The Pomp Podcast - Brandon Arvanaghi: Building the Gemini Dollar

Episode Date: October 29, 2018

Brandon Arvanaghi is a security engineer at Gemini, and one of the minds behind the Gemini Dollar, the first regulated stablecoin. In this conversation, Arvanaghi and Anthony Pompliano discuss what a regulated stablecoin is, how the Gemini Dollar works, why the naysayers misunderstand what Gemini is doing, and how stablecoins will play into use cases around the world.

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off The Chain, simply the best podcast in crypto. Let's kick this thing off. Brandon Arvanahi is a security engineer at Gemini and one of the minds behind the Gemini dollar, the first regulated stablecoin. In this conversation, we discuss what a regulated stablecoin is, how the Gemini dollar works, why the naysayers misunderstand what Gemini is doing, and how stablecoins will play into use cases around the world. I enjoyed getting an inside look at this project, and I hope you enjoy it as well. This podcast is presented by BlockWorks Group, the only blockchain event and media production company I trust. If you're an

investor, lawyer, accountant, or entrepreneur, and want to attend exclusive events and dinners, visit them at blockworksgroup.io. I promise you won't be disappointed. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his 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.

Before we get into this episode, I want to give a quick shout out to one of our sponsors. Saluna is a blockchain computing company powered by its own renewable energy. The team is planning to build a 900 megawatt facility on top of a 37,000 acre location, one of the best wind sites in the world in Southern Morocco. You'll hear more from them later in this episode,

but I'd love if you could go check out their website. You can find them at saluna.io. All right, guys, how are you here with Brandon? I'm super excited about this because Brandon is one of the minds behind the Gemini dollar. And so lots of people are talking about it. And we figured why not just bring somebody here who can actually answer all of our questions. Thank you for coming. Thank you, Anthony. Absolutely. Why don't we start with with your background and kind of how you found crypto? Yeah, absolutely. So very passionate about cybersecurity at a young age. I started at a company called FireEye, where I was a penetration tester and red teamer. So what

red teaming means is a company will essentially pay you to try to hack into them. And Bitcoin was kind of a peripheral interest of mine at the time. I played with the Bitcoin scripting language, the technical aspects, but kind of my perception of the space was shaped by the security news you would hear back in the day, right? So Mt. Gox getting hacked or an exchange getting shut down. So it wasn't great. But fast forward two years, I'm accepted to give a talk during that big cybersecurity week in Las Vegas. So there's a DEF CON conference, a Black Hat conference. And it turns out the Winklevoss twins are there.

And I have a mutual friend with them who introduced us. And I actually got dinner with them. And the things that they were telling me, it just kind of blew my mind compared to everything that I knew about this space initially. Like what? So they were talking about how their exchange is licensed. how their first two hires were security engineers. They had five ex-CISOs at the company from Google Wallet and Palantir,

these kind of things, right? I thought this was kind of a run-and-gun space. But to see them passionate about security and talking about security first, this seemed like an opportunity for me to bring my interest into a really good place doing it. So I've been working at Gemini for a year now and working on the Gemini dollar ever since.

Got it. And there's no red team? They weren't like, hey, come over and start a red team? No, I'm not involved in that. I was kind of glad to get away from that, honestly. Why? You know, the cryptocurrency space is what attracted me to Gemini in part. So I was just really interested in working on the underlying currency.

So Ethereum building on there. So that was my focus. Got it. Okay. And so let's dive into the Gemini dollar itself, right? So tell us, you know, what is it and how it works? Sure. So the Gemini dollar was the first regulated stable coin.

So what that means is that every single token, every single Gemini dollar is backed one to one by a real fiat dollar. It's as good as a dollar in your hand. Right. And what it means to be regulated. It's approved by the DFS. So what is that? Department of Financial Services. So this is actually recognized by governmental bodies as a real dollar. And the implications are huge. And I think you've talked about some of those implications in your in your newsletter. Okay, so let's walk through. There's a bunch of stablecoin attempts, right, all across the ecosystem. We've seen everything from Tether to Basis, etc. Gemini dollar is backed, right, by the actual dollar one to one. And so walk through what are the challenges with a non-regulated stablecoin backed one to one? Right. So the difference between a non-regulated and a regulated one.

