Odd Lots - This Is the Vision for DeFi Built on Bitcoin

Episode Date: July 1, 2021

There's a lot of hype about so-called DeFi (decentralized finance) these days, and much of it is based on enthusiasm over what can be built on Ethereum. Ethereum is seen as easier to build on for multiple reasons. But the Bitcoin world is increasingly interested in some of the same mechanics and similar types of projects. On this Odd Lots, we speak with Alyse Killeen, the founder Managing Partner at Stillmark, a Bitcoin-focused VC fund, on what's being built there, and how its vision of DeFi is similar and different to what's being built on Ethereum.See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Oh, and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. So, Tracy, you know, it's been obviously an incredible year for crypto overall, for Bitcoin, for a bunch of things going on, Ethereum, DFI, NFTs, etc. but I feel like in some sense, some of the narrative enthusiasm has moved away from Bitcoin, at least feels like it in the last few months.

Oh, absolutely. I mean, part of this, I think part of this is because obviously you and I are in financial journalism. We're talking with people who are in the financial industry quite a lot. But it feels like the enthusiasm from traditional financial players, you know, I'm thinking bankers and traders, that has squarely moved on to. defy to things like Ethereum, to places where there seems to be a lot of innovation and a lot of changes happening around what you can actually do with the technology and with a wider pool of crypto. Whereas like, I got to say the Bitcoin maximalists, sorry, you got me going now,

but the Bitcoin maximalists are sort of like, they've turned into the like the gold bugs of the traditional market, right? Like everyone kind of makes fun of them a little bit. They seem a little bit old-fashioned and they're kind of just like watching while all this new stuff happens around them. Yeah, that definitely seems like the popular narrative. You know, obviously there's a lot of adoption overall or interest in Wall Street. And I think the story is like, yeah, Bitcoin's cool and it's a good, like, you know, it's a store of value. And if you worry about inflation, then buy it.

Or if you're an emerging market, it'll hedge against currency collapse or something like that. But if you want to do anything that's sort of like very familiar to people, on Wall Street, like trade derivatives or create things that resemble equity or debt or anything like that, then they're all like super hyped on building on like Ethereum or Solana or something like that. Like that is sort of like where the zeitgeist is right now, I would say. Yeah, absolutely. I guess you could boil it down to an open question of whether or not crypto is sort of outgrowing Bitcoin and whether or not you can have this massive crypto slash finance ecosystem that's built on an asset that's ultimately supposed to be relatively static

and in limited supply. Right. And I think there's actually two things, and we're going to explore them today, but there's two things that I think. Like, one is there's a perception that it's harder to build on Bitcoin, that like it's not, you know, because it's designed to like do one thing, it seems very, very well, which is be this like secure store of value. It's not easy to build on. That's one perception. And then I think there's like, a question of like, do people want to build on Bitcoin or do people want to trade on? Like, it's not obvious to me that a lot of the D5 stuff and, you know, earlier in the week, we talked to Tom Schmidt about, you know, yield farming and all that stuff and, you know, automated market

makers. It's not obvious to me that like the people in the Bitcoin world like want those things, whether there's really an appetite or an interest for all that speculation and trading. Yeah, totally. I mean, it goes back to. the sort of gold bug analogy that I was just using, right? But I think it's also about who those people are and this idea that Bitcoin is very, very decentralized. It's not led by any single person. So even if Bitcoiners decided to make changes to the overall structure of Bitcoin, which they've done previously, but it becomes very, very difficult to reach agreement. And then it becomes very, very difficult to actually do. Whereas with something like Ethereum, you kind of

have, you know, a figurehead in the form of Vitalik who, like, can help with some changes and help the thing actually adapt and get to the place where people agree that it wants to be. It just feels like two very different communities. Definitely so. So that is the sort of perfect setup to our guest because we're actually going to be speaking to a Bitcoin maximalist, Bitcoin, not crypto. And she's also a believer that all of these things, all this DFI stuff that people are hyped about that it will eventually all be built on top of Bitcoin and that it is more than just a digital rock or that it's more than just digital gold. And so we're going to sort of like get this perspective. Like what is like, okay, like we sort of, a lot of people accept that Bitcoin has the

store of value properties. Is there more that can really be built on it? So I'm very excited to learn about where that is going and to hear sort of like the counter narrative of what's going on. So I want to bring in our guest today, Elise Kaleen, she is the founder and managing partner. at the VC firm Stillmark, which is only Bitcoin focused. They buy equity, take equity stakes in Bitcoin related companies. She is on the board of Blockstream, which is one of the sort of like biggest builders of Bitcoin applications, mainly if its employees, contribute substantially to the Bitcoin code base to its project. So Elise, thank you so much for coming on Nodlots. Great. Thank you for having me. There'll be a fun conversation, I hope.

