Bankless - SotN#29: Erik Voorhees & ShapeShift (SotN29: Erik Voorhees & ShapeShift (DEX Aggregator, Regulation, Deplatforming, and the Bull Market)

Episode Date: January 13, 2021

🚀 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/ ----- GO BANKLESS WITH THESE SPONSOR TOOLS: ⭐️ AAVE - BORROW OR LEND YOUR ASSETS https://bankless.cc/aave 🚀 GEMINI - MOST TRUSTED EXCHANGE AND ONRAMP https://bankless.cc/go-gemini 💳 MONOLITH - GET THE HOLY GRAIL OF BANKLESS VISA CARDS https://bankless.cc/monolith 📈 KWENTA | DEVIRATIVES TRADING WITH INFINITE LIQUIDITY https://bankless.cc/kwent ------ State of the Nation #29 Erik Voorhees & ShapeShift (DEX Aggregator, Regulation, Deplatforming, and the Bull Market) Erik Voorhees is the CEO of ShapeShift, a company offering exchange and trading infrastructure, but doesn't act like a typical exchange! ShapeShift ( https://shapeshift.com/) used to be a place where one could atomically trade asset-for-asset. You would set up a trade between two different assets like BTC and ETH. ShapeShift would give you a BTC address to receive BTC, and you would give ShapeShift an Ethereum address for them to return ETH to you. ShapeShift never required you to 'deposit' your money, and never held onto users' funds! It was a very popular product during the 2017 Bull Market, yet the company decided to implement KYC requirements, in a move to protect the company from legal liability. It looks like ShapeShift has found a way to remove those KYC requirements without legal risk, and that is by becoming a DEX aggregator! We discuss this pivot with Erik, as well as a few other topics as well: - Crypto regulations in 2021 - "deplatforming" - The new crypto bull cycle. Tune in to this week's State of the Nation! ------ Don't stop at the video! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website 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 ----- 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 everyone to another episode of State of the Nation. David and I bring this to you on Tuesdays, 2 p.m. Eastern. You can catch it live on YouTube. Then, David, what's this show about? State of the Nation is the weekly show where we grab a headline title, a headline event, a current event in the news cycle, and we grab a guest who can speak about that. And today, that guest is Eric Voorhees.

Eric Voorhees is the CEO of ShapeShift, which is a company in the crypto space that has done a number of pivots, which they are just about to do again. They have pivoted into the world of being a Dex aggregator. And while that is a cool topic in of itself, and we definitely go into the details behind that choice with Eric, it also is a reflection of the changing landscape of crypto. The current events of crypto are perhaps incentivizing this sort of decision to leverage decentralized protocols in order to run a company. There is a lot of conversation to be had there. And that's what we get into it with Eric in this podcast. So we get to into shape shift. We get into D5. We get into protocol sync thesis. We get into regulations. We get into this topic of deplatforming.

And we finish with something like I think Eric is uniquely positioned to talk about. And that's like crypto market cycles because he's been through almost every single one. So he's got some great advice near the end, especially for those of you that are looking. at the current prices, feeling like that 30% drop and getting a little worried. So stay tuned for that. Some announcements too. We've got some things going on in the bankless nation community, as we usually do. The first is this. So you may know that we roll out NFT badges for for bankless members who sign up. They become full subscribers to the bankless newsletter. There's some perks that go along with that. And David, we are actually releasing a new badge design for the

2021 edition. Let me show it here on the screen. But what we're looking for is a slogan for the top of this token badge. So you can see it right now. If you're logged into YouTube, insert slogan here. And we are beginning the process of collecting slogans. I submitted mine in crypto we trust. Maybe that works as a slogan. But we want to hear from the bankless community what slogan they'd like on the bankless badge this year. Yeah, the bankless badge is one of the, few tokens out there that is not a money, that is not a digital piece of art, yet it is still a token. It's a pretty unique way to leverage tokens in Ethereum. And this one fits into kind of its own category. It's more of an identity slash. It's a part of the proof of attendance protocol

system. And it's just a different way to run a token where it actually identifies members as being part of a cohort. And that is what the bankless badge does for you. Yeah, we think of it as a subscription token, almost like a passport into the bankless ecosystem. We have big plans for it this year as well. And speaking of big plans and the podcast, everything that's going on, we had Chris Dixon on this week. So catch that podcast. If you haven't already, and we did something new. This is for bankless members. Another member, um, member perk is we also included a special episode. This is a full debrief where you and I give our feedback and our thoughts. It's unscripted. It's kind of raw. Like, Immediately after we stopped recording with the guests, we did this with Chris Dixon.

