Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Ryan Selkis: Messari – Bringing Transparency and Self-Regulation to the Blockchain Industry

Episode Date: August 9, 2018

Since he started blogging as Two Bit Idiot in 2013, Ryan Selkis has been both industry insider and industry critic. Consistently calling out excesses and abuses, but also maintaining his sights on the long-term potential. He recently founded Messari, a project that aims to bring more transparency and fairness to the industry. Messari has narrowed in on siloed, inaccurate and incomplete data as a key factor that allows insiders to profit at the expense of the public. We talked about the various ways in which Messari tackles that problem, ranging from a community-led effort to gather project data to the ambitious goal of a token-curated registry of stand-up projects. Topics covered in this episode: Ryan’s start into the crypto industry as pseudonymous blogger Two Bit Idiot His insights from being the Digital Currency Group’s first employee CoinDesk and the challenges of journalism in crypto Why poor and inaccurate information benefits industry insiders at the expense of retail investors Messari’s mission to lead a self-regulatory effort for the crypto industry How an open, distributed crypto data library could help create a fairer playing field The plans for Messari’s token-curated registry of projects following reporting standards The economics and game theory around the Messari token and TCR Episode links: Messari - Crypto News, Pricing, and Research Introducing Messari: An Open-Source EDGAR Database for Cryptoassets Messari Whitepaper A token to self-regulate tokens. But really. Cryptoasset network value, market cap, rankings & metrics | OnChainFX Ryan Selkis (@twobitidiot) | Twitter Messari Community Analyst Application This episode is hosted by Brian Fabian Crain. Show notes and listening options: epicenter.tv/247

This is Epicenter, Episode 247 with guest Ryan Selkis. Hello and welcome to Epicenter, the show which talks about the technologies, projects, and startups driving decentralization and the global blockchain revolution. My name is Brian Fabian Crane. And I'm here today with Ryan Selkis, aka the 2-bit Idiot. Now, probably quite a few of you have heard of Ryan Selkis. So he was writing this blog called The 2-bit Idiot back a long time ago in around 2014, which is widely read, including by myself.

And he has since quite a few interesting roles in the industry. He was at the digital currency group. He was the first employee there, and digital currency group invested in lots and lots of blockchain startups. He was afterwards at CoinDesk, and he was the managing director at CoinBest and was there over a year. And since then, he started a new company called Masari. And we're going to speak quite a bit about Masari today.

So thanks so much for joining us today, Ryan. Yeah, thanks, Brian and I've been a fan of the podcast for a while. I know we've, I think there's been like two or three points in the past where we've tried to get this on the calendar and it's just fallen through for whatever reason. So it took about three years, but here we are, so long overdue. Absolutely, yeah. That's how you know you're like the OG like crypto podcaster too, because we've had that many misses over that long period of time. Yeah. Everybody's got a podcast now, but no one has the epicenter.

Yeah, that's true. There has been influx of competition, that's for sure. Well, let's go back in time, right? Because I think there is probably an interesting story there. So you started writing about Bitcoin back in, I think it was it 2014 or 13? 13, yeah. So tell me, tell us, how did you first learn about Bitcoin and what was the step that, you know, cost you to start writing about it? Sure. So, you know, I got it originally back in 2011. I was convinced that the dollar was going to collapse and this was around in the U.S. there was this, you know, over the summer there was this debt sequester and they basically shut the government down and they were, you know, haggling over the debt ceiling. And, and while that was happening, you know, I just remember thinking, you know, the U.S. is screwed. The history of, you know, reserves is such that, you know, reserve currencies tend to change hands every single. so often. And it seemed like with China kind of rising up and the U.S. just not able to get any of its collective shit together, that there was going to be some kind of massive disruption to our reserve currency status. And so naturally, I learned about Bitcoin, but instead I ended

up shorting the U.S. Treasury ETF and buying gold. And I didn't buy any Bitcoin because at that point you would have had to go into a cafe and get someone, you know, cash in return for a USB stick. And I'm not an engineer, right? So that just didn't seem, seem right. And I had the thesis right, but the way that I played it was so colossally bad because the long, gold, short, you know, treasuries was just a horrific trade. But if I purchased Bitcoin, it, it, you know, would have been a legendarily good trade. So that's when I first learned about it. Kind of, you know, kept loose tabs on it like so many other. people just being interested when you'd see the wire articles or any kind of high profile news. But I really started to pay attention when Fred Wilson invested in Coinbase. And then so that was in kind of mid-2013. That was right around the same time with the Winkle Boss twins were, you know, had announced their ETF plans.

It was the run-up to 250 from, you know, kind of low single digits, low double digits, kind of early in 2013. team. And so over the summer, I kind of tracked it, but I didn't make the leap until late August, early September in terms of buying my first Bitcoin. And that was, you know, kind of a speculative investment, just like so many others, because I thought, you know, this is cool. And, you know, I want to just in case. So I want to have a little bit. And then when the, when the Fed shut down Silk Road, it was, you know, kind of an aha moment because I thought, okay, this isn't just going to be for, terrorists and kitty pornographers and drugs.

You could actually see this being for global payments, not just black markets. And even though I'd still argue that black markets were the killer app for Bitcoin and building up the monetary base. And I got very lucky because that happened to coincide with me deferring my offer to business school and shutting down the startup that I was working on.

So all of a sudden, I was supposed to go to either MIT or work on the startup. I ended up winding down the startup and I had like 10 months on my hand before I would be able to go the next cycle and the following year. So I basically had to, you know, look a little bit more carefully at Bitcoin because six weeks later it had rallied about six or seven times from when I purchased it. And as someone who was newly unemployed and trying to figure out what to do for 10 months, I had to make a, you know, kind of I sell hold decision first. How do I pay for my rent?

