The Pomp Podcast - #498 Edan Yago on Decentralized Infrastructure for Bitcoin

Episode Date: February 23, 2021

Today’s episode is with Sovryn community founder Edan Yago. This podcast is a a recordeding from a Youtube Livestream on 2-15-21. In this conversation, we discuss decentralized infrastructure, synthetic assets, Bitcoin, Ethereum, oracles, permissionless innovation, wrapped Bitcoin, and Bitcoin mutants.  ======================= Remote makes it easy for companies of all sizes to employ global full-time employees and contractors. We take care of international payroll, benefits, taxes and local compliance, so you can focus on growing your business. Learn more about Remote and their new Remote for Startups program at https://www.remote.com. ======================= OKCoin.com is the leading crypto exchange for both beginners and experienced users. You can fund your account in under 2 minutes, and get access to the most advanced trading engine, all while paying the lowest trading fees in the industry (0.1%). Visit www.okcoin.com/pomp and open your account today.  ======================= Did you know only 1% of day traders actually turn a profit? So why are so many of us mistaking picking stocks for serious investing? You can’t control the markets, but you can control your risks. So how do billionaire investors control their risk? They invest in blue-chip art. If that sounds unusual to you, you’re not alone. But the ultra-wealthy have been investing in art for centuries. And since 2000, art has outperformed the S&P by an incredible 180%. Just a few years ago, a single work sold for $450 million! Imagine...Being able to invest in the very same paintings as millionaires and billionaires, at a fraction of the cost. Masterworks.io is an exclusive platform that makes it as easy as trading stocks online. And the best part is: you don’t need to know anything about art. Their experts will create a custom portfolio to meet your investment needs. With Masterworks.io you don’t have to choose between big risks and big returns. Sign up today, select POMP and you can skip the 70,000 waitlist to get first dibs. Just go to www.masterworks.io and use code POMP. =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Today's episode is with Sovereign Community Founder, Eden Yago. In this conversation, we discuss decentralized infrastructure, synthetic assets, Bitcoin, Ethereum, Oracles, permissionless innovation, wrapped Bitcoin, and Bitcoin mutants. I really enjoyed this conversation, and I hope you do as well. Before we get into the episode, though, I want to quickly talk about our sponsors. First up is Remote.com.

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guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. Eden, how are you doing? Pretty good. How are you? I got no complaints, man. As people come in here, we're going to quickly figure out first just where they're coming from. So if you're starting to get in here, let us know in the comment section where exactly you're tuning in from around the world as we do

this live stream. We're going to be talking about decentralization. We're going to be talking about Bitcoin, all kinds of great stuff today. And we have one of the world's experts here with us, with Iago. So in the chat section, go ahead and leave a comment in terms of where are you tuning in from today to watch this and I'll read some of them out. Say hello to people before we get started. Let's see. Who do we have? Let's see. Let's see. Takes a second for the comments to load. all right so let's get started now we've got about um a good number of people watching and uh so maybe let's just get started with your background where exactly uh did you grow up how did you get into technology when did you discover bitcoin uh and what kind of fascinated with you i grew up in

apartheid south africa uh to a family that had managed to survive the hyperinflation of the my republic and then uh the holocaust by basically um converting liquidating all of their earthly money into uh golden gems and they went through all kinds of remarkable stories and terrible suffering and then when i was growing up in south africa many of them were members of the a and c which was the it's basically nelson mandela's eventually a political party fighting for for freedom in south africa and because they were associated with the anc they uh were at some point declared terrorists by the south african government and so in the middle of the night one night when i was just a little kid um i was woken up by a lot of commotion and i kind of grabbed my

pillow and walked out to see what was happening and my uncle had was kind of out of breath and had just arrived at our doorstep my grandfather was giving him a piece of the car because he needed to switch cars so he wouldn't be traceable and he's he and his wife drove out of south africa through the lights to um Botswana and uh not long after i became a gold smuggler because my mother started buying cougar ends and sewing them into my clothes and sending me a loan overseas because they wouldn't search little kids in young spots airport and we needed to get money out to south africa to our family so uh sometimes i joke that i've been a bitcoiner uh for you know 30 years but um explain the gold smuggling a little bit more because that's a fascinating story so

uh kind of walk through exactly what was happening uh and what you were doing yeah so so there were a few things first of all you know uh part of my family had as i mentioned fled south africa as political uh escapees basically um and to get money to them uh wasn't simple because at the time in south africa they were very substantial capital controls but south africa produced 80 of the world's gold at the time and that's what south africa was famous. And the South African government minted a gold coin called the Krugerrand, which is one ounce of gold, and then traded it substantially more than the value of one ounce of

gold because it was so rare because you couldn't get them out of South Africa. And so what my parents decided to do was they bought a bunch of Krugerrands. And then what they would do when is when it was winter, they would sew these grants into my winter coat and then they would send me overseas alone the reason they would send me overseas alone is because when you went through young spots import as a nine or eleven year old kid at the time uh you were basically chaperoned but you weren't searched and so i i i was the best conduit for getting funds out of the country and made a few years later uh we we left south

