The Pomp Podcast - Chris Slaughter, CEO of Level: The Truth About Crypto Exchanges

Episode Date: October 2, 2019

Chris Slaughter is the CEO of Level, a crypto exchange where users get unlimited trading for one monthly fee. In this conversation, Chris and Anthony Pompliano discuss exchange business models, the competitive landscape, holes that currently exist in the market, what Level does differently, and what the company's future plans are. BLOCKFI-----BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. CRYPTO.COM-----Crypto.com is a pioneering payment and cryptocurrency platform that seeks to accelerate the world's transition to cryptocurrency. With the vision of "cryptocurrency in every wallet", the Crypto.com App offers a full range of financial products with competitive pricing, well designed UX and high security. It is the best place to buy, sell and pay with crypto. COINMINE-----The Coinmine One is like an Xbox that turns your electricity into Bitcoin. You just plug it in, connect to wifi, and tap on the crypto you want. It’s so easy anyone can do it. Everything is controlled from the Coinmine mobile app and the Coinmine keeps getting better with over the air updates that add new coins, features and services to your Coinmine. Visit coinmine.com/pomp to get a Coinmine and earn crypto for powering a new 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. Chris Slaughter is the CEO of Level, a crypto exchange where users get unlimited trading for one monthly fee. In this conversation, we discuss exchange business models, the competitive landscape, holes that currently exist in the market, what Level does differently, and what the company's future plans are. I really enjoyed this conversation, and I hope you do as well. Want to know who has the best URL? Crypto.com. That's right, Crypto.com. They're a crypto platform with one goal, motherf***ing mass adoption. That's why we're all here. We're

trying to get crypto in every wallet. Crypto.com is helping people do that through buying, earning, lending, and card payment. Everything you could want at Crypto.com. Go help your boy out. Tell him Pomp sent you. Download the app or visit Crypto.com. Pomp's got you always. Ever wanted to get into mining and didn't know how? Don't worry. Your boy Pomp's got you. Everybody got some electricity and Wi-Fi. All you got to do is go to CoinMine.com. You buy a CoinMine. It's like an xbox or a playstation that helps you turn your electricity into bitcoin that's right you purchase it it shows up at your doorstep you pull it out of the box you plug it in connect to your wi-fi five minutes or less you're mining bitcoin all you have to do is control it from the mobile app

they provide and then you receive over-the-air updates that add new coins and new features on a consistent basis kind of like how tesla does over-the-air updates and updates the car software Just your update in your CoinMine. Consumer mining made easy. That's right. Go to CoinMine.com, tell them Pomp sent you, and thank me later. As many of you know, crypto investors store their digital assets on exchanges or in cold storage for long-term safekeeping. However, this strategy doesn't help them grow their investment holdings or build overall wealth. With the new BlockFi interest account, users can now securely store their Bitcoin or Ether at BlockFi and receive 6% annual interest paid monthly in cryptocurrency. 6% is an absurdly

high rate. It's the best rate in the industry. I highly suggest you go check out blockfi.com slash pomp. Again, that's blockfi.com slash pomp to sign up and start earning crypto today. If you follow Bitcoin and crypto, you've probably heard of eToro. They're the world's number one social trading platform, and I love it. They've got more than 10 million other traders that love it too. And guess what? They just launched in the United States. eToro offers access to the world's most popular cryptocurrencies, including Bitcoin, Ethereum, and others. With the smartest trading tools and the ability to connect with the best traders around the world, there's no better place to build your perfect portfolio. If you're new to Bitcoin and crypto, you can test the waters with

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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. All right, guys. Bang, bang. Super excited to have Chris on the podcast today. We've got a whole bunch of stuff to talk about, but thank you so much for taking the time to do sir. No, I really appreciate it. Thanks for having me on. For sure. Let's start with your background. What did you do kind of pre-Bitcoin and crypto? So I went to school for applied mathematics and studied that at the undergrad and graduate level. And then I started an AI company called Lynx Labs. And that went on to develop a lot of the tracking and recognition technology

that powers things like the HTC Vive headset or Oculus, the Oculus Rift. And so that was a successful venture. And then I left that AI work, I guess when everyone was getting into AI, I was getting out of it and took a sabbatical. And then during my sabbatical was basically the 2017 run. So I had had an opportunity to buy Bitcoin much earlier. I had bought and sold like just for fun, but I had an opportunity to take a position in Bitcoin in like 2013. And obviously I got wrecked by not having a bag going into 2017.