Should I sell this thing and count my, you know, count my blessings that it worked out? And I ended up liquidating my 401k, buying more Bitcoin and then using the rest for for kind of rent the next 10 months or so. So it was from a small base, but I went about as all in as you could probably go. And that included, you know, kind of writing on a daily basis, which, you know, at that point it was the easiest way to learn and really no one was doing it outside of the Reddit threads. Yeah, that's pretty aggressive of liquidating your 401K. Actually, I didn't know that because

even back then I felt like you were sort of always on the edge and always like kind of unsure, a bit critical and a bit like, maybe this is all going to collapse pretty soon. Well, I think part of that might have been because, well, two things. One, because I think I'm, I try to be hyper-rational and kind of poke holes in all the arguments. And, And when I started writing, it was in that kind of parabolic run-up. So I think I actually got a pretty decent executive audience because I wasn't just one of the guys posting the roller coaster gif and all the to the moon threads on Reddit, which is, you know, it was a little bit hot and heavy. I think everybody was high-fiving a little bit too much leading up to, you know, the end of 2013. And then, of course, it kind of crashed.

And then, you know, the other major component is within, you know, two and a half, three months of writing and getting into the industry. I'd met most of the executives because it was so small and I went to a couple conferences and they kind of enjoyed the blog. And then, you know, the Mount Cox documents fell into my lap and I ended up publishing them. So I had plenty of reasons to be skeptical. And then, you know, I also was on kind of one hand, this whistleblower that people respected on the other like kind of in some circles, look at me number one because you know the because the market obviously really cratered after that and it was a big black eye but you know it was it was a hell of an opening six months to get into a new industry and and then you know have that kind of combination of things happen epic rally

you meet everybody in short order because you know this this silly little pseudonym takes off and then ultimately you're kind of unmasked um around i think you know probably still the biggest story to date which is the Mount Coxhack. Yeah, I have vague memories of that, actually, now that you mentioned it. So why did you choose to write under a pseudonym? So the pseudonym was actually one of the best ideas that some of my, so my finance friends had because I started writing the blog, really, was just kind of like a daily email.

I sent an email around to some of my friends at this firm called Summit Partners, where I started my career. And I said, you guys should check out Coinbase. it's going to be just a really hot company. And they're like in the middle of this industry. They're kind of the only trusted brand. And they saw a lot of the onboarding pain points. And I'd basically done it back of the napkin on what Coinbase could be worth and how

much money they were making. And at the time during the runout, they were probably making a couple million dollars a month. So at least $20, $25 million run rate. And I know that I was close because I'd put it. posted this under the pseudonym and Brian Armstrong actually messaged me and he's like, how do you know so much? Who are you? So, but it was basically just like backing into their fees and at that point they were posting like volumes and all that. So it was, you know, it was actually pretty straightforward. You just had to do kind of like all the digging and

their you know kind of company blog at that point. But one of my, you know, that email kind of quickly got forwarded and all of a sudden I had like 20 people on this email thread and I said, hey, at that point, was kind of replying to the email daily with updates. And then one of them said, you know, you know, you like writing about this, you should start a blog. But by the way, this is probably going to end in tears. And you don't want like a black mark next to your reputation for whatever job you get next. You don't want to be like the Bitcoin guy that was in bed with all the, you know, the kitty pornographers and terrorists and drug dealers. So you should, you should create a pseudonym if you're going to post any of this

stuff online. So I did. And, and, you know, And it stuck. And then, you know, naturally the pseudonym lasted for about five weeks, I think. And then it was all over. But it's funny how things work out. Yeah, absolutely. And you know it's funny, Brian? Like I thought about this, you know, in terms of fortunate accidents.

I think the only reason that I was able to get any traction with the writing was because I had the pseudonym. Because I feel like, you know, you always try to like put on errors for people. and it's very, very hard to kind of write an authentic voice if you're trying to impress people and you're trying to basically show how smart you are and you're, you know, and you're kind of calculating. I was just shooting from the hip and having fun with it. And, you know, I think, forget who says it.

It's like, I think it may be like an Oscar Wilde quote, you know, give a man a mask and he'll tell you the truth. And that's kind of what happened, right? And then it just stuck and, you know, people liked it. So, you know, double down, you know. Yeah, yeah, no, absolutely. I think that is one of the qualities of your writing, this sort of, you know, frankness and directness.

And yeah, I totally see that the association with the pseudonym. So now back then, the first thing you did in an industry, I mean, besides this writing, I think the first proper job was to join the digital currency group. Like, what was the digital currency group back then? And what was the kind of evolution it went through while you were there? So I was kind of a skunk works employee. Barry Silver's old company was called Second Market. And DCG was envisioned as a combination between second markets,

digital currency related businesses, which were its trading desk as broker-dealer, and then the sponsor of the Bitcoin Investment Trust, which later became grayscale. And then the broker-dealer became Genesis. But the legacy second-second. market business ended up getting spun out and sold to NASDAQ in 2015. So you have these digital currency focused businesses that were kind of pivoting from the

existing second market business. And then Barry's kind of personal investment portfolio, which got merged into one and that became digital currency group. I say SkunkWorks employee because I was working only on digital currency things, but technically DCG didn't exist. until nine months after I joined. So I come in with the, you know, generally the pitch that, you know, I can help during this transition. You know, I've got the investing background, so I can take a lot of the blocking tackling off your plate for seed investing, help with the fundraise, help build the core team. And, you know, ultimately we could go one of a few different ways, you know, after we do these kind of

of first few things, but one of the things that I'd like to do is kind of start a company under the DCG umbrella. And so that kind of played out, you know, to a T. We, you know, we recruited Melton Demiris, I think many people know in the industry as well, who's now coin shares. She joined in May. She actually, ironically, would have been one of my classmates at MIT and was connected through a mutual friend that I had known kind of dating back to 2013. And then we, you know, we recruited a couple of other people to the core team.

closed the rounds. And then that fall, we met with Jeremy Bonney, who was the old CoinDest CEO and started discussing the acquisition. But yeah, I mean, the first year or so at DCG, it was essentially forming the company, keeping the lights on and kind of positioning it for the next step. Cool. And then, of course, you took over and you ran CoinDisc for quite some time. Now, the issue of coin, of, of,

