get hit worse by these macro trends versus others? Essentially, you can split the developed world down into the older populations versus the younger. So the oldest population of all is Japan. They've been going through this for a while. But their economy was basically supported by the rest of the world still growing. Then after that, you've got the Europeans, Switzerland being the oldest, then Germany, and Italy and Spain, etc.

And they have been doing this, but they are not equity holders. They're fixed income holders, and they switched quite a long time ago because the Europeans created regulation to avoid this very mess that the US is getting itself into. So it's not so bad in Europe in a pension situation,

but with yield so low, obviously when you retire, you've got no income. So everybody, everybody's consumption will have to collapse over time. So that is a deflationary offset. to anything else going on in the world. But there is another part of the world, and the US follows that. So the US is the younger of the developed populations, but not much so.

Now, the rest of the world, you can look at an amazing group of countries that I call the monsoon countries based around the Indian Ocean with India at the center. So that's India going up as far as north as Iran, across as far as Morocco, down the Swahili coast of Africa, Indonesia, Malaysia, Singapore, the Gulf, all of those countries have the opposite demographic, high savings rate, low debts, young populations. So those countries don't look anything like this. It's a very, very different world for them. So it's an extraordinary situation.

Well, a listener hearing this might still be skeptical with why we have to print money, right? So maybe you can illustrate a hypothetical outcome of a world that goes into this financial crisis that, we are seeing ahead of us. But for whatever reason, central banks decide to not print money, right? And just to throw caution to the winds and say, you know what, we're not doing it. It's going to, we're just going to let things play out. In that world, what happens? Well, I'm not sure the outcome is any different. The time horizon is. So what you're trying to do is smooth the time horizon before you come up with solutions. But if you don't do it, basically there is no banking system, there is no pension system.

So that means, and the pension system is arguably the worst. That's where all the wealth is held, and it's held amongst that generation of baby boomers. You basically wipe out their savings. Because if the credit markets are allowed to adjust to account for the bankruptcies that are going on right now, then it blows all of those pensions up. Then if the equity markets are allowed to correct, then it blows up the pensions again. If there's no access to capital, then countries that are highly indebted start going to the wall too, laying off millions of people. And then you've got the banking system. If the banking system

has to deal with that level of insolvency, then the banking system shuts down too. So then there is no money available for anybody in any situation, and everybody's wealth is being destroyed. So the question is, is as a central bank and a government, do you allow that to happen, or do you allow the slower destruction of wealth by the printing of money to take place while supporting assets for as long as possible? It's a moral dilemma, and it's not an easy one. And we should never have got to the situation in the first place. We should have been much freer to allow cyclical ups and downs of the economy. That's usually self-clearing. It doesn't allow massive structural issues to build up.

But we're in this situation now. So we can't look back and say, well, we could or should or woulda. And we can't scream forward saying they shouldn't. They are going to do what they do because there is no choice. Because if they do something like that, it basically destroys society. So it's a rock and a hard place. So it's a rock and a hard place. And everyone in the world of crypto is more or less convinced that the

money printer is about to go burr. It has been going burr. It's going to go bur. And this is why, as an industry, we're really bullish on Bitcoin, right? It's the, it seems to be the diametrically opposed asset to a pro-MMT, pro-stimulus, pro-money printing environment. But what would you propose? Do you think what? Just everyone goes to Bitcoin and blow up every single pensioner? I mean, that's the issue I've got with that line of reasoning. I get it. It's a life raft. I think it is.

Yeah, I mean, the moral thing is real here. You know, MMT, I understand why people want to try it. Maybe it's a deluded idea. Maybe it works for a while. But why are the choices there? Cut rates to negative 10%. And that's not going to work because the banking system doesn't work. So it's a really, really difficult situation.

Christ, thank God, I'm not an investment, a central banker. One thing that me and Ryan are worried about with this development, right, is if central banks are cornered and their only outcome to avoid, you know, civil unrest, mass, you know, mass financial destruction is to ease the pain by printing money. And that just incentivizes the rise of Bitcoin, right? Again, like as the asset that's diametrically opposed to money printing. What we are worried about, and me and Ryan have talked about this a lot, is, well, the United States nation is jealous, right? Or it would be jealous if people were taking their stimulus. Maybe we got some COVID stimulus checks. Maybe UBI comes into favor.

Either way, people are taking the money printing that's being printed and then putting that into Bitcoin. And what we're worried about is the jealousy on the United States. They're not stupid. And the answer is not banning Bitcoin. The answer is going to be central bank digital currencies. And the answer is going to be, you will only be able to spend the money in certain ways. That's all possible with smart contracts now. And we're already hearing noises from the ECB and all sorts of others.

Even the Premier Bermuda came on, talked about this. We would like to give stimulus, but we'd like to put things attached to it. You can only spend it on certain things. So that stimulus can't flow out. You're free to put your savings into Bitcoin, but you won't be free to put your stimulus in. So, I mean, Central banks, however their outcomes look stupid to us all, I mean, they're not necessarily stupid. They're just faced with a really difficult set of problems and every outcome that they have is generally terrible. So you think, Raoul, that the answer from central banks to like non-sovereign digital currencies like Ethereum or Bitcoin,

is basically that central bank digital currencies level up, that they implement them. But what you just described is, I would say, you know, a lot, totally a different kind of paradigm from the world of crypto, right? Crypto is about peer-to-peer transmission of value. It's about permissionlessness. It's about self-sovereign, like doing what you want with your own money, one individual to another individual. Are you concerned with this central bank transition to digital currencies, that they put in place a much more authoritarian sort of restricted, less free, less market-driven digital currency than the one we'd be familiar with is crypto? No, because it's not replacing crypto. It's not crypto. It's a central bank digital currency

that does several different things, but the essential thing is it closes the gap between monetary policy and fiscal policy. Crypto exists in its own sphere in its own right, as gold has always existed. So it doesn't take away from crypto. It doesn't stop crypto becoming a store of value or even a transfer mechanism or a method of payment or any of the other things. They've basically accepted that it's here and it's part of the system. And I don't buy the arguments that they're going to get rid of it. I think they want to integrate with it. It is always very useful for global society to have somewhere to put its store of value. And if it doesn't go into Bitcoin, it goes into art or cars or baseball cards or whatever it is. It doesn't really matter. Bitcoin, obviously,

for a number of reasons, is the most superior one that we've seen and will remain, so I imagine. But I don't think of these things in competition at all. I think they're entirely different things. I think what the central bank digital currencies are doing are reinventing monetary and fiscal policy and economics. So you think these two worlds coexist and maybe work with each other, feed off one another, grow with one another. How long do you think this transition takes for central banks? Do you see like an acceleration, central banks adoption of digital currency, like in this next decade? Or are we talking like many decades from now? Oh, I think within five years, we'll have a digital euro, digital dollar, digital pound.

