On The Brink with Castle Island - Michael Gronager (Chainalysis) on Building a Blockchain Analytics Juggernaut (EP.403)

Episode Date: March 6, 2023

Chainalysis CEO and co-founder Michael Gronager joins us for an episode chronicling the rise of the blockchain analytics firm. In this episode:  Michael's origin story and how he went from helping build Kraken to founding Chainalysis Responding to early market pull from the public sector when building products Responding to criticism around privacy vs. anonymity  Building the Crypto Adoption Index for content marketing around what is actually happening on the blockchain Perspective on how long it can take to change an industry online Content mentioned: Public Key (Podcast) Global Crypto Adoption Index Chainalysis Content / Blog  

This is Sean Judge. Today on the podcast, I sat down with Michael Groninger, CEO and co-founder of Chanalysis. Chianysis is a pioneer in the crypto industry. They help government agencies, cryptocurrency businesses, and financial institutions engage confidently with cryptocurrency. Michael entered the industry over 10 years ago and has incredible perspective on the early days of building in crypto and where we're headed. Without further ado, here's my conversation with Michael Groniger. Matt Walsh and Nick Carter are partners at Kemp. Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their

opinions and do not reflect the opinions of Castle Island Ventures. Guest and host may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their personal opinion. This podcast is for informational purposes only. 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. 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 into Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. Michael, thanks for joining me today. Thanks for inviting for this. Looking forward to it. Well, most listeners will be familiar with you and Chanalysis, but maybe just to start, it would be helpful to understand what you do and what analysis does. Yes, I think the best way to understand analysis is to think about what crypto really is about. When I entered the crypto space back in 2011, I saw this new technology.

And this technology was basically enabling digital scarcity. And the way it worked is basically you have a big share database. And now you have something, a digital object that you cannot copy, but you can only move. that makes it the ideal representation of value. So value transfer is amazing here. Another thing that's part of like having a big share database is that you have a lot of transparency built into crypto. And when I started to let us back in 2014, people always talked about that in

principle transactions were public and that was part of the value proposition of crypto, but no one really were able to analyze them and shed light on what was going on. So when I developed like 30 days of analysis, it was very much from the viewpoint of saying, how can we build a data layer on top of the blockchain, on top of the public blockchains, and using that, enable a lot of different things. Mainly it's about like understanding what are the financial flows in crypto. And then if you look into the specific use cases, it can, for example, be for compliance in a crypto exchange that wants to understand what's their risk profile of customers.

It could also be an investigator from the public sector that is diving into a crime. It could be stolen funds. It could be North Korean hackers. It could be anything. And then basically being able to follow the money on crypto, which was not possible before. So we built products around that data set that basically is quite unique that enables you to identify different players in the crypto space. And on top of that, different products, first one on compliance and the other one on

investigations that basically enables you to get to tracing funds. Great. And I'd love to dive in more to the origin story and some of those specific products, but maybe to just back up would be great to get more of like the Michael Groninger origin story. Sure. Yeah. So I can start way back. So let me see. I come from Denmark back in the days. I did my PhD in Denmark many years ago. And then I got into virtual reality. I worked in virtual reality back in the early 2000s or so, basically until 2001, where that kind of ended with 9-11, and the investments into virtual reality were kind of gone at that time. I then got into cloud that's grid computing and ran big research projects in Europe for around

a decade or so. A lot of the big European projects around the large Hadron Collider at CERN, some of the European big spilations source, I think it's called, and other projects there where I was coordinating all of the compute efforts around that. So I would say the theme around that was distributed computing for sure. Then in 2010-11, I kind of realized that I need to do something different. Mainly I just see like I want to get into, build more like of companies, building companies. I built like projects all my life, but I don't really get the same kind of ownership and influence on the project that you do on a company.

So and projects are mainly in the public sector. And then it's roughly the same time I stumbled over Bitcoin. At that time, I'd been building apps. iPhone apps for a little while, tried to do something else, got back into coding after doing management for many, many years, and then built some apps and got into crypto by basic coincidence. Went to a conference in New York in the summer of 2011 with other early people in the crypto space.

