On The Brink with Castle Island - Alex Treece (Zabo) on Cryptoasset Value Accrual (EP.63)

Episode Date: April 6, 2020

Alex Treece, the president and cofounder of Zabo, joins the show.  How a background in private equity equipped him to think about crypto as a asset class Why Alex founded his startup, Zabo Why there are so few successful examples of utility tokens How tokens sit in the asset class taxonomy Why token value accretion is reliant on an informal contract with the issuer Distinctions between tokens that represent real world securities and natively accretive cash flow tokens which resemble securities Why he's thinks that blockbuster token sales are a thing of the past Revisiting his old prediction that Bitcoin would outperform in a recession

What's up, everyone? This is on the brink with Castle Island. I'm your host, Nick Carter. I hope you are staying safe, healthy, and socially distant. I certainly am. Hopefully this is some entertainment to keep you going through these rather dull times. So this week, we have Alex Trees. He is the president and co-founder of Zabo. Zabo. Zabo is a crypto API company, which is designed to connect to any crypto exchange wallet protocol or account, effectively financial plumbing to tie the whole crypto industry together and make it really easy to get started. Full disclosure, Castle Island is an investor in Zabo. So I wanted to get Alex on the show for a couple of reasons. Interestingly, we co-authored a blog together called Crypto Fundamental way back in 2017, which seems like a really long time ago now,

back when I was just starting to have a public presence in this industry, which was dedicated to effectively unpacking the fundamentals of crypto assets and interrogating why they accrued value, where the value came from, and where they sat in the taxonomy of other assets. So I wanted to revisit a lot of those ideas, given that so much time has passed now and we've had a lot of time to empirically test out a lot of these ideas, which were just hypotheses at the time. So today we talk about why there are so few successful examples of utility tokens, where tokens sit in the asset class taxonomy, why value accretion for tokens is reliant on an informal contract with issuers, and why Alex thinks that blockbuster token sales are a thing in the past. And of course, why he founded Zabo and his journey from private equity to crypto. So without further ado, let's jump right

into it. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of Concentive Easy. You print a couple trillion dollars, and all of a sudden, people started to worry. So out of this worry, we have something called the Bitcoin. So Alex Treese is the co-founder of Zobbo. Alex, welcome to On the Brink.

Hey, Nick. Thanks for having me. My pleasure. Good to have you on. This should be fun. We've known each other for a pretty long time here. You're actually one of the first people that I ever collaborated with in the crypto industry. Yep, absolutely. We've only been, you know, a couple of years, few years, but it seems like a lifetime at this point. So I want to talk about Zabo, but maybe before that we can talk about, I think it would be interesting to talk about how you came to work in the crypto industry, what you were doing before and why you, you know, you chose to throw yourself into this industry.

Yeah, sure. So I've got what most people would probably consider a traditional finance background. I started, I was a finance major in college, and I started out working in investment banking, a firm called Stevens or middle market investment bank. So it's a really interesting job. I was a journalist. I did a mix of M&A work and also capital markets, so buying and selling companies and also advising on equity capital markets, debt capital markets deals. So I got a really well-around an experience there. And then after putting in some time at Stevens, I moved on to private equity to work at the Riverside company. Riverside's a little private equity firm investing in

the middle market, smaller middle market companies. So think about businesses between, you know, 50 to $500 million. It's kind of a broad range. But I was also a journalist there. And, you know, whereas in banking, you're an advisor and private equity, you're an investor. So I took on more of an investment role there. Working with a lot of different industries, a lot of different companies, I was a journalist. So I did some deals in, you know, franchising and manufacturing.

And also looked at companies across just a huge spectrum of, industries. And I think, you know, private equity was a kind of really transform of kind of of part of my career because, you know, I was working with entrepreneurs who were kind of at the end of the rainbow, if you, if you will, in terms of they had started businesses or maybe acquired businesses, things had gone really well. And now they were selling them to us, the private equity firm. And I think if I could sort of distill private equity down to like one thing, it's that, you know, I sort of learned that risk scales better than hard work at a certain point. And if you look at a lot of professions, you know, they kind of had this like linear growth curve where you can sort of input energy and time and you get a pretty reliable, consistent output.

I certainly think like being like a partner, like a law firm or like a private good firm is like that where you're going to work a lot and there's sort of a known output at the end, which by the way is totally fine. I think that's right for a lot of people. But I think I looked at people and, you know, these people in private equity are selling their businesses and I really felt like they had found a way to get out of that. linear relationship and kind of had a step function and I don't just mean in terms of like economics but also you know they built amazing companies and teams and products and that just always really interested me and I always you know really wanted to do something more entrepreneurial and so I started to kind of look outside private equity and in the same year that was leaving private equity 2015 I got interested in crypto and initially it was you know just as a hobby

interest I actually had an article in the economist I remember called the trust machine which is about, you know, like Bitcoin and blockchain. And I heard of Bitcoin. I hadn't thought too much about it at that point. I didn't really have a positive or negative opinion. And then, you know, when I read that article, I just caught me at an interesting time in my life where I was making a transition.

And I was also very interested in technology, obviously very interested in finance. It was just this very nice organic intersection of those things. And so I sort of went down the rabbit hole, as many people do when they first discover Bitcoin or crypto, and started spending a ton of time on it, especially in that late 2015 time. period. And I didn't initially start working in the industry. I, you know, kind of spent time

just as an interest following it. You and I started a blog in 2017 called Crypto Fundamental, where we were sort of musing on, you know, the sort of more fundamental aspects of crypto or what we felt were the emerging fundamentals. And it wasn't really until late 2017, 2018, that I started to see that, you know, wow, this, this industry has grown from being, you know, this place where you can actually have a career and work in it. And obviously between 2015 and 2018, the market grew considerably. And from private equity, I'd always wanted to do something entrepreneurial. So I was doing consulting work for several companies, kind of a crypto capacity.

But when the opportunity came in late 2017 to kind of make the jump to full time, I was all over it, you know, given I was spending basically all my time on crypto anyways. So that's where I got introduced into the industry. And was it the ideological underpinnings of the industry that spoke to you or just the promise to work in a relatively new financially adjacent industry with lots of promise and lots of scope to do interesting new things? You know, honestly, I don't think it was like the ideological underpinnings. I mean, as much as I definitely believe in a lot of that stuff now and it resonates with me, you know, I didn't come at it from like a crypto anarchist point of view. It was just, frankly, it was just the most interesting thing that I could spend my time on. I was just, I was just very intrigued by it.

And I think it was, again, because there was just this very organic intersection of finance, technology, and economics, which were, you know, things I was very interested in, things I had worked in. And, you know, so when I started picking it up, I just, I just couldn't put it down. And, you know, crypto is one of those ecosystems where it's like, it's like a black hole, as you know, as everyone this industry knows, where it can consume, you know, basically infinite amounts of your attention. and there's so much innovation and things happening.

