The Breakdown - Why Crypto Matters for Financial Inclusion, Feat. Celo's Marek Olszewski

Episode Date: May 6, 2020

Around the world, an estimated 1.7 billion people remain unbanked and lacking access to high quality financial services.  Some projects see cryptocurrency as an answer. In this episode of The Breakdown, NLW speaks with Celo co-founder Marek Olszewski about: How Celo was designed differently to address financial inclusion as a primary use case  The problems with centralized approaches to mobile money like m-pesa  Why true financial inclusions solutions must be permissionless  Why technology design isn’t enough and projects that seek to gain adoption require ground up go to market strategies The impact of Libra’s launch on the “bank the unbanked” narrative  How the COVID-19 crisis has changed the narrative around and demand for stabelcoins globally

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond. This episode is sponsored by ArisX.com, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. The Breakdown is produced and distributed by CoinDesk. Here's your host, NLW. Welcome back to the Breakdown. It is Tuesday, May 5th, Cinco de Mayo, and I'm sure by now you've already seen the memes going around that say something, to the effect of, imagine a world where Cinco de Mayo falls on Taco Tuesday, only to be ruined by a virus named after a Mexican beer. But that's the state of where we are. It is Tuesday, the 5th of May. And today, I wanted to do something a little bit different. For those of you who don't know,

who aren't familiar with my background, I spent about a decade in San Francisco doing tech before moving back to the East Coast, where I live now in the Hudson Valley and focusing entirely on crypto and content marketing in this podcast. And the thing that got me into tech, was actually working with a company called Change.org, because when I was in college and then for the first couple years after, my focus was entirely on social impact and in particular, the relationships between people from different places, how you build networks of action that could include both people on the ground actually experiencing problems as well as international networks of support. What was the right way to actually create change and make a difference? I think that on the one

hand, I am loath to say that everyone just needs to take care of themselves and that everything should be left to communities. But it's also, by the same token, very clear to me that the role that international communities have in local communities has to be led ground up from those communities. We can't impose solutions or it's just a different form of kind of interventionism that we've had in much more pernicious ways for years. This was my focus. This was where my life, my career, began. And I've never lost interest in that. In fact, for those of you who have heard me on other podcasts like Peter McCormick or Pomp, it was actually coming around and seeing Bitcoin in the light and in the context of ground up social change versus just a technology that really pulled me

all the way in. One of the things that I keep a pretty close eye on is these projects that are focused on something like banking the unbanked or whatever the way that it's phrased is. projects that are specifically designed to use cryptocurrency to solve issues relating to poverty and financial inclusion around the world. The greatest example of this narrative so far was Libra. When Libra launched, it was very much focused on this narrative of banking the unbanked. The whole first video clip that they launched with was all about that. When David Marcus went and testified before Congress, it was all about that. And frankly, people did not buy it. Congress. Congress didn't buy it, Senate didn't buy it, and by and large the public didn't buy it. It seemed to me,

or to a lot of people, rather, that it was a front, right, a narrative front, even if they cared about that issue, that it was so clearly secondary to them just kind of getting off this project. My guest today is Merrick Olshevsky, one of the co-founders of the Selo project. Sello is basically Libra if they actually designed a financial inclusion crypto protocol from the ground up. I was just reading actually a note about the project from Olaf at Polly Chain Capital, who invested in Sello. One of the things that he made note of was that what got him excited about it was that it was so clearly designed for that audience, including, and this I think is really important, as he put it, an agent network of on the ground exchangers who look sort of like the local

bitcoins network. The point being for him that Sello was actually trying to go after this use case of financial inclusion in a sincere way, and bringing what cryptocurrencies could offer to that world, namely decentralization and permissionlessness versus centralization and control in the case of existing systems like M-Pesa. So this conversation is a lot about how SELO came to be, what it does differently from those centralized systems, and a new announcement about additional members joining what they call the Alliance for Prosperity. I think it's a really interesting project and it's a very sincere attempt at this financial inclusion question. So on this Cinco de Mayo, an international celebration where we're all stuck in our homes and on the verge of

potentially the most inward focused national versus global moment in our history, enjoy this episode about the prospects of one protocol as it relates to a global issue of financial inclusion. As always with interviews, this is very lightly edited to keep the conversation as close to its original form as possible. All right, we are here with Merrick from Sello. Hey, Merrick, how are you doing? Hey, Nathaniel, I'm doing well. Thanks for having you. Yeah, thanks so much for joining on. So a bunch of stuff to get into today, exciting announcement from you guys, but I want to take it back a step first. And for those of our listeners who aren't familiar with Sello, could you just describe what you're doing and how it came about? Yeah, absolutely. So Sello is a financial