And this was like crazy early days in crypto. The Bitcoin price had just boomed and crashed. one of the first times. It was up at around $30 or so and crashed down to, I don't know, five or $10. That was the time I bought my first bitcoins as well, of course. And I didn't really see it. No one in the industry really saw it as anything but last pearls, right? That was like an interesting piece. But then continued to be a little bit obsessed about crypto and could see a lot of potential in it. And then at the conference in New York, I had met with amongst others, Jesse Powell, and him and I then a couple of years later start Cracken, the Crypto Exchange that's still

definitely strong on going on, which is amazing. And that was my first real, how should I put it, business in the crypto space. And I was at Cracken for a couple of years before I started to analysis. But there's probably some more things to dive into on the Cracken story as well. Yeah, I would love to. Obviously, Cracken today is still one of the kind of juggernauts in our industry. I would love to kind of understand what that experience was like and maybe what particular insights you had while helping build Krakken that led to the founding of

Chanelsis. Yeah, I think one of the interesting things were that like one of our first meetings at Krakken, I was at the Bitcoin conference in San Jose. And I realized how many lawyers were there, which was kind of wild. But also that was kind of coinciding with the time where FinCin had issued a guidance. around or reminder around like that crypto businesses actually were considered money service businesses and there was KYC applying and there was a lot of other things applying. You needed an email program and all of that.

So we started to dive into that. And I think one of the things we realized also in that early journey was like getting a bank account was extremely complicated. And I've been talking to a lot of banks in the early days of the crypto space and realizing that they were not really comfortable with your business model. And I would say after being slightly skeptical and probably in the beginning, just thinking, oh, it's just a bank that doesn't like crypto. I kind of started to listen to what they actually said. And what they actually said is like, hey, you're running with customers that's online and you have no idea of like where their funds are from.

So the original funds requirement in AML, you have no idea of how to check that. And apart from asking, you don't have anything that you can cooperate that information with. So it's kind of anonymous money. It's cash with wings. and you don't have sufficient tools to use there. Krakken got a bank account and we were all good and we started running, but I felt that that messaging from the bank sat with me and I would say when we tried to open other bank accounts at that time,

it was still like with the same feedback I got constantly that like, hey, we don't feel that you have a proper email program. No one did in the crypto space. It was like just the fact that we didn't were able to do transaction monitoring. That was kind of the problem there. That was definitely a problem that, became clearer and clearer. At the same time, it was really interesting to be part of the early days of crypto where I would say there was a lot of businesses starting. It was much more

questionable and less established market than it is today. And I think that seeing like how to do and work with regulation was complicated. So when people are complaining today about lack of regulatory clarity, that must definitely do the case back then. And of course it's still the case, but maybe not to the same extent as it was in 2013. Then a very formative thing happens while I'm at Cracken, Mungox, the biggest exchange, goes bankrupt. That happens in the early 2014. And that becomes like a big crypto window, to put it that way.

When people call it the current market, the crypto wind, I'm a little bit skeptical. I feel that I'm not wearing gloves at least, so it's not that bad. And I would say in 2014, what happens there, the big current price drops a lot. We see a lot of skepticism from regulators, a lot of skepticism from others. And one of the things that's really bad is also Silk Road had just been taken down, but other dark net markets popped up left, right and center. And there was definitely quite a lot of fear from law enforcement in terms of like, how do we actually manage this space?

Because we cannot look into where the fund goes. Solving the Silk Road case was an extremely case to, expensive case to run, and not something that could be easily done. And then I would say, like, all of these things sits with me over the summer of 2014, and I kind of realize that what crypto really needs is that, oh, yeah, there's another thing that's interesting. I have a conversation with a European think a regulator, and I'm basically explaining her how transparent crypto is.

And then she's telling me that, like, hey, you say, everyone tells me that it's transparent, but I can't see where the money are going. And then I kind of realized that actually someone needs to shed light on crypto and understand what's going on. and unlock that. So that becomes like kind of a driver for me. And I also say it's also a throwback to what I've done my past experience and life. It's like working with big data.