So we sought out to work with institutions that have been in this space for a long time with good reputations, right? So State Street, for example, is a well-known longstanding bank in the space. They're the ones holding the dollars. We have an independent accounting firm called BPM that's attesting to those funds at the end of every month. And those reports are publicly accessible. You don't get that kind of transparency with these unregulated coins, which is why

this is a big deal. And the security audit is also a big deal to us. And we had a six-week audit with trail of bits on that front. So these are the kind of things that you get with a regulated coin with a lot of eyes on it than an unregulated one. Got it. And then also there's an element of consumer trust, right, in this whole process. Do we think that the stable coins have to all become regulated, right? Like what's the thought process in terms of the adoption, at least in the United States, right, around the unregulated versus regulated? So there's kind of two different worlds here that we can talk about. So there's the world of unregulated.

There's the world of decentralized, which is really exciting in some capacities, right? And then there's the world of regulated and approved. And this world is the world that Gemini Dollar lives in. The regulated aspect allows new money to come in that otherwise would not have, right? Big institutions with a lot of money may not have been comfortable previously contributing to the Ethereum ecosystem. But now they can because it's regulated. It's approved by the Department of Financial Services.

They don't need to worry about how this looks on their books, for example. Got it. And so who uses this, right? It's a regulated stable coin. I get that there's, you know, it's like holding a dollar in your hand. But why would I use this or who's that kind of target customer, right? I think you've talked about it. It's a really interesting point you bring up.

Real use cases for Ethereum, right? Honing in. not everything needs to be decentralized but the things that do should have a good user interface etc amazingly a new use case for ethereum it seems is the most efficient way of transferring large sums of money right with the gemini dollar i mean you take a wire transfer the old way of of transferring large sums of money you're looking at a 12 000 upsell in the price uh the cost to the bank banks are closed on weekends ethereum is not closed on weekends you can just send it at the speed of an Ethereum transaction,

$20,000, and it's as good as a U.S. dollar. So this is usable for anyone who doesn't want to deal with the wire transfers. But on the other side, there's dApp developers who want to find a good way to raise money and liquidate that money, institutions who want to get involved. I'm curious, your thoughts as well, what you think.

Yeah, look, I think everyone knows my thoughts about kind of consumer banking, right, around um it's ridiculous that we put our money somewhere and we can't access access it when we want right i tweeted one time and and uh when i tell people the story they don't even believe it so i'm glad that i tweeted and documented it but i i went to the bank because i had to send a wire right and uh i tried to do it online they said i'd go into the physical bank and i had to bring my physical identification so i showed up uh it was on uh a friday and they said to me um or no, I'm sorry. It was on Saturday, I think. And they said to me, well, you have to come in

on Monday and, uh, you have to make an appointment. And the person who told me this greeted me at the front door with an iPad with like a, like a calendar in it. And I just looked at it and I was like, this is not like, you just lost the customer for sure. Right. Um, and so, you know, I understand why they have a lot of that stuff. Um, but it's just not, you know, going to be very valuable in the world that we're moving into. Um, so, so, so it all resonates with me. Um, let's talk through um you know the actual uh validation of uh there being a dollar a u.s dollar in somewhere that actually backs each one right so um there's plenty of other stable coins that's the big question right um and and so what gives people the confidence is it that there's

other large respected institutions that are auditing and checking and custodying you know the dollar right uh is it something else like how do you guys think about um you know why choose those partners and and you know how does that affect the psychology of the user right so that's a great question so the long-standing reputation of these places is exactly why we chose them and why we're so thrilled they accepted i would say two years ago i can't speak on behalf of them but two years ago i don't think any of these places would have accepted this idea and that's a testament to our relationship with them, security of our platform, and the state of Ethereum. Ethereum's come a long way. So what you'll notice with our coin, we broadcast the name of State Street. We

broadcast the name of BPM, who's validating our funds every month. You don't see that as much with some of the competitors because they don't have the same integrity of these institutions, in our opinion. So that is, if you have confidence in these institutions, you have confidence in what we've done as an exchange, that's kind of the answer there. Got it. And is the thought process that people will be able to conduct ICOs and receive Gemini dollar as a currency there? Right. So that's a great question. So now we have KYC taking place. We know your customer taking place with Gemini. When you withdraw that Gemini dollar, we know who that person is. They can give it to the DAP. That DAP can easily liquidate it on the Gemini exchange now.

So a couple of questions around what I would say that, I don't know if they're the naysayers, but just the people who want to better understand in question, right? So first is, is this only able to be bought and sold or kind of the fiat on and off ramps on Gemini? So a Gemini dollar is created when you withdraw from Gemini. That's how we know who the customer is. But then once that person has it, they can transfer it to anyone in the world. There's no restriction whatsoever.