Africa as well. And the first winter that I was living in Israel, the first day of winter, I went to school and I put my hands into my pockets and I was like, Oh, because I realized that I was at school sitting on a whole stash of Kruger rands that we had forgotten to take out of the jacket. So, so I had to spend the whole day at school, being very careful not to lose my gold coins. So yeah, so that, you know, I come from a family that's always been extremely politically active. We

have in one way or another been on the bad side of deleterion governments from communists to the Nazis to the apartheid government across the 20th century. And when I grew up, I studied neuroscience, and in particular neural networks, and I then immigrated to the United States, because I thought that the United States was the country of freedom, as the country of free markets, and I wanted to be part of that. I started a biotech company and my focus was on neural networks and using basically machine

learning to try and create better diagnostics. I was reading a lot of papers in network science and one of the papers that I came across in early 2011, I think it must have been around now like February 2011 was the Satoshi white paper and I remember I had you know it was freezing Pittsburgh day February and I had my coffee and I spilled my coffee all over my laptop because my mind was blown by that paper a lot of people you know have the story that they kind of took a long time to warm up to Bitcoin but I think because of my background I was primed like I was into network science i was into i understood the value of having sovereign money and that afternoon i sent out an email to everyone i knew saying this is this is what you need to be getting

into now and i was ignored by basically everyone but but it screwed up my life because i've been i've been in it ever since so when after you sent that email like what was the first thing that you did did you know that you wanted to go and buy a bunch did you want to work on it um kind of what What was the next couple of things that you did? Well, I was very poor at the time because I had started the startup. I put all my money into the startup. I had about $230 in the bank and I was still trying to figure out how I can get Bitcoin. I was trying to figure out how you wire $230 to Mount Gox, to Japan, without it costing you $230 in fees.

um and eventually what i did is i left my startup and i um i moved to san francisco and i took a job with a company called zynga which at the time was the fastest growing game company in the world and the reason i wanted to work for zynga was because i was sure that digital assets are going to be the future and no company knew how to mainstream digital assets better than zynga them our primary customer was midwestern housewife we had you know hundreds of millions of customers around the world shortly after i joined and so i i was with that company for um several years all through the ipo i helped uh turn zinger into one of the first companies in the world to accept bitcoin as a means of payment um and um and then i i when i left zynga i i helped set up an

organization called data uh to try and work on the regulatory issues of bitcoin uh and then uh in 2013 i uh i set up not one but two bitcoin companies uh one was bxil which was designed to help uh exchanges that were losing their bank accounts process payments and the other was more ambitious it was called epiphyte and um uh the goal with epiphyte was to uh work with banks to turn bitcoin into the global settlement mechanism and replace swift it's kind of like ripple without the coin um and uh our customers included barclays fairbank bbva cba we had um seven out of the ten largest banks in the world as our customers uh in 2014 2015 but they were terrified by the uh like the innovation departments loved it um the actual board of directors

uh usually wouldn't approve it but didn't approve it ever and so we we pivoted to using the technology that we built basically um turning fiat into bitcoin in one place converting it into fiat in a different place or allowing basically almost instantaneous transfer to a mechanism for getting remittance to allowing remittance payments so we were sending funds from europe to um africa to latin america to east asia and then 2016 17 hit and we started making extraordinary profit because um we basically could go to our customers and say we will do free remittance for you and we were buying bitcoin in europe or the uk and then sending it to thailand brazil zimbabwe nigeria where it was trading at a 5 10 15 25 premium and so we were making

on every single transfer sometimes 15 uh sometimes more and uh and we were using our customers funds as basically free float um so it was an extraordinarily profitable business and that was part of the reason why i got shut down at the time we started doing our volumes um went up dramatically and the banking partners that we had uh one by one started shutting us down uh and later we discovered that a lot of it was pressure from jp morgan at the time who were the primary US clearing bank for most of our banking partners. After that, I was done with the fiat world and I haven't been in fiat ever since. Before we get into what you're building now, I want to talk about the importance of decentralization, especially around infrastructure.

Everyone is very familiar, if you're familiar with Bitcoin, around decentralized money. I I think it's pretty clear as to why there's significant advantage to Bitcoin being decentralized rather than centralized. But one of the things that we've seen is all of the infrastructure, most of the infrastructure, especially up until recently, has been centralized around Bitcoin. There's a number of other places in the market where there's been decentralized infrastructure or decentralized applications being built. But Bitcoin specifically, most of it that has been built in terms of the exchanges, the custody providers, the lending platforms, all that has been centralized. And so maybe just kind of give us a quick high level overview of

like, why do you see the infrastructure and the applications around Bitcoin being so important as decentralized versions? And then kind of how do you evaluate where we are today outside of what you're building? Right. I think that's a great question. You know, for me, the magic of Bitcoin. Yeah, I didn't get into Bitcoin because I wanted to get wealthy. I got into Bitcoin because i wanted to improve the world uh specifically i thought it was important for people not to be um enslaved to a financial system where uh they they were out of control right bank could confiscate their funds the government could confiscate their funds uh their funds could be censored uh and you know part of this is due to the experiences that i'd experienced um and so the magic for me about

