The Pomp Podcast - #721 Paying Bitcoin Dividend To Miami Citizens w/ Patrick Stanley and Muneeb Ali

Episode Date: November 14, 2021

Dr Muneeb Ali is the co-founder of Stacks, a platform to build smart contracts on top of Bitcoin. Patrick Stanley is the founder and CEO of Freehold and the Community Lead of CityCoins, a new product that allows you to support your favorite cities while earning yield in Bitcoin. In this conversation, we discuss bitcoin, Stacks, CityCoins, bitcoin yield, bitcoin dividends, and Miami’s plan to pay citizens in bitcoin.  =======================

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. Dr. Muneeb Ali is the co-founder of Stacks, a platform to build smart contracts on top of Bitcoin. Patrick Stanley is the founder and CEO of CityCoins, a new product that allows you to support your favorite cities while earning yield in Bitcoin. In this conversation, we discussed Bitcoin, Stacks, CityCoins, Bitcoin Yield, Bitcoin Dividends, and Miami's plan to pay citizens in Bitcoin. I really enjoyed the conversation with both Muneeb and with Patrick. I hope you enjoyed this as well. Before we get into this episode though, I want to tell you

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Hope you enjoy it. 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, we've got Muneeb and Patrick here with us. We're going to try to wrap our heads here around what exactly is going on.

How are you guys? Good. How are you? I'm doing fantastic. I appreciate you guys both jumping on. I know that for Patrick, at least, it's early over there, so thank you. I know, it's all good. Maybe what we can start with is, Muneeb, we'll start with you in terms of stacks and smart contracts on top of Bitcoin. I think the first question that people have is just like, why is it important to bring this functionality to Bitcoin?

And then how exactly does it technically work from an architecture standpoint? Yeah, I think the way to think about this is Bitcoin is decentralized money and it is amazing. I think it's just going to change the world. And right now, if you look at the use case of Bitcoin, people are mostly like either buying and holding it or they're trading Bitcoin on centralized exchanges. And the next evolution of this is when you can actually do really interesting things with Bitcoin in a completely decentralized way. Imagine that you could trade Bitcoin on decentralized exchanges. You could participate in lending protocols where you're lending in a completely trustless manner, earning interest on your Bitcoin. you can put up your Bitcoin as collateral, and you can start building all sorts of interesting

decentralized applications that are using Bitcoin as a settlement layer. So I think Bitcoin as sound money is the first step. Deploying that Bitcoin, making it productive, deploying it into smart contracts and decentralized finance, that's step number two. And then the last step is the use of Bitcoin as a settlement layer. I think it's a global settlement layer. You want the world trade to settle on Bitcoin. You want all important information on the planet to settle on Bitcoin eventually. And the smart contracts for Bitcoin

are a critical piece for enabling step two and step three. I think we are in step one right now. And we really want to get to step two and step three. Got it. And when you talk about the kind of technical architecture, explain how this works. Because I think that when people hear smart contracts on Bitcoin,

I see a bunch of people debating, is it on Bitcoin? Is it a side chain of Bitcoin? is it whatever? Frankly, I don't know how much important is the nomenclature as much as just like, how does it work? Yes. I think the simplest mental model for this is you want the Bitcoin base layer to be very simple, very durable. You don't want it to change. You don't want it to be very complex, right? You can look at some of the other alternative blockchains out there like Ethereum and others, and they decided to make their base blockchain very complex with smart

contracts. And that comes with a bigger security attack vector. So the way Bitcoin works is the base layer is not going to change. It's very simple. So it's almost like a two-layered solution. So the base layer is Bitcoin's decentralized money. And then you add some sort of additional layer on top that brings smart contracts. And I think that's where people get into all sorts of different solutions. Is it a sidechain? Is it like an L2? I think without getting into the technical details, what Stacks really does is that it tries to enable fully expressive smart contracts for Bitcoin, meaning that anything you can build on Ethereum or anywhere else, you can build that in the Bitcoin ecosystem now. And this is something that is really resonating

