On The Brink with Castle Island - Ryan Selkis (Messari) (EP.33)

Episode Date: January 13, 2020

Ryan Selkis, co-founder and CEO of Messari joins the show. In this episode we discuss:  - Ryan's Bitcoin origin story, including his early days blogging under the Two-Bit-Idiot handle - His experience at DCG / CoinDesk - Messari's mission to bring transparency to investors and participants in the public blockchain ecosystem - His 2020 Crypto Theses including M&A predictions Learn more about Messari at: https://messari.io/

Hey, everyone. This week on the podcast, we had a chat with Ryan Selkis, the co-founder and CEO of Masari, a company that is building tools to promote greater transparency for crypto asset investors and industry participants. I think a lot of you will probably be familiar with Ryan. He's definitely one of the most prominent people in this industry, and he's cultivated a great personal brand. He's outspoken, and he definitely shoots from the hip. I first started reading Ryan's blog, The Daily Bit back in 2014. And around that time, it was one of the only sources of news in this industry, apart from maybe reading the Bitcoin subreddit. Ryan went on from there to work for DCG, where he oversaw the operations of CoinDesk, which is the largest media outlet in events

business in this industry. So this was a lot of fun this episode. We talked about a range of topics, including Ryan's breaking of the Mount Gok story. We talked about his views on which crypto asset networks might be grandfathered in and might be commodities and not securities. And we talked about why Ryan thinks that we're about to see a billion dollars worth of M&A activity from exchanges over the next 24 months. So without further ado, here's our conversation with Ryan Selkis of Masari. 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 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 a Bitcoin. Ryan, thanks for joining the pod. Thank you for having me on. Was that just the outtakes we started with?

Yeah. Nice. Well, we'll just run with it. For those of you who are not in the room, which is all of you, I suppose, we were just talking about the Citadel artwork that Ryan is commissioning for the new Massari office, which is a really nice office now that you've raised funds here. You're expanding the team. Yeah. I mean, it's maybe a sidebar story, but we got very lucky with this place. We stole it for like 25% below market because they screwed up with the other lease that we were supposed to get.

Typical we work. So we're sitting in one of our conference rooms within our office, which is a rarity in New York. We work, of course. And we'll be happy here, I think, for the next year. That's great. Well, I'm psyched that you're on the podcast. We usually start these with a little bit of an origin story, how you heard about Bitcoin. And I think your origin story is particularly interesting. And you were around a lot earlier than a lot of the people in this industry. So how did you hear about Bitcoin and what first sparked your interest? Sure. Yeah. I mean, I'll go into that first. Thanks for having me. And I think you and Nick have been doing a great job with this. It's one of the more entertaining podcasts for sure and more in depth. My origin story is probably like a

lot of others. I had first heard about Bitcoin. I've been saying 2012 for a long time. It's actually 2011 because it was, I keep telling the story about the debt sequester. And I had this classically wrong actual bets, but the thesis was right where the S&P downgraded the U.S. debt, if you remember. And this was, this was following this debt sequester crisis where the government basically couldn't pass a budget. And I went long gold. I shorted the U.S. Treasury ETF and I kind of ignored Bitcoin because at that point you would have had to go to a cafe and give somebody dollars for a USB stick and I didn't want to get stabbed. So I didn't think that was like a very good call and shame on me. But I got in the kind of tiny exposure to it when I had

that thesis and I went 0 for three in the execution, but the thesis was right. So 2013, Fred Wilson invests in Coinbase. The Winklevoss Twins come out with their ETF proposal. Barry and DCG come out with the Bitcoin Investment Trust. And they shut down Silk Road. And this was right or like in the high double digits, right as kind of Bitcoin for the second time that year was getting into triple digits. It had the brief spike above 250 at Mount Cox earlier in the year. But this is in September or so, August September of 2013. And I was in the process of winding down a startup that I had been working on for two years,

not important, but kind of in the charitable payments space. And part of our business relied on the IRS to approve our tax exempt entity. that took another two years to ultimately get approved, and that's not how startups work, right? So I was in the process of winding down that startup, had deferred a year at business school, and bought a little Bitcoin, coincidentally, that went up six times, and I had 10 months on my hand to do nothing. So I said, you know, there's not enough time to get another job. I'm just going to go, like, whole hog on this. And at that point, it was basically just Reddit that existed for information.

And Coin desk was created a few months earlier, but still very, very early. And so, you know, I looked around to the content. I said, I'm just going to start writing about this because it's exciting. And some of my Reddit comments had gotten picked up. And I started emailing some friends about it, including, you know, Dan Elliter, who you know well from IDO and kind of few other kind of early OGs that people may know about. And it just kind of took off. So the big kind of break for me, people think about me and Mount Cox, right, and breaking that story. But it was actually going to a couple of the conferences and meeting a couple of the folks that were.