Back then it was big data for science, but this would be big data for crypto and finance, which would be extremely interesting. And probably more, my skills match better with that kind of company than running a financial institution, to be honest. And then I realized that I should do that. So at some point I have a conversation with Jesse,

and like I'm leaving Prekin in roughly October or so of 2014, stays on that and advisor for a while, ensuring that it's a smooth transition, and then I start coding for analysis. That was kind of the birth of that. And I think the main input on like why starting to analysis was basically realizing these two problems in the space, one of them being lack of transaction monitoring and compliance, that was not a possibility. And then at the same time, the public sector for me is an extremely important stakeholder in a financial system.

And they had no tools and no data available to fill that role. And they needed that. And they needed that to support the industry, but also to just feel comfortable and do what the public sector is put in the world to do. So I think that that was like the main problems that I wanted to solve. Got it. That's fascinating. And just to kind of think back on a bankrupt exchange, Bitcoin, crashing and startups having trouble getting bank accounts.

I feel like I've seen this movie play out again. Oh, yeah. I think the original product that you built was a reactor, and now you obviously have KYT and market intel and a bunch of other products. From a product perspective, how is that evolution evolved? And what was the education process like in terms of selling this into public organizations or financial institutions. I have to imagine in 2015, that was pretty challenging.

It was. So the interesting thing were that we got, I would say, a pretty good signal early on from the crypto industry. And to be completely honest, I think that the most exciting thing from the crypto industry were the realization that they could actually see the size of other crypto exchanges and what everyone else would do. So suddenly you had this transparency,

which basically means that like everyone would be posting their trades and it was basically just a function of how low you would put the fee and then you could look like a big exchange. And a lot of people doing that back then and everyone was like competing on being like so to biggest and they would print forced trades in their books just to appear bigger and so on. And looking at what happened on the blockchain gave a much better picture of what were actually the real size of the industry and what was the size of the different players. And I think that was a huge interest from the early days of the crypto companies you work with back then to do that. Also, to be completely honest, compliance and transaction monitoring were still

very, very early in the crypto space. And there hadn't been any real guidance from regulators around it. And well, you didn't get any requests from law enforcement because they were not able to trace the funds. So then in May 2015, where we have an early product around reactor, I presented for FBI and a couple of other agencies. And they're all like, basically, we want to buy this immediately. And it couldn't go fast enough. And then they got access to Reactor. And we started during that year to basically get inbound purchase orders from law enforcement agencies in Europe, in Asia, that basically wanted to be able to trace crypto transactions and do that. And that kind of boostwapped a lot of things in the company in terms of like, hey, now there was a real way to monitor things. Law enforcement,

when they reached out to crypto exchanges, would kind of teach them around what a compliance program would look like and what they should do. And we started to be able to see that there was suddenly a real need for automated transaction monitoring. And that was when we launched KYT, which is then another product, which basically automated the process. The interesting thing you ask about the learning around products, to be completely honest, like our first product was actually KYT because our idea was that people would do transaction

monitoring and that was fine. So it's just an API, simple and easy to build and easy to sell. But then I realized in my sales process in like February 2015, talking to exchanges that no one understood what I was saying because like seeing is usually believing and had no way to demo it. So we built Reactor as more like a demo or like a visualization for what the API was about, but had never really thought about actually using that for anything. But then in the process of building that kind of visualization of the blockchain,

I also learned that it was actually extremely useful. I was looking at the Mungox case at that time, working for the bankruptcy trustee in Japan, and suddenly having a visual tool to run a case was amazing. So that kind of drove a lot of the development in Reactor. So I would say Reactor was born more like as a need for marketing or sales, but became our main product very fast. And then we only came back to the API selling years later, basically. So that was some of the early product learnings there.

Got it. And so when you hit the market in 2015, there was criticism at the time because people want privacy and yet they forget that public blockchains are public. How do you specifically think about dealing with those types of criticisms? My viewpoint on that back then were basically that like crypto is not going to work unless we actually enable the different stakeholders in finance to do what their roles are. So this was a very, I thought a very nice way of providing privacy. and at the same time enabling oversight. And then I would say, I usually separate two things that's conflated oftentimes in conversations

in the early days of crypto, and that's privacy and anonymity. When people call it privacy coins, they actually mean anonymity coins. And I'm always been in the opinion that like anonymity never existed in the history of the world, but privacy did. And privacy had a very high bar and high rank in my book, and it's extremely important. And the way we solved as societies, privacy has usually been that privacy is something that someone else provide you, like a bank provides your privacy actually. But it has at the same time a requirement for some level of oversight and reporting in case something suspicious happened. So if you now move to complete anonymity, you will have a big concern from the society against anonymity.

