The Breakdown - The Breakdown Weekly Recap | Feb 1 2020

Episode Date: February 1, 2020

The full week's episodes in one (plus a bonus TL;DR on ZeroHedge's deplatforming.  Tuesday | Narrative Watch: The Future of Fud Wednesday | Exclusive Interview with Binance US CEO Catherine Coley announcing staking  Thursday | The Unsolved Mystery of How To Fund Public Protocols Friday | The Founders of Chainlink and Synthetix on DeFi, Derivatives and 25 New Decentralized Price Feeds

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to the Breakdown. It's Saturday, February 1st, and as every Saturday, today we are wrapping up the week and basically putting together all of the week's content for one big super episode. For those of you who are doing errands or long runs or what have you over the week. the weekend, who knew just want to hear one big extended piece of content all together. And as usual, I'm going to just give a few thoughts on the week to kick it off. This week was interesting. In some ways, it was all about the price, right? We had a real

settling into this 9,000 to 9,500 price for Bitcoin, which is obviously very exciting to see. We also saw some interesting announcements that maybe suggest part of where the industry is. In the defy world, we had ChainLink publishing a set of 25 of its decentralized price oracles and pooled together hitting the milestone of a million die. In the world of staking, we had Binance on the show on Tuesday. We had Catherine Coley, the CEO of Binance U.S., on to talk about Binance U.S. offering staking on Algo and Adams and potentially incorporating staking into their review process for future assets.

We also saw some interesting culminations of questions around how to fund public goods, how to fund public protocols, particularly in the context of Zcash, who have voted to create a new 20% dev rewards. So when the founder's reward runs out this fall, they will switch to a new dev fund in which 80% of the rewards will go to minors and then 20% will be divvied up 7% for the electric coin co, which is basically the founders, 5% for 4%. the Zcash Foundation and then 8% for third parties to get new people working through grants. Over in Bcash, meanwhile, Bitcoin Cash, we saw Roger Vera and Bitcoin.com's mining pool support for a dev fund within that community. So a lot of interesting things going on as it relates to public funding. And we ended the week with some interesting meta questions around information and deplatforming. So Twitter removed zero hedges. account. Zero Hedge is a popular libertarian-leaning blog that effectively just takes content from

lots and lots of other people, republishes it with attribution, and all of it is to craft this narrative of the world coming to an end in some ways, which happens to overlap with crypto and Bitcoin in some cases. And they were removed by Twitter for theoretically banning their policies around personal information. They published basically a conspiratorial article about scientists at the root of the coronavirus, and they linked to public information about those scientists. And so there's been a ton of argument back and forth around whether or not this was an actual violation of Twitter's policy, but then also a meta conversation around what de-platforming actually means. For me, the interesting challenges that our debates are almost inevitably fraught and just unsort-outable because we treat

these platforms like Twitter, like Facebook, like whatever, as public spaces or as spaces for public speech. And that's just not what they are. I don't believe that that's what they are. What they are is algorithmic amplification lotteries. They reward certain types of content, usually that pushes to extremes and they reward those extremes and pushing further and further and further and further and closer and closer and closer to those extremes until you've crossed some line. And where that line is can feel very arbitrary. Now, some people have made the point that the fact that any platform has the power to take you off for crossing an arbitrary line is an example of tyranny. To me, it's just icarus. It's the icarus line of content in a world that amplifies extreme viewpoints.

insular viewpoints and unnuance viewpoints. And I think that we can't have a conversation about Twitter deplatforming or any platform and the rules that they have as it relates to public speech without being willing to actually talk about the extent to which these are actual public spaces and deal uncomfortably with the implications of that. If platforms have hit a significance that is so big in the context of the social fabric and the conversational fabric of the society we live in, then we may have to actually think about treating them as public spaces, which would mean a totally different regulatory regime, which would mean uncomfortable things for those who are kind of the most libertarian and free speech oriented, but also who want these platforms to not

be able to control or take people away for saying things that are abhorrent to them. So there's really interesting and very challenging questions here. And I often think that when we debate just whether we like Zero Hedge or not, we're so far outside of the actual conversation that it's kind of useless. But we'll probably talk more about this next week. I didn't actually even get to it on the breakdown because it's happened over the last 24 hours or so. But that's my little mini rant, just a fun Saturday breakdown for you guys. I'll probably be talking more about this on Twitter or this weekend if you want to go check it out. But either way, let's now get into the actual meet I'm going to do. I think there were four episodes this week. I wasn't around on Monday.

So hopefully you have a great time this weekend, catching up with friends, family. And if you do have some time to kill, enjoy these next few episodes. Thanks to the guests who came on this week. We had, as I mentioned, Catherine Coley, the CEO of Binance US, and then Kane Warwick, the CEO of Synthetics and Sergei Nazaroff, the CEO of Chainlink on Friday. So it was a really cool week with a lot of interesting perspectives, and I hope you guys enjoy it. Have a great weekend, and I will chat with you on Monday. Peace. Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, Crypto, and Beyond, with your host, NLW. The Breakdown is distributed by CoinDesk.

Welcome back to The Breakdown. It is Tuesday, January 28th, and today we are talking about the future of FUD. Why are we talking about FUD on a day that Bitcoin is soaring, where we've been over 9,000 for 12 hours at this point, where things seem to be going well, where there's excitement in the markets and on crypto Twitter and in our conversations? The reason that we're talking about FUD now is that it's only in bull markets, it's only when things are going really well that FUD starts to appear. FUD, especially that comes from outside this community. When things are in a bare market and it's not quite as loud, really no one's paying attention and the fudsters are off-futting something else usually.

It's when things get good that fud starts. And I think there are a few new strands of fud, as well as continued strands that are positioning themselves as we look to potentially a better market going forward throughout the rest of this year. So I wanted to take a few minutes to just explore three different emergent forms of fud and what we might do to combat them in advance. FUD number one, rooting for disaster. So Bitcoin has been steadily gaining over the past couple weeks. That trend continued unabated over the last two days and interestingly coincided with a much larger market

sell-off in traditional markets. Now, that sell-off was attributed widely to fears around the coronavirus and the spread of coronavirus and what that means. And so you have to a had this scenario, which happens every once in a while where Bitcoin is going up when everything else is going down. And that creates questions and narrative questions around whether Bitcoin functions in some sort of counter-cyclical way. If it's operating as a non-correlated or inversely correlated asset, people bring up the question of Bitcoin as a safe haven. Now, I believe these questions are an important narrative exploration. Part of what it means to be an inversely correlated asset or a safe haven style asset is that people believe that an asset is going to

respond that way, right? There's the intrinsics of an asset, but then there's also just the expectation of market behavior. And so when we see over and over again, Bitcoin perform in a way that seems to be opposite from stocks and traditional equities, it lends credence to and in fact reinforces this narrative of the way that Bitcoin performs, which becomes a bit of its own self-fulfilling prophecy. This is something we've had Travis Kling from Ikega, asset management come on to the show to talk about before, right? The way that Bitcoin becomes a safe haven asset is money managers start to treat it as such because they believe other people will think it is going to function as such, and then it actually just

does. So I think that this is an important just exploration in the context of this emerging asset, this emerging asset class and this emerging market that's worthy of the consideration. However, there is another way to look at this and another accusation which can be leveled, which is that people in the Bitcoin community are actually rooting for disaster and rooting for bad things to happen. This perspective was on display yesterday in an op-ed that was published on Financial Times, Alphaville, by Isabella Kaminska. So just for background, Alphaville is historically antagonistic to Bitcoin.

What's more, they have repeatedly given folks like Craig Wright a platform long after the rest of the crypto community or most of the crypto community has moved beyond. So it's relevant background context to understand what perspective or what base perspective we're dealing with. However, they wrote a piece yesterday called Coronavirus is good for Bitcoin. And they were effectively making the argument that this whole Bitcoin community was rooting for this thing to happen because it would drive the problem. price of their bags up, right? It would increase the value of their bags. So here's a direct quote

from that. Don't let moral anguish over the deaths of potentially thousands of people get in the way of an opportunity to shill some crypto and pump up the price of Bitcoin. As ever, crisis is opportunity for cryptocurrency lovers. In the past, they've seized upon everything from a banking collapse in Cyprus to social breakdown in Venezuela to Brexit to rationalize the case to buy more M-O-A-R Bitcoin. Clearly, coronavirus was not going to be different. But how have they squared the logic this time around? Duh, coronavirus is spreading through the exchange of dirty, filthy fiat banknotes. So don't be a dummy. Protect yourself and turn to digital-only crypto.

No lurgy's there. They then go on to show two tweets from two basically troll-bought accounts that are clearly bots. Michael Beck at Michael 353117 that doesn't have a photo. And Trexia XRP that are saying this stuff about... the coronavirus being spread via fiat. So effectively what they're doing is critiquing the whole idea of the industry for rooting for disaster while also labeling us as effectively crazy conspiracy theorists who are saying that this virus is being spread via paper money based on two effectively fake accounts that are designed as bots to show a particular cryptocurrency. This is

a pretty dismissable argument on the one hand. The fact that its source is what it is, and there's that long history. The fact that the sources for this argument are these effectively fake accounts. However, I think that we do need to at least pay attention to the perception of this idea of rooting for disaster. And in fact, some others made the point who are in the community, who are not just out to get things and who are in fact very invested. Josh from blockroots.com, Josh Rager on Twitter, says the coronavirus is almost becoming clickbait for crypto content creators. The short answer, BTC has made no abnormal price changes during the recent panic waves, though stocks in China have taken a significant hit. BTC is still ranging between 8K to 9200.

Josh's point here is that for those who have been following the technicals of Bitcoin recently, there's nothing to suggest anything abnormal out of this. This looks like exactly what the market is supposed to be doing, even outside of big shocks. And his worry, his concern, his fear, his accusation in some ways is that it's too easy every time there's some big world event to use that event to get clicks for content by asking how it is isn't impacting Bitcoin. And I think that he's saying there's clearly, it's not related in this case. So my take on this, I, unlike Josh, have seen very little clickbait-type content around the coronavirus and the price of Bitcoin. What I have seen is a lot of people asking legitimate

questions about to what extent Bitcoin is operating as a macro asset that responds to macro events. I think this is one of the most important questions, and one of the most important shifts that Bitcoin might be undergoing right now is transitioning into something that actually does respond to larger news in the macro markets. And I think that it's reasonable and, in fact, important for our community to be asking these questions in this context. That said, I think that we could also take the example of this Alphaville piece when combined with folks like Josh, who are in the community, as a warning that we have to be careful about how we ask those questions. We have to be careful about any hint of triumphalism or any hint of, again, rooting for disaster.