And then once it gets deposited back into Gemini, we have know your customer again. We know who that person is. But to go from the Gemini dollar to a U.S. dollar, like the actual fiat off ramp, I can only do that on Gemini? That's correct. Yes. Got it. OK. And then from there, you know, I think there's a lot of concern of, oh, Gemini is empowering, you know, a accredited investor only type system around this. Right. So in order for me to go in and purchase the Gemini dollar, I've got to get KYC AML. Right. Do I need to be accredited or not accredited?

No, you just think we just need to know who you are. OK. And that's when you sign up for Gemini, we know who you are. So anyone with a Gemini account right now can withdraw Gemini dollars. It's as easy as that. OK, so accreditation doesn't matter. It's just a KYC AML. And then once I actually take those Gemini dollars and I want to transfer them to a buddy, I have to go ahead and get them KYC AML as well. No, you don't you can transfer it to any ethereum address in the world Just like any token. It's an ERC 20 token so it can go anywhere got it So I can peer-to-peer transfer. I can put it on another exchange. I can do whatever I want with it

That's correct And then when they that person wants to go ahead and give or turn that Gemini dollar into fiat That's where there's KYC AML again on the exchange when they they already have a Gemini account They're done. They just deposit it and they get their money. It's as easy as that got it And so in the scenario, I guess the only hole in the scenario for Gemini, right, is that person A buys the Gemini dollar, transferred to person B, person B then gives it to person C, person C goes back to Gemini onto the exchange. Gemini knows person A and C, right, through the KYC ML process. They know that the Gemini dollar was transferred to the wallet of person B, but they don't know who person B was. We have source of fund analysis so we can monitor and see if there's any clear listed activity taking place along the way.

but we know the source and the destination the person trying to cash out in the end got it and that's just you're checking some sort of list of you know hey if that wallet address is you know somehow you know blacklisted or whatever then you'd be able to tell that you know the Gemini dollar went through and could have potentially been involved in some sort of nefarious action right I would equate it to if it's very obvious that there's some sort of illicit activity the obligation for any regulated stable coin you hear about is the same as say a bank wouldn't accept laundered money into their bank account

same exact kind of view got it and in that scenario if it's gone through that and somebody tries to bring it back on a Gemini obviously you guys aren't gonna accept it what happens to that Gemini dollars it just kind of destroyed or so when whenever you deposit Gemini dollars to the exchange it's a really interesting idea actually whenever you deposit to the exchange the Gemini dollar is destroyed it's taken out of circulation and a fiat dollar is return to that individual. And when you withdraw from the exchange, it's created. So it doesn't matter the context, it's just always destroyed upon coming to us and created upon withdrawal.

Got it. And then the second concern I think people have is around the freezing of assets, right? So obviously, I think much people read, there was a code review done, I don't even remember who did it, but they noticed that, hey, you're going to be able to freeze assets, right? And so in this, you know, world of kind of crypto ethos around decentralization, you know, kind of unseizable assets, et cetera, freezing assets, obviously a bunch of attention. What's the logic there for having that in the code? Right. So we talked about the two worlds, right? The decentralized part, which is why we're all here. And then this Gemini dollar, which is also exciting to get people involved. And that's and that's the regulated approved. Exactly. And that's really

good for every decentralized project, because we're going to be building out all these decentralized projects with people who weren't initially going to come in, with dApps that can get funded, things like that. So any regulated stablecoin is going to have the responsibility to act on obviously illicit activity. So any regulated stablecoin you see out there, right? We mentioned this in our white paper. There's a transparent way to do that, and there's kind of a less transparent way. And it was very important in our contract designs to be extremely transparent about any major change to our contracts. And I can talk about that as well. Yeah, for sure. I'd love to hear that.

Yeah. So basically, all these regulated stable coins, they have an admin account or a super user account. Now, you can either point that to a smart contract or you can point that to just an external Ethereum account. So an external Ethereum account is just like your Trezor or your Ledger Nano or something. Whereas a smart contract, there's some logic that needs to be followed in there. So if we were to issue a request to change the logic of the Gemini dollar, it would be in this pending state in the smart contract that everyone can see. And we can't actually act on that for a specific period of time. It's enforced by a time lock. The alternative, which we've seen with other stable coins, is there's no pending state. There's no public broadcasting. It's just

immediate. At the snap of a finger, the entire contract, their stable coin could look totally different. So that's one thing. Another thing, multi-signature verification. We require multiple ethereum addresses to be involved in any such change at our cold and cryogenic offline sites right geographically separated you can see that enforced in the smart contract for us but you can't when it's just an external address like our competition so you have to trust that they're doing something like that behind the scenes you don't have to trust that with us because you can see it in the smart contract got it um all right so uh what have you learned at gemini right like you've been there for a year now um and it sounds like you went from a like highly focused security