China's already going digital. Even small countries like Bermuda. I think the Cayman Islands will go digital five years. There's no solution. They have to do it. Okay. So what happens to the U.S. as a reserve currency in this world where all of these central banks have transitioned to digital currencies? Does it withhold, does it uphold its reserve currency status or does that start to get eroded away? And what replaces the U.S. dollar? Well, firstly, you need to know what digital currencies are. They're just a different platform for the existing fiat currency. So it doesn't change that. it's a it's a it's a it's a it's a it's a different method of transfer different method of storage i. via digital wallets and can have incentive systems built into it i.e. smart contracts so i mean that's a

very symbiotic world with the world of crypto and some of these will be built on some of the larger crypto platform so that's that's good too so you know i don't really see the issue with where that could all go Now, in terms of the dollar, that's a separate issue, and it's nothing to do with digital world. What it is to do with is that the US accounts for 25% of global GDP, yet global payments are 79.5% all conducted in US dollars. So that leaves the world short of dollars and under the control of the US, if you want to put it that way. But basically, it makes it very clunky to operate a globalised system. Now, globalization may withdraw somewhat, but globalized trade is never going away.

And this is a huge problem. It's a massive problem for a country like Brazil or South Africa that is a commodity exporter and the vagaries of the dollar destroy or build its economy. That can't go on. And so what that after here is the ability, and the IMF have been talking about this, is the ability to maybe using digital currencies to create a more unique structure where you could have regionalized baskets and stuff like that, which trade. So maybe you have a digital commodity basket.

So that's a bunch of commodity currencies offset by others. You can create, this is what Libra, Facebook's Libra was. You can basically recreate different monetary payment mechanisms. And that moves the world away from the dollar. So yes, it's very dollar negative over time. But it's not an abandon of the dollar. It's actually a fixing of the mess that this dollar. standard has got everybody into because it's so all powerful and restrictive on every single nation

that uses it that people just need a different answer. And, you know, in this world where it looks like there's going to be a sharing of power with China, the US and others over time, well, then people don't want to use somebody else's currency. So let's say China is trading with South Korea. the last thing they want to use is the US dollar in the middle of it. So they're going to find solutions to allow this to work. Now, the world runs on swift payment rails. And people can't have that, you know, Russia, Iran, other people have been kind of forced out of the SWIF system.

People just don't want that. So it will change. And that is dollar negative. In the meantime, in the interim, the dollar gets stronger and stronger because in the middle of a debt crisis, everybody owes dollars. And every time somebody can't pay the debts, there's less dollars around. And it increases the value of the dollar over time because everybody has to fight for that dollar. So I still see the situation where the dollar gets stronger before everybody is forced into the actions that I talked about, which is trying to create

using the digital currency baskets that the IMF, the BIS, the Bank of England, the ECB and everybody have talked about, bring these, roll these things out to try and change the structure of the market. Obviously, don't forget, we have the massive Eurodollar market, which is the dollar interest rate lending markets offshore. I mean, that basically drives every single global bank. That whole thing is creaking at the seams. There's not enough dollars around. The banks are not able to lend as much. They don't get access to the US banking system. So there's a real structural problem that needs fixing. Well, when you discussed about how a central bank digital currency could be programmed as such that it can only be used or spent in ways that

are approved by the bank or the state or whoever does the approving. I was reminded of, you know, some things in history that we've seen, such as, you know, back in the 30s, it was illegal for an individual to hold gold. And Argentina as well confiscates gold if you try to leave the country with it, right? And something I'm concerned about is while a central bank digital currency that dictates what you can and cannot spend it on is kind of a form of confiscation in a way, in a roundabout way, right? It's dictating what should be valuable and what shouldn't be valuable. It seems to be we are at a similar place in time as 1971 when Nixon closed the gold window. And it was kind of this like statement that we are basically going to use this new

freedom to print new money. And we seem to be at a similar place in history where we're kind of, you know, we're taking down the curtain, right? We are just going to be more explicit about our need to print money as well as if what your theory is with central bank digital currencies having approved ways of spending, then we seem to be in a way where there's going to be a top-down control over the value of the dollar. But do you have any thoughts on that? Listen, we live in a controlled society whether we like it or not. You and I are using a Google browser.

They know everything we're doing, who is speaking to, how we're doing it, what products we use, what we shop for, what we look at, everything. So we can't escape the world that we live in. It is what it is. So the fact that governments are actually slower to the game than corporations have been, Google has more data on more people than any other entity on Earth. It is what it is. I mean, no amount of screaming and shouting is going to change that.

Technology genie is out of the bottle, as is behavioral economics. Now, the other question you need to ask is, is it confiscation or is it redistribution? Because we know the system is completely broken right now in terms of distribution of wealth. So is that the worst outcome? I don't know. There are several bad outcomes. And the fact that Bitcoin exists allows us. of those outcomes. And I think game theory would imply that in a globalized world, if, let's say,

the IMF get towards their new Britain-Woods agreement, which is basically, if you read-believe the headlines, it means we'll all agree together to maybe grow our balance sheets 50% or whatever the number is, right? So we can stimulate. And if we're not having a currency war, we all do at the same time, it's all okay. I get it. Great for Bitcoin, great for gold. and helps maybe redistribute wealth. But in that situation, a country is going to say, oh, well, we've put Bitcoin as our currency, or we've put Bitcoin in our reserves.

And before you know it, it starts to attract assets. This is how markets work. So all of these things, I think, are positive for the adoption of Bitcoin, because in the end it is the superior asset. So if you are Argentina and you've had endless currency devaluations and you happen to go through an economic boom, well, what happens if you started accumulating Bitcoin in your reserves? does that make your currency more valuable? Does it make it harder? Yes, it does. And I think that's really interesting because I think if you follow the argument of Bitcoin, it ends up with adoption by the central banks. It just doesn't get there quickly, but it happens. And we will see some small nation state

doing this, I think, within the next five years. And that will be the little flag planted to say, okay, there is further change coming. Because as you guys are rightly pointing out, this system of endless printing is unsustainable because, sure, you can extend it by redistributing the wealth not in the hands of the rich, but in the hands of many. And that will stop the populace from rebelling as much as they currently are. But in the end, other countries will take advance of it. So, you know, it's a really, really fascinating thing going on right now. And the biggest change any of us will ever live through. So it's very interesting how you kind of use that logic. So, Raul, you're basically saying that, let's say this basket of fiat currencies become sort of the de facto new Bretton Woods, right?

And regular citizens say, hey, you guys inflate your money too much. So I'm just going to put my value in Bitcoin. And they start buying Bitcoin. Rather than government starting to ban Bitcoin or as FDR did in the 1930s make it illegal, you think that that is unsustainable from a game theoretical. Let me stop you there a sec. This FDR thing comes up a lot. It was only the US that tried to ban it and the gold price went up and it didn't work. So everybody else used gold.