The point of having a hedge against big changes and big uncontrollable societal shifts isn't to hope that they happen. It's to have a hedge against them. And that's a really important distinction and a really important difference. So what can we do to get out ahead of this flood? First has to do with our behavior, right? We have to be better than it. We have to be better than this fud. We have to show that when this fud comes up, it's not true. I think in some ways, Alphaville hurt itself by picking such preposterous examples. You know, it wasn't a Jameson Lop tweet that she grabbed or something like that. It was, again, these two random Shobot accounts. We have to be better so that there aren't good examples of triumphalism around disaster. We have to be conscientious about the idea that just because

we're hedged against hard, difficult situations. Many people aren't, and that shouldn't change our empathy for them. So I think part one is we have to be better than it. Part two is we need to tell the alternative stories, which are, of course, about agency and autonomy and people being able to escape terrible situations through the use of Bitcoin, through the use of cryptocurrencies. Alphaville was calling out Venezuela as an example that had become triumphant for us, and some just example that we smashed all over the place, well, rather than just just a little bit of just it being theoretical, let's tell stories of the people who have been able to use Bitcoin to change their family's destinies, even if it's a small handful of stories. Let's appreciate the

fact that a small handful of stories of escape from a local monetary regime, even if it's not the world-scale change that we eventually believe this can be, is something fundamentally different that would have been impossible even five or ten years ago. Let's tell the real stories rather than just focus on the theoretical and focus on the big boisterous themes that can, some crowd into our crypto-twitur discourse. I think those are the two parts. We can be better than it and we can tell stories of the real people who have actually used these assets to escape terrible situations.

So that is FUD number one, rooting for disaster. FUD number two, the continued crime narrative and the money of our enemies is our enemy. So during the hearings around Libra last summer, Congressman Browell Sherman from California took his five minutes to just talk about the perils and plight of cryptocurrencies and why Americans weren't going to support cryptocurrencies in the long run and why the U.S. government should be incredibly antagonistic towards them. And one of the points that he made was that these were monies for terrorists and drug dealers and basically enemies of the state. And that the only people who wanted to use these monies were people who were people who

were enemies in some way. He also made the point that wait and see what American support for cryptocurrencies looks like after it's discovered that the next act of terrorism is financed with Bitcoin or is financed with crypto. So that, I think, sets the tone for what potentially is a new generation of this crime narrative, which has, of course, been with us since the beginning. So in some ways, this is not a new narrative, a new fud, so much as a continuation and an evolution of FUD. So what does this look like in practice now? Well, one of the areas where I think it is most problematic potentially, as it relates to

U.S. government opinion about Bitcoin and about cryptocurrencies, has to do with economic policies and sanctions, in particular Iran. As a, for example, Iran is pretty much country non-grada number one for the U.S. right now. And I can imagine a scenario in which the U.S. sees increased mining or Bitcoin mining and cryptoactivity in Iran and uses that as a leverage point to effectively be against the underlying asset, even though it, as we would all tell them, is a permissionless asset and that's what makes it what it is. Just by way of example, just yesterday it was reported that over a thousand Bitcoin miners had been granted licenses in Iran under a new regulatory

regime, which is meant to effectively enable the economic power and potential of Bitcoin, while also keeping it tightly regulated by the government and in the purview of the government. Again, I can see a scenario in which people in government and policymakers and regulators point to things like this, our enemies, quote unquote, using Bitcoin to make an argument that Bitcoin is for enemies. Bitcoin is enemy money. So there is the state-level narrative of Bitcoin or crypto as the money of our enemies. There's also just the lighter-weight financial crimes and misdemeanors, effectively, aside of the crime narrative.

And you're seeing this all over the place. Just today, a UK court ordered BitFinex to freeze something like $860,000 worth of Bitcoin that was going to be used in a ransomware payout. Ukraine has announced that they'll be monitoring all crypto transactions. worth more than the equivalent of $1,200 USD. And you're going to see this over and over and over again, where just as cryptocurrencies become more mainstream, governments are going to want much more control and much more insight.

Now, the two ways that that can go, of course, is they actually get the insight. They work with companies like chain analysis, and it cuts down on the bad behavior, and they feel like they've got a handle on it. The second way that it goes is it just continues to amplify this perception of Bitcoin and cryptocurrencies as criminal money. So what can we do here? I think, again, there are two answers. First is that we can be good stewards and good citizens ourselves, right? We're not in this for the criminal game, presumably at least. Sorry to speak for you if I've got criminals listening to this. We can be good stewards ourselves, right? We can work within the regulatory regimes we have to. We can just do the hard work of trying to adapt to the system as it is, even as we're trying to change the system. That's part one, right? The more examples of people who are just like them and who are,

who are good citizens, who are interested and invested in this space, the harder it is for that narrative of it exclusively being for another type of person to stick. The second is alliances. I actually think that one of the most important areas of the financialization and institutionalization of Bitcoin has to do with alliances with corporations who are legitimate in the eyes of the government, pillars of the economy as it exists now, pillars of the existing financial system. When that set of actors is engaged in the same industry as we are and thinks it's important, it's an important growth area, it's a competitive vector for American companies. Again, it gets harder for regulators to simply kind of write it off with this narrative of crime. So the second FUD that is

emerging is a new version of an old narrative, which is this crime narrative. And I think the most dangerous and the scariest example to me is perhaps the money of my enemies is my enemy narrative as well. But all we can do here is be the best that we can and build these alliances with corporates. FUD number three is about climate and energy. And again, this is one where we've seen this narrative before, right? If you look at Nick Carter's original Bitcoin fud dice, energy waste is one of the pieces of thud that actually exists on those dice. However, the new tenor and the new tone has changed as the debate around climate change has also changed and gotten more intense. And it now

has a distinctly economic side to it as well. So yesterday, a independent security consultant wrote a tweet that got the whole Bitcoin community fired up, as you'll understand when I read to you. Eleanor Saita says, if you work in Bitcoin in 2020, you deserve to have all of your assets seized to pay for climate reparations, should extend to all historical earnings. Likewise, if you work in fossil fuels, of course. So there's a lot to be said about this tweet. First is the absolute depressing reality that this is acceptable discourse in this day and age, that it is reasonable for someone to tweet. And by the way, this is not just some random troll. This is a person with 11,000 followers who's worked for big companies around the world. It is acceptable in this day and age,

in this state of political discourse, to suggest that an entire group, because they have different values and different beliefs than you, should be subject to a type of economic warfare that is literally reserved for war. And when it comes to citizens, has basically only been employed in context of genocide, this is so beyond screwed up. that it's just a depressing moment all on its own, completely outside the context of Bitcoin. However, let's hold that part aside. There is a larger question here of what the likelihood of Bitcoin becoming wrapped up in a more major way in the climate change battles that are raging are.

And I think that this really isn't a question of climate change and what to be done about it. I think it's a question of the way that identity politics has infiltrated absolutely every political debate and discussion and is now simply a part of the way that we have to engage or that we're forced to engage. What about the question of what this actually means for Bitcoin? I think it's important to not overstate this whole debate, this whole dust up, right? It's one person, one person's opinion. And the whole thing, the whole challenge of social media is that it can amplify

an extreme opinion. In fact, it's kind of designed to amplify extreme opinions. So I don't want to overstate how dire or how urgent this is. More, what I want to do is I want us to get out ahead of the potential that Bitcoin becomes a political football in the context of larger energy narratives and larger climate change narratives. And I think that there are particularly good reasons that we can do that. If you talk to Bitcoiners who are excited about the potential for impact on the world as a whole. One of the things that you'll hear most often is the idea of remote energy capture. The idea that there are places where energy that would otherwise be lost because it's too costly or too difficult to transport to major centers where it can

then be reallocated around the world can be used for on-site Bitcoin mining. It creates an economic incentive to capture more energy that would otherwise just be lost. In a discussion with Joe Weisandthal about this, Marty Bent made exactly this point. Joe Wisenthal asked Marty, what's green about it, talking about Bitcoin. Marty says, capping vented natural gas that would have otherwise been extended into the atmosphere, using stranded renewables that were previously untapped, helping to drive innovation. Sound money prevents a mass misallocation of capital that is wasteful. So that's the counter argument. And the cool thing about what's happening right now is that we actually have the chance to make this real. Again, this is not just theoretical in the same way

that it was a few years ago, there are actually these operations that are spinning up to do this. If you go check out upstream data, it's got a set of mining centers that can be set up on-site around natural gas production that can take that natural gas that would otherwise be flared and vented and actually capture it and put it to use mining Bitcoin. There are many, many more examples, and there's going to be many more that come up this year. But this is a narrative that I think in some ways is one of the most important that we can get out ahead of because it's not just arguing that we see the world differently. There is a completely open space for a bitcoiner who believes incredibly deeply in the challenge and the generational

challenge of climate change to still be a bitconer because they see this as a solution, not a threat. That's different than just saying, oh, we don't think it's as big of an issue as you want. Or, oh, the market has decided that Bitcoin is an important asset and so it's worth the energy. What about Christmas lights? Right. Those are all fine. You're going to win some debates with those or at least convert some people. This is different. Even in the context of your set of beliefs that you're arguing at me, we're doing something, not just we believe something, but we are doing something that addresses it. That's the most powerful counter-narrative, counter-protech. I think it's very important that we have this conversation and we get out

ahead of it. So if you are building one of these companies that's interested in capturing otherwise unusable energy, please hit me up. Let's talk. Let's do an episode of about it. Let's make sure that more people know about you. Like I said, I wanted to dive into what I see as an emerging set of fud that I think is particularly relevant in the context of the market hopefully continuing to grow throughout this year and see what we might be able to do to get out of head of it. I'm interested in hearing from you. What are the types of fud that I missed? What are the types of fears you have around how people perceive Bitcoin now or crypto assets now and might in the future? What do you think we should do to address that fud?

Hit me up on Twitter at NLW, subscribe, nLW.substack.com. And as always, guys, thanks for listening. Thanks for hanging out and thanks for your discussions. I will be back tomorrow with another episode of The Breakdown. Peace. Welcome back to The Breakdown. everyday analysis, breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk.