Yeah, I'm really excited about this because, you know, we set it up. We know what the narrative is. You know, actually, before we sort of like get into like the defy stuff, I mean, we sort of talked about how development on Bitcoin is perceived to be difficult and or slow. It's conservative. But actually, Bitcoin did just have a pretty substantial update to the technology of the network, something called Taproot. Can you sort of describe, like, what is this new thing that's going to be, that's being. implemented, I guess it's going to be implemented in November. But what is this new thing? What's it going to enable us to do with Bitcoin? Well, Tabrate does quite a bit, but one of the things that it does that's most topical for where the cryptocurrency, you know, sort of memes have emerged in this market cycle is that it creates efficiencies that are relevant for smart contracting, both at the

base layer and at higher layers in payment channels, for instance, like Lightning Network. So that's exciting. Taproot is, will activate in November and not only will it have an impact on privacy, scalability of the core protocol, but it'll also impact, like I said, opportunities in smart contracting. And it will allow us, it'll sort of set the stage for future upgrades like any prev out, which has relevancy for other sorts of increased functionality at the lightning network level. And that's quite important because, When we're thinking about defy in the Bitcoin space, we're thinking not just about how that's relevant to traders, but really how it's relevant very broadly to billions of people, not hundreds of thousands of people. Taking a quick step back to set context for the conversation, Alt-D-Fi, so what we see happening in the Ethereum or Alt-coin space, what's been called Defi now, there's about 100,000 participants in this space, and those are high. highly engaged participants, sure, but it's quite small. And in terms of cultural relevancy or impact, that will be very limited. What has been frustrating, I think, for folks operating in the Bitcoin space is that I suppose it feels like it's in the background, but in fact, it should be, in my mind, in the foreground,

which is that Bitcoin has been building a breadth of decentralized finance tools that are relevant not just to traders, but to folks in emerging markets like El Salvador, and just to folks very broadly. And so we, you know, we're not, we're really not limited and also not prioritizing Bitcoin's relevance to traders. We're thinking more broadly than that. So I, Joe, I want to, you know, maybe kind of push back about one of the ways you characterized me at the talk. So you said, you called me at Bitcoin maximalist, which I think is a compliment. but probably not. I did.

I meant it as a compliment. I meant it as a compliment. I understand. So I appreciate the compliment. But, you know, it's not where I, I think of myself more as a sound tech maximalist than as a Bitcoin maximalist. And what I mean by that is I'm really looking at protocol level at relevant infrastructure. And what that means for sort of the security and stability of technologies as a platform.

So my background in venture, I started in venture about a decade ago, making investments in emerging techs at the time, like cloud networking, data center software, cybersecurity, foundational sort of technologies. And I found Bitcoin in that sort of mind space. And so I saw Bitcoin first as a protocol as a technology that would be a platform for the proliferation of a new sort of app ecosystem. system. And, you know, in that way, I approach it really as a sound tech maximalist, not as a Bitcoin maximalist per se. I also spent time in 2013, 2014, looking at altcoins. I think that I was the second or third maybe BC to do diligence in the ICO space even. So, for example, the second ever ICO was for a company doing decentralized storage. And I know that the firm I was at the time,

Clearstone Venture Partners, and through my leadership, did deep diligence on that opportunity. And really what we found, the conclusion that we came to was that that sort of setup didn't require a token, that there wasn't a need to incentivize use of the software with a token. And, you know, I think that generally speaking,

I've found that that conclusion holds true across projects. So it's not that there's any sort of religion against other cryptocurrencies. It's just that there would need to be a value proposition in that cryptocurrency of digital asset that goes beyond just its use for trading. Don't feel bad about Joe calling you a Bitcoin maximalist because he calls me a silver bug all the time. And it's not true. So he has form in this. So, I mean, just on that point, I do think there is a perception out there that Bitcoin is an older technology.

And I know it feels a little bit crazy to say that because we're still supposed to be in the early innings of everything crypto. But, you know, if you look back, like it is more than a decade old at this point. And you have had newer crypto protocols come on stream since then. So you can see why people would say, like, oh, this is making. maybe technology that is slightly out of date or it hasn't been purposefully designed for a specific use case like a defy scenario or some sort of other trading or financial use. Could you maybe dive into that a little bit more? Like, what is the technological difference between Bitcoin and everything else out there?

