The Pomp Podcast - Nevin Freeman, Co-Founder of Reserve: The Store of Value Argument with Stablecoins

Episode Date: May 14, 2019

Nevin Freeman is the Co-Founder of Reserve. In this conversation, we discuss stablecoins, the future of crypto currencies, and the current challenges with crypto as a store of value. ----- Curious about Cryptocurrency but don’t know where to begin? Storm Play is a free and fun way to start earning in exchange for you time. Simply download, register and discover microtasks that meet your interests and be rewarded with Storm Bolts. These Bolts can then be converted and withdrawn into your favorite cryptocurrency, including Storm Token, Ethereum (ETH) and Bitcoin (BTC.).  Earn cryptocurrency rewards by playing new games and trying out cool products! Download the app to start earning crypto here! https://bit.ly/30pSxh9 (Available for iOS and Android). ----- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworksgroup.io

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. Nevin Freeman is the co-founder of Reserve. In this conversation, we discuss stablecoins, the future of cryptocurrencies, and the current challenges with crypto as a store of value. I really enjoyed this conversation, and I hope you do as well. Are you curious about cryptocurrency and you don't know where to begin? I've got a great way for you to try. You can use Stormplay, a free and fun way to start earning in exchange for your time.

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It's worth a try, and it's a great way to get started. Remember, go check out Storm Play in the App Store today. 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. What's up, guys? Bang Bang. I'm here with Nevin. I'm super excited to talk. So thank you so much for taking the time to do this, sir. Yeah, thanks for having us.

Let's get started with your background, kind of how, what you were doing pre-crypto and then what you're building now at Reserve. It's a long story. I first fell down the Bitcoin rabbit hole in 2011. And I was on an online discussion community, people talking about rationality. Someone posted the white paper and it was a pretty intriguing idea. Basically, you know, the thing that captured me at the time was the possibility that you could have a currency that was just held together by positive economic incentives. and thus could continue to work in situations where governments were failing. And so I've done a number of things in the past, started a few startups and kind of started off life as an environmentalist. And generally speaking, I've become obsessed with finding ways of solving human coordination problems,

like just how do you get people to cooperate? And currency is clearly kind of this basic operating system that the entire world runs on that gets people to act more cooperatively. And so that's kind of how my interest narrowed it on this. And we started Reserve almost two years ago now. Essentially, I'd been thinking about cryptocurrency since Bitcoin, but became convinced pretty early that it wouldn't work from a monetary policy perspective and sort of chewed on the idea over the years of how do you make something that's like Bitcoin, but is spendable like money. Um, and, and essentially the, the groundswell of support in crypto convinced me, okay, now's the time to try to make this a reality. So that's how

we got into it. Got it. And so as, as part of this, um, where do you see kind of Bitcoin fitting into the broader ecosystem and then we can dig into what, uh, what you guys are actually building? Yeah. Um, no, I think Bitcoin is a really interesting question. Um, and I've heard some of the things you've said about it is obviously the big comparison to gold. The question I like to ask is, as soon as gold became valuable, we had alchemists, people who were trying to turn other metals into gold. And they obviously failed to do so. But I like to wonder, well, what would happen if they had succeeded? What would happen if they had figured out how to create gold or how to create other metals that were very, very similar to gold, maybe that were

indistinguishable to a normal person. Would we still be using gold today or would we be using some other metal that they'd created that sort of, you know, mimicked gold and sort of took it over? And so I think that's the right question, because in the case of Bitcoin, it has all these properties that make it better than gold. But then it also has the fact that you can you can copy it and create variants on it. And there's lots of people very motivated to do that. And so So I think, you know, as far as Bitcoin today, it's, you know, obviously just kind of like the simple anchor to the whole ecosystem. But when I try to think about what's going to happen in the long term, I sort of think about like, OK, we have all these alchemists trying to create, you know, variants and copies and so on. And so it seems to me like there's kind of this interesting question of will Bitcoin somehow manage to maintain its place and become sort of entrenched the way gold did?

And I think I'm a little more skeptical than most. Got it. I think, you know, look, there is a bunch of things that have to happen in the future for this all to play out. So I think it's a fair position to take. And then explain at Reserve, right? So what exactly are you guys building? And kind of how far along are you in building the project? Yeah. So we're building a decentralized asset-backed stablecoin. And normally asset backing and decentralization don't really go together. You can have one or the other. We have a protocol design that aggregates together asset-backed tokens in order to create a more decentralized asset-backed coin. And the purpose of that is essentially to create something that is economically really straightforward and stable and sort of fully scalable in quantity. but still has the property that once it gets big, it really can't be shut down, just like Bitcoin.