bitcoin is that it is this revolution in creating liberty a sovereign monetary system available to everyone in the world but it's dressed up as a get-rich-quick scheme so it gets adoption and um the frustrating thing throughout the years and i think this is you know i think back to the the conversations I was having in, you know, pre, let's call it 2015 with Bitcoiners. Everyone was sure that we were going to have decentralized exchanges, decentralized lending. Basically, all of the financial services around Bitcoin would be decentralized. And the reason was obvious. You have this amazing decentralized permission, this uncensored, uncensorable monetary asset. and um if you then you know have to use it through a centralized service you give up all of those

properties so the exchanges get hacked the exchanges require kyc the exchanges become regulated um and and and and bitcoin loses the the very properties that you that that it has that many people wanted in the first place what i think happened over time is people discovered that it's it's difficult to decentralize uh bitcoin in a responsible way um it was easier to start building um decentralized projects on uh ethereum and other services and then over the last few years we've seen the explosion of people uh now defy has uh sort of the ponzi Where people are just kind of looking for 200% APY yield and creating token upon token upon token.

And that's sort of the noise, but the fundamental value it provides is phenomenal. The fundamental value of decentralized finance is the ability to retain your control over your keys, over your assets, even as you begin to lend, transact, and create a new financial system. And so I think the thing that we need to give credit to Ethereum for is reawakening the interest among Bitcoiners in creating this decentralized finance, giving us the feeling that it is now within our grasp. And in conversations that I started having earlier last year, and particularly after

pandemic hit, more and more people who I'd known in the Bitcoin space for years, started talking about their frustration that there wasn't DeFi for Bitcoin. And yeah, I think to me, having decentralized applications for Bitcoin is a necessary step in all of the things that imagine bitcoin being to achieve that hyper bitcoinization means you're going to have to have a financial system based on bitcoin the way you do that is by having a decentralized financial system uh retaining your control over your keys can only be done in a decentralized financial system and having permission this innovation in finance can only be done in a decentralized financial system so i think if we want to see bitcoin achieve its full potential

So it has to have a cloud of decentralized financial services around. So before we go any further in terms of that decentralized infrastructure, the term permissionless innovation, I think, is one that doesn't get evaluated enough or discussed. Talk a little bit more about like what does permissionless innovation mean and why is that important? yeah so i think um you know almost everyone's seen the charts where um the cost of education has just gone up and up the cost of housing has just gone up the cost of healthcare has just gone up and up but at the same time the cost of computers has gone down the cost of services that are provided digitally has gone down google is free facebook is free why why why why that weird bifurcation and i think the reason is that industries have permissionless innovation in other

words anyone can become a competitor anyone can challenge the incumbents and some industries are so protected by regulation uh that entry into those industries is impossible the incumbents never need to change because nobody can compete for them and as a result they become more expensive and worse year after year the worst example of this is the financial system right uh the big banks the large financial institutions have hardly had to compete uh at all uh and they've hardly you know we still have bank branches because they've felt the need to to figure out how to provide us a fully digital experience and most recently with the whole wall street's bet saga uh we saw that when somebody actually does create a model which may compete with it right it allows people to you

know uh try something like shorting uh you know squeezing the hedge funds the regulators in concert with the large financial institutions can basically uh turn it off so the reason that permissionless innovation is so important is because without permission innovation you actually don't have competition and uh and the reason permission based on finance is so important is because facebook is cool right like talking to friends is very important searching for information is very important. But at the end of the day, we all spend eight to 10 hours every single day working for money. We all purchase the things that we want with money. We all manage the security of our futures and our family's futures with our finances. We basically express ourselves and our

deepest desires and needs in the way that we manage our finances more than any other thing that we do. And so if there's one place that we need to be free, one place that if we're not free, they can really squeeze us. It's our finances. And that's why permissionless innovation in finances is probably more important than any other single field. So today, decentralized infrastructure is basically, there's two schools of thought. One is that we are going to take Bitcoin, which is decentralized money, and we are going to bring it into the Ethereum or other smart contract platforms. There's things like wrapped Bitcoin and many variations of them. The other is that we're going to build new decentralized infrastructure on Bitcoin and around Bitcoin,

not including those smart contract platforms. How do you break down that framework? How do you evaluate what is most likely to work? And then we can, after we go through that, get into exactly what you're building, but just walk us through kind of philosophically or theoretically how those two different worlds is it a zero sum game one wins one doesn't is it coexistence how do you view this yeah i i think maybe i'll start with the end whether or not it's a zero sum game i i think that's a very uh dangerous approach for us to take because it creates a the tribalism that we've seen and the reason that the tribalism or sort of the coin versus Ethereum

versus BCH versus Ripple we're all enemies the reason that bothers me so much is because I think what we're trying to accomplish is extremely built and extremely ambitious we're trying to take on all of the governments of the world and replace