And what is it in your view that makes Bitcoin suitable to doing new things when I think other people instinctively will say, well, it's older and it was designed for a very specific use case. Right. So most important to note is that Bitcoin really is a technology play first, whereas Ethereum and other altcoins feel a lot to me like a marketing play. And so Bitcoin is a technology play. Bitcoin starts with the presumption that security and stability of the network are first most importance. And so Bitcoin's history is one of prioritizing just that. And what that means is that the end result of that is that Bitcoin, the cryptocurrency, can be a store of value. It's the first true digital scarce resource that we have sovereign access to. And Bitcoin,

the protocol, of course, is a public and permissionless sort of ledger system that operates in a decentralized manner. And all of those things are necessary to establish Bitcoin as a store value. So Bitcoiners' assumption is that that's what's most important. And after you've established that and have a history of that being true, then you can go and add functionality at the core protocol level and at layers built on top of the core protocol. Now, Ethereum and alt coins, other alt coins were introduced really to sort of propose that novel functionality could be, could attract a new audience. And so they start with functionality. And the idea was that they would then migrate to sort of secure perhaps more decentralized networks.

And we see this with Ethereum, right? So Ethereum has been for quite a while planning for a state of Ethereum 2.0 where the network is secured not by proof of work, but by proof of stake. And, you know, I propose that that's sort of almost a wild thing to do when the network has billions of dollars of value on it, to think about then switching what secures that network and that value, you know, to me feels sort of risky. And, you know, I suppose that's why I find myself, one of the reasons why I find myself in the Bitcoin space is because we,

Bitcoiners, or at least the folks developing at the core protocol level, respect that there's billions of dollars of people's net worth that's secured by this protocol. And that comes first. Functionality comes second. So one could argue that it's like, okay, One thing I don't think anyone doubts about the sort of Bitcoin world is that focus on security. And there's probably rightly an extremely conservative development mindset of not rushing in any changes.

Never, I can't. It's hard to imagine Bitcoin ever doing anything radical, such as moving from proof of work to proof of stake, anything like that. But in theory, it seems like there could be a spectrum where it's like, okay, you have like security and stability at one. end of it and you have innovation and ability to build on something at the other end, and you sort of could, in theory, move the dial towards the other end. You know, it seems as though, it's not that big from a sort of actual numbers, but it seems as though there is a lot of interest in the type of defy applications that are being built on Ethereum. There maybe aren't that many people doing it, but there's clearly a lot of money. Billions are flowing into the space.

Just today, you know, we heard that Andresen Horowitz has raised a $2.2 billion fund. I presume a lot of that is going to be in this sort of like defy realm, probably not all of it. So it appears, though, that there is this sort of like momentum and mindshare that Bitcoin is missing right now. So why aren't people being attracted to building on Bitcoin or why are these people so excited about building on a different platform? So I think, you know, it feels like you're repeating back to me, fud spread by Ethereum or Ripple or other folks and other protocols. Just to be fair, like, this is literally, I'm not criticizing Bitcoin. I'm saying, like, this is literally like what I observe, like the Andresen Horowitz,

$2.2 billion fund and so forth. Like, my question is not what's wrong with Bitcoin or that there's something that is insufficient about Bitcoin. The question is, what is it that Bitcoin is evident? missing that so many people are looking to build on a different platform. Okay, so a couple things. You said a couple things there. I'll try to hit all of them. So you talked a little bit about the attention shifting to defy this space where 100,000 traders have permissionless access to trade sort of the long tail of assets that they might not

otherwise have access to, and they can do that without having to go through a KYC process. And, you know, it's also interesting to see folks making money in a quick way, and it attracts media attention. Now, on the Bitcoin side, what's been happening is that Bitcoin has been declared a legal tender in El Salvador. We've seen the folks in El Salvador use Bitcoin on a day-to-day basis by using the Lightning Network, specifically in Beach communities in a community called Bitcoin Beach. We know that Bitcoin is held on the balance sheet of multiple public companies, including Tesla, which is on the S&P 500. And Bitcoin has been growing in terms of adoption at a more rapid clip than the Internet did at a comparable time. So there's quite a bit, it's really active time, a really dynamic time in the Bitcoin space in two ways. I talked just a moment ago about how active adoption is and the breadth of the breadth of the time.

of adoption. So we see enterprise, we see countries, we see municipalities, for instance, Miami. The mayor of Miami, Francis Swares, has talked a lot about how the city feels it could benefit from the use of Bitcoin, the asset, and Bitcoin the technology. There's other cities and other countries that have indicated they want to be second movers and are in the planning stages. I'll take a conservative position to propose that that's probably much more importance than the introduction of trading tools for tens of thousands of folks. But perhaps the media runs behind it a bit. At the same time as adoption has picked up in the Bitcoin space, we've also seen really an explosion of technical advancement in the Bitcoin space. So that's both at the core protocol level,

at lightning network level, and inside chains. I don't know. I suppose it's disappointing to me to hear that it feels like those, that sort of work has been overlooked, you know, as a result of the hype that exists around, you know, Altcoin defy. That said, though, there are founders building products that replicate the best of what's found in the, quote, defy space in Ethereum now that will be built in the Bitcoin space on side chains, you know, by the end of the year. So there's projects launching by the end of the year. And I want to cover that too. But you also mentioned the funding environment for, you know, for DFI, for Ethereum, for altcoins. And I, you know, I want to acknowledge that as being something that is certainly true. And I think one of the,

