The Breakdown - Why Bitcoin Will Become the Reserve Asset for DeFi, Feat. Qiao Wang

Episode Date: October 8, 2020

Today on the Brief: Stimulus talk shutdown spooks markets House recommends antitrust actions but likely to get nowhere CBDC trial results from China Our main discussion is with trader and entrepreneur Qiao Wang. In this conversation, NLW and Qiao discuss: Bitcoin’s resilience in the face of a barrage of bad news Why DeFi is a natural next step from the foundation bitcoin has built  How bitcoin could end up the reserve asset for DeFi Why regulation is the greatest threat to the space

We have some value on a global distributed ledger. We had the ability to frictionlessly store and transfer value. And that was Bitcoin. Now, the next logical step is just collateralize the value, lend the value, borrow the value, or transfer the risk of the value. And that's Defi. It's really the next logical step. So that's why I say, like, if you understand Bitcoin, there's absolutely no excuse for not understanding Defi. It's the same thing.

It's just the next logical step. So I think Defi is here to say. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com, nexo.io, and elliptic, and produced and distributed by CoinDesk. What's going on, guys? It is Wednesday, October 7th, and today my discussion is with Chow Wang, and we get into everything from Bitcoin's macro, resilient, over the last couple weeks to where Defy is in its cycle and what the long term actually looks like, what threats could undermine it, and whether or not Bitcoin ends up as the reserve asset for the whole space.

First up, however, let's do the brief. First up on the brief today, we really are testing the theory of just how reliant on stimulus the markets are. Maybe the biggest question for traditional markets over the last few weeks has been whether there will be another stimulus package. When it seems like deals are getting closer, markets go up. When it seems like the parties are getting farther away, markets go down. This has gotten so significant that markets, which are historically hostile, at least on the face of it, or from a narrative perspective, to a shift to the left, have gotten down with the idea of a Biden win because they think it might mean a bigger stimulus. Well, yesterday President Trump tweeted out that he had ordered Mitch McConnell to stop negotiating, and the political goal was clearly to paint Nancy Pelosi as the intransigent one. The phraseology, however, made it really tough.

It seemed like he was making a unilateral decision to end any possibility of a stimulus until after the election. Markets started tanking, the number of charts floating around on Twitter that show the huge line down, are just incredible. Ultimately, the S&P 500 ended down 1.4%, and even Bitcoin went down, prompting Keith McCullough to tweet that apparently Bitcoin needed a stimulus too. Now, President Trump has subsequently backtracked asking for specific bills to sign right now, like a direct stimulus bill right away. However, I have to say that the most prescient observations about this go to one, as you'll see later, Chow, who says that his base case is that stimulus is inevitable, based on where we are now, based on us having crossed a Rubicon before.

And second, Stool Presidente himself, Dave Portnoy. He tweeted out, I'm on a plane. Donald Trump is trying to show people what will happen to the stock market if people don't elect him. However, he can't win by intentionally tanking the stock market like he just did. He will lose any economic votes he has. He will change his tune soon. Portnoy has, of course, been doing a victory lap ever since then, as Trump's tweets have tried to do exactly that and change that tune and walk it all back.

For me, the really notable thing is just how reliant on the idea of more stimulus these markets are. We really are a drug addict that can't get enough. Next up on the brief today, antitrust going after tech. A House panel has issued a proposal after 16 months of investigation. This 449-page report says that Facebook and Google are monopolies, while Apple and Amazon as well have too much power. Their biggest and most substantive recommendation is to consider legislation that wouldn't allow tech companies to own different lines of business, and this would ultimately also lead to breakups of companies that exist today. The response to all of this? NADA. Republicans aren't even

close to interested in this type of legislation, and markets completely shrugged it off. Most of these stocks were flat, with Facebook down 1%, and Apple was actually up 1.5%. The Bloomberg headline nailed it. It said tech antitrust push faces brick wall from gap between parties. Basically, if you are interested in the depowering of these massive tech-powered networks, you're going to have to just invent alternatives because change is not going to come from the top. Last up on the brief today, a brief update on central bank digital currencies. This was a topic I dug into much more deeply on Monday, specifically with regard to privacy implications, but I wanted to report some more news from the field. A deputy governor of the People's Bank of China has unveiled some numbers from the