So then it had my full attention and decided to do a company in crypto focused on like broadening consumer adoption. For sure. Now, it's interesting that you describe getting wrecked by not having exposure to the upside. I don't think I've ever heard anyone describe it that way. Yeah, I mean, I guess it's an opportunity cost. My buddy wanted to sell me Bitcoin, and I didn't have enough time to research it. And so I just declined to purchase it. And it would have been a really good outcome. And so hindsight's 20-20. But now I'm a really strong believer that the price of Bitcoin goes up as adoption and utilization go up. And I just think that that's the trend that's indicated now. Yeah, for sure. That makes a ton of sense. All right. So let's talk a little bit about what you're building at Level and kind of where you guys are to date. What have you guys actually built and what's the model that you're using?

Sure. Great question. So Level's mission is to create an easy to use financial services platform under a flat and transparent fee model. So that means we focus on user experience that's easy to just pick up and use and we charge a flat model of a nine dollar a month subscription fee which is very different from sort of the rest of the world of finance which is based on transaction fees um the the product we have today it is live it's in alpha it's available by invitation um it allows you to do crypto crypto trading amongst numerous assets so we've got bitcoin bitcoin cash ethereum uh litecoin and usdc and uh we have a limit order trading on a full spot market we run our own spot market and then we have automated strategies that make it easier

to do things like market make uh which are tools that traditionally sort of like algorithms and wall street guys would use um so that's our that's our sort of beachhead product it's a lot of like crypto early adopters in Wales that are on it right now. And then in our sort of short term roadmap, we're also adding checking accounts that'll be FDIC insured and debit cards. And I mentioned this just because it's to emphasize that sort of our mission is to reform financial services under like a low and transparent fee. So we have a vision that goes beyond cryptocurrency. For sure. And let's talk a little bit about the reason why you're using the model you're using and some of the other business models in the space with competitive products around listing freeze and the predatory nature of them. I know you got a ton of thoughts there. Maybe just walk us through how you view the difference. Sure. So I mean, in business, you have the business that you're conducting, which is like the services that you offer to consumers. And then there's the business model. So exchanges, banks, they're in the business of offering financial services. But the way they make money is usually to exploit lack of knowledge of the retail customer to like extract the maximum amount of profit out of that end user.

so i'll give a couple examples um so when you go to apply for a mortgage at a bank uh they try to get you into a variable rate which like appears at the front door to be the best mortgage you can get but you end up paying a much higher rate in the back end um if you can't keep 1200 a month in your bank of america account every day they charge you 12 at the end of the month. So that's like a 1% monthly negative interest rate. Coinbase, for example, you've got Coinbase Pro, where you have about 0.25% transaction fee on Pro, but they've got exactly the same offering. They've got exactly the same offering on Coinbase Consumer that charges like a minimum of 2%. But if you're not doing big transactions, it can be up to 10%. So what's

interesting about this is is all of these fees are are based on like transactions but the technology behind financial services uh doesn't have costs that like scale in the volume of transactions so for example on coinbase uh if you do a ten thousand dollar trade or you do a million dollar trade uh both of those have the same cost to the exchange which is you know they just decrease one database entry and increase another database entry we're talking about milliwatts effectively zero cost but they introduce these transaction fees and then introduce their tier them across customer segments basically to exploit the fact that less advantage users are less knowledgeable about these fee structures so coming in as outsiders we looked at exchanges

and just the level of complexity that goes into processing financial transactions. And we're talking about milliwatts, two database operations per trade. And compare that to something like World of Warcraft, where you're flying around on dragons and fighting hundreds of thousands of other virtual players. Or Netflix, where they're putting $7 out of the $9 that they get a month directly into content production and edge network delivery. So exchanges, you know, first of all, are making like 96% gross margin, which is, you know, just way on the high end. It's just clearly exploitative because they have, you know, sort of early time to market.

So they're clearly collecting much more profit than they need to sustainably operate. And they're also just more or less complex than something like World of Warcraft or Spotify. buy. So our approach is different in that we charge a flat $9 a month fee and all trading is $0. And as we add additional services, that'll be included in that flat $9 fee. So we're bringing sort of the Netflix model to finance. Got it. And so what is the, so like Play Devil's Advocate for a minute, right? The point of business is for a corporation to make as much money as possible obviously um and you've got to balance that with uh serving your customers right so there's a definitely a balance and sometimes even a a counterbalance to those two things

um i think what you're saying is basically look these are highly profitable businesses and some of the business models are uh predatory in nature only because uh they're such high margin and they're really built on this idea of like information arbitrage um right do you think a lot of that gets changed as more competition comes in and there's kind of compression of margins and things like that? Or do you think that there's a business model shift that needs to happen that can really change this and then ripple through the rest of the industry? Well, I think it's definitely both. And so sort of removing how you think about these things philosophically, like just capitalist forces are going to drive down price as technologies and platforms get