platform that makes financial tools accessible for anybody with a mobile phone. And we started about three years ago when SEP, Renni and I, the three co-founders for C-Labs, who had previously all met at MIT around 10 years ago, we started looking at something that we could do that was big and impactful and very mission-driven. We ended up looking at the problem of financial inclusion, as many of your listeners, I'm sure, are aware. There are 1.7 billion people who are unbanked, globally 1.1 billion people who don't have access to government-recognized IDs. And when we looked at this problem, we couldn't think of anything else that was more compelling, more impactful to work on. And at the time, crypto continued to advance. Proof-Stake was around the corner. And I think

people were getting comfortable with the idea of finally being able to be useful as a medium of exchange. And then likewise, mobile phone adoption continued to grow. I think we just right now passed the kind of $6 billion smartphone mark in terms of number of smartphones that have active mobile subscriptions. You know, that number continues to grow. And so two years ago, we saw this future where anybody with a mobile smartphone would be able to transact using crypto assets irrespective of whether or not they have a bank account or not. And so we wanted to build for that future. And so that was really the starting point of SELO.

I don't want to go too, too deep into the kind of technical design of the system, but I think it is relevant for people who are trying to kind of grok how you're approaching this financial inclusion challenge to talk through just the system, the design of the SELA system or the ecosystem as a whole. Absolutely. Yeah, so SELA was really designed through and through for this kind of mobile use case. We wanted to recreate Venmo or PayPal, but in a fully permissionless manner. And so if you think about it, what are the things that you'd have to kind of create in order to make something like that work? I think, number one, it has to be mobile. friendly. We worked extremely hard to create a like-line protocol that can sync with our proof-of-stake

BFT-based consensus protocol really, really, really efficiently. We actually use BLS signature aggregation to aggregate all of the different signatures that all of the validators are providing into a single multi-sig. We use this concept of epoch-based syncing, which, means that our validated second only change roughly once per day. These two things together give us 17,000 times reduction in the amount of data that you have to download relative to something like Ethereum. But then we wanted to go even beyond that. And so we implemented snark-based cryptographic proofs that prove that a header is part of the chain, allowing you to really sync with the chain in a fully peer-to-peer manner with just a few.

400-byte snark proofs. So that was the first thing. The second thing was around stability. If you think about using a cryptocurrency as a medium of exchange, it needs to be stable. And while there's been a lot of advances on that front over the past couple of years, stable coins today are still not that usable. and I think this is primarily because meta-transactions didn't work out, I think, the way people had hoped. And so it's just difficult to send them.

And so on the seller platform, you can actually pay for transaction fees in tokens. And so when you want to send some cello stable value, for example, the cello dollar, you can actually pay for that transaction fee in cello dollars. And that makes it just much more intuitive and much easier. to send stable value assets around. And then finally, we saw that people were just really intimidated by public key-based addresses. They were long to people. They look funny.

And people were always nervous about copy-based mistakes. And so we worked really hard to allow people to send value to phone numbers instead of these public-key-based addresses. And we do that by creating effectively a PKI or kind of a map that maps hashes of phone numbers to wallet addresses. And this allows people to find each other really easily by phone number. They can find each other's wallet addresses really easily using this mapping. And then critically, in order to make sure this mapping is correct, we have a phone verification protocol, a decentralized phone verification protocol, where when you sign up, you get paired with a number of randomly selected participants on the protocol who then send you cryptographically signed text messages.

You resubmit these back to the protocol, proving that you have access to that phone number with high probability and allowing you to then add this entry into this PKI. And one thing that's really, I would say, neat about this design, is that it allows you to send the payment to someone, even before the recipient has signed up. And so if you want to send value to maybe a family member and they don't have a public key, public private key pair yet,

that's not a problem. You can, on the cello platform, you can really easily send that payment. In fact, the seller wallet doesn't really even differentiate between whether or not the recipient is on cello or not, other than you pay a slightly higher fee when sending the transaction. Okay, so one of the things that I appreciate about you guys

is that it's very clear that the design is from the ground up thinking about this particular use case, right, this particular customer set. And in fact, you know, you actually have a blog post, I think, about your theory of change, which is a type of language that's pretty foreign to, I mean, most people are crypto, but most people in economics in general, right?

It's a social impact language. But I guess to peel this back even farther, getting aside kind of the technical design aspects for this protocol, what was the theory of change? What was the theory or the belief set around why existing mobile money solutions didn't solve the challenge for the unbanked, right? So not cryptocurrency-based solutions, but the existing mobile money solutions that exist all over the world.

