The Pomp Podcast - #602: True Decentralized Finance on Bitcoin with Max Carjuzaa

Episode Date: July 9, 2021

Max Carjuzaa is the co-founder and CEO of Money On Chain. In this conversation, we discuss Money on Chain, bitcoin defi, bitcoin collateral, bitcoin ethos, Argentina’s economy, and censorship resistance.  ======================= Matrixport, Asia’s fastest growing digital asset platform with $10 billion in assets under management and custody, it offers one-stop crypto financial solutions including fixed income, DeFi in 1-click, structured products, Cactus Custody™, spot OTC as well as lending. You can earn from high single digit with fixed income to high double digit yield with their Dual Currency Product. If you hold crypto and look for yield, this is the app you don’t wanna miss out. Go download the Matrixport App and enjoy a welcome offer of 30% APY on USDC here: https://invest.matrixport.com/en ======================= With 10M+ users, Crypto.com is the easiest place to buy, and sell 100+ cryptocurrencies. The Crypto.com Visa Card gives you up to 8% back instantly, and 100% back on Spotify and Netflix. Also, Crypto.com lets you earn up to 8.5% p.a. on BTC, and 14% p.a. on stablecoins. Get $25 when you download the Crypto.com App with code "pomp". Download the App now: https://crypto.onelink.me/J9Lg/pomppodcast2021 ======================= Okcoin is one of the most popular licensed exchanges. Okcoin is the first to bring new cryptos to market, offering some of the lowest fees in the industry, an easy to use app, and Earn feature--you got to check out their brand new, beautifully designed app!  And as of today, they also became the first US exchange to list NEAR. It’s easier than ever to sign up, buy and trade crypto in just 2 minutes on Okcoin with credit & debit cards or just link your bank account to the best new crypto assets. So get started, and go to okcoin.com/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. Now let's kick this thing off. Max Karzuda is the co-founder and CEO of Money on Chain. In this conversation, we discuss Money on Chain, Bitcoin DeFi, Bitcoin as Collateral, the Bitcoin Ethos, Argentina's economy, and censorship resistance. I really enjoyed this conversation with Max, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. First up is Matrixport. Have you lost your way in this low yield environment while searching for a better store of value to beat inflation? Look no further. Invest with

Matrixport to get more out of your crypto. You can invest today and earn very high rates of return and annualized yields. Matrixport is Asia's fastest growing digital asset platform founded by crypto veterans Jihan Wu and John Ji. With $10 billion in assets under management and custody, Matrixport offers one-stop crypto financial solutions, including fixed income, DeFi and one-click, structured products, cactus custody, spot OTC, and lending. You can learn from high single-digit with fixed income to the high double-digit yield with dual-currency product. If you hold crypto and look for a yield, this app is you don't want to miss. Go download the Matrixport app and enjoy a welcome offer on USDC for new users.

Go check them out by clicking on the link in the description. Next up is Crypto.com. With 10 million plus users, Crypto.com is the easiest place to buy and sell 100 plus cryptocurrencies. The Crypto.com Visa card gives you up to 8% back instantly and 100% back on Spotify and Netflix. You can also earn high rates on various assets, and you can get $25 when you download the Crypto.com app using CodePomp. Go download the app and use CodePomp, and you'll get $25. Click on the link in the description. It'll take you right there to download the app. Last but not least are my friends over at OKCoin.

OKCoin is one of the most popular licensed exchanges. OKCoin is the first to bring new cryptos to market, offering some of the lowest fees in the industry. an easy to use app and an earn feature where you got to check out their brand new beautifully designed app and as of today they also became the first u.s exchange to list near it's easier than ever to sign up buy and trade crypto in just two minutes on okay coin with credit or debit cards and you can just link your bank account to the best new crypto assets so get started today go to OKCoin.com slash Pomp. Again, OKCoin.com slash Pomp. I love OKCoin. They're funding Bitcoin development, and they've taken many, many steps to align themselves with the Bitcoin ethos. Go

check them out at OKCoin.com slash Pomp. All right, let's get in this episode with Max. I hope you guys enjoy this one. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. All right, guys.

Bang, bang. I've got Max here with me. Thank you so much for doing this, my friend. Thank you for having me. Absolutely. Let's just jump right into it. You are one of the founders of Money on Chain. I think a lot of people have probably heard about it.

They know it's something related to Bitcoin, but they probably don't understand exactly what you guys are building. And so let's just start kind of philosophically who you are, why you're attracted to Bitcoin, and then why are you spending all of your time, which is your most valuable asset, building Money on Chain? Well, I am Max Cajuzza. I discovered Bitcoin in 2009. I thought like everybody else, I thought that the blockchain is great, but there is no value in Bitcoin.