Welcome back to The Breakdown. It's Wednesday, January 29th, and today we have a very special guest, Catherine Coley, the CEO of Binance U.S. Binance U.S. has just announced that they will be adding staking to the platform. And I invited Catherine on to talk about not just the news itself, but the broader philosophy of how Binance US thinks about the market right now, why they're interested in adding staking, and what their goals are for the year to come. For me, staking is interesting as it represents two things. One, it's a way for people to get yield, get value from their crypto assets without having to

buy and sell and trade them. Second, it's a way for people to actually participate in securing the network. In this way, I see staking as something that is both the natural evolution of the space, but which is also a fulfillment of the original goals and the motivations of decentralization that pulled so many people into this space. At the same time, I think that the biggest barrier to participation in networks through staking is going to be around UX and high barriers to entry. And so I think it's particularly interesting when an actor like Binance comes in,

and actually gets involved. By the end of this interview, Catherine and I are really not so much focused on staking, but on this broader idea of lowering the barriers to entry and what it means in terms of where our goals should be for 2020. All right, I am here with Catherine Coley, the CEO of Binance U.S., Catherine, thank you so much for joining us today.

Thank you. Excited to be here. Yeah, so I guess we're going to get into some exciting news. That's kind of the point of, the point of, this and we'll talk a bunch about it. But first, just for folks who have been following along and watching the evolution of Binance's efforts in the U.S., can you give us a little bit of the story about what's happening right now? Sure. So for folks that are coming into understanding who we are and what we do, Binance U.S. was launched in the end of September of last year to really bring

the globally trusted technology of trading to an American user. So we're providing. We're providing. a fast and convenient platform that allows you to buy and sell and trade digital assets here in the United States looking after our users with their needs in mind. So when we think about what we've launched since September, we've added 28 coins and have now rolled out a one-click buy sell feature so you don't have to leave market orders. You can just buy Bitcoin buy coins directly. And then we've also rolled out most excitingly in 2020 our app. So we have Android and iOS app available now. It's been a busy start, but lots to catch up on.

This is a highly contested market, obviously. It's one of the most important growth areas. I think the Block and Blockchain Association just did a survey where they found that something like 85% of people who are employed by the blockchain industry are in either exchanges, mining operations, or in development. So obviously one of the major, major growth areas, how do you think about which features you prioritize, right? Because the wish list of users has to be like a mile long. Absolutely. And you can't just listen to the loudest voices. Sometimes the loudest ones might just be

standing, you know, with a megaphone. So we really have to understand who our users are, how the U.S. has been able to grow and really what areas within the blockchain ecosystem are their strengths. So we really look quite focused on the utility cases that we find inside of the U.S. market, as well as the budding and growing and vibrant communities of certain crypto asset classes that are really a passionate. So within the United States, we've been able to see such a strong case for quite a many of the digital assets. And then being able to provide that to U.S. users in the ways that they need to access digital assets is kind of how we cater it. So the mobile apps are clearly the future for not only the U.S., but quite largely adopted globally.

So that's where we're kind of keenly focused on being able to deliver something in the palm of your hand gets you access to this digital era. When you're thinking about your target user, aside from everyone who's touching crypto right now, what do you guys think about? Just above 18, yeah. It's even gets me scared because I'm seeing technology be adopted earlier than that. And I want to make sure we're not losing out on being able to teach people, educate them earlier on. because I think just that education component can never start too soon. That's kind of where I was going with the question is when you guys, how are you prioritizing or thinking about the market right now, right?

Is it just about capturing existing crypto community members who are already actively trading or just, you know, occasionally want to trade? Is it thinking about how to expand the audience? I guess it's just, you know, this is such a, it's one of the industries that has the most constantly in flux user bases in terms of both who they are and in terms of what they're looking for. So I'm interested in how you guys prioritize your audience as well as the features, I guess. Yeah, it really helps if you zoom out. So if instead of looking at, you know, what's the next feature that I can list or launch and what coin can I list and launch in

the next, you know, two weeks or one week or so, and think about how can we provide financial confidence to people through digital assets, that really helps us align how we can go down this path appropriately. So when I'm talking about financial confidence, it's the ability to own and manage and grow your own capital in a means that you're both confident and understanding in it and also super in charge of it, which is what digital assets really provide, that equalizing force that lets you determine how you're going to be allocating and understanding where your commitment and involvement in this space can really be. So we think crypto literacy is by far kind of the first phase and step. Then the second one would be access functionality. And then the third phase of it is,

you know, how can we expand upon this and really build out an ecosystem? So we're pretty excited about the upcoming news because that is kind of entering in a different phase of what we can be providing people. Yeah, so this is the perfect segue. I'd love to hear and have you share a little bit about what's coming next and maybe how you guys decided that this was the next phase, I guess, of expanding how people get to interact with their money with their assets and have more autonomy over that. Yeah, well, if you follow me on Twitter or follow our Twitter at Binance America, you'll notice that we really do enjoy listening to our users and potential users and take their feedback quite, quite importantly.

I mean, we're building this for American crypto enthusiasts, for the crypto-curious, for the full-time job traders and professional institutional traders as well. So our ears are definitely in tune with our user base. And so one of the items that we've had recently was a user feedback survey that we listed for all of our folks that have downloaded the app to give us a little bit more feedback on really what they want. And it was clear from the feedback and the response that staking was one of the core components that folks in the United States were looking for to have within the same functionality of where they can access by, sell and trade, cryptocurrencies. So we're really excited to announce that staking is coming soon to finance US.

What are the details now? I know that you guys are, you're just announcing this now. You're not sure about the exact dates yet, but what are the details for folks who are saying, okay, that's awesome, but now I want to know what assets and let me get in there. Right. So if you look at the staking framework that you've got so far with the number of coins that allow for proof of stake, right now we list two coins. So, that allow for proof of stake coins. So that's Algo and Adam right now. And so going with when we roll out our staking platform, we'll be realizing that we can offer that in Algo and Adam. But as we know that we're always constantly exploring new coins that we can be listing and the feature set of staking

on top of good communities and, you know, the protocol list of our digital asset risk assessment framework can all be evaluated now. So that's something that's just exciting for us. kind of zooming out for folks that may not be totally aware of or did not put on the feedback form staking. The importance for this is being able to provide a different mechanism to which people can understand how they can be involved in digital assets. So the idea that with staking, you're actually contributing to the operations and health of that network. In that sense, you get a reward is something that I think is novel to the concept of people thinking digital assets are just for speculation.

And so the concept on top of that of being more or less like a savings account and then allowing you to put funds or put certain assets towards that in order to make sure that the operations are run and that network is secure, is really important for people to understand that's a modulation on top of how crypto

and blockchain can contribute to their own wealth. When I think about staking in the context of just the ongoing evolution of this space, I think that it's notable for a couple reasons, I mean, at least. The first is exactly what you said, that this is functionally a different way to interact with your assets from thinking about how they benefit you economically, right? It gives people a way to generate value from their assets without having to sell and trade and shift. And that's especially important for people who are long-term interested in a particular network or a particular

protocol, right? And I think that that's a coming to fruition of the promise of some of these digital assets. I think the second piece is, again, what you were mentioning around the idea of taking the next step to actually participate in the functioning and the enablement of the protocol in that decentralized way. And that is something that, again, has been integral to the mythos and the narrative of crypto assets, right? That these things are generated and maintained by these distributed decentralized networks of participants and in fact break apart the traditional organizational model by upending the difference between network user and a network owner and staking, the more mainstream that it gets, the more common that it gets, the easier that it gets from a UX perspective

becomes more and more real as a mechanism to do that. So it feels to me in some ways like, both a maturation of the industry, but also a fulfillment of the promise of it that got a lot of people excited about the space in the first place. Absolutely. I mean, if there's anything we can do on top of iterating on kind of the pure purpose of decentralization is being able to identify areas that can connect with everyday users, and so they can understand a little bit more about how blockchain is actually going to be functional down the road. And so that's kind of, I think about it. It's like stable coins,

got people comfortable with that concept of a digital representation of a currency. You know, although it's not the purest form, it's another iteration that lets people identify and get comfortable with how that operates. So they're like, okay, I'm fearful of the volatility. This is what digital assets are like when they're pegged to the dollar. And you're looking at staking, you're going, okay, I, you know, I want to be contributing to the growth of a network. I want to get rewarded for it. I want to be involved in this larger growth of the ecosystem, but walk me through it, let me know how I can be a contributing factor. And I think that's what staking really has that right incentive mechanism in place. It's going to be really interesting. And obviously

steps like having, you know, Binance build that functionality in, obviously expand the set of participants just by decreasing the barriers to entry, right? Or at least that has to be. some of the goal. Yeah, I mean, lowering the barriers to entry, I'm shocked I haven't, haven't said that six times already on this podcast. Really, the frictions that are causing us to understand this technology, to access it, to bring others into it and grow a community around it, those are things that I just cannot express how important they are to finance our ecosystem and how our development in the United States is going to play a part. So it's really kind of, purely on the understanding that this is complex.

How can we make it easier? How can we make it more intuitive? How can we make it better suited specifically to your local market needs? And those are really kind of the items that we hit home and why we care so much about what our users think and what non-users think and what new users think as well. The one place that I wanted to take this for just a minute is that bigger picture, right? So I'm interested to hear, you know,

certainly it sounds like this idea of lowering barriers to entry and just making the whole space more accessible is top of mind for you personally and for the company as well. As you look out, you know, we're still in January 2020. What makes you optimistic for this year and what do you think are some of the biggest challenges that we face as an industry, right? Not just as finance. Yeah, no. That's a great question. I mean, I think we've seen from the predictions of 2020 from the rest of the industry, quite a conservative growth plan, if I'm not mistaken. So the idea of, you know, cementing the foundations, getting the infrastructure in place, getting the infrastructure accessible, really kind of building purer versions of what have maybe been built early on,

or we're in kind of the, you know, stumbling phase and now are kind of becoming more established. I think that's very accurate, but also extremely conservative in where we can see this growth headed. You know, my goals in 2020 are definitely to be able to digest the opportunities that are ahead for us in digital assets, translate that to a broader set of audience members, and be able to bring in a really useful element that will improve people's financial confidence. So that going into 2021, there are more people that, understand what's in their wallet beyond a capital one phrase, understand how something can be bought and sold to generate either profits or understand the risks of the losses,

and understand where they can be making rewards in ways that can serve them for the long term based on their holdings. So it's a audacious goal to be able to translate financial understanding, especially crypto literacy or crypto financial understanding to folks, but it's imperative that we take it seriously this year and continuing on. I continue to see kind of the attempts to bring finance or just wealth management into a broader audience, and it sometimes hits, but there's still a huge amount of the United States especially

that is not clued in privilege or aware enough to be taking control of their own lives. So I really do care deeply about that. I mean, I think it's anywhere from audiences this just aren't familiar with, you know, the simple concepts of compounding interest as well as the complex, more complex concepts. I'll have reversed those two of managing your own wealth and budgets. So I think that's something that's really important for us. And finance just gives that freedom for people to choose, to participate, to be active or to be passive in digital assets, but still remain involved. You know, one of the things that I thought was really notable,