Journalism and the cryptocurrency space seems to be an interesting run, right? There's so much money in this industry. And people have often been very critical of publications like CoinDesk. At the same time, also very critical of any kind of mainstream coverage, because often, you know, it would be flawed or misinformed. Like, why is journalism and cryptocurrency, why is this such a difficult thing to have those two work together? Well, I mean, first of all, everybody's kind of, making it up as they go along. Information moves incredibly fast. Ideas change, projects pivot,

personnel changes. You get 10 experts in the room debating, you know, BFT consensus systems, and nine are going to shit on one, and then they're going to go round robin, and like, they're basically all going to, you know, poke holes in the others' arguments. And, you know, we see this playing out in real time, you know, online, right? Like folks from Ethereum criticizing Eos who are criticizing DFINITY and it's just, you know, this this big, loud and incredibly difficult to decipher ecosystem where if you look at this probabilistically, most of the critics are going to be right. But, you know, if you look at this more like an angel or seed investor, there are some

projects that are truly going to figure out the equation and ultimately scale into just massively important protocols and businesses. And you really don't know until many, many years down the line. So reporting on anything related to crypto is always tough because not only do you have this extremely fast-moving environment where a lot of people disagree, but it's very, very deeply technical subject matter. And, you know, quite frankly, there aren't. any computer scientists that are journalists, right? Because, you know, for one thing, the economics just don't work, right? I mean, you know, solidity developers are getting paid, what, half a million dollars a year

or, you know, more than that right now, just given the immense shortage and, you know, kind of the ICU boom. And, you know, journalists like that's just, you, I don't even know if like the editor-in-chief of like the New York Times makes that much money, right? It's maybe like there's a few people in journalism that make that kind of money. But so there's just, I think, a gap in terms of like what the market value is for that expertise and kind of where is deployed. And, you know, the other side is like you basically can do no right. Because if you try to basically say, here's what this group is saying is true.

and if these three things end up being true, then, yes, this project could get legs. And you basically just report on what the project's lead wants you to know. Then you're accused of being a shill. And if you take the other side and you basically just get a bunch of like criticisms for that same project, well, then you're just accused of spreading like fud and being malicious and trying to like denigrate the entrepreneurs in the industry. And the funniest part is, you know, CoinDusk is a great example because I think they do a great job, you know, kind of balancing or, you know, at least that, you know, they work their asses off to get it done, Pete Rizzo and the rest of the team. But many times those same arguments will come on the same article, right? So you'll get people that are like, I can't believe you're shilling ether.

I can't believe you're crapping on, you know, sharding and Casper and like all this. Like in the same exact article, right? So, and I generally found that the articles that I post like that are sort of. some of the best ones, right? Because it means that you've kind of accurately, like given both sides of the argument. So that's, I think one of the major things that is problematic.

And frankly, it's one of the reasons that I think some curation markets are so interesting and just other curation tools are so interesting. I really like, I think, what Token Daily is doing, obviously what we're doing at Masari with our homepage and that kind of new summaries and kind of condensed research summaries, I think is very valuable. And I think we're going to see a lot more like that to help people, you know, kind of filter

through the noise. So when it comes to Missouri, I think, you know, there's sort of a backdrop to Missouri, which is that, you know, these big problems that you see in the industry and kind of failings that you see in the industry, like what are the things that bother you the most or disturbing the most about, like, what's going on in the crypto space today? Well, we claim that it's decentralized and equitable and it's all about the technology. And that's all bullshit. Just cover to cover.

It's just not true. Most of these tokens that are being sold are being held by the same syndicative investors. It gets in early access to all the deals because it's probably not decentralized. They're getting massive discounts. So by the time the retail investors actually have an opportunity to purchase these, very often, they're buying it, you know, a 10 or 20 or 50x multiple of, you know, what the insider are paying. And these things are trading publicly with massive information asymmetries where, you know, the investors, even when they are liquid, right, even when they're trading on exchanges, like the insiders of the projects, the investors that, you know, have gotten in early, they just have a different level of access to information than anyone else that's buying through Binance or BitFenX

or even Coinbase or Gemini. So maybe not the latter just yet because they're not really touching tokens, but I think you get the point. So what we're really trying to do at Masari is level of playing field and just usher in some sanity around disclosures and kind of common sense, aggregation of key information.

And where we're starting is super rudimentary, right? Like supply curves, how do your tokens vest over time and do you disclose when you make a sale outside of the initial ICO? Who are the verified personnel on the team who generally speak on behalf of the project? What communication channels do you use? And I think it's things like that where you wanna know

if project lead Bob Smith, right just ends up making a material change to the the token issuance schedule is you know as part of their proposed upgrade to the network protocol and and you want to be able to like see how that trickles down to other investors right this new inflation or this you know this kind of arbitrary change to the schedule and you want to know like on par with all of the insiders at the project that issued the token you want to know you know at the same time as the investors have backed it early And there is no expectation that that happens right now within crypto. So you've got this really weird, like, you know, these things are quasi-private, quasi-public. And what's going to happen is it's going to create a real mess once people start losing a serious amount of money. And that's happened a little bit this year,

but I don't think we've seen the worst of it yet. And it hasn't been quite big enough. So I think I actually worry about the next leg up, right? If a Bitcoin ETF gets approved and institutional custody gets solved, We're going to see another mega rally in Bitcoin. And whatever Bitcoin rallies, it brings up all of the rest of the tokens with it, regardless of kind of quality. It just, you know, you've got the quote unquote shit coin rally.

And when that one bursts, it's going to be an order of magnitude larger than kind of the last six months setback. And that's when it actually creates some real pain for really large community of bagholders, large enough where governments get involved, regulators get involved, and there could be a serious crackdown. So we come at this from like, let's protect, you know, retail investors, let's aggregate information on these projects and just solve like the practical issue of, you know, where's a single source of truth for information on, you know, the universe of tokens. And then ultimately, you know, I'm pretty negative on a lot of what's been going on, but I'm very long-term bullish on the test. in the industry and kind of the good guys that are actually working on building the infrastructure here. So it really does matter to us that we help fix some of the macro problems because I care about where this industry is going to be in 10 years. And if we fuck it up now, it's going to set us

back for quite a long time. So there's like a self-regulatory, like let's clean up our own house type of Bangal to what we're building in Missouri. Yeah, I think you point out some definitely some massive issues. Now, I'm curious if we can get into like a little bit more detail here when you when you kind of talk about like, let's say this bubble bursting, people getting hurt. Like how, what do you think are some examples of ways that the current information asymmetry could be like abused and misused that then leads to these like massive pain among, let's say, retail investors? Well, it doesn't even have to be nefarious, right? So a perfect example is civic. And I think the way that Vinny and his team structured their token sale, I think it was above board. I think they tried to do things the right way.