Then I rediscovered Bitcoin late 2011. I went through the rabbit hole. I've been teaching people about Bitcoin in Argentina since 2013. Well, I'm actually a Bitcoiner. And when Feather appears, immediately it brought my attention the problems with a centralized stablecoin. There are basically two big problems with that kind of stablecoin. The first one is that when you go into Feather or USDC or another centralized stablecoin, you have to trust the company behind that.

And there is not too much Bitcoin. And the second problem is that when you go to a stablecoin like USDC or Tether, you are actually selling your Bitcoin for dollars. So the idea behind Manion Chain was having a stable coin for Bitcoiners that inherits the same properties of Bitcoin, that no one can, you can transact with everybody and no one can stop your transaction. That was the first idea behind Money on Chain and having the Bitcoin as collateral. I consider Bitcoin as the best collateral you can have. But moreover, when you have a stablecoin like Money on Chain, you are not actually selling your Bitcoin. You are not selling your Bitcoin for dollars. You are parking your dollars in a smart contract. So there is no sell pressure in the

market. Got it. And so really the idea here was you were attracted to Bitcoin for all the reasons that everyone is attracted to Bitcoin, but you realized that there was going to be value in the stablecoin market. And it sounds like you were against the idea of, hey, sell my Bitcoin for dollars to then have a dollar back stablecoin. And so really that first foray was how do I build a stablecoin using Bitcoin as the collateral, but still enjoy all the things around censorship resistance, and kind of non-custodial nature of some sort of financial product, but get stable value that I could then transact back and forth. Exactly. We think that there are a lot of use cases for Bitcoin, for example, companies transacting with each other, and people buying

the pizza. But that is not happening because of the volatility of Bitcoin. Most Bitcoiners think that Bitcoin volatility will go away. I think that Bitcoin volatility won't go away because we have been using gold for 5,000 years and the gold is still volatile. Yeah. And so one of the things that's really, really interesting about your approach is you essentially see the value of the ideas that many people are talking about outside of Bitcoin, whether it's stable coins or derivatives or earning yield or whatever other idea, your whole point, and I think why you guys are focused on the mechanism that you're focused on is those are great ideas, but they should be built on top of Bitcoin using all of the benefits that

a secure, decentralized, censorship-resistant chain would provide rather than give up those qualities in order to pursue faster transactions or cheaper fees or some other innovative type of edge case on the technology. Exactly. You don't have to give away the using of the best collateral to have all that. You can have all that on top of Bitcoin. Got it. And so when you think about what you're building, is this a layer two? Is it a side chain? Does it actually not matter what we call it? Walk us through some of the technical architecture here so that people understand exactly what's happening when, let's say, they use this kind of Bitcoin collateralized stablecoin.

Okay. Today, this is more like a layer three because we are building this on top of RSK. RSK is a sidechain of Bitcoin that uses most of the miners of Bitcoin through a process called merge mining. We have built this protocol or set of protocols on top of RSK. We build a manual chain to bring DeFi to the Bitcoin world and to bring Bitcoin to the masses. We have more than just a stablecoin protocol. We have a stablecoin protocol. We have a decentralized oracle protocol that is very important for decentralization.

We have a governance protocol, and we have also a decentralized exchange protocol. and when you go ahead so you you can build the finance 2.0 on top of money on chain got it so we've got the bitcoin blockchain which is kind of layer one we then have rsk which provides smart contract capabilities using this merge mining uh as a side chain to that or kind of a layer two replacement if you will and then you've got money on chain built on top of rsk so That's where you get kind of that layer three application, if you will. When you start to think about who's using this, is this crypto native folks who come in and say, look, I've got Bitcoin. I want to start to put it to work in certain ways.

Or is this actually folks that are outside of the industry that are becoming Bitcoin or crypto natives because they see these products and they want to use the products? And where is the usage coming from? Well, basically both worlds. We have four tokens we are going to focus on in the first two. The Tolerant Chain, that is a stablecoin, and the BitPro, that is a liquidity token for Bitcoin holders. So the Tolerant Chain, as I told you, is a stablecoin, is backed by Bitcoin. The peg is warranted by the smart contract. That is very important. You don't depend in secondary markets.