commoditized. So if you look at something like Binance, they competed at entry with just charging like historically low fees for the market. So that was like a low fee volume play. And that put other exchanges under pressure, particularly secondary exchanges to lower prices. So without even having a philosophical position like that is something that uh that's something that we've seen in industry so far is just prices going down through competition um you know it's interesting that you mentioned sort of like will it take a business model change and i think business model changes are the changes that have the most potential to disrupt so um music when we were in the itunes era it was all transaction based and uh we just know sort of factually that there

was more utilization of itunes than there was of record stores before it um but then when the spotify model came along utilization went up even higher and so it was viewed as a better value for consumers but it ultimately drove higher revenues for uh the music industry as well so i think that But I guess sort of in summary, I think that natural competition will lower prices, but fundamental new business models tend to have the greatest disruptive impact. For sure. I definitely agree with that. And what do you think in terms of the information arbitrage? How can that be reduced or at least kind of eaten into? Is it simply just adding transparency to what the fees are on each transaction, or is there something else that you think is important?

I mean, market education is important. So if you talk to crypto traders that want to trade on a regulated U.S. exchange, they tend to trade on Coinbase. And what you'll find out is that the longer they've been trading, the much more likely they are to trade on Coinbase Pro versus Coinbase Consumer. They know that it has all the same features as Coinbase Consumer. They're sophisticated enough for the more technical interface, and they want to save the money. And so that's an example of how education eliminates the barriers between noobs and experienced traders. And a lot of these business models are really predicated on just wrecking noobs. So I think education over time turns the noobs into pros.

that that's just a natural dynamic but it you're left with two problems first of all there's always going to be new noobs that's why they're noobs and second of all um for the market to expand everybody's a noob so i think i think what you have to do is you have to introduce products that uh where their business model is not dependent on information asymmetry and consumers adversely selecting the more expensive option, like the Coinbase consumer versus the Coinbase Pro. And the way we do that at Level, for example, is we have consumer wallet buys and sells, and we have a technical interface. And on Coinbase Pro, those are traded from different wallets. They're two different siloed experience. But on Level, you can use the Noob

interface, and you can use the Pro interface. And in both cases, the transaction fees are zero. So I think that's just an example. Obviously, we're going to advocate for our product. We're excited about it. But I think it's just an example of how you can design products that still have a viable business model, but eliminate sort of this exploitation of information asymmetry. For sure. And with your model, kind of that Netflix-like model or a flat fee model, you've gotten a number of pretty high profile advisors to sign on. Maybe give us an overview of who those are. Yeah, so we're really excited about our advisory board. We have Willie Wu, who's a blockchain analytics pioneer, Jimmy Song, who is a blockchain developer and educator. We were recently joined by John Price, who was the founder of Trilogy Software in Texas, so one of the biggest tech companies in Texas history. and uh and the reason we recruited this advisory board is my my co-founder courtney and i have always had success uh in business by forming advisory groups of customers that know more about the industry than we do so uh we came in in 2017 which makes us sort of like crypto carpet baggers and one of the one of the very first things we wanted to do was get to know people

that had positive reputations, that were focused on education, that understood how to build good products in the space. And we're really lucky to get Willie and Jimmy involved early. And now the advisory board is much larger as well. We've got a number of seasoned executives on it. And one thing I'd like to emphasize is that, you know, this is a 2017 notion of what a crypto advisor was, which is somebody would have this new speculative ICO token, like let's say like Capcoin. And you'd see this lineup of eight advisors that were basically using their Twitter platform to say that this was like the new hot ICO token. And then they were out of the business in a matter of months because they would just take their allocation of tokens, sell it on

exchange and peace out. That's not what traditional advising is. Our advisors are traditional business advisors so they're equity they're compensated in equity not cash and the the equity compensations through options that they won't be able to exercise for a while so everybody on our advisory board including willie and jimmy who have been with us for over a year uh they basically are involved because they think that the company will have a positive impact if it's successful and they think their participation will improve the likelihood of success. And so the advisory board is very committed. We meet on a weekly basis, but basically we're all riding the outcome of the business together. We're all equally invested as shareholders. For sure. And I think it's also,

you're describing it more from like how people perceive the advisory board and what they do, but also from a founder's seat, right? There's a huge difference between somebody willing to tweet about your business and somebody willing to, uh, actually help you, right. And give advice and introductions and, and help move the business forward. Uh, when you have the right advisors and they know what they're doing, uh, it can be an inflection point for the business and for the founders. Oh, no, absolutely. Um, you know, we came into this business, we knew how to code, we knew how to raise money, but there's a lot of things we didn't know how to do. And, um, and it's, it's had a real impact on the product. Like our crypto custodian,

BitGo. We decided to work with them through a relationship that Jimmy had. Most of our consumer interface was built with like Willie's insights. We hold these weekly calls where Willie just tears down the product and then we try to rebuild it in time for the following week. So I think there's a real value. I like working with advisors. I have my whole career. And I think if you approach it in the right way. There's a way to be judicious to the advisor's time, but just rapidly accelerate the sort of degree of knowledge of the business. For sure. That makes a ton of sense. All right, let's move on to, you guys have obviously on the exchange side, you've been quite disruptive in your thought process around the business model, but you're not just going to build an exchange.

