On The Brink with Castle Island - Yuval Rooz and Eric Saraniecki (Digital Asset) on the Canton Network (EP.613)

Episode Date: April 15, 2025

Yuval Rooz and Eric Saraniecki, co-founders of Digital Asset join the show. In this episode we discuss: The origins of Digital Asset and the path to starting the firm. Views on privacy in the context of public blockchains. How enterprises and financial institutions are approaching tokenizing assets and leveraging blockchain technology. Examples of how on-chain privacy enables use cases in collateral management and stablecoin payments.   The role of the Canton Network public blockchain for enabling institutional use cases. How Canton Network works from a design perspective. To learn more: Digital Asset Website Canton Network

Today on the podcast, I sat down with Yuval Raws and Eric Sareneki, the founders of digital asset. Digital Asset was founded in 2014 and has been a leading company in the institutional blockchain market, building on the Canton network. In this conversation, we discussed the origins of digital asset, the age-old debate of permissionless versus permission blockchains, the importance of on-chain privacy, and what's ahead for the Canton Network public blockchain. I think you'll enjoy this one. So without further ado, here is my conversation with Yavall and Eric.

Matt Walsh and Nick Carter are partners at 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. Guests 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 is 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. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of constituted easy.

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. Yval and Eric, thanks so much for joining us today on the podcast. I'm excited to talk more about digital asset in Canton. Yeah, great to have you, man. I think a good place to start is just who are you? What are you guys building?

I think a lot of people have heard your names throughout the industry and would love to just get a little bit of the background. Thanks, man. Thanks for having us. So I'm Eric. I'm one of the co-founders at Digital Asset. We've been at this coming up in 11 years in August. It's been quite a journey. Prior to that, I spent about a decade at DRW.

I helped get Cumberland off the ground in 13. I've been in the crypto space for a while. I'm really focused on making sure that, our network go-to-market motion is a robust motion that it's pulling in people from tradfai and crypto-native and finding really strong utility points and crossover opportunities for those participants. Similar background to Eric, been close to a decade at DRW and Citadel before, and both Eric and I left DRW to start this company. My job here, beyond just running the business, is convincing the market why we have been consistently doing things different.

than the rest of public permissionless chains. I love it. All right. And we're definitely going to get into that. Before we get into the private versus public and how that is all unfolded over the years, what was the original premise for the business? You guys were just super early to blockchains and crypto. And what made it exciting enough to actually start a company here for you?

I think it's easy probably to say it 10 years after the fact. It all got better and better from a messaging perspective. But I think that if DFI is an inspiration to anyone, And I think that the reason why DFI is so exciting is that you can process financial transactions at a marginal cost that effectively is zero in order to bring new products, new services, where in TradFi doing that requires strategic partnerships, really a very well-thought-of-business case. You need to calculate the costs.

And really doing these type of partnerships is very expensive and hard. because of the costs associated with it. And the reason why I say that is the inspiration is because when we started digital asset, a recurring theme throughout the 10 years, have been, how can we bring commerce or financial transactions to all happen natively on chain? The thesis was not just that you could reduce a lot of costs

that exist today in TradFi. And as a result, make businesses more profitable, is we believe, and we can talk about a few examples, examples that once you actually bring the books and records to be natively on chain, I think the marginal costs of creating new products and new business ideas effectively becomes financially feasible, which today is just not. So I would say that that really was the motivation to say that I could say it as clearly as I'm saying it right now. Ten years ago would not be true, but I would say that it is a recurring theme throughout the life of the company.

Bringing institutional processes and opportunities and new businesses into these public networks has been a motivation for us from the very beginning. In the early days, it's so funny to think back on what this looked like in 2015 when you guys were getting going because you had a number of competitors that don't exist anymore that were selling private blockchains in the context of Bitcoin is not going to be around. It's not going to be a thing. And you have this choice between public or private. There just wasn't a lot of nuance in the conversation.