I think, you know, everybody got access to the same price. They had this auction structure. So they did a lot of things really right. And this was last July. But, you know, a couple weeks ago, he emails me and says, hey, we just had the first anniversary of our token distribution, and that means 110 million CBC tokens have vested and are now liquid. But we're not planning to sell them.

Like, we're going to keep them on our balance sheet, and we've just posted this blog post about, you know, when we'll sell and how we're going to commit to disclosing any secondary sales of this kind of liquid supply. It's on our balance sheet now. And this happened, invested on a Friday, and we had this conversation on Tuesday the following week. And this is a guy that is like, we're not selling this, right? We're not going to dump this on the market even though it's liquid.

But that information was public. Just no one knew about it. And if you kind of back into the amount of money that actually equated to, you're talking about like $25, $30 million worth of tokens that were just unlocked overnight, according to the smart contract. and that's multiples of the daily volume traded in CVC tokens. So you can imagine, you know, other teams that might say something like, oh, well, this was in the smart contract. So we said it was going to invest over this time period. And then you wonder why, you know, the token X has crashed 50%.

It's because the team just vested and liquidated their holdings of like a vested, you know, percentage of tokens. So that's kind of like an obvious area. And some of this is public information, right? So, you know, that's why I think we're starting very, like, we're medial with the disclosures and then we can kind of get more assertive over time. According to, you know, kind of community governance standards. I don't think we want to reinvent the SEC because, you know, that I don't think that system necessarily works for crypto anyway. But there are, you know, kind of low friction ways to at least clean up some of the, like, very egregious type of activity and major information in some entries.

So I think that's number one. And then, you know, number two, which is a lot trickier is how do you understand the investor incentives, right? So I want to know if a project that is raising money at a $6 billion evaluation, I want to know what the existing stakeholders have at risk and over what time period that vests. because if someone invests at a, you know, a $5 million evaluation, and then the project turns around, uses their name to advertise that they're raising money at a thousand times that, well, that's a pretty big problem because the implication is, and recent and Union Square have invested in this,

therefore it's a good high-quality project that you have access to, lucky you. And in reality, yes, they had access to this deal at, a penny on the dollar and you have access to a very, very different deal. But by the way, the team has made no material progress in the five months between those two events. So I think it's important there where you know, you at least understand, you know, what's at risk for the, for the, you know, kind of earliest stage investors.

And I'm not suggesting that information is just going to clean this up. It's not. But it'll certainly mitigate some of the damage if you have this, all this information. information in one place. And very importantly, you know, you can build a network around it. So, you know, our whole angle is we're not going to gather all this data and then resell it. Someone has to create the kind of common library that the Bloomberg's, the Moody's, the S&Ps, you know, all the other data services and financial services kind of build on top of and references a single source of information.

So is this situation, which is, you know, I totally agree with the examples, right? it's a really tricky situation and has potentially bad outcomes. What's the cause of this? Is it primarily driven by lack of regulation and liquidity of all of these assets? Or do you think there are some other key drivers to this problem? Well, there are jurisdictional challenges too, right? So one, you know, you get a lot of projects that if there's a huge crackdown in the U.S. or a certain state or whatever, they're going to move overseas.

And the other issue is there haven't really been any precedence. So there's a practical issue where the SEC, which might be the most aggressive enforcer of coming after unregistered securities offerings and with respect to tokens, taking a close look at enforcement actions. They're being very, very careful. And just practically speaking, they can't play this game

of whack-a-mole and try to go after every project because they don't have the resources. And when they do finally make a case against someone, they want it to be a slam dunk. So I think it's very unlikely that they go after something like XRP and Ripple. Because Ripple can afford $100 million illegal fees, no problem. And they've got the former SEC commissioner on their legal stuff. So you kind of think about all these depocketed projects that are playing this regulatory shell game of sorts.

and it becomes difficult to enforce. On the flip side, I think it becomes very easy for the projects that are at least trying to do things the right way to signal, you know, our intentions are good, right? The market is frothy, our intentions are good, here's how we're trying to structure things for the long term. And what that will ultimately help on the other side

is, you know, if we're just based, if we're going after super remedial basic information and disclosures and a project says no, well then that's kind of a pretty significant red flag, that if I were a regulator, I would want to look at. Because they're going to go after the truly fraudulent, you know, worst actors right now, get the easy wins and then kind of build up over time. So, you know, I view some self-regulatory mechanism as ultimately much more effective

than anything that we're going to see from on high. Yeah, absolutely. I mean, we did do a podcast a while ago with someone who used to be an SEC at the SEC, a prosecutor. and I was very illuminating too in this regard and kind of made it very obvious that the SEC will be completely incapable of really making a big dent in this,

at least for a long time. Now, let's speak a bit about this TCR idea. So TCR, of course, stands for token-created registry, which has come up quite frequently in the last year. And the idea of all... one of the idea of Masari is that basically you create this registry, right, of good projects or projects that comply with certain reporting standards. And that then, you know, I as a consumer investor, I can say, okay, I can look at that

list and I can know that there are certain quality standards that are met by that project and I have certain information that can rely on. Talk a little bit about TCR. Why is that the right design for this? Yeah. So, I mean, it goes back to the coordination. challenge amongst regulators and kind of industry. If you look at self-regulatory efforts in the existing financial system, Finra is the great example that regulates financial services and all the

broker-dealers and does licensing for both broker-dealers and then securities professionals. So, you know, FINRA basically exists at the mandate of the SEC. And, you know, it's an 80-year-old organization, basically, it's a self-regulatory body, regulates broker-dealers, and kind of licensed securities professionals. But it doesn't exist without kind of the SEC's mandate. Within crypto, there is no SEC because you would need some global regulatory body that would set standards and, you know, have some type of enforcement teeth that could penalize, you know, fraudulent actors or folks that are out of compliance with standards. So the question becomes, how do you bootstrap any sort of self-regulatory mechanism without a central regulator. And what we've proposed is that you might be

able to do this with a token curated registry. Now, the TCR is pretty interesting because you could economically incent exchanges, funds, underwriters, other kind of financially motivated, strategic actors to actually buy stake in a system that votes on the eligible participants in system and ultimately curates a list of projects that abide by certain standards. And then ultimately helps to evolve those standards over time and make any adjustments that are necessary. So at the end of the day, even if you have a 1% stake in the registry, you know, you could either vote directly on projects or delegate to a proxy who should ultimately be on