DeSept trials that happened in three Chinese cities between April and August. 113,300 consumer digital wallets were opened, as well as 8,859 corporate wallets. These processed the equivalent of 162 million across 3.1 million digital yuan transactions. Those transactions represented 6,700 different use cases, and so the PBOC is claiming quite reasonably, I think, that this makes it the most widely used commercial CBDC. Trials, of course, have now expanded in China, so expect more on this over the coming months. The one other bit of CBDC news that I wanted to mention is that the Korea Herald is reporting that the Bank of Korea is moving from a research to a technical phase to actual trials. This is particularly interesting. Part of what I said on Monday is that over the course of this year,

a lot of the CBDC efforts have accelerated, and this is certainly the case in Korea. The Bank of Korea had originally said that it didn't see a need for a CBDC, but then changed its tune very, very quickly. These trials will be a little bit different than China's trials, for example, because they'll start entirely virtual. With that, however, let's go to our main conversation with my guest, Chow Wang. For those of you who aren't familiar, Chow was at Masari for a while helping get that company started

and now helps a variety of different types of startups across the space. He's also a personal trader and I've always found his analysis particularly dispassionate, which is something that is so rare in crypto that it's often just on the face of it hugely differentiating. In this conversation, we talk about Bitcoin and its resilience in the context of macro factors over the last few weeks. We also talk about Defi and why Chau believes that it is such a logical next step from the foundation that Bitcoin has built. We even discuss why Bitcoin, rather than Ether, might end up as the reserve asset for Defi. And finally, we talk about the risk of regulation and whether it makes the entire Defi project almost null and void or at least highly suspect.

Is the chief value proposition of defy simply reducing friction, and is that reduction in friction simply skirting around regulations? If that's the case, what future does it have? This is a really interesting conversation, so I hope you enjoy it. All right, we are back. Sir, welcome to the show. It's been long overdue, I feel like. Yeah, I appreciate having me over. So I was just telling you before, I have been, you know, I think that we're in a really weird moment right now. And I think that especially going into the elections, we're poised to only see it get weirder in some ways. And you are a very keen observer, I think, of markets from a traditional perspective, a Bitcoin perspective and a defy kind of crypto writ large perspective. So I thought it would be fun to just kind of

let it rip and chat about what we're seeing going on out there and your perceptions of things. And that's kind of what I'm thinking. Let's do it. So we're recording this on Tuesday afternoon. Donald Trump has just retweeted or tweeted that there will be no stimulus. He's told Mitch McConnell to stop. And markets don't seem to be liking it, but what do you make of this tweet? I guess in general.

And then maybe we'll talk about Bitcoin as well. Yeah, I mean, I was taking a nap when Trump tweeted about this. And I missed a couple of really obvious traits. But, you know, my high-level thinking around macro is in an election is that I have no edge in this market. I mean, everything boils down to knowing what Washington is going to do next. If you know what Washington is going to do next, then you can make a lot of money. But I don't know that. I have no edging in this market.

I mean, last time I really, really followed macro was first time this year when coronavirus hit. I thought I had an edge because I thought I understood coronavirus better than the vast majority of people in this market. So I traded macro like crazy in the first half of this year. And by the way, that's how I missed the first 3x in DeFi because I was so obsessed with macro. I mean, people don't know that defy actually wouldn't have 3X earlier this year before compound. But now I just, you know, I don't think I can really, I mean, if you trade crazy, with a time horizon of one or two weeks right now, you're essentially trading NASDAQ. And in actual, there are very few people having an edge in that.

So, you know, I don't really do a ton of discretionary, you know, two-week kind of trade nowadays. But, you know, overall, I mean, stimulus is always going to come. I don't know what was going on currently in Washington, but we crossed the rubycon during coronavirus with QE infinity and all that stuff. So the stimulus is always going to come. That's my base case. And all this monetary and fiscal stimulus is going to push asset prices to levels that would be totally unthinkable before this year.

And that includes stocks, gold, and also Bitcoin and also like the rest of crypto. But that's more of a long-term thing, right? Like by long-term, I mean like maybe a few months to a couple of years kind of time rising. Yeah, it's interesting. I think that that's what people are reacting to right now. So a number of people on Bitcoin Twitter, Keith McCullough, like said that he sold all his Bitcoin today. And this is for him. It's super programmatic in some ways.