You guys have always been really nuanced around the role of public, the role of privacy, the role of how these systems need to touch institutions. So maybe you could just talk a little bit about that and how you think about the narratives of privacy and private chains versus public chains. First of all, this whole public versus private is a bit silly because even chains that others would consider to be fully public permissionless are not truly, fully permissionless in the sense that you need to get agreement from the foundation to become a validator. In some of the chains, you need to be a multimillionaire to be a validator.

What are the lines that blur between fully public permissionless to private? And really, the way I think about it is when this technology was introduced and people got excited about it, if you wanted to bring institutional players to it, they had some concerns about are they going to be participating in illicit activity or in activity that they have no control of, which generally speaking, even if it's not illicit activity, is very challenging. In my opinion, it made sense in the early days no different than the intranet in the early days where you actually could share your information, you started with intranets and you had a much more controlled environment in which you said, even if I leaked information, I'm not necessarily okay, but it wouldn't be a disaster

if it happened within this closed network. I think that some of the large-scale enterprises were more comfortable testing the technology within something that is akin to a private network. And again, that private network doesn't necessarily mean that you even have privacy. If you use Basu today, which is a private ledger, you still don't have privacy within a Basu network. And I still think that banks are more comfortable using Basu because at least they know we are participating with a group of peers that we do business with on a day-to-day basis. So I think the early days were much more about controlling the environment, not necessarily having a strict definition of what is public, permissionless versus private. It was more about working only with peers that you had control of defining that. For us, this is why I give this example of Basu.

Again, I go to the previous topic of how do you have books and records on chain? For us, it didn't really matter. Are you in a private network, a public network? If you want large-scale institutions to participate at scale, privacy to us was a must-have. And it wasn't something that we could give up. We worked on the technology from the ground up where we said, rather than having just a ledger that has one privacy model, and you need to figure out how you work within that one privacy model,

we should give the application creators the flexibility to define what are the privacy boundaries, what are the control boundaries, and what are the access boundaries, as you would have in most applications on the internet, and then be able to deploy it on the same network as everyone else. We started with a much more controlled environment. So in 2020, the first version of Canton was introduced, and you could deploy it really more as a private network. And as we were developing the technology and getting more and more comfortable,

they will be able to have some security, privacy control, have all the requirements needed in order to develop it or launch it as a fully public permissionless network. we just went towards that. In the middle of last year, we had the first version of fully public Canton launch. I like to ask in the nuance category here, what's the most successful public permissionless network in the world? It may be a trick question.

Your mind goes to Bitcoin, but I guess you would say Linux or something. How would you answer that? I like to point to the internet. Some good answers I've heard of like the US dollar. I think that that's a really nice answer to. The scale of the internet dwarfs what we've. been able to achieve in the Bitcoin-Eath ecosystems. And I think it has all the characteristics of what you've all just said, which is, it's a

public, permissionless ecosystem. But if you're a participant in it, you determine the terms under which you participate. Am I running your nap? I can be wide open and everything is accessible or I can have really strong gates. Am I providing some services? I can have it available to anybody or I can determine who I interact with. In the end, there wasn't one model that won everything. on the internet, we have a super heterogeneous ecosystem.

So to pretend that everything is going to be fully public, fully decentralized, and that's the only way that you'll be able to succeed, I think it just closes the door on a whole area of experimentation and use cases that clearly don't benefit from that. And even the things that have been runaway successes in these public networks like stable coins, you have decentralized validation of an asset that the issue can take back at any time. It's almost a contradiction in the tools versus the outcome. And so just acknowledging these contradictions and dropping the pretense and the religion

about what it means to use the public network really opens up the design space of the types of things and the tools you can give to the people that would join the network to find that sweet spot that works for them. Because ultimately, if it's not value for them and it's not value for their investors or their counterparties or their customers. None of this is going to grow. It just kind of becomes an echo chamber. We wanted to make sure that we gave everybody the tools to figure out the right level of all those different levers for them to solve a problem and achieve an outcome.