The PEC is warranted by the smart contract. You can always redeem your dollar and change against the smart contract. And then we have this second token that is called the BitPro. That is the token that I like more. That is a liquidity token meant for Bitcoin holders. So if you are a long-term Bitcoin holder, it's a very good idea to have a little bit of your Bitcoins in BitPro. The BitPro appreciated is like 23% in the last year and a half. And so what people do is they take their Bitcoin

and they are selling the Bitcoin for this BitPro or they're posting it somewhere like, walk me through if I have Bitcoin and I want to earn yield on that Bitcoin, what exactly is happening there? Well, first you have to transform your BTC in our BTC. You have to have your Bitcoins on the RSK network, of course. And then interacting with the platform, you mint Bipro. You send RBTC to the system and you mint the Bipro.

And the Bipro is the one taking the volatility away from the dollar on chain. The Bipro ends because a little bit of leverage that the dollar on chain creates on the Bipro. It earns some of the platform fees. is it earns some of the interest paid by a third actor that we are going to talk about later that is the BTCX. And it earns some of the MOC token that are the governance protocol token.

So the yield in the BIPRO is not guaranteed. For example, if you mint BIPRO today and the price of Bitcoin goes down by 50% tomorrow, you are going to have a haircut probably. If you mint one Bitcoin of BitPro and the price goes down by 50%, you are probably ending up with 0.9 Bitcoins. But as the dollars are mint in a faster way than Bitcoin, In the long term, the price of Bitcoin tends to appreciate against the dollar.

And in the same way that Bitcoin tends to appreciate against the dollar, the Bipro earns all that money left in the table by the DOC token holders. So if you are a long term Bitcoin holder, it's a very good idea to have a little bit of Bipro. And then you have this thing called BitcoinX or BTCX, which is basically a way to get leveraged exposure using Bitcoin as collateral. Exactly. The BTCX is a 2X position in the price of Bitcoin. The BTCX pays for that leverage. The money that the BTCX pays goes directly to the BitPro. So basically what the protocol does is it takes the volatility away from the dollar and chain and give it for free to the BitPro. And then the BitPro sells that volatility to the BTCX and earns an interest rate in return. Got it. And then MOC is kind of the fourth product that you have. Explain what that does.

The MOC token is a governance token. It's meant to govern the upgrades of the protocol. Got it. And so is it fair to kind of think of this as a lot of what's going on in the DeFi world that's being built on top of Ethereum or Binance Smart Chain or somewhere else? You all have been able to figure out how to use RSK to build it on top of Bitcoin, use Bitcoin as that layer one security, and then Bitcoin as the actual collateral in all of these various products without having to use some of the other coins that are out there that may have different monetary policies or different security apparatuses? Yes. One important thing to notice is that we are not forking any protocol. All the technology that we have developed is our technology. It's public, but it's developed by us. The first thing we have in mind developing this protocol was robustness and security. So typically, the over-collateralization that the protocol has is much higher than other protocols. So the protocol is much robust than other protocols.

Got it. And when you start to think about kind of use cases for this, right, you're able to build a pretty compelling product suite. You're able to kind of point to the security of Bitcoin, the censorship resistant. But the ultimate test is in the market. And you started out earlier talking about Argentina and a lot of the work that you've done over the years of trying to educate people about Bitcoin in Argentina. Maybe kind of first start with just like, what are the problems in Argentina that people may not be aware of in terms of the economy, the monetary policy and some of those macro forces? And then we can talk about how Argentinians are using the products that you've built. Well, Argentina has two really big problems.

One is inflation. Inflation in Argentina is like 40% to 50% right now. And the other problem is capital control. You cannot buy U.S. dollars in Argentina. The law there is ridiculous. For example, you can manage to buy U.S. dollar, but you have to pay like 160 pesos to buy dollars. And then you sell your dollars. The bank is going to give you only 100 dollars. It's unbelievable.

So people cannot buy or use U.S. dollar today in Argentina, but they are allowed to use stable coins. So the dollar on chain is a wonderful solution for them. People are using the dollar on chain in Argentina mainly to send remittances to Venezuela. There are already a few companies using the dollar on chain in their balance sheets. And so when you think about what you're building, what is kind of the actual adoption in Argentina, right? What are people doing with the product and where are you seeing kind of the most excitement or the most volume and kind of the largest coalescing of users with these various products? Well, first of all, I have to tell you that the protocol is small today. We have only like 500 Bitcoins in the protocol.