that list. And the way that I like to think about it is I use a university example all the time. If you have a board of trustees, their primary motivation for the university is to preserve the integrity of the university or even increases profile, boosts its profile. At the end of the day, what they're really trying to do is continue to boost the credibility and the value of the diploma that you get the credential that you get from graduating. So you've got the board of trustees that are managing the university at the high level, and then you've got applicants that really, really want to get into the university just so that they have that credential long term. And that's really what they're paying for is the piece of paper at the end of the four years,

and the social signal that they've met certain standards, and now they're an employable professional. The issue is with current TCRs, everybody's assuming that the token holders are going to vote directly on the applicants. And that's like saying that the board's, of trustees at a university are going to review every single applicant's college essay. And we know that doesn't happen in reality. What happens instead is they actually delegate to an admissions council, right? A group of specialists that are going to validate the integrity

of all of the applicants and ultimately curate the lists of students that get admitted. So I think a good TCR in the way that we've envisioned ours is one where you get a bunch of strategically aligned token holders at the kind of governance level. You have all the projects at the base layer that are interested in applying so that they can have this credential, the social signal that they're at least trying to do things the right way. And then ultimately, a fee market emerges where there are healthily incentivized auditors or validators that will review all these applications and kind of sign off on different projects and ensure that they are actually in compliance with the standards that they say they are because they'll learn all the network

fees and they'll learn all the application fees that are coming from this pool of applicants. So, you know, that I think is a really interesting mechanism that is much, much harder to game than kind of the current TCRs that have been out in the wild, which, you know, where you have kind of quorum issues, you have free rider issues, you know, folks that, you know, basically, you know, continue to just own the tokens, but do nothing with them except for speculate that the future value, the network's going to go up. So I think the way that we're thinking about this is, you know, how do you truly incentivize work and validation of good. projects and ensure that you don't just distribute a token that might govern a list like this to, you know, non-strategic investors. And that would include retail folks. The reason that we like this so much is, you know, we could build a lot of what we want to build at Masari without the TCR. But the issue that we would get with our, you know, database of projects in particular is you'd have a staleness and data completeness problem. So think about crunch base or, you know, Angelus,

basically like any private company markets, you know, information repository. The information there is often inaccurate or incomplete just because private companies don't necessarily have much reason to disclose all this information. And there is no real penalty for, you know, a three-month lag in updating your crunch base profile. And the reason for that is pretty simple.

These shares don't change hands, right? They don't trade. And if they do, if there is some type of secondary sales, usually amongst other, you know, accredited investors and other venture funds, you know, folks that are going to do their own diligence and actually invest in one slug, not on a day-to-day kind of trading basis.

So, you know, crunch base works for private markets, even though it's not perfect because, you know, people do their diligence and these are kind of like block sales of shares. In crypto, with these assets trading 24-7, you've got kind of the worst elements of crunch base right now, which is data incompleteness and, you know, really no expectation that it's going to get updated. And then, you know, kind of public market liquidity. So the TCR is really designed to help bring some type of teeth to disclosures around, you know, whenever there's a material change to your project. So like how do we ultimately get, you know, teams to

to update these profiles in a timely manner so that the information doesn't just trickle first to like the venture capitalists or the, you know, the insiders of the companies themselves. Great. I would love to challenge you a little bit on the analogy you. So you use the example of a university, right, and you have these trustees and then they want to kind of protect the, the value of being on that list of like university graduate, right? But then when you look, when you talked about Masari and this token create a register, you talked about, okay, having strategic people, and I think you mentioned exchanges and then white paper mentions crypto funds and stuff like that, that holds some of those tokens.

Of course, if you sort of translate that to the university example, right, that would be like a trustee who also has some sort of stake potentially, right, in the future revenue potential of a particular, actual, you know, university applicant, a university member who wants to get a degree, right. So they obviously have this, you know, or if you now translate that to the crypto world, right, let's say a token fund, they have invested in a particular early project. It may not be completely legit or it may be a conflicted project, but they do want that on that white list. So how do you think that it's going to play out if there are all of those other economic interests that may not be apparent and may be hard to monitor.

Yeah. Well, I actually think that's a good thing, right? So with the caveat that you want to make sure that the initial token supply is well distributed. Because if you just raise money from a couple of investors, then, you know, of course, they're basically going to talk their own book and say and vote in their own projects, right? But if it's a widely distributed group of initial backers and voters and interested parties in the TCR, you're going to have a lot of disagreements. And I would imagine that, you know, there is some equilibrium where the group kind of agrees,

okay, even if I didn't invest in this project, they are doing things the right way. We have respect for the team. And yes, they certainly meet these standards. And on the other hand, if there was a really shady portfolio company at one of the token holders, they would just be overruled by the other 15, 20 different funds or exchanges that were voting. So I think that kind of works itself out naturally. The caveat to that is how do you mitigate the risk of those tokens ever being held centrally? And how do you prevent people from accumulating outside?

positions in the registry and ultimately, you know, a large degree of influence over who actually gets onto the list. And there's, I think, a couple ways to do this. One, you kind of control the initial distribution and you ensure that there's kind of vesting schedules and these are relatively illiquid to start. Two, I think it's important for whoever the initial incubator of the registry is to be able to add partners and continue to unwind the treasury over time. And we've kind of proposed selling X percent at time zero and then unwinding the other, you know, like remaining token supply that we'd hold on our balance sheet over like some defined period of time, like three years, four years, whatever.

But actually selling it in a structured way, not just having invest and having it be uncertain, but actually saying every six months, we're going to do this auction. So there is this predictable liquidity in the system and these are the only eligible buyers. So I think that's another way to do it. And then the last way is to incorporate identity and reputation into the system in some way. And I don't know exactly what that looks like yet, but I think for certain TCRs, it's definitely easier than in others to basically know not necessarily the votes of everybody that's casting them, but to know what the voting power is of all of the participants. So imagine knowing who has 100%, if you're going to split the pie chart of Bitcoin mining capacity, it'd be really helpful to know like what percentage Bitmain versus Bitfury versus any of the other

major miners have at any given point in time. And with a reputation system and a TCR and kind of the state-based voting, you might be able to track that over time. So you can basically guarantee that at least on chain, there is this distribution of voting. Now, that wouldn't prevent, you know, bribery attacks or kind of, you know, off-chain collusion or anything like that. But if there were collusion, you would know who the parties were that were, you know, colluding, right? And at least, you know, now there's some reputational stake if the quality of the registry declined over time. So I think in our system in particular, this isn't true for all TCRs, but we've thought, you know, very carefully about the specific risks in our system and kind of the tradeoffs.