with developers because they see the trillion dollars in capital that is just sitting there with Bitcoin and they want to come and build applications on top. And can you give us just some high level stats on how many people are actually building in the ecosystem? Yes. So I think over the past six, seven months or so. So Stacks only went live this year. We now have, I think, 1,300 something smart contracts published on the blockchain, 10x effectively in the last three months or so. And there are organic things happening like Bitcoin, NFTs. That caught me by surprise. There are something like three or four organic marketplaces that emerge for NFTs. If people

are familiar with OpenSea and marketplaces like that on Ethereum. So that's already happening Bitcoin. And there are so many artists, there are so many developers who are coming in and basically launching all sorts of different applications. I believe there are more than 30 startups now in the ecosystem. And these startups are building things like stable coins, lending protocols, like you name it, right? It's a really exciting time to be around for the smart contract space in Bitcoin. Got it. And so Patrick, let's talk about what's going on in Miami first, and then we will talk about, uh, New York. Um, and maybe what I'll do is I'll play devil's advocate. I tried to get, uh, one or two folks to come on the hat. We're asking you a bunch of questions

yesterday. And, uh, as one of them said to me kindly, he said, Hey man, I got a job. Can we do this at night? And I was like, well, I can't really move the show. But, uh, so I think I've got most of their questions in terms of like what people are, uh, are interested in. Uh, the first is how is it that the city of Miami ends up with a treasury and then also earning Bitcoin yield? Like, how does that work from a technical standpoint or like an architecture standpoint? Yeah, happy to give the technical overview. First thing I just want to say is that Mayor Suarez just turned his city into like an oil producing country that yields Bitcoin. And I'll tell you how that happens.

So when you mine Citicoins like MiamiCoin, 30% of the cryptocurrency that you're sending in to mine goes directly to the city. So, you know, when you mine Bitcoin, you spend electricity. When you mine Citicoins, you spend cryptocurrency. That crypto just happens to be Stacks, which happens to yield approximately 10% APY in Bitcoin. And that's a nominal yield. So if the value of Stacks goes up, the yield goes up commensurate to that. So when you're sending in those Stacks to mine, 30% goes directly to the city's treasury. And that's why the city of Miami has almost $22 million worth of Stacks after just three

months of this protocol going live. Now, that number is just going to go up and up and up and up and up in terms of Stacks. And therefore, the amount of Bitcoin that that treasury can yield will also go up as a function of uh the stacks being added to the treasury um ongoingly just being added so okay yeah so once you get that treasury there and they are generating the bitcoin yield that is what uh mayor suarez in miami is saying he is going to take the bitcoin yield and he used a very specific term of a dividend right he's basically going to give that to the citizens now my understanding and what some of the questions were around is we don't have all the details right there there isn't

necessarily like hey here's exactly how this is going to work but the high level uh appears to be that any citizen can come in they can get any digital wallet doesn't matter what company what brand you know whoever built it uh custodial non-custodial the whole nine yards they then will get some future to be determined amount of that bitcoin so the citizens are getting bitcoin in a digital wallet that they control it's not a city created um a digital wallet like a chivo wallet or anything like that. This is just off the shelf from the market. Uh, but it's a dividend. It's not the city going and buying Bitcoin in like the open market and turning around and like handing it to citizens. That's right. So, uh, that's right. So, you know, cities, city, the reason

cities don't just bought simply by Bitcoin is because taxpayers would be so incredibly, uh, mad at them if they did that. Cause they're, they'd be, um, they'd be asking taxpayers for money out of their own pockets to get Bitcoin. What Suarez did with MiamiCoin is he added non-tax revenue to the city that they can distribute to folks in terms of Bitcoin. Now, that's right. And in terms of people using wallets, I believe the city is looking for the best possible way to do this in a uniform, sensible way. So I don't have all the details. they're going to determine that. But one thing I think actually could be really useful here is using lightning channels and getting the city set up on not just Bitcoin, but lightning and

ongoingly sort of metering out Bitcoin. And how would that work? The city has to figure that out, essentially. That's like they're talking to folks from from lightning, from different lightning sort of companies. And essentially what would happen is all the Bitcoin that's yielding from the city's Stacks treasury would go into a wallet that would set up payment channels with all the sort of citizens, or it might go into multiple wallets and be sent automatically. You can also do it without Lightning, but there's a lot of citizens and I'm sure Lightning would be helpful. So for example, and I'm just going to use one that I'm an investor in, but also two I understand intimately, and they've done a bunch