This was brought to life for me and really where I started to understand what you guys are doing at a more granular level is when you started to tell me about some of the use cases around collateral management and how you're coming. customers were using the network. So maybe you could talk a little bit about that use case around collateral and why this setup is optimal for that use case. What's really interesting about collateral is today it's a very low velocity project. It's the backbone of why you can trade, you're leveraging assets. It's what gives you your margin ability. It's what allows you to settle. It's what allows you to de-risk your counterparty risk. But then we really only have the facilities to move them efficiently

maybe once a day during business days. And markets are increasingly 24 by 7. Markets are increasingly international. They're interconnected. And the limiting factor today is really balance sheet and collateral efficiency. There's somewhere in the neighborhood of $230 trillion of eligible collateral in the world. I think we can use barely 10% of it in the workflows that we have today. People are balance sheet constrained and simultaneously significantly underutilizing the collateral that is available, not using it at a velocity that's going to actually de-risk the process. You know, if I have collateral on a Friday, someone goes bankrupt on a Sunday and I walk in Monday, I'm walking in a fire sale risk.

So just being able to take these things and say, great, I want to do a variation margin cycle with my counterparty every two hours. You're taking massive amounts of risk off the table. And in order to do that, you have to have a ledger that allows you to move these assets in a safe and secure way with high velocity, with high certainty, but also with privacy. because when you're thinking about a derives position, that variation margin is giving away a lot of information about, well, maybe I'm short deltas or I'm short volatility, and that's why I'm net delivering on this movement.

And you can start to learn a lot about someone's position by just watching the money movements. And then that can turn into market manipulation problems, that can turn into market interference problems. And ultimately what that means is that I think that the whole crypto ecosystem is undersized. Because when you start to get into those transactions big enough that people would want to take advantage of that information, you're going off-chain, you're going bilateral, you're going away from these automated systems. And you're effectively just entering back into the very low-velocity, high-counter-risk environment that we had before. Without privacy, without the mobility of these assets, you can't really fundamentally change the backbone of markets, which is how you settle and manage this risk. content's really designed from the ground up to support those types of capabilities.

So whether it's treasuries or Eurobonds or guilt or money market funds or wrapped crypto or stable coins, all those things move with the same velocity and getting the liquidity figured out between them and being able to post all of them and substitute all of them and find the cheapest thing to deliver is a killer use case for blockchain. And then without privacy, you'll just never get to the level of scale and adoption to break out of the casino. That's what we're really excited about is just to demonstrate how we can do this crossover. We can solve problems in crypto, but just as equally, if not, more importantly, can solve problems in tradfai that have the same characteristics.

I think for those who have participated in crypto till the year of 2014-15, if you wanted to trade on multiple crypto exchanges, you had to over collateralize all of your accounts because you couldn't capture the opportunity fast enough by wiring money from one exchange to another. And then Ethereum showed up, and then Tether showed up, and voila. Suddenly, the efficiency in crypto just blew up. And I think you could actually see that in markets from volumes, that suddenly I could actually manage my capital much more efficiently because now I can move US dollars all of the world 24-7.

Now, in crypto, they accepted that that happens without privacy. I was just a given. I actually think that the same phenomenon exists in Tratify markets, but at 100x the size of the markets. So imagine if a similar phenomena were to happen in TrotFi by mobilizing collateral 24-7 to what you saw in crypto when stable coins were introduced. That to me is what gets me excited is I just see that paradigm shift and that definitely can exist. I mean, just recently you start seeing exchanges talking about 24-5 or 24-7, well, how are they going to do? do that. Currently, the solution is over-collateralize all of your accounts, but that's not capital