And that just really sucked me in. And, you know, I've been doing it ever since. How relevant would you say your personal experience working in private equity has been to your journey understanding crypto? That's a good question. I would say it was helpful for understanding crypto as an asset class. I think it was less helpful for like starting a company in crypto. I think the reason it was potentially helpful is because in my career, I just worked on so many different things and financial services and all across the cap table and like the capital structure.

So I feel like I had a good understanding of equity and debt and these different types of financial products and how they impact companies where they sit. And so when it's it's been difficult to really understand a crypto as an asset class. I think even now we're still, you know, creating taxonomies or, you know, and trying to kind of figure out what they are, where they fit in, how to think about them. And so that was tough early on. And I think coming out of a finance background and having seen a bunch of different types of products, you know, helped me potentially process it better than, you know, maybe the average person that doesn't have a finance background. I think in some ways, and this is kind of a separate thread, but, you know, starting a company of early station, technology company has a lot of unique challenges that, you know, private equity is very different. I think that's one of my big takeaways is that, you know, running technology businesses is just

so different than, you know, a sort of operational business that's, that's, you know, in like a more traditional market. So I think there's both kind of pros and cons. It's interesting that you referred to it as an asset class. I probably would as well. I think the bias is to view it through the lens of whatever. your specialty is, you know, prior to entering the industry. And of course, you know, there's a lot of folks that would say this isn't about the, you know, returns that can be made or it's wrong to characterize as an asset class. This is more about creating modes for human engagement or new organizational structures or new protocols for moving money around. And it's about building a new tech stack.

Do you think that there is still is some ambiguity about what this industry actually represents what we're trying to do here? Yeah. I mean, as you, I think like you and some others put out some content about, you know, changing narratives. I mean, it's a recursive function. I mean, the inputs that come in actually change the total. And so I think it's changing real time.

And certainly it's changed from the beginning. And it's going to continue to change. I mean, there's, you know, different narratives between assets. There's different narratives. intra asset even for something like Bitcoin. And I think over the next five years, it's going to continue to change. I do view it as an asset class. I know there's a lot of other philosophical and kind of technology underpinnings. And I sort of appreciate those and subscribe to a lot of those. But, you know, I think functionally I view it an asset class because I think a lot of

the world is going to view it as an asset class. And they do view as an asset class. And it's, in some ways, it's a, it's an elegant way to think about it, how it sort fits into the existing financial infrastructure. Yeah, it's not every day that a brand new asset class comes along. I can't remember the last time that there was a new one. Maybe CDOs would have been the last one or sort of bundles of mortgages or something. Yeah, it's an unprecedented time. I think it's one of the things that makes it so interesting to work in this space is that there's obviously some unknowns.

There's obviously some risks, but it's really a frontier technology, which is obviously pretty exciting. So, Alex, you are the co-founder of Zobo. You know, full disclosure, we're proud to count ourselves among the investors in your startup. So tell us a little bit about Zabo what you wanted to achieve when you founded it and some of the progress you've made so far. Yeah, definitely. So Zabu very simply, it's an API. So it's a developer product that we're selling to developers, companies, businesses to help them integrate with cryptocurrency accounts. So cryptocurrency accounts in this context means things like exchanges, but it also means, you know, self-custody wallets, whether that's mobile wallets, web wallets, hardware wallets, or even connecting directly to protocols.

And we're making the data associated with those things, balances, transaction history, deposit addresses available to other applications in fintech and financial services. And so a lot of people are familiar with Plaid and what kind of what they do on the banking side and investments, where most neobanks or digital banks are investment products today, we use a service like Plaid to connect bank accounts. And, you know, if you use Venmo, for example, you're familiar with the process of connecting your bank account to Binmo. So we do that same thing, but we connect, you know, cryptocurrency accounts.

And, you know, it's a really kind of key piece of infrastructure, especially as you think about unification of fintech and traditional technology with crypto. Because today, you know, the problem that we're seeing and that we're kind of solving for is that in the 10 plus years since Bitcoin started, we've had this Cambrain explosion of assets, protocols, and also applications and wallets, that's the application layer.

And there's just a huge amount of technical resources need to kind of harness all these things. And I'd also argue a lot of domain expertise. And so, you know, making the decision, if you're a fintech company, for example, you're doing financial tracking or your tax software provider and you want to, you know, provide functionality to your users, it's not as simple as just saying, hey, let's go integrate crypto because it's a novel, you know, technical architecture.

There's a lot of fragmentation. There's a lot of moving pieces. And so what we're doing is we're kind of taming that, you know, unruly underneath fragmentation and putting into a single platform, a single API. And then also doing a lot of standardization around data and formatting, which, you know, frankly, it sounds unsexy. It's kind of like the back-end infrastructure piping. but when you're building applications that serve users and touch their money, being able to get access to real-time data and having to be reliable is super critical. So it's a really kind of exciting area to be building. I think it's really consistent with this theme of crypto becoming a mainstream asset class. One of the things that we think about a lot in terms of investment decisions is timing in terms of, you know, many ideas are good, but they're too early or they're too late.

You know, especially in the context of startups, lots of startups are building for a world which isn't ready for them just yet. Or, you know, the converse, the market's already saturated and it's hard to differentiate. What was it that made you confident that the timing was right for something like Zabo to exist? and get uptake in the market. Yeah, sure. Yeah, I think it's a good question, kind of faces everyone in this industry and just most startups broadly.

We had run into the problem. So before we worked on Zabo, we were building products in crypto and my co-founder Christopher was, you know, doing open source Ethereum libraries and building smart contracts and other blockchain applications. So we actually ran this problem firsthand.

You know, if you're trying to make any type of direct consumer application that kind of works with this data, or it connects to these things, it's just really difficult. So there was the kind of immediate technical problem. I think if you zoom out and you just look at fintech and financial services generally, what's happening is what we call on our team the fintech distribution complex, which is, you know, bank products are adding investment products, investment products are adding bank products,

you know, lending products are adding banks and investment products. Every financial experience is becoming a financial hub, essentially. And what we've seen is that crypto is starting to tiptoe into this kind of distribution complex. You can see it with Robin Hood offering these sort of mainstream financial services, Robin Hood, Cash App, Revolut, SoFi, you know, on the institutional side, you've got things like Fidelity Digital Assets like T.D. Ameritrade, backed plenty of others. And so we're right, we're basically already past the inflection point where, you know, this asset class is going mainstream, it's being integrated with mainstream financial products.

And but for it to get there, for the remaining thousands of applications, thousands of financial experiences, There needs to be more infrastructure like Zabo, like other tools, you know, that are being built. So I think we're, you know, it's always been tough with crypto on timing. But I think, you know, the market we're focused on at least, is it really about the unification of crypto into kind of the broader financial services industry? And so we're not as relying on something as like, you know, scaling payments, for example. You know, so some of these technical hurdles that, you know, have longer lead times, potentially. I think one thing that people wonder about and there's kind of a mercurial sense in the industry is what the first mainstream app is, what the first killer app is.