We never really seen it work well for a long time in the East of Europe world. and I didn't really believe that that would be the case going forward. But privacy were enabled, and I would say one of the things that were really interesting in the way that we approached looking at the crypto space is that we would not identify individuals. We would identify services. So we basically just enabled the normal law enforcement work to move on. That would mean, well, they wouldn't figure out whether it was Sean or Michael that were transacting, but they would know that it was some user that had an account on some exchange

and now they could subpoena the exchange for that kind of information, and the normal flow started to go. So that would be like my, I would say, ethics where felt good, it felt that I were doing the right thing. Then I would say on some of the criticism, apart from that, my thesis were that people I knew in the crypto space, and I knew a lot of people from early on, they were into crypto for other reasons than anonymity, all of them. I couldn't find a single one that was actually into it for anonymity.

So it didn't really knew of anyone, except for maybe criminals that were actually into for anonymity. Apart from privacy, I respected that piece, but the anonymity piece was not really there. So I had this thesis that we would see crypto evolve from the value proposition that people wanted financial freedom, financial opportunities that they didn't have otherwise. And the anonymity piece wouldn't weigh as heavy, but the privacy would be important. And then my thesis were also when we saw mixes, we saw privacy protocols and other things appearing, were always like, I said that very early on when the privacy coins appeared, basically said that let's monitor this over the next couple of years. And if the market cap of privacy coins outgrows the map of non-privacy coins, then I was

wrong. Otherwise, I wouldn't be wrong. And now years later, it's pretty clear that like anonymity was not the value proposition of crypto, because people wrote through their feet. and that's not how it happened. And if you look at crypto exchanges today, a centralized exchanges, they by large, don't list or even they list privacy coins

because they don't have the big market for them as number one. And second, they have a challenge. That's a challenge I know very well. They can't do transaction monitoring and they can't figure out what's original funds from the users. And the only real way to do that would be to ask for paper trail for any transaction. And that's a big mess and a big burden. So actually the breadcrumbs left by Ethereum and Bitcoin on the blockchain

suddenly makes it much more easy to work with those transactions that it does on a privacy coin chain. Yeah. And I think just on that where there has been product market fit in crypto, it's often surprising to people how global this is. And I think one of the things you guys have done really well is the annual adoption index, which I think is one of the most exciting and insightful reports and statistics that always shock non-crypto people when you kind of highlight, like, this is actually where people are using these things. So what led to the creation of that? And what has the market reaction been?

So I think that in the early days, it was actually kind of the question you raised before. In the early days, number one, the analysis was the Bitcoin pretty, right? That was kind of the early version of it. And at the same time, there was some skepticism from the use of our data and what we were trying to do. I was like trying to tell this story, but I think it was kind of hard to convey it because it was not public the other ways you could use our data. I had a lot of different attempts of trying to use our data for other purposes, one of them being like, what is actually the geography of crypto and where is it used? Another one, and that's like something we're actually doing today. Another one I did together with New York Times back in 2015,

I think, trying to map out, we were still in geography and trying to assess what is the capital flight out of China or India based on crypto and tried to get the data right in that sense. I learned that our data because of, I would say, shortcomings and clustering and other things were not refined enough to tell a story in a good way and a precise story. So it became a driver for us to say we need to get our data as good so we can certainly use it for those things. So we started a specific unit within Genalysis, actually with Kim Grauer and Philip Gradwell, that are like well known today for specifically talking about these things. And they work like about improving the data, understanding the data, understanding how to use it in various ways.

And then we basically created this metric for that group, not about selling products, but basically content marketing. So we said, you are now measured on how much of our stories will go into the media. and telling the real story about crypto from a data perspective, not about fringe investors, not about crime, not about a lot of other things, but what is actually happening on the blockchain and back it with the data. And that basically grew and grew and became very popular amongst journalists because they were all looking for something more tangible

than the anecdotal stories that were otherwise around. And that team grow and became, I would say today, probably one of our core parts of awareness around crypto, and growing first from, we did the crypto crime report, trying to tell the story that, yes, there's criminal activity happening in crypto, but it's actually dropping year or year. And it's very well controlled and we can tell you exactly what is going on and categorize it, which was a part of telling the story. We got this and the public sector got this.