So there is exactly the example I'm using is if you ban one group from using gold, guess what? Switzerland exploded because the US citizens and others used Switzerland. So that argument is always the wrong argument. Everyone says they'll ban Bitcoin. Look what they did then. Well, they didn't on the global scale. Could the IMF try on a global scale? Sure.

But maybe Russia will say, well, we'll use Bitcoin. Exactly. A player incentivized. It happened with genetic technology. It happened with all sorts of things where everyone goes, well, we're going to ban it. And before you know, Israel, Brazil, and others, we're allowing it. Yeah. So the FDR example really just proves your point because it's game theoretically when you're

dealing with nation states. It's not equilibrium, right? Because some nation state can just defect and start adding Bitcoin to their balance statement. And that requires all the other nation states to unban it then. Yeah, because however homogenized we can create a society, and I don't think you really can particularly easily, but let's assume you can create a relatively homogenized society in a country, you certainly can't do it internationally with countries with different cultures. So somebody is always going to want the advantage over another, because its job is to improve

the quality of life for their citizens. So they are always incentivized to look for the best outcome. What do you think about some of Bitcoin's weaknesses? There are a couple I can point to you, but what do you see as the main Bitcoin weaknesses right now? I think for what it does, it's perfect. I mean, it's a pain in the ass to try and integrate it into the current payment rails, but that's no real big deal and it's being solved. Its weakness is people who the Bitcoin maximalists think it should be every form of payment.

every form of transaction and all of money itself. Well, it's just not set up for that yet. Could it be that in the future? For sure. Certainly, I don't want bloody money to have a 60% volatility because that's not money. But as a store of value over time, yeah, I'd accept the volatility because of the skewed upside. So there's an evolutionary state that needs to take place within Bitcoin itself. And that would be as volatility collapses because we're massively up the adoption curve.

And then you could stop using it for money. But the problem is the speed of transactions becomes a problem. But I don't think it should be money. Could you build something on top? Well, between now and 10 years, that's a long time to create the technology to allow it. So sure, maybe the Lightning Network works. But, you know, again, or you just integrate it with Ethereum and all the other cryptos and blockchain technologies around.

So I don't really know, but I just think it's, I don't think it has to solve every problem. Just to have pristine collateral at the center of the system solves 90% of the problems. Have you given any thoughts of one criticism of Bitcoin that comes from all sorts of camps, maybe partially the Ethereum camp, is that it won't remain the most secure network over time. So right now, of course, like it's economic securities paid through new Bitcoin issuance. essentially inflation. So that subsidizes the system right now, but every four years, of course, quite famously, that gets cut in half. And eventually the Bitcoin network transitions over to economic security by the value of its blocks, transaction fee revenues. Have you given any thought

to that? Right. So right now, yeah, seeing it in front of our eyes, and it's called defy, once Bitcoin has a yield curve, people are incentivized to create it and hold it and mine it. So I think that it's just so nascent still that most people in the space haven't been involved in the financial markets to understand time value of money and stuff like that. So I think there are other reward systems that will take place and it doesn't have to be mining. So the reward system for owning, the reward system for transfer, the reward system for custody, there's all sorts of different reward systems that can be baked into this. So I don't think that that is necessarily going to remain unsolved. Don't forget, let's assume that it goes up to the kind of levels that we're all thinking about. So let's say it's suddenly a $10 trillion asset.

Well, everybody's oddly enough, very economically incentivized to solve these problems. It's the same with the quantum computing conundrum. Well, basically, the more Bitcoin goes up, the more money goes into solving it to protect it. And so it becomes an arms race, and I think that's fine. You guys, there's so much left in this interview with Raul. We're about to talk about the size of what Raul calls the application layer versus the collateral layer. Or in bankless terms, the defy layer versus the store of value collateral that runs inside of it. Really interesting part of this conversation.

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But I'm interested in hearing how you would characterize or describe Bitcoin's relationship with Ethereum or defy. Well, I think it's all about interoperability. and I think that all of the things we talk about now won't exist in five years' time. I think that there will be a seamless layer on top that allows us to operate between all of the various systems, much like I can send money to you from the Cayman Islands to America and it's no problem.

I can send you an email from my Apple and it goes to your Android phone and you flick it onto somebody else and they're using Microsoft. You know, we don't notice any of this stuff. And I just think it's all a red herring because, you know, this turf war, I think, gets resolved by technological adoption and use case. So if Ethereum proves out the use cases and it can create the yield curve for Bitcoin, and it gets more adoption than Bitcoin's version of its own yield curve,

so be it. And that will work fine. And we won't even notice any of this. You and I will just say, hey listen, I'm getting 3.7% on my 5-year Bitcoin right now. What are you getting? And you have no idea that yours is based on ripple and mine's based on Ethereum. It doesn't matter. So, Raoul, you own Bitcoin, of course, but you've also said that you own Ether, the asset behind Ethereum. What's your thesis for Ether? Why do you own it? Yeah, I'm just a macro guy, and I'm very simplistic in these ideas. And it's basically is, I understand the potential weaknesses of Bitcoin, which, which is right now they haven't sold the transactional speed and the smart contracts element embedded within Bitcoin

as well as they have in Ethereum. Ethereum is not perfect by any means, but the amount of intelligence, intellectual application going into developing on Ethereum because of the smart contract element means that if there is a platform for the future, then Ethereum has a really good chance of being that. And that's for the financial system or it's a custody system or its store of value or its legal systems or its notarization systems and all of this stuff. Ethereum looks pretty good for that.

And I don't think of Ethereum as a currency. I think of it as a share in a platform in the success, the network effect of that platform. Well, Bitcoin, I think of as a reserve asset. So why not? Let me push back on that, Rao. why don't you think of ether as a currency as well, as a reserve asset? There are some ways it is acting as that today. It is a non-sovereign store of value and the most trustless non-sovereign store value on the Ethereum network. For instance, on Ethereum, it doesn't have any other dependencies. So it's being used as collateral, as a trading pair, as all sorts of things. Derivatives are being built on top of ether as a store of value. In some ways, when you port, Bitcoin over to the Ethereum network, you lose some of that trustless dimension that you had in the first place on the Bitcoin network and Ether provides a substitute. Why couldn't Ether be a currency,

a reserve asset and non-sovereign store value? For me, it feels more like a bond than it does a currency. So bonds are just a layer on top of currency, right? So the dollar's the currency in the treasury market is the application layer and equities of the application layer. And equities of the application layer, it just feels more like that. It doesn't mean that doesn't have value or store a value or anything like that. But it's, it just feels different. And I could be dead wrong. And it doesn't matter to me whether I'm wrong or right because I own it. But the idea is, is that I think, and I think there is a world of which the Ethereum network is worth more than the Bitcoin network. What would have to happen for that to be true, for that world to exist?