We think that's really important if a cryptocurrency is going to, you know, scale to a hundred billion or more in circulation and actually, you know, make a big dent in how the world financial system works. And as far as how far along we are, we've, you know, created the protocol itself. We've written the code and we've run it on the Ethereum testnet for, I forget how long, almost a year now. We haven't launched the main net yet. We're going to be doing that sometime before too long, but we're sort of going slow and being cautious. The way that the protocol works, as I mentioned, aggregates asset-backed coins. And so we've also created one of those. So we've created a dollar-backed stablecoin that's very similar to

a lot of the coins on the market today. And that's basically production ready. That'll be coming out pretty soon. And then kind of the third piece is that we've created an Android app because we think that for this to be really useful to people, it has to be easy to use, which is kind of, you know, that's a conclusion many teams have come to. But we sort of decided, let's just go ahead and build the full stack all at once. And so that's also something that's going to be coming out pretty soon. It's in the test version of the Google Play Store. And as soon as we're satisfied with it, we'll take it live got it and so you know look i think a lot of people are focused on stable coins at the moment whether they are decentralized versions like you guys are building or they are

some of these central bank you know back digital currencies that people are talking about let's talk more about like why they're needed in the world right so in my eyes there's two uses one is you want to transact and uh and avoid volatility um in that transaction but then the second is um, more kind of the lack of, um, effectiveness of a legacy currency, right? So kind of all the inflationary conditions that we're seeing in certain areas of the world, are those the two kind of use cases you see? Do you see others? Let's just kind of get a lay of the land in terms of like, why do we need the stable coins? And then we can dig into, um, you know, what that landscape looks like. Yeah. Um, I agree with you. I think there are some, some other things beyond

that as well. But fundamentally, it's like a stable cryptocurrency is often something that's useful in situations or parts of the world where you can't get your hands on stable currency otherwise. And so in crypto trading and in smart contracts, it's useful because on lots of exchanges, they don't want to deal with fiat money. And so you can't get stable currency other than a stable cryptocurrency. Or in smart contracts, obviously, if you're dealing with programmable money, well, it has to be a token that can interface with that smart contract. And so you can't use normal dollars or dollars in a bank account. But I do think that the total demand for those things right now is actually very small in comparison to the huge need for

stable currencies in countries that have essentially failed monetary policy. So there are about 16 countries with 20% or higher annual inflation right now. Um, you know, which means like, let's say there's like a place with 50%. So that means if you have some money now and you wait a year, it'll be worth like 50% less. Um, and, and obviously the most extreme case we're at right now is Venezuela, where the money literally loses its value on an average of like 10% per day. Um, and so we think that stable cryptocurrencies are really interesting because we think that they're much easier to get into circulation in places like that than sort of cash USD or cash euros or what have you, as well as electronic currency in the banking system.

And fundamentally, that's because those governments don't want that currency to get into circulation. They tend to impose capital controls in order to keep people using that local currency despite the fact that it's failing. And fundamentally, that comes down to their desire to be able to print money. And so we're kind of taking this contrarian position and saying, you know, we're going to push back on that. We're going to make it really, really easy for your people to switch to something that's stable because it's a cryptocurrency. And so just to kind of quantify that, there's like 300 million plus people living in those situations and about 460 billion US dollars worth of value held in those currencies that are going down at 20% or

faster per year and so if we can actually build a cryptocurrency and deliver it to those people um you know we actually think it can make a huge impact on the economic functionality of those of those countries um and that's kind of the thing that our team is directly focused on got it and how like talk me through the um if you are successful how does the government react Their lack of control of something where the people now have a currency that is available that they can use for either storing their wealth or transacting. Is this something that is competitive with the government? Do they take a negative position against it? Do they actually embrace it?

What's your thought there? So I predict different reactions in different situations. So, you know, generally speaking, it's a somewhat adversarial relation, like governments tend to not want to have a currency substitution. Now, that's not always true. If you look at the last hundred years, there are like dozens and dozens of situations where a country, usually a small country, will totally switch to using US dollars or some other currency. Like if you go to Panama right now, just everything's just in dollars. It's really kind of weird. But but those are kind of the minority of situations like this. Oftentimes, the government tries to cling to control of their currency. And so in situations like that, you know, we'll be putting something out there that

might be upsetting. And, you know, again, you have to kind of look at like how far gone is the situation right in the case of Venezuela, like the economy is completely broken. I forget the exact stat, but I think in like in I guess it was in like 2018 or 2017, the average Venezuelan lost like 25 pounds. Like it's to the point where like food systems are completely broken and like people can't earn any money. And so perhaps in situations like that, a government will be fine giving up that power in exchange for the economy actually getting jumpstarted again. But we'll find out. You know, we don't really know for sure. Um, but it's certainly the case that we're designing all of this, um, with an eye towards

building systems that are peer to peer accessible and, um, are really robust to government pushback because we really do want to empower the individuals in these circumstances. Um, you know, and so in some cases, you know, we think that there'll be collaborations with governments that are sort of forward thinking. Um, but in some cases it'll be sort of a ground soil of people adapting it on their own. Got it. And then how do you view, you know, does it matter in the geographic region how the inflationary conditions got there, right? You know, so do you like envision a different reaction from a government based on how involved they were in actually creating the conditions?