I did a bunch of end-of-year interviews, beginning of decade prediction type things, right? And one of the things that was notable is this year as compared to last year is no one wanted to talk about price predictions, right? No one was publishing stories about, like, here's what crypto influencers think the price is going to be at December 31st, 2020, or anything like that, right?

it's almost like we're finally a couple years out of the ICO boom and the whole excitement of that and the insanity of it in some ways has finally simmered to the point where the actors that are here that are building, the people that have stuck through it, there's a different sort of intentionality with which people are engaging in these markets. And I think that what you're saying about the opportunity to change the face of financial literacy is a really poignant one. And I don't know whether this is depressing or exciting or a little bit of both. But I guess one thing that makes me sort of optimistic is that there's so little financial literacy just in general right now, holding aside crypto assets, that the fact that some people are going to walk in through the

door of crypto, right, making their first investments in something like Bitcoin, right? And having this sense that this is the way that money or value should work for them is a really, unique and exciting opportunity, although one that I think we should take seriously the responsibility that comes with it. Entirely. I mean, the ability to have such freedom also means the consequences of that freedom. So you really need to be aware of how managing your own funds, from any standpoint, I mean, call it managing your own quest for whatever you're going to be, either investing in or the salaries that you might be taking on,

understanding just where your value is made and managed and grows. I think our concepts that we've shied away from and are beginning to see take place on the traditional financial side and can be supported even more so with an actual use case and the transparency of it and such in the cryptosphere. So that's what I get most excited about. Partially, I mean, I just take it back. I kind of think about the concept of what are people learning right now that gets them excited

and what careers are they pursuing to advance what got them excited. And I really want to know where people are looking back and going, I'm still so excited about the most traditional of finance. Like, is that still a compelling thing? And I think it clearly, by seeing the fact that most of these banks and institutions are still relevant is there. but they are changing actively within our presence. So we've seen, you know, the localization or the consumer retailization,

you could call it, of these larger banks and how they're bringing the sources and resources back down to the end consumer. And that's something where with crypto, it started there. So I think that's something that's just really novel in the concept of this didn't come from, you know, above, but this really was homegrown of the community itself. That's really where Binance is just being able to bring that community together with the most intuitive technology for accessing these digital assets and whatever we can do to improve the experience one has and the opportunities one gets with accessing these tools, something we want to be a part of.

No, that's wonderful. Kierkegaard, the philosopher, had this phrase, the dizziness of freedom that was meant to convey how the more truly free you get, the more anxiety-inducing it is, right? And I think in some ways, there's no industry that better demonstrates that than crypto, right? It's a totally new example and reality of freedom as it relates to money and wealth and all these sort of things. But it comes with these very new challenges. So very excited to hear that you guys are doing this.

That's a really good take on it. But I at the same time would say, let me have that choice. Yeah, yeah, exactly. Let me figure that out on my own. So that's what we really stand for, Binance U.S., being able to give that freedom of choice, so people can involve in staking or not. People can involve in, you know, 28 plus coins,

different forms of ways to get dollars on ramps, different forms of ways to access. So, you know, app, mobile, web API. We're really, you know, still committed in standing to the freedom of choice to let people make those decisions. So love it. Well, listen, thank you so much for all the time today and for your hard work on behalf of this industry. Where can people find out more they want to hear about staking or anything that's going on with you guys?

Absolutely. You can find us most actively on Twitter. So that's at Finance America. If you have any questions, DM at Finance US help and we'll respond. And I'm at CryptoColi on Twitter. So I can also take your questions. My DMs are open. But we mostly provide all of our information through a website, binance.us. We have a telegram community channel as well as one that is just purely announcements. So if you just want the straight stuff, the announcements channel on telegrams, great one too. So there you have it. Staking is coming to Binance US and it really, to me, based on this interview, represents a much broader goal of making this space, making this industry more accessible, both for the people already in it, but also for new people who haven't come in yet.

I'm interested to see what an actor in this space like Binance that has brand and leadership can actually do to make a dent in lowering those barriers to entry. All right, guys, that's it for today. Thanks as always for listening, and I will catch you tomorrow on The Breakdown. Welcome back to the breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The breakdown is distributed by CoinDesk. Welcome back to the breakdown. It is Thursday, January 30th.

And today we are going to be talking first about public funding in protocols and blockchains. We're going to recap a couple stories from last week. and look at a new vote from Zcash on the future of their dev reward. Second, we're going to check in on the wild world of central bank digital currencies, CBDCs. Japan is in the news around comments about a future possible digital yen. China was in the discussion today on the back of a report from last October that was resurfaced by Baidu, and Cambodia has announced that they are in late-stage trials for their own CBDC project.

Finally, we're going to wrap with a conversation with Democratic Dark Horse Andrew Yang, a contender for the Democratic nomination for president, who sat down this week in Iowa with Joe Wisenthal from Bloomberg to talk, among other things, cryptocurrency. Andrew Yang is obviously probably the favorite politician of the crypto crowd, so we're going to see what he had to say. But first, let's dive in around public funding. Last week, we had two separate stories around different approaches to public funding issues

with blockchains. And basically at core, and what we're talking about with public funding is that blockchains aren't organized as traditional for-profit companies, where those companies have revenue lines and they spend some of that revenue on marketing and some of it on R&D and some of it on development. They are effectively these open source networks that have lots of contributors from different places, different companies, different backgrounds, different economic situations, all working together for the good of the whole. Now, of course, companies are built on top of those public blockchains. However, there often comes a question of who is going to fund the core and necessary infrastructure for building on those. And you have an issue

of a classic commons issue where oftentimes key things aren't getting funded because they benefit everyone rather than just one company specifically, and companies want to focus on what's good for them in a defensible individual way, not just what's good for everyone. There are a number of different approaches emerging to how to deal with public funding issues in the context of blockchains. One of them has to do with a grant system that actually involves members of the community being able to vote with their dollars, with their contributions, on what projects and what people are worthy of funding. Last week we had Kevin O'Walky, the founder of Gitcoin on the show, to talk about Gitcoin grants, which is a program through which members of the Ethereum community can propose

projects in either a technical or a media and marketing dimension. And then other members of the Ethereum community can use a matching grant system to actually vote on what they think is most valuable to the community as a whole. So the way that Gitcoin grants work is that people indicate which projects are most important to them by pledging to contribute their resources towards a specific project. However, there's an additional layer of a quadratic voting mechanism that allocates a matching pool of resources that, in the case of Gitcoin, came from some funders like the Ethereum Foundation and Consensus. And the way the quadratic voting differs from just a traditional one-to-one matching fund is that rather than it being denominated by dollars,

they use effectively a ratio that takes into account the number of people who are contributing to a specific initiative, not just the amount that they're contributing. So you have a scenario where someone who has more overall people contributing might get a higher portion of the matching pool than a project that gets a higher total amount of actual value in contributions, but from a smaller number of quote-unquote voters. This is a mechanism that Vitalik Boutterin and others have talked a lot about, and this is one of the first wide-scale trials of it in practice. So they released their final tallies. Gitcoin released its final tallies, and in a lot of ways, the most contentious questions,

and this was the case when Kevin was here last week talking as well, had to do with pledges around the media category. And in particular, a Twitter account, Antipro Sympathesis, who ended up having something like the third highest match of any project over some... other larger newsletters or larger content producers and over other technical projects. And so the issue has to do with what's a public good, right? People have very, very different opinions about whether this sort of media engagement and social media engagement is a public good.

Vitalik took to his blog to talk about this, and one of the interesting proposals has to do with being able to send negative signals, not just positive signals. So the idea here is that there's a mechanism not only to vote for things you want, but against things that you don't want, to be able to signal a negative opinion. Now, the way that they tried it this first time was based on the idea that you signal your discontent by simply supporting other things. However, it may be that a stronger negative feedback mechanism is also important. So Kevin Awaki already has mocked up a version of this for the next round of Gitcoin

Grants and is soliciting feedback. So all in all, it's to me a very interesting experiment in community-based funding that tries to take into account some of the ways that community-based matching funding has been captured in the past or is more gamable. It tries to address that. So I think it's a worthy experiment to watch, even if you don't particularly care about Ethereum. Let's shift over now, though, to BCH Bitcoin Cash. In an aggressive announcement in some ways, last week, a consortium,

slash cartel of the four leading mining pools for BCH announced that they were supporting a new dev fund, a new protocol reward, mining reward-based dev fund, where they wanted to divert 12.5% of the mining rewards, of the block rewards, to a new fund that would fund protocol development. This was in response to BCH having issues with protocol developers staying engaged and being able to support their work and so on and so forth, right? The same types of challenges that face any public blockchain, any protocol community that relies on open source contributors. Now, this, of course, is not without precedent. Zcash runs in part upon a founder's reward that funds the core operations of the team building the protocol or has up to this point. And other chains have different

versions of this. What was contentious was the way that this was announced with this consortium, again, Reed Cartel, of actors saying that they were doing this. And if you didn't go along, if others didn't go along with them, they would actually orphan the blocks that didn't support this dev reward. So this is obviously a very aggressive posture. And it didn't really stick. Roger Vair and his Bitcoin.com mining pool have subsequently backed away and effectively said that he was just along for the ride on this one. So I think this kind of shows the challenge of not engaging with the community around something that is fundamentally a community issue and a community decision, or at least needs to be for it to have broad-based support within the community.

Which brings us to Zcash. Zcash has been gripped in the debate for a long time around what would happen in November 2020 when the four-year founders reward ran out. How would they continue to support protocol development around Zcash? And specifically, how would the Zcash community support the existing team which built Zcash, which has now been rebranded and separated as the electric coin company, would the Zcash community continue to fund their efforts? And if so, in what way, would it change? Would it be different? And for months, there's been an ongoing debate process across a variety of forums. And yesterday, the vote finally went through that really

settles things. And effectively, what's going to happen is that there will be a new development fund created that will take 20% of the block reward. So 80% of the block rewards will go to minors and 20% will go to this new developer fund. That will be allocated and distributed differently than it was before than the founder's reward was. So in this new paradigm, 7% will go to the electric coin company, 5% will go to the Zcash Foundation, and 8% will go to third-party grants. So their goal and their stated materials around this was that by having the highest portion go to external sources to third-party sources, they create more and more incentives for true decentralization, for new actors to come in, for new companies, new people to get involved in the building because there is this pool of

resources that is available to them. Now, what I've seen from the community is that this is both not a particularly surprising outcome for those who have been following along with different proposals, but also a generally welcome one. Certainly the price of Zcash has rallied on this news, suggesting that there is, again, market agreement that this is a good path forward. What makes Zcash such an interesting case study to watch is that there are many people in this space and many protocols that think things like a founder's reward is just anathema to the idea of how you build something. Part of this obviously comes from the mythology and the mythos of Satoshi, right, and the total lack of a founder's reward.