There's plans to build a number of other products. Maybe talk a little bit about what those products are and any timeframe or roadmap that you can give us when they'll actually get launched? Sure. So Level at its core is a financial services business. We help people solve financial problems by offering financial services. And we have this like flat business model of nine bucks a month. And right now that's a crypto exchange. And the reason it makes sense to start in crypto is is fees are just so obscenely high in crypto and people that buy bitcoin are like the smartest finance customers out there so that's the reason you want to start in crypto but ultimately what we want to do is we want to reform the way that financial services are offered in the same way

that vanguard reformed the way that financial advising was offered so i'll just talk about the immediate next steps on our trajectory. So by the end of this year, we'll introduce FDIC-insured checking accounts. So unlike the cash accounts on other exchanges, these are full deposit accounts insured by the FDIC, where you could keep your cash, receive incoming paychecks, basically become a replacement for your Wells Fargo account. And then we're also going to introduce debit cards that can spend from either your checking account, or from your Bitcoin. And so, you know, I think, I think, I think what this is, is really sort of a platform that like merges together a lot of different financial services in a frictionless experience. in a similar way to maybe the iPhone brought internet communication and regular phone calls under one roof. And when you create a frictionless experience like that, it just makes it easier to

adopt the technology because it does more for customers. So one thing I'd like to emphasize is that offering checking accounts and debit cards and Bitcoin alongside each other, it's not necessarily a hedge. I think that Bitcoin will replace cash. I think that's just a simply inevitable thing to happen but along the road to along the road to getting there you want to have seamless gateways between cash and crypto so you know if you're the restaurant you're at doesn't take bitcoin you want to be able to spend from your bitcoin on a debit card uh if you need to take out cash to like let's say like wire it to a family member you shouldn't have to pay a $35 wire fee to get cash from Coinbase to Wells Fargo, and then another fee to send it from Wells

Fargo. So the basic idea here is to sort of bring the world of finance under one roof so that it's frictionless for people to explore the future of money. For sure. And then how do you think about things like the fiat on-ramp and off-ramps, right? So what I mean by that is what are the ways that people can, you know, get into Bitcoin and the cryptocurrency industry is they can obviously take their fiat currency, they can convert it, right? So they go to an exchange and they buy Bitcoin, for example. The other being, they kind of earn within that ecosystem, right? So there's all kinds of different products that are doing that. But one that I'm fascinated with, as an idea is really this, if you get paid in a digital currency, you are actually unlikely to convert

that back to fiat, right? Like it feels like that is a big mental shift. And that is also a really big liquidity functionality where people are likely to stay in the currency that they get paid in rather than switch back and forth, depending on certain criteria. No, I totally agree with that. And I think that example you just gave of somebody getting paid in Bitcoin, and then wanting to sort of stay long in Bitcoin is a big industry problem that needs to be solved. Because there's a lot of people that believe in the fundamental dynamics of Bitcoin, that believe that as more people adopt it, it'll continue to be robust and secure, but owe into its finite supply that its value will increase. So it's a liquid asset like cash

that also has a speculative nature based on pretty good fundamentals. So you described sort of an on-ramp onto Bitcoin and a way to stay long Bitcoin. And then what's missing right now is sort of the off-ramp side. So you can get paid for your job in Bitcoin. You can hold your Bitcoin in a wallet, but it's hard to get rapid liquidity when you go to a restaurant because they just aren't taking Bitcoin yet. I think that'll change eventually. I honestly don't know the timeframe, but I think generally what you want to do is make the boundaries between cash and Bitcoin as like frictionless as possible. So in the scenario you described, you should be able to stay long Bitcoin if you believe in the asset class, but still be able to like pay for dinner on a debit

card. And then on the on-ramp side, what you want to eliminate is wire transfers from one bank to a crypto institution. And you want to eliminate like high predatory transaction fees for the faster methods. So like the 3.99% fees you see when you buy crypto in Bitcoin, those should be eliminated as well. I strongly believe that Bitcoin will be the world standard currency, but sort of counterintuitively what you need to do between here and then is remove the friction and switching between the two. Yep. Yeah. I think of things like debit cards. They're basically like a Band-Aid solution because really what you're trying to do is you're trying to use the currency of choice, which is Bitcoin. And that technology is incompatible