Or do you think that there's other factors that kind of drive whether they're adversarial or not? um i think that it it may have you know in some cases it might have to do with how they got there i think in many cases it's going to have to do with the sort of the the ideology of the people in charge at the time so you know an interesting interesting example is argentina where um they've had currency problems over and over again for a really long time now. And actually, there was a point in 2001 where they had had their currency pegged to the dollar for a while. And eventually, that peg started to have trouble because of how their economy was doing. And a lot of Argentine citizens have dollar-denominated deposits in their bank accounts. And the government essentially

chose to freeze all those dollars, stop people from being able to withdraw them, and then actually forcibly convert those dollar deposits to peso deposits at one quarter of their prior value. And so essentially, people felt like three quarters of their money had just been stolen from them. And so they really didn't trust that regime or the banks anymore in that situation. And people who lived through that still don't today. But interestingly, a couple of years ago, this guy, Macri, was elected and decided, you know, we're going to take a different stance on all this. We're actually going to relax capital controls, despite the fact that they still have high inflation. They're going to, you know, stop trying to impose a monopoly on

the currency and actually allow people to go to the bank and buy dollars again and hold dollar deposits. And so that's an interesting situation where, you know, I think a lot of economists wouldn't have predicted that, where this person is kind of taking this view of like, you know, we want to interface with the global economy. And yes, this may reduce demand for our local currency in the short term. We actually want to have an open currency system. And so it could be that in some situations, if there's a person or a group of people in charge who have a sort of view like that, then maybe they'll welcome a technology like this. But in many cases, I think the tendency is more towards maintaining control.

Got it. And so as you're getting different reaction from different governments, right? How do you build a healthy, large, well-used stablecoin? How do you actually navigate that in a way that kind of, I think, reduces the adversarial nature but also allows you to gain the adoption and the volume you need for a currency to kind of be healthy and strong? Yeah. So, you know, one thing that we can sort of see as crypto has progressed is that in certain situations, governments take notice and they start to care. And in many, they don't because a lot of it's sort of too small at the beginning for them to really need to worry about it. And so we imagine a progression where at the beginning, everything is built sort of fully focused on user experience, where there are centralized services that make it easy to use the currency and sort of build the initial network effect. And then the question is sort of over time, do those centralized services survive and become sanctioned by the governments and sort of facilitated by the governments? or is there pushback? In the case of pushback, then you really have to migrate to sort of fully

decentralized systems. And not just in terms of the cryptocurrency itself, but actually the exchange between fiat money and cryptocurrency. And there are a number of interesting projects that are facilitating this already. If you look at Airtm, for instance, it allows you to trade cryptocurrency for other forms of money in a totally peer-to-peer way. And the model is essentially similar to eBay, right? So with eBay, you don't have sort of a centralized seller that everyone puts their trust in. Instead, you have individuals, you know, buying and selling peer to peer. And the way that that ultimately works is a sort of reputation system, right? So if you go on eBay and you want to buy, you know, I don't know, a computer, you can look at the person who

is offering to sell you the computer and see, well, how many, you know, how many things have they sold to people and what have people said about that. And that's sort of, that's the model that Airtm uses where you can actually decide, okay, I want to make a trade with this person because they've always cooperated in the past based on their online profile. The same system works for local Bitcoins. So a lot of people think that local Bitcoins is sort of just exchanging Bitcoin for cash in person, but actually the majority of the volume at this point is peer to peer transfers where you go on the website, you see that someone wants to, you know, sell some Bitcoin and you want to buy it, you actually just wire the money directly to their bank account

and then they send you the Bitcoin and you guys rate each other after that transaction. And so this permits a situation where people can actually engage in decentralized peer-to-peer exchange of fiat money and cryptocurrency without there being any sort of party in the middle in terms of the banking infrastructure. And so even in a situation where governments aren't particularly happy about it, that, that sort of model lives on. Yeah, that makes sense. And I guess in terms of, you know, that plan and how much of this is driven by, um, kind of a religion of money, if you will, right. So people believing in, um, the technology, believing in, um, this as an exchange of value versus there's more technical, uh, things that you can do to actually,

ensure adoption, right? How much of it's psychological versus maybe some other format? It's a good question. Certainly, there's a large extent to which network effects are relevant, right? Even if your currency is pegged to the US dollar or something else in a way that helps it maintain its value, it really needs to be the case that a lot of people around you are also using it in order for it to become a useful means of exchange. And so the way we think about this, the initial use case for stable coins in these circumstances won't be a means of exchange. It will actually be a store of value where effectively people can have a savings account

on their phone. And the reason for that is that if you can convert your money that's losing its value into something that's stable, and then as long as you can convert that back into the money that's losing its value, which everyone uses to transact a month or a year from now, then it doesn't matter if anyone else is using it. You can you can benefit from that totally alone, whereas with the means of exchange, it needs to again, it needs to be something that's in circulation that everyone accepts. And so we think the path to adoption is actually starting off by offering people a sort of rock solid store of value. And then over the course of time, once enough people are holding that store of value, it starts to become natural to transact with that as opposed to converting back into this other currency that's less useful.

But on your point of like, you know, sort of the religious or trust aspect of it, I think an interesting analogy is that, you know, for a long time, the world, you know, in a pretty recent era, the world had to sort of agree that currency was backed by gold, because that was something that we had more consensus about the value of. And over the course of time, once that connection had existed for long enough, then the representation of gold, these paper notes, ended up having sort of the consensus about their value without the backing. And so I think that essentially what's happening in the stablecoin world is very similar, where people are saying, OK, it's sort of like the dollar is the new gold, or the fiat currency is the new gold, where people are saying, OK, we can't come to consensus about how much a Bitcoin is worth, but we all agree about how much these fiat currencies are worth. So let's peg them. Let's make a cryptocurrency that sort of borrows that stability from that prior asset class.