I don't know, maybe disappointments that I've had and how the cryptocurrency space has matured, I think that there's certainly been, there is today and there historically has been a missed allocation of funds and of venture funds into the space. And I think that's because, you know, there's, of course, an appeal of quicker liquidity. And what we've seen with the introduction of tokens is that you can, instead of there being a standard venture cycle of, you know, seven to 10 years where funds are waiting to realize returns that it's just a much quicker cycle where you can get returns in 18 to 24 months, maybe shorter than that. And you can get returns that are of equal magnitude as you see for successful companies that are taking 7 to 10 years to exit to the

public markets or through acquisition. And of course, that's appealing. And what I hope will happen as more time in the space accumulates, is that folks will start to ask really what's producing those returns and be cognizant of, you know, the dynamics that exist in an 18-month cycle that we're seeing. So maybe now is your chance to sort of rectify this misallocation of capital, as you put it, but could you maybe talk to us about some of the projects or changes? that Bitcoin is currently undertaking and, you know, get us excited about it. Like, what is it that people should be paying attention to when they look in Bitcoin other than the store of value proposition, which everyone seems to have been focusing on lately? Right. Of course. I'd love to.

So the Bitcoin, everything that's possible in other protocols is possible on Bitcoin, but also more. And the reason why there's this also more addendum is because Bitcoin's decentralized, which means that things that are built on top of it can also be decentralized. You know, while we can call what's happening on Ethereum defy, decentralized finance, that sentence should end with a question mark because if the base layer itself is not decentralized, I'm not sure that anything built on top of it can be. And so that's the opportunity for Bitcoin. And we're seeing that emerge.

and applications be live that represent that opportunity today. So an example, including with protocols built on top of Bitcoin, so an example of that would be Lightning Network, and examples of products being built on Lightning Network, are products, financial chat products, for instance, like a Sphinx Chat. And what Sphinx Chat is is sort of a level three technology, a layer three technology, excuse me, that takes advantage of the infrastructure of Lightning Network,

to create this Bitcoin native financial chat opportunity in which both messages and Sats, Bitcoin Sats, are sent through lightning nodes in this sort of distributed network. You can also make and receive calls in the same way. And one of the things that we've seen be built on this layer three is communities around content creators. A first example of that are these podcast communities. And so we will see podcaster gather their audience on Sphinx Chat, create streaming podcasts that are paid in streaming stats back from their audience members. And these sort of affinity groups emerge to take advantage of the opportunities that are unique to the decentralized network of Lightning Network and Bitcoin. That would be a sort of competitor to something like a WeChat, where the opportunities are different,

and the dynamics of participation are different. It's not permissionless. It can be permissionless in Bitcoin, and so we see folks like Sphinx Chat taking advantage of that. Now, to talk about some of the development in the side chain space, maybe I'll start with stacks, which is a side chain, a layer one side chain. They define it as in the Bitcoin space

that has fully functional smart contracts live as of January, of this year. We're seeing contracts of up to a billion dollars in aggregate commitments be present in that environment. Recently, it was announced that there's an accelerator built to fund companies that are building in the Stax ecosystem. You know, I think that my expectation is that we will see projects like a Uniswap-like project be built in a Stax environment. Joe mentioned that I sit on the board of directors at Blockstream. Blockstream also has a side chain called Liquid Network, and we're seeing similar sorts of activity there as well. The opportunity of side chains, of course, is that you can leverage the security of the Bitcoin network while also introducing novel

functionality either ahead of its introduction on the Bitcoin network or in lieu of it being present on Bitcoin. And Liquid does that. So as an example, Liquid, has smart contracting capability through something called covenants, which just means that you can essentially program Bitcoin. So Bitcoin is programmable money. It is that at the base layer. That's, you know, one of the areas of popular fud that I've seen from this bull market is, you know, saying that Bitcoin doesn't allow for smart contracting. Of course, that's not true. Bitcoin smart contracting has always existed at the core protocol level. But the same, sort of smart contracts that you can do on liquid as well as other side chains take it a step

