Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Nevin Freeman: Reserve – Stable Currency as a Human Right

Episode Date: September 28, 2021

The Reserve project is on a mission to provide every person in the world access to stable currency. They are working to rebuild financial services in countries such as Argentina and Venezuela, that have suffered from high inflation and ongoing currency devaluation. The protocol is designed to host a completely decentralized stablecoin that can not be manipulated by governments, with an end goal of a fully self-sustainable platform with decentralized governance and developments.We were joined by Co-founder & CEO, Nevin Freeman, to chat about Reserve's focus in Latin America, their support of activism, and the road ahead for the project.Topics covered in this episode:Nevin's background and how he got into cryptoWhat is Reserve and what is the problem it's solvingHow do they get around regulatory pushbacks in Latin AmericaThe main components of the Reserve system - RSV and RSRTackling high gas feesReserve's go to market strategy and why the focus on Latin AmericaWhy Reserve encourage's activismReserve's goal to eradicate hyperinflationThe connection with Peter Tiel (Paypal)The Reserve business modelEpisode links:ReserveReserve on TwitterNevin on TwitterSponsors:Chorus One: Chorus One runs validators on cutting edge Proof of Stake networks such as Cosmos, Solana, Celo, Polkadot and Oasis. - https://epicenter.rocks/chorusoneParaSwap: ParaSwap aggregates all major DEXs and makes sure you beat the market price at every single swap and with the lowest slippage - paraswap.io/epicenterThis episode is hosted by Brian Fabian Crain & Sebastien Couture. Show notes and listening options: epicenter.tv/411

Hi, and welcome to Epicenter, the podcast where we interview crypto founders, builders, and thought leaders. I'm Sebastian Quichio, and I'm here with my co-host, Brian Fabian Crane. Today, we're speaking with Nevin Freeman, who's the co-founder and CEO of Reserve. But before we talk to Nevin about Reserve, we'd like to tell you what our sponsors this week. Proofus stake is transforming crypto, and you can be a part of it. Start participating in networks, contribute to network security, and earn rewards by staking with Corus 1. Corus 1 is your staking provider securing billions in assets and overall. over 10,000 customers on 25 networks, including Solana, Cosmos, and Ethereum.

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It's super fast, highly liquid, and they just launched 3-5, which has a new contract and new APIs. It has a more modular infrastructure, which is more gas-friendly and now supports the free approvals using Ethereum's permit messages. And they also recently just added support for Avalanche, Polygon, and BSC, and you can always use Paraswap with your ledger device right in Ledger Live. So go to pariswap.io to get started. Nevin, thanks for joining us today. Yeah, thanks for having me.

So I'm curious about your background. So I was like doing a little bit of research before this and it was like looking at your LinkedIn. And I saw like a few things that you were doing there. But there wasn't like a lot about what you were doing prior to crypto. I saw you were working on some like training company or something like that. So tell us a little bit about how you, you know, what's your journey into crypto and how you got to, you know, where you are today at reserve? Yeah. It's a it's a windy road.

I originally was focused on environmental issues like up through college. I wanted to be a transportation engineer, ended up taking a turn out of that because I concluded it wasn't really the most useful thing to work on. So, you know, I've done a couple of entrepreneurial ventures in the past. The one most recently that you're referring to, the training company, was essentially that some friends and I gathered around the premise that there's these really difficult problems in the world

that may be unsolvable. So, like, one that I'm personally concerned about is the long-term effects from artificial intelligence. I'm one of those people who thinks that things could spin out of control and go some crazy direction. And it's like unclear if humans are equipped to handle that. Like I just think we might mess it up. And so the idea is like, well, you know, why can't we handle the biggest problems in the

world? Fundamentally, it's because of a lack of competent enough humans, like competent enough teams to actually figure out what to do about these things. And there are a small handful of like highly competent people, I think. and then like a whole lot of people who don't manage to be able to put together complex projects and so on. So the idea was, can we figure out how to manufacture these highly competent people? Can we do something totally different from school or normal parenting or something? Can we figure out how the mind works and what causes some people to be highly effective,

sort of the Elon Musks of the world and produce like a factory for those kinds of people? Now, project hasn't reached that conclusion yet. it's still underway in some form. But so for many, many years before this, that's what I was focused on. And, you know, but still back in 2010, 2011, some people in that community were talking about Bitcoin. That's when I first, you know, bought some Bitcoin and was exposed to cryptocurrency and started thinking about it.

And, you know, I thought of it as sort of two things. One, a way to maybe make money. I speculated on it back at the time like many people did. And number two, it was very interesting to me that you could potentially have a currency that didn't require a functional sort of global power to back it to sort of be a reserve currency. So it was like, huh, that's crazy. What if you could have a situation where we had like a global reserve currency that even

if, you know, the dominant empire fell apart and a new one took power, the currency would keep working throughout that transition. Because if you look at history, you know, every few hundred years, the dominant gold power falls apart and the reserve currency, you know, recedes and a new currency emerges. And there's a lot of chaos and economic destruction, I think, that happens during those times. So that was the, like, intellectual idea that captured me with Bitcoin is, like, what if you could have continuity on that scale? The thing that, and that is part of what reserve is hopefully aiming to do in the long term.

But, like, now we're much more zoomed into like a much more practical set of currency challenge. that when I got into all this, I actually wasn't even very aware of personally. So is this something, you know, ideas around like monetary policy and currencies, are these things you were like interested before or was it kind of through crypto that you started? Yeah, I wasn't, I wasn't an economist. You know, I became a sort of very amateur monetary theorist just thinking about Bitcoin, thinking about could this work?

could this become a currency and just trying to argue with friends about whether that could happen. But no, I didn't have any formal training before this. And so, yeah, at the beginning of the project, you know, we were sort of humbled by the complexity of trying to understand monetary theory. We, you know, ended up spending some time with economists who have devoted their lives to that to try to make sure we're not making too many dumb mistakes. But, yeah, you know, we really got into this from an entrepreneurial perspective of like, okay, there's a problem. and there's this new set of technologies and maybe it's possible to solve these problems. And then we've kind of learned enough of the theory along the way to hopefully be making good decisions.