the moderators for XBT or XGBTC, something like that. It was basically a Silicon Valley email list serve with like 150 like the who's who like OG, you know, executives and kind of Bitcoin folks in the industry. And that was like a network opener for me and got half of them probably to subscribe to the daily bit that I had. And then, you know, they would tell their new hires and kind of just kind of cascaded from there and then culminated with me getting my hands on the Mount Cox documents because I had that network in place. That's a crazy. backstory. And I put myself back in those days. I was, I was in business school at the time and I was reading Reddit. That was really, as you say, that was the only source of information. And then I

before the fork wars and then it became. Yeah. And then it became two two reddits to keep up on. And eventually crypto Twitter and I guess now we're migrating to other platforms. So you started writing under the two bit idiot handle. What was the idea there to not write under Ryan Salkis at the outside. I'll take a little bit of like creative license, right? The history is kind of never as perfect or beautiful in prose as it is in reality. But as I mentioned, I started by writing, you know, a couple emails to some of my friends in venture that I'd worked with and just more generally and telling them about this thing that I was thinking about doing next and they thought I was crazy. And as I was posting, when I kind of got into Reddit, I didn't want anything tied to my real name

because one of my friends had said, you know, just in case this actually turns out to all be illegal, you might not want to use your real name, right? And so, you know, I thought it was kind of like a good quip on Reddit to be like the too-bit idiot. And it, you know, just kind of stuck. It's kind of a fortunate accident of history. But I would say that's maybe the most fortunate accident in my career because there's that, I think it's like Oscar Wild or someone, you give a man a mask, he'll tell you the truth. So I was able to, without really knowing what I was talking about, not that much has changed, but without really knowing what I was talking about, write with a little bit more authority and snark and authenticity than I may have otherwise if I was trying to basically write the equivalent

of research reports in the way that you think you have to write research, right? So the style stuck, the name stuck, and then, you know, once the gox news broke, that's when I was kind of unveiled is this non-anonymous actual quasi-credible source based on what I've been doing the last few months. Yeah, we were talking about briefly before we got started. A lot of people probably in mainstream finance first heard about you in Dan Primex, I don't know if he was at Fortune or if he was at Exo's yet back then, but he had a daily email still does. And you were kind of the main event when the Gox documents broke.

So talk a little bit about for those maybe who aren't familiar. I think a lot of people know what Mount Docs is and what happened there. But how did you come to break that story? Well, I've already promised Charlie Shrem that I was going to tell the full story for the first time on his podcast in a couple weeks. So I'm going to ahead of the anniversary and I'll kind of get into the gory details. But Charlie helped me authenticate the documents that I had. So he had DMed me and he was under house arrest at the time. I had visited him a couple weeks prior with a bunch of other crypto folks while he's under house arrest.

and he immediately started kind of messaging with me and said, hey, I can help you, like, figure out if this is legit or not because he was on with Mark Carpellus on IRC or whatever. And within a matter of a couple of hours that night, Charlie was like, yeah, Mark said, this is legit. And so, you know, I went with it. But that's kind of the broad strokes. But really it was the, I mean, it was insane 24-hour stretch, 48-hour stretch, really, you know, that whole week.

because you got to remember, I didn't have an editor. I didn't have any air cover from like a company, right? I didn't have, I don't have legal cover because it was just me writing. There was no like the concept of defamation insurance or whatever, like if I was wrong on this, that just didn't exist. So I was panicking, right? And at the same time, like I'm writing for my fucking kitchen table with my like dog, like on, you know, by my feet and, you know, my wife wondering, my now wife, then fiancee wondering

if she should break off the engagement because I was manic. But it ended up obviously being correct. And even though a lot of people disagreed with the tone and kind of the aggressiveness, I think, you know, it stuck with them that I was able to do it kind of unilaterally and continue writing and analyzing with that new audience that surprisingly stuck with me for the most part. Right. It wasn't like a big spike in subscribers and followers and then a big falloff. It was it was kind of like a discovery period. And then, oh, wait, this guy actually covers the pulse of the industry pretty well. Let's keep tabs on them. Yeah, I mean, that was a huge break.

One of the interesting things, I went back and read some of your writings from that time. And you were, I think, justifiably really worried about the future of Bitcoin at that point. I think there was something like, what was it, 6 to 10 percent of total Bitcoin supply was on the platform. So obviously, looking back on that Bitcoin thrived, have there been other instances where you've been that worried about the future of Bitcoin? I mean, I think everybody was worried. And even into 2015, I mean, see, I'm in this weird position where in late that year in 2014, I joined digital currency group.

So a lot of the shit that we saw in like late 2014, 2015, when we dip below 200 at one point and with our portfolio companies, like I never know what I can and can't say like in hindsight, even though it's year, like ancient history. But some of the biggest companies right now in crypto, they almost went under. So Malkox might have been pulling the yarn. And there was kind of a gradual unraveling.

But it was not unlike this past cycle where once you have the down drafts, you lose all the momentum investors. It's no longer like, I'm going to get rich quick or I need to rush into this. And especially back then, Bitcoin still had a pretty sizable inflation rate at the time. So you're just getting this persistent sell side pressure like every single day, this liquidity that has to get, you know, mopped up. And no net new buyers, really, because there weren't any apps. there weren't any kind of new macro narratives that were driving things forward. So I think that general time was worrying because you weren't sure what impact it was going to have, A, on newcomers and B on, you know, folks that you're trying to convert from skeptics,

if the last thing that they see is 10% of the supply is hacked and dirty money. And my concern was less about the security of exchanges and more about will the regulatory blowback from something like this, essentially locked down Bitcoin exchanges or random will Congress or the regulator say like, you're not fucking doing business in the country, right? Especially at that point, you kill the liquidity ramps. You essentially smother the baby in the cradle, right? So it wasn't just, oh, no one's going to like Bitcoin now. It was, this was really, really bad. So if there's a heavy-handed reaction to it from powers it be, Bitcoin is too early to defend itself. That makes a lot of sense. I mean, back then, the only way to get money onto Cox was wire transfers.