further and Bitcoin has that with covenants. Now, there are projects building on liquid that will replicate a uniswap like experience. I'll mention one specifically that has recently sort of made their R&D work public and that's a company called BitMatrix. And what Bit Matrix is doing is creating an AMM, an automated market maker on top of liquid, where your transactions, of course, are private and where you can actually trade in a gasless sort of state. What that means is that it's a contrast to the Ethereum trading spaces where you have to buy eth in order to be able to execute a trade that's different in a matrix environment on liquid, where you don't need to own the underlying asset in order to execute a trade

because that sort of settlement happens as part of the trading contract in Bit Matrix. So this gets back to another question. When we started to did the introduction, I mean, first there was this question of like, okay, building on Bitcoin and there's this perception that it's not as easy. But as you point out, sidechained such as liquid or stacks, they do exist. The other question I have is like, do Bitcoiners actually want this stuff? And, you know, I remember like the sort of like the block size fight in a 2016 and 2017. And the question is like, should the Bitcoin base layer be expanded so that it's cheap enough and fast enough to buy a coffee with?

And then lightning came around, came so that you don't, it didn't have to expand the base layer. But it's not obvious to me that Bitcoiners actually want to buy coffee. So even though maybe in theory that you could, you know, I don't think like lightning is like that, it's not that big, it's not ubiquitous. It's like, you know, it's been a few years around. How much does the Bitcoin community care about something resembling Uniswop or care about having NFTs on these side chains versus how much is it just to prove that it can theoretically be done? Well, Bitcoiners are not a monolith, right?

And so it doesn't, I'm not sure, you know, I'm not sure, frankly, that I care. what Bitcoin or that we should care about what Bitcoiners, which I imagine you're mostly referring to folks that are active on social media. I'm not sure that it matters what folks want. The importance of Bitcoiners to Bitcoin is that they are, it's a stakeholder group in a multi-stakeholder ecosystem. So you have folks that use the tech and that's where being present on social media matters, having a voice and representing a community during a contentious dialogue or ahead of a proposed change to Bitcoin Core, that's important. The other stakeholder groups, of course, are minors and then developers.

And everyone has, you know, an equally weighted voice. That was actually Satoshi's, I consider Satoshi's most important innovation was the discovery of a way to inline stakeholders incentives through the introduction. of Bitcoin. What's more important is making sure that we take advantage of what Bitcoin can do as a technology now that Bitcoin as a currency has been established as a store of value and allowing its full sort of opportunity to be realized so that it's not, you know, it's not the tens of millions of users that use Bitcoin today that are defining what Bitcoin is, but it's much broader than that. And that's why my job's exciting because I get to meet with founders that are really

thinking through what Bitcoin means for other communities. And, you know, I think that 2021's best example of that is what's happened in El Salvador where Joe, people do use Bitcoin and Lightning Network to buy coffee. They use it to receive payments for coffee. So I'd push back on the assumption that Bitcoin's not being used for payments. It absolutely is, you know, I use Sats every day in my messaging at because I use Sphinx chat. And I think many people do that. But remember that the activity on Lightning Network is not all public. So we can't, to measure actually what's happening on Lightning Network is, you know, not possible. And to guess at it is difficult because we're not sort of prioritizing our ability to report accurate metrics. We're prioritizing the value that

the system has to offer. And the ability to transact privately. is something that the system, the network, lightning network can provide. And so for that reason, it's hard to measure the activity happening on a Lightning Network. However, that said, in the communities that have received the most attention in the past couple months, like I mentioned before, Bitcoin Beach, we see that Lightning Network is a critical infrastructure to people's everyday lives. I think it starts in El Salvador. door. And we've already seen countries signal that they want to be second mover here. I came into the space in 2013, really because I saw Bitcoin as fintech for the unbanked or underbanked. And so my

hypothesis then was that we would see adoption in emerging markets before we saw, you know, significant penetration in developed markets. And so, you know, I sort, I, I, I, I, I suppose that I expected to see countries like El Salvador adopt Bitcoin, and I'm happy that there's companies like Goloi or strike that have made sure to think about how what they've built is relevant to people that are, you know, outsiders, basically to the traditional financial system. So I don't know if this is a question that's actually possible to answer, but one thing I was wondering is we've spoken about the perception that it is difficult to affect change on Bitcoin protocol. And secondly, we've also mentioned that despite this perception, there have been

changes in the past. So I'm wondering, could you maybe walk us through like exactly how does change happen when it comes to Bitcoin? Like, how do you build consensus since the aligning of incentives is one of the big underlying, I guess, the fundamental things that Bitcoin does. Like, how does that process actually work in practice? Could you maybe walk us through it? That's important. So thank you for reminding me to circle back to that. You know, so one of the defining features of Bitcoin is how changes are introduced. And the fact that it's not, there's no sort of leader that can suggest a change that's executed without community consent.