And it seems to fluctuate a little bit. You know, one month it'll be on-chain lending. The next month it'll be, you know, NFTs. You know, maybe the month before it was remittances. So there seems to be lots of variance in terms of what people perceive the first breakout app will be for public blockchains. In your experience, is there something you've seen, which you think is the most promising, given that you plan to be the interface between kind of crypto protocols and developers? Or is it still kind of too early to tell? Well, yeah, this is going to sound like a kind of boring classic answer, but I actually think that the killer use case is, you know, Bitcoin as as a investment asset, as a store value, as a non-correlated asset, you know, as digital gold, whatever the narrative.

That's, you know, the data is changing day to day. Like, we're literally finding out real time. Yeah, as the time we're recording this, COVID is going on. And obviously, the markets are a little crazy right now. But I think, I think that's still, you know, the story about people, getting access to this new asset, this new asset class, I think it's still the big story. And it's got a lot of room to run. I mean, I think if you just kind of pull the random person on the street or the random person in the world, there's still a huge number of people that don't know what Bitcoin is. They don't know its value prop. And you can say the same thing for cryptocurrency broadly. And, you know, what I think about and what I get really excited about, even though it sounds boring, is just taking that message and expanding it to a much broader audience and making it 100% available to everybody. And that's the trajectory that we're on.

So I think I would argue that that is kind of the killer use case and you already have killer apps in the exchanges and the on ramps. I think there's a lot of emerging killer apps potentially, you know, defy obviously stable coins. I think NFTs, you know, NFTs haven't picked up as fast as I, you know, I would have thought if you would have taken my pulse back in 2017. I think I probably would have guessed that would have seen kind of more. like mainstream adoption. But I think even that original story of, you know, Bitcoin as an asset class, crypto's an asset class is still really big. And one that's got, you know, a decade left in it, at least just on that one. And of course, there's so many other exciting areas as well.

Interestingly, the month of March was the best month for stable coins in their history. And stablecoins is an idea I've been around since, I want to say 2013 at least, Tether, I think dates back to 2014, but there are actually some stable coin projects. Before that, I think there was some bit shares had one, which is kind of similar to Maker. And in all that time, the best month ever for stable coins was March 2020. They added over $2 billion of value. Is this, to you, are stable coins just a way that traders move money around on exchanges, or is there something sort of more fundamental that's going on here? Does it excite? you or is it just, you know, a way to achieve to de-risk your collateral in crypto?

Yeah. Yeah, I think there's a lot more to it than just traders. I mean, today, obviously, the traction that we've seen is through people using it for exchange purposes, you know, using Tether, using it in defy. But what I like to do, I mean, and there's often like this kind of friction posed between the U.S. dollar and Bitcoin. And certainly, you know, there's some philosophical frictions for certain. But I think, you know, for Bitcoin to be successful, for stable coins to be successful, particularly Bitcoin, the primacy of the dollar need not be challenged. I mean, it's very likely that the U.S. dollar, you know,

it's the strongest asset in the world. It's going to continue to be the strongest asset in the world for the next decade, probably. And, you know, I think Bitcoin's value prop, that's sort of an alternative monetary system and alternative sovereign, non-sovereign store value has a lot of value prop there. What I think is interesting about stablecoins is that, you know, dollars are valuable. I mean, it's just a fact in this sort of financial world. And it's, it's finding a way to distribute dollars in a way that you couldn't have done it before,

potentially. You can sort of reach more people. So, I mean, that's the thing that excites me about stable coins is that you're taking something that has clear product market fit, if you want to use that term, right? The dollar, no one doubts that the dollar has privacy, that it's extremely useful that people want to hold the dollar, you know, they'd rather hold the dollar than the assets in their home country in many cases. And so the ability for stable coins to facilitate that, I think, is huge. And we're, I think, starting to see that it's starting to get beyond just trading. And we're going to start seeing, you know, people that focus their business.

I mean, just think about like Circle, they've had Jeremy on the podcast before, where they're sort of like dedicating themselves just to, you know, stable coins mostly. And I think you're just going to see a ton of growth in that area. And it makes a ton of sense, frankly. And kind of the idea already has product market fit, I think. just a technical implementation. So I'm pretty bullish on stable coins. Yeah, it's been interesting to see that they've sort of crossed the chasm just from traders into some much more interesting use cases. Obviously, USDC Circle, that's sort of designed to be used in a more creative variety

of ways with, you know, B-to-B payments being a big focus for them. One thing that I want to about is what are the implications of stable coins effectively replacing the quote-unquote native units of these blockchains as the major form of collateral? You know, because I think part of the inherent economic equation of public blockchains is that you need to, you know, hold the native token for a non-zero period of time to use it, to get access to the block space. and if instead you're holding some collateral, that feedback loop is impaired, some, you know, outside collateral like a dollar, a fiat token, the feedback loop is impaired because it's not contributing meaningfully to the security of the network, which is a function of the exchange

rate of the native token, if that makes sense. Does that concern you at all? I mean, imagine if, you know, two years from now, you know, 90% of smart contracts and Ethereum were denominated in some stable coin, for instance, do you think that would potentially actually impair the security of the chain? Yeah, as usually you mean, I mean, I think it's, this is probably in a similar philosophical vein as like, you know, maker accepting USC as collateral, where it's not, you know, it's not exactly the same, but it's like a similar idea, whereas like you have this, this basically kind of sovereign asset on chain that represents, you know, probably large volumes and it's

sort of having influence on a decentralized system. Yeah, I mean, I think, you know, there probably is risk there, but for me, it's too early to tell. I mean, it certainly is like not the man I keep seeing up at night. I mean, it's, it's just really hard to tell, you know, what these things do at scale. And like, you know, I think that's another thing from, you know, looking back in 2017 and just thinking about what would have changed from now. If you were asking you back then, I would have thought, like, we probably would have had kind of more scalability in some of these systems. I know there's been like some emerging protocols that, you know, plan to address that

or hope to address that, but, you know, I think seeing more scale across like Bitcoin and Ethereum specifically. So I guess the short answer is that, you know, it's not something that concerns me now, but it's one of the things where, you know, it's going to be tough to kind of know until it gets there, right? And unfortunately, for a lot of defy or, you know, crypto, and I brought up defy because, you know, with the whole thing that happened with Maker recently, you know, where the system kind of had, you know, it functioned in a way that it wasn't designed to function and they had to, you know,

back it up with more collateral, you know, we're building these systems and it's new technology and it's also kind of like new monetary experiments in a lot of ways. And, you know, it's hard enough building technology and in trying to predict like, is everything going to work correctly? But then when you sort of layer on the monetary complexity on top of it and sort of game theory and the security complexity to your question about the security of the network, there's just too many variables, I feel like to really know for certain until you get there. That's totally fair.