And you think about that even still right now, the fiat on ramps are such a single point of failure in this industry that really could be clamped down. Yeah, I mean, I hope that Silvergate doesn't go out of business. Right. They're one of the most important companies in this. Silver, Silvergate banks, the vast majority of crypto businesses and funds right now. If those relationships fall by the wayside or it becomes more difficult for them to service customers, then the industry is, is in pretty big trouble. But the good news, the exact opposite of that is it is pretty good to have a bank like Silvergate that their business and ongoing success requires them to service these

companies because it's, I think now the majority of their business. So it's kind of this interesting dynamic where they are a very interesting, strategically important entity that no one really talks about aside from those kind of in the know on kind of the operating side. But it's probably the company that I'd look most closely at, and you have the benefit of actually looking at their quarterly filings because they're public now, right? So it'd be very interesting to kind of watch the 8Ks and such from them as almost the canaries if you're looking for regulatory trends in the U.S. in particular. Totally. I mean, we put this in our newsletter a couple weeks ago, but I continue to think that banking is one of the biggest opportunities in this space. So if you believe that we're

going to live in a world with cryptographically secured assets, public blockchains or security tokens even. And you're a bank that's developing that expertise in-house. You can develop that compliance rigor or develop the ability to actually understand what's happening on these blockchains. What a competitive advantage when this really starts to tick off. Maybe. I think that's true for a while. But at some point, progressively bigger banks, I'm not talking about JP Morgan tomorrow or Wells Fargo tomorrow, but at some point, progressively larger banks than the ones that currently service the market. Maybe it's SVB can just acquire best and class services that will give them the capabilities in-house to do this at scale. So it's all a matter of degrees and scale

and timing, really, because the ROI just isn't there for like a megabank. It is there for a small bank, like, you know, so no one heard of Silvergate, right, pre-crypto. There's a small regional bank in Southern California. I think the same is going to be true for the kind of the mid-level banks, of which there are several that already have some relationships, SVB included, Metropolitan Signature, but that continuing level up, I think will be interesting to watch. And then the other areas and incumbents, if you can call them incumbents, it might have the advantage right now with crypto banking are the new fintechs, so the squares and stripes and, you know, what have you of the world. That makes sense. So I want to get to Masari, but before we do,

the chapter that you referenced around being at DCG and building CoinDesk, so in the time that you were there, this industry really went up another level from the two-bit idiot kind of starting point days, at least. And the conference, for instance, went from something very small to something where you had Abby Johnson on the main stage talking about how much you love Bitcoin. So it really leveled up. I know someone had something to do with that. Thank you. So let's talk about that. I mean, that must have been a wild ride to be part of that growth story. And as you look back on that, what are some of the kind of key memories that you think really propelled the industry forward during those times. Yeah, so maybe the transition, and I'll talk about that. I will give Barry a lot of credit

because when I was getting my business cards, he had his Twitter handle on and I was like, oh, should I have my Ryan's? And he's like, fuck, man. You're like, keep the tubid idiot on. And it's like great for the business card. So I joined in October of 2014, was kind of the first unofficial hire of DCG because back then it was still second market. And over the course the next nine months, second market spun out, was sold to NASDAQ, and DCG was created, which was a combination of what is now gray scale, which was the creator of the Bitcoin Investment Trust, and Genesis, which was just the old second market trading desk, plus Barry's personal investment portfolio. They kind of got smashed together. And we went out and we raised money in 2015, but from

the onset, I'd said, you know, I can help you, my background's in venture capital. I can help with seed investing. I can help with the fundraise and kind of rebuilding the core team around this kind of new thesis. But ultimately, you know, I don't want to be doing seed investing. I'd want to build something, get back to the operating side. And pretty much like clockwork, you know, we announced in October of 2015 our fundraise from, you know, MasterCard and, you know, a bunch of high profile venture capital firms and other corporate venture arms. And that was in Money 2020. That same day we met with Jeremy Bonney, who's the outgoing CoinDest CEO and started talking about the, you know, the tuck in to DCG.

And basically we acquired that business. I took an event team that I'd already recruited from Money 2020 and put it together with the Coin Desk editorial brand, which we put together in January 16. That was the worst three months of my life without any. I mean, there's no fucking question. From what perspective? International restructuring. First time managing a team.

really of that size and trying to get them all aligned from two different cultures, one of which was basically a bankrupt culture because they had just battle scars and war fatigue from fighting the good fight at CoinDest, which was in the process of going under. And to boot, we had three and a half months to pull off a large-scale event that I'd never done before. And they say that startups out of like the top 10 most stressful jobs, it's like event planners, active combat, you know, startups, media. And so I'd like combine like three of the top. seven, I think most stressful things. And we had like three and a half months to pull off. Never what happened without Pete Rizzo and Stan, who basically were the only two authors at