And so while I think TCRs are exciting, I tend to agree that they are, you know, in general, they're not one size fits all, right? And they are a useful mechanism, but kind of the mechanism design is going to depend on the use case. Let's say there's a particular project. And the expectation is that project would, you know, let's say they do their token sale and then they say, okay, we're going to have this much for software development, this much for marketing, and then we're also going to have this amount, which is going to be used in the budget to pay for this application fee. Because presumably for these tokens to be actually worth something, those application fees

have to be very high. Or how is the value of those registries tokens going to be driven? Yeah, I think we've started out with a $25,000. application fee. And I think it's high enough where people are, you know, demonstrating that they actually are taking this seriously and that it's not a negligible amount that they can just kind of throw away. It's low enough where people are probably willing to pay it and, and it doesn't take a massively long sales cycle to kind of convince people to merit to this. But it's also high enough to ward off frivolous challenges to a given candidate's registry status.

So, you know, if you only had $500 at stake, you might get, you know, dozens of trolls that are just trying to, you know, poke holes and, you know, oh, you know, the, you know, Vinnie tweeted this thing and or, you know, the Gallum guys tweeted this thing. And so that means that they're out of compliance with the disclosures framework that they committed to and they should be booted. You know, so it kind of prevents, it's like a spam prevention feature, right? So instead of like a fee market or, you know, gas market, ours is, you know, a little bit chunkier in the sense that it takes, you know, five figures of value, maybe more over time to actually challenge these, these applicants. So it would have to be something pretty material that they, that they, that they, you know, Welchton. Yeah. I mean, I'm still struggling a little bit because, you know, let's say there is a thousand projects that per year that actually kind of applying, go through this process,

pay this fee, which is a lot, right? Like a thousand projects, it's probably not a thousand, you know, legitimate token projects today. I think that probably significantly less or fewer. Not yet, right? But if you, if you think about tokenized securities, right? And, and, you know, what that market might look like over time. You know, the endgame for us, you know, Edgar is an inferior system, right? So if you were able to automate accounting and disclosures via smart contracts long term for all types of securities and all types of, you know, new, new types of programmatic assets, smart assets, then that becomes a very, very large market. And the whole concept of doing like a 10K or a 10Q becomes laughably obsolete because information is available and, you know, basically real time. Yeah, I mean, I guess where I was sort of leading to was that, sure, right, like the market can grow enormously

security tokens and then also this kind of volume can grow enormously. But if you think of the security of this registry as this central self-regulatory body, and if you see that as being kind of protected through game theory and through the value of this token, then it seems like it's a sort of disproportionate knowing that the value of this token, the volume that's coming in in in a transaction piece, is going to be. very low compared to, you know, the massive, massive potential benefit that could be had in gaming the system, you know, if it actually gets that standing? Well, you know, I don't think that the $25,000 is static either, right? So to your point,

if this becomes a critical piece of market infrastructure, the token holders could ultimately vote on raising the fees, or they could vote on, you know, adding an annual assessment. to projects that want to continue to be on the registry. So it becomes recurring. They could ultimately add other types of credentials that they'd like to see, right? So FINRA has, they charge fees to the broker dealers themselves annually,

but then they also do all the credentialing for the brokers, right? So do you verify personnel that are in certain roles or certain positions within the industry? So I think there are many ways to kind of get there, but the back of the envelope math is, you know, if long-term you get, you know, there's 2,000 projects paying $25,000 a year, that's $50 million in network revenue. That's a lot, right? And that's a hell of a lot more than just about any other, you know, crypto-economic system right now. And if you kind of use traditional valuation metrics,

I don't think that this is a security because the token holders would be the ones doing the actual work in exchange for earning those network fees. But you can still look at it like an income producing asset and that kind of right-to-work token. I don't know what the multiple is, but you assume that's pretty high margin revenue. That could be a multiple of 20 on that. That gets you to like a billion-dollar network value for a token. token that isn't just backed by error, right? It's like actually backed by real economics that are flown through the system. So that's what I think gets us like super, super excited is, you know, in a world where, you know, this replaces traditional reporting frameworks and you can actually

bootstrap the network and develop critical mass and get to kind of the critical part of the yes curve you need to get before it really takes off, then, yeah, it would be very, very, very very valuable as a public good, number one, but also very valuable financially because the system was well designed and the incentives were aligned. Does it start as a billion dollar network token? Of course not, right? And so that's why, you know, when, you know,

as we build this out and we think about like who the next partners are gonna be, it's gonna be significantly lower than that. But you know, the flip side, and I always add this as a caveat, because I've been, I think, very outspoken on ICOs in general, None of our natural users are individuals, right? They're all institutions, whether you're talking about the projects that are applying or the entities that are facilitating resale or, you know, kind of this whole economic boom.

They're all almost by definition accredited investors based on their size. So we actually don't need to worry about a lot of the like pump and dump type of schemes, I think, because I have no interest in, you know, letting this trade publicly. anytime soon. And we would only roll that out very carefully over a multi-year period. It would be an extremely exciting public good, and I hope it will exist. So I'm keeping my fingers crossed for you. So I would also love to understand a little bit how this token-created registry, which my understanding is just kind of the central idea of Masari, fits in with some of the other things that you've worked on. So, I mean, there are these reports on projects created by the community. And of course, that very much fits into, I think, with this

reporting. But then there's also Misari.io, which you've recently sort of touted as the, you know, front page for crypto. And you said that it was going to be a CoinDest competitor. And then you also acquired on-chain effects, which is something a bit similar to a coin market cap, though I'm sure you think superior. So how does that fit together? Well, I don't think we want to build an editorial desk, number one. So not quite a Coin desk competitor, but former Coin desk managing director competes with Coin Desk is always a sexier title than another blog pops up. But I do think that what we're doing on the curation side is super important and interesting just to help people kind of filter through the noise. And the way that I always look at content is that it's an engagement mechanism, right?