And this is available for full bankless subscribers right now on a premium feed. Anything you'd add about this, David? Yeah, this is actually a regular thing that you and I would do, Ryan, after we would record a podcast. We would just hop into Discord calls and just start talking about the podcast that we just recorded. And let's not let any good content go to waste. And so we are making this more formalized. we're doing 20 to 30 minute conversations just with David and Ryan's, just us, our takes after the podcast is finished about what was so cool about that podcast, what are our thoughts about it,

just kind of giving our summary of how we thought the podcast went. I think that's going to be a really valuable piece of extra content if you are a bankless subscriber. We will include a link for you in the show notes, of course, today. But David, let's get going on the episode with Eric. And before we do, I've got to ask you the question. I ask every week, What is the state of the nation today, my friend? The state of the nation is riding it out. We are writing it out. Let it be known that we are, it's 11 days into 2021,

and the current crypto prices are still higher than the first of the year. So we are still green on the year yet we have just experienced almost a 40% retrace in Bitcoin, ether and other defy token prices. This is like the first big retrace of the bull market. going from $40,000 Bitcoin to $30,000 Bitcoin is not something to ignore. That is a big pullback. The people that I'm talking to in my circles are relieved, I would say. We all, no one, everyone says that, you know, there's nothing.

The only thing that you can assure yourself in life are death, taxes, and 30% retraces in crypto markets. We thought that maybe we got out of that law and people as the Bitcoin price continued to climb and did not stop climbing. but no, 30% retraces always come. So for the people that are experiencing their first 30% retrace of their first ever crypto cycle, congratulations. We have all been there with you before. This is your first badge of going through a retrace. It's not fun.

It's not easy. There is pain involved. But this is how these crypto markets work. And so we are all writing it out together. Yeah, I think that's great. And I think that fits in with our next guest, Eric Forhees, who talks about, I mean, he talked about near the end, riding it out from a price of, he bought it at $5. Bitcoin.

This is Bitcoin at $5. It's not ether. Got to $32. And then riding all the way down a 95% drop and what that felt like. So we've all been there if this is your first bull market crypto cycle, hang in there, 30% retrace, 40% retraced, even 50% retraced, does not necessarily end the bull cycle that we're in. it doesn't necessarily feel great. It's kind of like you're on that roller coaster and your stomach just drops out. That's kind of that feeling. But Eric's got some wise advice for you at the end. Yeah, he sure does. And we are going to get right into that interview with Eric. But first, we're going to talk about some of these

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Well, it's timely because there's always a lot going on in crypto and the world. We want to get to that. But first, we want to talk about this is state of the nation. So on state of the nation, we talk about like what's gone on recently, particularly past week. And something really exciting was launched from ShapeShift, the company that you help steer and CEO. You just announced, as I understand it, that ShapeShift is becoming a decentralized exchange aggregators. You got to, you are making this business pivot. Can you tell us about that? And then let's get into you sort of what it means and why. Yeah. So, yeah, I mean, basically what we've done is we have integrated nearly all of the leading dexes into ShapeShift. So Shapeshift itself is not a Dex, but we've integrated all the leading ones into Shapeshift.

So people that are using our mobile app and very soon our web platform can trade on those dexes directly. The reason that we did this, you know, I think it surprised some people because we've always, in some ways, been a competitor to these exchanges. We have been a venue for trading also. But clearly the Dexas have the better model. And I have been so just inspired and impressed by what they have done. You know, the rise of Uniswap in 2020 was, I think, the most important story in crypto. And really it provides just a superior model for trading because it brings the trustlessness,

the immutability of Bitcoin and Ethereum as forms of payment or as money, into a more advanced activity of trading. And so when a user is trading with these pools, with these dexes, there is no middleman, no one to censor the transaction, no one to block it. And because they're trading with the protocol, there is no KYC required. The protocol itself would bear the burden of the KOC, and the protocol is obviously not going to comply. So, yeah, we made this decision about six months ago and have been working on it for several months to get it integrated and just launched that last week on Wednesday, the sixth.

Awesome. Well, congratulations, Eric, for getting that out the door. Maybe let's go and dive into some of the protocols that are beneath ShapeShift's new aggregator. So obviously there's Uniswap. Probably there's Khyber two. What else is there behind the scenes? Like what the decentralized exchanges does Shapeshift now tap into?