And maybe over the course of many decades, if a stable cryptocurrency is in use for long enough, then people will stop caring what's there to back it because it will be so ubiquitous and people have such a consensus about the value of that token itself. And so that's kind of a way to bootstrap that consensus about something's value and get people to buy into that thing as the unit of exchange or as the store of value. Got it. And so when you talk about Bitcoin's value versus price, I think it's really important to call out the difference there of the value of what is it actually worth and the price of what are people exchanging it for today, you know, on a, on a, et cetera.

Yeah. Yeah. And, and I, I guess I sort of, I think about it that way because you know, every, every stable coin project is constantly bombarded with the question of like, well, what is stability really? And, you know, we tend to quantify it in terms of the price relative to fiat currencies. But ultimately when I say value, I guess the thing that I mean is, you know, if you can use your money to buy X amount of like goods or services, like in terms of the value to you today, I want it to be that you can use that same number of units of currency

to call in that same amount of value to you from the world a year from now or 10 years from now. And so I think about sort of stability of purchasing power. And obviously there's like kind of, you know, supply and demand dynamics for all sorts of goods and services. And so it's a little hard to even pin that down um but that's kind of why i use the term value rather than price because you know what if the dollar tanks right you know then then we'll we stop caring about the price in dollars we care more about the price in you know water or bread or like you know uh like i said computers earlier it's like you want to be able to actually get the things that are valuable to you in a predictable way got it um okay and then in terms

of uh i think a lot of you know bitcoin enthusiasts or or um even the maximalist the the idea is that hey the ball totally went down over time and and eventually you'll get this stable um this stable token one you know you buy into that theory or not and then two is if it is true how do you think that affects stable coins over a long period of time like the current stable point they're being built if Bitcoin does become more stable? So I actually, my answer to this question actually came from Nader, the founder of Basis, you know, our IP at this point. He pointed out that the price of gold sort of never became stable enough to use it as a currency. There's still a substantial amount of volatility in the value of gold, I should say, year over year. And

And I think that that's kind of the most relevant analogy here, where it's like even if Bitcoin becomes as ubiquitously accepted as a store of value, you know, it's kind of the monetary policy is too simplistic. And it seems like there is it's unlikely that there's going to be a path to the world coming to that tight of a consensus about how much a Bitcoin is worth. I think that it certainly seems quite plausible that the price will become less and less volatile over the course of time if it continues to be the sort of choice store of value in the crypto space. Um, but, uh, just based on that analogy, um, and no sort of argument to the contrary, I don't predict that Bitcoin will ever become sort of stable enough that it'll be a really natural means of exchange. Um, and something that you'd want to hold all your savings in as a sort of normal, normal person, who's not trying to speculate on the growing or decreasing value, um, of, of, of

an asset, maybe, maybe just like gold Bitcoin is something that would hold its value more stably over the course of a few hundred years if we really do get that level of entrenched consensus that we have with gold. But on the short term, I think we can probably do a lot better with these more elaborate stablecoin approaches. Got it. And then how do you see corporations or businesses playing into this? I think a lot of times with the stablecoin, um we've previously heard about uh you know end user adoption or retail adoption um for some of the things we talked about here uh but then you see uh project like you know jp morgan coin or or the rumors around facebook coin um and this idea that they want a stable uh currency that is

in some sort of digital format cryptographically secure that they then can use for certain benefits again how does that play into the whole stablecoin ecosystem and does that have a positive or negative impact on um sort of retail stuff yeah um well i have two answers here um so let's talk about kind of the the jpm facebook question first um so i think that um kind of the question you have to ask is if a big entity like that, let's say Facebook creates a stable coin, what are its properties going to be? What is it going to be like? And my bet, I'm not sure about this, but this is my opinion, is that if you imagine you're in charge of Facebook and you're creating a new currency like that, you have an enormous sort of profitable, valuable empire to

maintain and defend. And so it seems really implausible to me that an entity like that would sort of go full bore and create a cryptocurrency that is censorship resistant, that is anonymous or pseudonymous in the way that Bitcoin is, because that's something that could be very, very controversial. And an entity like that has a lot of political interests to protect. And so I think that, um, sort of the Facebooks of the world will create like really interesting cryptocurrencies in terms of their, their level of adoption, just be just by the sheer fact of the number of users they already have in their network. I think that's pretty obvious. Um, but my, my guess is that they'll essentially turn into, um, additional payment

networks that are very similar to the ones we already see today. So in a sense, you know, paypal you know created a stable coin a long time ago um the the infrastructure is a little bit different but you know you put your dollars in and now you have like paypal dollars um and you can send them around to other people and then withdraw them and all of that is subject to the existing rules of the financial system um similarly with like wechat pay which i think is kind of the closest analogy to what like a facebook coin that's used on you know facebook messenger and whatsapp would look like um it's it's sort of in a sense like wechat created a stable coin a long time ago and it's been wildly successful. But it's not something that you can hold and transfer

peer-to-peer like Bitcoin. And I predict that we won't see something that has those properties come out of one of those big established entities just because of the regulatory and political pressures that they're under. So that's my personal guess there. But there's another interesting thing to note here on kind of the business level, which is, you know, we started off thinking about these really high inflation circumstances from the consumer perspective, where it's like, okay, as a person, if your money is losing its value really quickly, that just obviously sucks. How do we fix that problem? And we went and formed a partnership with the largest cell phone importer in Angola. And the reason for that was that in Angola, people have sort of half