In fact, we saw last year, Grin launch with no pre-mines, no founders' reward. They made a big deal about it being a fair launch. It saw tons of VC interest right away. And so this idea, this question of how to launch a project, how to continue to support a project, is, I think, a very alive one in the context of all these protocols. So the fact that the Zcash community has gone through their four years of a founder's reward and redesigned the system, but that ultimately has, has a similar distribution between miners and developers in a way that is formalized is another

interesting case study. I don't think that these things even together solve or tell the full story of how public blockchains are going to be funded in perpetuity and how public goods are going to be allocated for and addressed. However, I think that they represent a bunch of different case studies that collectively show where this conversation is, why it's important, what to do and what not to do, I think, in a lot of ways. So really interesting stuff. But now let's shift gears to a very different aspect of the industry, an emerging aspect of this industry, CBDCs. Another day, another announcement around some central bank getting involved with digital currencies. As anyone who's listened to this show this year will know, I think this is the most significant

significant mega trend in our entire space right now. I think the implications are unknown. I think it's incredibly important for us to be paying attention to. Today, we saw first the resurfacing of a report around China's planned digital yuan that actually was published in October of last year, but came back up via Baidu, was caught and translated a bit by decrypt. That basically just reinforces some of the things that we suspected about the design of China's digital currency, that it will be centralized and controlled by the Central Bank of China, the People's Bank of China, that there will be surveillance in these transactions, but that surveillance will be available only to the central bank, not to the commercial banks who are part of the system, and so on and so forth. So nothing new

in particular, but just reinforcing some of the fears and concerns that people have over the surveillance potential of a Chinese digital currency. So that was a little bit of news one. A bit of news too comes from Japan. Now, last week during Davos, Japan basically was saying that they were exploring a digital currency, a digital yen, in part out of fear of what a Chinese digital currency does for China's influence among emerging economic powers around the world, but in the region specifically. And today, Reuters reported that the deputy governor of the Bank of Japan said that, effectively, there may be demand for a central bank digital currency soon, and that they need to be laying the groundwork for the technology now. The direct quote is, the speed of technical innovation is very fast. Depending on how things unfold in the world of settlement systems, public demand for CBDCs could soar in Japan.

Now, if Japan is strongly considering and hoping to prepare themselves for the eventuality that CBDCs become more in demand, the National Bank of Cambodia is way ahead of that point and is saying that they are ready to launch a CBDC at some point during the current fiscal quarter. So the project is called Project Bakong. It was first trialed by the National Bank in July of last year, and it's promising the same thing that a lot of these central bank currencies are promising, cheaper, and for users, ultimately, more convenience. And that's really the promise of CBDCs. They are convenient surveillance money. So we understand that it's meant to be more convenient, but what about the surveillance

part? Well, the National Bank of Cambodia has said that it will store all transaction data from the platform, which suggests, of course, that these transactions will be surveillable. Cambodia is an interesting case because they've consistently cracked down on crypto trading. They have not been a friendly jurisdiction for other types of cryptocurrency activities, but they're moving full bore into CBDCs, which just reinforces the point that I was making last week that I think that we're too blithe sometime about the clear and inevitable path between CBDCs and government digital currencies and people finding their way to these decentralized currencies like Bitcoin. I think that if we want that path to be real, we need to make it so. We cannot just assume that it's going to happen. In fact, we can probably assume the opposite, where many, many people will just look at this as a convenient new thing in their pocket and never think twice. That is one of our great challenges in this industry. But it's a challenge we have to face because as you can tell from the continued beating of the China drum to Japan seeming to wade its toe into this conversation to countries like Cambodia actually preparing to launch these things, CBDCs are real, they're happening and they're happening now. All right. Last up today, a fun little one from the campaign trail in Iowa.

My favorite political book of all time is Fear and Loathing on the Campaign Trail 72, where Hunter S. Thompson follows McGovern, George McGovern, as he tries to unseat Richard Nixon unsuccessfully, spoiler alert. And he was writing about just the sense of depression in that campaign. He says, I was beginning to sense something very depressing about it. How many more of these goddamn elections are we going to have to write off as lame but regrettably necessary holding it? actions and how many more of these stinking double-downer side shows what we have to go through

before we can get ourselves straight enough to put together some kind of national election that will give me and the at least 20 million people I tend to agree with a chance to vote for something instead of always being faced with that old familiar choice between the lesser of two evils. So this year for a lot of the crypto community, that force that is something at least to not be written off as lame but regrettable necessary holding action has been Andrew Yang, a refreshingly forthright and independent thinking candidate who doesn't come from a traditional political background, who has a core issue in universal basic income, and who is engaging deeply with some types of issues that others aren't, notably crypto. Andrew Yang has spoken

about Bitcoin. He spoke at CoinDex Consensus Conference. He has been around this world and has a sense of it, an understanding of it. So I was excited to see that he, in a conversation yesterday with Joe Wisenthal from Bloomberg, took a couple minutes to talk about his perception and his thoughts on the cryptocurrency industry. So I'm going to play the clip, but just a couple takeaways that I saw. The first has to do with the convoluted regulatory apparatus and how it clearly is bad, both for regulators and for innovators. Without clarity around the regulatory regime for crypto, and by having it be the providence of so many different departments, it creates a situation where people are actively disengaging from the U.S. and looking to build

elsewhere. And if you care about American competitiveness, which presumably if you're a candidate for the president of the United States of America, you do, that's a concerning thing. So that was one interesting takeaway. A second interesting takeaway, which was the real social media takeaway line of the whole thing, was the question of whether it can be stopped or not. Joe Wisenthal basically asked Yang whether he supported people being able to opt out of the existing financial system into something like Bitcoin that is outside the purview, outside the control of the government. And Yang's response was, well, you know what, actually, let's just listen to the whole interview and then I'll come wrap it up. So your campaign has obviously attracted very sort of wide, unusual support from people who previously previously, were disengaged or maybe they were Trump supporters or maybe they have other niche interests.

There's a lot of people who are like really big cryptocurrency fans, for example, who they love Andrew Yang. And when I talk to them, they're like, yeah, ask him about crypto. What would you do with regards to regulation of that and say Bitcoin exchanges? Do you support the right of people to use their bank accounts, credit cards, etc., to move into cryptocurrencies and other forms of money that aren't as easily tracked by centralized authorities? Well, what I would say is that we need to have a uniform set of rules and regulations around

cryptocurrency use nationwide, because right now we're stuck with this hodgepodge of state-by-state treatments, and it's bad for everybody. It's bad for innovators who want to invest in this space. So that would be my priority is just clear and transparent rules so that everyone knows where they can head in the future and that we can maintain competitiveness. because to me, the underlying technology of cryptocurrencies is very, very high potential, and we should be investing in it. But do you support sort of monetary freedom for people that want to move their money away

from fiat currencies, get their money out of the banking system into cryptocurrencies? Right now, you have banks restricting payments to these platforms and so forth, and people feel like government regulations are essentially impeding in their desire to do that. Well, right now, people who are investing in these currencies are finding a way to do so and make use of their investments. No, I don't think that you could impede it with regulation if you tried. I don't think you could impede it with regulation if you tried. Does that remind you of anything? Does that remind you of when Patrick McHenry, the congressman from Virginia during the first Libre hearing, said that Satoshi

had created an unstoppable force that regulators around the world had tried to stop and found that they couldn't. I like this narrative. I like this couldn't stop if you tried narrative because it creates a different dynamic in the power relationship between this new economic force and the decentralized network and all of us who helped build it and the existing power structure. I think that's important. I think it's important that there's more equality as we engage around regulation and around freedom and autonomy and ability to create new systems even within the structures that we have. So it's great to hear that perspective represented by a candidate, even one who still remains at this point an outside shot. There's no doubt that no matter what happens, Yang has impacted the

national conversation, has impacted the rest of the field, and is not likely to retreat and no longer be a force in public American life. So cool stuff to see for sure. But with that, guys, I'm going to wrap up. I hope you're having a great Thursday. I hope your week is coming to an exciting conclusion and you're looking forward to the weekend. Either way, I will be back tomorrow for one more episode of The Breakdown. See you then. Welcome back to The Breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It's a very important. It's a very important. Friday, January 31st, and today we have something special and a little bit different. Chainlink is a decentralized Oracle project. What that means, in short, is that they take real-world data and make it available for use for smart contracts. D5, for example, needs basically

24-7 access to real-time market data like prices for those applications to be able to function. Yesterday, ChainLink published price reference data for 25 Oracle networks, and the whole The whole idea here is that ChainLink is taking a decentralized approach to sourcing price data so that the Defy applications that use these price oracles aren't relying on a single centralized source. Chainlink applies the same sort of decentralized, node-powered logic that blockchains do to sourcing price data. And according to ChainLink, these Oracle networks collectively secure more than 100 million in value in defy applications. So today, on the breakdown, we're going to be speaking with chainling founder Sergei Nazaroff. But to make this

even more real and put it in more context, Kane Warwick, who is the founder and CEO of Synthetics, will also be joining. Synthetics is a DFI platform that enables decentralized derivatives exchange. So basically allowing people to short and long a variety of crypto and real world assets, but it does it through synthetic tokens. So what does that mean? In the way that makes user stake ETH and now other assets to mint dye. Synthetic users stake over-collateralized positions, but to mint a huge array of different what they call synths, which are basically any asset with a price feed. So that could be crypto, Forex, commodities, or even new baskets, such as a bundle of centralized exchange tokens. And when they've minted those synths,

they can take short or long positions on them. The reason I wanted to have these two on together is that they actually have been collaborating for more than a year now. And it was the importance of price feeds that brought synthetics together with ChainLink. Going back more than a year, these projects have been collaborating to help synthetics move away from a centralized oracle that they spun up to these decentralized price feed oracles that are built by ChainLink. So in this conversation, Kane and Sergey and I talk about, one, the evolution and goals of synthetics.

Two, the challenges synthetics faced around spinning up their own oracles for price feeds. Three, the history of the collaboration between synthetics and ChainLink and how they came to work together. Four, ChainLink's approach to building decentralized oracles for this type of data and other types of data that are relevant for smart contracts. Five, ChainLink's announcement yesterday about the newly published price reference data for 25 Oracle networks. Six, going a little bit broader, we talk about the state of this idea of decentralization and how it has evolved and what was previously a concept is becoming operationalized. Seven, finally, we talk about one thing that gives them pause or scares them about defy and crypto and one thing that makes them excited for the future.