Coin Desk for that transition period and held up the entire site. But we ended up kind of brute forcing our way to break even in the 2016 event. And more importantly, it was a very, very good production. So 2017, we more than tripled the revenue year on year. And basically from the time that we bought the business the time that I left, we had 7,8X revenue and obviously the following year got into the 50x range in terms of revenue from when we had acquired the company. So it was a wild ride. I left in mid-2017 because CoinDesk was an events in media company, but it became clear that there was going to be a lot more to cover on the data and research side as the number of assets proliferated. And ultimately, that's what led to Masari. Yeah, well, that's a great transition. And by the way,

that the Coin Desk conference continues to be the marquee event of the year every single year in May. So let's transition to Masari. So what are you building with Masari? What was the itch that you were trying to scratch with putting the business together? So there was a lot of folks that were talking about building like a quote unquote Bloomberg for crypto assets in 2017. And Dan, my co-founder and I got together around that time. And he'd basically created a prototype that he showed me, which was on chain FX. It had a bunch of advanced metrics to get beyond just like price circulating supply market cap that you'd see on coin market cap. And the goal was to give a little bit more rigor to the different metrics that were highlighted and also help people

understand the narratives around these assets, like the 101s around the assets versus just like the key price metrics. When we were talking about it, we recognized that before you can build Bloomberg, you need to have some consistent data structures, disclosure standards, and just general norms. And there wasn't necessarily going to be such a thing with crypto because there were no expectations about 10Ks or 10 Qs or IFRS or GAAP standards for when it comes to accounting for these things. You had to create all of that at kind of a foundational level. So our mission was to promote transparency and ultimately fundamentals oriented decision making around investing in crypto. To do that, we had this kind of front end and on chain FX, but we also had this back end that

became Masari's registry and asset profile logic now, where we wanted to engage with teams and actually get key disclosures around who the insiders were, where the businesses were located, how does the governance work, what are the roadmaps look like, when are their insider sales, what is the kind of token distribution policy that would ultimately help inform people so that they have a little bit more confidence they're not just getting dumped on, which is the biggest problem in 2017 at the time. The thinking was if we could build out a a disclosure's network and kind of develop a single source of truth for some of the basics, our engineering team could work on the back end to ingest either best in class data from third

parties like we do with Kiko on the market's data side, or we could kind of build some of those capabilities in house like blockchain analytics and kind of other more proprietary metrics. So you can think about the evolution of the company and where we want to take it kind of in three phases. So the bottom layer, kind of like Edgar, where does this information live? Can you build a network effect around that? Can you get some common buy-in? Because I think you need the XPRL standard, which is really the language of business and

digital accounting before you get to market intelligence solutions and a platform like Bloomberg. So we're kind of in phase like one and a half now because we've just rolled out our market intelligence solution for professionals, Masari Pro. We have a lot more in the way of features coming out in Q1 that I think we'll get that to kind of where we think about a full-featured product for professionals. And then our thesis has also been, let's not get ahead of ourselves with enterprise because there's not that many customers. And the ones that are there, they might only care about Bitcoin and Ethereum.

Like that is not a big market. Like you don't need breadth of coverage if you're just an asset manager thinking about basis point allocations, which is really binary to Bitcoin, maybe Ethereum. So I want to get into some of the disclosures and how you think about that. But maybe first, just I think you've had a really structured way of explaining what these assets are and which ones are interesting and not interesting. And correct me if I'm wrong, but I seem to recall a webinar where you sort of classified the assets that are trying to be money, the utility networks, and then maybe security token networks might have been your framework at the time. But curious what your point of view is now just on the categories of assets that are interesting and how a public blockchain might accrue value. Do you have a framework for that?

Yeah, so I called this the crypto asset barbell, where the majority of economic value is going to accrue to assets that have a monetary premium or underlying security like properties. So rights to cash flow, rights to some intrinsically valuable asset. And then there's a middle layer of networks that have these quote unquote utility tokens that were basically being traded as if there were money, but they're supposed to be tethered to some real world digital resource. And then there was some that was just plain old vaporware. I still think that holds true. I think the shape is a barbell, but it's really a spectrum where you're going to see Bitcoin today, certainly, maybe in the future, Ethereum more and more acting like a money. And the way that I kind of thought about those two, and maybe there will be others, but it'll be a power law distribution, is Bitcoin's the reserve currency for a decentralized central bank, Ether in 2017 was not about smart contracts. It was about being a reserve currency for a distributed investment bank, powering all these ICOs.

And different people are going to have different theses on how many of these monetary assets there can be. On the other hand, I think crypto securities or tokenized securities are one of the most exciting elements in the industry. But in the short, medium term, maybe even quasi long term, the ones that are going to be uniquely interesting when it comes to crypto are. new synthetic instruments. So how do you open up liquidity if you're an Indian investor that wants access to the S&P without going through all the financial and kind of legal engineering to

set up shop in Bermuda and actually invest directly? It's the middle that's surprised me directionally positive where I do think that there are more types of networks that are interesting in the quote unquote utility token market. And the way that I think about it is more are these tokens securing some intrinsically valuable digital resource or information network? So file storage, there's a predictable price he can put on storage. That commodity, you should be able to price based on the total value that that's in a tokenized network for file storage. Bandwidth, same thing, compute same thing.

The quote unquote, you know, work tokens that give you rights to participate in some of these economies that produce fees like the betting markets could be interesting. And then I do think that there's some value. There are known values to governance rights. The question is exactly what is that. I think if you're securing a valuable underlying protocol that you do not want to have corrupted, then there's probably some economic value to the stakeholders around that system, owning a share in it and having a say in the governance. I don't know what that equilibrium looks like. But in every single room that I go into, I'm like the fucking enemy, right? Because my portfolio is predominantly Bitcoin.

So when I went to DevCon this year, they're like, what the fuck are you even here? And then like on Twitter, the Bitcoin Maximus, they fucking hate me. And I don't understand it because I've been like, you know, one of the longest term like Bitcoin Bulls. But I've said the occasional non-Orthodoxy on Twitter. So now I'm like this eth show. Can't please everyone. You also thought that Craig Wright was Satoshi or maybe still do? I still think that he could be a part.