He has these quads, right? And we move from quad three to quad four. And basically the difference between those two is growth slowing in both, but the expectations of inflation are what's different. So in his quad three, expectations of inflation rise. That's where we've been for a lot of the year, at least from a narrative perspective, right? People getting more and more nervous about inflation rising, hence the gold trade, hence the Bitcoin trade. Now he's kind of moving into quad four in his lexicon, right, which is all about inflation decreasing. So just a sense of potential, you know, deflation or whatever.

And it seems to me that in a lot of ways, when you look, like, depending on what your time scale is, this is the central debate is whether you think more people are expecting inflation or whether you think more people are expecting deflation and pretty much everything follows from there. Yeah, for sure. I mean, again, for me, I have no adjutant in this game, like over a three-month time horizon. I guess that's what Keith McCullough's time horizon is, right? Like he switches quads from, you know, one quad to another for a couple months, right? So I guess, you know, a two-month time horizon is something that I personally have zero edge in. So I have no idea. But I know that this is a, in the short term, this is a very big debate among the macro investors,

whether we're going to see inflation or deflation in Q4. I have no idea. But in the long term, you know, in the one year plus time horizon, I think asset prices are going to go way up. Yeah. So I think it's also interesting. Something that I've noticed you kind of say in a number of times is that over the last couple weeks, we've had just this barrage of theoretically bearish news for Bitcoin, right? We've had Bitmax. We had the UK with derivatives today, although you could argue that kind of both ways in terms of bearish or bullish.

But you've had all these sort of things. and it hasn't really moved that much, right? Certainly we've gone sideways and down a little bit, but it seems like your sense is that this is a resiliency-proving for this asset. I'm genuinely impressed. And to be honest, I don't really know why Bitcoin has been so stable after all these series of really bad news. Like we had, what, like Ku-coin and then Bingu-Mex and then Trump getting coronavirus,

and then no stimulus today, and then the UK banning a, Crypto derivatives. I mean, and Bitcoin said, 10.05. It's crazy. I mean, I've seen some theories of, you know, option sellers potentially, like we've seen a lot of new option sellers, basically, basically since maybe April, May. And that might suppress the volatility of the spot market. I can see argument. Like, I can see why that may be the case. Again, I'm not entirely sure. But I'm just generally impressed by the stability of the spot market.

Do you think, I'm interested in your take. I don't know if you've had a chance to formulate a take because it just came out this morning. But what do you make of the UK's derivatives ban? I'm not a regulatory expert, but I can see arguments on both sides. It's, you know, I worry about DFI, to be honest. I'm not sure that the founders have been taking regulations seriously. I mean, a lot of projects did. But there are a couple of areas in DFI that will be affected by this kind of, you know,

by the UK stuff as well as by BMEX, right? Like one thing I'm super excited about in DFI is synthetic assets, the ability to provide high quality assets for anyone in the world. So for instance, you know, some kind of synthetic assets. on US equities, right, that anyone in the world can access. But these synthetic assets are derivatives. And obviously, this UK news would be bearish for this type of products. But at the same time, I see some pros.

I see some reasons for being positive. I personally think the amount of leverage in the crypto market in general is just ridiculously high. People don't need 100x leverage, and that's just ridiculous. Like Warren Buffett in his entire life, probably at maximum, he might have used like 2x leverage or something. Like he, like basically if you have like a million dollars, you leverage to $2 million. That's what Warren Buffett did. And he made a killing throughout his life. You don't need that much leverage to make a lot of money. Like anything above like 2x or something. I mean, of course, if you want to do like short-term trading, it's fine, but, you know, 100x leverage is really detrimental to the

market. And that's what we saw in March this year, right, with BMEX collapsing, the de-leveraging of B-M-X. We went all the way from like, what, $7,000 to $3,000 within a day? I mean, that was really bad. I think, you know, out of, I'm generally a, I guess a small regulation kind of guy. Like I don't like, I prefer as few regulations as possible. But among all the regulators in the world, I think the derivative regulators are probably the most beneficial to the market, to a healthy functioning of the market. I mean, there is a reason why CNE futures are not giving you, are not giving traders, even institutional traders, 100x leverage, right? They give in this institutional traders maybe 5x leverage. and that's because they're heavily regulated by the CFTC.