Just the applications layer is larger than the collateral layer. I mean, the collateral layer in the world right now versus the derivative layer is a small fraction. So I don't really see why that that should be a problem. In fact, you don't want the collateral layer to be everything to everybody. You actually want it to be the safe place. So we have a take on bankless on ether, the asset called the triple point. asset theory, which is basically using, you know, kind of how a matter can be a gas and a liquid and also a solid, right? And ether can be three components. I think it fits into what you're

talking about with a bond. But we think, you know, there are three asset superclasses, right? You have capital assets, you have commodities, and you have store of value type monies. And ether, it seems, can be all three at different times. So it could be a commodity when it's used to pay for a transaction like gas, like oil. And that's always been used. Ether is oil, right? Well, that's true. But it can also serve as a money, as a store of value, like Bitcoin when it's used in defy as collateral. So you can print stable coin on top of ether as collateral. But then when it's staked, it becomes a bit more bond-like, right? So ether moving from, Ethereum moving from proof of work to proof of stake, well, what's stake? Essentially,

you're putting it into a bond. You're not touching it. And you're getting a yield curve from that bonds so that it becomes bonded. And our thesis is that ether is all three of those things at once. It can form between the gas and the liquid and solid and be all three of those. What's your take on that? I don't know. I don't know. It could be. Is that how it ends up being used? We'll have to see. I mean, the problem is there's so many unknowns within this universe. And, you know, it's like Bitcoin could be everything too. It just depends how it gets adopted. Again, Microsoft could have been a database company or, you know, Google could have been

something else. It just depends what gets adopted in the end. So I really don't know. But again, I can see why the tokens have value. I don't doubt that for a second. But what I don't know is such a dramatically fast-moving technology as all of this space, it's almost impossible to calculate the odds of what is going to develop. And it was the same when the internet came around.

We had no idea where this was going to go. And I think that's good. I'm happy. I'm happy with that because all I know is it's going to go from here to somewhere, and that somewhere's a lot bigger than here. So I'm a macro guy again, you know. to get into the weeds of how it does it or what the actual outcome is, is irrelevant because all of the outcomes mean a higher price for ether.

But I think it's interesting that you've chosen both Bitcoin and Ether. Have you chosen any other assets in this space that are appealing? No. I mean, I love the whole idea of tokenization, the digital asset space overall. But again, I'm a macro guy, so I don't generally buy equities. You know, I'll buy or sell indices. You know, I'm very top down. and it's just not my knowledge set to be deep, deep in the weeds of stuff.

I can be deep in the weeds in terms of the philosophy of where I think things are going and how they interact and how you connect all the dots. That's my kind of expertise. But when it comes to the different technologies, I have no clue how this is going to work. So could something else also feature for sure? But I'm unlikely to invest in it yet because I don't, understand it yet. But I do understand tokenization, but again, I'm not the kind of single stock investor, so I'm unlikely to do something in that space yet. But I'm super interested in it,

because I think everything gets tokenized. So, Raoul, we have a thesis, the bankless thesis, which kind of illustrates a, in my mind, like a marriage between Bitcoin and Ethereum. But it also does some other things as well. And you've labeled some of these characteristics that Bitcoin has, that it also has some weaknesses. And then there's also some strengths that Ethereum has that also has some weaknesses. And namely, the strength of Ethereum as a smart contract platform that can host DFI is one of its greatest strengths. And then also Bitcoin's monetary policy is also one of its greatest strengths. Our thesis here at Bankless is that Bitcoin didn't go all the way when it comes to bringing trustlessness and decentralization to the world of finance, right? It just kind of focused on

the central decentralizing or providing a new alternative to central banks. And in a world that is cryptocurrency slash cryptography first, that isn't enough because if you interact via Bitcoin, via Bitcoin banks, you know, Bitcoin has scaling difficulties, right? There's only so many transactions that can get onto the main chain. And so that means that we need to make it more valuable. No, I think that I think that could mean that it's much actually handstrung in the long term. I think that's not sure because collateral as itself doesn't need to be high velocity. So I'm not, I'm not entirely sure that its restrictions don't end up being part of its value

because then you don't build the derivatives layer on top of it. You don't do a bunch of things on top of it because it doesn't function well for that, which is, you know, what Ethereum does super well, because it is much faster. It's much more flexible. And Bitcoin's inflexibility is its very advantage, as is Ethereum's flexibility. I just, you know, I just think of them as entirely complementary, like pepper and salt. Yes, yes. And this is why we were talking earlier about, like, the jealousy of the nation state when money printing goes on and people are putting all that money into Bitcoin. And then also, we have also seen nation states, you know, ban gold, right, or ban Bitcoin based off of this,

you know, not wanting to be able to control the value of their own currency. And in a world where Bitcoin uses Bitcoin banks and institutions to manage transactions to the main chain, in a world where a nation state doesn't want their citizens to have a relationship with Bitcoin, Bitcoin needs Ethereum to be able to have that optionality of being a financial store of value in a way that doesn't require centralized intermediaries, which are ultimately extensions of the nation state. And that's largely what the bankless thesis is. It's not only the automation of the central bank as Bitcoin, but also the commercial bank layer via Ethereum. Yeah, and I don't think of Bitcoin as the automation of the central bank. I just think it's

entirely different. Like gold. I mean, gold stands on its own merits. It has nothing to do with anything else. Yeah, I think that's what I mean. I think that's what I mean. Yeah. So, and yes, I agree. Interoperability. That is going to be the key word for the next 10 years, because it all can exist side by side. It is not one against the other. It's the whole space together is more powerful than any individual component part, I think. So, Raoul, what do you think this wacky world of defy? Right. So on Bitcoin, like inherent in the network, you can hold Bitcoin, of course. You can transact with it on Bitcoin. Of course, there's transactional limitations. On Ethereum, you could do other money verbs, right? So you could also lend. You can also borrow. There's something called Uniswap where you can trade without a intermediary,

without a bank, as we would call them banklessly. What do you think of this wacky world of defy? Does it make sense to you? Yeah, totally. It's just reinventing the money markets for the digital era. You know, I have no problem. You have to have the time value of money. Nothing works without it.

Literally, it's as old as money itself. And that is what is happening in defy. The markets are struggling to price, the time value of money, and taking into account risk. We don't know the risk yet. So we don't know what are the right solutions? What has more risk than others? We have no analysis of that. But what we're doing is planting the seeds of the future of a whole financial system.

Because without the time value of money, you don't have a financial system because nobody's incentivized to lend. And so, you know, it's. Super important, super interesting. It will fail many times. It's like opening up in a village square and saying, right, all of you can become money lenders, money or borrow money from who you want. That's what's going on, right?

Unrestricted money lending. Guess what? 99% of people blow up and one person figures it out. It's always the case. It's perfect. It's just survival of the fittest going on in front of our eyes. And what it'll do, it'll keep iterating and improving all the way through. So what we know now is defy will not be what we know in five years time.