And so speaking about the problem, can you define? Like, what is the problem that reserve is trying to solve? So in the short term, like in the immediate sense, the problem that we're working on solving is basically just the negative effects that already exist in countries that, that have hyperinflation or high inflation and capital controls. And so, you know, we're focused on Venezuela and Argentina today is like the two countries that have the most of those monetary problems of the ones we're focused on.

So the problem to define it is like if you're in that situation, your money loses its value very quickly. You know, in Argentina, something like 50% per year. In Venezuela, at times over the past few years, it's been 5% or 10% per day sometimes, so it's like very intense. And I mean, it's sort of obvious why that's a problem. Like that's, you know, obviously going to be like really, really a crappy situation for individuals and it's really bad for the economy overall. Lots of solutions emerge. People try to find ways to live under those circumstances. But, you know, ultimately the main solution that ends up taking hold

usually in that kind of case is people use cash US dollars. So they say, and cash US dollars, they usually keep them at home because usually you're nervous about putting your money in the banking system if you live in a country that's had that kind of monetary turmoil. You transact in cash. Or if you're a wealthy person, you get a foreign bank account, like a U.S. bank account, and you transact with other foreigners or wealthy people via bank transfer. And so really what we're trying to do is make it so that everybody in a country like that, in a situation like that can have direct and straightforward access to right now, just digital

US dollars. We're not even going beyond the US dollar yet and just essentially open what feels to them like a simple US dollar bank account and transact with anyone else in that country and anyone else abroad, which is, it sounds very simple, but that's something that's just not readily available under those circumstances. So that's really what we're doing today. How does that work on the ground? So, I mean, I remember speaking with Camilla Russo a couple of months ago when her book came out.

And, you know, she had been in Argentina, I believe at some point and was working for Bloomberg, I think. And, you know, she was describing this situation by which, you know, she was receiving this Argentinian pesos on her bank account. And then they would convert them, they would sell them immediately for U.S. dollars. And then one day, well, you know, the Argentine government decided you couldn't do that anymore. And so they effectively made it illegal to to exchange your local currency for foreign currency. In working in these jurisdictions, is there a risk that the reserve app, and maybe not the currency itself, but like if you're, you guys are building an app that's like in app stores and things like that and that has, you know, visibility and people are able to download it, is there a risk that governments could potentially pressure app stores through policy to make it, you know, impossible to download the app in the country? and how do you kind of circumvent those things? That's where it happened.

It's possible, and we definitely think about that, and we are building our technology in such a way where it is meant to be resistant for that exact scenario, just in case that happens. And we do that by rather than having a sort of single centralized operation in any one of these places, we work with an ever-growing number of independent liquidity providers who basically make it possible for,

people to get their money in and out, but that actually does, does actually help us with robustness for that scenario. But what I'll say, something a lot of people don't realize on this topic is that when government's institute capital controls like Argentina did in that example you're talking about, the principal thing that they're trying to protect is the U.S. dollar balance for the central bank. So they're saying, we're not going to allow you to buy our dollars, our central bank dollars, because we need to preserve that dollar balance for whatever reason, you know, to defend a peg or to

pay for imports or whatever. There's some reason why their overall monetary situation has made it so that they don't have enough U.S. dollars to freely allow people to do that exchange. If parallel exchange markets exist, that doesn't necessarily, I mean, that doesn't directly influence the central bank dollar balance. If you go buy dollars from some third-party broker where you're buying, you know, dollars that are already abroad that aren't part of the central bank system, you're not directly influencing that balance. You could be driving up the price of the dollar. You could be doing something that might change the price of the peso or the price of the dollar

in Argentina, but that's actually not the principal concern. As far as we can understand it, this is my view on the world. So because of that, that's why you see really strict enforcement with banks and capital controls when it is the central bank dollars that are in question, but things like crypto, at least so far in Argentina have actually been allowed to exist and there really hasn't been any pushback in any significant way yet. And that's my theory as to why is that, you know, they, there's sort of these parallel markets. And actually, I'll just talk about this for one more minute. In Argentina, there's a phenomenon called Contado with Liquidation, which is like counted on liquidation.

And what that means is what they're saying is you're counting the dollar exchange rate when you liquidate some asset that you've bought. So what happens is you can go and buy bonds on the Argentine market that you buy like Argentine government bonds usually. You transfer them to a broker in probably New York, you know, in the U.S. And you sell those same bonds for U.S. dollars. So you start with pesos and you end up with dollars. But you're going through the bond market instead of through the normal currency exchange system where you're taking the central bank's dollars. And that practice of Contado Conliki has been commonplace in Argentina for like, I mean, I don't know how long, but like many, many, many years. And businesses use that all the time when

Argentina has capital controls in place. And it's allowed to exist. Sometimes there's restrictions and time limits and whatever. But, you know, the powers that be recognized that there needs to be liquidity for their citizens and for their companies. And so it's not actually true that they're sort of trying to make it completely illegal to get any foreign currencies. It's just that they're limiting the ways that you can do it. I think the problem, right, the challenge of, you know, people living in this, you know, inflationary worlds or economies with capital control, you know, that's a problem that, like, in crypto, people have been speaking about Bitcoin solving that, you know, since, for a very long time.

You know, of course, you, you know, you talked about the dollar example, right, where stable coins can kind of take that role. and you know we have today, right? It's Dai or USD or your STC, stable coins that, you know, you can use, right? You can get an Ethereum wallet. And so what is, you know, what's reserve? What's kind of like different about reserve as a system, as a stable coin

that, you know, addresses this problem better than existing solutions? Mm-hmm. Yeah. So reserve as a protocol basically allowed. the aggregation of crypto assets into baskets to create a token that's backed by that basket. And so today, what we have is a very, very simple US dollar stable coin that's just backed by true USD, USDC, and PACs, which are just some stable coins that, you know, are nicely pegged to the dollar.