these fiat currencies with a sovereign currency where we are in control so all of the all of the established powers of the world are already against us and i think it's going to take all our concerted efforts to be able to achieve our role so i don't want to create situations i don't think it's good that we create situations where there's an opportunity for divide and conquer about us um that said i think for us to come together we should come together around

one monetary asset and i think that monetary asset needs to be the one which has the best chance of becoming the new currency the new reserve currency of the world and i think that's unquestionably um so uh i i think we you know i think ultimately this entire industry is it moves with bitcoin right we talk about the price of d5 going up and then people have all kinds of theories about why DeFi is going up or why the price of Ethereum is going up or whatever, right? But we know why they're going up because the price of Bitcoin is going up. It's the center of gravity. And if it goes down, everything else will go down as well. So now to the first part of your question, right? So, okay, so where do we build DeFi? Do we build it on Ethereum? Do we

try and build it on other systems um i think that if you look at what's happening with d5 for bitcoin which in my mind is the most important type of d5 right because because bitcoin is the most important asset uh d5 for bitcoin hardly exists or maybe doesn't exist at all on ethereum the vast majority of bitcoin on ethereum is wrapped bitcoin which is basically you go to a company called bitcoin BitGo, you give them your coins, you lose control over those coins, and then they give you a token representing coins that sit in their vault. So maybe you can use DeFi systems, but you can't use DeFi. So if we want to build DeFi for Bitcoin, it has to be built in a Bitcoin native way. It has to be built on the Bitcoin ecosystem, secured by the Bitcoin miners. And the way that you use this

bitcoin should be as trustless as possible and for that i think we need to use bitcoin layer 2 solutions uh and that's why i got some interested in sovereign which is a form of d5 being built on bitcoin layer 2. so let's talk about sovereign um maybe we could start with just kind of the impetus of the creation and the original idea uh and then kind of what your involvement with the what the project is right so um yeah as i as i mentioned you know especially when covert hit a bunch of um bird coiners started getting together and talking sort of online things kind of slowed down there was more conversation and there was also a need to come together one of the things that one of the initiatives that i was involved in was an initiative for block 19

and the idea was to try and get mosques to people around the world who didn't have them and we were going to take bitcoin and we took bitcoin donations to make it happen um and uh because we're taking the donations bitcoin we wanted to build this in a way which was going to be bitcoin native and as a result we we built part of the system on a bitcoin side chain called rooftop and while this was happening we were having conversations about all the things that we had experienced and sort of talking about where things went and how what we were surprised about sort of how things have played out in ways which were different from what we hoped or anticipated and you know kept coming we kept coming back to was that there was no decentralized

financial system being built system and at some point we just decided all right screw it we're gonna have to do it ourselves and so around june of last year we stopped working on on trying to see how far we could take the Rootstock system, which is a system which has smart contracts, but is merge-mined with Bitcoin. And so it extends the capabilities of Bitcoin into the smart contracting space in a way that gives Bitcoin the capabilities of Ethereum.

Explain that process real quick. Explain merge-mining for those that don't understand it in terms of how you're taking the smart contract capabilities and essentially combining it with Bitcoin. Sure. So merge mining is basically a way of piggybacking on the Bitcoin network's security, right? So you get all of these Bitcoin miners and they're in a constant race to look for the correct hash for the next block, right? While they're doing this, they're generating millions of other candidate hashes, which are the incorrect hash. So what you do is you create

the system where it will allow you to be looking for the bitcoin and at the same time that you're generating those hashes you could turn it could turn out that one of the other hatches is sort of like lottery ticket for a block to a separate chain and so you have the ability to create a separate check which has different properties in this case it has smart contract properties that has an evm or the ethereum virtual machine allowing you to create ethereum like smart contract but it is mined by bitcoin miners and basically shares the same hash power as the and one of the cool things about that is that not only does the chain inherit the security properties of it but bitcoin miners inherits the additional um revenue that the new chain provides

you're basically adding to the security budget of it. Got it. And so talk through a little bit in terms of how Sovereign is specifically leveraging this idea of merge mining and the smart contract capabilities. Right. So Sovereign is built to be merge mine in this way and to have smart contracts, which basically allow you to have a system which provides you the same functionality that you would expect with a regular exchange but in such a way that you never have to give up control of your keys you transact directly from your wallet and the system is unsettled so there's no kyc there's no one who can even try to kyc you there's uh no uh a way for people to shut down the system there's no one who can confiscate your funds and so what sovereign

has now after several months of development is it has the ability for you to trade so for example to trade against stable coins like usb stable points it has the ability for you to um convert a bitcoin into a bitcoin back stable coin so you can like you can hold on to your bitcoin but get liquidity in dollars so you don't have to sell you're going to stop spending dollars it has the ability to have um uh leverage trading currently up to about uh up to five x leverage so that's going to increase and it has which is really the most exciting thing the ability to borrow and lend for example i lend out my bitcoin in a way which is trustless i'm not i don't have to go to a centralized service and i'm earning extra money on my bitcoin so i i work um and