So I'll tell you right now, there's a 1% chance that he is just based on pure numbers. because he was early, no matter how you slice it. So my guess is as good as anyone. But I'm kind of hoping that he's not just for very obvious reasons. But that's one of those instances where you rile people up and spin the wheel and see what happens. So I think that's a very defensible point of view to have on how these tokens would accrue value. In that version of the world, do you think that people actually hold these utility token networks in a way that they even know that they're holding them?

Or is it just all obfuscated on the back end? And when you provision file storage, something converts your Bitcoin. into, or your U.S. dollars, your stable coin into file coin and you provision it on a quick basis and then come in and out of it without even knowing that you're using it. I think that's like the 10, 20 year view. Most of this should be abstracted away. But the shorter term view, everybody's going to know how these things work, which is why you need better data and kind of education resources, because you have to assume that for the next five years, everybody is a power a user. And there might be pockets where killer apps are developed that successfully abstract away

the tokens. My general thinking is that it's still going to be investor led. Staking is a good example. The staking services may have abstracted away all of the economics and underpinnings of defy such that you as a retail user look at the headline rate and you say, oh, if I buy this and hold this asset at Coinbase, I'm going to earn 4% yield on it. It's like a 4% dividend. Now, those users don't know that it's basically just a stock dividend, but a very tax inefficient one. And I'm well documented and being critical of the logic of some of these proof of stake systems. But what it does show is that the economically motivated actors, the investor oriented actors in these ecosystems are going to aggregate or find a way to kind of leverage other people's money to make a

rational investment decision, even if the killer app and the end users are not paying attention, if that makes sense. So you've got this kind of two tier. It's not that different from venture capital, right? Like all of the service providers in crypto are almost becoming venture capital firms with a two and 20 structure. We're going to make you some money, but we're going to take our pound of flesh as the service provider to just like automate all of that. for you. That makes sense. So I really like what you're doing around disclosures. I want to get into that a little bit more. So the thing that equities kind of have going for them from a disclosure standpoint is that there was regulation in 1933 and then 1934 that made it necessary to

provide certain things. Like who's on the board of directors, how many shares are there outstanding and just very fundamental disclosures. And you guys have done a great job of unearthing some of those things that you would think would be really obvious. Like how many tokens are there on that works? What is the supply schedule? When does it unlock? Do insiders hold X percent of the network? But there's no mandate for them to give that to you. And there's no SRO.

There's no top-down regulatory action. So how has that gone? I mean, how do you get these projects to actually disclose these things? Yeah, I mean, the SEC has the U.S. military and Masari has me being mean to people on the internet. Just pulling them on Twitter. Just fucking mocking them, right? And I'm being a little bit tongue-in-cheek, but if you want to filter through

like if you want to cut through the noise, you can only be nice for so long. And I was joking with one of our investors about this and basically said, last year was the year where I asked you fucking nicely. And this year, you know, there's got to be kind of a constant level up in the social pressure that's exerted on some of these token teams and exchanges. So our team has done a great job of just kind of brute forcing stage one of this based on goodwill. But most project have no reason to be overly transparent, particularly when something goes wrong. And so what we're working towards in the first half of this year is the first steps in decentralizing this and getting, I hope, the exchange is bought in to the fact that we don't want the SEC involved. We don't want

any international equivalence like the SEC imposing these outdated top-down reporting standards. But if we want to have any fighting chance of kind of navigating that, then we have to agree on like some common sense disclosure standards that make sense, even if they're kind of community provided, at least that kind of fit into like a common rubric so that we can agree on some single source of truth of these assets. If we can do that, the exchanges have all the power in the world. If they want to actually enforce this and take it seriously, every single one of the projects will fall online because they need the liquidity and they can't afford to not be on the outside of this. So then the question becomes what are the penalties? So there's one thing to have

direct disclosures from the projects, but there's no real penalties for lying unless the exchanges are willing to delist them. Which we've seen with like Bitcoin private. But let's be real. Like extremely, like that's the extreme edge case. There's a lot more kind of shady shit that goes on in terms of non-reporting and fibs. I'll be charitable than we like to really talk about. But if you can kind of develop a mechanism where you can separate the repository of information being what we ultimately, aimed to contribute through via Creative Commons, which is essentially our entire crypto disclosure data set. And you can separate that from the audit function. And Masari can become one of maybe like three or four initially auditors or verifiers of the information. Then there's value there,

right? So you can have the entire data set open and free and forkable. But you're still not going to want to take these teams at their word unless you can prove it. So basically who's going to be doing that verification work, who's going to be scrubbing and engaging with the teams directly asking clarifying questions and polishing this up. One way you can do it is Wikipedia style, which I think in this industry would be a disaster. And the other way to do it is to try to reverse engineer something like a big four. And that's what we've kind of had in mind from day one. And we're finally getting to that point where we think that there could be other stewards that would do the same kind of quality of vetting that our research team has done. And I know you've talked publicly about potentially

that could look like a crypto network in and of itself in terms of incentivization and there would be some value there to your point on governance. We are going to create a Dow. And I love it because it's not introducing a new token. We originally thought about TCRs, but the way that we were thinking about our token curator registry was very much like a Dow in terms of like the voting rights and kind of the economic flows. If you read the old white paper that we put together, now that, the, that, the

that is being invested around. And the Mulek in particular is a perfect example of this, which we could very well fork or some kind of version of it. Now that that infrastructure is there, it makes a heck of a lot more sense. And we get away from the whole, oh, well, you guys are just doing this because you want to, like, show your own token. So, right? Which kind of always made us uneasy too.