The thing that we've done that's pretty different over the past year or two is we've focused a lot on making the stable coin accessible to end consumers in these countries that have these issues. And so what does that mean? We spent most of our time building and deploying an Android app that gives you an account that's a lot like sort of a cash app account. It's like a simple dollar account. And the thing that's special about it is you can easily convert your money from Venezuela Boulevard or Argentine pesos or Colombian pesos in and out of these digital U.S.

in, you know, usually a minute or so. And so the difficult challenge there is providing that liquidity, making it so that, you know, so that you can easily convert any amount you want to convert back and forth. And so in a country like this, it's like, yeah, a stable coin, that's cool in principle. But how do I get it? You know, how do I actually spend it? You know, do I need to understand these, you know, do I need to go use a cryptocurrency exchange that's kind of more built for speculators and is a little bit confusing.

So the thing that we've done that I'm super excited about is we've made it so that people's parents, you know, ordinary people, ordinary merchants, you know, people who don't know anything about cryptocurrency are now comfortable getting their money into a U.S. dollar stable coin and saving it that way and spending it that way. And so, and a lot of that, you know, at the beginning, we had no idea how to make markets. How do you make markets against a currency like the Venezuelan Boulevard that's constantly going down? So there was a lot of logistical challenges that had to be solved to get to that point. And so are you like integrating with some kind of local payment processors or because, you know, how do people, you know, how do people exchange now their Argentinian puzzles for these digital dollars?

Yeah. So the way that it works is like I mentioned, we have like a growing set of liquidity providers. So if you open our app and you say, okay, I want to deposit some. money and get it into dollars, you'll get matched within a few seconds with one of those local liquidity providers. And you'll be given bank account information where then you have to leave the reserve app and go make a banking transaction in your banking app or on your computer and then come back and put in the reference number for that transaction. And then that liquidity provider will get that reference number and they'll reconcile that sometimes with the bot, sometimes with a human. And so within a few

seconds or sometimes a few minutes, that transaction will get registered and then you'll have your digital dollar balance in the reserve app. And then you can do the same thing in reverse. If you want to make a withdrawal, you'll get matched with maybe a different liquidity provider that time. They'll get your dollar balance and they will either automatically or with a human, they'll make a transaction to disperse those Argentine pesos or whatever other currents you decided to withdraw. It's a little bit similar to something like local Bitcoin or BISC essentially. I don't know if you ever used BISCs before, but you know, you basically put up, yeah, some

information in the common field in your bank transfer and then that person will send you Bitcoin or something like that. Yeah, it's similar to that. And the main difference is that we, instead of allowing anyone, instead of making it totally open where anyone can sign up to be a liquidity provider, we vet them and we take the responsibility for those transactions. So it makes it so that the end-use. user doesn't have to like look at a list of offers and look at people's ratings and decide who to

trust. Basically, we're playing the role of, uh, of handling that. So you just, you know, you just make a withdrawal and then you get automatically matched with someone who we've already vetted and decided, okay, we're willing to to put our reputation on the line and, and trust that liquidity provider. Right. So, I mean, one quite like, you mean, you sort of talk about, you know, you know, you know you said like reserve okay it's created something that like makes it more like comfortable people to use but i mean the reserve right i mean in the reserve right you have like a stable coin the rsv token and i mean that has a market i mean on e-tiscan already has a market cap of 10 million so it's like it seems like almost nothing or like what is the usage so far yeah um and this is something

that, you know, we had to decide early on, do we want to go focus on crypto speculation or do we want to go and build, you know, this new service for this new market? And so all of our numbers are smaller than what you would see if you, if you're part of defy or yield farming or a crypto speculation exchange. But I still find them super, super exciting. So basically in terms of the usage, I wrote down some numbers to share with you guys about. Two hundred ninety thousand people have downloaded the app and and signed up in some form. About a hundred thousand people come back and actually look at the app on a weekly basis or more frequently.

And then about 45,000 people are what we define as like truly active customers. They funded their account, you know, at least twice. And they've been active quite recently. These numbers are a little out of date, but they're about right. And those numbers have been growing at like something. like 50% per month as this service has just started to catch on, predominantly in Venezuela, but also in Argentina and Colombia. And so, you know, over the first year, the app did about $235 million in total transaction volume

and 1.8 million total transactions to give you a sense of the size. And the thing is, again, you know, it's like $235 million. It's like, well, a single crypto exchange maybe does that in a few hours. And so it doesn't seem very exciting from that perspective. But the reason it's so exciting to me is like those are ordinary people like living their lives with cryptocurrency, which is something that we really haven't seen outside of this to my knowledge. And so from my perspective, even though the numbers are significantly smaller than crypto speculation numbers, the actual adoption of crypto as money, I think is a very new thing still. And so that kind of shows you where we're at. In terms of the amount, you know, so there's, like you said, there's about 10 million

RSV on chain. You know, the app balances for like our ordinary consumers in our app are even less than $10 million, you know, because some of those RSV are used elsewhere in crypto and we're holding some of them and so on. So that those total balances are still pretty small, but they're starting to grow at a pretty significant pace. so we'll see what happens over the course of the next year or two. But really our bet was, you know, we decided, we decided, okay, we're not going to get distracted focusing on speculation.