smartphones and half, quote unquote, dumb phones. And so we figured, okay, if we actually want to distribute the technology to these people, we have to get the wallet onto the dumb phones. How do we do that? Okay, well, you can put it on at the time of manufacture. And so we decided to work with that company that imports the majority of the phones there. But what came up as we were in discussions with the founder of this company was that he just wanted to get his hands on stable coins, right? He's sitting there holding a bunch of Angolan Kwanzaa in his corporate accounts that's losing its value relatively quickly. And there's sort of no way out of that. And so we ended up realizing that there's huge amount of demand just from businesses in these

circumstances that are losing a lot of the value of their treasury over the course of time. So he told us a story where one of his businesses in Angola had, I think, like 20 million US dollars worth of Angola and Kwanzaa. And then at the same time, they had 5 million actual US dollars in debt to a Swiss bank. And then through a currency devaluation where they weren't able to trade out of Kwanzaa, they ended up having $4 million worth of Kwanzaa and 5 million in debt, which is obviously devastating for a business in a situation like that. And that's kind of par for the course. A lot of businesses have to deal with that and these emerging economies. And it makes it hard to run the business. It makes it hard to get foreign investors to invest in the business

because of all that currency risk um and so we think that you know uh when six you know stable coins really get out there and become successful there'll be a huge amount of demand from these these sort of larger accounts from from businesses that need a way to manage their treasury in a more stable manner got it and then explain what one of the things that you said that i think is pretty interesting is this idea that money um can basically get humans to get along together right and and yeah yeah i don't know uh you know better at working together explain what you mean by this and how you see that playing out with people yeah yeah so um it's a little hard to communicate this point but it's like i think the way to kind of grok like the what i mean by money

helping us cooperate is to imagine that imagine we weren't allowed to use money right so if we just like delete all the money in the world and we make a rule that we can't use it um and then we ask the question like would you know would people in other countries like take the time and effort to grow food um and then put them on ships and like ship them across the ocean um and then put them in you know grocery stores for us to go and like pick them out um you know for our evening meal and it's like well what would cause them to do that if we had no currency system if there's no way for them to sort of be rewarded for having done all those favors for us um well then you know maybe they would try to do that for a while we'd all try to like cooperate and get along but

ultimately it'd be like this isn't working right it's like i'm just doing all this stuff for other people there's no way to track those favors and i guess in there the stable coins they just act like I get, you know, any other money, like it's almost like in that money, right. In air quotes, if you will, is very interchangeable, whether it's a fiat currency, a stable currency. Um, it's all the same because the money is serving a purpose and it doesn't matter as much as, you know, which money you're talking about or, or do I have that wrong? No, I think that's right. I mean, I, you know, the way I think about it, the sort of ideal money is just something that, you know, uh, like perfectly tracks that, that record of favors.

So if you produce, you know, something for someone else that has X amount of value, you get that sort of credit, that, that reward saying like, okay, now we recognize that you have done that. And then at some point in the future, you can trade that onto the next person for a favor of equal value. Um, and yeah, I think, you know, any, any currency that can really maintain that stable consensus value serves that purpose. And, you know, like I mentioned earlier in Venezuela, things have really broken down to the point where it's just hard to get food in some circumstances. And it's like, you know, as the currency went into a crazy death spiral, you know, all the same people were there. They had all the same infrastructure and all the same

resources. And yet they stopped being able to kind of get along and take care of each other because that operating system for maintaining that cycle of favors broke down. And at this point, lots of people are fleeing the country because it's so broken. But really, I think that that's kind of the starkest example in, in, in the modern day where it's like, you can sort of see like what it looks like when money stops working. And so, you know, stable cryptocurrencies getting into circulation in these places, um, it's not really improving upon functional fiat money. It's just sort of, um, you know, uh, sort of spreading the, the, the, the ability to transact in that way that we're sort of really used to in places like the U S and sort of, um, you know, inserting a

system that that's more functional and so where do you see the big challenges for stable coins moving forward right like what what are the one or two things that have to get resolved or built in order for this to uh to kind of come to fruition as uh many people are well obviously there's all the work that goes into actually distributing them to the people in need and making it convenient to use them and that's a big complicated task but on the on the technical level Before we can even really get to that and know that the thing that we're distributing is good, the way we see it is that a stable coin has to have three properties to really, really work. So one is obviously it has to be stable. Another is that it has to be sufficiently decentralized or sufficiently robust to sort of being shut down because these things will be controversial, we think, over time.

And then the third is that it has to be sufficiently scalable in quantity. So that's a different type of scalability than we usually talk about in the crypto world. Obviously, that type of scalability is important. You need to be able to have enough transactions fast enough that that sort of is on track based on these lower level protocols that are being put out. And so when I say scalability, I mean that the way that the economics of the stable coin work have to permit it to scale up to sort of whatever size the demand is smoothly as that demand grows. And if you look closely at stable coin designs that are out there that have been proposed, almost none of them actually achieve all three of those characteristics at once. It's really, really complicated to achieve all three of those at once is what we ended up concluding. Um, and so like, for example, if you look at these fiat back coins, um, they're nice and stable. Um, they're perfectly scalable. You can just keep locking up dollars or euros or whatever in a bank account and issuing new coins. Um, and then the problem of course, is that, you know, they're backed by a single entity or a small number of entities. And that means that as soon as governments decide they don't like this, um, which we think in some cases they will, um, then those will end up being shut off.