So again, you know, this whole story, I can see pros and cons on both. But again, I'm not, I haven't read the fine prints. I'm not a legal or regulatory expert. Well, I think that the challenge that you kind of are striking on is that there's almost an inherently broad brushstroked nature to this when you lump together all crypto derivatives or all derivatives of any type, right? you're talking about things which are these really interesting experimental use cases which potentially increase access and that is in fact their point right the synthetic assets like you were just talking about but you're also talking about like degenerate casino games online you know with the with the leverage and theoretically you could i don't think it's unreasonable to expect

regulators to get sophisticated enough to be able to differentiate between these two but that's not usually going to be the first pass it's either going to it's an all or nothing type of situation right I think that's a good point, yeah. So you ran a couple of polls that I found really interesting about defy investor sentiment over the last couple weeks. So what was the idea of those polls? What was the prompting for that? Because I thought it was kind of a – I actually referenced them today on the show before we did this interview. So I guess the story goes back to maybe early September when sushi swap – when the entire sushi swap drama happened.

And that was the first sign that told me maybe we're at the top. I mean, it's just the kind of stuff that usually happens at the top, right? Local top, not necessarily like multi-year winter or something like that. But it's the kind of stuff that happens at local top. And I said to myself, if this is indeed a top, then we're going to crash really hard because we just went through a parabolic 10x increase in the end. entire defy market, including all the, you know, all the blue chips as well as the long tail of Defi projects.

And today, we are maybe on average 50% off the top, maybe 60%. Usually, this is not the bottom in crypto. Usually we should be prepared for maybe 80% to 90%. I mean, this may not happen, right? Like, we might, this might be the bottom, but I wanted to see if, if the market is feeling fear and despair and anger. But I don't really see that today. I still see a lot of hope.

So my base case today is we're probably gonna be lower still two to three months from now. Again, I could be totally wrong, but I think I, you know, based on all the, you know, triangulating a bunch of information, you know, the charts, the sentiment. I think I'm probably 60 to 70% confidence, that I'm right. So, you know, that's why I did this poll this morning. But again, you know,

Defy, the fundamentals have been improving. Like, paradoxically, the TVL has been increasing over the last month. So, and the founders are building, are working really hard. I see a bunch of new projects in the private market. Like, Defi is here to say for sure. Like, it's, it's, it's, defy is real. And, uh, I'm fairly confident that two years from now, Defi will be higher than it is today. This episode is brought to you by Crypto.com, the Crypto super app that lets you buy, earn, and spend crypto all in one place and earn up to 8.5% per year on your Bitcoin. Download the Crypto.com app now to see the interest rates you could be earning on BTC and more than 20 other coins.

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things come and go. And you had a tweet that said, in crypto's brief history, we've seen numerous crypto narratives come and go. However, defy is one of the very few that's bound to stay. Why, since Bitcoin, we have value on blockchains, the next logical step is to trade it, lend it, borrow, it, collateralize, it, transfer the risk of it, et cetera. So I guess, like, you know, for people who don't know, like, how long have you been in this space, what have you been watching, and what got you so excited about, or what makes you, have high conviction in D-5? I've been following Big Planet since 2012, Ethereum 2014.

Obviously, there was this huge crazy ICU boom in 2017, but all these years, I guess, maybe since Ethereum, to be very honest, I haven't seen anything that really excites me. And to be very honest, as I told you before, I missed the first 3-X order this year, Defy. But after I lost interest in MacRill and started babbling Defy maybe around May, at that time I was still skeptical, to be honest. I knew Defy was real, but I didn't think that if I was going to come this early, because I kind of thought a lot of things weren't ready, especially, you know, scalability, the number of metamask installations. I thought if I wasn't ready, but I was quickly proven wrong.

especially when I guess compound, the compound incentive mining came out in June. I guess that was the turning point. That was an inflection point in the Defy mania in the summer. But the moment I really thought Defi was real was after playing around with maybe half a dozen of Defi products, right? The blue chips. Uniswap, AVE, you know, compound, all these products that people use. And that's when you realize, holy shit, this thing is actually really different from your traditional financial products.

Like it just feels different. Like it's very hard to describe defy in an abstract way to people who haven't used the product. You really have to use it in order to understand why this thing is so different. And when I first used these products, it just felt like when I first used Bitcoin, which is, you know, the ability to transfer or to use some financial product in a way that's, where I have complete freedom and complete control and no censorship and complete control of my, I guess, data privacy. I mean, it's not complete private, but I have control over it, right? It was just very reminiscent of Bitcoin.