of like pay me in Bitcoin type stuff is somebody could go, they could get a strike wallet and the city could use the Lightning Network, take the Bitcoin that they've earned as part of that yield and then pay out to a user who has that strike wallet. And that's the way that the city would essentially be sending Bitcoin to a private citizen. Yeah, I can chime in on how this can work. So basically think of this as, let's roughly call it a $20 million worth of treasury with a 10% yield, you're talking about $2 million worth of Bitcoin projected, but this might actually, given that the donations, these are kind of like donations coming into the treasury. So donations might keep going up, right? So it might be like a 50 million treasury. We don't

know. We'll see how this turns out, but the yield is dependent on that. So let's call it anywhere between two to $5 million in Bitcoin. Once you start looking at it as Bitcoin in Satoshi's, that's actually a pretty large number, right? Because a single Bitcoin has like 100 million associations. So you're talking about a large number of stats that are available for these citizens and you don't want to lose a lot of them in transaction fees, right? So the ideal way to do it is over lightning. Like you help people set up lightning channels. Imagine like an entire city government would have to understand lightning. They would have to build up their own lightning channels, which is super exciting. The amount of education, the Bitcoin education that happens

over here. And then the people who onboard, not everyone's going to onboard, right? So it might seem like, okay, maybe $5 million worth of Bitcoin isn't a lot. A, it's a lot in sats. B, not everyone is likely going to onboard. Only the people who actually go through the learning journey of what Bitcoin is, what Lightning is, I think this thing is valuable and I want to get some. For me, the biggest benefit here is the learning journey. When people, they get their first Satoshis, like in their wallet, they experience a payments rail that is fully decentralized, that is a new type of a sound money. I think that's the thing that excites me the most about what's going on in Miami. Got it. And then Patrick, talk to me about New York. It seems like obviously there's this

competition going on now. I wrote this morning about, we've got four mayors across the United States that are all getting a portion of their salary paid in Bitcoin. We have Cool Valley, Missouri, Jason Stewart there, he's paying out about $1,000 of Bitcoin to his citizens. The city of New York is now saying, Eric Adams, hey, we're going all in on this stuff. How do we become a leader in this space. So what's going on in New York? Yeah. So, uh, Eric Adams is watching what Suarez is doing and he's seeing a new model for a mayor, right? So this is a mayor that makes outgroup arguments to pull, uh, talent and capital into their municipality, which is really smart. Most mayors don't even realize that this is, uh, this is, this is, uh, essentially a

game that's going on right now. They're essentially most mayors are like asleep at the wheel in terms of how to be a mayor in the 21st century in this regard. And so Eric Adams is refusing to just be like your prototypical 20th century mayor, and he's looking to compete with Suarez. And so he saw MiamiCoin, he saw he was doing well, and he said he wanted to go in that direction. So the community decided to activate New York CityCoin.

New York CityCoin now has $2 million in its treasury that they can do with whatever they want. that two million dollars can also be stacked or in bitcoin they could literally copy suarez and you know become that oil producing country that gives a dividend to their citizens but i think essentially you're gonna see this like this decade you're gonna see tons of mayors competing for talent and capital just like a ceo of a company would be and the reason being the reason for that is that um we are essentially living in like a default remote first world for information workers so people are choosing cities like they're choosing products and um and and so

you know you know you moved from new i think new york to miami um during the pandemic you've never been happier and you chose miami like a product and you love miami so like um you know city coins is great too just like as an additional thing uh as just like another way of voting sort of right so like you used to be able to vote with your ballot and uh with your feet you voted with your feet to Miami. I don't watch your vote on the ballot, so I don't know if you're voting. But now you can vote with your coin. The market can signal their approval or disapproval of essentially how capital is spent and how the leadership performs. So if you mine or buy or build on Citicoins, you are committed to the city. Sorry, if you hold Citicoins, you're committed to the