So taking up that thread about, you know, comparing where we are today informationally to where we were in 2017, definitely it was a low information environment back then. What was it that you, is there a significant delta between what you expected this industry to become and then what subsequently happened to it over those three years? You know, it's a great question. I'd have to take it kind of case by case. I think that, you know, it's, I anticipate that it would probably be, you know, continued volatility. It's hard to like put a price, right. I mean, because they're just, There were such crazy projections on like, oh, Bitcoin's going to be a $100,000 or a million dollars or, and there was, you know, historically you saw there were cycles of volatility. So I think I sort of expected that there'd be more. And we were, in 2017, you know, we were going into a period of like crazy run up, right?

That was like kind of the latest bubble and crash. And, you know, certainly thought that it was getting pretty overheated and we would see some, some price collapse. So on the technology side, I mean, it really. It's just been, so like NFTs, I think I mentioned earlier, that's a market I thought would be a little bit further along. I thought there would be, you know, scaling solutions would be probably a little bit further along than they have been. But there's also been things that didn't anticipate, like I didn't anticipate the current, you know, growth in the DFI market and just what that looks like. And its trajectory, which I think is better than I would have expected.

I think the, I've been really pleased with like the adoption of kind of crypto as an asset class. I mean, if you were to told me, you know, like back in 2017, that you'd have had like fidelity, you know, building products and like these, these huge companies that have massive brands and millions of customers. And that, you know, I wouldn't have been completely surprised, but I would have been, I mean, that that's like an awesome outcome. And so I think there's all these little things that happen on quite frequent intervals, you know, these big companies or these kind of juggernauts in fintech or financial services that pick up

Bitcoin or pick up crypto. And I don't think folks really appreciate just how big those each one of those steps are. I mean, they happen to such frequent intervals now that we kind of take it for granted. But that's the piece that's kind of promising to see. But yeah, it's really on like a kind of per technology basis in terms of like the predictions. Yeah, you know, if I had asked myself that question, I don't know if that is the right phrasing, but I would have probably said one thing I would have expected to happen would be a much. more aggressive decline in the more marginal corners of the industry, the super long tail,

alt-coins, the ICOs, and the venues that service those ICOs. And of course, this did happen, you know, that was inevitable. But in a sense, like, or like the law enforcement apparatus and the securities enforcement apparatus almost pass it over. I mean, there are a couple cases, but they were pretty laissez-faire about it overall, with the block one decision, of course, being one of the kind of shocking to me in terms of the permissiveness. And, you know, like the, effectively the biggest venues for trading this thing are still the big offshore spot exchanges. So that, in a sense, like hasn't really changed so much since 2017, which is definitely pretty shocking to me.

Yeah, it's, I've, on this, on the subject of legal ramifications, I'm also surprised. I would have, I would have predicted harsher kind of crackdowns on some of this stuff. It, to me, it was like a binary question of like, you know, zero, the SEC doesn't go after the stuff and nothing happens, or one, they do. And it's like a catastrophic, you know, situation. In reality, it was like a, like a 0.25, like a 0.5 where they seem to have, you know, gone after some and been really hard. harsh and then not been harsh on the other end. Overall, though, I think they've done like a pretty good job. Like, and specifically the thing I think they've done a pretty good job of is not just completely like killing industry.

And, you know, because I mean that that that was one path that could have occurred is. And that's one thing that people feared until 17 was, you know, listen, regularers are just going to come down and just crack down and all this stuff is just going to get shut down. And, you know, knock on wood. hopefully that doesn't happen, hasn't happen yet. So I think that's one optimistic area. But clearly, regulators have gotten smart and they're getting rapidly more smart. So that story's far from being over. Yeah, one thing that has disappointed me for sure, and I thought this would come with critical

mass, would be basic stuff like de minimis tax exemptions for transacting with cryptocurrency in the US, for instance, in terms of avoiding those capital gains tax. taxes. And I think there's a, I think there's a really specific reason for that. It's simply the dollar has a very special legal status in the U.S. It has the privilege of being legal tender. And even, you know, foreign exchange, I believe gets taxed in certain conditions under capital gains. So I guess that's just the way it works, you know, in the U.S. at least, that, for foreign currencies have this handicap, and that's to entrench the status of the dollar. Yeah. Well, I think that and just apathy maybe, right? Like, you know, there hasn't been,

there hasn't been that, like, brick through consumer use case outside of exchange. And so, I mean, just put yourself in the mind of the average, you know, kind of representative. And they're probably not thinking about crypto holders as their primary constituent. And, and, and, you know, and sort of like solving this particular problem. And so yeah, I think it's about just creating a big enough market and a big enough problem that it's, you just can't be ignored. And I think there's been some progress on this,

right? I know recently the IRS did like a little summit with a bunch of crypto tax providers and other people in that space. And at least there's a dialogue going on. And so I'm optimistic that we'll get some type of exemption for low, you know, these kind of lower cost transactions, which I think in addition to obviously the scalability problems need to be solved. But yeah, I think if you kind of knock out those two things,

it's pretty cool what could happen in terms of crypto actually finally kind of being used for payments, which has been a long time coming. Yeah, and I think in the grand scheme of things, regulators in the U.S. could have been much more harsh towards, you know, the major cryptocurrencies. currencies. Certainly, I think Ethereum got a pretty favorable reading of the law. And, you know, in terms of not being considered a security. And, you know, Bitcoin, they could have grieved the exchanges far more. I mean, we'll see what happens, actually. Maybe the travel rule, you know, imposition in October will affect it. But overall, I think, interestingly enough, like the state has not, exactly fought back just yet. And maybe we kind of expected this massive existential struggle, and it just didn't transpire. So that's actually one thing that has surprised me a little bit.

So I thought it might be fun to go back and look at some of the old blog posts that we had written together. So for the listeners, we wrote this interesting or kind of a fun collaborative medium publication called Crypto Fundamental. And the objective was just to take a little bit of a step back and examine, you know, exactly that, the fundamentals of crypto assets. And some of it looks a little naive in hindsight. Some of it looks fairly good in hindsight. It's kind of a mixed bag. So I wanted to look at some of the blogs that you'd written and get a sense for how they'd aged. You had a really good one, I thought, actually, called crypto asset tokens a poor capture of economic value, effectively saying, you know, in your experience, there's good companies, but a good company isn't always a good deal. And you extended this.