But that tweet that you just mentioned that I tweeted out was exactly this, is that when Bitcoin first came out, we have some value on a global distributed ledger. We had the ability to frictionlessly store and transfer value, and that was Bitcoin. Now, the next logical step is just, you know, collateralize the value, lend the value, borrow the value, or transfer the risk of the value, right? And that's Defi.

It's really the next logical step. So that's why I say, like, if you understand Bitcoin, there's absolutely no excuse for not understanding the defy. It's the same thing. It's just the next logical step. So I think Defi is here to say. Do you think, how do you see base assets for Defi playing out? Like, do you see Bitcoin becoming kind of the reserve asset for most of Defi?

Do you think it'll be Ethereum? Do you think it moves to other chains? Is it kind of like some crazy Melange that mixes everything? Again, I think you need to play around, sorry, play around with the product in order to make a conclusion or hypothesis. I think RAPTC just feels, feels pretty good, to be honest. So I don't see why Bitcoin cannot become the reserve currency of DFI. And if we do come from an Ethereum-centric defy-world into a multi-chain defytheirer world, then it's going to be even more competition for Ethereum, for Ether, the asset.

So I'm of the view that maybe 60%, I'm not entirely sure, maybe 60% that Bitcoin is going to be the reserve currency alongside the stablecoins, of course, right? And the stable coins are always going to, I mean, as long as the regulators are going to with the stable coins, they're always going to be the primary asset for DeFi, just because it's easier for the mental accounting and store value. How much have you been paying attention to stable coins this year? Again, speaking of, it's fascinating. It's fascinating, like the beginning of the year alongside that macro narrative, obviously all of a sudden,

coin shot right up right and then july starts and we start minting 100 million dollars in stable coins a day and i think we might have just passed 20 million total or 20 billion total excuse me but there's been so much focus on defy that that's kind of like it dropped off as a crypto narrative yeah i mean to your point uh i think there are two main catalysts for for the for the stable coin growth one is the the macro narrative order this year right like us dollar was the uh the ultimate safe haven for better or for worse, even gold on a really underperformed US dollar during the first sell-off or de-leveraging.

And then the second kind of was defy, I think, right? When the yield went all the way from like 8% to maybe 50% all the stable coins came in. And also that was the story with the rap PTC, I think. right people minted rap btc and you know synthetic u. Basically rack ptc is the btc version of stable coins right like these are just synthetic btc and synthetic dollars. So people minted a bunch of these synthetic assets or synthetic reserve assets and use them

for yield farming basically. I think I think this was the second catalyst for stable funds this year. So I'm interested in, you know, you are not someone who follows hype cycles. I can say that pretty confidently having, you know, paid attention closely to, you know, crypto content for the last few years. What do you think is the best critique of Defi and the worst critique? Best critique can also be, it doesn't mean that it's like fully right. It's more like what's the right type of healthy skepticism, I guess you could say. I would say the main challenges for Defi are still, I think it's regulation, frankly, because everything else is a solvable problem.

Like tech is a solvable problem. Metamask installation is a solvable problem. It just takes time. But regulations is something that we don't really have full control over. We could do something like, you know, coin center and, you know, like, you know, like, you know, really, like with active evangelism for defy. But if regulators wanted to kill a new technological innovation, they could do that.

They can never kill it completely, but they can make it very hard to use through a bunch of new regulations. I think this is the main challenge, to be honest. And as I told you earlier, I've been running the Defi lines for, for a few months. And this is probably the biggest problem

that we're working on right now. We're going to announce something pretty quickly sometime soon. But regulation is the best critique for DFI. Now, the worst critique, again, I think everything else is a solvable problem. I mean, what are some of the criticism of DFI currently, right? I don't know.