Yeah, so Kiber's in there, Bank Corps is in there, Sushi swap is in there, zero X is in there, and probably half a dozen others. But they start to get kind of long tail after that. And we will obviously integrate more and more over time. And, you know, particularly in this quarter, the big thing that will be announcing is cross-chain decks. Very cool. Okay, I was going to get to that in a second as well.

Yeah. What about other-all-the-major ones are there? What about other decks aggregators? Is shape-shift an aggregator of other aggregators like one inch or are those not included? So we actually hooked up zero-x as aggregator as the main way that we're accessing all these venues. So we may integrate other aggregators also. And then we also may directly integrate some of these because just for redundancy reasons. So yeah, right now we've found zero X to be pretty excellent. I think they're their aggregators called matcha. It's been fantastic. Well, that is really, really cool. There's definitely a conversation to be had in the protocol sync thesis, which I think we will get to a little bit later in this conversation. Maybe we can talk about the differences

between, because decks aggregators are not new. This is not the first deck's aggregator out into the world. What is the compelling difference between shapeships, shapeshifts, shapeshifts decks aggregator versus perhaps an alternative? Yeah, so certainly someone should reasonably ask the question, like, should I trade through Shapeshift or should I just go directly to a Dex? Two main reasons why we're better. One is you're going to get the exact same pricing that you would get if you went directly to the decks. So like unlike MetaMask, there's no added fee. And two, you actually get Fox tokens on all the trades that you do through ShapeShift. And three, actually, because we're breaking the trades across multiple dexes, you can get better pricing than

if you went to any of the single decks themselves. So those are the main reasons. And then there's just the convenience element, which is if you can trade directly from your wallet, that just makes your life a little easier and better. So what are the Foxx? tokens, Eric, that you mentioned, is that sort of a loyalty type of token? Yes. Yeah, so we've had the Fox tokens available for around a year. Essentially, what they do is they give people the ability to have straight pass-through pricing. And about two months ago, we also added something called rainfall, and rainfall is pretty sweet.

Basically, every time someone does a trade through ShapeShift, we pay out USDC to a random other person, a user of Shapeshift. shift based on the number of Fox tokens that they have. Oh, wow. It's a bit it's basically like a perpetual lottery in a sense, but you don't have to pay anything for the tickets. If you have the Fox tokens, then you just randomly get an email that says, hey, you just got $3 or $50 or you know, sometimes people win hundreds of dollars from these payments and they go out hundreds of time today. So both those reasons like the Fox tokens themselves have a value and you also get paid when you hold them. Eric, this seems to be a return back to Shapeshift's roots. Back when, back in 2017, I remember using Shapeshift where it was a place where I could just send, it would give me a

Bitcoin address and then I would deposit an ether address and then I would send Bitcoin and ShapeShift would send me back ether immediately, very much like an exchange, but also non-custodial. It was, it was like very much an atomic transaction. So in goes BTC and out goes ether. Very easy to use. and that seemed to be perhaps a little bit too soon because we didn't have infrastructure like Dex aggregators. How does it feel to kind of go back to what the original business model of Shapeshift was set out to achieve? Yeah, I mean, in some ways we're leaving the original business model of Shapeshift entirely in order to get back to the original goals of Shapeshift, which is to provide a simple way that is safe for people to trade. ShapeShift started in 2014,

months after the Mount Cox catastrophe. And it was really meant to be a way for people to be able to trade safely. So they would not have to leave their funds at an exchange. They wouldn't have to suffer that counterparty risk. And also we had no accounts whatsoever. So we would protect people's data because we didn't take their data in the first place. And crypto has delivered this very amazing way that people can transact online without having to know each other or trust each other. And so we didn't want people's information.

They didn't want it to give it to us. And it endangers someone to basically take their information over the internet and store it in a big warehouse all day. So that was the original goal. Just make a safer and easier place for people to trade. And in 2018, when we implemented KYC, it was because we had done a substantial amount of legal analysis by that point and felt that the risk of not doing it was too great. And hopefully someday I'll be able to get into more detail about that. But suffice to say, it's been a very dark period for us. And as we saw these dexes, it's just, it's so heartwarming to see the technology like catch back up to what we wanted to do.