Yeah, I agree. Does it feel a little bit like the early internet in that way? Right? So like the internet, you know, you had AOL and closed gardens like that, but the internet really hit its stride when anybody could build a website, right? Like any browser could view whatever you want on, you know, the web. It's all open. It's all permissionless. You want to do something on the internet. You create your own website, right? This almost has that for assets and like money markets. You know, you want a new money market? Write some code. Publish it to Ethereum. No one can. stop you. You don't have to ask anyone for permission. Do you see some analogies there with the early internet? Well, it is the internet of money. I mean, I totally agree with that. What that really means, I mean, that's a big philosophical question that I don't think any of us really understand yet, because I know that things are changing so dramatically and so fast. But I think that's right. And what I love about something like this is here is capitalism in its purity, where everybody's trying to develop the best solutions and the best will win.

Fantastic. What still doesn't make sense to you about this world? Is there anything that you're like, like, Ethereum or it's monetary policy or like defy? Is there anything that still leaves you scratch in your head? No, again, because I, again, I don't look at stuff like ETH monetary policy because I just don't care. Simply, this fight about how many ETHs are there

because you're comparing apples and oranges. You're saying my apple's not, hasn't got a skin on it like an orange. It's ridiculous. So what I want to ask you guys is why the ridiculous tribalism? Why can't people just say, you know what, this is the most exciting space I've ever seen? And there's a number of permutations, a combination that can play out. And we should be embracing that. Why the relentless tribalism of my house is better than yours?

Oh, I love that question. Yeah. I think we try to push back against that. tribalism, to be honest. It is a huge feature of the space, right? Yeah, it's in our DNA for sure. Yeah, it is. The bankless take is both Eith and Bitcoin because it's similar to yours.

We're building a new financial system from the ground up. And you want both of these networks and both of these assets in the long run, right? These are assets for a new monetary system. But I mean, I think there's something to the tribalism that this is not just a technology, but it's also like a social technology. It's, you know, there's an element of it. It's a bit less like using Microsoft versus Apple and a bit more like, I don't know, being a Christian

or being a Muslim or a different religion, right? There's some religious element to the social layer. At least that's what we certainly observed. Yes, and the reason religions have that element is because they then become self-sustaining, right? It's for adoption purposes. Right. So I do understand that a feature,

what looks like a bug is actually a feature, which is tribalism is a feature because it allows things to survive. Here's another question I'll ask you. Let's move away from finance, because I'm also interested in, you've seen Verizon has just made this announcement about putting news on the blockchain. The authentication of people and information

and photographs in the world of deep fakes and IP for music rights and all of this stuff, Can Ethereum solve this? Because this is a huge layer that nobody's really talking about yet, because everyone still thinks this is all about money. It's not. It's all about trust. I do think that sometimes, especially related to this election, sometimes you show some evidence to people and they just don't care. And I don't think Ethereum solves that problem.

However, in the world of deepfakes where there's just a bunch of fake news coming out and there's a video of somebody saying something and you don't know if they actually said that or not, what can really happen is what we call timestamping, right, where we use Ethereum as a way to register when something happened and we can trustlessly verify that. And when, so like a timestamp on a piece of news or a video where the validity of this video is the first time this video has ever been surfaced ever. And we can verify that timestamp. And so it can be timestamped with an authentication, right? So let's say I'm a registered creator.

So I then release it with my timestamp and authentication code, which is on the blockchain. It solves all the problem overnight, right? Well, I think there's a more complexity to solving that problem, but I think the base puzzle pieces are there. Yes, where there is some sort of verification tool where you can figure out which piece of information or which piece of data, really, what we're really talking about is data. What piece of data came into the world first? and we can organize that via what's what we call a Merkel tree on Ethereum. I mean, I think it's an interesting vision, but I also think that this will probably happen with money first,

and then we'll graduate to other things like identity and that sort of verification, verification of data. Because one challenge with this, Raoul, is that everyone is in a market competition for block space, right? So, like, who's going to pay the most for the next, Ethereum transaction, right? Because Ethereum, the network of the protocol, just like Bitcoin, it'll just sell it to the highest bidder. So at what point in time do those sorts of data verification jobs become more valuable? That's a great point. So what's to stop that going on

EOS or some other platform? I think some of it could, right? Also, a lot of it could happen in Ethereum's layer two, which is sort of a... You rightly say, I mean, the value of money is the most valuable thing, right? Right. because it's money. And so as you move down the value chain, which is, let's say, your own informational data, that's worth less per person, right? So therefore, it just goes into a different blockchain. Goes into a different blockchain, goes into a layer two. I mean, you want to use something like Ethereum when you want completely decentralized, credibly neutral settlement. And in a lot of cases, that's probably going to happen for money use cases first, at least on

the main chain. Other things could migrate to a layer two or to a different blockchain. Again, if they have market value. The cool thing about this, as you pointed out earlier, is like the market figures it out over time. The valuable things persist and things that aren't valuable do just go away. Which goes back to our conversation about Bitcoin blockchain. Nothing else is going to go on it. There is no point. It's too valuable. Yes. That is probably the case. Yeah, it's like trying to use diamonds for, you know, some ridiculous use. But in fact, they can only be used for the most expensive things, whether it's jewelry or whether it's for drilling. You know, it's it just becomes its own value proposition in its own right because it has value. It's kind of weird. Yeah, it's very interesting. It's very like self-fulfilling. But, you know, we have argued that there is actually sort of a, and others in the Bitcoin space have argued that there's actually a problem with that over time because eventually Bitcoin's whole. economic security depends on the value of its block space, that transaction value. Like the blocks, the amount of blocks and the money spent on those blocks are going to be the

sum of Bitcoin's security budget. It's like a national defense budget, right? It's no longer funded by issuance of new Bitcoin. It's over time, every happening, it becomes more funded on the tax base demand. Exactly. Which is why, which is why in the these networks, you do need an element of, wow, the block space has to be super valuable. Or else the economics of the system, you know, it's a tradeoff, right? You can't have fixed price. The economics of the token is less attractive. That's okay.

That's okay, too. You don't have, not every token has to be worth what Bitcoin is worth. They all have different spaces. Yes, exactly. But the like the block space, the demand for the block space. does actually matter because so Bitcoin makes this tradeoff, which is different, right? So the Bitcoin tradeoff in terms of economic securities, basically we're going to fix the amount of Bitcoin that we have. There's only going to be 21 million, right? But we're going to stop

issuing and subsidizing economic security and transition that economic security to transaction fees, the value of the block space, people spending money on, you know, Bitcoin block space essentially. Ethereum's monetary policy is a little bit different. It says basically like, we're not going to sacrifice security, minimum viable issuance to maintain the same security level, right, so that we don't have a fixed cap. So there's like these different monetary policies and economic security policies competing to you, which is another dimension beyond just like the technology and, you know, Bitcoin can do some things or Ethereum can do some things that, you know, Bitcoin doesn't. We also see like these monetary and economic systems competing in those ways, too, fixed cap versus

minimum necessary issuance. It's definitely where a large part of the. tribalism comes from as well because people believe in one strategy over another strategy and therefore they fall into that camp that believes that. Yeah. And, you know, my instant reaction to anything like that is to not take one side or the other. It just doesn't make sense to me. I'm just not that kind of person because, you know, I'm looking at the overall opportunity set as opposed to one versus another. because I think, but I understand that it's important to have tribalism because it's what drives Bitcoin right now, because it's adoption. Without tribalism, you don't get adoption.