And so what that does is it creates a system that is truly opt-in versus something that is, you know, in any way coercive. So when Bitcoin is introducing changes like a taproot, that happens through something called a soft fork. And really all that that means is that you don't need to adopt taproot to continue to hold your Bitcoin or to continue to use. Bitcoin the network. So you could be, and I think that lowers the barrier to entry for who can participate, right? Because you don't need to be continually paying attention to Bitcoin what's

happening with Bitcoin developers or any of the sort of rigorous debate that occurs in these ecosystems. You can unplug from all of that and know that you can step away from Bitcoin for five, six, seven years. And when you come back, you're going to find your Bitcoin, there, presuming that you've secured it properly, and that Bitcoin, the promises that Bitcoin made when you came into the system have been maintained. And so what are those promises? It's things like that Bitcoin is decentralized. There's 21 million Bitcoin. The ledger is public and changes, transactions, new transactions are committed to the ledger through secure mining known as proof of work. That's sort of, you know, definitional to Bitcoin, and that's what makes Bitcoin

the cryptocurrency a sound money. The fact that those promises are there. It's not what the promises are. If Satoshi had said it's, you know, 10 million Bitcoin versus 21 million, it's not the number. It's the fact that it's set and fixed. And folks can count on that. So you don't need to be actively engaged. Now, in other spaces, for instance, Ethereum, the way that changes are introduced is through a hard fork. And the community has been, the culture of that has been that the leaders of the community will say, this is a change that we're introducing. It's happening in, you know, in a few months.

It's happening in six months. It'll be happening through a hard fork. And so folks need to adapt to a new software. And if they don't adapt, they're sort of exited from the network because a hard fork is not compatible with its prior software. These are two completely different paradigms. And I hope that the explanation of that sort of presented, you know, why the barrier to entry and to participation in Bitcoin is, is much lower. It's just, it's, you know, I think it's just fundamentally different to the extent that I would almost consider Bitcoin to be a different class of asset than altcoins are.

So I want to actually ask you about a controversy in the question of Bitcoin development. And there is a view that you're on the board of Blockstream. There's all these criticisms, even among Bitcoin or is a Blockstream, that it exerts an extraordinary amount of influence on Bitcoin core development, that there are all their other ideas such as drive chains, which is a different idea for scaling Bitcoin that don't get momentum. because people who work at Blockstream aren't into it. Blockstream has its own side chain company as you already mentioned or project, as you already mentioned, called Liquid. What do you say to that criticism, that there are other sort of visions and that the over-influence of Blockstream within the Bitcoin developer funding a lot of the developers

has sort of cut off avenues of potential development in favor of the Blockstream business model? Well, I think that that's another FUD meme, right? So that argument of Blockstream having more influence in the space than other companies that are operating in Bitcoin was introduced by the leader of another protocol of the B-Cash protocol, I believe. And, you know, I suppose that it can be sticky. But the fact that I'm encouraged by folks critically reviewing the work. of anyone in the Bitcoin space. I actually think that while at times that can be frustrating, including when critiques feel unfounded, like in this case, you know, I think that it's one of Bitcoin's greatest strengths. So when you're in a conversation about development happening in the Bitcoin space, whether that be in an open source protocol or in a private company, the conversation is rigorous. And people are expected to be able to defend their positions, their tech, the tradeoffs they've made in the tech, there's always an ask that you acknowledge

both opportunities and sort of the risk that are inherent in what you're doing and how the core value of decentralization is impacted. And so if folks are to criticize Blockstream on, you know, having more influence in the space than they should, you know, I don't, well, two things. I think we should acknowledge when that's coming from outside the space as a way to attack Bitcoin. And when it's coming from inside the space as a sincere critique, I think that it's an important conversation to engage in. But what I've seen historically is that what people have meant, what the B-cashers meant

when they said that Blockstream had undue influence, they were tying that to its influence on core development. And if you look at the number of core developers in Bitcoin, you know, it's kind of, that critique is sort of laughable because Bitcoin, small minority of those are folks employed by Blockstream versus folks employed elsewhere or, you know, folks that even are anonymous that were pseudonymous that we, you know, aren't sure who they are. So I just want to like sort of go back to like the big picture. And that is, you know, we started this like the premises like people for what, you know, we could debate the size,

we can debate the sustainability. People are, there are a lot of people who, like the sort of like defy stuff, whether it's swapping, like on uniswap, whether it's collateralized lending of tokens, Dow's perhaps is part of it. It obviously has caught a lot of people's attention and it's captured imagination, definitely among a lot of people on Wall Street. Like, is in your view the vision to replicate that, that all of that will be built or can be built on Bitcoin or is like, is the vision of defy on Bitcoin? fundamentally something different? Well, the answer is that both propositions are true. So all of that is being defy the way that, you know, excites Wall Street, the sort of open nature of being able