city. If you mine, buy or build, you are bullish on city leadership. If you sell certain Citicoins, you're bearish on city leadership. So let me ask this question. When you guys think about this, the number one thing I saw people asking was, what are the risks, right? Obviously, this stuff is brand new. I think that there's kind of two different things that are going on here that are working in tandem, right? Now, you guys are two separate organizations. So maybe I'll start with you and then Patrick will come to you. It's just when you think about the pros and the cons, what do you think is the most rational con argument or the biggest risk that you're like, you know what, we're aware of it and we're trying to either mitigate it or that's what people need

to be aware of as they look at these systems? Yeah, I can start. So I think the way to think about this is for the longest time, even in the history of Bitcoin, you would notice that the early Bitcoin developers, they would call Bitcoin an expert. I think now it's almost been more than a decade and I think it's maturing a lot. But if you look at the Stacks protocol, think of Stacks as a programming layer for Bitcoin. Stacks itself is a decentralized protocol. There's no company behind it. I think there are 30 plus companies that are contributing in various ways, building stuff, but it is an open source decentralized protocol. But compared to Bitcoin, it's relatively new. It only launched this year. The technology hasn't been tested as heavily as Bitcoin has been

tested. And then some of the things that people are building on top, like the community-driven Citicoins project, that is another layer on top. So I think people should treat these things as like very experimental very innovative very exciting but experimental and and in terms of the the city the city is kind of like getting a donation they could like write it off like because the value of cryptocurrencies can go up or down these are very volatile things but i think at this point like for for them it's a donation right so the the the donation value might go down that's that's a risk uh if they're if they're earning bitcoin uh and the crypto markets kind of crash the value of Bitcoin goes down, the value of the treasury goes down. That's a risk. But I think

the interesting thing here is that they're willing to engage. Patrick just mentioned some of the stats on the New York launch that the community just did. I want to emphasize something here. The $2 million that he's talking about is over the past 24 hours, maybe not even the past 24 hours. There's so much interest. And I don't even know who these miners are. I'm not mining but i saw that the so there's a threshold of miners like a minimum number of miners who can come in and uh kind of like trigger the launch that trigger was reached within three minutes within three minutes basically there were there was enough mining power to just trigger the launch of this thing over the last 24 hours you already have two million dollars in the in the treasury

that now the mayor has an incentive like by the time i think the the new york mayor actually takes office like who knows how much capital as donations is already sitting in the treasury and the communities is doing it i think so there is something powerful in this concept of almost like onboarding cities to web3 like i think we have seen cities onboard to web2 when they made like the dot gov websites and they started thinking about how to offer city services on the internet i think this is cities thinking about how do they operate how did how do they communicate with their citizens and offer new types of services by making use of crypto protocols. And I think it's a very exciting new place where lots of experimentation would actually be a good thing.

And then Patrick, what do you think about in terms of risks or the biggest things that people have to think about how they're underwriting it? I think we've squared this thing pretty nicely. I think many have outlayed the risk. This is experimental um experimental but i think the design is pretty good honestly and um you know we're using we're using um we're using a smart contracting language that uh um stacks and algorithm team sort of uh sort of co-developed and worked on called clarity just like you know if you were writing like nuclear grade smart contracts like you're dealing with a lot a lot money, you'd use Clarity. So we feel pretty good about it, honestly.

Got it. One thing about Clarity is it's not a Turing-complete language, which means that you can actually do formal verifications. You can actually be much more secure about what this program can and cannot do. And there's already a billion dollars locked up in a smart contract written in Clarity. So at least there has been other types of capital that has been locked in in these smart contracts and then if other people are using it you know they can they can learn from what what has already been done got it joe john what questions do you guys have yeah so we we've seen uh miami has obviously done this and they've accepted it and all that in new

york we'll see what they end up doing uh when when the new uh government officials take over but my question is how many cities can do this like in your guys mind how quickly will this go how many more cities will adopt this how will this look in in 12 24 months uh i think i think in two years, there's going to be over 100 Citicoin cities. So every startup city is going to have a Citicoin. Every technologically progressive mayor of a city where there's a lot of demand from the community is going to have a Citicoin. And it just so happens the two best mayors of the biggest cities in the United States have Citicoins and are technologically progressive. You know, David Sachs actually had a good tweet thread about this a couple days ago. He essentially, he was like,