Now, one more quick note before we dive into the interview, because we wanted to get this out as quickly as possible and as close to the news that ChainLink had yesterday, this is less edited than we normally would. It's much more raw and uncut and just the conversation as we actually had it. So let's dive in. All right, guys, we are here with Kane Warwick from Synthetics and Sergey Nazaroff from ChainLink. Guys, thank you so much for joining. Thank you. Thanks for having us. Yeah, thanks for having us. Today is going to be really fun because rather than kind of a normal well, hey, you know, tell me about your project, how'd you get into crypto kind of interview. We get to have something that I think is a little bit more interesting and more dynamic where

two projects that are really pushing the boundaries of defy and crypto more broadly that have worked together are almost getting to share like a case study of how a collaboration has worked, how it's enabled something that wouldn't have been possible in exactly the same way without either party. And I also, I think it's a chance to get a broad. view on just the state of defy and decentralization in general. So I'm really excited for this conversation. And where I wanted to start, I think, is Cain, if you wanted to tell us just a little bit about synthetics, what you're building, what you're trying to do, and kind of where things are in the market right now for you. So we have a live product. You know, it's been on Ethereum for over a year now,

18 months or so. And what that enables people to do is get exposure to different asset classes within Ethereum, within the Ethereum ecosystem. So we've got a number of different assets that you can hold in the form of a token. So a gold tracking token, a silver tracking token, a bunch of different Forex tokens. We also have different crypto assets that you may not be able to get exposure directly to on Ethereum. so things like B&B, for example.

What the project allows you to do is hold those tokens and convert them from one to the other using an exchange via repricing. So we essentially allow you to reprise an asset that you're holding into this new asset. So if you're holding a bunch of Bitcoin right now and you want exposure to gold instead, you can go to our exchange,

which is a decentralized exchange. You don't need to go to a centralized service and you can turn up with that token and you can convert that token at the current price and this is kind of the point of this conversation where do these prices come from? You can turn up and say,

okay, you know, the conversion price between gold and Bitcoin is, you know, X and so I'm going to convert my $100 with gold into $100 with the Bitcoin. And what that means is that within the Ethereum ecosystem you can get price exposure to a whole range of different assets and obviously that, you know, that's going to grow.

over time as we add different asset classes, things like equities, you know, potentially ETFs, indexes, et cetera. So, you know, that's the intent of synthetics and that's what we're building. And obviously it's something that is still, you know, in progress. We're still working on and still, you know, kind of growing the project. But, you know, even today, you can go to synthetics exchange and, you know, immediately get access to, you know, over 20 different assets. So let's actually zoom it back a little bit, just because I think it's incredibly fascinating. It's one of these projects that the more I dig into, the more interesting it gets. What was the spark of motivation for it? What is the interest that you have? And maybe this is

kind of commentary on the larger world of just derivatives and the importance of derivatives in emerging markets like this. There's always an access component to this, right? You know, Ethereum is this sort of universal computer that people can access. And the idea that it you have every single asset class on Ethereum, then anyone in the world who has access to an internet connection can access this financial infrastructure. So I think that that is a really critical component of it. But like most startups, that wasn't necessarily the end goal that we started with. We actually started building a stable coin back in 2017, which turned out to not necessarily be a great fit for the market. And so, you know, over kind of a series of

of several pivots. We've moved away from this idea of a stable coin to synthetic assets generally and now to this idea of a synthetic asset exchange where people could come and trade synthetic assets. So it's been somewhat of a journey over the last couple of years to kind of get to this point. But we think we have something now where there's genuine product market fit and there's demand for it. A friend of mine actually a couple weeks ago was just describing he was raving about synthetics. And his description was synthetics is maker. If you could mint anything as well as die, synthetics exchange is Bitmex decentralized, K-Y-C-free,

on-chain with Ethereum, no slippage, no counterparty risk of an exchange shutting down, never give up your assets like you do on a centralized exchange, which I thought was interesting shorthand. So I don't know if that resonates, but... I think that's pretty amazing. Is your friend looking for a job in marketing body chance? Because that's a pretty a pretty apt description. I keep telling him he needs to do a podcast specifically on defy and describing new products, new protocols. So I guess then the next question is how has the reception been? What have you

seen as you actually put this out in a market? Because I think another part of this that's great for this conversation is that this is not just a theoretical thing, right? This is something that's live in market. You're getting feedback from users, from investors. So what are you actually seeing in the market? Yeah. So it is, as I said, a project that, you know, is still, being built out. You know, even today in beta for the next version of synthetics exchange. So there's a lot of functionality that's still missing. A lot of things is being built. And, you know, we're actually halfway through our transition, our price speeds, right, from, you know, our own centralized article over the chain link. So even that process is still, you know, somewhat in flux. But I think the

overall reception in the market is people are excited. They're excited about this idea that these pooled collateral models and without going too deep into that this idea that someone can turn up and they don't need to find a counterparty to be able to trade. So we've seen things like Uniswap, obviously, employing these structures.

But the idea of being able to turn up and trade directly with a contract on Ethereum as opposed to finding a counterparty to be matched with, I think it's quite powerful. And that's one of the reasons why people are so excited about the potential for the project. The idea that you can have a decentralized BidMex

that runs on Ethereum and is genuinely permissionless, which again is something that we're working towards is pretty exciting. This may be getting a little bit in the weeds, but just for people who are interested, are you seeing consistent trends around the volume, right? Like what people are interested in investing in, right? What pairs they're trading? Or is it all over the place?

It is a little bit variable. And there's some other confounding variables in there as well, which is that, you know, being a missionless project on Ethereum, we also have an attack surface. So there are people who are always trying to attack the project, you know, front running, Oracle attacks, things like that. You know, there is this ongoing kind of arms race as we try and deal with some of the people that are trying to attack the project, which does add some noise into, you know, the tracking of what is the activity that's happening on the exchange.

but there's a pretty decent trend and growth of, you know, trading between some of the assets like Maker, for example. And, you know, we obviously have link on the exchange as well. So we're seeing some of the, I guess, smaller assets, not necessarily Bitcoin or Ethereum, generate more interest over the last, say, you know, two to three months. Makes sense. Okay. So now let's transition a little bit. You kind of intimated this as you were talking about what's in development. but this is obviously the type of project that requires particular infrastructure.

And so you brought up the issue of oracles. And so maybe this is a chance for you to talk a little bit about, A, the challenge that you started to run into around oracles and price data, and B, how you got to know chain link and how that relationship evolved. Back in 2017, you know, in 2018, when we were building the project, there wasn't a, you know, decentralized oracle network, right? There wasn't even a centralized Oracle network that you could kind of consume.

There are a few places where there are price feeds on Ethereum, but was never going to be able to support our use case. So we were kind of forced into this, you know, not ideal situation of rolling our own Oracle. You know, and in crypto, when you roll your own almost anything, it generally tends to be, you know, quite a challenge and probably suboptimal. We kind of knowingly did this.

And then, you know, we sort of hoped that we'd be able to build something that was robust enough that, you know, it wouldn't break down. And then an incident in one of the price feeds for the Korean want that created this, you know, attack surface and there was this huge incident that needed to be, you know, essentially rolled back with the attacker, you know, and I think that that was one of those moments where, you know, became very clear that this thing that was background risk that we'd kind of accepted from from the start when we'd built out the project had become kind of an existential threat to the project. But even before that, we were talking to the chain link team.

I think, you know, it goes back maybe almost even two years that we started talking to Sergei and the team. And we made a decision that we would transition. And they've obviously worked really closely with us to kind of understand, I guess, specifically what our needs were and, you know, how we were consuming price speed. So it's been a long process to get here. but I think we've started the transition and we're close to finalizing it and being able to shut down, you know, one of the major risks in the project, which is the centralized Oracle service that we run.

So this is a perfect transition, I think, Sergey, to bring you in and have you explain, for those who don't know, a little bit more about ChainLink and what ChainLink is trying to do and the type of infrastructure is trying to provide for projects like synthetics. Yeah, yeah, absolutely. I mean, even before that, I just want to say that I think what Kane in just, Justin, are building at synthetics in terms of making smart contracts go to the next stage of what they can actually accomplish is the thing that actually got me involved in this whole space and is really the future. So before I even jump into what we do, I think it's extremely exciting what they're building and it's kind of the next iteration of what's going to come to define blockchain use cases and what blockchain-based infrastructure is used for in general. What oracles do is they basically provide data into defy applications like cane synthetics.

Now, data is quite important for financial products because the financial products are essentially written around the data. So there's something like a settlement price or there's the price at which a trade happens or all these kind of financial products function on the basis of they're being going to agree upon price on which we exchange things or upon which we settle. the contract. And so the accuracy of that price is very important because it essentially determines what the financial product results in. Now, the financial product in the case of synthetics, in all the exciting ways that your friend Nathan mentioned earlier, runs with all these great features of, you know, there's no custody and it's decentralized and it has all these great guarantees that traditional financial products simply don't and won't be able to, unless they use blockchain-based infrastructure. But they have all those guarantees because

they use an infrastructure like Ethereum. That infrastructure allows the actual contract logic to function and to define the conditions of the contract. Now, as you build more advanced, you know, more kind of useful contracts like the ones that Kane and synthetics are building, you come to a point where you need to know what's going on in terms of data. So you need to have market prices to settle a contract. You need to have market prices to exchange, you know, two different tokens of value, as, as Kane described. And because the smart contracts, key capabilities are that it provides all of these security and reliability guarantees, you actually need this expanded version of a smart contract that Kane and synthetics are working on to provide that guarantee both at the level of the logic that in this case lives in something like Ethereum and in the case of data delivery that effectively triggers the contract.

So you need guarantees for both the data triggering the contract and for the logic of the contract. Now, Ethereum does a great job at processing that logic and making it accessible to a huge amount of private keyholders that can use it. And the problem that Kane described was that providing end-to-end security such that the data triggering the contract is also secure is a large challenge that, as Kane put it, there's no real need or benefit to having to take it on. And the thing that we do is we build a piece of software that securely solves this Oracle problem, this data delivery problem, such that data is delivered at the same level of reliability as the contract code that's being executed. And so now you have an end-to-end assurance that the contract will function correctly. So you've expanded what the contract does. you've maintained the security of it, and this avoids the types of situations that Cain described. That's kind of what we focus on is providing this infrastructure and enabling exciting kind of next generation smart contracts

and derivatives smart contracts like what Cain and synthetics are building. So it's been a pleasure to work with them, and I think from their point of view, it's logical decision because they no longer need to expend an extremely large amount of resources, both building an Oracle mechanism and securing an Oracle mechanism, which is a large undertaking equivalent to building a piece of infrastructure like a blockchain and in some ways with its own very specific levels of complexity. And I think the other good news is that we've been able to do this so successfully so far, that we've arrived at a recent release of over 25 of these reference data networks.