And the original goal of Sovereign, the original ambition was to basically do that, provide a service which is like an exchange and provides lending and trading services, but in an alternative environment. We don't have to give up your control. What we weren't anticipating was how much excitement. We thought that maybe no one had built this because nobody cared. and it would end up being a niche product for people like us. What we didn't anticipate was how many people would care, how many people would be like,

yes, this is what I've been waiting for. How many people shared our experience? And so we've seen the community of developers grow very, very quickly. We now have over 40 developers contributing to writing, auditing code, documenting code. A community of several thousand users.

uh we have people we have artists writing comics about the thing we have um people uh uh creating documents and videos and just trying to spread the word in every way they can and as the community has grown so have its ambitions and people are now talking about putting sovereign into the open source operating system of finance for the future there's and you know one of the things that i i I've heard you say is a decentralized version of anything will be larger than the centralized version. Today, we have different banks in different countries because they can't be global because the regulations are fixed to different countries. On the other hand, we have Facebook, Google, which are global and basically dominate this space. They become operating systems for

search or for for social right so imagine you had a borderless financial system right which was able to do everything mortgages pensions uh uh uh creating stable like fiat in the form of veteran bank stable coins trading lending everything right but it was borderless it was permissionless anyone could use it and it could be anywhere uh the more and more of the community are now talking about well, this is what we could build. We can build the next layer of Bitcoin, take the asset which recreated the monetary system and recreate the financial system in the same way. So when you think through this, there's a whole bunch to unpack here, right? Let's start first with the non-Bitcoin decentralized world. Is this something where you say, right ideas,

interesting execution, not valuable and sustainable over the long term? Is this something where you say right ideas, good execution will coexist? How do you just view, I guess, everything that's not being built on Bitcoin today over maybe a 10-year period? So the short term, ignore that, just over a longer time horizon. What do you think happens there? I think for me, I've gone through a bit of a journey. I started out extremely skeptical of Ethereum. I didn't think it would scale.

I didn't think it would be secure. I didn't think it would work and in many ways maybe I was right, right, like Ethereum today maybe has the most hyper-inclusive culture of any blockchain tribe, but from a practical perspective it's become hyper-exclusive, like only very wealthy people can afford to transact when the transaction fee is for like a trade of $200, $300, but at the same time I was wrong about so many things. The system has proven to be robust and secure for seven years. More and more sophisticated things have been built and really remarkable tools have been invented. The closest we got so far to a permissionless competitor to the Federal Reserve was MakerDAO,

which created an Ethereum-backed stablecoin. Compound has created a decentralized money market. Uniswap has become the first decentralized exchange to beat even the biggest centralized exchanges in terms of volume. I think these are not just sustainable. I think they're real important innovations. And I've kind of come to realize that if we want Bitcoin to succeed, We can't ignore these things. We have to be curious about them. In fact, nobody should be more curious about these things than Bitcoiners. Nobody should be more excited and more interested in developing decentralized financial systems than Bitcoiners. And I'm sometimes disappointed that that part of the Bitcoin community,

sort of the kind that you'd maybe call Bitcoin maximalists, have become a little bit narrow-minded, too closed-minded for Bitcoin's own good in not exploring the space more and not realizing that there is a huge opportunity here. There used to be, there are a bunch of important memes in the Bitcoin world. One of those memes,

another meme is HODL, right? another meme is uh short the bankers right there used to be a really important meme which is as important as any of those uh which was uh anything any technology that improves upon bitcoin will simply be adopted by bitcoin we just don't hear that anymore and i kind of want to bring that back because i think it's a very very important idea that because bitcoin is digital money we can build on top of it. We don't have to change the base there. We can build on top of it in layer two, layer three, and anything which is useful to Bitcoin can and should be adopted by Bitcoin. And so when you think through this, let's walk through some of the products that you have at

Sovereign. So the exchange is a great example. I am with you that it's nearly impossible to ignore some of the innovations that are happening just from a size and market adoption standpoint, right? I am very fond of saying my opinion doesn't matter. Neither does anybody else's. The market is the referee. And so when you think of your exchange, walk through what is the difference between, let's say, the sovereign exchange versus Uniswap versus a Coinbase, right? So kind of a centralized version. Then you've got two different decentralized exchanges. So how do those three differ from each other? So I think the easiest one to differentiate with is Coinbase, right? So Coinbase, I think, is a really important role to play.

It's sort of like the entryway. I think, you know, you can think of being a Bitcoiner as sort of like steps that you take towards your sovereignty, right? You start out, you don't know anything, you dismiss Bitcoin, you're a no-coiner. Then you become a little bit curious. You're kind of bi-curious, right? Then you buy your first Bitcoin and you keep it on Coinbase. And so you buy Bitcoin, but you don't really own Bitcoin. And then you become more self-sovereign because you withdraw from the exchange and put it

onto your hardware wallet, right? I think the stage after that is that you no longer need to use the exchange, the centralized exchange. You can use a decentralized alternative. So it requires a higher level of sophistication, but it provides you with much more control, much more sort of sovereignty for yourself. So that's how both Uniswap and Sovereign are different from Coinbase. Now, the difference between Coinbase, sorry, between Uniswap and Sovereign, there are two obvious ones to my mind.