quote, tweeting Eric Adams's approval of New York City Coin. And he said, you know, Suarez essentially had 18 months uninterrupted of being able to being able to just like clean up and, you know, be the best mayor in the country. And now he's he has a real competition with Eric Adams, who is who has become one of the top one percent of mayors before he's even in office just for merely being pro tech and specifically for crypto. makes a lot of sense one one way to think about this is it's a new type of a concept uh that anyone can adopt this concept right so think about nfts like once people understood or artists understood that hey nfts are a thing they can make nfts they can they can they can make use of them so many artists around the world they basically started using nfts and and i think city coins the concept is a little bit like that for cities and mayors so the technology is completely open source it's

completely community driven anyone can decide to use the technology i don't think they need anyone's permission so i i think it will the the adoption of the idea really depends on how powerful the idea is how much is it is it resonating with people and how easy for is it for them to get started right and and in this case like it's a completely permissionless system completely community driven so just like any artist in the world could decide that hey you know what i'm going to make an nft over here similarly any any city government on the planet could be like i like this idea i'm going to use the open source code and i'm going to start using john what questions you got yeah thank you guys for joining us today this is an innovative project

you guys are working on but can you talk about it from the individual citizen level like how do they participate in it what can they expect to get like what is their role in this situation yeah so if you look at uh if you look at a municipality as a proxy for citizens like they're they represent citizens they should be enriching citizens um the municipality gets 30 of all the mining proceeds the the the crypto that's sent into the mining function not um city coins themselves so they're getting a bunch of stacks so the city the city it's the city's job to um make citizens healthy happy and wealthy that is like that is the goal of you know if you're measuring state capacity that's those are the three things i think you're measuring

and so uh city coins are just another way for uh cities to benefit their citizens if they want to give it out like a crypto dividend boom the city the the citizens are getting getting rewarded citizens can also take it a step further they can they can integrate you know miami coin into point of sale they can uh you know local artists can uh mint with miami coin or mint with any city coin they can mint with miami coin you can build applications uh that allow like voting like dow like voting uh uh sort of scenarios and there's one that's getting announced at the end of the month that Miami is experimenting with and it's like a demo app um but essentially like you know you'd have like coin holders be able to like vote on specific uh agenda items that um that the

city proposes and is acceptable finds acceptable and finds any of them acceptable um so uh and city coins are uh really accessible you know you can buy one Miami coin for like two and a half sense right now. And, um, you know, you're going to, you're going to see, I think this decade, essentially everyone's going to become a stakeholder or an investor, um, just out of accessibility and necessity. And I think, you know, you're going to have, you're going to people for all walks of life, uh, having a shared interest in the success of the city. Um, so yeah, you can, you can build by mine. You can, you can, you know, trade, you can, um, can benefit from it. Just like the possibility is a kind of endless hope, hope that answered

your question yeah and then to participate or to buy for example do they set up a wallet to do that yeah so you set up a web wallet at hiro.so um and just click to the sort of web wallet and you can actually mine with that wallet you can stack with that wallet to earn uh to earn to earn more crypto from your city coin um and um you can uh use that wallet to receive city coins gotcha awesome guys listen i appreciate you guys taking that time to come on here uh this is all moving uh incredibly fast and i think that uh you know as i wrote this morning i don't think anyone had on their uh 2021 bingo card that u.s city was going to pay people in bitcoin uh and when i saw the cool valley missouri thing that was uh interesting right because it was like a

private contribution and then they were going to basically give a thousand dollars no one could sell it for a pre-specified amount of time. This has the potential to have a very much more sustainable thing, right? It's not kind of a fundraising that has to occur to be able to convert dollars into Bitcoin or anything. So I think that there's still a ton of things need to be figured out, but it seems to be working and people are obviously very excited about it. So I appreciate you guys coming on and explaining it, but also answering some questions in terms of what the risks are and how you guys think about the future work that you have to continue to do. our pleasure thanks for having us on awesome thank you so much talk soon