I think that you're, I think you hit the nail on the head when it comes to the regulation piece that like this is ultimately escaping notice right now because it's escaping notice right now, but that we're going to see a repeat play out of, you know, I mean, two years ago, right, when the ICU boom was happening, people thought that they could kind of get away with it. And now we're just seeing the kind of wave of action stream in. And I think that there's a concern that if the chief value proposition

ultimately is kind of a regulatory arbitrage or skirting around legislation, it's not going to really work. Yeah. I mean, one of the main benefits of of Defi products is the lack of KYC, which by extension means an easy and frictionless onboarding system or onboarding process experience user experience. I think the entire DeFi at its core is about frictionless user experience and the lack of KYC is the main part of it and that can get killed by regulations. Do you see any scenario in which that doesn't get killed by regulations? How does that, how does that play out differently, I guess, is the maybe the, interesting counterfactual.

You know, I'm not an expert in the regulation. Sure. Yeah. So unfortunately, I can't provide an informed answer. But I don't know. I don't know, to be honest. Yeah. No, it's super interesting.

I mean, I think that these, like, what's for sure, a lot of what I've said very frequently on this show is that I think part of what makes Defi really different right now than other previous, sort of, you know, micro-crypto narratives that have gotten really hot is that it's all, it's pretty much all in franchise players who know the stakes and can actually like experiment together. And when losses happen, they happen with an informed audience, right? It's a very different than Korean pensioners, you know, buying a bunch of Cardano, you know, in 2017 and things like that.

And so I think that the experimentation is really interesting. The question is, and, you know, I think a lot of the legal experts feel like it might be off or not because the coolest things just are going to get stomped out by the heavy hand of regulation, you know? Yeah, for sure. It'll be interesting to see. So let me ask you a question about another narrative, which I actually haven't covered very much on the show, but is something that I saw another tweet from you. You were talking, I think it was earlier in, it was the beginning of September, and you were talking about the kind of rapid shift over to discussion of NFTs. What's your take on that? Like, you know, how has that changed since then, you know, was it just people

looking for something else to talk about because DFI started to cool down a little bit. Yeah, for sure. I mean, it's both. I mean, first of all, this fucking NFT narrative is so fucking dumb. Sorry about my language, but it's not that the NFT projects are dumb. Like, there's some really great projects. But NFT stands for literally non-fungible token. Like being bullish on NFT is like being bullish on your C20.

What the fuck does that even mean? Right. Like, if you want to be bullish on something, you want to be bullish. on some applications that are built using NFTs, using whatever, you know, non-fungible token standard on Ethereum or whatever, right? So, NFT, this narrative itself does not make any sense. Now, am I bullish on NFTs? Sure.

I mean, there's absolutely no reason why NFTs are not going to succeed, right? I mean, we've seen fungible tokens accrue a ton of value since Bitcoin. Bitcoin is a fungible token, right? And then all these XRC20s have non-zero value. Right. So, I mean, we've already seen $200 to $300 billion worth of value being stored in fungible tokens. So why can't non-fungible tokens accrue a ton of value, right?

I mean, this is my high level take. Now, I haven't dug into, like, very deep into, like, the NFT world, and I've seen a few projects here and there, some are very interesting, you know, the, you know, the aggregation plays, the exchange plays, you know, and after you changes, or, NFT, you know, landing, borne, whatever,

like these makes sense. I mean, if they can be done on fungible tokens, why can they not be down on non-fundable tokens? Now, I'm not an expert again, but I can see NFT becoming very big. At the same time, this recent, you brought up this really good point that this recent rise in the NFT narrative

was really, really because of the fatigue with the Defi narrative. It's just so obvious and so stupid. Yeah, I mean, the entire crypto market just constantly looking for a new narrative. That's just, that's been the case since the beginning. Since the down of time, yeah, exactly. Yeah.

Yeah. No, I think it's interesting. I think actually it's a great clarification, not just for the NFT space, but for any of these spaces where it's like, okay, if the idea is that this underlying, this underlying technology or enables some type of thing that wasn't possible before, then the question is, is the thing that it enables going to be significant in some way? And there's a full range of possibilities. Like, I think that digital collectibles have a, they have both a lot of opportunity, but they also have a lot to prove. I also get the feeling often with them that it's not in the same way that you can't say, like, our book's going to be big or like our movie's going to be big. It's going to be specific genres or, you know what I mean?