efficient. If you think about interest rates where they are, massive movements in the market right now, you cannot capture all of these opportunities unless you have the balance sheet to do that. I think the opportunity here is dramatic, and I will add to the point about privacy, I don't think that Tradfai organizations would accept to do that under Tradfai activity without privacy and crypto, they kind of accept it. The interesting thing is since we introduced Canton, it's now even the crypto-native players that are coming and saying, hey, how do we move these assets with privacy because we don't enjoy people front-running us? Because they keep on watching all of our wallets and all of these non-privacy chains and people do front-run them. So it's interesting to

see that even now the institutional crypto players are very focused on privacy and figuring out and how they can officiate their activity. It's interesting because in crypto, it was almost just that the technology for privacy didn't exist in the early days. And so there's a path dependency here, whereas if you could have done this out of the gate, if Bitcoin had some privacy layer on top of it, it very well could have been the way that that market evolved. But it's just kind of interesting that it didn't have privacy out of the gate.

And so people just sort of adapted to it. But later, entrepreneurs like yourselves come across and make it better. So it's interesting to watch from the outside end. I really like how Zuko talks about this. In the early days, he used to always talk with Satoshi about how the transparency was a major bug and a major flaw, and that it was very hard for them to achieve their ideal without it. Then somewhere in like 14 through 18, transparency became the selling point. The bug became the feature.

And I think people are coming back to realization that the transparency is a major flaw in design. But the thing is, it's going to be very difficult for people to pivot out of that. because so much of the design of what they've built relies upon the full transparency of the system. Everybody built their integration, assuming they have access to all the data. Everybody built everything that they do in these ecosystems, the DAPs. It's more than just let's try to bolt on some privacy preservation. And it really leads to a fundamental rethink about what it means to be connected to these ecosystems and how you interact with them.

Another point that you're seeing as very popular now is the conflation between zero knowledge and privacy. Maybe that's an important thing to distinguish is that we don't consider zero knowledge as a privacy solution. It's an anonymity solution. It's a way to obfuscate the inputs from everyone involved in the transaction. And again, if you bring it back to, I give this example, imagine you had a zero knowledge algorithm called Sam Bankman-Fried, which you just give it collateral, and Sam-Bankman-Freed tells you, great, we have the collateral. It's here. It's with us.

Until you have the market meltdown, and you need to call on that collateral, and then you find out that there was a bug into zero knowledge, and the collateral was actually never there. To us, that is not privacy, that, if anything, opens the door for systemic risk within the system, because we know there's always bugs. I think one of the critical things that we've been thinking about is privacy, how do you make sure that only the stakeholders to the transaction have full visibility into what's on the ledger

where those that are not stakeholders to the transactions just actually don't know set activity have happened on the ledger? And I think that that's a very big difference. And I think the reason why ZKPs are now being pushed as a privacy solution, it's because it's a nice bolt on on ledgers that haven't thought of privacy from first principles as like an anchor tenant in their design. And it's much more comfortable now

to add zero knowledge as an afterthought. So to bring this to life maybe on how this would work on the chain itself, say I am moving treasury collateral over to you guys. What would the public see on the blockchain itself when I'm making that collateral movement? They wouldn't. This is really the nice thing about Canton is that you could actually have two different applications that have very different privacy models. Let's just imagine that Matt, you're my prime broker, I'm your client, and you send me variation margin calls throughout the day. We decided that my activity with my prime broker is fully private to us.

We don't want anyone else in the world to know about the margin calls. But we do know, let's just imagine that we have a stable coins, in the case of Circle on Canton, it will be with privacy. But let's imagine that Circle wanted to issue it very similar to how stable coins have been working on other chains, where everybody gets to see everyone's account balances in a pseudo-anonymous manner. The nice thing in Canton is that you could actually compose a transactions of two applications that have very different privacy models, still compose a transaction.