And we realized some of these dexes had massive volumes and were really reliable. And so instead of trying to make like decks number 15, we would just integrate all the leading ones into shape shift and bring that spirit of protecting people back into the product. I want to emphasize this point. because I think it's something that, you know, somewhat unique that I see in you, Eric, is so people underestimate how hard it is to pivot a business idea, right? To basically, to abandon all of the stuff that you've built, all of the infrastructure that you built from like, you know, the 2014 implementation of the vision, right, and make this pivot. You've also been one to sort of, I wouldn't say pivot, but also embrace,

other chains, other cryptocurrencies and crypto networks that haven't been Bitcoin. Whereas many of the kind of the Bitcoin maximalist tribe have criticized you over the years to do it. But the common thing I see in both of those kind of moves, maybe this goes back to your mental model, is getting back to the vision, as you said. So the vision for ShapeShift has always been non-Shaping. custodial owning your own asset while doing decentralized exchange, right? The implementation of that has changed through the years, but that's always been the vision, right? Just like the vision for Bitcoin is a self-sovereign money system, right? And the implementation of that can be found in other

changes, other chains. Can you talk about that a little bit, Eric? Like so why is that important as an investor? Like, why is it important to kind of follow that vision wherever it takes you? Yeah, good observation. I've been in this industry for one main reason, which is to advance the cause of individual liberty. And so any tool that does that is something that I'm going to be interested in supporting, learning about advocating. When Bitcoin started, it was really like the only tool that was doing that. And it inspired an entire world. of new innovation. And to appreciate Bitcoin, I think, if you really appreciate what Bitcoin stands for what it is doing for the world, you have to look at some of these other projects and be similarly amazed and inspired and grateful for them to exist. So I have, you know, I used to be a Bitcoin maximalist, but that that got washed away as I saw this industry evolving. And I realized that like part of the decentralization, which is core to the ethos of Bitcoin, is to have multiple

projects, multiple chains, multiple teams, people working on things with different assumptions, different perspectives. So that's always been really, really important to me. And yeah, I mean, similarly with ShapeShift, if I can't, if I can't offer a service that helps people and makes their life better than the alternative, then I should not be providing the service. It has no reason to exist. And it got to the point where I realized that like, Shapeshift's model under the confines of KOC was just clearly inferior to what the dexes were offering. And, you know, two to three years ago when we had made that decision to do KYC,

these dexes were not ready yet. Automated market makers didn't really exist yet. Like Uniswap had just launched like at the Prague DevCon. There was no liquidity. No liquidity. They were not ready to scale, but that has changed. And so as it changed, my thinking changed, and I realized, like, these are ready. And not only are they ready, but they're vastly superior.

And thank God that they're here. And I'm going to latch onto these and help promote them all that I can. Eric, you mentioned this at the beginning of this interview. And I want to go back to it. Maybe you can talk about the calculus behind initially, ShapeShift, Integrating, KYC and now you guys feel comfortable that you are able to remove KYC. Maybe you can talk about the calculus behind that, the removal of KYC. Talk about that decision.

Yeah. So, so ultimately we are a company and we have to follow the laws, right? Not only are we a company, but we're fairly well established. I'm very well known. We have an office. You know, most of many of our employees are known. We're not anonymous at all. We have to follow the laws.

And even if we hate the laws or think that they're wrong. So when we added KYC, it was because we came to the conclusion that those laws were going to apply to us and that to try to avoid them was going to be too risky and, you know, was going to put the whole company in danger. And us moving to this model with these dexes, we are able to change our opinion on KYC because we're changing the way that the business operates. we are ending the regulated activity that we had been doing. We are no longer going to be trading with customers. We are no longer going to be a counterparty to the trades. We are no longer going to be an intermediary of any definition at any step in the process. And because we are changing those fundamental facts, the legal analysis is completely different.

And we feel comfortable, even though it's not riskless, we feel comfortable with the risk level of integrating these deckses and letting people connect directly to them. So this goes to kind of a thesis that David and I talk about a lot on bank lists. And it's called the protocol sync thesis. And the basic idea behind it, Eric, is the most credibly neutral, most decentralized money protocols tend to sync to the bottom, right? And then other more centralized services are built on top of them. So we certainly saw that with Bitcoin as being sort of an asset and a network that other centralized institutions, say a Coinbase can build on top of or even a Mount Gox can build on top of, right?

And now we're seeing the same thing with DFI protocols. So the interesting thing is if you can create a smart contract system that is as credibly neutral and as decentralized as uniswap, that becomes like a Bitcoin like thing in that it is you can't be deplatformed from uniswap. And so other more centralized companies and institutions and groups can then start to build solutions on top of that. And I think it's interesting that we're seeing the protocol sync thesis playing out with groups like ShapeShift, groups like Coinbase, other exchanges starting to build on top of not just Bitcoin and Ether, but on top of the D5 protocols themselves. So this to us is an example of the Protocol Sync thesis playing out. I think we're going to see it continue. But what's super interesting in this case as well is that you were almost pushed into building on these protocols due to regulators.