Religions wouldn't get adopted without that religious fervor, the adoption of it itself and the this is the one exclusive all others. Anybody who starts a religion says, well, just include all other religions in it. It kind of doesn't really work because it doesn't adopt. So it's fascinating. How do you think institutions are doing this space these days, Raoul? Like they see the tribalism and the wackiness that goes on a little bit, right? But like, are they taking this space seriously now? Yes, they are.

I don't know anybody who's not. Yes, there's a bunch of dismissive people. But overall, everyone can see what's happening. Well, for God's sake, if the IMF are talking about it, then everybody is. It's not no longer underground, right? even the IMF though like in their words they're they're a bit more dismissive right like using terms not necessarily the IMF report that you're referencing but like so-called stable coins right um definitely relegating bitcoin in a position of too volatile to be a real competitor to anything um but you think they're

they're taking this whole space seriously now which is maybe different than a couple of years ago is are in a totally different world now yeah we're in a totally different world i keep talking about the wall of money. I don't know anybody who's not looking at it or understanding it. Everyone's still in the past, so far in the past, thinking about narratives that they want to ban it, you know, nobody gets it. The banks don't want it. I mean, everyone's like, okay, it's here. We get it. So what's holding it back, right? Imagine your pension fund and you want to buy Bitcoin. You have to get your trustees to agree, or a bunch of crusty 70-year-old guys, you don't really trust it. It just takes a long time. The financial

markets are slow. They move fast in price, but slow in terms of development. It takes time. You've got to get legal agreements. You've got to get people on side. You know, a bearer asset is a bloody nightmare for anybody. So Fidelity tries to solve it and a bunch of others because bearer assets are horrific. I mean, we used to have bearer assets in equity markets and bonds. We got rid of them all because there's just too much of a nightmare. Yeah. So, you know, it's going to take time. time for people to go back to bear assets. Do you think some of the recent, I don't know, somebody could call it cleanup, right? But like actions against the bitmexes of the world and other kind of exchanges that are not

as CFTC friendly. Do you think that as part of regulators attempt to kind of clean this up and get it ready for mainstream institutions? 100%. Wow. They know the space. They know what's coming. They know what they have to do.

And they have to make sure it's not the Wild West out there. And, you know, I'm sure, you know, Arthur, a bit next and a bunch of other people also realize, and they did realize, they knew it, you know, a couple of years ago, that the world that they came in from, which was the frontier, was going, was moving towards a more regulated playing field. And that's fine. Yes. I thought the libertarian dream of many bitcoins from the beginning, but if you're going to integrate into a country's tax system, and monetary system, unfortunately, that's the price you're going to pay. Do you think the banks know what's coming for them? So if this thing is like the internet, right, it could do to banks, the banking system,

what the internet did to media. And there's both opportunity there, but there's also like disruption. They do and they don't. They are a little bit arrogant because they have monopolistic power and monopolistic rent. So you tend not to be open to disruption. But, you know, I know the guys that people like Goldman and J.P. Morgan, They all know this stuff inside out. They're all waiting to have trading desks.

They're all building out blockchain stuff internally. So, I mean, they're not going to let it go past them. I mean, if anybody thinks that Goldman's going to get disrupted by this is on the wrong planet. Well, how soon until they just acquire a Coinbase or something, when are we going to start to see that activity? Well, not yet because they don't want the liability of all the retail side. But trust me, the moment the pension fund start moving, All of these banks are in it. So Coinbase has a big problem then.

You know, so it's not going to be a straightforward fight here. It's going to be a big fight back from the banking sector to get involved. And they have a lot of capital. Although, look, if Bitcoin goes up 5x from here, many of these exchanges have huge amounts of capital. So, you know, it's going to be a war. And that's okay. Don't forget, we've seen the opposite. We've seen crypto companies acquiring banking licenses.

Crack and Coinbase are about to. We've seen Caitlin Long's bank as well. So it's all happening. There's definitely seemingly a meeting in the middle where legacy banks are flirting with crypto and crypto exchanges are kind of morphing into, becoming banking institutions. And these sides are getting closer and closer and closer. The one that's going to really get killed are the medium small-sized money center banks.

They just have no place in this world. Elaborate on that. Well, it's fine if you're a dominant player because you can make the moves that are necessary to survive, V, U, Goldman Sachs, J.P. Morgan, etc. But if you're the XYZ Bank of the Midwest and you're just a money center bank that does normal banking, I mean, you just don't have a business model. It's much like, you know, the, what happened over COVID and the rise of video and what's happening at universities mean that almost all of the second tier and third tier universities

are basically going to zero over time because anybody can do it on the internet now. So you turn a very cost-intensive business into a SaaS business model. That is what's about to happen in the banking industry. And none of these guys can deal with it. When you see legacy banks start to flirt with crypto, is acquiring something like Coinbase a first move? Or what other first moves do you think are on the horizon for legacy institutions that want to get into this space? I think they'll build their own custody first because then they've got ownership of the asset. And then they'll offer derivatives.

What I find swaps and all of the stuff that everybody else uses. What I find so fascinating about this, T, Raoul, is not only do the banks have to contend with these, with crypto. adapting that. They also have to contend with the tech companies who are entering, right? Like Facebook wants something to say about banking. Yeah. And, you know, probably Google and other large tech companies, see things going on in China. If you read the ECB statement and the IMF statement, they're like, good luck. There's going to be a huge fight in FinTech. And that's fine. I mean, they're accepting it because they said the private sector will innovate much faster than the governments can. It'll also innovate faster than the banks. They know it. It's interesting, though,

that banks have had some kind of protected status, I would argue, like in nation states, right? Yeah, this is the answer, right? This is why the central bank digital currencies are coming. What are the Europeans going to do with the banking system? There is no way to solve it. There's just not enough money. So what are they going to do? I think they end up nationalizing it, move to a central bank digital currency for distribution of money and allow fintech to be the layer that distributes it. It solves their problems. What do you think of China's strategy, though? Do you think they're going to eat everyone's lunch before the West can get attacked together and figure this central bank digital currency out? No, they just have their place, as everybody else will, and China's

place is going to be large, you know, because in the end, South Korea will transact not only in digital yuan, but, you know, with a basket that contains that, with maybe other trading partners. So, I don't think there's a first come, first served winner takes all in this. I don't think it's a race for the central banks because it's the same currency. It's just digital. It depends on the applications layer and stuff like that. But again, I don't really know. Well, we're talking about banks, one of our most bullish defy thesis is that basically the banks, the new banks, whether they're fintech companies, tech companies, old banks, whatever, they're going to start building on top of defy protocols, right? Maybe on Ethereum. just as Coinbase is built on Bitcoin as a value store. So that might mean something like Uniswap is the pooled liquidity shared across all of these banks. Or there's some lending and borrowing money market protocols that are all code-based, not owned by anyone, that these banks then build services on top of.