type background to what a lot of people think is like the decentralized you know wild wild west and there's definitely companies out there that uh i think fit that narrative perfectly and then there's companies which i think the the general perspective of gemini is hey these people are trying to do the right thing in a secure kind of regulated manner awesome uh played by the rules etc what have you learned you know as you kind of gotten you know indoctrinated into uh into the company and into crypto i think there's a there's a big push like you were saying the wild wild west to rush to everything right at Gemini I learned that we're just blocking all that out and we're playing the long game that means no cutting corners no matter

what the market is saying no matter what popular trends are we're sticking to the long game nice and slow everything by the book regulated and this is a model that I'm gonna follow in any kind of venture I do from here on out the Gemini model is just a very very nice one to follow absolutely I would normally ask you now your Bitcoin price target but the Gemini will kill me for asking that so we'll avoid that. Maria wouldn't like that. All right, so usually I end with

kind of some rapid fire questions. So other than Gemini, what do you think is the most important company in crypto? Most important company. So actually this is, I think ConsenSys has done a lot of great stuff for the development atmosphere. I mean, they're in charge of Infura, Truffle, MetaMask.

These are all tools that are used on a day-to-day basis by dApp developers. I mean, they've pushed forward Ethereum development so much So I've got to tip my cap to what they're doing. Yeah, it's not a small task over there. I think that I heard they're burning like $100 million a year now. Wow.

Or somewhere around there. It's a pretty big budget. All right, what is the most controversial thought you have in crypto? So if you were to say it publicly, the highest degree of other people would disagree with you. Highest degree. By the way, you're about to say it publicly, so we're going to find out. So this is my opinion, first of all. It doesn't—not to do with Gemini, obviously.

Uh, controversial opinion. I would like to see, I would like us to, as an Ethereum community, just blanket reject any proposal to revert any transaction that has to do with a coded in bug, like a smart contract bug that someone oversaw. Now some, we haven't really accepted anything like this since the DAO, but the fact that we're even having a conversation about a logical error in a smart contract, I think is just, it's just a bad thing. Why? Because that's the point, you know it's immutable you should get it audited six or seven times beforehand and only put out what you're confident in but but would you say that ethereum could be considered immutable now given the dow situation right you know i'm willing so the dow situation was important for our

adoption i think it's come a long way i mean the protocol looks very different than it did back then so i'm i'm very comfortable with where ethereum is now got it okay um if you had a magic wand and you could improve or change one regulation what would it be improve or change So generally, so I'm not actually involved in the regulations. By the way, this is my opinion, but I'm not super involved in the regulatory aspects. Generally speaking, I've been pretty pleased with what I have seen with the SEC, with the DFS. I mean, this is a big deal. Again, it wouldn't have happened two years ago, and rightfully so, the Gemini dollar,

because Ethereum was in a different place than it is now. So generally speaking, I've been very pleasantly surprised, and you might agree with how the United States has kind of handled regulations around this. Yeah. And obviously, it's probably more me thinking as a fund manager. You know, recently, Michael Arrington came out and said he's not going to invest in any more token sales in the U.S. Right. And so he's going to go look in Asia. And so I think, you know, we're getting to the point where the patience and kind of discipline of regulators has been a really big positive to me. Especially when you put in contrast to maybe other regions of the world that haven't had that.

We've seen a lot of kind of chaos. But I think now we're getting to the point where people are saying, hey, the uncertainty, right, is it's hard to operate within that environment. Not because I want to break the rules, not because I actually think I'm even breaking the rules, but it's just I don't know where you're going to come down on this. And, you know, I don't want to kind of subject myself to the gotcha type situation. There you go. So I think that makes sense. All right. So we just have to admit that there's aliens out there.

All right. and uh one question i ask everybody is do we think that there are pet aliens like is there a difference between human aliens and animal aliens right or is there just aliens in general and there's no kind of difference between uh species or anything right this is something i struggle with a lot so i'm glad you bring this up you've been thinking about this too all right this keeps me up at night so i'm glad some other weirdo in the world is thinking about this you know i gotta go by the book the technical definition of alien just extraterrestrial right so you got to assume there are different classes of these i i tend to fall on the there

is pets side but i'm i like you think that there's an alien walking around with a leash around another alien yeah and he's like come on let's go if i had if you put a gun to my head that's that's where i'd fall but i have total respect for everyone on the other side of the aisle on that one all right brandon for president it's better than uh i'll call out josh brown right now josh brown uh recorded recently and he told me he believes in ghosts more than aliens okay i told I felt offended. I don't know where that came from. All right. So before we wrap up, I'd let everyone ask me one question. What one question do you have for me? How do you think the landscape's going to change with something like this regulated stablecoin? What do you anticipate is a good use