So don't worry, it's actually good. The other piece that came a bit later was the geography report where we wanted to tell the story about what is going on worldwide, what is the adoption, actually in crypto, and what are the different use cases in different geographies as well? And then we started that piece as well, probably like three or four years ago. So we've been doing that year or year. It's a huge work to do it, but I think that it pays off really well and gives like some very good metric for the industry to understand what's actually going on and good talking points for regulators and others in the end. Your business has reportedly done quite well over the years, and it sounds like starting early on with Mount Gox as kind of maybe an inflection point.

Have there been other inflection points along the way that have really tipped customers in your direction? Yeah, I would say we had this bull run back in 2017, 18 or so, and I felt that that was when the interest we matured the first time. And just like the size of the crypto exchange is grew, automated transaction monitoring KYT really became important. And I think that that was clearly like an infliction point for us in terms of growing, what I would say, a very broad private sector business and not just on the public sector. So that year, I think we grew from, let's say, 90, 95 percent of the revenue from the public sector and to more like 60, 40 or so. So it was like a huge growth on the private sector, driven large. largely by transaction monitoring and so one and like building out that compliance function. I think we are in front of another one today and that's more on understanding the market.

And I think that last year, maybe going back to 2021 even, people and the industry were probably not ready to hear where the market was. Like what was the real liquidity for different tokens? What was counterparty risk and other things? and everyone was like a little bit blinded by oh my god it's all going to the moon and we can't get in fast enough and i think today there's a little bit of like reflection in the industry around like what should we actually do better next time and what is there to learn and i think there's a lot of data to be built out on counterparty risk on liquidity risk in various tokens and basically help the industry

understand that better and manage those risks in a good way yeah i'd love to touch on 2022 in a it. But before we get there, I think when most people think of chain analysis, they think of regulated financial institutions and governments that are interested in becoming a customer. Are there other customer segments that you can speak to that leverage your tools? Yes. It's kind of quite diverse today. So the customer base today, it's government international, right? That's well known. We have around 200 customers in the public sector in 35 countries in the world. So it's like everywhere and every public sector institution, we probably can find the name on is like a custom of channelysis today and using us to understand the industry,

learn, educate, but also of course to regulate the industry in various ways. Then we can move into the second biggest segment of our customers is clearly the traditional centralized crypto exchanges. There are probably around 800 to 1,000 of the customers today that are trade exchanges using basically products for compliance for transaction monitoring and doing that on a day-to-day basis like basically every time that they touch the blockchain. Then on top of that, I would mention Defi as probably being the third largest one. Clearly, Defi has entered the crypto space big time and I'm also clearly a huge proponent of

defy. I think that's amazing and that's unlocking a lot of things. That was kind of the promise of crypto in the early days. So that's quite amazing and always great. to be able to help that industry as well and provide some of the transparency. I think also we have some clear views on what DFI is about. And if, for example, look at is it inherently, well, it's a service that changes the shape of a coin. I think he's coined it before Dify with shape shift, right, but it's basically, for example, a liquidity pool enables you to go from one token to another, which is quite amazing.

And you can do it purely in technology, which is quite amazing. And that's also reflected in our product, that that's how the industry should be understood. Another thing we have is on cybersecurity in Fortune 500 companies. They clearly see threat actors, just as government agencies will see them. So we see them as being a big customer group for us as well. Insurance companies that are insuring against ransomware, they want to be able to help recoup the funds and seize the funds that they have to pay for. So that's another customer group.