or not accepted by a legacy payment provider, right? Whether it's a point of sale or some other mechanism. And so really what that credit card is doing is it's a bridge, right? It comes in the same format, but it's pulling from the choice currency. And so over time, hopefully, the importance of those bridges becomes less and less important. But that will only be driven by the fact that that legacy system starts to accept the new currency right if that doesn't happen then you're going to continue to need that bridge between the two technologies or currency systems no that's like exactly right and i think an okay analogy for this is like i don't know if this is a good analogy or not but public transit um so i i grew up in dallas and the dart line which is our

rapid transit system um there is a point in time where there's only one line then there is a point in time where there were two lines and you know they crossed in the middle and now there's nine lines and as that has gotten more connected uh people have shifted from driving to riding the dart so the analog in in this industry is like let's say that we introduce accounts where it's easier to just spend your bitcoin on a debit card then there's going to be more people that are holding bitcoin and then when more people are holding bitcoin there are uh there are cost efficiencies in stores just accepting Bitcoin outright. Basically, it's going to end up that Lightning Network is cheaper than the interchange system. So just like Bitcoin, Bitcoin is sort of

inevitable because it's a way to sort of short the flaws in monetary and fiscal policy, sort of short government money. And it's sort of designed to avoid the problems in government money. I think that more vendors taking Bitcoin is also inevitable because as the utilization increases, it's a way to eliminate the sort of like rent seeking behavior that happens in interchange. Want to know who has the best URL? Crypto.com. That's right. Crypto.com. They're a crypto platform with one goal. Mother f***ing mass adoption. That's why we're all here. We're trying to get crypto in every wallet. Crypto.com is helping people do that. through buying, earning, lending, and card payment. Everything you could want at Crypto.com. Go help your boy out. Tell him Pomp sent you.

Download the app or visit Crypto.com. Pomp's got you, always. Ever wanted to get into mining and didn't know how? Don't worry, your boy Pomp's got you. Everybody got some electricity and Wi-Fi. All you gotta do is go to CoinMine.com. You buy a CoinMine. It's like an Xbox or a PlayStation

that helps you turn your electricity into Bitcoin. That's right. You purchase it. It shows up at your doorstep. You pull it out of the box. You plug it in, connect to your Wi-Fi. Five minutes or less, you're mining Bitcoin. All you have to do is control it from the mobile app they provide, and then you receive over-the-air updates that add new coins and new features on a consistent basis. Kind of like how Tesla does over-the-air updates and updates the car software. Just you're updating your CoinMine. Consumer mining made easy. That's right. Go to coinmine.com, tell them Pomp sent you, and thank me later. in return. Go check out BlockFi.com slash Pomp. Again, BlockFi.com slash Pomp to sign up and start earning interest on your crypto today. Where else do you see people either being taken advantage of or a high degree of kind of information arbitrage putting individuals at a disadvantage in the industry? To be totally honest, it's really a big issue

in cryptocurrency and what's interesting is you see a lot of the same the same issues in cryptocurrency that got regulated away in the securities industry um they're all popping up again in crypto and so um just some examples i mean we want to win over the example of sort of like coinbase being designed for people to adversely select the platform with the higher fees um but uh binance for example they have much lower fees but they list a lot of um sort of securities tokens and you know they claim they weren't securities but if you look at their binance us launch plan uh you know there's only like six assets that they're planning to list which is kind of a concession that everything else all these other shit coins are really

securities and you know binance admitted publicly i think in an interview with laura shen that they were taking multi-million dollar listing fees uh for for taking those onto the platform so this is a little bit of a complex form of information arbitrage but you know what binance basically was doing was saying okay we'll list whatever you want us to list as long as you pay us a couple million bucks and then we'll list it on our exchange so that you have liquidity to our own consumers and those consumers will buy it because it got bought or because it got listed on binance That is a fundamental conflict of interest. And it also was not publicly known that Binance was listing and saying assets were of high quality simply to get paid. And the outcome is obvious. If you look at the performance of assets on Binance other than Bitcoin, all but two assets have lost their value. And the average is something like 95% of value. So Binance is sort of this like half pipe made of poop, where it's like fun as long as you can stay on your skis.

But the fundamentals of Binance, because they have this conflict in the asset listing, the quality of the assets that they list, the fundamentals are that on a value basis, all their customers are going to lose money. It's just a sort of really whip smart day traders, which must be less than half. If you look at the hard numbers, those are the guys that come out ahead. Um, so I think that's like a really complex form of information asymmetry. Um, you know, another example was during the ICO boom of 2017 was a lot of, uh, sort of crypto celebrities attaching their name to, to projects as, uh, uh, as sort of like business advisors when really what they're doing was just promoting the ICO and then taking liquidity as soon as it got on Binance.