it's marketing. So I don't think that there's much that's interesting for us to do on the kind of content curation side other than continue to drive eyeballs and engagement with Masari as a brand, to drive people into our community to help solve some of these communal research problems. And then ultimately to get projects on board with the idea that we should be kind of the initial maintainer and curator of this information with respect to their disclosures. because a very natural question for a project, now fortunately, I've been around for a while, so a lot of these guys know me,

which I think gives us a good head start. But a natural question is, why are we gonna make all of our disclosures with you when no one visits your site, right? Like, I want to make sure that if we update this information, it kind of percolates out to 100 different data services. And so, you know, it's about kind of brand community engagement and also just audience development

and making sure that we have, that essentially every single data partner within the industry that might wanna build on top of that disclosures library and actually pull that information as a single source of truth as a base layer, that we're very visible. Because what we're trying to do is kind of build the low,

like the base data layer for crypto. And so to your point about on chain FX, you know, you've got kind of curated analysis and news that you can categorize by sector, by asset. And then you have all of the quantitative information about these projects and all of the kind of like on blockchain information. And that gives us two really important touch points. One is with all the exchanges and all the relayers as decentralized exchange gets, you know,

more important. And two, you know, in order for us to make the the TCR reporting seamless, we actually have to build quite a bit of on blockchain infrastructure where, you know, we're actually spinning up network nodes and like Ethereum is a great example, right? We need like a really strong Ethereum infrastructure. so that we can seamlessly pull all this information from the RC20 assets. And ultimately, as we build our library

or others build on top of our library, it's trivial to add kind of snippets of code to a token's wallet address and automatically disclose that information into our database via some type of hash. So all of the quantitative, more rigorous stuff that we're doing related to blockchains is kind of, and all of the work that we're doing

on curation is, you know, kind of a method to the madness to ultimately get us to the end goal of of this disclosure disclosure's library. And I've written about it as well, right? It's part of a flywheel. So do I want to build a media site? No, I already did that once. I love the coin desk people. I hope they do very well. I'm not building another media business. Do we want to build a community? Of course. The community is not going to be a social network. It's, you know, a place to learn. for us to bootstrap and kind of coalesce people around a common mission. And we'll certainly add tooling there. But, but, you know, really the more important thing is this last piece of the puzzle,

which is how do we build a data layer for crypto and then data services on top of that that make this asset class easier to understand. But it's a great question. It does, it does look, you know, and I've gotten this, you know, from, you know, even some of our investors, they basically said, oh, like, I think there's a little bit of brand confusion right now in terms of what you guys are doing. And, um, And part of me is, you know, you always, you always don't want there to be, you know, confusion about your brand or, you know, particularly about any misalignment issues. But, but there's another part of me, which is like, okay, that's fine.

Like, you know, let's let's get all the pieces in place. And then when we're like really ready to hit the go switch, you know, we'll kind of like unveil everything and it will all be beautiful and it will make sense. So that's always a delicate balance. But you're asking the right questions and, you know, hopefully that helped as an answer. Yeah. Absolutely. Now, I would be curious to hear a bit about, you know, what's the timeline here? So what do you think is going to happen in the next, you know, 12 months, next, you know, 24 months?

Yeah, so, you know, we're actively working with a number of, you know, high-profile projects now on getting them on board as the kind of initial registry participants. And, you know, in nature of the beast and doing any decentralized network launches, it's got to start centralized. So we are, you know, certainly starting as the central maintainer and arbiter of who's going to get onto the list. But we're trying to make it as open access as possible. So, you know, I obviously, you know, know, know, some of the older projects, just, you know, by virtue of how much smaller the industry was five years ago than it is today. We want relationships with, you know, every single project that's launched, private and public. And we want to be able to start, you know, assessing, you know, whether they're interested in joining and, you know, kind of who's going to be part of the initial list. So a lot of it is kind of political and BD driven right now.

And then our engineering team on the back end is building the user flows, the application infrastructure, and then ultimately the blockchain mechanics themselves that can make all this, you know, kind of work together. Great. And now community, you mentioned community. And I think right now even these reports, right, are community created, community created. So people who want to, like, who are you looking for? And how can they get involved?

So another thing that I found is pretty difficult. You know, I've seen other research communities where you go to their telegram group and their telegram group has 40,000 people. And it's just like when moon, when ICO, when airdrop, you know, like, it's just a bunch of like bullshit and completely counterproductive. So our community is actually pretty exclusive and restricted.

And it's still just kind of volunteer contributors. It's basically hobbyists and, you know, folks that are doing this research in their spare time anyway. And they, you know, want to join to actually learn about, you know, the fundamentals and kind of inner workings of these networks, not to like pump and dump and kind of talk to their own book. So it's a lot of analysts, a lot of kind of young computer science grads, a lot of investors, you know, academics, but there's about 150 folks in the community right now. and we're probably going to get that up to 500 by the end of this year without kind of sacrificing the quality of the conversation. So it's, you know, we do actually have a high bar. You know, we, you know, certain folks that we already know or that have a certain standing in the industry that have kind of proven their bona fides as a, as an investor or an analyst or what have you, you know,

we kind of invite just based on knowing their credentials. But then, you know, we also try to keep it open access where if someone's an up-and-comer, they can actually submit an application. you know, token pitch, give us a writing sample, and we can kind of go from there. You know, the goal is to make this open and accessible to anybody on the contributor side of things, but until we've actually built all that like Wikipedia-like permissioning and infrastructure, we have to centrally manage it, and it's just a bandwidth issue. So we have an open application that anybody can check out if they'd like to join the community. Okay, well, we'll definitely put that in the show notes.

And it's the idea down the line also that maybe people, who do that work and get some token distribution from this creation token? Or is there some incentive model around that down the line as well? Nothing for the foreseeable future. I would love to find a really smart way to do that. I don't think anyone's figured it out yet. It's not our core focus. So we kind of take the approach that we're all in this together. Anything that's contributed, by the analysts will never be resold by us. It will always be open and free. To the extent that changes in the future,

we would only change it if we could actually, you know, financial, you know, share the financial spoils with the folks that have worked on early in the community. So I'd say like hard no for the indefinite future and I don't want to like mix the message or, you know, have, because this is always a thing, right? Like, oh, there's like a little bit of like, you know, wink and nod.