So imagine you gave me a transaction, which is you created a variation. margin requests, and now I want to fund it with USC. You and I'm at will actually see an atomic transaction between me satisfying the variation margin versus the USC moving between the two wallets. Eric, who's not part of that transaction, would only see USC moving between two wallets. He wouldn't know for what reason. Why? Because he's not a stakeholder to the prime broker transaction. And that's really, I think the power of Canton is the world is not homogeneous. It actually has the capability of composing multiple applications that have very different privacy settings without leaking information between them. The way that Canton works dynamically calculates who are the stakeholders to the

transaction and it knows how to have effectively consensus across only those stakeholders. and you can have, like I said, multiple levels of privacy. I can think of so many examples where having that feature in the stable coin market would make the staple coin market better and larger. Think about payroll use cases and regular vendor payments that you wouldn't want fully disclosed. It's shocking that the stable coin market has gotten as large as it has without this. I totally agree.

I mean, listen, we have customers that are doing life insurance natively on-chain. they actually do not have any other system of record beyond Canton. And the reason why they got comfortable is because of the security and privacy features of Canton. And now they are exactly talking to us, hey, how can we integrate something like stable coins to actually process some of the transactions? And the reason is because they can actually do that with privacy. So they totally see the value of, hey, if I have. I have these assets natively on chain.

I can securitize these products much easier. I can process transactions. I can process payments related to them. But I'm not sacrificing any of my fiduciary duties to my clients and customers. In the early days, I'm sure you were going to a lot of institutions and they were just trying to figure out what the heck is Bitcoin, explain to me, blockchain technology. These days, maybe some of that's still going on. I suspect it probably is at some institutions.

but then you have other institutions that are mentioning Canton on earnings calls. It's a very interesting market to observe from my side where the discrepancy is crazy here. So what does it look like for you guys when you show up at an institution and how are you talking about the various business cases? I don't know if it's because of fatigue or because I find it to be more productive to not talk about blockchain. It's incredible when you explain to people, for example, we do this project with I Capital, putting private equity on chain and the efficiencies, the defy opportunities that now you can effectively

encumber these assets to get lending against LP holdings and things like that. It's amazing when you go to customers and you understand and appreciate their business and you understand where they make money and where they spend dollars. And you don't come to them with a brave world kind of vision of how they need to change everything that they're doing. And you're just saying, look, we've done AXYZ with these type of customers that are very similar to what you do. And look at the result that they have. I just find those conversations to be much easier and much more productive. And it's not about my blockchain is bigger or better or faster or cheaper than others. It does eventually translate into hard

questions about privacy. I can tell you when I had recently a meeting with a very impressive woman at a clearinghouse, a very important clearinghouse, and she dismissed the whole art of the possible and everything. She was like, you want to talk to me about collateral, tell me how you perfect title. And I love that because she kind of got to like, don't tell me about I can move assets between wallets fast enough. If you really want to talk collateral, it means that you know, what is the meaning of perfecting a title? What does it mean to be bankruptcy remote? And if you can convince me that you've thought about those things

and your technology can solve for that, then we'll move to the next phase. So again, it's kind of a very similar angle that what has worked really well in the last few years is talking about business outcomes without having to say, hey, you need to reset everything you know about your world. You need to kind of throw away your 20 years,

of experience, and we're just going to do everything fresh from the ground up. When you don't talk like that, you talk about incremental gains that are much more anchored in reality. It ends up being a much more fruitful conversation. They get very excited by the tail of opportunity. That's what I think has changed a lot in the past five years, is that some things have had good success, and so they can see how things can get beyond that initial phase. So I would say that the body language is a lot more leaning forward than defensive. But to Eval's point, if it's not about how it's going to transform their business to be safer, cheaper, make them more money, make their customers more money, it doesn't really matter what's under the hood. So being outcome driven and focus on it,

and then making sure that the tech doesn't run into all the reasons you're going to get vetoed. It's still a process. It's still a conversation. But people are more inclined to want to find a positive outcome and an answer to move forward than they were maybe five years ago, but you're still going to go through the exact same vetting process. It's really impressive what you guys have built from an ecosystem perspective. If you just take the lens that this is not necessarily always just a technology problem, it's ultimately like a network effect financial services landscape that only works if a lot of different counterparties are all on the same network. So how have you guys thought about crafting that network as you've grown the organization over time and trying to