But we were thinking about how can we economically incentivize folks to participate in this and give them some reward for doing the right thing and promoting better. disclosure standards. And I think the answer is probably going to be a Dow this year. That's interesting. And how would that work? Would you, you guys would spot that? Well, I mean, you know, ideally, and you can advertise this on the podcast. Ideally, you get Binance and Coinbase and Cracken and OKX and Wobie to put in, you know, half a million each per year. You get, you know, some of the assets that are, you know, the larger ones in the space, you know, maybe they're not putting in that much, but maybe they're putting in single basis points of their treasury into funding this.

And all of a sudden you've got four or five, maybe up to $10 million annual pot that that can fund a lot of third party research. I'm not going to name check our competitors, right? Until like we've actually executed on this. But you know, you can figure out who we'd want to invite into this. And look, I'd be perfectly happy if we have a $10 million pool and Masari is taking two of it. And our competitors' compliments are taking the other rate. That's great. That's more money than we're making right now.

It's provably decentralized. and it's kind of in everybody's best interest to promote. So easier said than done. I think people buy into that vision and that ethos because I'll tell you right now, it's a hell of a lot less expensive than just paying for lobbyists and lawyers, which has been the status quo investment to date, which I think is just broken. You have to show that we can do something better. So that's fascinating. And it may be building off of that lobbyist and lawyers point. You got the scoop on that one. I'm giving Charlie the thing on Mount Cox, but we haven't talked, we haven't spoken about the doubt. That's really interesting.

And I'm very long-term bullish on DAO's just in general, even the original DAO, just a fascinating concept. Isn't it weird how everything interesting has to have like its collapse? It does. So this is why I'm staying the fuck away from Defi this year because I think that you're going to have like a Dow like implosion in Defi. And it's going to be really bad, worse than people think. And it's going to break everything. And it's going to be kind of like a reset because that's happened to Bitcoin. It's happened to Ethereum.

It's happened to the Dow. Like, basically every- exchanges, right? Like, everything interesting, you have to, like, fly a little bit too close to the sun, lose your wings. And then, you know, maybe you can pick your broken body up off the canvas and build, be a little smarter next time. Let's just hope that institutional custody is not one of those things that breaks.

I think that would be a long recovery process. Well, you could argue that some custody has broken, right? There have been, again, not to criticize anyone firm, but some of the exchanges that were hacked had flawed implementations, where they were working with a third party custodian that, you know, many would still regard as best in class, but there were holes. So, yeah, I agree. Hopefully those have been ironed out. Because if Coinbase gets hacked, I think that's one of those like nuclear events.

But there are very few of those left that are like known unknowns, I guess. Some people would say that the regulatory environment around the SEC is one of the biggest issues for the industry. And my point of view is that a bunch of these things may be the majority of. of these ICOs are securities, and it's just a matter of time before we see enforcement actions. And there's probably a few that get grandfathered in because they were pre-DOW report and maybe they get the Ethereum treatment. What is your perspective on how this plays out over the next few months? Is there a bellwether event, like a kick or a telegram that you're paying attention to?

The problem with the SEC is they move so slowly. But part of that is a function of the legal system, which moves so slowly. I don't think that they've been doing a bad job. They seem to be much more strategic than most people, including myself at times, give them credit for. It's just so painfully slow compared to the pace of the industry's evolution. It's tough to swallow. But look at Telegram. The emergency injunction October. I actually wrote about this earlier this week. I'd say that's a net positive. Telegram raised money in January, February of 2018. I considered investing, by the way. So I knew how just grossly dysfunctional that whole process was to get like, to one of the syndicates and all the horse trading and it was a complete cluster fuck. And that was at like the peak, right? So if Telegram was just going to turn around and like dump these grams on their users, okay, well, you know who's making immediate money on that. It's basically everybody that's like,

okay, I went out of this. The market is at 30% of where it was when we bought in. So I just want to like liquidate this and basically have 200 million greater fools to dump on. Now earlier this week, the announcement comes out from Telegram. Oh, well, we're going to launch the, T-O-N, the telegram open network wallet separately to start, but it's not going to be tied to telegram. That's a good thing because that probably means the price is going to tank when it does like initially come out. And the 200 million telegram users, when it does get forked in, will probably be able

to access it at a better price. Now, I don't think that's even a price prediction now to say something like that, to think that like what was a $1.7 billion, $5 billion fully diluted valuation. for these gram tokens, that's going to come down a tad when it first gets liquidated. So that's an instance where I'd say the SEC is providing real value, just without even winning a case, just the pressure to get Telegram to say, this is initially going to trade, but not be integrated into Telegram is huge for end users. And so I think there's like examples like that and others where the kind of do no harm approach

is probably orienting some of the practical decisions. and they do want to set precedence where the egregious abuses of the ICO market in 2017 and 2018 are penalized. I think for me the hard part has just been the inconsistency. So you could look at block one is really just a slap on the wrist with a, what was it, $24 million fine. Meanwhile, also Ripple is just continuing to dump tokens onto retail investors and they have this party line that they discovered the discovered XRP and didn't birth it into reality.

So it appears that there's a path here where you just employ Mary Joe White and a bunch of lawyers and you skate away. And meanwhile? Yeah, but I think that's only half of it. And how's that? You know, like there's a timing element. So some of these guys skated in right under the wire. The block one guys, right under the wire. Tezos, right under the wire.