Right. So being a central institution with a profile in meat space, right, that meant that essentially you would take YC. And if you didn't, then like, you know, you'd end up into jail somewhere, obviously. so you're going to abide by the rules of the nation state. But it also provides you an outlet to build on top of these DFI protocols. What are your thoughts on that? Do you think that this is, do you think that this trend is going to continue in crypto, this idea that, hey, at the very bottom of this whole money stack,

we're going to have credibly neutral, decentralized, self-sovereign protocols, and then everything else is going to be built on top of these things? Yeah. So first, I'll say, I'm not one of those people that thinks everything in the world will be decentralized. You know, like there's this meme of like decentralized everything. Not everything will be decentralized. Some things are much more efficient and better when centralized. But a whole hell of a lot of things can be decentralized and work far better in that way.

And what crypto is doing is testing all these different models and seeing like, is there a way to do this in a decentralized way that brings greater efficiency? and we're finding that some of those are actually happening. And so if you look at like all the, I mean, anyone who's in the crypto world knows or in the financial world who has dealt with a lot of these regulations, the burden that it puts on the organization is profound. The amount of money that goes into legal analysis, the amount of money that goes into compliance, the portion of your staff and the attention of the rest of, of your staff that goes into these things that is explicitly not serving your customer is really depressing and it weighs on the entire organization. It weighs on the customers and it just adds, it adds misery and cloudiness to what people are trying to just do. So when you can add a decentralized protocol into this and remove all that burden, it's inevitable that that is going to start

attracting greater liquidity, more usage. And that's what we're seeing. I mean, Uniswap is doing like more volume than Coinbase on some days. Uniswap's two years old. I think they've raised like $10 million. Coinbase is eight years old and has raised like $600 million. That's a profoundly, that's a like that is a paradigm paradigm change. And I think when people start seeing that decentralized trading can go work across chains, like right now it's all on Ethereum, when it can be done across chains, the entire ecosystem is just going to get pulled into that. And it's going to be, I think, really cool. And that's really the power of this technology. So let's talk a little bit about crypto and regulation moving to 2021. So some people think that what's going to happen is

just this, Eric, that the front line for regulation is just going to change. Right. So some people believe that defy hasn't yet had its final boss moment, right? Where there is, right? So there's some heavy-handed regulation imposed against, say, a uniswap, for instance, or other defy protocols in general. We almost saw hints of that with the proposed rule coming out of, of Mnuchin's office, right? Can you talk about, yeah, okay, well, let's talk about it. Like, let's talk about the theme here, right? So final boss is, is looking around what's going to happen with defy crypto regulation in 2021 and beyond. How do you think that's going to play out?

Yeah. So our analysis and the analysis of any company that's in the space is based on the state of play, right? What are the laws as they exist and what might be immediately coming? Because no one knows a year or five years out, right? And so laws can change. And so there is no decision you can make that you will know will not be challenged or problematic in the future. But what you can do is look at, at least in the U.S., most of the financial regulation ties back into something called the Bank Secrecy Act, which came out in 1971 or 72.

The Bank Secrecy Act essentially espouses something called an intermediary. like a financial intermediary, if you are that, then the entire body of financial regulation starts applying to you. If you are not to that, then it doesn't. That is its foundational definition that if you're an intermediary, then these things start applying. And certainly back then, all parties that were involved in money and payments of any kind had to be intermediaries because everything in Fiat has to have an intermediary. The money is always sitting with a party, right, unless it's cash. Crypto has completely shattered that paradigm.

There is no intermediary in the Bitcoin network. There is no intermediary in the Ethereum network. And as these systems get built more complex, we're seeing now higher level order systems that also don't have intermediaries. These decentralized exchanges are a great example of this. And so the Bank Secrecy Act does not apply to a, decentralized system with no intermediary. Absolutely, I think governments will want to apply it.