figure out the use cases that have what I would call a minimum viable ecosystem. They don't work if just one or two firms get on board. You'd be surprised, though, how often you can find an entry point where it is enough that there's one or two firms. And so it's really useful to find those and start. I mean, as an example, the repo project that we have with Broadridge, we started with intra company. So the London versus the French versus the New York part of the organization or the deposit

the tokens that are doing well with transfer pricing and internal new treasury management, sometimes one's enough because within an organization, there's an ecosystem already. So finding an entry point is really important, but then to really accelerate that and turn it into something meaningful, it's about finding those early connections into something else. It's more important to find the connections to other applications than it is to have more users in your application. My example that I like to talk a lot about is if you think about capital markets, love them or hate them, they sit underneath all the crypto-native products that we rely on the most. When we talk about a stable coin, it's sitting in treasuries, it's at

bony, it's in the repo and reverse repo market, it's holding money market funds. So you have a fundamentally crypto-native asset that is buoyed by the strength and power and trustworthiness of capital markets. But it also means that if they're accessing those capital markets in traditional ways, that they're held back by whatever those current shortcomings are. Cool, stable coin, you've actually only solved a portion of the problem, being able to instantly create or redeem that, 24 hours a day, being able to deliver treasuries, not just money through the Fedwire, being able to face them in repo, 24 by 7 repo, intraday repo, over the weekend repo, custom tenor and term, all that sort of stuff, that's where we look for the first connections. You've solved an immediate problem by

issuing an asset. Now, where can you use that as collateral? Or can I compose that with a cash movement? Or can I automate some of the lifecycle events through this other system? And that secondary app connection is where things really take off. Because that's where we think that blockchain really is the technological innovation is in the composability area. Earlier, we're talking about private blockchains. The reason we've always been allergic to getting classified as a private blockchain is because you're throwing composability up the window, which is the big opportunity here. So we've always been focused on making sure that no matter how we've come to market, no matter where we start, no matter how narrow that entry point is,

composability is a short-term goal and a technological possibility because of what's built into Canton. If you go again back to the previous question about what we're talking to customers, I think for us in the name of the chain Canton, why Canton? Canton is really, first our team is in Switzerland who built it, and this is more of a tribute to them. But it's also, if you think about Switzerland as really a federation of cantons. They all kind of have their nuance, different tax, different language, different rules, but they all interoperate under Switzerland. The goal of the network is really to create user experiences if I'm connected to one network,

but really under the hood, it's many, many cantons that all interoperate with one another. The reason I bring that up is because when you think about the beachheads that we've done, in many cases, they were kind of a closed network that solved a very specific problem for that network. but because they all build on the same protocol, eventually they all come together. So now USDC comes to the network. Oh, wow, all of the cantons that are just doing transactions on the asset side now can't transactions to get rid of their traditional payment provider to settle the cash leg using USDC.

We have a life insurance company. They were solving life insurance and annuities business. but now we have private assets that exist on Canada on like private credit, private equity. Guess what? You can encumber those assets into a whole life platform. And I can keep on giving you examples, securitization of mortgages, horse racing, physical net gas, collateral, security lending. All of those beachheads were solving very specific problems. But eventually, the long-term strategy was, as long-term. as they can hold under two feet for long enough, eventually as the technology becomes more and

more popular, you are starting now to see these connections between them. We've done repo and Canton. Guess what? Now when you have US treasuries or Eurobonds and guilds on Canton, well, now suddenly a stablecoin provider can do 24 by 7 repo to do a 24 by 7 create a redeem of a stable coin. The long-term view was very similar to the internet. solve an immediate efficiency within a localized network, but long term as the technology becomes more and more popular, you will start seeing these composable interactions throughout the network. Yeah, it's such a great example of the intranet versus internet, and you can see how that

evolves. It's also really clear that you must be talking to a lot of different institutions that have different pain points. Some of them are probably looking at cost savings and others. You can just imagine new markets getting created here, where there are just things that wouldn't otherwise be possible without a technology like this. So I want to switch gears here a little bit just to the token itself on the Canton network. So this is not a theory.