Yeah, that's a great question. You know, I think there's probably a number of reasons why, you know, there's large populations that do not have access to kind of the financial tools and services that you and I take for granted. You know, I think at the end of the day, one of the advantages of building something that's crypto-based, as I'm sure many of your listeners are aware, is that you actually get to involve your users with actually operating the network and you actually can build kind of a community, almost a movement together. And I think it's just very hard for any centralized service

to accomplish that, especially if they're targeting kind of a small market with maybe not a lot of, of kind of typical target customers that they would otherwise look for. And so I think one of the advantages of being kind of crypto based is that we can be much more inclusive right from the get-go. We can even reward people for running the network. One of the things that we're working really hard for, one of the things we're working

really hard on right now is the ability for anyone to send those text messages that sign up new users. Right now, it's only validators who are elected through the proof of state system that can send those text messages. Longer term, we want anybody with an Android phone to send those text messages. It turns out that on Android, you can send text messages programmatically. And this means that you can install an app that connects to the network. And just as new users are signing up, if you get randomly selected, you can send that text message. And in so doing, actually get rewarded for sending that text message.

And so I think a lot of people are really excited about how Bitcoin allowed anyone in the world to earn crypto assets just by, initially just by running some software on their CPU. We're really excited about the vision where anybody in the world can earn crypto assets just by running something on their mobile phone. In some ways what you're talking about, and you hinted at this, but maybe we can go further, is that there are centralization risks for a system like M-Pesa, right? And part of what's the point of having a cryptocurrency network is that you avoid that, right? Or you try to avoid much of that. You minimize that as much as possible. I'd love to hear if you guys had any more thoughts about that, of the risks of kind of

these centralized services in the context of mobile money or just what, not even just risks, but what costs we've seen associated with them. But then there was another thing that you mentioned as a differentiator of SELA, which was permissionlessness and the idea that it was a permissionless system. I'd love to hear also why does permissionless matter in the context of this financial inclusion use case? Yeah, I think it's very important. I think if you want people to work together, to improve it, to help

it reach the masses. You need a really big number of companies that are working together and are making this happen. And one of the advantages of blockchain-based systems

is that you can encode the rules of the game into the system and incentivize a large group of people who would otherwise not necessarily work together to work together knowing that there's no risk that they may over time somehow be excluded. And so that's one of the appeals of the cello system for people who are joining the cello alliance for prosperity. there are 50 companies in the alliance as of, I guess, recently. And then as of today, 20 new companies, we just announced that 20 new companies have joined.

And so it's exciting to have an alliance that's actually growing, not shrinking. And I think it's that inclusive, permissionless aspect of it that is really appealing for many of these folks. That and our mission. I think our mission is one that. that really resonates with a lot of different companies, and there really is an opportunity to do something big and meaningful here. Support for this podcast and this message come from Eris X. With ErisX, you can trade spot and regulated futures on cryptocurrencies

through a licensed, U.S.-based exchange. ArisX believes in fair access for all. Sign up today to take advantage of zero fees and learn more at erisX.com slash consensus. This episode is also sponsored by the Stellar Foundation. The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power a payment application or issue digital assets like stable coins or digital dollars. Stellar is easy to learn and fast to implement. Start your journey today at Stellar.org slash coin desk. Our final sponsor is Grayscale Digital Large Cap Fund.

In times like these, diversification is key. Consider gray scale digital large cap fund, ticker symbol GDLC. It's the only publicly traded investment product that offers diversified exposure to large cap digital currencies. all from your brokerage account. For more information, visit grayscale.co slash coin desk. That's g-r-a-y-scale.c-o slash coin desk. I think that the alliance is really interesting, and I want to hear more about the new participants who have joined.

But one of the things that I think is really interesting is that one of your investors, Olaf from Polly Chain, wrote about what made you guys different and why he was excited about you. And one of the three aspects was this idea that you were from the beginning thinking about go to market, right, that you had, as he put it, an agent network of on-the-ground exchanges who look sort of like the local Bitcoin's network. And I think this is so important, and I'd love to hear more about what the status of this actual network looks like around the world right now, because the great challenge of trying to replace a centralized system, you know, like a Venmo or an M-Pesa or whatever it is, with a decentralized permissionless model, a network-based model, is that you have to get people comfortable accepting a different type of currency, and that usually also involves building off-ramps so that there's as little friction as possible. for them to accept that and then get it into whatever currency they need to pay their bills to pay their debts in. So I'd love to hear more about first, kind of just the way that you've thought about go to market and building this ground up network.