They will try, perhaps they'll fail, but they might just try to change the law itself. But changing that law itself is actually a huge burden and a huge task. It's a multi-year thing. It's not just, FinCEN can't just come out with guidance and change that rule at that layer. That is a long-term thing that the government would have to engage in. It would be heavily challenged, and it could end up becoming challenged under constitutional grounds, which I don't think anyone at those regulators wants to even expose themselves to. So that's the battle right now. And I think people in DFI

need to realize that they have very good arguments right now, but the state of plague can change and they need to remain ever vigilant. So Eric, we are in the crypto space and we, you know, we produce content and consume content to the point where we understand these things at a very deep level. We understand the removal of intermediaries and how these things are protocols and that gets us all really excited. I am not so sure that regulators are going to be able to go as deep as you or Ryan here or me into the intricacies of these details. Like, are you pessimistic or optimistic about the ability for regulators and regulations to actually understand what they are dealing with? Or are you more perhaps pessimistic about like, because we saw out of that.

the minutiae office, just regulation that did not really, was obviously not a misunderstanding as to how this technology works. Like, where's your head out with your optimism, optimism or pessimism there? Well, I mean, we should all be honest that the vast majority of people do not understand this technology deeply. Even people in the industry, it takes a long time. Even myself who's been in this for 10 years, I feel like I'm constantly learning things and there's so much that I don't know. it is really hard to really understand it and it's changing. So even if you understand it today, it'll be different in six months. I think as the regulators realize that the control of money itself is being pulled away from them

and put in the hands of the entire population of individuals of the world, they're not going to be happy about that. They will, with time, learn about it and try to regulate it more. but they move relatively slowly, whereas crypto moves at light speed all over the world in so many different directions. My hope is that as crypto grows fast and as it rests control of money into the hands of people, there will be a cultural shift where people realize that, oh, actually, that works pretty damn well. Society does not fall apart when people have control over their own money. Society does not fall apart when people have financial privacy. And as that cultural realization happens, the desire

of regulators to try to pull it back to how it used to be will fade with time. If it doesn't, then it's going to be a perpetual battle. But over the next 10 or 20 years, I think the culture will change and people realize that this stuff is really a virtuous new system that is superior to the old. This is such a great take. You're right. So I think you're painting the picture, of this is a race, right? It's really up to the builders in this ecosystem to create enough wins for the population. And heck, even for, you know, other parties like on Wall Street

or in government, create enough wins in crypto so that they don't attempt at some later stage to regulate it into oblivion. And you also made the point that with kind of the Bank Secrecy Act, right? actually, it sounds like from what you're saying, DFI is relatively well positioned because it's very hard for existing regulators to kind of argue that that, you know, DFI presents intermediaries in the picture, right? So, well, they could kind of slow things down.

These things could be challenged. What it would take is brand new, I guess brand new legislation to completely put a clamp down on what we're doing this space. So that's pretty bullish. But I want to get back to this idea because this is important. And I hope listeners hear this. It's up to defy and up to crypto to build enough wins for society and people writ large that regulators can't take self-sovereign money and defy away from us.

It would be too politically untenable and unpopular and they would lose the ability to compete in the global economic world that is coming. Yeah. And hopefully at some point the regulators start to realize that many of their their goals will still be met by this technology. Like to the extent that they want an honest, transparent financial system, I would hope that the regulators care about that concept. There has never been a more honest and transparent financial system than what we are building

here. So this doesn't need to be the kind of thing where, you know, crypto people are completely at odds with regulators forever. But certainly there is, there is in the Venn diagram an area of tension, right? There's tons, right, right? So the areas of tension to me, and we've had folks like Rohan Gray on the podcast, for instance, the area of tension for, to me, from what we can kind of decipher, it comes from maybe two camps, right? One that's really threatened by the United States's position from a world reserve currency perspective. So preserving the U.S. dollar as the world reserve currency. None of them are worried about that yet. And they're not, right? So people like Rohan Gray are a little bit, right? And they're not super worried about that. But the other, is the whole kind of financial surveillance apparatus who wants to control, like they don't want private cash.

If they could ban suitcases full of money and actual physical cash, they would right now. That seems to be another, but like much of government, there's a shared objective between open finance and us. But in those two camps, I worry a little bit, Eric. What's your take? Yeah, certainly to the extent that any person or organization wants wholesale surveillance and control of money, that that's going away. Right?

Like crypto has ended that because crypto will win because it's more efficient and people will tend toward the thing that's more efficient with over time because money is involved and people are profit seeking. So like long term, there's no doubt that crypto wins. So, but those who want that surveillance and that control, how long will they fight it? How stubborn will they be in relinquishing that control? You know, probably pretty stubborn. I don't expect that this will be like a friendly, you know, debate over the next 10 years. It's going to be pretty rough. And this is why, you know, I put a tweet out yesterday trying to kind of get people to remember

that what we're building here is going to be very controversial, is actually going to change the world. We're not just doing this with like a slogan of like, oh, we're changing the world and we have this revolutionary new technology. It's actually revolutionary in the best sense of the term because it's changing the world peacefully. But that will not please everyone. And there is going to be some very hard fought battles.