One is Uniswap is built on Ethereum, and Ethereum is competing with Bitcoin on features, right? It's competing because it's got the smart contracts, it's competing because, you know, they try to introduce more technological innovations all the time, like group of stake they want to introduce. i don't think that you can compete with a global reserve currency and features right that that's the wrong way to view it it's not a technology it's a it's a special consensus um and and the and i think that the technology the specific features that you want can be implemented on any chain including effectively through merge mining on bitcoin so that's one difference, right? I don't think that I think Ethereum has provided an opportunity for massive

community growth. It's brought huge numbers of people into the crypto ecosystem and it's created new, important and exciting tools. I just think that that needs to integrate much more deeply with Bitcoin if we want to have a shared mission across the entire crypto community. The other difference is that Uniswap is designed as a single-purpose product, right? And the theory in the Ethereum ecosystem is that you're building these Legos, right? You're building, you know, Compound is the money market, Uniswap is the swaps, Fulcrum is the leverage trading, et cetera, et cetera, et cetera. And that's a very compelling idea because it seems extremely decentralized and I think it actually makes a lot of sense under some

circumstances but there's a problem and the problem is that you can't build everything on their one uh ethereum is proving that would be extremely high there's there's no way to build a layer one which is going to scale uh enough and so what you end up doing is you you need to have a sort of fractal system where you keep on rolling up uh you know you have you take things off chain like with Lightning or with us with Irola, and then you hash them together and put them back ultimately to the core of blockchain. If you're doing that, you need to have something which is far more vertically integrated because until our technology improves quite a lot, and this will take several years, the easy interoperability between different systems which are not on the

same layer one just doesn't exist it's not there um and right now the ethereum ecosystem is fracturing uh people are going up into what you know these roll-ups or these side chains on theory somatic optimism arbitrum these are all uh tools which different depths are migrating to because the fees on ethereum layer one have become too high to work with and that's breaking the composability which allows you to use these different lego blocks together and so what we've done with sovereign is we've built a system which provides you with effectively a vertical integration kind of like the the the the mac or the apple of of d5 right it just works the lending just works with the trading just works with the swaps etc and the other advantage that this has

is that now you don't need to do liquidity mining and a different token for every single service and start creating this this ecosystem of never ending sort of token upon token upon token upon token, whose value sort of becomes this Ponzi-like speed. When you think through 10 years from now, the future product suite of Sovereign and the decentralized infrastructure around Bitcoin, is this something where we can maybe sharpshoot and improve on certain financial applications? Or is this a complete rebuilding of the system where literally financial institutions in legacy world will have to embrace and start to play in this world, or they literally will be

disrupted and left behind. Is this an alternative system and the legacy system persists? Or is this full-on disruption where if you do not embrace the new system, then you basically are rendered valueless? I mean, the other day, someone asked me, someone, it was a government organization, but they asked me to send them a fax so uh old technologies never quite die just like coin chains never quite die right um i don't think we're going to see the financial system that we're familiar with completely disappear i don't think we're going to see fiat currencies completely disappear but i think they're going to have to learn to adapt to an environment where they're no longer the center of gravity and um and i think that what happens when

introduce permissionless innovation into any industry is that uh it starts off slowly and then you hit an inflection point and suddenly everything changes right suddenly retail disappears suddenly uh uh you know um television like no people don't have like television antennas anymore they have netflix it happens like very very quickly a blockbuster goes bankrupt quickly right so what i think we're going to do um what i think we're seeing happen now is that bitcoin is reconfiguring the way currency works the way central banks work they're all now trying to figure out how do they get in how do they create their central bank digital currencies right and i think what's going to happen next is as we introduce that same kind of permissions

innovation, finance, we're going to see at the beginning, nothing. And then suddenly all of the banks, all of the financial institutions, all of the insurance companies will have to scramble to figure out how they now fit into a new ecosystem, which doesn't look anything like the ecosystem that they effectively created. When you think through that world, talk a little bit about synthetic assets and kind of their importance in the ecosystem. Is that something that is sustainable, kind of how you see that synthetic asset vertical playing out? Right. I think, you know, there are two roles for synthetic assets. One is to act as sort of like a derivative. So let's say you want to make a long position on oil or Bitcoin,

it doesn't matter. You can create a token or representation of, you know, which which goes up with 2x and down 2x the volume of bitcoin that's a guru right um the second type of synthetic is there are a huge number of assets the vast majority of assets they are not represented uh sort of natively on any blockchain and so people who want to trade tesla shares you can't trade tests you have to you know and you don't want to do it on the nest deck you want to do it on ftx so you want to do it on a decentralized exchange you need a synthetic representation of tesla so i think the first form right the these derivatives they're always going to be there they're sustainable these synthetic versions i suspect that over time