And then second, how the Alliance for Prosperity plays into that. Yeah, absolutely. And I should add that I'm more on the engineering front. And so I think this is actually a really, really great topic for my co-founder, René, our CEO. But the alliance really plays a massive kind of role in this. I think many of our alliance members are established companies that have existing customer bases. And they're really excited about the potential of SELA technology and what it can do to their customer base. And so they're working to integrate with SELO.

and bring it to those customers. I think one example of this is both Coinbase and Anchorage. We're early alliance members. We announced them in the first wave. And just recently, they both announced that they're supporting cello for custody. Likewise, Project Wren, which is a... carbon offsetting company. They were one of the earlier alliance members as well, and they, as of this past week,

are now receiving cello currency on the cello main net release candidate to carbon offset the running of the network. And so we've seen a number of these companies already, even though the alliance is only a month and a bit old, start actually. actually working with the cello community, either building on top or integrating with it, to advance its mission. Longer term, I think you'll see a lot more of the alliance members that exist in our target markets, launching and announcing support.

Just the other day, there was a company that announced an integration within PESA, where you can convert cello currencies to Mpesa and Kenya. And we're seeing a lot of different initiatives like this throughout a number of our target markets. I like the way, though, that you guys kind of organize this alliance into a variety of different categories, right? This helped me understand better how you think about this network, right? So you have companies that help you accept, help you acquire, help you build, help you earn, help you educate, help you give, help you grow, hope you lend, preserve, send, save, secure. So those are the categories that are just on the website.

And I think that that reflects an ecosystem level understanding of this. So today, I know that there was an announcement. Is it 20 new members that are joining, the 50 that initially launched in last month, I guess? Yes, exactly. So we've almost grown by 50% in the past month. Merrick, can you speak to how you guys think about who you want to join? Like when you go out and try to recruit what you're looking for. Absolutely.

And I think you hit the nail on the head when you mentioned the different use cases. You know, we've broken down the alliance to a number of different use cases between earn and give and spend. And so we're really looking for alliance members who really kind of fit each of these different categories and can help the celebrate. ecosystem kind of reach, reach the target kind of audience. And so early on, you know, I think we're a lot of the first alliance members are focused on getting the network kind of up and running.

Again, I mentioned kind of Anchorage and Coinbase with their announcements. So they're helping folks have great custody solutions. Likewise, we're also helping developers going to build on the platform, both Cellocamp and the blockchain social impact coalition have run or are currently running incubators that are on the cello platform, allowing people to build on the cello platform. And then we've, and then on the give use case where we're partnering with folks like give directly, who are really excited about using the solo platform for enabling more efficient cash transfers. Likewise, on the send use case, there's a number of companies that are very excited about bringing remittance support. to the platform, ABRA and a few telcos come to mind. SELO is a very great platform for sending remittances because if you want to

allow your customers to send value to anyone in the world, that phone verification protocol that I mentioned before allows you to, allows these companies to build that support without having to then go and partner with every different telco and every different region globally. And so these companies have found so I love to be really, really compelling. Let's shift for just a minute to kind of like larger narrative context.

So last year, Libra launches, and it's using a lot of the same language, although in a highly theoretical kind of place. And some people kind of looked at it as maybe a more cynical approach to banking the unbanked. for you guys, was that frustrating? Was it just validation of this larger mission? I mean, I guess I'm just interested in kind of, you know, you've clearly spent a lot of time doing the hard work in these places of building up this network to actually kind of pursue this particular market and try to serve this particular customer base.

How did that change, if anything, how you had to operate or the context that you were operating in? Yeah, I think from a validation perspective, I think it was definitely very big. I think it became very clear to a lot of people that the impact of something like this would be big, and it just became a lot easier to talk about what we were trying to accomplish. Obviously, I think Libra has a very different approach. I think the permission part of it makes it a lot harder for them. I would say to actually have that same impact and to actually really follow through with that mission.

I think the initial approach of also having a stable value asset that was not pegged to local currencies, but instead would be valued at kind of the price of this kind of commodity basket that they were holding on behalf of Libra owners meant that I think in many kind of local markets, it probably wouldn't have been a good option for a medium of exchange. I think there are a lot of reasons why what we had been building was more compelling to our alliance members and to others. How has the run-up in stable coins this year impacted you guys at all? Again, maybe it's just more awareness more broadly, but, you know, the the total circulating supply of stable clonets has exploded this year, you know, in large part,

it seems, due to demand for U.S. dollars around the world. But there's also a larger ongoing conversation about the emergence of central bank digital currencies with China currently starting to pilot something and even the conversation in the U.S. heating up. How do those larger kind of stable coin or CBDC discussions impact you guys? Yeah, a really great question. and I actually wrote an op-ed about this on CoinDesk last month that you might find interesting or that your audience might find interesting.