Another example is kind of the most interesting stable coin out there right now, we think, is Maker and DAI, where there's an increased degree of decentralization. And so we think it's much, much harder to shut it off. And, you know, some volatility in DAI lately, but generally speaking, the economic mechanisms do sort of add up and it can maintain relative stability. And then the issue ends up being that the way the system is built, we predict issues with scaling, where effectively the demand for the stablecoin and the demand for locking up collateral and debt positions, which is what backs the stablecoin, are sort of economically disconnected. And so if they were to have huge amounts of demand for the stablecoin right now, really, you couldn't scale up the backing in order to grow the circulating supply. And actually, sort of the reverse is what's happening right now, where there's not enough demand for the stablecoin. There's more demand for the backing sort of instrument. And so that induces volatility. So anyway, so if you look really closely at these different designs, you see that it's really hard to get all three at once.

And so that's kind of what we put our minds to. And we think that we have a way of doing that. And that's kind of why we're so excited to get out there and put this in the world and see what happens. Got it. Makes sense to me. Before I wrap up, I usually do a rapid set of questions. What do you think is the most important company in crypto? So maybe not right now, but in over the next several years, I actually think that chain analysis and other other companies like chain analysis that are doing sort of analysis of who's holding the coins are going to be really, really relevant. And the reason for that is that there will be this tension between cryptocurrency issuers and users and governments. and those companies that have sort of come out and said, hey, it's not fully anonymous. We can

actually help you figure out in important cases what's going on here. I think that that's an important piece of infrastructure to kind of calm down that debate a little bit and sort of help governments be more comfortable and not lose all of the power that they're used to with tracking the way the money works. And I kind of personally expect that that's going to be a big factor in how this all ends up playing out. And it might mean the difference between governments sort of full out trying to ban cryptocurrencies versus kind of getting used to them and learning how to play with them. Got it. What's the one regulation that you would change or improve if you could? I personally think that the securities law framework in the US is already not particularly

effective in getting investors to understand what it is they're buying. And I think it's not really anywhere close to helping in the crypto world. I think that if we could work out a framework where essentially there was a standard for how to describe how your new crypto asset works in a way where we have an actual practical test of like, okay, can normal humans understand this description and understand the economics of what they're buying? If we're able to achieve that and actually then distribute information so that people could be informed about what they're buying, what they're speculating on or holding as a stable store value, et cetera, I think that would be great. And I think that, you know, probably whatever work goes into that should be applied to the normal securities framework as well,

because the current regime is kind of this system where you have to like pay a couple million dollars and then go through a bunch of headache in order to be listed publicly. And that's kind of the real barrier to entry that keeps us from having tons and tons of scam listings on the stock market. But I think that the disclosure element kind of doesn't really work. Like nobody really reads the documents anyway. And so it's really just the PR of the company that determines the price. And so I would love to see progress on that front. Got it.

What do you think your most controversial thought in crypto is? What do you believe that most other people would disagree with you on? Well, so, okay. So, you know, there's kind of this narrative that crypto is supposed to fix the monetary system. And I do think in the long term, we have a shot at doing that. But one of the issues that I take with how money and finance works today is that there's lots of things you can do to game the system. There's a lot of people who have a lot of money, have gotten that money by not really producing value for society, but just sort of like moving assets and money around in complicated ways where they end up with more at the end of the day. Um, and, um, and sort of, you know, the, the idea that like Bitcoin is the answer to the

corruption of wall street is actually, I think a little absurd because I think if you look at it, the vast, vast majority of activity in cryptocurrency is effectively people just having found a new way to game the system and exploit, um, exploit sort of each other in hopes of getting more money, right? It's like, if you look at the, all of the, all of the fiat money that's ever been exchanged back and forth on all crypto exchanges, you know, sort of no value was created. It was all sort of a zero sum game where some people won and some people lost. And so I think that actually cryptocurrency so far has just sort of increased the amount to which we're kind of trying to game

the financial system. And, you know, there's arguments that that is actually in the long term an okay thing because it drew so much interest to the space. You know, it's like Bitcoin actually sort of became popular because of an initial pump and dump on Mt. Gox. And so you know kind of our entire roots in a sense come from that kind of gaming um but uh but it's kind of gross and i think that um i think that uh the idea that crypto is here to like you know get rid of all the corruption and fix everything definitely so far has not really played out yet got it what um what's the most important book you've ever read a pretty important one is one called super intelligence by Nick Bostrom, um, that outlines kind of the totally extreme outcomes that could

occur in the longterm from develop development of artificial intelligence, where the basic idea is if you get an AI that's smart enough that it can do AI research faster than you can, um, then it can start improving itself or creating other AIs that are sort of smarter than it. And you could get this sort of runaway cycle where you end up with something that is, you know, as Nick calls it super intelligent, um, that could end up kind of just governing the entire world, you know, essentially turning humans into the pets of the situation. Um, and I do buy into that line of reasoning. I think it's unclear, like whether we're anywhere close to that or whether there's some like technical challenge that will mean it doesn't end up happening in practice, but

it seems pretty plausible to me that that could happen at some point. And if that happens, the implications are super crazy. It's like things could go really, really well. We could have this, you know, really intelligent, powerful force that like kind of fixes all of the problems we care about. Um, or we could have this sort of rogue agent that ends up doing a bunch of destruction. Um, and so, so yeah, I, I highly recommend reading that book. It's, it's kind of crazy, but it's, it's super interesting. Got it. And then what, um, before I end, I always let, uh, you asked me one question, but before we do that, uh, we talk about aliens. Um, what, uh, what's your thoughts there? Real, not real believer, not believer.