We started with like four Bitcoin in the protocol. The protocol is very good at handling the liquidity. So we didn't need to have a VC putting millions of dollars to bootstrap the protocol. The liquidity of the protocol works always very well. So the protocol continues to grow. We have new users every day. But basically, the people using the protocol, we have two kinds of people using the protocol. We have no coiners using the dollar and chain.

to get away from inflation in Argentina and Venezuela. And we have Bitcoiners using the BitPro to earn more satoshis. Got it. And then how do you think about these products interacting with other Bitcoin DeFi products or kind of ecosystems? So take something like a Sovereign or other types of those. Is this something that is,

they're compatible and collaborative with each other? Are they competing for users? Is it some users will come to one product or kind of platform or ecosystem for one use case and then other ones fulfill others? Just how do you see kind of the landscape of folks building these decentralized financial applications on top of Bitcoin or RSK? We build the protocol thinking about other protocols. We have the idea of collaboration instead of competition with other protocols. So we build this thinking about protocols like Sovereign or Topricus that they can use our tokens in their protocol. Moreover, if you are going to, I don't know, go long or short the price of Bitcoin using the Sovereign protocol,

it makes much more sense for you to go long or to go short in the BitPro instead of the Bitcoin. Because if you are going, you have that little bit of leverage free using the big problem. Yeah, it's fascinating to me that money on chain, Sovereign, I'm sure there will be others, are kind of taking a lot of the ideas that folks have run off and built on other chains and bringing it to Bitcoin and being able to build this in a way that really embodies and embraces that security and that censorship resistant and kind of the monetary policy, et cetera. What's next for Money on Chain in terms of both the short-term and the long-term kind

of product roadmap? When asked for questions from the audience, a number of people were asking just around, how do you think about the continued development of the ecosystem and what other products you're either working on or could potentially work on over the long-term? Well, we are in the MVP version of every part of the protocol. So there is a lot of new functionality that are coming to Manulink Chain. For example, one of those functionalities is that you are going to be able to earn interest in your token chain inside the protocol. Another feature that is coming is that you are going to be able to lock your Bitcoin

and get a loan in dollar on chain. You will be able to go long 2X, 5X, 10X, 15X, and you will be able to go short also. So there is a lot of things coming for money on chain. when you think about the money on chain governance model there's a couple of folks who asked me to get you to describe it in kind of the simplest terms possible how does that governance model work and then how does the moc token fit into the governance model okay the first thing that i have to clarify and make sure everybody understand is that the protocol is not fully decentralized today. We are in the process of going 100% centralized to going 100% decentralized.

So the MOC token is the token that allows changes in the protocol. Today, the changes are still centralized. I think we need like four to six weeks more to go completely decentralized. But But after we go completely decentralized, there is no way to change the protocol without MOC token holders approval. Got it. And so when you start to think about how that governance model will evolve over time, do you need to get to the full decentralization and that's kind of where you have the full utility and power of the governance model?

Or do you feel like there's a lot of kind of importance and value on the governance model today, even though it might not be 100% decentralized yet? Well, today you have the full benefits in the MOC token in the sense that if you take your MOC in the protocol, you are going to get every penny that the protocol generates. But as I told you, it's not fully decentralized today. But why do we need decentralization? because we need censorship resistance. That is why, because we want decentralization. There is no other reason to go fully decentralized,

just to be fully censorship resistance. Got it. And so when you think about that trade-off between starting out 100% centralized and then moving to 100% decentralized, do you feel like that is the natural evolution or the natural path that every decentralized system is going to have to go through?

Like you can't just launch and be decentralized on day one? Or do you think there is a path that some people, for whatever reason, who want to do that could actually do it from a technical perspective or from an implementation perspective? Well, I think the fully decentralized to fully decentralized is the way that makes more sense. If you think about Bitcoin, Bitcoin started 100% decentralized. Bitcoin started with all the code and all the decisions in Satoshi, with all the mining power in Satoshi, and all the coins in Satoshi. And from that point, it started the path to decentralization. The same things have to happen in money on chain and other protocols.

It's possible to start a protocol fully decentralized from the beginning, probably, but that will be very inefficient. It's inefficient and probably actually very difficult to do as well, right? To some degree, just how would you coordinate that? And if there's coordination like that, there's likely some level of centralization anyways. So it makes sense. What to you has been the biggest lesson in building money on chain

and kind of this suite of products that you now have today? Has there been a major surprise or something you've learned along the way that you think is valuable for people to know? The biggest lesson, I don't know. We thought that it would be much easier to get the funds to make the project. We started at the beginning of the crypto winter. Being Argentinian, that was really tough. Why specifically being Argentinian?

Why did that make it more tough? Well, I don't know. Maybe I think that at the beginning, we had no credibility because we were from Latin America and trying to make the thing that everybody was thinking it was impossible. So it was very hard at the beginning. Yeah, makes sense. What's the one thing that people misunderstand about Argentina or the economy or the population there? I think that people in the United States and Europe cannot get the idea that stable coins from Argentina are almost like a matter of life and death.