I think you're absolutely right. There's been a massive run-up in stable coins this year. I think we started at around $5 billion total supply at the beginning of the year. I think we're well over eight at this point. And it's interesting. If you look at what these stable coins are used for, it does still seem like they're used as a safe haven asset, as a currency to arbitrage between centralized exchanges. The overall defy space is still only around $800 million inside. and so it's significantly smaller than what these stable coins,

the next supply of these stable coins. And the other thing you'll notice is that most of these stable coins are Fiat backed. So there's over 8 billion stable coins today, but only 100 million of that is in dye, which is just a very, very small percentage. And that's a real shame. I think there's a lot of people working really hard to make decentralized programmable stable coins a reality.

And it's a shame that they're not able to compete against these Fiat back stable coins just yet. And luckily, we think that that's hopefully about to change. One of the reasons why I think both SUSD and I haven't been able to get to the kind of supply numbers of these Fiat back stable coins is because their designs inherently don't tie the supply of the stable value asset to the demand. Instead, they tie it to the demand for either lending against something like ETH or maybe staking SNX and, earning some rewards from that. And so luckily, there's been a whole bunch of research on how to create programmable stable coins that expand and contract the supply of your asset to meet demand.

Seney and rich shares is a fairly well-known design that basis looked to implement a couple of years ago. And so SELO actually uses a hybrid of this approach and what maker is doing today, which gives you the best of both worlds. On one hand, it's crypto asset over collateralized, but on the other hand, the supply is tied to the demand. So if there's strong demand for these table value assets, then the protocol will automatically expand the supply to meet that demand. So where is the project right now? How far along are you guys in terms of actually bringing this out into the world? Yeah, great question. So two weeks ago, a quorum of community validators launched the release candidate for the mainnet.

It's a proof-of-stake PBFT-based consensus protocol, and so they all kind of agreed at a certain time to start effectively kind of mining blocks. and the PBFT consensus had to kind of agree on its first round and started to run. So that was really exciting to watch. Since then, there's been a few upgrades on the platform using on-chain governance. So I mentioned that Project Wren is receiving rewards to offset the carbon required to run network. So there was a proposal that enabled that. And then also the full proof of state consensus mechanism was enabled as well last week. And so the network continues to run. It

continues to be healthy. If everything continues to look good over the course of the next few weeks, then again, through on-chain governance, the community will vote to upgrade that network into what will be deemed mainnet. And so mainnet is really around the corner, which is really exciting. It means that hopefully we'll be able to get kind of the seller wallet with the stable value assets in the hands of many, many people soon. Well, like I said, I think this is a, it's a fascinating area. You know, my background before getting into crypto and even before getting really deeply

into technology was in a lot of the sort of social impact stuff that, you know, you guys are working on now. So, you know, I'm excited for how you guys continue to build and to see how this works out in the world. For people who want to learn more, where can they find you? Yeah, so cello.org is the primary website. If you want to sign up for a newsletter, I would go to news.com. sallow.org. If you want to go to our Discord channel and just chat with people,

I would go to chat.cellar.org. And if you want to follow along with events, SLO is doing round four, or CLABS, I should say, is hosting round four events, virtual events a week, I would check out events.cello.org. Awesome. Well, Merrick, thank you so much for hanging out today. Absolutely. Thanks for having me. So that is a taste.

of this cello protocol, the cello project. I think what makes it interesting for me is, as I mentioned at the beginning, the attempt to clearly integrate this network building exercise in the context of their alliance for prosperity, in the context of their go-to-market strategy from the ground up, because I do think that the greatest challenge for a cryptocurrency, a decentralized solution to answer the problem of financial inclusion, is the adoption of a new currency, making it easy to use rather than just something that is this extra laborious burden, right? I don't think that we can overestimate the friction that would allow for a centralized solution, centralized mobile money, to be a better option for most people as they live their lives. I think that there are clearly,

if you could have that wide-scale adoption of a cryptocurrency, big improvements from fees to control to permission to access the network, that cryptocurrencies would bring. But again, the adoption question is the key. So it's excited to see a project making a sincere run at building the network that you need to go along with it. Anyways, guys, that's going to do it for me. I hope that wherever you are, you are having a good, sunny Singo de Mayo, and I'll be back tomorrow with another episode of The Breakdown. Until then, be safe and take care of each other. Peace.