You guys have this in production. It's working today. People are on it. So maybe you could talk a little bit about the token itself, the public network, how it works, why it matters. First of all, maybe just about generically speaking, the token, we believe that this space have had too many white papers selling tokens to retail. And for us, we wanted to go back to the original thinker behind this movement who said the technology needs to prove itself.

And as a result, the token will be earned and will appreciate in value. So first of all, we decided with everyone else who helped us launch the network that we're going to do a fair launch. We didn't do a pre-mine digital asset doesn't sit on 60, 70, 80 percent of the token. We wanted it to be a decentralized network, and we wanted the network to gain value because it proves its value. A lot of people in crypto thought we were stupid for doing that, but we thought it was extremely important. Second of all, we wanted to make sure that before we list the token, you could trade the token today, you could do secondary trades. But before we list the token, we actually show real world utility at scale running on the network, and that is still on track to get listed later this year. and I think we will be hopefully top 10 from dollar utility actually on chain when we get listed,

and that will be exciting. I think that when you look at Bitcoin, it is an asset class. It's not a blockchain. It's an asset class that has a blockchain to drive that asset class. And therefore, it makes sense for those that secure that use case to earn all the reward. When you start thinking of smart contract chains, it's more of a platform. And we believe that this idea that miners or validators earn all of their reward is not the right incentive structure. Why?

Because it is the builders. It's the users that actually create the value. They think about the business models. They think about new creative ideas. They do marketing. They go to conferences. They have meetings. They work really hard to make their DAPs or DFI protocol.

goals a success. And I think that it is pretty odd that no one in the smart contract chain to economics world came and said, well, if they drive all the volume and as a result, all the fees into our networks, they deserve a big chunk of their reward. And this is not a new concept. You have influencers. You have interchange. You have just so many different things where there should be some kind of a shared economics with those that drive the success to the network. So I'll leave it at that high level to let Eric kind of explain the specifics. But it's this idea that we wanted to make sure if you come to build on Canton, if you invest time, effort, and you become successful, we believe that a big portion of the two economics should go your way for that investment.

Very similarly, people ask me all the time. Like, you guys have been at this for over 10 years, What was the point of the coin and why the timing on it? Timing is also a question we get a lot. And so for me, it always starts from the same place, which is about aligned incentives. What I think the crypto ecosystem has done an excellent job of doing in the past roughly 15 years is experimenting with different incentive systems and creating incentive systems where there are first mover advantages

where technologically there may not be. Network effects don't necessarily have first mover advantages. And so to be able to create those opportunities is very important. It helps you kind of bootstrap an ecosystem. It creates the incentive to move quicker rather than slower. It entices the more risk-loving early participants. I used to always really respect and love these crypto networks for being a really strong filter for people that want to participate in these apps.

I think that that's something that gets overlooked a lot is you have a very active community of people that are willing to adopt the latest decks or the latest chain or the latest lending protocol or whatever it may be. And I think a big part of that is that the incentive structures that have been designed around these networks have encouraged and cultivated that community. It was time to do that in Canton. I've jokingly sometimes said we built a network the way you might have built a strip mall in the 90s, anchor tenants first, and then open it up and broaden it to a bigger ecosystem. And part of that was about aligning the incentives between all the participants that would come early. So Deval's point concretely in every single block,

there's three trunches of mining rewards. One third of all the rewards that will ever get minted over the first 10 years of the network go to the miners, which is very small percentage as compared to other networks, which generally are right around 100%. If not 100%, like we mentioned, there's no pre-mine or pre-sale. So every coin that will ever come into existence gets earned by somebody doing something. And one of those categories is being what we call a supervalidator, but just think of it as mining.