just because it's the most secure most public most available way of representing any type of franchise what we're going to see is we're going to ultimately see all types of equity all types upon their instruments were all migrated to be natively represented on the blockchain. There are folks who are asking, and for those who are watching live, go ahead and if you leave comments in the chat, I'm monitoring them and I'm trying to weave some of those questions in here. There are folks asking on the lending side, how do the rates on something that is decentralized like Sovereign compare to the centralized peers? Is it higher, lower, the same? How does that work? right truth is we don't quite know yet because the volumes on sovereign right now are quite limited

um due to our strong emphasis on security so we've been live since september but we're only slowly adding the ability for more people to join and for larger and larger transaction sizes so right now the amount being earned by people lending out bitcoin is quite low i think it's about 2.3 percent um what we expect will happen is that as it uh opens up and basically you know the the barriers to entry are diminished it will probably start migrating towards being the same market rates as any other um uh venue with one difference so if you look at like the big players in the bitcoin lending space today i think you know you're looking at block fight looking at nasa you're looking at celsius there's one thing that they can do to sort of juice their rates which

sovereign will never be able to do so some of the biggest borrowers on block fire or nexo for celsius are institutional borrowers who are borrowing for carry trade or market making or arbitrage what they do is they borrow without putting down collateral um or putting down relatively small amounts of collateral in other words they come to Celsius or they come to BlockFi as a financial institution and they say look we have a credit score we have a reputation right so lend us the Bitcoin and we will pay you back whereas in a decentralized system you can't do that you have to have you can't have fractional reserve right because that is basically a fractional reserve system you can't have fractional reserve in the decentralized blockchain basis

and so it may be that the centralized services will always have somewhat I mean, it will be arbitrage, but they may always have some what higher rates that they can pay lenders. And I think of that sort of amount that we may be forgoing is the price of freedom. And I think it's something that we pay. There's questions about the Oracle problem, specifically kind of third party versus first party. How do you see Oracles playing into this? How important are they? And any thoughts on first, first, third party? yeah so with sovereign we use articles and we use articles to get exogenous prices into the

system in other words the prices that are happening in the rest of the world so that um prices reflected in sovereign are more more robust um you any any sort of central point in in a system is a potential vector of attack or weakness and oracles can potentially be centralized so the decision that we made was to have multiple decentralized oracle systems feeding us information all the time and what we what the sovereign system does is it takes this information from one end chain oracles from the chain link articles and it compares them And if there's a divergence in these prices, it can halt trading automatically. In other words, the protocol itself can pause trading until the prices realign.

So it's not a perfect system because you're still relying on other parties and third parties to provide information and because the system can end up being halted. So far, we haven't had that happen. but it is quite a robust system because there really is no central provider of data to the system anyone permissionlessly can come and start acting as a provider of of data to the system about pricing or anything got it what's the part that is the most difficult do you think as you build kind of more decentralized infrastructure on bitcoin is there one specific product or one part of what would be considered traditional financial products that you think is more difficult than everything else yes there's one non-traditional product that is very difficult

and is at the center of everything and where we put a lot of concentration which is making sure that the pay now is that when you're using your bitcoin on the system that it is that you can use it trustlessly on the system because these are not transactions that are occurring in bitcoin mainchain which means that you need to kind of pay you lock up your bitcoin on the mainchain and now you begin transacting on a different chain so having a truly trustless pay uh is a technical challenge uh which um uh we're not a hundred percent there so you are you're not using you don't have the same kind of security insurances that you have for bitcoin you have lower security insurances um and that's something which is being proved on all the time uh

with regards to the other question that you asked there's also another really simple thing that you can't do in a decentralized exchange which is like simple everywhere else but extremely exotic and defy right and that's just having a way for people to take cash directly you know like money in your bank account or money you wanted to use it on the exchange they always need to find some kind of gate code uh right now um and so interestingly it's like the basic things the simple things uh really on the on off ramps which are the biggest challenge of where we where we've been spending some like probably most of our time before i dig into a bunch of these questions that people have um where can people go if they want to learn more about sovereign if they

want to use the products so the sovereign website is sovereign.app spelled s-o-v-r-y-n dot app um and um it's if you go into the library of dior right uh the library of do your own research on the website. You can find a wealth of information. You can also try out the system. Right now, you'd need to wait to get whitelisted to use the live system, but you can try it out on testnet, so test.sovereign.app. If you just want to keep updated, you can follow the Sovereign community. A whole bunch of people are tweeting through the the same account at Sovereign BTC. And so there's a bunch of questions about the token involved. Everyone from why do you need a token to will the token eventually be traded on centralized

exchanges like Binance and how you feel about that. Maybe just talk a little bit about the token and kind of what the logic and structure of it is, and then also kind of your thoughts on how that will be uh treated by the rest of the community yeah so i think that the idea behind the token is extremely simple uh the token is not an altcoin it's not trying to be a coin at all uh the token which is uh sov um is designed to do something extremely simple which was invented hundreds of years ago it's basically a way of coordinating the efforts of a large number of people by having um then have the ability to vote on the system and to earn the revenues in the system so in that way it's kind of like decentralized equity in a way right um the