This was in the middle of the massive run-up in prices in crypto in 2017. And you said, well, look, some of these protocols are interesting, but they're not, strictly speaking, good deals. I'm guessing that you pretty much still would endorse this post today, right? Yeah, yeah, I mean, I would. And I just said just a timestamp that's for people. We wrote this blog, I think, starting in like June, May or June, 2017, and kind of all the way through the end of 2017. And 2017, obviously, is when there was kind of a crazy run-up that deflated in the early

the parts of 2018. And so, yeah, so on the poor capture of economic value, yeah, I still pretty much feel that way. I mean, and one way to think about it is that, you know, crypto assets and crypto in general didn't invent the asset class. It certainly didn't invent, you know, forms of distribution and value creation. And, you know, we have the asset classes we have today, not because they were just kind of randomly concocted, but, you know, a lot of them, if not all of them, kind of went to this

Darwinian process of evolution where there are hundreds, maybe thousands of asset classes that came before, you know, the stock equity or the bond or, you know, asset class X, that didn't make it because they didn't serve some, you know, some point on the value to risk to, you know, type of exposure curve. And so I guess just keeping that as a backdrop that, you know, hey, we, before crypto, there was this highly kind of Darwinian problem. process to select certain type of assets that fit certain types of risk reward profiles for certain type of investor types. And so when crypto came to the table, you know, naturally, people sort of tried to make them in their own image of, you know, of the existing asset classes. But what I saw

was, and especially having been familiar, right, having done deals in finance, you know, equity deals, dead deals, having worked with private companies that raise capital, I saw that a lot of these assets just didn't have any form of value capture. There was just sort of this assumption that, hey, I'm going to build this network. And there were often exciting things around the network like decentralized storage or, I don't want to pick on any certain use case.

I mean, but there was some claim of some value that could be created in the abstract. And maybe that's true. Maybe they did or maybe they will do that. But then there's this secondary problem of like, okay, you create the value. Now you have to find a way to like capture it and direct it. And I just, I found that tokens were an extremely imperfect form of that capture.

And I saw that a lot of investors were sort of investing in these tokens thinking that they had properties like equity, like debt, but we sort of stripped them down, they didn't have really any rights at all. And so you can kind of think of them of being like more subordinate than debt or equity. And you're really left to the, you know, you're really left to the hands of these teams that, you know, had built these things. And frankly, I don't think that a lot of the teams had, you know, they were technologists and they were people building companies. They were innovators. I don't think that they were thinking about, you know, they didn't have the whole history of finance and economics behind

them to say, hey, like, this is what should be designed. And so what's interesting is I think you've basically had, you know, several situations occur. One, you've had zombie tokens, which are just, you know, things that have become worthless. And that's probably the vast majority of them. You've had ones, you know, like Bitcoin, that have been able to mimic properties like gold that kind of fit into an existing asset category. And, you know, by people holding them and using them, they grow in values. There's like a very straightforward and simple value accrual mechanism. And then you have others that have started to basically look like traditional securities. And they're essentially the same thing. And, you know, the only difference is that they're on a blockchain. And I know

there's, there's a lot of interesting work being done that front. And there's, there's, there's definitely value to be had by kind of putting securities and tokenized assets on blockchain potentially. But I don't think it's anywhere near kind of the original vision of what a lot of these ICOs were setting out to do. Yeah, I think that's a really sound critique of what I would call the notion of a utility token effectively the idea that just by virtue of creating a scarce asset and requiring the end users employ this asset to get access to some service or network, that that would organically cause the value of this scarce asset to be stable or to appreciate. I think we've seen so much experimentation there and really so much failure that I would consider the economic

like theory or the folk theory of utility tokens to be almost defunct. I don't want to sound harsh, but I've seen very, very few examples of this being successful, even in cases where the network, which is adjacent, actually has a lot of usage. So like basic attention token is one example. Brave, the browser has, I believe, over 10 million kind of monthly active users and the payouts are in bat, you know, the token has, the token interfaces with the application in a certain way. But that hasn't really meant, that hasn't really been a big driver of value for the, for the token itself. And it's just, it's very difficult to, you know, tinker with the economics of these things and actually construct an economic theory that's plausible.

And I'm really not sure if I've seen a single successful example so far. Yeah, I mean, there's not many. And I think a lot of the ones that have the most success are still probably TBD. I mean, I think we bring it up basic attention to kind of brave. I mean, I think Brave, like, Brave's team, Braves product is like pretty badass. And they, you know, I think they've done probably on the spectrum of like bad job, good job. I think they're definitely on kind of a better job. side of the spectrum and in terms of like they're using it in a somewhat interesting way.

I mean, relative to a lot of these protocols and tokens that launch, I think we're much less interesting. And then, you know, you have tokens like and calling Maker a token is maybe fair, maybe not, but, you know, that are tied to creating these interesting monetary systems. And, you know, really the kind of underpinning of Maker is sort of, you know, getting, getting some of that value up the dollar again. And this kind of goes back, circles back, this whole idea. of the unification of crypto and in traditional finance and fintech and financial services is that

I think the more that crypto and traditional finance can intersect, I think that's a good thing. And I know from like a VC perspective and like a technology perspective, you know, you're not just wanting to take the things on Wall Street and the things in financial services and make them, you know, crypto the exact same things. Like you're wanting, you're wanting, you know, new things to be created that weren't able to be done before. But I also think there's a period of time where you need to kind of replicate some of the existing infrastructure in order to have the reach and do the really innovative stuff that you want to do. That's like super exciting. And so like as an example, I'd sort of point to, you know, like Dex is like Uniswap or decentralized exchanges. That's,

that's one area that excites me. I think it's super interesting. And, you know, clearly, you know, a Dax is a sort of crypto version of a traditional exchange. You've taken a kind of traditional model and you've you've kind of copied it over. But then look at all the stuff that is you can now do on things like uniswop and all the interesting assets you can create and you can really start pushing the boundaries. So I think, you know, where where folks like Maker have gone with their kind of like token, I think that's the more interesting into the spectrum because it's sort of tied directly to some type of monetary value or some, you know, economic case.

And I don't know that these other ones have done as good of a job. Yeah, I mean, I would even, in my mental taxonomy, I would distinguish something like Maker or BNB or FTT. I would pretty starkly distinguish that from the notion of a utility token or an asset which is, does not have any sort of associated cash flows or entitlement to anything. and, you know, like, that model of like tokens which have some potentially value-creative thing, the entitlements are not very strong, I would say. You know, they're not exactly like the most strongly codified rights or assurances, but the theory is there and they're at least present. So there is some sort of justification for the valuation.

So I would kind of split them up in that taxonomy. But it's interesting to see what happens. Like, you look at some of these, you look at how tokens where they sit in the capital stack, it's very ambiguous. And you see situations like where BNB changed the language in their white paper that pertained to the buyback mechanism for BNB. And you think about what that looks like in the traditional world of, you know, relationships. between directors and outside capital. And that's kind of unthinkable. That would be like unilaterally altering the shareholder agreement or something.

It's just, it's not possible within the realm of corporate governance that exists in, you know, in the West. And so it kind of makes me think we're still at the most extreme primitive stages in terms of creating something that resembles a security. a native sort of on-chain security. Yeah, I mean, the big challenge in this area is when you have separation from the legal layer, right? Because, you know, we talk about economic value capture, right, stocks, or equities, debt, you know, other types of assets or liabilities. But if you don't have that legal kind of contract law layer, then, you know, none of that stuff works, basically.