Have you ever thought about that world? Yes. I mean, I think it's all available, right? and we've seen it in the internet itself and the apps that we've built and all of this stuff that yes there are big centralized repositories for internet usage be it Google or Facebook or whatever but there's millions of other participants some of whom can make supernormal profits and some of whom fail so I do think all of that is coming but there is going to be regulation around lending there has to be because humans have proven time and time again they're not

very good at borrowing money. How do you think regulation is going to be expressed when some of these defy protocols are, the social contract of some of these things is inherently to be anti-regulated? There was a, it's a very off-piece story. Back in the mid-2000s, like about 2010, out of China, into the UK and other countries around Europe came something called plant food. Plant food was basically genetically modified, genetically engineered cocaine, MDMA cross. And because it was not banned because it wasn't cocaine or MDMA, it was available everywhere. Then the government tried to ban it, so they looked at the chemical bonding and said, this is banned. And then the Chinese produced another one and another one and another one.

They banned one after the other of the other. New Zealand actually gave up and said, forget it, we're just not banning this stuff any longer, it's just too complicated, while the EU and the UK try to devise broader rules around it. So I don't know what format that will take. Some countries will choose not to regulate at all, and others will choose to have broad, top-down regulation because granular regulation is not going to work. Do you think your game theory, like rationale, might apply here too, right?

I don't know. I'd rather have the security than the Wild West. Right? So I'd be much happier with somebody I know and trust that is probably regulated. Because, you know, I'm not using money for criminal activities. I don't really care whether the government knows I've got money or not. You know, it's not, it's not relevant to me. So now could that change over time, depending on more nefarious uses by government?

Of course. but I would rather go to a place that's better regulated where I know my money's secure than a place that's less regulated and I don't think my money's so secure. And that's proven true with the crypto exchanges. One thing that DeFi does promise, though, hopefully, if its potential holds up, is that all of that information, the assets that it holds, is available in a transparent way on chain. So anybody can audit it.

Yeah. Does Bitcoin. And guess what? There's still tons of Bitcoin. and that never gets recovered. True. You know, it's, yes, it's good, but it's far from perfect. Raoul, this has been fantastic to talk about, do you have, we want to do a quick

lightning round, which is we ask you a question and you just do a quick reply, like five or so questions. Do you have a few minutes for that? Yeah, of course. First question. Have you tried Defi yet? No. What would make you try?

Nobody's going to prize my Bitcoin away from me. So I have no interest. in taking any risk with it whatsoever, because that would be stupid. I don't, in this day and age, if I look at Bitcoin's upside versus the potential to earn, you know, 5% yield, I don't care, to be honest. It's just not relevant in, you know, something that's skewed with a 50x upside. Can I earn another 5% a year in interest? It just doesn't matter.

So for me, it's not on my radar screen. not on your radar screen until there's some kind of investable thing that you can do that you can't do of somewhere else. Would that be the case? Something that doesn't provide the risk return that let's say Ethereum or Bitcoin have, then I'll worry about a yield. But, you know, we've learned from the VC markets that capital appreciation can be extremely powerful versus income. So with your opinion about what Defi is, is it centered around providing yield? Is that what Defi is to you? And you're just saying that the yield that is being offered on Bitcoin and Defi

is just not worth the risk of some of these platforms. Is that correct? Well, it's not worth the risk or the opportunity costs of some of the potential upside if something goes wrong. So the point being is it's very nascent. We don't really know what's going to work within it. And I don't, yeah, I literally won't take that risk with my Bitcoin. Now, could I deal it with other money and put it up?

an Ethereum, can I use my Ethereum for it? Again, it's just, it's not going to drive my returns. So it's not worth my effort to discover how to do it or why to do it. I want to ask about your hard money allocation. So allocation of ETH versus Bitcoin versus gold. What's that like in percentages right now? It's a third, sorry, a quarter, three quarters. So gold is a quarter, three quarters is Bitcoin and Ethereum. And split between those to it's like 80 to 85% Bitcoin. Okay. That moderately matches the market caps with these systems.

That makes sense to me. I hadn't even thought of it that way, but probably does. Yeah. Although gold will be much bigger if that was the case, right? Yes, specifically between Bitcoin and Ethereum. Rolol, if you had to guess, what would be the first central bank to buy crypto and put it on their balance sheets? One of the Caribbean nations.

Why then? No, actually, yes. one of the Caribbean nations that doesn't have a pegged currency or one of the Latin American countries. Do you think a central bank is buying some now and just not telling anyone? Maybe Iran's mining operations, for example? Possible. It's not liquid or big enough yet. It's $200 billion. It's a mid-cap S&P stock. You know, I don't see them rushing out to buy Zoom shares. You know, no, but somewhere somebody is thinking about it. Do you have any opinions as to which political party that gets elected into office, how one might impact the world of

crypto versus the other? No, I don't really think that the outcomes are wildly, they're societally potentially different, but from a monetary point of view, I think they're both roughly the same. And so in terms of that, so then it would be regulation and who allows it and who doesn't allow it. I would be more, I think it, it would be more likely that a democratic government, a Democrat government, would allow for the disruption of the banks versus a Republican government at the margin. So with these things generally being the same, so it doesn't matter too much, what are your price predictions by the end of 2021 for Bitcoin and then for Ether?

I don't know. You always sound stupid when he gives these. End of 2020, I don't know. Call it, I'm going to give it a bit off a spread of 100 to 250. I'm aligned there. That sounds about right to me. Obviously, it could be skewed to the upside, right? But in what way I don't really know. You were talking Bitcoin there, not Ether price, right?

Yeah. I don't really look at Ether in the same way. So I just think if Bitcoin goes up, it probably goes. up, maybe a bit more, maybe a bit less. So I actually don't really, I actually don't even look at the ether price. I own it, but I never look at it, really. Last question for you, Raoul, a lightning question for you. Why did you move to the Cayman, sir? Besides the beautiful weather, we talked about that. I, there's a number of reasons, actually. I had a dream in my life of two things. One was the Mediterranean, one was tropical beaches. I was, I managed to

moved to Spain and live there, and I've still got a place there. But this tropical beach thing, because I went around the world diving with sharks, basically, all around the world, and I love beaches. And so that had been a dream. And I ended up in a fortunate situation where I stumbled across the Cayman Islands because I was on a dive boat in the Galapagos with a bunch of people. I was buying something potentially in their Bahamas. They said, come to Cayman. I said, no, it's not my kind of place. Anyway, subsequent to that, two years later, I happened to discover little Cayman, this little island. and I thought, okay, this is perfect. Second day, I bought a piece of land, built a house,

and then ended up by accident moving here because I started Real Vision from here. But one of the reasons I built the house was also because I knew where the world was likely to be going. And I wanted to be out of that. I wanted to be out of the societal disrupt that I saw coming from 2012 and probably from 2008, and that hasn't yet been resolved.