And so that, that's an example of like an undisclosed conflict as well. And what's interesting about this is if you look back at the 1910s, 1920s, 1930s, all those problems existed. And then we got the Banking Act, the Investment Advisors Act, the Securities Exchange Act. Basically, all these laws, there are legal terms that correspond to all of this activity. So like what Binance is doing is sort of like statutory underwriting. What these ICO advisors are doing is sort of like illicit securities promotion. um they all are based on information arbitrage and they all have been regulated out of existence um in the in the securities industry so um i think what we'll see over time is that you know

world governments will work together to say like look crypto is a good thing and you should be able to trade it but we need to at least meet the standards of in terms of customer abuse we need to at least meet the standards of of traditional industries for sure well knowing that there are other areas where there's kind of that information arbitrage. What do you think are other products or areas of innovation that either you guys are going to take a look at or other entrepreneurs will seek? So I think like an obvious way that we combat this is our business models free of those conflicts. You know, you can't pay us to list your asset. And then also, we're just trying to make it easier to get into trading. So it makes a sort of safe space. I think that's going

to have an impact on adoption, and it'll at least eliminate some of the abuse that we see among the early adopter segment. But outside of us entirely, I think a really exciting thing that's coming is investment services. So Bitwise today is available to accredited investors. Coinbase Index Fund is available to accredited investors um there are uh there are many people trying to get an etf listed and they're facing resistance from the sec in terms of like how legitimately priced are these assets due to market manipulation on exchanges um but like let's assume that that eventually gets through uh then that's going to be really a pretty i mean you can't call any investment safe. But it's going to be a pretty safe way to invest because these are going to be

either ETFs of Bitcoin, or they're going to be ETFs of a couple different large caps that have a strong history of appreciating in value because they're based on fundamental protocols that appreciate as utilization goes up. So this is not something Level's doing. I mean, we do this stuff as passive advising tools within our platform. But I think what we're going to see is a general push where crypto ETFs get listed as they meet the standards of the SEC, where we're going to see people like Wells Fargo Advisors are going to start introducing their own customers into crypto as an asset class.

And I think that just lowers the sort of barrier of entry. And it also creates like a circuit breaker for bullshit. You know, these companies are under a lot of regulatory scrutiny not to engage in some of the activity we see in the unregulated crypto exchanges. For sure. It feels like there's going to be a kind of before regulatory crackdown

and after regulatory crackdown life, right? And I'm not sure if it's going to be one date or if it's just a period in time, but definitely agree with you that there is a whole bunch of nonsense going on that eventually will kind of get regulated away. And it's not a bad thing for the market. It's actually a good thing, right? Because the people who actually have the large dollars are not going to be able to come in until there's more kind of clarity at a minimum and also prevention of a lot of that nonsense. And so I think that's a big moment. The balance, though, is you don't want to regulate out any sort of maybe not advantage, but just access that individuals have, right?

So if you look at like the accreditation laws, for example, those are obviously a huge barrier for a lot of people to some of the best investment opportunities. And so you want to kind of strike this balance between you want clear, safe markets, but you also want the ability for anyone to participate regardless of wealth, location, education, et cetera. Yeah, I think that that's one of the really big difficulties in crypto. um and i think to to jay clayton the sec chairman's credit like he is a at this this point you just made about like how does the little guy get access that's why they're excited about crypto to begin with um you know he gave a he gave a talk where he said well and you would expect him to say like look the accreditation rules are there to protect consumers and um you know that's the reason that we made them to begin with but i saw this talk he gave where he had a really

surprising position on it. He said, you know, people are going to want to participate in these markets. It would be better that we revisit the accreditation rule and open the markets up to more people so that we can regulate the types of assets that people are interested in. So I think there's a sort of like steampunk libertarian pushback against regulation because regulation is viewed as an inhibition to the market. But what regulators really want to do is they want to keep markets healthy and they want to protect consumers so you know they uh and and and also also regulators have been focused on retail for a long time because it substantially has improved the health of financial markets so it's not like they're just in the service of of sort of like

wall street fat cats although it can sometimes appear that way so i i think i think if you watch what regulators are doing um their intentions are well are sort of like pure and i think that they're going to try to tackle problems in a way that are sensible. But frankly, it's an extremely messy process along the way. There's just horrendous clarity from regulators and some of the regulatory directives now can't even be implemented. For sure. No, I think you're spot on. What products do you think can help drive some of this adoption? I know that you feel pretty strongly about the idea that the adoption in the market is quite low, kind of mid to maybe even low single digits global population, what are the products that you see that could help us get up

into the double digits percentage-wise of adoption over the next couple of years? Yeah, this is a really great question. So I mean, one thing that the appreciation of value of Bitcoin strongly correlates with is the number of people that adopt it. And there's a lot of different theories behind this. Some people think it scales like Metcalfe's law, like a square of number of participants um some people think it's a store of value so it has a a finite supply that will ever be minted and so just more more people transacting in it uh is going to drive the price up um but it's just it's it's statistically clear that the more people get into bitcoin the the higher the price goes which makes the sector healthier um so i think that establishes that