We're going to sort of do whatever it takes to make this accessible to the ordinary person in these countries that are very hard to build in where we think it's needed the most. Cool. Yeah, I mean, putting that perspective, I guess it does make sense that the numbers would be less than what you would expect if you were doing yield farming or this sort of thing. Let's talk about the protocol a little bit, get into some of the more technical aspects. So can you describe some of the main components of the reserve protocol? And I don't know if this is too early, but I'm interested in understanding more about the RSV and the RSR token and what are the roles and how they interact with each other. We have recently announced an update to the protocol. And so I'll describe the updated version for you guys.

the way that it works is like I said it's the purpose is to create these basket backed currencies and right now we have like a simple dollar backed version so so like I said that's backed with basically USD fiat coins and in the future the goal is to start to have more and more interesting baskets and eventually to have enough tokenized assets on chain that you can create a currency that is not pegged to the U.S. dollar, but is still stable enough to use as a currency, to use this money. So the way that RSV and RSR work is that the reserve rights token effectively serves as insurance for the reserve token. And so the way that that works mechanistically in our updated protocol is if there's a stable coin, say RSV, that stable coin can generate

revenue. There's a few different ways that it can generate revenue. We can get into that in a minute if you're curious. But as a reserve rights holder, I can choose to go stake my reserve rights tokens on that particular stable coin. And when I say stake, I actually do mean stake. These days, stake often means like you lock up and you just get paid to lock up and not sell, which is kind of bullshit in my opinion. But here, you're actually putting your capital there and saying, if there's a default of any one of these underlying collateral tokens, you can take my coins away and you use that to pay for that default when switching to some other form of collateral. So if 25% of that backing were to go to zero, the reserve rights token holders who had staked

would actually lose some of their money to cover that for the stable coin holders. And in exchange, the reserve rights token holders, when staking, get a share of the revenue that's generated by that stable coin. So basically, they get a constant stream, a constant payment for staking, but they're taking this risk that if there is a Black Swan event, they'll cover it. instead of the stable coin holders having to cover it. So that's the basic relation. But the default event would be, for example, one of the stable coin,

one of the underlying stable coins losing its peg. That's right. Okay. Are there any other types of events that could constitute a default? Yes. So today we're just using vanilla US dollar stable coins. The next R token, as we call it in this protocol that we're going to launch, uses essentially like these bearer asset tokens that you get out of defy protocols,

out of like lending protocols, for instance. So you can go, you know, lock up your USDC and get compound USDC, for instance. Well, we can hold that as collateral in the basket. And so if you have a basket of those tokens, they will appreciate relative to the dollar. And so that's one source of income. Like I mentioned, they can generate income. And so in that case, there's two layers of possible default. you could have a default on the compound layer.

If there's like a liquidity crisis in compound or a smart contract bug, you could also have USDC could break his peg for some reason. There could be a regulatory shutdown or whatever. I think that's very unlikely. I think actually the smart contract risk is probably the greater risk in that case. But either of those could be a cause for a default with a token like that. Yeah, sorry. I just wanted to segue on that for a second.

but maybe, yeah, let's come back to the components of the reserve system. And so does, so you're saying that the RSR token holders, they stake on, you know, for example, right, I have some RSR, I can say I'm going to stake it on like, you know, USCC, because I think that's, I don't know, less likely default than UCT or the other way around. Does that staking then also determine, you know, like kind of the composition of the basket and, you know, like how much or like how is. that determined? It's a good question. So the way this works is, you know, imagine a world where you have, you know, let's say 10 different stable coins using this protocol. They'll all have different baskets. And the baskets are set by governance. When you go in stake, that doesn't actually change the basket. What you're choosing to stake on is one of those stable coins, not one of the underlying collateral tokens within each stable coin. So you'd be like, okay,

I want to go stake on, you know, the stable coin that's backed by these defy tokens because it has, you know, a lot of revenue right now. And so then you're basically ensuring that entire basket. And if any one of those collateral tokens in that basket were to default, then you could be on the line to cover that. And so the, this basket produces some revenues, right? So like, you know, let's say stable coins can maybe, let's say, 6% or something like that per year as an example.

So does all of those revenues, do they all go to the RSR holders? Or is it also, they also go to the holders of the, you know, the end holders of the asset? Yeah. They would be divided between the two. And that's a parameter that can be set by governance. So people, you know, the way our protocol works is anyone will be able to deploy in our token. So there could be different splits, you know, and you see what the market wants in terms of

preference for more insurance versus more direct yield to the stable coin itself. And so you can imagine, say, a 50-50 split where 50% of that appreciation is just accruing to the stable coin holders themselves, but 50% is going to pay for this insurance pool. And you can see sort of straightforwardly, the more you pay towards the insurance pool, the higher the yield will be for staking, the more insurance you'll have. So you can sort of have a lower risk token. with lower yield and more insurance or a higher risk token maybe with no insurance

with the full yield being passed through and just relying on the stakers for governance. My bet is on the low insurance token to win this race. We'll see. We'll see. So is the goal here for RSV to become a free-floating, it has its own free-floating value so it's no longer pegged to the US dollar,

but that it has sort of value that exists in the market? Yes. Well, I wouldn't say free floating exactly because it will still be pegged to something, but not to the U.S. dollar eventually. And the way that that will work, by the way, it's not the case that a stable coin that we have launched already that's backed by U.S. dollars will one day switch its backing to being something else. Further stable coins can be deployed with the reserve protocol.

And so then we'll see like a market evolution over time of like which ones do people want. The vision for the non-US dollar stable coin is pretty simple. There isn't any like economic magic to it. It's just basically creating a basket-backed token where the assets in the basket are a diverse set of things that aren't US dollars. You know, or it could be and that could be gradual. It could be that you have less and less US dollar backing over time in that non-US dollar token. Now, the bottleneck here is just the tokenization of different assets, right? Like right now, there's actually still relatively few assets tokenized on Ethereum or on any blockchain for that matter.

So you could create a basket now that had some tokenized gold and you could have some diversification in which fiat currencies. But if you want tokenized relatively stable things, it's not like you have access to like all of the bonds in the world or, you know, or other government debt or, or like commodities that are relatively stable for that matter. So basically what our bet is, and we might do some of this ourselves, but we're also betting that the industry as a whole will end up tokenizing more and more stuff over the next decade or two

to the point where you really can build a diverse enough basket of assets that it would make sense to hold that asset as a way of storing your value. And so in the short term, the stability comes from just the stability in those assets themselves, in their value to the world. And then in the long term, the stability comes from governance, right?

It's not that we think that you could pick a single basket that would stay stable for 100 years. It's that we think that you could pick a basket that's stable, you know, on the short time frame and then over the course of time, evolve that basket through governance so that, you know, if you have, you know, fiat currency sort of going like this over the course of 100 years, you could have it actually stay pretty much stable over the course of 100 years. That's the goal. Okay, interesting. Are you familiar with this?