And people should be very careful. They should be thoughtful. They should spend as much as they need on lawyers to understand the nuances of this issue. If you call your project defy and you put the word defy in your web page, that does not mean that the laws don't apply. You have to understand the facts of how you actually operate and what the actual laws are in various jurisdictions. That's a complicated thing. And so people just need to take this stuff seriously and they need to realize that like this will be one, but it'll be one in 10 or 20 or 30 years. And in the meantime, we have a long,

hard road ahead of us trying to convince the world to change. Hey guys, don't go anywhere. We bring up the conversation of de-platforming with Eric. We just watched Donald Trump get deplatformed from a bunch of different social media platforms. We talk about how is the topic of Web 3 and decentralization relevant to that conversation. And then we pick Eric's brain about the crypto cycles. We seem to be going into a fourth crypto cycle. Yet Eric is one of the few people that has experienced all four of them. and so we want to get some advice and some perspective as to how he is perceiving our entrance into this fourth crypto cycle.

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Avey does all of this for you all in one seamless transaction, so you don't have to repay loans in order to change the collateral you have backing them. Check out the power of Avey at Avey. That's aavee.com. So we've been talking about money and the laws and regulations around money and people that act as intermediaries and money transmitters and all of those types of regulations. However, something recently has just happened that is also adjacent to the realm of Defi and maybe more accurately Web 3. Last week, we saw a coordinated de-platforming of the president of the United States from

Facebook, Twitter, Instagram, even Reddit, the subreddit got banned, and even Pinterest decided to ban Donald Trump for whatever reason. Hadn't heard that. Yeah, no. Eric, what was your reaction to that decision? And what does that tell you about the state of the world that we're in right now? Yeah, it's pretty momentous. It's a controversial topic.

I think the shallow analysis is, if you like Trump, you're not. you're mad about the de-platforming and if you don't like Trump, you're glad about it. That's a valueless analysis. I think a better approach here is to assess, like, should companies be doing this yes or no? Like, is it ethical or legal? That's a fair debate. I think people can do whatever they want with their own private property. So I think if Twitter wants to de-platform Trump, that's up to them.

But it's going to have consequences. And those consequences are going to be people starting to realize that, oh, decentralization is actually useful in other things, not just money. People in crypto have known that for a while. But people are going to realize, like there are these large-scale systems that the world uses, Twitter being one. And it is kind of a shame if it is only a centralized company that is that large and can censor people like that. So there is serious value in a decentralization.

social media system. There is serious value in decentralized communication. There is serious value in decentralized money. And I think the events of this last week are going to awaken a lot of people to the fact that maybe these decentralized folks have a point. So you think, Eric, high level, this is going to act as an accelerant towards decentralized platforms, decentralized solutions. Yeah, an accelerant.

It's not going to turn overnight. You know, the network effects that these companies have are really profound. But it's definitely going to make people start considering alternatives, building alternatives, and being more open to alternatives. So there's a deep debate here about whether, like, Twitter, Facebook, these are all private companies, private companies get to do what they want. At the same time, the differing opinion is some of these public or private companies are providing infrastructure that almost,

people can't live without. And especially for communication from the president of the United States to the rest of the people, that's important to have that channel of communication open, which seems to be that private companies shut down. So people are using these things as closer to something like public utilities, which offers friction because there are still private companies. And I think what you were saying there is, well, there's that debate. And that debate could go on really, really, really long. But I think what you're saying is, well, we could just skip over that debate and just admit that decentralized social media platforms or decentralized protocols that offer that same niche is actually the more viable thing to pay to put your attention towards.

Totally. Totally. And for those who are advocating that the government should come in and mandate that private companies give, amplify communication of certain groups and minimize communication of other groups, that's a super dangerous realm to go down. Right. So whatever, whatever you think of Jack Dorsey's decision making. I would much rather have Jack Dorsey deciding for Twitter than a bunch of politicians deciding for Twitter. That's for Damshur. And I think a better way to solve the issue of censorship on these high-scale platforms is decentralized systems. That's the better one where people can't censor it. This is also this everything that happened last week kind of reminded me if if such an attack could happen, if such an attack happened on crypto, where would we be?