a goal should be to expand the market and uh and so i think what you have to start with is just like what is the maturity of the market now i love this book called crossing the chasm by jeffrey moore um and basically the the sort of hypothesis behind uh jeffrey moore's book is that technologies get all the way up to saturating early adopter participation which is usually about like 15 of the addressable market and then there's a chasm that you have to cross and that chasm is how do you make the technology take the technology from just being something that's exciting that's new that nerds adopt because they just believe in the future and turn it into something that solves like a real world problem and i think that's where we

are in the market you know in developed countries like it's something like 35 percent of people are open to being natively digitally banked and then we see three percent penetration of crypto so the numbers work out to be like roughly 10 to 15 of adoption of the addressable market so it lines up exactly with early adopter saturation um the numbers work out and we're seeing like things like staking and custodial offerings where uh exchanges are now trying and and uh lending like things like blockfi uh where people are really trying to get more value out of the early adopter base um what i think has to happen is we need to take it from early adopters which is like tech literate, mostly male, sort of like 12 to 40 year olds. And we need to turn it into like

products and assets that would be of like more broad appeal. And like the biggest way to accomplish that, like just fundamentally is to improve ease of use. If you can build platforms where it is easier, and it's cheaper to buy Bitcoin, more people will do it. And because the price will be going up, right? So people are going to watch MSNBC, they're going to see that Bitcoin's going up. And then the barrier that's left, you know, the thing that's holding the dam back is just too dang hard to go sign up for a Binance account. So I think things like Libra, Cash App, what we're doing at Level, what we're really trying to do is crack that new frontier of building products that are elegant enough for general consumers to use. For sure. What do you think is kind of the one

thing that somebody is working on where you're like, wow, if that works, that's going to lead to a massive increase in adoption? Is there one product that's out there that you think kind of encapsulates that? Or do you think it's a culmination of many, many different products and different teams all working on their own aspects of this and then together we get the adoption so when you have big adoption spikes uh particularly in like today's tech environment they tend to follow a power law so uh it tends to be that like a couple products will take the lion's share of adoption and so in the last wave of the early adopter wave that would have been like coinbase kraken and to a lesser extent bittrex um i think that i think that you know

the product that is going to see mass adoption uh isn't out yet um as just evidenced by the lack of like sort of dramatically order of magnitude new adoption but i think there are several products that are doing exciting things um coinbase for the last several years has been like the easiest to use a product to get people into crypto and i think they're going to continue to try to improve their user interface um and what they're doing in apps i think cash app is uh doing something that's like interesting and differentiated and they're making a lot of money doing it um i like that they do they allow sort of like real blockchain transfers um uh and it's integrated against like a cash account um i don't like their like spread charging model so to to answer your

question like i don't think i don't think the sort of killer app is out there yet i think that the ingredients of the killer app are like sort of being developed at various different companies And I think when the formula gets cracked, what we'll see is two or three platforms that really carry crypto into the next wave of adoption and capture the lion's share of new interest. For sure. Before I wrap up, I always ask a rapid fire set of questions. What do you think is the most important company in crypto other than your own? Over the last several years, it's undisputably Coinbase. You think Coinbase? Why? What they've done to lower the sort of technical ease of use barriers to entry and allow people to go from cash to crypto in the regulated sphere has just dramatically expanded the market.

Got it. What's the one regulation you would change or improve if you could? The travel rule. So the recent guidance is that when you send crypto from one exchange to another exchange, you have to include the accompanying identifying customer information, which in banking is done with Swift. In crypto, it's not possible to do that. If we were to send our customer information in an unencrypted script of Bitcoin during the transfer, then we would be publicly disclosing. This is the problem with blockchains. We'd be publicly disclosing their information, which is a violation of another set of policies called PCH. And if we were to send it encrypted, then without some type of key sharing approach, the other exchange can't even make sense of it. So we certainly don't need laws that are impossible to follow. For sure.

What's your most controversial thought in Bitcoin and crypto? Oh, geez. Well, we run a marketplace, so it's important for us that we don't take views towards specific assets. But I would say outside of Bitcoin, Litecoin, Dogecoin, Bitcoin Cash, things that are clearly protocols, when you start getting into the ERC-20 tokens, most of those are securities. and they look a lot like penny stocks and they aren't capturing intrinsic value. I think that's a hype bubble. And not only is it a hype bubble, it's been mostly popped to the extent that they've gone

down like 98% in value across the board. Yeah, it's pretty crazy. What's the most important book you've ever read? There's a book called Daring Greatly, which is about, it's basically about understanding vulnerability and the way that it like affects your behavior and that how like, uh, uh, sort of embracing vulnerability can make you like a better leader, a better partner. Um, it's kind of mushy stuff, but I think it's, I think for that reason, a lot of people don't think about it a lot. And I, I would highly recommend that book. It's, it's had just an incredibly positive