Um, yeah, I mean, I'm sure you, I'm sure I, I've, I've heard the USS question a lot. So I'm sure you've heard people talk about like the Fermi paradox, the idea that like, if they're out there, why haven't we seen them yet? Um, and, uh, I thought about that a bit. Um, the interesting thing is that the, like, if, if you try to get the answer with math, where you look at like the number of, you know, stars in the universe and the expected number of habitable planets and all that, I think the problem is that the math involved involves multiplying together a bunch of really, really large numbers and a bunch of really,

really small numbers. And it's sort of easier to tell what the large numbers are. And so intuitively, it feels like you're just multiplying a bunch of large numbers and a bunch of large numbers. Um, but if you look closely at people's estimates on the small numbers, um, then, uh, there's actually some that we're just really uncertain about, like the likelihood of life actually emerging on a habitable planet, um, without really understanding that process, which we don't, um, you know, it could be that that, that probability is so, so small that it actually outweighs the enormous numbers of just the amount of stuff in the universe. Um, and so, So, yeah. So basically, if you look at that and then you kind of also update your estimates based on the fact that we haven't found anything yet, then it could be that it's like a bit less likely than than it sort of intuitively seems, if you think about it from the mathematical perspective.

Got it. And then I guess when you think about that, could part of this just be like we don't have the technology to actually see far enough or hear? Or do you think that it is like the actual Fermi paradox of lots? Is it something where we're just not good enough? What do you mean exactly? So this whole idea of like, oh, if aliens are out there, we should have seen them already. Right. For example, part of me thinks, yeah, there could be some truth to that. But actually, we just don't have the technology. Right. Like we can't see far enough. We can't actually measure as large as the galaxies are. Um, and so if you look back, you know, I don't know, maybe a hundred years, how much did we know about our space and other planets and the moon and things like that versus what we know today, a lot of it was just driven by technology advancements, right? So we can see farther, we can go farther, et cetera. If we wait another hundred, 200 years, are we then in a position where maybe we can actually

see far enough or um or travel um in order to then to make discoveries that you know today we're like oh you know that that's not true or that doesn't exist and it's really just a technology limitation that we have today but over time that'll that'll be kind of beaten down if you will yeah um i see i see what you mean but then it's like you know the the life of the universe is like pretty long so far it's like whatever 13 point something billion years and so then um there's kind of the question of you know if if life is likely enough to emerge um you know there's kind of a i think a very fine line where it's likely enough to emerge you know a bunch of times in our galaxy but but not but it didn't emerge soon enough that the galaxy would be teeming with life um so so it

sort of seems like that yeah it's like it could be that we're kind of in the earlier stage and we're kind of one of the earlier civilizations and so they're still like really far spread apart um uh but but it seems to me that like you know if you had if it had been the case that a bunch of civilizations had emerged and become intelligent um in the galaxy so far um then then i think you would expect to see a bunch of signs of that um you obviously have to look at like the speed of light and radio transmissions and like whether we'd actually see it and so on and so forth so maybe maybe maybe it's the case that we'll have the technology eventually um uh but yeah i guess it's been a while since i thought about this but i think what i concluded before is that like either

the thing would be sort of obviously out there and we'd see lots of signs um and and if we don't then that's kind of a bad sign for sure i think that's i like that um all right what one question do you have for me to take this thing home um so yeah so so on crypto generally um if someone is gonna mess the whole thing up somehow who do you think it would be and and what what do you think that they would do to mess it all up to throw all this off the rails how could this all go horribly wrong yeah that's actually a great question um it is unlikely that uh i can pick who uh so i'll pick a group of people i think one of the most devastating things that could happen to um crypto in general would be the introduction of a software bug into uh bitcoin that completely destroyed

um the system right so whether it was some sort of um security issue where somebody could basically just grab the rest of uh bitcoins um whether it was something where uh all of a sudden um somebody could reorder blocks right all the things that i think are like the doomsday scenarios um in my eyes that would be uh not only one devastating to the largest market cap asset um but also i think it would um put fear and um questions in people's minds around the entire industry and so in my eyes it's you know you take down the largest asset but also the psychological impact it would have on people both in and out of crypto um would be drastic and so i think that's probably you know off the top of my head, the number one thing that, um, could mess this thing up. And, and it's,

you know, the incredible people who to date have been very methodical and, um, you know, how they, uh, build that code, but, but, you know, they're human. And so if there was a major mistake made, I think that would probably be the doomsday scenario. Yeah. That's interesting. I've sort of historically been kind of negative on having all the forks of Bitcoin out there, but i guess that actually could provide a bit of insurance in that case right you could imagine people switching in droves to kind of the next largest fork in the event that that happened i mean i guess you could have a bug that is present in a bunch of the major forks at once so how do you think that would play out so if there was a bug that allowed someone to just like take as many