And then, of course, traditional financial institutions, I would say those holding a banking license or payment processes entering the crypto space that's becoming crypto businesses. I like to see that segment as just the same as centralized crypto exchanges, but just in another part of the journey. Where I feel that long term, they meet each other, where the centralized crypto exchanges will at the end of the day become banks. The banks at the end of the day will become crypto businesses. So you'll just see that those are on the same track, but just approach it from different angles,

and we are helping them both with that journey. Got it. That's fascinating. I guess on kind of what has taken place over the last 12 months between 3R. Celsius, FTX, a lot of bad behavior that took place. Does this present kind of a new opportunity for your business? And I guess just on that, would love to get your perspective on having lived through multiple cycles in the crypto industry versus kind of what went on.

specifically in 2022. Yeah, I think what happens most times when something grows very fast is that everyone starts to want a little bit too fast, right? Stuff gets leverage. We saw it with the dot-com bubble back in the days. I think we see it here. We just see crypto has, there's a lot of promises in crypto. It's about money and value.

So there's also oftentimes opportunities to get rich very, very fast and maybe get away with it as well. And I think that that's probably why you see these like. bursts, bubbles and burst like in the crypto space as part of the growth journey. I would say there's advantages with both sides in a time where everyone wants to be in the crypto space. Of course, it's great for fundraising, but at the same time it's also gives you a lot of customers, you realize new business opportunities in the space, and that's great.

But in the time we're in now, where there's reflection going on in the market, it's more like closer to a bear market than a bull market for sure. And you have time to build, you have time to do things that you want to do and harden the space. I think my view on it is also that inherently when I got into crypto and a lot of others with me came from the tech side and into finance. I didn't know a lot about finance. And I think that went for a lot of people getting excited about crypto. It was like glass pearls that we were dealing with.

And that was the viewpoint. And I think that was the viewpoint of regulators as well because early on the value of it didn't really make sense and it was just like it didn't really matter it was too small to care about. Then as the industry grew, you realize this is actually a financial institution and the different risks that you have to manage as a financial institution became more and more real in the crypto space. Interestingly, some of the terms from traditional finance would then start to be used by crypto businesses and understand what's going on. So different risks goes from compliance risks to settlement risk to counterparty risk and on like liquidity risks that you have in your system and you need

to manage them all. And I would say what I've seen in the different cycles is that every time you see a new cycle, you basically, the industry learns about one of the new risks and how it can hit them. And before that, it was probably less good managed or at least not managed by everyone. So I think that the learning from last year is a mixture of probably counterparty risk, but part of this goes into liquidity risk in different tokens. And I think the lessons from last year was clearly about, well, if you counterparty risk in crypto is real, because if you store funds with a centralized service in the expectation and that's now your bank account in the crypto space, you have a counterparty risk because

those funds might not be there tomorrow. they are only tied to buy a legal contract, and that's counterparty risk. So that's very real. And most of what happens around FTX, but you could argue even in Defi, counterparty risk is real, because if you put money on a bridge and the bridge get hacked, well, you don't have a contract, but you have a kind of an implicit expectation that they will be able to honor your contract, that's a smart contract, you get the funds back. But if it's hacked, it's gone.

So their counterparty risk is very real in crypto and people are not managing to the extent they should. And I think that will be a lesson this year and an opportunity as well going forward to learn about what is liquidity risk, what is counterparty risk and how is it being managed. And that's something that will be a focus for the industry, I think, going forward. Any predictions on things that could happen in 2023 that could help turn the industry around? One of the things that has been happening at the same time, right? There's been a lot of opportunities in just the existing crypto space. And we've seen tokens being created by services, which you could almost say is like issuing bonds and other things as a service. Some of that is clearly being questioned by ECC, by others, like, what is it?

What is going on? Some of it has shown, like FTT from FTCS probably didn't help the definitely didn't have the liquidity that was expected when it was received and fall in the category of bad collateral. right. So I would say that's one piece, but I would also say that, yeah, that's the thing that will be monitored closely by the industry this year. And I think that that's probably something that we will see happening in the industry that will be a focus on these things going forward. Yeah. So the company is, I think you've entered year nine. Any predictions on what the cryptocurrency industry looks like nine years from now? Wow. That's a great one. So yeah, I think that, My typical joke about the crypto space and people saying it's slow is that it took a generation to put music on the internet.