difference is that you have to be an active participant in order to earn the revenue which you have to actually participate in the governance and it's not uh uh that your claim on the on the system is not endorsed or protected by any court of law anywhere you know right if you if you buy shares in tesla tesla have to behave in a certain way and pay you you know if they're going to pay a dividend give you your right vote your right to vote because otherwise you can sue them there's no one to sue uh with sovereign but at the same time you don't have to sue anyone because the system is governed um by the code with which it's written and and effectively is secured by the bitcoin chain itself so it can't it can't do

arbitrary things it can't it can't change its mind about how it's going to treat you as a customer so i see a bunch of people being incredibly kind uh in the comments young investor a few others uh If you're watching this live, go ahead and smash the thumbs up. Yes, that does help more people on YouTube watch it. And if you share it on Twitter and tag me or Iago, we would greatly appreciate it. Iago, one other thing that I find really fascinating about all of this is it appears that the centralized financial system, to some degree, is having structural issues, right? from just a performance standpoint and central banks and elected officials have to keep stepping in and kind of intervening. But also there's a sentiment change and that sentiment change is

more psychological than anything. We saw that with obviously the GameStop and WallStreetBets, but there's been this kind of underlying sentiment for a number of years now. How much of that is a tailwind for what you're building and for Bitcoin in general versus do think that these technologies would be successful even if that sentiment change wasn't occurring? That's a great question. I think that these technologies would be valuable regardless. When I first got interested in Bitcoin, I had no idea that there would be at Wall Street, Spence, GameStop, anything. But what I did recognize was that we give governments a huge amount of power. We give them the monopoly over violence.

We give them the monopoly over creating the currency that we use to store and represent all of the effort that we put in in our work. um and and they have time and time again acted irresponsibly with now a lot of people i maybe am sort of you know lucky right so to speak that i got to experience this firsthand in a country that felt like it was a developed country um a lot of people who have grown up in europe or in the united states they they haven't experienced this in this generation and so maybe they think can't happen in the united states or you know in germany but um not that long ago right in the 19 1936 the united states confiscated everyone's gold uh in in 1936 germany was going through

hyperinflation uh this is not a an unusual occurrence it is unusual to go through periods where these things do not happen uh where fiat is involved so um to my mind having an insurer technology which provides an insurance policy against that was always going to be valuable and was and we would always at some point reach the point where um the the the the game just printing was going to come to its natural end and that it feels very much like that's where we are now, unfortunately, in the advanced economies of the world, because that's a dangerous time to be alive. And it's really important that we have a solid alternative. I tend to completely agree. I'm going to wrap us up here in a second. But one other question

that I've seen a couple of people ask is just in terms of how they can help, right? So obviously using the product is one thing if there's developers out there that want to work with you, but just maybe talk through a little bit, as much people watching, as much people who watch this afterwards, what can they do to help you and your team be more successful and continue to kind of push forward the decentralized infrastructure around Bitcoin? Right. So Sovereign is a community effort and we have people joining us in one way or another all the time it's really easy if you're a developer especially if you have experience with bitcoin or or smart contracts um but even if you're if you're not a developer uh we we you know they're people who are creating sovereign art you

can see some like behind me like these are these are different people have created different sort of like superhero badgers and um you can um uh test the system right we have we have we have an extremely enthusiastic we don't have any people who are doing qa right we have a community that we say look here's a new feature go test it and a day later we have 100 complaints which is exactly what we want right um so you can test out the system you can tell your friends and give them the gift of sovereignty let them know that it's now possible um and and i think the easiest thing is to just join our discord uh you can find the link on the website at sovereign.app and um and and go into the bounty channel go into the the user feedback channel see what people are talking

about you can see the devs talking about all this the work they're doing in real time and just jump in. I love it. Before I let you go, any words of encouragement or any thoughts on Bitcoin in general in terms of all of the adoption, the recent news, Elon Musk and Tesla, Michael Saylor, MicroStrategy, just any kind of things that are not sovereign related, but Bitcoin related? I always knew this was going to happen. I'm still shocked that it actually is. I'm right there with you. I said to somebody the other day, the two things that I know to be true are one, there's a foregone conclusion that you, myself, and many others have in our heads. But every milestone along the way is just kind of, you take a step back and breathe. You're like,

oh my God. And then the second thing is that every Bitcoiner I know wants the price to stay as low as possible for as long as possible. That is so true. Every time the price goes up i feel such pain it uh uh i continue to tell people that ultimately the price will not matter right because things will just be priced in in satoshi's and and bitcoin i think but uh on the way up it is exhilarating it is fun it is this kind of adrenaline but uh every bitcoiner kind of deep down they uh they do not want to see the price go up in fact they want it to stay as low as possible for as long as possible so i think it's yeah it's pretty funny that those two things happen cool yeah uh completely agree listen it's been absolutely uh amazing being on this uh on

this call with you and being able to talk to you about these things check out sovereign all right listen guys thank you so much for taking the time to do this i think people really enjoy it and i'll have to do it again in the future awesome cheers man