And we've recently listed them all in one place on a feeds listing page called feeds.chain.link. And one of the things we highlight there is actually how, in addition to being able to solve the security problem of how do you successfully deliver data to a very efficient, high-quality smart contract like synthetics, You also need to solve the economic problem of how are Oracle networks supported. And we're very glad to say that in working with synthetics and other great DFI DAPs, they are able to essentially pay a fraction of what it would cost them to put that same data on chain from a single centralized note. So I think there's actually two wins here. One win is the ability for DFI DAPs like synthetics to have high quality, infrastructure that takes an infrastructure and a security problem off of their hands and allows them to focus on launching more great markets and more great products.

And on the other hand, they get to pay a fraction of what they would have to pay in order to broadcast the same data themselves while getting anywhere from seven to 20 plus times the security that they would get otherwise. So really, I think it's a kind of a win-win situation, both for the defy DAP developer using the infrastructure and for the larger kind of ecosystem, the larger decentralized infrastructure that's out there to enable DFI. Okay, so this is great. And I want to dig a little bit more into this. But so for people who are listening who are just kind of trying to wrap their heads

around this for the first time and really peel back the inner workings, what you're talking about, Sergey, is effectively allowing these DFI DFI DAPE, that rely on prices to trust that those prices are accurate, right, that they're not tampered with, that they are, and to do so in a way that doesn't require one centralized source, right? It's one centralized point of trust. So I guess just, you know, peeling it back even a little bit further from what you've just released today to just in general how you guys focus on this problem, how do your decentralized price feeds work, right?

How do they change the paradigm from just grabbing a price feed from one source to actually making it something that people don't have to trust a single source to acquire that data? Yeah, of course. I think one of the most important points is to understand what the outcome we're seeking to achieve. And the outcome that we're seeking to achieve is that token contracts can be written on a network like Ethereum and they can be entirely secured by that network. But when you write a contract that needs to interact with external data, systems like Ethereum do not have the capacity to give that data to a contract. So this is the Oracle problem, and this is when people are forced to build a system or use a system that provides that data.

But that data is a critical part of this contract. So you could either manipulate the contract code or you could manipulate the contract code or you could manipulate the data. In many cases, they lead to equivalent outcomes, and they're almost equivalent as attack factors. So I think that the first nuance point to understand is that there's a more advanced class of contracts than just token transfer. That more advanced class of contracts wants to be more advanced, but it also wants security. And in the process of getting the data that it needs to be more advanced, it needs to retain the security that the contract code itself has, but that the data being delivered doesn't. And then the logical question becomes,

how do I apply the security model that secures the contract code to the data delivery, to provide the same assurance about the data that's essentially controlling that contract? And the answer is actually very intuitive. You basically create a form of decentralized computation, which means you have fully independent node operators redundantly doing a similar computation and coming to consensus about the accuracy and the outcome of that computation.

And this is what an Oracle network is. An Oracle network is a collection of fully independent node operators, which essentially go get data, validated across the group of fully independent node operators to the point that it's sufficiently accurate and sufficiently validated that it can be considered reliable enough to trigger a high-value smart contract, which is guaranteed to then act on the data that it's given. And what we do is we run, well, we make a piece of software that node operators, fully independent node operators run by leading DevOps and security teams in the blockchain

space, some of which secure, you know, over 70 million in U.S.D for various staking protocols. Right now, the networks that we have, that we have live, the Oracle networks we have live, I think at this point they secure over 150 million in DFI on Ethereum alone. And then, you know, there's other amounts in other environments. And I think the answer to your question is that we're taking decentralized computation as a security model. we're applying it to the retrieval and validation of data such that a group of fully independent node operators guarantees the correctness of data to a sufficiently high degree that it can be accepted as secure by something as secure as Keynes Synthetics Smart Contract Code.

And once you give people the ability to have both the ability to write the code and the ability to interact with all the external data that they need for the code to, you know, know about significant market events or IoT events or any collection of external data, I think what the combination of those two capabilities does is it greatly expands what people can build. And that's kind of our goal is to enable great teams like Kane and Keynes and synthetics to really built something that that isn't just about token movement. It's about creating a contract that is secure end to end, but also interacts with market prices in the real world in a more meaningful, more useful way. And I think that's being, I'm very, I'm thrilled to see that being proven out

in the case of synthetics through all the usage they have. And I, you know, I think it, I think it makes complete sense to me. Just to jump in here. You know, I think we, our project comes from this kind of pre, you know, prehistory phase of Ethereum in a sense that like you couldn't consume this data unless you built your own infrastructure to, to get it on the blockchain, right? And I talk to a lot of teams, you know, small teams that are starting to build things today. I think we are seeing a shift now where there is just this expectation that this data exists, right?

and that it will be there, that it will be available, and that they will be able to just consume it. And I think that that's really exciting to sort of see because we didn't have that. We're only talking months or years in terms of when we started this process. So it is really exciting to see this. And I think we're just going to see a proliferation

of different ways that people are going to consume and implement this combination of computation. and data access. So it's really exciting, obviously, for us as a project to have access to this now and to be making this transition and remove this attack vector and risk. But I think, you know, as an Ethereum user myself, you know, I'm really excited to see all of the new stuff that's already being built and starting to emerge. It's really cool.

Yeah, I mean, I think in some ways, and I don't know if you guys would agree with this characterization, but I feel like one of the more important shifts over the last couple years is moving from speaking the language of decentralization to actually operationalizing decentralization, which I think is a lot of what you guys are talking about, what you spent so much time on. And I guess that brings up for me a question of just maybe zooming out even farther from your projects and the collaboration that you've had. How do you see the state of decentralization? And maybe we can limit it to defy right now.

You know, it's something that is obviously one of the most important, areas of development, one of the most focused on areas of development and building and experimentation in the crypto markets. But, you know, how far along are we? How early are we? Just for, again, this is assuming that not everyone is as thick in the weeds of Defi as some of us are. Yeah, I mean, I'm happy to start because, you know, we get this question a lot, right? You know, how decentralized synthetics? And I think one of the challenges with DEPI is, that a project or a system is only decentralized is only as decentralized as the most centralized component.

And so you kind of alluded to this that it doesn't matter what the attack vector is, if the ultimate end state is that funds are stolen or compromised then it's kind of irrelevant, right? And so if the attack vector is that there's some centralized component, that the team controls, right? And this actually came up yesterday where someone reached out to me and said, you know, is there a list of kind of functions that the team has, you know,

in terms of what it can do, what it can control within the smart contracts? And my answer was kind of no, because we actually have total control, essentially, to, you know, redeploy the contracts and redeploy the logic. So long as that is the case, you know, the system is extremely. centralized. But the interesting thing about that is that, you know, we've, we've kind of accepted that so long as we were controlling the Oracle, having that centralized control of the contract logic is, you know, not really an additional attack vector. At the end, the end result is the same. And so one of the really important things, I think, you know, that's coming up for us is

we will reach this point where we have actually handed over, you know, the control of the data, feeds to the chain link node operators. And just as an aside, it's been really crazy in the last like month. I've had four or five different conversations where I'm talking to someone who's building a really interesting project and they actually throw out there. Oh, by the way, I'm actually operating one of the nodes that's feeding some of the synthetics data feeds. And, you know, these are some of the smartest people in the space that I've been speaking to. And it's been, it's been super interesting to see that, you know, there's all these people in the background that are they're actually operating these nodes.

But I think the end result is we will get to a point in the next, say, month, where we will need to make a decision, you know, as a project, as a community, to start to kind of hand back some of this control, particularly around the logic, given that, you know, we've now solved this kind of centralized Oracle control problem. And so I think it's going to be a challenge that a lot of projects we're going to, you know, need to grapple with is, you know, how much control should we have, how decentralized should we be,

what is the process of slowly decentralizing because if we had started off as a, you know, in quotes, I guess, fully decentralized project, whatever that means, we wouldn't have been able to make the pivots that we've made to kind of get to this point of product market fit. So there is a tradeoff there between your ability to respond

to what the market actually wants you to build and, you know, to kind of protect the decentralization of the project. And so I think this is something that's still so early that we don't even have a proper language to sort of describe it or even, you know, discuss it. And I think that that's slowly emerging, but we're still very early. And it's going to take, you know, a bit more time before we can, you know, have this shared framework to even discuss the areas of centralization, what the tradeoffs are. And, you know, have really good disclosures about what those tradeoffs are in any given project. One of the most, I think, resonant critiques of almost the fetishization of decentralization is that it is in and of itself a word that describes a state of being not an outcome or a goal, right?

So people say, like, when we talk about decentralization, we need to talk about what the end goal is. Is it to reduce these attack vectors where you could have economic capture or some other type of problematic situation? is it to ensure some type of censorship resistance, right? And that really where we need to be working back from is not this monolithic notion of decentralization, but whatever the end goal of decentralization is, and that might be different in different contexts, and different protocols and different systems. And again, that to me seems like an evolution of how we're thinking about this as well,

even just from a language and self-understanding perspective. Yeah, Nathaniel, I think that makes perfect sense. You know, of the trends that I'm seeing in general in the DFI space, I think there's two significant trends that I think are going to have a large impact in the coming months in this year. I think one of the first things that I'm seeing that I'm very hopeful about is I think we finally reached a certain critical mass of private key holders that create a user base of people that can use products like synthetics.

and that can use all kinds of other different smart contract, you know, defy products. And I think with that really results in, is it results in an environment where a high-quality team like Keynes can show up and build a successful defy application and succeed at the same, at a similar level to web startups. And I think that pattern of success is going to become more and more common because even if you, if you go back three or four, two years ago, you didn't have as many people with private keys that could use a defy application like the one that Synthetics has made. And so there was just a timing issue with being that forward looking and building something that futuristic and that great.

And I think now that that's going away and that we'll see a pattern of success because there's a user base to consume DFI products, I think that's going to greatly greatly accelerate what the space can be about because at the end of the day, you need economic activity and you need users to define the success of any application in web-based or decentralized. And so I think that's a huge change that has just recently happened. I think the second thing that's very exciting is kind of what Kane mentioned before, about him seeing people building all kinds of applications that combine data and smart contract logic. And I think that Kane's point of view and his story about how when they started out,

they were forced to build a piece of infrastructure. It's similar to the story of some of the, you know, very early early days of even before Ethereum and when people were building smart contracts in like 2014 and 15 and stuff, people would go ahead and build a blockchain infrastructure because they wanted to build some kind of use case, some kind of smart contract use case. And I think the reality is that If there's a data-rich environment with a lot of inputs and outputs, similar to the environment that web developers quickly build, quickly build web applications and quickly iterate on those web applications.