You can look at the dates of the ICOs, Brave, Cosmos. There's some pretty good projects that because they went live and they conducted their ICOs, pre-DOW report from the SEC, they're probably going to get a little bit of a lighter touch treatment. Now, what's interesting is, are you going to see Pocodot's, telegram, file coin, are they going to be the ones that have the most headache? And I think it's going to really come down to how much work have you done to actually decentralize the network from day one. Pocodot seems like it. Filecoin, you know, I've heard whispers, but ever since their paper was plagiarized, I think they've been, you know, Juan's been a little bit tighter to the vest.

And telegram, not at all, right? Telegrams in the Libra and kind of social media giant camp where they're just trying to roll their own crypto and just deploy it to their users and have that as a monetization path. I think those ones are going to continue to have a tough time. That makes sense. The past couple of years, you've published kind of a tour to force blog post on crypto thesis with your predictions of the year ahead. And we've talked a little bit about the SEC and what you think about what they're going to do with some of these mega safs and the pre-DOW report. One of the other predictions that I thought was really interesting this year was you think that there's going to be a billion dollars worth of exchange acquisitions over the next two years. I tend to agree, by the way, but I'm curious what your thought process is and your rationale behind that. Well, some of it is they have all the leverage in the world. They make the most money, but they also spend the most money. So everybody that's not an exchange is selling to an exchange almost, right? Or like the vast majority of the revenue in the space. So I think when you have that dynamic in place, you're immediately, like if you're a vendor

for one of the big giants and they're like, hey, it's an awful nice product you have there. Be a shame if something happened to it or be a shame if we went elsewhere, right? You have this just extreme power imbalance between the exchanges and I think some of their customers. And that's not necessarily a bad thing for some of the vendors themselves, because especially if we see another run-up, those could be very juicy valuations and kind of exits for some of the other startups. It just seems like most of the exchanges are becoming platforms. Those are like the new platforms for this industry. And I'd imagine we'll be kind of like the dominant centralized entities for the time being.

The other really interesting kind of long-term bets that I think people would make or should make in terms of businesses that have a lot of value opportunities and significant upside are information businesses. We're talking to our own book here, but if you look at the largest companies in the world right now, they're predominantly information networks. I'd imagine that if crypto is as transformative for finance as the internet was for, you know, say publishing and social media and search, then the power is not going to necessarily go to the exchanges, but it's going to go to the predominant data providers that are powering

and serving as like the trusted oracles that are powering some of these applications. And what's interesting is this is not that far a step even for the exchanges to migrate down that path because you look at the New York Stock Exchange and ICE. they are predominantly a data business today. So I'd imagine that as spreads come down, the same ends up being true for the exchanges and platforms. I think that's exactly right. I mean, if you look at the existing market structure in traditional markets, most of these

exchanges make all their money on data and trading fees have really come down. I mean, the other thing that would support your idea here that there's going to be a lot of M&A is what are these exchanges? Are they retail brokerages or are they actually exchanges? And do they want to own a retail customer relationship, in which case they probably look a little bit more like a Fidelity Brokridge or TD Ameritrade or something like that. Or do they want to be an ICE or CBOE? It's a different business, not to mention spot versus futures and all sorts of adjacencies.

And these type of businesses trade differently on a public market. And so you would expect, I think, that as some of these exchanges get closer and closer to potential IPOs, then they're going to have to start making some of these decisions on where do they want to go. I'd agree. So kind of closing questions here, what is the most concrete ask that you've heard? heard from an industry participant to a regulator. One of the things that really rankles me is that we have a lot of people that are complaining about the regulatory environment in the United States,

but they don't have a real concrete. Here's what I want to see. Whether that be a, hey, rewrite the how we test because now we have digital assets or maybe we want a safe harbor for some of these tokenized networks, or maybe it's just nothing. Maybe we just want to make these things comply with and comport with existing regulation. Have you heard a coherent ask? I think the safe Harbor one is interesting, but the industry hasn't earned a safe harbor. 2017 was bullshit. Like, it's just an irrational ass to be like, oh, hey, I know, you know, we broke every single law possible, at least according to the spirit of the laws, but please just let us get

away with it because it wasn't, you didn't have the letters, right? I think that's unreasonable. But I would say the most actionable one, we need a de minimis exemption for crypto. Like the tax policy is a disaster. What they have in France and Germany right now, you know, ideally you'd see adopted in the U.S. I don't think it'll happen. But basically anything that stays crypto to crypto, just tax exempt. You only get tax on the way out.

I think, you know, that would solve a ton of headache. It would probably generate more revenue for the IRS because you'd have higher degrees of compliance, not because people are evading their taxes right now, but because they don't know what the fuck they're doing. And I can tell you right now, no one in their right mind wants to overpay before, some of this is ironed out. So I think tax clarity and in particular a de minimis exemption that's relatively sizable, right? I think right now like 600 might be kind of a de minimis exemption kind of threshold. I would actually hope it's higher than that as people think about these assets. And the reason I'd say that is I generally think that a lot of the income that

people could make in the next few years will come from staking and kind of dividend-like rewards or interest payments. That you can easily tax. It's easy for people to self-report on that. It's tracking cost bases for all the underlying that just becomes such a nightmare. So I don't think it's going to happen because the regulators and are not that forward thinking and Congress is not going to do anything in an election year, but some jurisdictions are getting that right. I think Europe is probably closer to where we need to be, but it doesn't solve the U.S. problems, which is still sizable. I agree with that one. I think Coin Center has done some really good thinking and writing on that topic. Another question is, so you've just gone through a capital raising process. And right now,