to trade that's being built on in Bitcoin environments now across multiple side chain products. And my example of that earlier was Bit Matrix, which will be introducing essentially a uniswap like product on liquid. And just to take a quick pause to mention other side chains that will see similar activity, we have not just liquid, but we have RSK, which is an EVM compatible side chain. All of that, all that means is that the same dynamic of smart contracts that are possible on Ethereum are also possible on RSK. Sovereign, for example, is built on RSK, which has, you know, also has automated market maker products. You can borrow, you can lend to earn you. yield. There's liquidity mining on Sovereign. I mentioned stacks earlier. There's also a side chain

called NOMIC, which is a proof of stake Bitcoin side chain. So that's, I believe it's the only proof of stake Bitcoin's side chain. And this team is arguing that by matching proof of stake and its tradeoffs to Bitcoin's proof of work, you can get this nice compliment that is advantageous for a variety of apps. We have RGB. And there's just, there's a whole list of sidechains that are developing in Stilmark, I plan to invest in activity happening across, you know, probably multiple side chains, not just liquid. But then I want to respond to the last part of your question where you asked about how we think about defy in the Bitcoin space. And I think it's really much, much broader than defy for trading. So Bitcoin is defy. And Bitcoin is defy regardless of

how you're accessing Bitcoin, but it's specifically Defi if you've taken control of your own Bitcoin. And so that means if you're self-custaining your Bitcoin by holding a ledger or by using a software provider, a secure software provider like a Kaza, then you're participating in Bitcoin Defi. By the way, Kaza helps secure billions of dollars of Bitcoin through their multi-sig software. And essentially, it's almost like, it's almost like a bank. app on your phone, but it's a banking app where you're in charge of your funds versus the bank. That's Bitcoin Defi. We also see Bitcoin Defi on Lightning.

Maybe if I could just run you through a couple quick ways that Bitcoin Defi exist on Lightning, I want to note that there's multiplex smart contracts on Lightning. So what does that mean? We see automated RevShare contracts on Lightning, so where you can sort of split payments between various recipients and that's part of the transactions contract execution. We see escrow contracts. There will be something called DLCs that are available on Lightning. And really what that can do are things like can introduce things like decentralized options trading.

But it can do even more than that. And one of the things that I think is possible through DefiOn Lightning that is most, you that peaks my curiosity most is the opportunity for things like stable balance channels. And so what that means is that you could have a payments channel, a lightning channel that was denominated in your regional fiat. So for instance, in USDA, without ever having to hold USDA or to hold, you know, a cryptocurrency that was meant to represent USD. Instead, you could just, you could just denominate the channel in USDA through a smart contract that was fully collateralized by Bitcoin. So those are the sorts of things that when introduced, there's

two things. One, you can understand how that could be relevant to a breadth of people, not just in wealthy countries like the U.S., but in emerging markets as well, not just for trading, but for things like remittance, for cross-border payments, etc. etc. So there's, defy is really broad on Bitcoin. It starts with just holding self-custening your own Bitcoin and it goes from there. So we see it at core protocol level when your mom or dad is holding Bitcoin on their ledger. We see it on lightning and we see it on side chains. And so I, you know, my experience of 2020 and 2021 has really been, you know, one of sort of profound respect for the entrepreneurs building in the space because in Bitcoin when you're building,

you're normally doing it without fanfare and you're doing it without seeking, you know, this really sort of like hit and run type of exit, right? And so this isn't, you know, there's no sort of pump and dump dynamics here. It's really founders that are building, hoping to build valuable companies, but in order to get there, they need to create valuable products. that are of value and sustained value for a broad group, you know, not something that accrues value for just for the length of a bull market. That's not enough for Bitcoin founders. And I think that's why you see really exceptional folks building in the Bitcoin space. And on that final note, a couple times in our conversation, you've referenced, I think, that it's harder to build in Bitcoin.

I want to acknowledge that that piece is, that's actually true. So that's one of the memes that you see shot over at Bitcoin from other sorts of environments is that there's more developers in Protocol X or Y versus Bitcoin. But actually there's a sort of missing detail from that that's important, which is that it's, you know, it is harder to build in Bitcoin. The language required to build in Bitcoin is something that's, you know, kind of like more exclusive in terms of the skill set required. And so while you can be a JavaScript developer and build a smart contract in the Ethereum space, that's not true in the Bitcoin space.

And I think we're working towards that, towards sort of lowering the barrier to entry for development. But we're not there yet. So what you're seeing is not that there's 80% of all developers building and cryptocurrencies present in Bitcoin, but you're seeing that 80%, maybe 90% of the top deci-sides. of developers building in the cryptocurrency ecosystem, they're building on Bitcoin. I have one more question just based on all of that. But like we're talking a lot about perceptions and you made the assertion that, you know, defy is Bitcoin. And yet that doesn't necessarily seem to be the popular narrative that's out there. Is Bitcoin losing the marketing more on this?