Music on the internet, something as mundane as putting music on the internet. It took a generation. It's like Napster was there in the 90s and it basically took 20 to 25 years before everyone was using Spotify and exactly what you could do back in the days, had found a business model, had found like a legal framework, had found like adoption. for that to happen. So now we are looking at finance and we are like roughly 10, 12 years into crypto and some of the ideas around, for example, staple coins, tokenization of real world assets or so, they are like a few years old. They're not like as old as the crypto space themselves. So that will probably take more than 10 years to get there. But if you ask like nine years or now, I think some of that will be established businesses and something that is happening

and that those will have found like proper frameworks. And I would look at them in terms of how easy is it to move them there. If you look at commodities, and I would probably say that Staplecoin falls in that category, not a security, but more like something else. It's up for debate. But I would say that that falls in that category. Staplecoin, to me, is probably the biggest success of crypto so far. It's a $125 billion industry today.

That's like at least the assets under management of Staplecoin. that's a huge amount. It's a lot. And it's kind of paved the way for what I would call sitting in the U.S. with wearing U.S. national security hat as well. I would say this is the biggest dollarization of the world economy that we've witnessed for a very long time.

And trying to stop that or hinder that, that should not be done by the U.S. U.S. should be jumping up and down and be very, very happy that this is like yet another back. of US dollars. And yes, of course we need to understand the risks around it. And of course we need to understand the players behind it. But it's definitely something that needs careful support, monitoring and encouragement as an industry. I think it also paves the way for other commodities to get tokenized and enable you to trade them in defy protocols, in other things, and building

an unforeseen liquidity in that space. That was like the easier wins, I would say, because we haven't moved into the security space. As soon as you moves into the security space, there is probably in my book a longer term need for understanding what does publicly traded security this looks like in crypto. We have this concept in the traditional financial system between private and public securities where private are like held for a very small crowd that have access to high-end individuals, there are like fewer requirements and so on. And then we have the publicly one, what's basically publicly traded companies. There's a lot of reporting requirements and so on. There's auditing requirements. But what if that could work in crypto?

And we could actually claim that everything that looks like a security in crypto is actually a publicly traded security simply because of the transparency. That would be amazing. It might take 10 years to get there, but I think it's definitely worth the journey to get there because I do think that that would enable a world of finance that would be truly global, truly transparent, and probably unlock unprecedented amount of liquidity that we haven't seen before, and that would be super exciting. So nine years from now, I hope that we have that's working, both on the stable coin side, on the commodity side, but also on the security side, and that we feel we have a framework

for that, or at least the sense of like how that's going to look like. Well, that's really exciting to hear that you are. are still so bullish on the blockchain and crypto industry because ahead of the pot, I was actually thinking about your business and the machine learning required for your business to operate. And I was thinking, you know, you kind of had the amazing fortune of gracefully pivoting out of blockchains and into AI if you wanted to. But it's great to hear that you're here to stay. No, no, no, no, not happening.

Not happening. No, I don't think so. Yeah, that's a good point. Don't say that. Then my board will start to say, what are you doing about AI? No, I do think AI is definitely interesting. We've been using it for a while, like basically from the early days, right, and see a lot of things happening in an interesting thing.

I do also share the excitement of what happens on the chatypity and large language models. It's definitely interesting. So, yeah, we'll see a lot of things coming out of that, for sure. Just to kind of close out, any closing thoughts, and where can we direct listeners to learn more about, analysis. Yeah, I would definitely say sign up for our different reports. I think that's a really good source of information. It's also interesting because one of the things that it became today is kind of it's the basis of every informed conversation of crypto. You would know about what's the

data, what's being said, what's so on. And if you are in a room with regulators and some of them doesn't know about our data, they can't really make sense when what they're talking about and other regulators will teach them about what's said in the telelism report. So that's like one piece. We have a podcast on Genelysis called Public Key, run by Ian Andrews, our head of marketing, and he interviews a lot of interesting guests and so on. So it's also a fun podcast to listen to and hear about how generalysis is being used to like thoughts around the industry and so on. So that's another piece of information that I would point in the direction of. Awesome. We'll put that stuff in the show notes as well. Well, Michael, thank you so much for joining me today. This has been a lot of

fun. Likewise. It was great. Thanks. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. Visit castle island.vc. To listen to all of our podcast episodes, please go to On thebrink dashpodcast.com or just click on the tab in our website. Thanks for listening.