And so I think where, you know, something like DMV is very clever. you're essentially, you're basically entering into a social contract with with finance. And you're saying, you know, you're able to kind of look at the observable data and say, wow, you know, finance is obviously a very successful business. They're very successful exchange. They're obviously generating cash flow. And so it sort of passes that test. But the next question is like, you know, how much do I trust them or how strong is the social contract between me and them to,

you know, basically honor what they're going to do? And, you know, I think up to this point, you know, I'm not from a moment. with the changes they made, but, you know, they, I know they are sort of like buying back, but because there's no underlying contract a lot, like you pointed out, I mean, anybody can do anything, basically, right? And it's not even, I think companies like that, they're not even subject to a certain legal jurisdiction because I think they're spread out. And so I think this is, this sort of puts downward pressure on a lot of these new assets being created to look more like traditional securities because, you know, ultimately we're all subject

to the jurisdictions we live in, you know, if I'm, you and I are in the U.S. And so if we go buy equities tomorrow, we go invest in a private company, well, we're subject to U.S. law and there's certain rules. And again, just sort of thinking about that Darwinian process, these assets that have come out of those rules and out of that system. And so over time, you just know that assets that come out of the U.S. are going to look a certain way, regardless if they're crypto assets, regardless if they're, you know, paper, you know, written up contracts.

But yeah, I mean, I think it's, what excites me about that is the ability about, you know, sort of assets on blockchain is the ability to, you know, basically automate things and, you know, do things like, like, you know, automated payouts or fractional payouts or fractional kind of ownership. There's all these types of kind of technical tricks and optionality you can create when you've got everything natively digital and you have people that, you know, can kind of like own their own assets directly. You know, so I think that's that's where things will get probably really interesting. But I think before we get there, there's going to have to be a shakeout a little bit of kind of identity for these security tokens. Yeah. And, and, you know, maybe there's, maybe it's worth making a distinction between just taking

a traditional security and creating a representation of it on chain. and then some of these like native value accretive tokens, which might legally be considered securities. So, you know, like, I'd say there's probably difference. You know, like Maker, for instance, there's, I would say, more transparency and less requirement on standard disclosure, perhaps, although there's probably still a requirement on disclosure. Because you can sort of observe the cash flows.

as they're spun out of the core functionality of the protocol, and they're used to buy back and reduce the supply of MKR. Now, whether that makes it a good investment or not, I don't know. But there's a good deal of on-change or transparency there. And then you compare that to something like BNB, and there you're much more reliant on, like, the internal accounting, the internal sort of balance sheet and income statement of the exchange of the business. And to me, to have confidence or even to make an educated decision around an investment like that,

you'd almost need meaningful standard disclosures that look like the disclosures that we're familiar with in public equity markets. So I feel like there's a taxonomic distinction there, but there's not enough of these assets that I'm able to fully tease it out yet. But does that make sense in terms of? It does. I think you're absolutely right. I think there definitely is a difference from those two things that you mentioned. And then, you know, it's interesting to think. I mean, basically two things are going to happen. Well, maybe three things. So like either a tokens are going to conform to this sort of existing securities law. And that's going to be that. Or, you know, the SEC and these different bodies are going to create their own regime that kind of, you know, create special status. And listen, that happens. Like, I mean, you know, we, we have things like the Securities Act of in 1933 and plenty of others where, you know, you kind of have new designations, new governmental bodies. And so these things change very much so. And so I think that's still on the table. And then, you know, and then the third option is that things just stay the way they are where you kind of have these these quasi securities, quasi assets. And there's a saying in law, which is that, you know, possession's nine, tenth of the law. And it sort of remains.

misusing it here, but basically it means that, you know, if you, in like finances case, for example, I mean, they are, you know, they're building a nice business and they're generating cash flow and they're returning value to token holders. And, you know, as long as there's, there's buyers for that type of, you know, asset, then they're serving a market need. So it's, it's also very possible that you could have companies and tokens that sort of operate in this gray area for a long time, you know, we're going to be. regardless on whether the things get standardized. Yeah, it's interesting to see the debate between crypto lawyers over whether the

securities law framework suits the industry as constructed or whether something radically new is devised. And there's like, I see this pushback a lot. Like, no, crypto isn't special. You guys, you don't have the right to ask Congress because, like, ultimately new guidance has to come, you know, either from case law and precedent, but really ultimately from Congress. And there's kind of this feeling that crypto is so irrelevant and hasn't really changed anything fundamentally about the way that securities operate, that, you know, we effectively, that it's

unlikely that Congress would ever do anything about it. But I think it actually has sufficiently challenged the notion of what a security is by giving us the capacity. to break it up into all its constituents parts and disentangle the governance and the cash flow elements, you know, decompose those parts all into different things that I think it actually might be warranted here to ask for an update. And, you know, it's interesting that you see the SEC commenting about the decentralization of these protocols as something that allows them to avoid some of the prongs of the Howie test. You know, the decentralization is not mentioned. And, insecurities laws anywhere. So I'm probably of the opinion that maybe there is something fundamentally

new going on here and that probably does warrant an update to the existing law here. Yeah, that seems like a reasonable conclusion. I mean, the only risk to that is that they implement a new law that doesn't envision it the way that you or I or people in industry envision it, right? I mean, so that's the risk is that, you know, the benefit of operating in a gray area is that you have some flexibility. Once things are codified, well, your flexibility is gone because things are very concrete on what you can and can't do.

And so I think it's just really important that, and I know there's a lot of people in the industry that are working, Coin Center and others to like advocate for basically the right type of treatment. But yeah, the stakes are high for that. You know, because if that gets done incorrectly, that could be a big problem,

at least here in the U.S. I mean, it's going to vary by, it's going to vary by country, right? every country is going to kind of make their own rules. So this might be a bit of a strange question, but in light of the, I don't know if you've been following the SEC's battle with Telegram, but so effectively the judge in that case, the Southern District of New York, has handed the SEC like a sequence of very strong victories,

even though the case isn't over yet. effectively, in my opinion, kind of striking several blows against the SAFT. You know, something that I've been thinking is, is it the case that the kind of winning crypto protocols that will exist, that one already exists today? So that's in the cohort of the ones that have been created. Just because distribution, now that the SEC is so fixated, on looking at these issuances, distribution will be so difficult in the future. Is that something that you would agree with, that the ultimate winner already exists?

Yeah, I mean, well, I would say the thing I agree with is that the SEC is obviously, and other bodies are obviously applying uneven pressure, you know, relative to what they did before and what they're doing now. And that's, you know, that's within their right. They sort of gave guidance and now they're stepping up their game. So I agree that that's going to happen. I guess my question is, you know, who are the existing winners? Like I don't know if you're talking about things like Bitcoin and Ethereum in that camp of like existing protocols or you're thinking more about like imverging.