It's like, oh, we're not going to help. you and we're not going to pay you, but wink, wink, wink, nod, there may be this light at the end of the tunnel, this like magical air drop or this, you know, this token that's like, you know, monetary incentive. And I am, I am very, very reluctant to, to get anywhere near that. It's, you know, let's let's just start with the assumption that no one is ever getting paid anything. And this is like you, if you're interested in joining a community of, you know, kind of like-minded people, then, you know, welcome. Let's, let's like build some cool shit together and, and help solve some of these information problems. But if not, and you need to be paid for your work, totally understand,

you know, come check in with us when we're in a position to do that. Okay, I guess there's one last question that we must cover. I realized, especially since we're talking about, you know, disclosures and, you know, and financial interests and all. So what is the business model of Missouri? I mean, presumably you guys will keep some of those tokens, but is there, is that the case? And is there something else as well? Yeah, so we should be one of the initial validators of who gets on to the registry, but we have ideas for how to basically force competition and ensure that there are other validation services that emerge and basically compete away that side of the business from us. I hope that we'll always have some share of it, but I don't think we want to be 100% because that defeats the whole purpose. And if we assume that that market materializes over time and becomes, you know,

tens of millions of dollars per year, then, you know, that's a pretty, you know, healthy, healthy revenue line for us. We are going to unwind the tokens over a multi-year defined period. But how exactly that splits is something that we're kind of, you know, stress testing and, you know, peer reviewing right now. But of course, there will be, you know, some reward element that accrues to us for launching and incubating the network. But there is kind of a defined exit strategy.

So, so, you know, we would have to liquidate over a certain course of time. And then finally, you know, I think we've always wanted to build a data business. And this is just, I think, the first kind of critical missing piece of infrastructure. If we can bootstrap this public commons, there are 50 different value added services we could build on top of that. That are, you know, completely different business lines for all kind of in the data service business. Right. So whether you're talking about on blockchain analytics, whether you're talking about better trading tools or or you know, kind of business intelligence tools for, for, you know, professional investors, whether you're talking about reporting tools or kind of treasury management for the projects themselves or if you start to kind of verticalize and look at some of the most exciting networks and say, oh, we can make a really interesting solution here or even get into, you know, investment services, you know, in a sense. sub-market, right? So, you know, one could be, you know, if auger takes off and we have, you know, a massive advantage on a data processing side in terms of like which auger prediction markets we

should make, you know, maybe we decide to become a market maker in one of those sub-markets, or, you know, decide to, you know, start, you know, staking pools for, you know, a variety of other, you know, token, you know, based markets. So there's a lot of different directions a week ago, many, you know, almost all of them make money. So, let's solve like the here and now problem. And, and, you know, over time, you know, we want to do this the right way. So. Right. Although I guess that is going to be an interesting, you know, also potential conflict of interest there, right?

Because people often criticize this foundation structure that Ethereum used to do the fundraise. But personally, I actually think it's a good structure because it does have this, you know, funds raised through a token sale, have like a designated purpose like there's like actual checks and balances that they're used for that you can't like build a for-profit business like with the same team and the same like here you do have much more of a blurry boundary I guess how do you how are you planning to like manage those the tricky situations that can arise so let's say somebody wants to build a business on like a validation business but you guys who are running the protocol also building one is.

Yeah, so here's maybe the easiest way to think about it, right? And we've thought about what the default should be. But I think here could be a pretty easy and fair way to do it, right? On the one hand, we have all these tokens that we're going to unwind over time. And I would say any tokens that we have that we don't distribute are non-voting. So we should never be able to vote our own tokens and provide validation work, right? So yes, we could sell them, we can distribute them strategically over a period of time, but we're not actually going to be able to vote.

vote them. So then the only voters in the system are the ones that have actually, you know, acquire tokens from us. And the tricky part is not all of them are going to necessarily want to do the validation work. So we should also be the default validator at first. So we have 100% market share on validation from on day one, right? And that's a problem. But one way that you might be able to solve it and kind of compete away our business immediately is to tell the, to tell the token holders, hey, you must vote. If you don't vote, you'll lose your stake.

By the way, you can also delegate your vote to someone. And you can delegate to some kind of third-party validation service, of which we're the first. But if you don't vote and you delegate to us, we're going to take 100% of the network fees. Like 100% of the rate, you basically get no dividends, and you essentially just own the token. And if it appreciates in value, then, you know,

that's where you're, economic come in. What that I hope would do is the fee market materializes is give other validation services an opening to say, hey, we're going to come in in exchange for your voting power. We're going to provide the same quality of service, but we're going to rebate back to you 50% of the fees that we make. So any rational token holder would say, well, Masari is great, but to prevent them double dipping and to ensure that we have kind of a nice distributed validation framework and so that we can actually earn better fees, we are going to delegate to these other guys. So, Masari, you've just lost our boat. Sorry.

And I think, you know, what would happen in a scenario like that is you'd ultimately have, you know, three or four, you know, kind of a handful of entities that would compete for that business and you'd have some market equilibrium for what the fee sharing structure should be. and then ultimately, you know, kind of go from there. So, and there are things you can do around like liquid democracy where, you know, maybe even the validators kind of share applications. It's not quite so concentrated, but, you know, it's one of the first things that we're thinking about decentralizing

and mitigating those conflicts. And I think we've got some good ideas, how they work in the wild, we got a stress test first. Yeah, that will certainly be interesting to see. Well, Ryan, thanks so much for coming on. It was a pleasure talking to you. Thank you very much. Have a good one.

And thanks so much for a listener for once again tuning in. So we're, of course, going to have links in the show notes to Messari's website, On Chain FX, some of the blog posts written about it, as well as the place where you can make an application. If you want to become a contributor, a community member, and help them make these reports much more plentiful and, you know, well documented. So, you know, check out for that. And, you know, thanks so much for joining us.

We put out new episodes of WebCenter every week. And you can, of course, get them, on all your iTunes, SoundCloud, or any podcast application, or on video on YouTube.com slash episode of Bitcoin. So yeah, we look forward to seeing again next week.