experience on my life. Awesome. I've not read that one. I'll have to check that one out. Um, before I finish up, I always let everyone ask me a question, but, uh, we talk aliens first, believer non-believer okay obviously there's aliens like there has to be aliens so like deep down in the ocean when there's like there's pressure so high that we can't even send a submarine there um there's and there's no oxygen there's like critters that have evolved to like live off like carbon dioxide coming out of heat vents so the idea that you know the universe is you know 10 to the 23 times bigger than earth and life exists here pretty much where it shouldn't uh it seems to me inevitable that uh that there is alien life and you know i think the sort of

like corollary question is like well what if they just don't care about us yeah well i i uh i always joke and and uh i'm cheating in the sense that i've had the pleasure of asking you know literally almost 200 people at this point about aliens so i've talked about it more than i ever thought i would um but but one of the uh things and i forget who said it they just said look you know what if the aliens know we're here and they show up uh a lot of times in history the person who went to a new land it didn't turn out so well for the people who were in that existing land right and kind of the conqueror um and so i think we always you know think of aliens as uh as friendly or as people who uh who um you know or things i guess that uh we would interact with but but it might not be so

tame and might be a little bit more hostile than than we're anticipating i think that's also super likely um unless unless they sort of psychologically were fundamentally different from humans in every way um every new like think about how humans treat every species on earth that we consider ourselves superior to and our natural resources um so if an alien showed up tomorrow that means that they're more sophisticated in terms of like technology uh than we are and you know based on the information we have to go on on intelligence they probably wouldn't treat us that well. Yeah, for sure. What, uh, what one question you have for me to finish up? So, um, I know you're an active investor and you run this podcast, which is, uh, kind of like a, uh, it's really

focused on the industry and I've listened to a bunch of it and it's pretty objective. Uh, I'm just curious, like how you balance your role as like an active investor with running a journalistic like media venture. Yeah. So, um, first off I explained to everyone, you know, pretty often, like, I'm not a journalist, right? So I, I am going to be biased. I have the great fortune of my girlfriend is one of the, the technology journalists at a major publication. And so we talk a lot about it actually kind of the, the differences between, you know, the journalistic standards that are holding a lot of those publications to versus what I'll call, you know, something more like this podcast and simple things like, you know, if I hear something,

I can pull my phone out and I tweet it. Right. And it's kind of the conversation happens on Twitter where people agree or disagree and provide evidence supporting or detracting from it, etc. Whereas I think that in her world, you know, if she's told something, she goes and she checks with two to three sources, confirms it, you know, and kind of goes through a whole editorial process, etc so it's very um i think different from a process standpoint the second thing is uh you know i i try to be um as transparent as possible in terms of um you know what we've invested in right to me that's like the one big uh like kind of not danger area but just uh an area that i need to be very uh cognizant of and so um what i've found actually is that the audience uh they really

appreciate when we've taken money and invested in it, right? So we're kind of, we have capital on the line or skin in the game. And so a lot of times I try to talk about, you know, hey, look, we've invested in this business. This is the founder. They're going to, you know, discuss X, Y, or Z. I think the harder part for me is actually when we don't invest, right? So there's a number of founders that we spend a lot of time with. We evaluate their businesses. We do these deep diligence projects with them. We ultimately decide not to invest. And I'm pretty good and don't think I've ever used any sort of sensitive information or anything in a podcast, but definitely having an understanding of how people think about their business or think about the

industry. What I try to do is be very careful about not making any sort of claims or assessment on how they think and more so trying to let everyone use the platform to describe their views and their words, right? And a lot of times I'll even tell people that where it's just like, look, this is a chance for you to talk about what you believe and how you see the industry, et cetera. This isn't for me to argue with people or tell them they're dumb or tell them that I disagree with them, et cetera. And I think that that leads to a little bit of backlash sometimes.

Like people get really mad if somebody comes on, says some stuff that either I don't agree with or somebody else doesn't agree with, but I do think it's important to allow, uh, listeners to hear, you know, every kind of viewpoint and then ultimately decide what they believe is, uh, valuable and true and what they don't believe is valuable and true. Yeah. That's a super detailed and interesting answer. Um, especially the emphasis on transparency. Thanks. Yeah. It's, uh, something that I probably spent more time thinking about than, uh, that I'd like to admit, frankly, but no, listening, Chris, this has been a, this has been super exciting. I, I really enjoyed this conversation.

I think you've got a lot of great ideas around some of the market dynamics at play. And then obviously the business model that you guys are pursuing is really intriguing. So we'll have to have you come back on in a few months when you guys make some more progress. Great, I'd appreciate that. Thank you so much for having me on, Pomp.

Hey everyone, Pomp here. If you liked 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

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