coins as they wanted like do you think that do you think the whole thing would actually fall apart or would would you be able to rally consensus around like the the ownership ledger immediately prior to that and just launch a new version of bitcoin without the bug and and sort of you know fork it and and sort of uh throw away the version where someone had taken the coins it actually seems like that might be the natural shelling point and that could happen in the course of like a week yeah um to be honest i don't know right i i haven't thought enough about it um you know there's an element of like you kind of have a reaction like ethereum ethereum classic type you know fork right there's also a belief that look if a mistake is made then you know there

won't be a solution um which would be i think incredibly controversial but but possible um so i really don't know what the the right answer is um and part of i think not even my fear but just uh my nervousness around something like that is i don't have a good answer. Right. It's almost like the unknown, um, makes it even more, uh, concerning to a degree. And so I think that's really why, you know, when you ask that question, the first thing that comes to mind is that scenario. Yeah. Yeah. One more question for you. Um, what do you think of this whole IEO craze? Um, the jury's still out. Right. I think, um, I know you guys, I think are planning to, uh, to do one. Um, and you know, from my standpoint, uh, what we call them,

right. ICO, IEO, et cetera. Uh, there's different variations. There's obviously going to be different nomenclature. Uh, I think the idea of just being able to, um, you know, access capital markets, uh, for projects, um, and companies is, uh, obviously not going to go away. Right. So whether you do it kind of private, um, fundraising round, that you would see in traditional venture capital, whether it's going to the public markets through the regulated standard stock markets and exchanges, or some of this new stuff with ICOs, security token offerings.

I've seen a million different names for this stuff, but it's ultimately all just accessing capital markets. The big questions, I think, are one around the regulatory aspects. It feels like there's a lot of, uh, teams that, um, have great legal counsel and they're kind of navigating that successfully, uh, two is the investor demand, right? And so the ability for, um, great projects, you know, things that are actually desirable to access capital, I think is important. You know, people just aren't going to give money for projects if they're shitty, right?

Over a long period of time that may happen in the bull markets, but, but not over in any sustainable way. And then the third thing, frankly, is I actually focus less on the mechanism in which the capital is raised. And what I'm very interested in, and the data is hard to get, but I'm trying to pay more attention to, is what is the difference in the way that the money is used by teams depending on how they raised it? So if you said to me, hey, people who are raising in the private markets are actually more prudent with the capital, that would be interesting. How do you actually measure that? Where does the data come from? There's a bunch of questions. But also, it could be said, look, the projects or companies that raise in some of these newer formats like IEOs, ICOs, STOs, whatever, they actually are able to be more efficient with the use of capital and they drive better returns. That would be another interesting data, right? I don't know what the answer is, but I think a lot about, you know, kind of outcomes and use of capital, regardless of the mechanism used to acquire the capital. And again, it's just, you know, there's just not that much information yet. Right. Right. That makes sense. Well, yeah, I just spent a few weeks in China kind of investigating because a lot of the exchanges doing it are out of China. And, you know, I think that, you know, the obvious big problem with these IEOs is that you get this huge run up in price and then the thing crashes pretty quickly in almost all of the cases so far.

And I've been thinking about why that is. And it sort of seems like IEOs are kind of a mechanism to get a huge number of eyeballs on one project all at once. So you get a lot of interest in the short term. And then everyone kind of moves on because they're looking for the next thing to bet on. A lot of the participants in these sales, I think, are people who are kind of short-term speculators. And so in a sense, that's a little bit unhealthy. It's unhealthy for the people who could end up losing money in that volatile market. And, you know, even if a project gets attention, maybe it's not really a useful kind of attention. Um, and so, you know, like recently actually there was an IEO on a website called gate.io. Um, and, uh, the users lost so much money that in China, they actually like started showing up at the exchanges office and protesting and threatening to try to like, you know, physically harm the people involved. It was kind of this crazy contentious thing. Um, and, and so, you know, we ultimately decided to do one because we kind of see it as a way of, uh, jumpstarting what I think of as like the Bitcoin effect, like something that was so cool about Bitcoin is that so many people were able to get their hands on the coins for a low price at the very beginning. And so you had this like big army of people who were really excited about it and talking about it. Um, and these days, you know, it's hard to compete for attention and an

MyEO is an interesting way to distribute tokens to a massive, massive number of people, kind of all in a flash, and actually maybe jumpstart a similar effect. But our take on it is, you know, we don't want to attract speculators. We want to take the opportunity, you know, the sort of 15 minutes of fame to educate people about what we're actually doing and kind of encourage anyone who's not on board to not participate and encourage people who actually think it's really cool and want to be a part of the story to be the ones to get in and sort of join forces with us. So we're hoping that we can pull that off. Got it. I think it makes sense. All right, man, listen, I appreciate

you taking the time to do this. Obviously, the stablecoin ecosystem in general is top of mind for a lot of people. You guys are right there at the front and building, you know, an interesting variation. So it'll be cool to see all this play out over the next couple of years. And we'll have to get you back on in a few months to give us an update. Are you curious about cryptocurrency and you don't know where to begin? I've got a great way for you to try. You can use Stormplay, a free and fun way to start earning in exchange for your time. That's right. You don't necessarily have to make a financial investment to begin. You can simply download, register, and then discover these micro tasks that they present you that meet your interest and then you're rewarded with these

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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