So for instance, if apps, crypto-related apps start to be deplatformed from the App Store or Google Play, that's one level. And then also we saw things with Parlor, for instance, where Parlor, where AWS actually Amazon said we're no longer hosting you. So Amazon does it, Google Cloud does it. Then you're out of all of the cloud providers. And you literally can't get hosting, you spin up your own data center, right? So what could be interesting is if we ever get into that final boss-esque-type battle, we haven't stacked up enough wins, Eric, to kind of like push sentiment towards crypto adoption, crypto-favorable protection or legislation at some level. Crypto could be under such an attack, and then what would we do? I feel like we should be ready as an industry for these things

they could come. Yeah. I mean, people, have become so used to hosting on the cloud that they don't realize that like the internet got started and became huge before the cloud ever existed. You know, like you can host a server on your computer in your basement and a lot of people run crypto nodes like at home on their basement. You know, I, I run them myself, many others do too. So certainly if there is a coordinated, uh, it's assault on crypto infrastructure at these clouds, that would be pretty bad, you know, maybe devastating, but it still doesn't kill it for sure. The topography of these networks just changes as part of their resilience.

So Eric, our last transition of the conversation is to the conversation of the bull market. You are a crypto cycle veteran. So I'm hoping to get a glean from you is how does this cycle that we, you know, this bull market that we think that we're going into, you know, Bitcoin is at, well, it was at double all-time high prices. Ether is tickling its previous all-time high prices. How does this cycle feel different to you? And then also we'll get into how it also feels the same.

Yeah, it doesn't really feel that different to me. Each bubble gets bigger than the last. Each bubble brings in new cohorts of people. There's always the skepticism as it rises the entire time. You know, all through the 2017 bubble, people are skeptical. They're like, is this the top? Is this the top? Is this too high? you know, I went when Bitcoin hit $2,500, you kind of early that year, you know, I sold a little bit of my Bitcoin because I was like, maybe this is the top, you know, the $2,500. It went almost 10x higher than that. And I knew it would do that long term, but there's always like this, there's always uncertainty. And so you have to just like let that be. What is most important is people's long term thesis on this stuff. Do you think that this technology is actually taking over the world?

and that Bitcoin is going to be a major store of value form of money for the entire planet or not. If you do, then any of these multi-year cycles are kind of meaningless and just focused on that long term. Now, if you're like trying to day trade, it's a whole different story. But that's a dangerous hobby. So what would you say to someone, maybe this is their first cycle, Eric, right? So we have a lot of listeners getting into bank this for the first time. this is the first cycle they've been through. And hey, Eric, man, like, you know, Bitcoin just did a 2X all-time high.

And now we're feeling some pain. This is today as we record this of like a 20% drop, maybe 30% drop. Maybe it gets as high as 30 plus at the moment. Maybe this gets as high as 40%. People are freaking out. What's your advice to them? Yeah. On some level, it's cute.

So last time I checked Brooklyn price, it was like 30,000, 31,000, you know, down 25% from just a couple days ago. It's higher than it was like two and a half weeks ago, right? So we've fallen down and my friends and I were all talking and one of the friends was saying how he's going to buy some more if it stays at these cheap prices. Cheap meaning like $30,000 Bitcoin two weeks ago. we were all celebrating and drinking champagne because we hit $30,000. It's all relative. I guess what I would say is in my first bubble, Bitcoin was $5 when I first got something. It went up to $31.

And then it declined, that bubble popped and it declined down to $2. So like 95% drop over six months. Just like the most miserable, disgusting decay. of the whole system. And it had no adoption anywhere. It was this niche little thing that everyone made fun of. And everyone had every reason

to think that it was done and dead. And many people wrote that it was. So some of us have handled like 95% declines because we care about what it's doing. We care about why this is here. We care about what Bitcoin and Ethereum and these other crypto projects are doing for the world.

And so the price is, obviously relevant and important, but it's not the main thing. And you can't beat yourself up over the price movements. You can't stress about it. Eric Voorhees, thank you so much for being with us on the bankless podcast. You are a multi-cycle veteran. We really appreciate your advice. It comes very timely, sir. So thanks for being with us. Appreciate it, Ryan. Thanks for having me on the show. And Eric, where can we find more about what you're doing and more about shape shift? Yeah, I would encourage everyone to download the ShapeShift app, iPhone and Android, or check me out on Twitter at Eric Borges. Awesome. Those are the action. I'm guys. Thanks for joining us for State of the Nation. Take care.

Guys, of course, our conversation today with Eric was not financial advice. ETH is risky. So is defy. So is Bitcoin. You could lose what you put in. But this is the frontier. It's not for everyone. but we're glad you're with us on the bankless journey. Thanks a lot.