Because I mean, from my perspective, you know, I think that there's there's sort of like the crypto 1.0 winners, right? Which I would say, you know, are things like Bitcoin and Ethereum. And then there's sort of like this crypto 2.0 winners, which are, you know, and you can even think about, the time when we wrote like crypto fundamental and a couple of years ago, I think we've sort of transitioned to this new phase where there's a lot of other people in this space other than just technologists who initially got into it. There's regulators, there's finance people, there's BCs, there's, you know, massive companies like Fidelity. And so we're kind of playing on a, you know, completely different field than we were playing at before. And so I guess I think that

the winners for 1.0 have kind of already been chosen. And they're, you know, I think their success is in pretty good shape. And obviously there's a lot of path dependency issues there. It could go a lot different ways. But I feel, you know, relatively good about the faith of Bitcoin and Ethereum, for example. But I do think that from these emerging folks, I don't know, it's hard from where I'm standing at least. And I'm certainly not an expert on the protocol side, but I just don't see any kind of clear winners they're going to be able to create, you know, do what telegram is trying to do. I think that that model is just not long for this world. And most of the value is going to shift into, you know, people who are either creating companies

engineering value through equity or, you know, people building, you know, products in, like, in defy. And I look at like Uniswap. I mean, like Uniswap doesn't have a token at all, right? It's one of the most successful, you know, kind of applications, you know, things in DFI, no token. I look at compound, you know, also in DFI space, hugely popular. I mean, and granted, you know, DFI is in beta, the whole industry. But, you know, these guys have had product market fit. They have a lot of doing their product and it works and people enjoy using it. They're scaling.

And there's no token. So I guess I just sort of look at the whole kind of token model in general, you know, in this new phase. and I'm skeptical. Yeah, I think it's kind of funny to hear this phrasing of not having a token being the exception. And I think that'll change and it is changing. You know, thinking of tokens, especially like, you know, project-specific tokens, away from thinking of them as an asset in terms of being able to galvanize a community and achieve really cheap financing towards them being a liability.

in terms of being a risk for class action lawsuits or a risk for regulatory scrutiny or a distraction in terms of having to build in token economic, you know, incentives, which plug into your protocol in some way. And I think that shift is gradually occurring. And I certainly agree with you that, you know, to me, the best value capture mechanism here is still straightforward equity. And while, you know, plenty, I think, of crypto assets will appreciate. I'm definitely of the school of thought that the best way to play this from an investment perspective is through the pursuit of straightforward equity. Yeah. Yeah. Well, that's outside. We're not contemplating like holding Bitcoin, for example, in that conversation. But yeah, in terms of, I think holding Bitcoin is a very good way to kind

of play the industry growth in general. It's obviously boring, you know, relatively boring and and sexy, but I think, you know, if you look at, you look at Bitcoin's returns versus kind of company returns in this space, you know, outside like Coinbase or something, you know, finance probably, I think, I think Bitcoin's probably outperform many of them. But yeah, on the company side, and sort of creating products, your, your point about tax liability is absolutely correct. Like I, and this is one of the reasons we didn't do a token sale when we, you know, form Zabo, you know, back, back in 2018, was that we just, felt like it was just too much of a liability for down the road. I mean, you just didn't know what

was going to happen. And, you know, now we've gotten to a point in 2017, it was frictionless to raise funding with basically no punishment or recourse or oversight. And now it's the complete opposite. We have, you know, the SEC, which is not telling that you want coming after you. And then also, I mean, give investors credit. I think that investors have gotten smarter. And by the way, I'm not saying that investors that made investments in tokens or in protocols are not smart because, you know, a lot of those, it's just too early to tell for a lot of those. But I think investors have obviously gotten smarter on what type of invest in and where value kind of accrues. And they've been on this journey, you know, just like us to figure out, you know, where all this stuff happened. And in 2017, like even when I wrote that blog post and we sort of mused about this stuff, I mean, it was stuff that you could sort of point to and guess at.

but you didn't know for sure. And I think we're just getting closer to knowing for sure that, you know, you stillie tokens in particular are not the best kind of way to accrue value. Yeah, and that's something that I've really found rewarding over the last few years is having hypotheses, which are then, you know, in some cases, validated by subsequent evidence, which has been really nice to see. It's always nice to, and, you know, even in other debates, like the debate around scaling by increasing the block size, for instance.

You know, Bitcoiners had a set of hypotheses around that, and it was only much later that we actually got evidence about what was, you know, an appropriate move or what was, you know, technically reasonable to do. So that's maybe one of the most interesting things about this industry is having these suppositions or theories about how things might play out and then actually seeing them validated or disproven with weight of actual evidence and experimentation. Yeah, absolutely. And I think you just have to be, I mean, you have to be open.

And I understand that you also have to have values. And what's driving this industry forward is values. And if you look at like the Bitcoin ecosystem, Ethereum, others, you know, people that are like really passionate about whatever their particular tribe or vertical is. And that, you know, creates some interoperative. tribe conflict, obviously, but I think you have to be willing to accept, like, whatever the truth is. And, you know, this whole industry is sort of, you know, coming out of beta. And there's a lot of changes that have occurred in the last 10 years. There's going to be a lot more that occur,

especially as like new entrants into the market. And so, yeah, I mean, certainly that's the way we think about it is that we try to be, you know, we try to be flexible and think about, you know, what are our values, how is it changing? How can we add value, right? Like, kind of based on the factors. And if you have that mindset, I feel like that's kind of what you need in crypto. So one thing I want to finish with here is another blog post you wrote in 2017 called Golden Hedge Bitcoin may rise in the next recession. Some people might be dunking on you for this because Bitcoin sold off along with equities. Maybe it's too early to know if we're

in a recession just yet. It certainly feels like we're in one. What do you make of this theory? I think a lot of us had the same intuition that Bitcoin might behave like a safe haven or might even be uncorrelated or inversely correlated from equities. What do you make of this thesis in light of some of the evidence we've seen here in recent months? Yeah, well, I guess first, I think it's too early to tell. obviously, well, here's one thing that's not, I think clearly that there was, there was some portion of investors that treated it like a risk off asset. And that was what created the initial large selloff.

But I mean, we're still in the early innings of this, you know, quote unquote recession. I personally think we are and it's going to sort of continue. And so we can't definitively say at this point that, oh, you know, Bitcoin is not safe haven't asset or it's not correlated to gold or it is correlated to equity. I've been following pretty closely the work that people have been doing. And I mean, the story so far is basically, you know, it was a risk-off asset for some portion that were flying that were flying into U.S. dollars. I mean, the whole world was flying into dollars. I mean, even gold sort of down-cycled. And then gold has sort of performed the best.