There was another stable coin project that I thought the design was really cool, but I think for regulatory reasons they had to shut down. It was this project in Israel called Soger. Saga, I think. Sager or, yeah, I think they changed name at some point. But yeah, they had an interesting design where basically like the currency started as an SDR peg. And then as people deposited assets in it, less and less SDR would be backing it

and more of the assets would be backing it and so it achieved a sort of free-floating value. It kind of reminds me of this but also feels like it's a little bit different because it's starting as a USB peg and then eventually I mean I guess like eventually it has just more assets and whereas this just had more eth

so there's like a broader basket of assets I think in from what I understand in reserve than a single asset. Yeah my recollection is that Saga was taking an approach of, I think it's a little bit similar to what Rye is doing these days, where it was meant to go up in value. The more people bought into it, it would go up in value, but in a relatively predictable way.

Right. Which, you know, a lot of stable coin projects thought about that. It's like, well, people want to speculate, so maybe you can have a bootstrapping mechanism where the early people get in and the things sort of bootstraps from there. I think so far we haven't, I mean, we'll see what happens with Rye. You know, I think Ampleforth was kind of a similar idea. It'll be interesting to see if any of those work. We thought about things like that and kind of decided, you know,

it's a little bit too experimental, a little bit too much economic magic there, but we decided to go with something more traditional and safer. So there is a Ethereum smart contract, but like, you know, you're targeting developing countries, right, and like cheap transactions as well. So how are you dealing with the, you know, the high gas costs? And like where are actually these transactions taking place? Yeah, the way we do it now, they just take place in our database, and then you can withdraw the token on Ethereum if you want to. Most of our users don't do that because they're not really in it for interaction with the broader crypto ecosystem.

They're just in it for dollar access. And our plan is to offer a non-custodial setup, basically relying on layer two solutions. And so currently, I think ZK Sync is still. our sort of intellectual choice for what we think makes the most sense. But we're sort of watching that space play out to see what actually is working in practice, what actually is getting enough uptake in the ecosystem, because I think that uptake in the ecosystem is an important question for these layer two solutions. So our app today is like fully centralized.

And at some point, I'm not sure exactly what the timeline will end up being for that. It'll end up being that you're holding your own keys, but you're holding your own keys on a layer two, not transacting directly on Ethereum. So regarding your sort of go-to-market strategy and product focus, so we've already talked about the fact that you're focusing on Latin America. And I'm curious why Latin America? And I guess the broader question here is,

there seems to be a lot of projects in crypto that have emerged in the U.S. and sort of in the West and that have tried to address the Latin American market for similar reasons and sort of like visions than the one that you're putting forth. And I wonder where this comes from and what is the desire to build a product in Latin America while like the team, at least the founders and the investors are coming from more developed countries like the U.S. or Europe or elsewhere. Yeah. I mean, at the very beginning, you know, we were just looking at the numbers of where is inflation

the worst and Venezuela was the worst. So we asked ourselves, you know, could we present a solution to Venezuela because the problem is the biggest there. I didn't even know a single person from Venezuela when I started this project. And now our team is, you know, I think we only have about 10 people on the team from the U.S. And there's like 150 people on the project, including all of the customer support and operations and so on. They're mostly in Latin America. A lot of them are in Venezuela because we decided to focus. on that part of the world. And so that's where we've really built the project. So in a sense,

the project is more Latin American than American at this stage. But yeah, I mean, in terms of why we decided to focus there, it's like I just felt that cryptocurrency as money wasn't really an urgent thing in the U.S. I think in the long term, there are benefits. And we do think about the U.S. and what we can offer in the U.S. over time. But we just felt it made sense to start by seeing, could we serve people in places that needed it the most? And so we did look at, we looked at Angola early on, spent a little bit of time there, and thought about a few other different places, Turkey, et cetera. And we decided to focus on Venezuela.

Yeah, A, just the problem was the biggest. And B, you know, it's like a little bit more culturally accessible, you know, enough people in the U.S. speak Spanish. Time zones are more similar. So there were some practical things that I think made it easier for us to start trying things out there. And once we started trying things out, we just kept on feeling more and more compelled, you know, from from the day that we did our very first experiment. It's just been a sort of series of us feeling more and more like, okay, we really need to do this.

Okay. And I notice on your website that there's a whole section about activism. You know, can you describe sort of what the goal is here and why do you feel that you're, you know, you need to encourage activism as a company? Yeah. Yeah. I mean, we have a particular campaign that we're working on right now. And I didn't realize that we were going to end up doing this. So it's kind of interesting.

We've realized over the course of focusing on this problem that, you know, there's a challenge where governments and the international community, there's different reasons why they don't necessarily recognize hyperinflation and access to stable currency as like a big problem. If you're dealing with it in your own country, you have the conflict of interest of thinking about like your control over monetary policy versus the well-being of individuals or the way that the economy works locally. And if you're in another country that doesn't have currency problems, it's just very easy to forget that they exist or to care about them. And so because of that, I think that it makes for a somewhat hostile environment for, cryptocurrency and other technologies and projects that are trying to address this issue. It's not really regarded by the international community as like, you know, one of the 30 or 40

things that we need to fix in the world. So you don't really start off with political support if you're doing something in this area. And we realized, okay, is there some way that we could help the international community understand the problem in like a simple way? And we realized that there is actually a framework that the UN and the sort of global community has for how we come to consensus about which things are a big deal like this. And that's the framework of thinking about things as human rights. It's like, what is a human right?

A human right is it's just something that enough people have decided they agree that A, this is really damn important for people, you know, if they're going to live a good life. and B, it's within reach for us to, it's within our means as humans to provide this to everybody. You know, so if it's really important and we obviously can easily provide it to everybody, then we should consider that to be a right. That's something we should sort of, you know, allow people access to even if they're, you know, not being cooperative with society, even if you don't like them, they should have it anyway. And so when thinking about it that way, it's like, huh, I think about a decade ago that the UN officially ratified access to clean water as a human right, as an example.