case for it? And what's the world going to look like with these Ethereum-based dollar payments now? Yeah. So, I mean, I've talked about this before. My thought here is, you know, use Venezuela as an example right so the part that i think uh people don't break apart is this idea of trust within a government or an economy so uh venezuelan you know boliviar goes into hyperinflation people start to lose trust in the currency because they're seeing it devalued right in front of their face right and so they're literally losing wealth um while the um the dictator and cronies accumulate wealth right you know inflation is merely a way for rich people to enrich themselves right and so we're seeing that happen and so as they lose that faith in the currency what they

try to do is they try to escape the the devaluing currency so there's capital flight and of course dictators and those types of governments put capital controls in place to try to prevent the capital flight uh and so when that occurs then the citizens lose trust in the government as well as the currency right and so then what they begin to do is they look for a non-seizable asset right now if those capital controls weren't in place and they still had trust in their government they likely would just move from their devaluing currency to the u.s dollar right because they can just put that in their bank account right and it's fine well the problem is if you think the government's gonna come steal the u.s dollars out of your bank account you're probably

not gonna go to the u.s dollar right and so i think that um you know historically people have said uh let's go into bitcoin right um i tend to think that that's you know going to end up being one of the best stores of value over the next you know hundred years um but there's short-term volatility right it's definitely unseizable right um but but i think that something like this uh with the gemini dollar is um you know i i could see a couple of use cases where okay i need to get from the boliviar into a uh unseizable asset and i don't want to take on the price volatility of something like bitcoin over some short duration makes complete sense right so let me go into the Gemini dollar. It's like getting a switch of the dollar, but you know, my government can't come

and take it from me. Uh, the other thing is, uh, border crossings and all that kind of stuff where again, kind of short window times, I need to have the stability of the dollar, but I can't have it in physical dollars. And I'm worried about, you know, if it sits in a bank account somewhere, um, that there's some sort of, uh, of issue. Um, I think that makes sense. Uh, and then the other is, you know, the promise of the stable coin, right? So it's just kind of all stable coins. The one that figures out how do you have a sustainable product that holds value and empowers transactions is going to be valuable. Right. Right. And so I think that that's just kind of, you know, the stable coin bucket in general. And so, you know, to me, it is we're still early.

We're still seeing a lot of people try different things. So, you know, I think that that's good for the experimentation, you know, some of the innovation that comes out of that. Um, but, but I tend to, uh, fall in the category of like at some point, you know, there has to be sophistication, regulation, sustainability, et cetera. Um, doesn't have to be the entire ecosystem, right? So like the idea that Bitcoin is going to be regulated, you know, good luck. Um, but I think that when you start dealing with more kind of, uh, integrated aspects of the traditional financial system, like the bank's just not going to take your money if there's not KYC AML done. right because the risk reward for them is not in their favor that's right and so i think that um you know doing things like this again it's just chipping away or evolving the integration of

crypto with that system yep it's well said um yeah i practiced a couple times before no man listen i think what you guys are doing is really cool so i appreciate you coming on and uh and hopefully you guys will be announcing more stuff we'll talk more okay thanks a lot pop. Absolutely. Hey, guys, thanks for listening. We're back with the CEO of Saluna, John Belzier. John, what are you most excited about right now? What excites me the most is that we're really in the midst of a revolution. Satoshi Nakamoto's paper that came out eight years ago really launched a revolution globally. And the blockchain is definitely here to stay. Today's blockchains are predominantly seen as the core technology for cryptocurrencies, among other things.

But in the future, blockchains will do more. They'll be the foundation for entire new ecosystems. They will revolutionize a host of different industries around the world. And taken as a whole, these new distributed applications will form a new kind of internet, one where protocols replace companies and algorithms choose the best computing backend and solutions that they can find. This new ecosystem, this new internet, if you will, will need dedicated infrastructure to power it. And what excites me is that Saluna aims to be the key part of this infrastructure. We have the opportunity to build the next great infrastructure company to power this revolution. Thank you for taking the time. If you'd like to learn more about Saluna, please visit saluna.io. Pop here. If you like this episode of Off The Chain and want to help us take crypto to the top of the Apple, Spotify, and other podcast charts,

please do us a favor and rate review and subscribe to review simply go to the off the chain homepage scroll down until you see the five blank stars taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts i appreciate you listening and see you next time on off the chain