It's been, you know, outside the U.S. dollars, been kind of the best store value asset. And then equities, you know, have underperformed, you know, year-to-day Bitcoin is beating equities. I think if you look at it from, like, the point of the crash. They're pretty similar. The thing I think I made a mistake on when I wrote that article in 17 is I probably was over-indexing to the comparison to equities because, you know, Bitcoin is not a hedge against equities or even, you know, a recession per se. It's more, you know, it's an alternative kind of monetary system. And it's a hedge on kind of sovereign monetary systems and cycles. and that's different.

I mean, that sort of overlaps, you know, when there's when there's chaos at the state level and at the monetary kind of economic level, obviously there's also, you know, recessions in the stock market. So the two things can be the same, but they're also not exactly the same. And so I think, again, I probably over indexed to kind of comparing Bitcoin cycle towards the, you know, to the equity market. Because I think, listen, we're some, some considerable scenarios coming out of right now. I mean, we've just, you know, pumped.

And there's been like trillions of dollars of liquidity. I think it's like up around six trillion at the moment. And, you know, you have a tremendous number of people who are hoarding dollars and credit is being destroyed. So you've actually, you know, potentially got sort of like a net decline in the, and sort of available supply of dollars. And that's what's causing the dollar to appreciate. So, so this, the $6 trillion or so, like new money that's, you know, being put into the system is not immediately felt right now. And so, like, markets are going to respond much sooner to. fresh liquidity potentially than something like, you know, people realizing that, hey, you know,

I need to be in a non-inflationary asset like gold or Bitcoin. So I, it's a long way of saying that I think that it's possible that it's possible, maybe even likely that, you know, Bitcoin will outperform the markets the next few quarters as people sort of realize, you know, what's going on with monetary policy and potential inflation inflation after we get over this hump of this kind of crisis rent. Yeah, I think that's a very good answer and definitely too soon to tell. I mean, we're not even officially in a recession yet, according to those laggy macroeconomic indicators. I think there's this great essayist called Byrne Hobart, and he said, he wrote a piece saying Bitcoin is a hedge for a different

kind of crisis. And I think that might be pretty apt. The thing that Bitcoin hedges against this sort of macroeconomic failure. And maybe that will be the consequence of the extreme measures that are being employed by governments right now in response to this economic shock. But it hasn't happened yet. Although we're certainly seeing banks becoming unavailable, closing down, creating withdrawal limits.

We're seeing inflation in foreign currencies, for sure. The dollar is just about the only currency that's doing well right now. So I'm not optimistic that there'll be another crisis. That's not something I want to see, obviously. But in the case that there is one, in the case that these sort of extreme fiscal and monetary measures cause, you know, issues with our monetary system, I think, that's when Bitcoin's quality is really going to shine through.

Yeah. Actually, a question for you, curiously, your take on is, what do you think about stable coins, potentially actually taking market share from Bitcoin in that capacity is like a store value asset. Because as we discussed, I mean, dollars are kind of, you know, the apex predator, I think, as Matt would say, in the market. And so, you know, if all of a sudden you, I think a lot of the reason people don't hold dollars externally, you know, like other countries is because they simply don't have access or an easy way to get it. And so, you know, it seemed like for a while that Bitcoin would be that save your asset store value for a lot of those people to kind of,

hold their wealth. But if you have this other asset that is the US dollar, where it's extremely stable and also able to be had anywhere in the world, do you think that that takes a bite out of the kind of total addressable market for offshore or just out of the U.S. store value? Yeah, I think it does actually, at least in the near term. in the medium term. I think the biggest phenomenon of the next two to three years here is the growth of stable coins. I think the growth of native unit cryptocurrencies will happen alongside that, but I think the rate of growth of stable coins is going to be astonishing. And I think the supply of stable coins could be over $100 billion in the next 12 months. Remember, we tacked on over $2 billion

dollars just in March. And if something like Libra actually goes live and Libra ends up being dollar-backed, that's sort of crazy accelerant. And I think you're absolutely right that stable coins actually solve a problem which people in particular in the developing world have, which is frictionless access to dollars outside of the confines of the banking system, because the banking system is often a confiscation vector for dollar deposits. And it gives the government, you know, lots of leverage and the ability to interfere with savings of individuals. But if you give people access to dollars in a cryptographic format where they can actually have ownership over the key, I think that actually really changes the game a lot. And it can be a really strong tool of individual liberty.

I would say, though, I think the U.S. government is currently engaged in, like, plundering their privileged status in terms of being the issue of the world's reserve currency. So I think, you know, long-term Bitcoin and, you know, Ethereum to some degree as well, have qualities which are not enthrined by the dollar. So the programmatic monetary policy is super, super attractive relative to the dollar, especially if we get inflation again in the U.S. And as collateral, native unit cryptocurrencies are better, in my opinion, because they're no one's liability, whereas a stable coin is always someone's liability. So, you know, I think they're always going to be exposed to what the Federal Reserve is doing. And currently, the Federal Reserve is engaged in the most extreme policy. policy it's ever done. So that's kind of my synthesis. Short and medium term, really, really bullish on stable coins. And then long term, I still think there's a role there for for cryptocurrencies.

Yeah. Yeah, that makes sense. And I've, it's been something I've been thinking about lately, especially, I mean, frankly, because, you know, because of the podcast, you guys talking about dollarization and just has made me think about it more often. And yeah, I think the thing that that Bitcoin sort has going for in that situation. Certainly you could see some share taken, but at the end of the day, dollars still have the risk of being tied to the kind of U.S. monetary machine. So you can think about like other countries that don't want to participate in that or don't want to support that. There's a potential kind of vertical. And then also just the banking system, like the point you mentioned about being someone else's liabilities,

where, you know, having a token ultimately is kind of like holding two assets. You hold the token and then there's a dollar somewhere that you don't hold and it's you know probably at a u.s bank account could be someplace else and you know that's a problem again for you know foreigners and other governments and so i think bitcoin sort of longer-term value prop here as a collateral asset and one that people hold it is it really all comes back to it just being a completely alternative monetary system right that's just completely separate and different from the existing one it runs on different rails you know it It has a different, you know, kind of supply schedule. Everything's different about it.

And that's the thing that, to me, just gives it value in the long term. But will help it weather any geopolitical macro situation. Yeah. And as you say, stable coins are always someone's liability. They're a liability of the banking system. Tether holders learned this lesson in a very direct way when I believe it was Noble Bank, maybe, which was the one or Deltic, which, which, which had trouble redeeming billions of dollars of deposits.

Because the thing about banks is it's easier to put funds in than it is to get them out. And any bank is going to struggle if you redeem all of your money at once. So they're still fundamentally indexed to the financial system. Alex, it's been a pleasure having you on. Where can people follow your work and follow Zabo? Yeah, so for Zobo, you can go to Zabo.com, Zabbo.com. You can follow us on Twitter at Zabo API. And then I'm on Twitter as well at Alex Treese one.

I'm not super active on Twitter. I try to do a better job of posting more comments. But I'm kind of more active on LinkedIn, frankly. But yeah, that's where you can find us. Thanks so much for appearing on the show. Absolutely. Make sure of me.