And there's been this progression over time of what we consider a human right. Right now, there's kind of a debate about should access to electricity and internet be considered a human right. Some people think yes. Some people think no. And so we decided to take that framing and come out and try to convince the world that access to stable currency, not necessarily the US dollar, but stable currency generally, should be considered a human right.

Like technologically, it's totally within our means as humans to provide that to everybody these days. And it's obviously very important for living a good and dignified life. And so that's our campaign, is basically trying to get people to recognize that access to stable currency should be considered a human right. And one day, we might actually, you know, be able to convince the UN to ratify that and really make it really make it clear for the entire world. But in the intervening time, just building momentum around that idea is something we believe can be politically useful, not just for our project, but for the whole part of cryptocurrency that's focused on providing stable coins to people and making crypto useful as money.

Do you fear that there may be instances and there may be places in the future that fallen under more authoritarian governments might see reserve or abs like reserve as a sort of threat, especially if there's like this kind of activism component. Have you ever thought about this and like how what's your contingency plan in that case? Sure. I mean, we think about that. I want to say about this. I mean, like, nobody likes hyperinflation.

Even if you're the government, even if you're the central bank in a country where it's happening, nobody wants it to happen. And so, you know, and I think, and even though there can be, you know, political interests that sometimes run at odds to the interest of the individual or the functioning of the economy, governments are still made of humans, you know, and a lot of those humans do care about people. They want people to live good lives. So I think what we've found at least so far is that there hasn't been pushback on this idea that, you know, if you talk to any individual person about it, they get it.

And there can still be a systemic fight over, you know, what is the right way to organize our monetary policy. but my belief based on our experience and watching, you know, things that have happened in the countries that we deal in is that the thing that really causes a conflict is if you come out and insult the existing regime and talk about how bad they are and, you know, and that sort of thing. And we're not in it to pick a fight over that sort of thing. We're in it to provide a particular service to people to improve their lives. and I think that by not making, you know, particularly political statements, by not making, you know,

statements about, you know, whether any particular governing body is good or bad, so far we've avoided really any sort of conflict in that way. And that's our intention. You know, we're not here to, we're not going to try to campaign for against any given candidate or anything like that. We're just here to provide this technological solution. But time will tell, you know, your concerns are like reasonable concerns. we think about this too. So we'll see what happens. Yeah, I mean, you were talking about hyperinflation there, and it kind of remind me,

I saw something on your website in your docs where it says like that the goal of reserve, I'm paraphrasing here, is to eradicate hyperinflation. And I mean, in my mind, like I see the problem is hyperinflation as being like an externality. It's like something that is not controlled in any way by reserve. It's like it happens in another system because it's the consequence of bad monetary policy and like, you know, not having sufficient economic growth. Do you think that's like a well-placed goal or should the goal be to like, you know, provide stable currencies to like, you know, millions of individuals or something?

It just seems like that's a goal that the reserve product like can't address if countries keep making bad monetary policy decisions. So as long as we have countries making bad monetary policy decisions, you can't really address it. It's a very good point. The way I think about it is that in the short term, the service that we offer doesn't eliminate hyperinflation. It just helps people cope with it. but there is a long-term vision, and we'll see if we can achieve this because it's very difficult.

But the long-term vision is that if you have a stable currency that is not attached to any fiat money, like we've talked about on this call so far, if you have something that's backed by a basket of assets, and if that's what starts getting substituted in countries that have monetary issues. Today, like I said, the default is cash US dollars, right? That's what everyone ends up dealing in when you have a country that has issues like this? What if in the future the alternative was a stable cryptocurrency? It could be many or it could be one. Let's say there's one stable cryptocurrency, whether it's reserve or otherwise, and that starts to get adopted by one, two, three, ten, a growing number of countries, such that when countries have monetary

policy issues, you have a currency substitution to that stable cryptocurrency. Well, if that stable cryptocurrency is actually designed well enough such that it is not under the control of any particular government or central bank, then you could actually have an ongoing situation over the course of the next hundred years where you have fewer repeats of hyperinflation of monetary policy issues because you've actually started to transition a significant share of the global currency usage to something that actually has a significantly lower probability of being affected by any country's fiscal policy and actually going into hyperinflation. So I realize that it's like maybe hard to believe that that could actually happen. Sometimes it's hard for me to believe

that it's even possible. But that's what we're trying to do ultimately. So that when we say that we actually want to eliminate hyperinflation or at least reduce its frequency, that's the long-term way that we think about the project. One thing that I would love to dive in a little bit. So it feels like we have a system here that's a bit in between, right? Like you have smart contracts on Ethereum. You have like the RSR token that has, you know, some governance, right? And, you know, but at the same time, you know, you have like an app, a centralist app. You have like customer support. There's these kind of payment gate, you know, like having this kind of sort of function to facilitate, right, going in and out of the system.

Like, how do you see that evolve in the future? And, like, what parts will be kind of, like, on-chain and maybe Dow? And what's the role of maybe, like, the company? Yeah, I mean, I think for the vision I just described of that long-term stable cryptocurrency that is sort of out of anyone in particular's control, I think that that has to be on chain and it has to be governed in a decentralized way. And I think we have a lot of work to do and that the space generally has a lot of work to do, figuring out how decentralized governance really can work for a situation like that. I think the current decentralized governance protocols

aren't sufficient. So yeah, the currency itself needs to be on chain for that reason. I think that the end user software to access, you know, cryptocurrencies will continue to be run by companies. It's not really important to me that people use our cryptocurrency or other cryptocurrencies through our app. They could use them through other apps. That's fine. The reason why we decided to build our own app and run it with that centralized database is very practical. It's just there isn't actually good infrastructure these days for using cryptocurrencies as normal money instead of using it to speculate. And so we decided we had to build that.