And so I wanted to be in a system where, A, I knew that others would come to because there was no income tax, capital gains tax, that kind of thing. So that means that property over time will do well as governments struggle with having spent so much money on stimulus that they have to raise taxes over time or devalue their currencies. To be in a place that's slightly freer in that respect, I thought was very attractive. it's also an extremely entrepreneurial place. There's a lot of bureaucracy here, but it's also full of entrepreneurs. So it's a really interesting place, and it's very well connected. I wanted to be on this side of the world for a bit, closer to the US. And so it's an hour from Miami, three hours from New York.

It's got flights to Dallas, Houston, and Chicago and Denver and a bunch of other places from here, and direct flights to London. So at many levels it works. It's got a great legal system because it ends up in the British legal system at the very top of the structure. so there's good resolution of anything. So there's a great rule of law. And, you know, it's very serious about how it regulates and how it looks after itself.

So on a number of levels, it's just a great place. The only problem is hurricanes. And it's bloody expensive. I mean, God, when you go to the supermarket, buy like three lettuces of tomato and a bottle of water. It's like $600. It's crazy. It sounds like you might be preparing for a rocky decade, though.

You think we're going to have a rocky decade, Raoul? Yeah, for sure. How can it not be? There's no smooth resolution for this, whether that's civil unrest or they cost the civil unrest by giving money to more people, which I think is the outcome. But then there's monetary issues and how to governments recover from such budget deficits. And we don't know any of the answers. So I like protecting myself a bit.

That led me to Bitcoin. It's led me to gold. It's led me to the Cayman Islands. Do you think other people may be following you to the Cayman Islands or, you know, I get an email. or two every single day now. About people moving there? Yeah, and they're about to start a big kind of crypto initiative here.

So they're going to make it extremely attractive for people to start crypto businesses here. I mean, a whole bunch of them are here from break browsers to block one. They're all here on Ireland. They're starting to get physical presence because physical presence is now the new norm. And that's what they have to do. So people are going to be moving here. There'll be developers moving here. There'll be the business heads moving here.

So yeah, I see a huge amount of upside here in that particular space. Well, expect one more email a day for my co-host, David Hoffman. I think he's itching to go if I'm reading this conversation, right? Raoul, it's been such a pleasure. Hey, last question for you. Can you tell us a bit about what Real Vision is doing in crypto? The content you guys are providing is off the charts amazing these days. And I know you're doubling down on crypto.

What's going on there? Yeah, we already made the world's best finance content. but crypto been part of the journey from day one, the first ever video had Bitcoin in it. And as I've been explaining, the macro and crypto worlds were going to combine. They've now combined. So many of the largest players in the industry came to us and said,

listen, we need that unbiased, high-quality, deep dive, in-depth analysis that Real Vision has. Can you do something? So we are launching Real Vision crypto. We've launched it internally for our existing members, but it will be launched globally on, I think, November the end. 18. It'll be probably the biggest launch in the entire crypto media space, and it will be free. And we're doing that in conjunction with some of the largest partners in the industry,

who shared our mission to democratize the very best financial information and help the space grow, grow up, develop, and gain a better understanding to maybe knocks down some of those tribal barriers and maybe just bring everybody's understanding up, whether it's hedge funds, family offices, pension funds or the guy in the street. So that's what we're doing. And so look out. It's going to be something really amazing. That's fantastic for the bankless community.

More Ethereum, more defy content. Is that coming our way too with this new crypto focus? Well, if you look at the content now, it's been about 50% that, at least, maybe 70% at the moment. In fact, so much so that we had an editorial meeting saying we need some Bitcoin people on. Because there is so much going on in the space. right? There is a lot to music IP through to, through to, you know, defy, through to, you know, platforms that build interruptability, interoperability to, I mean, there is everything going on.

It's crazy. You can't keep on top of it. It's crazy, exciting. David and I make this a full-time job, and we're both, we both miss things like on a daily basis. So it's fantastic. You guys are doubling down in this space. We really appreciate it. Raoul, it has been such a pleasure. Thanks again for coming on the bankless podcast. It's been a lot of fun, a very different conversation and a very interesting one. So, yeah, well done, guys. Really interesting. Awesome.

Well, action items, bankless listeners, the first is you have to check out what Real Vision is doing. We will include some links to our favorite videos, including videos with Raul, in the show notes. So check that out and get ready for their launch November 18th. Also, just so people are aware, Real Vision itself is crypto-macro have met. and the point being is anybody who's come from the crypto side need to understand what's going on the macro side. That's the language, the bridge language that I'm trying to speak to you in. Real Vision does all of that.

If you pay a dollar for the free trial, you won't leave because it's going to give you a huge advantage in understanding what's going on. If you can't afford the dollar, it goes up to $250, which is the full subscription price. If that's out of your price range, we've got a YouTube channel and a podcast. So look, it's really important.

We built this for you. We built it for everybody to give out and democratize the world's best financial intelligence. So it's not just in the hands of the hedge funds and the elite. It's in the hands of everybody. So take advantage of it. It's there. Could not agree more, guys. A dollar is pretty cheap for what you're getting and linking the world to super important. The second thing is, I don't know if Raoul knows this, but I'm actually going on Real Vision this week. I've got an interview this week. So there'll be some bankless content on there. Probably I'll be talking value proposition of Ether and also Defi. So I'm speaking with that.

Sebastian. Yeah, he's really in the weeds on this stuff, so you'll love it. Oh, yeah. He was great, very knowledgeable. So there'll be some, I guess, cross-media intersection there as we educate each other. We're all part of the same space, and it's all of our jobs to educate as many people and help as many people as possible. Because honestly, this is the first chance in any of our lifetimes where the average guy, the little guy,

and the big guy have been given the same opportunity at the same time, and it's ahead of the institutions. That never happens. Could not agree more. Guys, maybe you miss the internet in the early days. Don't miss crypto in the early days. This is early days stuff. Get educated on this stuff.

And Raul and his team are helping out with that. All right, risk and disclaimers, none of this was financial advice. Of course, guys. Heath is risky. So is Bitcoin. All crypto is risky. Defi is too. You could lose.

what you put in, but we are headed west. This is the frontier. It's not for everyone, but thanks so much for joining us on the bankless journey.