Because you have the dollar or the euro, you can trust in the banks. In Latin America, people cannot trust in the bank. My father loses the savings of all his life like three times in his lifetime. And we have like 40, 50, sometimes more percent inflation that you cannot even imagine how it's like to live with that. I think that people tend to think that stablecoins are very interesting to trade or to, I don't know, to play with lending protocols. But for people in Latin America, stablecoins are really, really serious and important thing. Yeah. It's very sobering talking to somebody who kind of

lives through something like that in terms of the importance of the technology, but also kind of the better life, the better world, the better kind of financial position that can usher in for somebody who understands these technologies and can leverage them to their benefit. I always ask everybody the same three questions to finish up, and then you'll get to ask me one question at the end. But before we do that, where can we send people to find you on the internet or find out more about Money on Chain? Well, you can go to our page, moneyonchain.com. Then you have a community link and you can join us in Telegram or Discord, or you can follow us on Twitter. Awesome. All right. First question. What's the most important book that you've ever read?

Oh, very good question. The most important book I ever read is called Los Borgia. I never remember the author, but I was born in a Catholic family. One day my father gave me that book as a a gift. That book really opens my mind. Now, I am agnostic. What is the thing that drove kind of opening your

mind or expanding your thought process? Sorry? What was the thing that you took from the book that really kind of opened your mind or forced you to expand your thinking? Oh, the book tells the history of the church and

the corruption there. Oh, the corruption of the church. Got it. Yeah. That is all around the world, a very unique situation that I think many people were taken by surprise, regardless of your religion or which kind of controversy has popped up. The second question is about your sleep schedule. So I've got my friends over at Eight Sleep. I got one of these thermal regulated beds. Basically, I can make it hot or cold. And I used to sleep like five or six hours, but now I sleep eight or nine, I turn it super cold, like an ice cube. And I'm a full convert to the sleep religion. I'm obsessed with making sure I get my eight or nine hours of sleep. So much to the point of where

I literally begged them to let me invest in their company. What is your sleep schedule like? And how has that evolved over the years? I tend to sleep between seven and nine hours. I think that that is very important for my mind to work correctly. I used to sleep less a few years ago, but I don't know. Now I'm sleeping every day from seven to nine hours. That's good. As you get older, you start to realize, hey, that sleep thing's important. Makes sense. Exactly. Sleep is important. My last question for you is a little bit more fun, and you'll get to ask me one, is aliens. Are you a believer or a non-believer?

Oh, that's a very good question. I don't know. I'm sure that there are aliens out there somewhere, but I'm not sure if they have visited us because the universe is very big and the distances are very huge. So, definitely I believe there are aliens out there, but I don't know if they have been with us or not i need evidence i uh i tend to agree with your uh analysis that uh they are likely to exist but very unlikely to uh to have come to earth already who knows what will happen in the future but uh i don't know if we have that evidence yet what one question do you have for me to uh to finish this up here um do you like our protocol i think it's very intelligent uh and i think the thing that, if you said to me, what's the one thing that sticks out to me about money

on chain is the ability to take ideas that I think you, I, and many other people agree are important for a financial system, whether it's stability and value, whether it's earning yield, governance, things like that, and build it on top of the most secure blockchain, the most decentralized blockchain, but still to take a lot of the innovation that's occurred across the entire industry, right? Whether it's somebody in the Bitcoin community or somebody in one of the other communities that has built some of this technology

and being able to incorporate it in a very kind of unique and very adherent to the Bitcoin ethos way. So being non-custodial, being able to have that smart contract capability, but still doing it all with the security and kind of the decentralization of that base chain, I think is just a unique value proposition.

And so most people who listen to the podcast I know that I'm a big fan of all sorts of decentralized financial applications being built on top of Bitcoin. I don't think that it's necessarily kind of a winner-take-all or a zero-sum game. I think there'll be coexistence of decentralized financial applications across various ecosystems. I'm personally most interested in the ones on top of Bitcoin because of some of the non-economic kind of advantages that they bring in, in terms of freedom and censorship resistant, et cetera. But it seems like you, Sovereign, the RSK folks are just pioneering a very unique part of the market that my hope is more and more people start to pay attention to,

learn about, start using the products, and kind of eventually become advocates for over time. Okay, great. All right. So moneyonchain.com is where we can send people to learn more. sorry i didn't get you money on chain.com is where we can send people to learn more yes absolutely money on chain.com and you can follow us in twitter at money on chain okay awesome listen max thank you so much for taking the time to do this i really really enjoyed it i'm a big fan of what you guys are building and we'll definitely have to have you come back on as you guys get more progress um and get more products launched over time thank you for reminding me.