And if the decentralized kind of application and the smart contract environment where developers build all these defyed apps can be a place where people can very quickly both write the logic of the contract and get all the information, inputs and outputs. So all the data and all the payment capabilities, I think what we'll see, you know, and putting that together with the user base that could consume whatever they make, I think what you'll see is you'll see a much greater speed of iteration and a lot of people launching more expansive and just all kinds of different products quicker, which once again, when coupled with that new user base that can consume those products in a sufficient large quantity to make

them successful, I think it's the type of thing that can come together to help redefine our space into, you know, decentralized finance. There's successful decentralized finance companies. They built a secure application that is secure end-to-end in a way that no other application, no centralized application can be, can provide guarantees that no centralized financial product can provide. And guess what? You know, they built all that and they became extremely successful because there were enough people with private keys that wanted to consume that application. And if that starts happening, then the story of success of our space switches from being about tokenization and moving tokens around. And it goes on to people building all these,

you know, next generation, truly censorship resistant, truly decentralized. truly kind of fair and and kind of fraud-proof smart contract applications that we're all excited about. And that's, I mean, that's the really exciting thing from my point of view is that the space could quickly become about that type of economic activity, about those types of applications between these two dynamics, which is what I'm very excited to see. So I wanted this, I think this conversation has been super interesting. We could talk for a lot longer on so many ins and outs of the particular projects that you guys have, but also the industry as a whole. But where I wanted to leave this maybe is just put you guys

on the spot a little bit. So I'm really interested in two things. First is something that keeps you up at night when you think about, you know, what's still to be built and the challenges that either your particular project or just the defy space in general, are facing. But then second, I'd love to hear something that fills you with optimism that makes you excited. And I, you know, Sergey, I feel free to cheat and kind of go into a little bit of what you were just saying because I think you almost answered this and kind of inspired the question. But what's one thing that is, is really stressful and maybe something that we just need to be really diligent about being level-headed and clear-eyed about? And what's one thing that gives you a lot of optimism

for the future of defy or other parts of crypto? Yeah, I'm happy to to jump in here. I think something that concerns me, and I know, you know, Nathan, you, you touch on this quite often, you know, in a number of different places, is, you know, the potential for the impact or the response, I guess, if, you know, what's okay, it was describing starts to happen, right? You know, if we start to get this inflection point where there's all these users flooding in, there's all these different use cases, all these great new products, emerging, you know, people are, you know, regulators, whoever are going to step in and say, hang on a second, we want to have a bit more control here. And so I think one of the sort of patterns that has been,

you know, implemented over the last four or five years is this idea of having foundations that operate these networks, right? And, you know, we have a similar pattern. And it's a pattern that I think exposes a project to, you know, regulatory capture in a way that is, is not ideal. And so we're actually going through this process of unwinding this and moving away from this idea of having, you know, a single entity that maybe governs the system and moving more towards like a Dow-like framework. And so that's something that definitely worries me is, you know, that we have a, I think, a window of opportunity, you know, over the next maybe six to 12 months.

where we can get the governance structures right for these types of projects to ensure that they are sufficiently decentralized. And then I think the thing that makes me optimistic is that, you know, I talk to a lot of, you know, small teams of, you know, two, three, four people that are working on incredible projects that I think are really going to drive some of this, you know, user demand. And, you know, there is this latent demand there. But I think as more products emerge, you know,

and people start talking about all of these cool new things that they're using, it will actually bring in a flood of new users. And I think as we solve each of these problems, whether it's the Oracle problem or, you know, as we have viable solutions for teams to hook into within Ethereum, it's going to, you know, create this platform that is, you know, as easy to build on as, you know, work to or, you know, or whatever. And I think that that is going to have a compounding return that we really can't kind of

anticipate right now. You know, we're still super early. And so for me, the really exciting thing is, you know, every day people are solving these genuinely hard problems. And each time they solve those problems that solve for everyone, you know, because the system is open and people have access to it and people are talking about it. and people can see that that solution now exists and is out there. And so I think that we just have the ability to kind of consume all of this effort

that we're all putting in in a way that creates an output that is far larger than the individual contributions. And so for me, that's the thing that's the most exciting is that over the next two, three, four, five years, we're going to see a total transformation in the way that products are built and how users consume them. Yeah, you know, I think it's interesting. One of the things that I've shared occasionally on Twitter and on this podcast, which I don't know if it's a contrary opinion or not,

I guess it depends on who you ask, is that I actually think that the state of new user adoption is in an awesome place as it relates to Defi, right, in the sense that we're not out actively recruiting tons of new people into the space, but rather building these things which were all dog fooding and that are early adopter driven from people who have a proper sense of the risk involved and the technical complexity involved to, as you pointed out, sequentially work kind of one by one through these issues. To me, that creates the opportunity that we actually make this space safe kind of on our own and without the stick, right, of regulatory threats or anything like that, before you start to see more and more people come in.

And I think that that's actually really, really healthy. So I tend to agree with a lot of the points that you're just making. Yeah, I agree. You know, I think that that is something that makes us a little bit safer. But, you know, if you're around, which I know, I know you were, and I know a lot of people listening were for, you know, 2017, that can work until it doesn't. and we could see a flood of new users come in maybe before we're 100% ready. So that is something that I think there is an onus on all of us building right now to really try to kind of put as much structure around the stuff as we possibly can. But it's also exciting to see how much it is being built.

Absolutely. All right, Sergey, you're up. One thing that makes you excited and one thing that makes you know, I guess, in whatever order you'd like to tackle them. Yeah, so I think the thing that makes me a little bit nervous or the thing that I'm that I'm very eager to see kind of is that there's on-chain privacy. So I've been, you know, looking at on-chain privacy, whether it's through homomorphic encryption or zero knowledge proofs or any number of combined approaches or even trusted

execution environments where in the real world, in like the traditional world, contract privacy for even though all these really complex contracts is extremely important. There's certain contracts that they have to stay private by law because they could affect some kind of trading volume or something in, you know, that's very common in global shipping. Insurance contracts need to stay private. A whole bunch of financial product contracts needs to stay private. So I think that the things that people are working on right now

are kind of scalability is a big topic because you have people in gaming and certain use cases that are hitting the real limits of existing systems. So scalability is a big topic. We're very focused on the Oracle problem because it expands what smart contracts can do while retaining their security, which kind of goes to redefine the space towards all these use cases like essentialized finance, insurance, shipping, all these use cases. But I think the thing that I'm also very worried about and the thing that I think also needs to fall into place is the ability for contract terms and contract outcomes to remain private,

because that is just a fundamental requirement that many of the digital agreements that we're trying to replace have. Now, I've seen a number of things happen there, and I've seen some progress with zero knowledge proofs, and I've seen some interesting things with trusted execution environments, and we actually have some work that we've done where you can do some computation in an and that can help create some privacy and, you know, these, these types of things. But I think generally speaking, on-chain privacy is is a big, big piece to this, to this puzzle for true large-scale mainstream adoption, which I think is going to happen, whether it's through zero knowledge or homomorphic encryption or any, any collection of other approaches.

Now, the thing that I am very excited about is, is kind of echoing what, what Kane and you have been saying is that I'm, you know, I've been building smart contracts in this space for many, many, many years. Kane has been building them for many years. A number of people have been building smart contracts that aren't about token generation. They're about some kind of financial product or an insurance product or shipping product. They're about a contract that doesn't just generate a token and track its ownership. they're about something that reacts to real world conditions

the way that 90% of the digital agreements that we're seeking to replace as an industry do. And I think the really exciting thing is I'm like Kane has, starting to see the infrastructure that's necessary for people to quickly build and iterate, similarly to how web developers are used to quickly building and iterating on products. I'm starting to see high-quality teams be able to combine smart contract logic with highly reliable data from something like an Oracle network together with, you know, a connection to some kind of payments output that their user would want to receive, whether that's an on-chain token or whether that's a connection to some kind of payment system, once again, through an Oracle.

I think I'm starting to see more and more people more and more quickly build higher and higher quality decentralized applications at a speed that I haven't seen ever before. And then if that happens, the only real question is, is there enough demand to make them successful, to make the ones that build a good application successful? And I think we're just passing that threshold now. So I think I'm really excited about these two dynamics really coming together. The high-quality teams that are building truly decentralized applications because they have the infrastructure like Ethereum or like Chainlink or whatever other collection of infrastructure that they compose to use their, to use to make their application.

The other side of it is there being enough high-quality, there being enough private key holders to make, to make them successful in the building of that application. So I think those two dynamics coming together show me a world where not only did somebody build a great defy application, but they also achieved a level of success that justifies other people building more defy applications, which is how I think we go to a world where we're building smart contracts that are about all these useful types of interoperations. interactions with the real world the way that digital agreements are today. And I think that's when

we start to really, as an industry, take hold of our, of a relevant amount of ownership of, of basically contract activity out there in the real world. Love it. All right, guys. Kane, Sergey, thank you so much for your time today. Like I said, I think we could talk about this for hours. But I really appreciate you guys joining. And I'm excited to see what you guys build both independently and through continued collaborations. Thank you for having us on the show. I really appreciate it. Yeah, it was good fun. Thanks a lot. So there you have it.

Regular listeners of the breakdown will know that my interests tend to be on the highest macro levels of just about anything we talk about. So I was excited in that context to hear about what both Kane and Sergey think around this concept of where decentralization. is today and what makes them nervous and optimistic about the future of decentralization and defy and crypto more broadly. But I also think that when it comes to defy, a lot of the really important stuff to be paying attention to is in fact in the details. The word decentralization is right there in the name, right? But it doesn't matter if some big part of the system like the price feeds is centralized. So I really appreciated for that reason being able to go a little bit deeper into the weeds with Kane and Sergei. These projects represent some of the

most on the edge leading indicators of where Defi might go in the future, as well as some of the core infrastructure that is being built to enable those and other types of futures. So I hope that you enjoyed this conversation. Let me know how you like the episode. Let me know how you like this multi-guest format. Hit me up at NLW on Twitter, nLW.com. for the newsletter where you can get the breakdown every single day to your inbox or subscribe on iTunes or Spotify or wherever you listen. And as always, guys, thank you for listening and hope you have an awesome weekend. I will chat with you again on Monday. Peace.