Or is there something that Bitcoin should be doing differently in order to counter a lot of of these perceptions or attitudes. Well, there's something we could probably do differently that might be, you know, helpful in catalyzing media interest, which is that, you know, Bitcoiners are folks that like to under promise and over deliver. So folks that are building, whether it be at the protocol level or at the app level or infrastructure, are wanting to talk a lot about what they've done. and less about what they think is possible to do. And I think in other sorts of spaces, you see, you know, less of that restraint.

And so it's, you know, it's fun to hear about what can happen in two, three, four, or five years. And if we spent more time talking about that in the Bitcoin space, I imagine that that would probably be a benefit in terms of accruing, you know, like sort of social media or media attention. And I wouldn't mind seeing that. I hope that we did a little bit of that today. I think it's exciting. That's the space that I live in, right? And work in is thinking about how what's introduced in these open source protocols

and how that's relevant for the business of Bitcoin, how that's relevant for entrepreneurs building in the space and what that means our next sort of like five to 10 years will look like. And, you know, I'd love to hear sort of more of that. Elise, thank you so much for coming on Audlaught. That was great. Thanks for having me. Thanks, Elise.

Yeah, that was really appreciated, Elise. Great to finally have you. Likewise. It was great. Thanks, guys. So, Tracy, that was a really interesting conversation. I was thinking back to something, you know, like when we were talking the other day with Tom Schmidt about Defi on Ethereum and like the sort of like the eye popping APYs that they get,

you get for like yield farming. And it's like, get these extra tokens and stuff like that. And, you know, it does. It does feel like, and at least I think really said it in the last answer to you specifically, but it really does feel like there is at some level, even if technologically, some of these things can be replicated, it feels like there is like a very different cultural attitude towards a lot of that stuff. Like this sort of like slower, longer, even in her case, she's talking very specifically about

like, you know, not investing for tokens or anything like that, but like equity in companies. It definitely feels like philosophically, it's still even in the sort of like pure like defy replication, like a very different mentality. I would totally agree with that. And again, this is something I mentioned at the top of the conversation, but you definitely see a lot more banker and trader and finance industry types gravitating towards defy in its current form and not necessarily Bitcoin, which still has this overhang of, you know, changing the world, challenging. the existing financial system and stuff like that, which might not necessarily appeal to that base. So I totally agree with that. Although I will say, like, I have a hard time keeping up with the Bitcoin narratives because they do seem to change quite often.

And clearly Bitcoin means different things to different people. But I would broadly agree that there is a split there. Yeah. I mean, I think like that, like, as you pointed out, like these other like chains that are sort of like built off of like Bitcoin security, they exist already. So, like, there is, on some level, like, you know, if there was a, if there was a lot of excitement or sort of, like, interest in, like, these eye-popping yields and stuff like that. And as she mentioned, there's, like, more of this, like, being built. Like, she mentioned that thing, Bit Matrix, which is going to launch, like the Uniswold clone.

We'll see how much action there is. Like, I'm not convinced still that a lot of the people who are, like, into Bitcoin are into doing more than holding it. Although, as she said, like, you know, in different contexts, maybe different countries, et cetera, maybe some of the dynamics will prove to be different. Yeah. And I'm still very, very interested in that sort of consensus building aspect of it and whether or not you can align incentives in such a way as to, I guess, achieve different outcomes in different things. Because it gets back to that split, right?

Like, it doesn't feel like. No, I mean, there really does seem to be this tradeoff. And she was obvious, at least was, you know, like, it seems like, okay, so like Ethereum, it has like a live existing founder who is an extraordinary. I don't think like Vitolic is a dictator, but obviously has extraordinary sway. But so on the one hand, perhaps development is faster on a network in which one person has a lot of a vision. But on the other hand, you know, as she would point out, you are paying the price of decentralization by having to like trust Vatelic by having to trust his judgment. And obviously, Bitcoinsers place decentralization

and store of value properties, like clearly above everything else. Right. But then, of course, the flip side is it does become more difficult to build that vision and agree on it, I think. Like, I think of anything, like, over the past five years or so, we've sort of like come to appreciate centralized systems. Maybe that's going too far. Yeah. Okay. Can we leave it there? Let's leave it there. All right. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Allo. And I'm Jill Wisenthal. You can follow me on Twitter at the stalwart. And you should follow our guest on Twitter, Elise Colleen. She is at Elise Colleen. Follow our producer, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. And check out all of our podcasts at Bloomberg, under the handle, at podcasts. Thanks for listening.