And, you know, why do we have the transactions in our own database? Well, for the reason you said, because Ethereum transactions are too expensive. So some people ask us, though, like, okay, well, so does that mean that you actually could just do this project you're doing right now without any cryptocurrency? Like, is there a reason why this couldn't have just been done with like PayPal or something? And there is actually a reason. And I didn't see this in advance, but it's now very clear to me. We talk a lot about how with cryptocurrencies, any individual can hold them,

and you can't sort of discriminate against individuals in allowing who has an account for like Ethereum. But it turns out that that same phenomenon exists and is relevant on the business level, where any business can hold cryptocurrencies. In particular, in our case, we're a business, we're a money services business in the U.S., and we have customers in some countries that banks in the U.S. are very scared of, for example, Venezuela. Well, if we were dependent on banks to hold those U.S. dollars on behalf of our customers, that would be a very tenuous business. It could be that our business could just be shot down,

and all of our customers would lose their accounts overnight. Because of the fact that we're holding those dollar balances in stable coins, we actually are in control of our own destiny there. We have to comply with U.S. regulations, but actually as a financial technology company in the United States, the barriers are mainly what can you get banks to go along with? Like if you just actually read the laws and follow the laws, there's a lot you can do that banks wouldn't let you do if you were dependent on their permission. So the fact that we're using stable coins in the background, even though people aren't currently holding them on chain themselves, actually permits us to make a guarantee to our users in a country like Venezuela that your U.S. dollar balance isn't going to go away because we're going to continue to provide that custody for you. So there's actually an important way in which it's an obscure, like, it's an obscure way, but there's a way in which it is actually preventing the American financial system from sort of censoring our ability to offer that service. to people in Venezuela.

But yeah, so I guess to get back to your question, like, we intend to continue offering this app. We intend, you know, to run this company in a way that, you know, is at least break even if not profitable, so we can continue to scale that service around the world. But we also totally welcome, you know, usage of the reserve currency or currencies in, you know, in other applications as well. We're not really attached to it being just in ours. one question we wanted to ask as well so i think peter teal is like an investor uh if that's right in your project and of course i remember reading about you know PayPal early on and i think there

was like some kind of idea a bit similar of creating some kind of like global currency or something like can you talk a little bit about that connection and influence yeah it is true so peter teel back at the beginning of PayPal, you know, talked to the team multiple times about how if they really got PayPal off the ground, it could be used to offer an alternative to people actually, specifically in Argentina was one of the examples they talked about. And actually, at that moment, in 2001, when PayPal was picking up, was when Argentina went through a major currency situation where they ended up basically taking everybody's dollar balances in the bank and cutting the value by one quarter.

order and converting them to pesos, which is like a terrible, terrible situation. And the PayPal team at the time actually thought about, shit, should we go try to provide the service to people like right now? And they decided not to. They decided, no, we have to stay focused on building our business and like serving our eBay customers, which is what PayPal was focused on at the time. And then they ended up selling the business. And, you know, when you sell a business to somebody else, obviously that initial vision,

it's like very hard for that to be carried through. And so it didn't end up being carried through. But when we pitched Peter Thiel and some other people who were early at PayPal about this project, you know, it was very, they were the easiest pitches we did because they understood immediately like, oh, you're trying to do that. Okay, that's cool. And so, you know, it didn't take a whole lot of convincing for them to sign on. And, you know, I think that they're, you know, obviously they have complicated lives

doing all sorts of other things. It's not like they're focused on the reserve project as like their main thing, but I think that they're interested in the possibility of that playing out and actually sort of seeing that through. And that's part of why they were game to jump on board. That's really cool. Yeah. I think you've got a couple of former PayPal people in your investors, but not Elon. Elon didn't get it. Not Elon. Not Elon. Doge. Doge could also be there. Yeah, maybe if you had dose to your reserves. Yeah, he'll hop on the band. If he had those should have reserved, maybe.

Yeah, we have to give him the opportunity to make a very funny meme statement on Twitter somehow. If that aligns, then, yeah. Yeah. So we brushed on it a little bit, I think, earlier on, but what's the business model here? And I guess we didn't really talk about it. So, like, yes, there's a smart contract, but, you know, reserve is a company. I think that's, like, registered in the U.S. So what's the business model and how does the company make money?

So there's a model for the protocol, and there's a model for the app. And so for the protocol, there's basically three available sources of revenue. One is transaction fees, although honestly, I think that the stablecoins are probably never going to charge transaction fees. I just don't think that that's going to end up being the main business model for stable coins. The second is a little bit less commonly thought about, which is if you get to the point where one of these baskets has billions of assets in it, if the underlying stable coin issuers make money from having a larger volume of their stable coins, they will actually

start to compete and pay fees to have a larger share of that basket. And we actually see that happening elsewhere. We haven't seen that exist in a protocol layer yet, but that does happen like on exchanges and with market makers where stable coin issuers pay fees in that way. And then the third is probably the easiest to think about, which is just like we talked about before, those underlying assets can generate yield. They can effectively be sort of lent out or, you know, provide liquidity or something. And so that yield generation is the third revenue mechanism. And so then those three revenue sources, you know, and they can be configured via governance, which ones you're charging, can be directed to, like we said before, the RSR stakers.

And so the sort of economics of the protocol, that that's how they work. So as an RSR holder, you don't receive any money passively. But if you go choose to stake your RSR in any particular stable coin and take that financial risk, then you can earn income from doing that. So that's the business model for RSR and for the protocol. And then for the app, it's pretty simple. It's just that when people convert their money in and out of the stable coin, sometimes we do those transactions and we charge a spread on those. We do like US dollar transactions in and out of the stable coin.