Like, where it's, you're basically, with NFTs, you introduce culture, not just finance. And figuring out where a culture is going to drift and how people are going to ascribe value to cultural assets is very different. different than pure play financial assets. And all the speculation in the world won't make it so if people don't care. I wouldn't be surprised if NFT's real heyday or digital collectibles real heyday isn't

until you actually have virtual worlds where digital scare. There's a complementary way to display your digitally scarce asset, you know? That's such a huge part of people knowing that you own a thing and being able to show off that you own a thing is such a big piece of it, you know? Exactly. That's the core of digital collectible. It's this sentiment attachment or being able to show off your, you're the thing that you, that you own. I think you, you would have to see some kind of Instagram for NFTs before NFTs.

I mean, it's kind of like the relationship between that, between Instagram of NFT and NFT. There's kind of like the relationship between Bitcoin and Coinbase, right? Bitcoin and Coinbase early on, they help each other become successful. And we need to see that in NFTs as well, right? We're going to have to see Instagram for NFTs where people can show off their NFTs in order for the NFT sector to become successful and vice versa. I mean, this is also interesting because it comes back to another thing that I've thought a lot about defy, which is like we always have an ambition for things to get very big, very fast. You know, like especially, I mean, this is a very human tendency. If you see a potential future that you really believe in, you want to be so, you want to bring other people into that.

But these kind of micro ecosystems are growing up. up in a way that is like, I think that it doesn't diminish the value of them for them to be small or only have a certain number of kind of early adopters who believe in that, right? Like, we're in the kind of early stages of bootstrapping that sort of value, particularly when it comes to something like digital collectibles. And that doesn't mean that it's inevitable that you, we kind of cross the chasm or anything, but it's certainly like, you know, I think it's similar with defy. Like it doesn't feel to me like the type of thing where you want all of a sudden a bunch of

normies, you know, to like flood into the space and start playing around. It would create this chaos in the system, you know? Yep, for sure. Fascinating stuff. What else are you paying attention to? What else is interesting? What else, you know, between now and the end of the year, what do you think might happen in Bitcoin or crypto that's worth, that's worth kind of keeping an eye on? For me, it's the same story. I mean, I still, I'm short-term bearish on D-Fi, but I still spend all my time helping founders. looking at new products. I mean, now till the end of the year, it's such a short time horizon,

but I guess if you want to look a little bit beyond that, then under collateralized lending is something I'm super excited about. The ability for anyone to borrow money when they have nothing to collateralize and use that money to start a venture, start a business. I mean, that's like, that's the, the cornerstone of capitalism. If we can do that on DFI, then it's, it's so, it's going to be great. It's one of the first definitively positive some products for DFI. And synthetic assets, that's also another very big, big sector.

But, you know, again, I don't understand the regulatory side of things. But assuming we can fix that problem, then us, Synthetic assets will be really, really, really big. Well, I appreciate you hanging out for a little bit. It's really fun. I'd love to do this more frequently. I think your hot takes are always piping hot. And so thanks for hanging out today.

Appreciate it. Thanks for your time as well. I think that in the wake of both the UK's ban on crypto derivatives yesterday and the CFTC and the Department of Justice going after Bitmex from last week, it's hard not to dwell on this question of whether this entire space is going to be regulated out of existence. If you listen to my interview with Preston Byrne and Stephen Paley from last week, you'll hear how much skepticism they have that Defi can survive the same sort of culling we're seeing now a couple years on that happened to the ICO era projects.

Even in that conversation with Chow, he acknowledged that certain aspects of the regulatory regime like derivatives regulation are really important and serve a purpose. So how do you reconcile that with this incredibly fast-moving, almost financial engineering type of online money games that is Defi right now? The permissionless nature of it, the frictionless nature of it, these things that are so empowering to people who are in the crypto space and who are focused on that use case are the same types of things that are going to raise major red flags with regulators. I think for those who are invested in this space, working now before it becomes an issue to work

with regulators to help them understand what value propositions are being proposed, why this is a valuable addition to the overall space, how you avoid abuses that they're going to be concerned about, and just generally make it part of an innovation package that is of value to them, rather than something that's an easy, sacrificial lamb feels really, really important. Anyways, guys, I'm interested to know what you think. Hit me up on Twitter at NLW or at Breakdown NLW, which is where you can find the podcast. Let me know what you think about Chow's argument for why Bitcoin itself will likely end up the reserve asset of the space. And by the way, I wanted to say a big thanks to everyone who has rated and reviewed the show recently. They're really helping people

find and discover this thing. So thank you, thank you, thank you, and keep it going. Anyways, guys, until tomorrow, be safe and take care of each other. Peace.