The second category is going to users. Think of it as like a transaction subsidy. It helps cover some of your expenses of using the chain. So the more active you are, then the more of that validator reward or user reward you'll receive. And then the preponderance of the reward, 50% of all the coins that will get earned by anybody over the first 10 years go to applications

as measured by the network fees that they generate. And this is, I think, relatively unheard of been the other networks. I haven't seen other examples, certainly not at the scale of the reward that we've done. And in its absence, what you see is a fairly large grant ecosystem in a lot of other networks. It makes me uneasy, uncomfortable. It's just very transactional, can build very mercenary-like behaviors, doesn't necessarily produce the outcomes that the chains are hoping for, the communities are hoping for. And it also changes a lot. You bet on startup A, but actually startup B was the winner, and they went into a different ecosystem.

So what you want to do is have something that's way more responsive to how fast the ecosystem is moving. So in Canton, in Block Zero, if this one app is responsible for 35 of the network fees generated, in Block 1, they're going to take 35% of the application reward. We think that with all the difficulties that come and helping foster an ecosystem around that, it was important to try to do that and to try to align the network outcomes with those, that are putting in the equity and the sweat and the tears to make it happen. Time will tell if this was a better way to do things. We're pretty excited about running the experiment and creating the opportunity to try a different model.

It's resonating with people a lot. You see behaviors change a lot. Ordinarily in other networks, you get paid to stake. And think about what that means. Behaviorally, you're taking things out of circulation and you're doing nothing, and that's how you get paid. And in Canton, it's the opposite. You have to put stuff into use to work. You have to do stuff on chain to get paid.

And so it's really this behavioral economics that we're trying to engender by doing rewards this way. To me, the most exciting sign, actually, of the tokenomics is some fairly large trad-fi organizations sitting with us doing business projections based on tokenomics. I don't think I thought I would live for that day to say that I'm sitting with some very traditional clients thinking about tokenomics models of saying like, cool, I have my business model. This is kind of how I price it. But if I now drive X amount of volumes into Canton, let's simulate the price of Canton coin, say that we do X amount of the activity, this is how much would be our reward.

This is how much we extrapolate as a revenue. and these are very traditional organization. To me, even the exercise is worth it. I think it's fascinating. I think you'll even have business school case studies written about this time period in this technology because you look at how the credit card networks were built or look at how Swift or CLS evolved. And this could just be the next generation of how community-owned infrastructure ends up coming together. That's exactly it, Matt. What you said is literally how I pitch sometimes this idea is the way we need to think. think of public network is a network-owned shared infrastructure that is decentralized.

And therefore, if you think about this, if you take an analogy that this is a decentralized cloud or a decentralized computer, and you're saying, I am driving X amount of revenue towards that, well, guess what? I want a cut of that revenue. If I'm creating a multiple for this community-based infrastructure, I want my piece of flesh as a result. of that. Totally. I'm super impressed with what you guys have built and we're excited to be a part of it. Where can we send people that want to learn more, get involved, join the community, start building things on Canton? The fastest way to be able to join the network is if you go to sync.global, that's the Global Synchronizer Foundation site. There is a series of links you can

follow there about getting a validator or joining the ecosystem and connecting to the network. We have a bunch of ecosystem partners that help facilitate access as well. So even for someone who's not technologically savvy, they can join, they can come through a wall provider, they can come through a number of different entities that support the ecosystem. And you can find a healthy list of who that is at sync.global and also at canton.network. Incredible. Well, thanks for joining the podcast today, guys. Excited to monitor what happens here going forward. It sounds like there's a ton of buzz on Canton and really excited just to see the use cases. evolved. So appreciate all you're doing. Thank you, Matt. Thanks, Brett.

Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island.Vc. To listen to all of our podcast episodes, please go to on the brink dashpodcast.com or just click on the tab in our website. Thanks for listening.