And then it's also the case that we can take a part of the spread when people are transacting in and out of foreign currencies. And so, you know, the payment processors, those liquidity providers, they're making most of the money on that spread because they're providing most of that service. But because we're making the marketplace, we can charge, you know, a portion of that. And that can allow us to write the software and run the business. Yeah, I mean, one thing that's kind of interesting and a little bit crazy about this world, right, is that let's say now you have like USTC or some other thing, USTT, and they, are holding actually, you know, some dollars or commercial paper or some kind of thing, right,

that like people have paid to them and they're using that. And now, then you have, let's say, USC or something. And then that gets put into compound and like lent out, right? And then, like, you take that and you put it into reserve. And now you're getting this RSV token. And now people again are probably going to put that into some sort of like, so it's crazy. So it's crazy. you know, that you have like the same dollar in this case, like let's say three times or, you know, maybe there's a fourth and fifth or six time, that it's basically being used in earning some some yield. Is there some limit to this? Do you think there are you sort of piling on risks or like how do you view this? It's a good question. It's something that I've thought about too. I haven't

articulated this before, so this might be a little jumbly, but if you have the version where you you offer the dollar and you keep all of the revenue yourself, so it's just a dollar, people are going to be more excited to then re-borrow that dollar, because you'd rather borrow a dollar than borrowing something that's like a dollar plus yield baked into it, right? Because let's say I borrow something that is like this new stable coin we're going to release where it's like, okay, I get this thing and it's appreciating it, whatever, 4% per year or something.

Now when I pay back that loan a year from now, I have to give back 4% more value in dollar terms versus if I had borrowed a normal dollar, then I have to give back, you know, then I don't have to give back that 4% more, like if they were at the same interest rate. So the thing is, actually there won't be, I think, nearly as much demand to borrow our appreciating stable coin as there would be to borrow, say, USDC. So I think that that doesn't continue forever if you allow that yield to be baked into the value of the coin. But like, you know, with USC, the thing they're putting out there is just a dollar and they're keeping everything. that they make, and so there is plenty of demand to borrow that. And so if we were to create a

stable coin where none of the yield went to the stable coin, it all went to the stakers, for example, such that it was just worth a dollar, I think there would actually be more borrowing demand, and you could potentially get more relayering of the type that you're talking about. And I do feel like at some point, you know, that starts to get dicey in terms of, you know, the possible liquidity issue, you know, if too many people want to recall those loans all at the same time. Interesting. Before we wrap up here, I just want to ask you, like, you know, what does success look like for reserve and, like, how would you measure success in the case of this project? In the short term, the way I think about it is, you know, we want to make, you know, basically digital U.S. dollars accessible to anyone in any country of the world that's having currency issues. So like I said, we're, you know, just in the tens of thousands of people, hundreds of thousands

using the service right now. But we want to make it so that, you know, in Venezuela and Argentina, you know, like 10 million or so people or more in each country are actually using this for their living their everyday lives and businesses as well. And we didn't talk a whole lot about this on this call, which I'm a surprise you actually weren't more curious to know about like the way people are using it and all of that. But like we are starting to see that happen. Like there's about like 5,000 merchants that now just accept payment directly in in these dollar stable coins in these countries.

Just in our ecosystem. I'm sure that many are accepting in others as well. So yeah, success on that part of the project looks like basically getting to full penetration in the economy where you can pay anywhere. You know, you get paid this way with your job and everyone can just live their life in stable. digital currency and not have to be subject to the anxiety and sort of harshness of of dealing with your currency devaluing all the time. Yeah. I mean, I am just, I think it's a good point and maybe you can spend like a minute or two or like a few minutes on this. So I'm curious like with this merchant adoption, like how is that happening? Is that for example, focus on like e-cullers or

specific local areas or like what is some of the yeah, what does the usage look like? Yeah, so one initial use case that was surprising to us, the very first thing that caught on was actually people wanting to get their money from some external dollar source into Venezuelan Boulevars, which it's like, what? The whole point was to help people get their money out of Venicewoman Boulevars. Why are we helping people get their money into Bolivars? Well, the answer is they had already found one solution to cope with this situation, which is earning money via working on the internet and getting paid via pay. PayPal. And so they get these dollars in PayPal, but then there's no way to spend those locally and there's no way to convert your PayPal money into Venezuela and Boulevars. So they would hold their money in PayPal, and then at the last second, they would convert it into reserve dollars and then

convert it from reserve dollars, like bit by bit into Venezuela Boulevars to go make local transactions, because if you convert and then go buy, then you don't have to worry about the currency volatility because you spend it immediately. So we actually started off helping people provide a bridge back into boulevards, which is kind of crazy. But then once we started to build out a community using it that way, people started to come to trust the service a little bit more. And then they started going the other direction and using it as a method of savings. So I would say that's probably the dominant method right now, where like you get paid in a volatile

currency like Argentine Pesos or Venezuelan boulevars and you convert your money at the end of the week or sometimes actually people in Venezuela convert their money, they get paid multiple times a week and they convert their money as soon as they get paid, like within hours. And so they're building up their savings account. And then when they want to spend, they can make a withdrawal and convert back to boulevars and then swipe their card at like a grocery store or something because, you know, a lot of stores don't yet accept reserve directly. And then the thing that's emerging now, like I was just referring to, is people are starting to just be able to spend it directly at local stores because people are starting to accept it there.

And we haven't even built like a point of sale service or anything. People are just using the app manually. You know, so merchants print out a QR code or something and put it on their desk or they just hold up the app with the QR code. And people are just doing transactions that way because, you know, in Venezuela in particular, just transacting is often very difficult. And so people have become very comfortable doing all sorts of shenanigans to just buy something at a local store. It's like it's actually commonplace for stores to sometimes have, you know, like a bunch of computers

where you can go log into your bank account and just make a bank transfer to pay. There's all sorts of different things that people are willing to do. So we're starting to see just organic adoption of people using it directly to buy things. And then the last thing is we're starting to see interest in using it for payroll. So companies locally are starting to pay their employees directly with reserve. And then we've also started to see some interest in international companies that employ people in these places. they'll make a single bank transfer to top up their balance, and then we have a beta product where they can send us like a spreadsheet

and we'll like disperse all the payments to people directly in reserve dollars. So we're starting to see like people using it in the ways that we had imagined. That's so cool. It's great to see that people are using it in the way that it's intended and it's hopefully helping people's lives. Nevin, thanks so much for joining us on the podcast today. Yep. Thanks for having me. Good to talk to you guys.

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