I mean, you want to talk about how crazy it was in 2017. I think right now might be one of the hardest times to be an entrepreneur, especially if you're not launching a token. And so you were able to raise capital from a traditional venture fund that is not a crypto fund. What advice would you have for other entrepreneurs that are building real businesses in this day and age in this fundraising climate. So first of all, it's both an art and a science, right? I mean, and the sciences generate FOMO, have like a good narrative, like run a tight process and whatever. And this is actually my first time independently raising venture round, right? Like at DCG, Barry was the CEO and founder everybody knew, you know, I was very much in a supporting role there. And then CoinDesk was funded by

DCG. So the fundraising process was, hey, Barry, we should invest in the, we should buy this company. smash you together with our events team and it's not going to cost that much and it could throw off a bunch of cash. Easy, done. So this was the first end and it was in a down market. The first thing that I did was lay off four people at the end of 2018. Basically, the market tanked in November and we let a few people go, kind of refocused our priorities and basically just said, you know, we have to extend runway and we have to be able to get

to this date and basically postpone the initiation of the fundraise because we weren't going to go out in January when the knife was still falling. So we ended up delaying until April when we saw some of the up trend. And fortunately, we were able to bring in some revenue from the registry business that sustained us. Some of us, you know, took pretty significant pay cuts. And, you know, at that point, you know, I think I met with the good and the bad news is I know most of the investors in the industry from my experience. So the good news was we had meetings with all of them. Bad news was we had meetings with all of them. And it's just a grind. But we ended up very fortunate to be working with Jeff Clavier, who's joined our board and the Uncork team. They're fantastic. This is actually

Jeff's first crypto investment, which we're very happy to be driving this forward and kind of, you know, the flag bearer for attracting new people from the investing community into the space. I mean, there's no good answer other than, you know, we're just relentless in terms of pounded people and already had a pretty good investor base to begin with where, you know, we turned around to the lead investors that we were targeting and said, look, we've got 15 other funds. You price the round and it's a fair valuation. This is going to get backfilled in about an hour and a half. And, you know, it's a little bit of an exaggeration, but not too far from the mark. What people don't know is that we had a co-lead at one point that backed out the day that we were

supposed to sign the official documents right before Labor Day. And, and, you know, and, I didn't know Jeff that well. I knew the co-lead well. I didn't know Jeff that well. You could imagine how I took that news from this person that I'd known for several years as he or she was on their way to vacation for Labor Day. And like, oh, by the way, our fund is not, you know, we can't do this for whatever, you know, bullshit reason that was given.

So I called, like, I don't know what to do. I grabbed like three beers, went into a conference room and I called Jeff and I said, hey, look, I don't know what to tell you, but like this just happened. all the other investors, I'm sure, are going to be able to backfill this and kind of take up this guy's space. But it's not a good look. I'm just getting to know you and like this happened. And he just kind of guffod. And he was like, he's just French guys. Look for you. I don't base my investment decisions on crypto VCs. So I love him so much for that. And like we got we got off on the right foot for that kind of badassery. But sure enough, we kind of reamended the docs and kind of

change the terms slightly to accommodate for the fact that he was going to join the board and be the sole lead, but nothing else really changed other than we had the 11th hour setback. The final fire drill, right, before it was like the brass ring was right there and then it was taken away, but we were able to close it a few weeks later. If it was all smooth sailing, I guess, in 10 years when you were retired on a beach somewhere, then you wouldn't have any good stories to tell. So I guess it all just adds to it. I mean, I have too many good stories, you know, that's why I love coming on these podcasts, because I always drop like different ones.

There's two minute a recount, but we have fun with it. And maybe I'll, I'll write a book someday, but I'm not going to be one of those dickheads that writes like a tell-all. Yeah. Like, oh, I know so-and-so did this, right? Like, it's just going to, it'll be predictably like my style through my eyes. Like, here was all the idiocy that I saw and experienced and my reactions to it without making other people out to be the bad guys or taking pot shots. Well, I think you'd have a lot of pre-orders on that book. So my closing question is, where can people learn more?

about Masari and if you have any asks for the community. Absolutely. So we're we're on Twitter. I'm obviously, you know, a little bit higher profile at 2bit idiot at Masari Crypto is slowly catching up to me, which I'm happy about. And then Masari.io is the website and where you can find asset profiles with a lot of in-depth coverage. We've got a really slick advanced search. So if you just type slash B, you're at a Bitcoin profile slash E. You can kind of navigate around very quickly. And we have a, I think a deeper data library than pretty much anybody in the industry right now. We also have a daily newsletter, which I write unqualified opinions that you can sign up for through the sites.

And your best path there is downloading the mega theseses that Matt had alluded to and then sign it up for the email list. And I love OnChane FX. It's still up there and there's no BitConnect ads. So I'd recommend to anyone who's checking the price to go to that website. No ads, period. And we'd like to keep it that way. So we got to get this Dow off the ground and get the exchanges to play ball so that we don't

kind of litter ourselves with advertisements. That's great. Well, Ryan, thanks so much for coming on the pod today. Thanks for coming in. This has been another episode of On the Brink with Castle Island Ventures. To learn more or to subscribe to our newsletter, please visitcastleisland.VC. And a big thank you to all of our listeners, except those of you who believe in the underlying blockchain technology, but not cryptocurrency. You know who you are.