The Wolf Of All Streets - Bitcoin Is The Best Money with Erik Voorhees, Founder Of ShapeShift

Episode Date: May 11, 2021

After successfully founding Satoshi Dice and Coinapult, Erik Voorhees took his developer passion to the next level with ShapeShift, one of the earliest and most influential trading platforms in the crypto space. Driven by his vision to reimagine global finance, Erik continues his pursuit for a new financial system that lives outside our modern day fiat ecosphere. Follow Erik Voorhees: https://twitter.com/ErikVoorhees This episode explores: Escaping the fiat system Pristine money Lambo memes Warren Buffet and Charlie Munger Money from thin air DeFi vs banks Yachts as collateral Bitcoin’s Taproot upgrade Zero day bugs Gambling in crypto Governments freezing assets --- Voyager This episode is brought to you by Voyager, your new favorite crypto broker. Trade crypto fast and commission-free the easy way. Earn up to 9.5% interest on top coins with no lockups and no limits.  Go to https://thewolfofallstreets.link/voyager and download the Voyager app and use code “SCOTT25” to get $25 in free Bitcoin when you create your account. --- Mina Mina is the world's lightest blockchain, powered by participants. Rather than apply brute computing force, Mina uses advanced cryptography and recursive zk-SNARKs to ensure a super-light and constant sized chain, that allows participants to quickly sync and verify the network.  The team behind Mina is backed by VCs, including Coinbase Ventures, and Mina's adversarial testnet was the largest public testnet outside of ETH 2.0. To get involved ahead of Mina’s mainnet, visit https://thewolfofallstreets.link/mina  --- Matcha Matcha is the easiest way to trade in DeFi. Matcha enables traders to seamlessly swap tokens using 20+ aggregated liquidity sources that deliver better prices than going to a centralized exchange or Uniswap.  Connect your wallet and start today at https://thewolfofallstreets.link/matcha  --- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by Blockworks. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworks.co ーーー Join the Wolf Den newsletter: ►►https://www.getrevue.co/profile/TheWolfDen/members

Today's episode is brought to you by Voyager, Mina, and Matcha. Stick around to hear more about them. What is up, everybody? I'm Scott Melker, and this is the Wolf of All Streets podcast. Today, I have the honor of interviewing one of the true OGs of the crypto space. Eric is best known for his crypto startups, including Satoshi Dice, Coinapult, and Shapeshift, each an important piece in the evolution and story of crypto. For being a fan of Eric, I know that beneath his startups is a deep desire to improve the

global financial system. It's my goal today to find out what macro issues crypto is solving, what drives him, and maybe how I can build some successful platforms like him one day. Eric Voorhees, it's a pleasure to have you on the show. Thanks for having me. So before we get into the questions, once again, you are listening to the Wolf of All Streets podcast, where twice a week I talk to your favorite personalities from the worlds of Bitcoin finance, trading, art, music, sports, and politics.

This podcast is powered by BlockWorks, the fastest growing media company in the digital asset space. You can check them out at blockworks.co. And for everything else about me, check out thewolfofallstreets.io. Now, again, today's episode, I want to dive right into what's really important, which is that I just found out you were also a DJ once upon a time. Yeah. Yeah. That was kind of my passion before crypto. So it was kind of a lifetime ago. Yeah. It does feel like a lifetime ago. I think you said you were about 10 years ago,

but for me, it was five or six years ago. I think you said you were about 10 years ago, but for me, it was five or six years. And like you, once I got into crypto, I kind of forgot about DJing and music to some degree, which is pretty incredible. Yeah, yeah. So I certainly miss it, but it's been good to have something so awesome that it's taken my mind off of that,

which is something I was passionate about also. Same, because I thought that I would never get over ending my DJ career, frankly. And it was a nice transition for sure. So now to get into what's actually more important. I know that you're a huge critic of governments and central banks. I'm curious what you see as the biggest problems with the legacy systems now, as opposed to when you really started, you know, diving into it 10, 12, 13 years ago? Yeah. Generally, I form my opinions based on a principle of self-ownership, right? So humans own themselves, and that should be fairly uncontroversial. But when you apply that to

broader and broader areas of society, then you run up into the issues with government pretty quickly. And government obviously interferes with all sorts of parts of the market. And perhaps the worst interference that they do is by interfering in money itself. Money is obviously core to every transaction. It's half of every transaction. Everyone spends their whole life chasing it and saving it and spending it. And few people understand it very well at all. And to have something that's central to everyone's life be manipulated by a central coercive entity doesn't sit well with me. And until crypto came along, I didn't really have a good solution to that.

Certainly, I'm not going to convince a majority of people to vote for a different kind of financial system, right? So Bitcoin comes along and suddenly it's not about a vote. It's the ability of anyone to use it and escape that kind of fiat banking establishment if they choose to. So that's why I fell in love with it. Do you feel like Bitcoin solves all of those problems or that it's one small piece in getting towards where we need to be with opting out of those systems? It's one big piece. It certainly doesn't solve everything. Bitcoin doesn't fix every ill of society, but it does fix one of the major ills of society, which is the corruption of money. And so now that there is a pristine form of open money that the whole world can use as infrastructure, I think we can build a much better society from that foundation. But yeah, Bitcoin is certainly not a panacea. It's not a perfect money. I just think it is the best form of money that society

currently has. It's interesting because now we're in this situation where we all cheer institutional adoption and everybody embraces the number going up because corporations are investing in it and we're seeing big, you know, we're seeing central banks start to talk about it. Do you think that there's any conflict with that phenomenon and the very ethos of what you sort of just described? There is, but the pros outweigh the cons. And, you know, as someone who's been in this space for 10 years, it was always my hope and desire to see institutions get involved because I want to see everyone get involved. I want to see the entire world utilizing Bitcoin. So that does not happen without all different types of people starting to use it. Institutions being incredibly important for that. Now, I'm not naive in thinking that many of these institutions won't try to either intentionally or unintentionally kind of corrupt the system into something that they can control more.

But ultimately, Bitcoin is only only worthwhile if it can't fundamentally be corrupted. And I think that's true. I think that's it's borne out over over these past 10 years. And so I don't worry too much about institutions trying to corrupt it. I I'm glad that they're getting involved and because I can run my own node and because I can hold my own keys and I need no one's permission to do either. It doesn't matter too much to me whether other people are using it in, in more foolish ways. Yeah, my concern is definitely not corruption. I just wonder if it gets to a point where it becomes unusable or unattractive

to the very core audience that fell in love with it or that it could truly help the poorer people who are unbanked or who do not have access to systems. I mean, it just, we don't hear about it much, like I said, because there's so much positivity around the number going up because big money is here. I still worry about the small money. For sure. And I think that's why it's important to realize that crypto is this whole ecosystem of a thousand different projects, all trying to do different things in different ways. That's part of the decentralization. And any particular blockchain or any particular crypto app doesn't need to try to solve everything for all people at all times. The important point is we now have

competition in money and competition in finance in a way that we never had before. Yeah, that makes perfect sense. So clearly that takes you down the path of probably starting as a Bitcoin maximalist and then understanding it doesn't do everything. And then there are all these other projects. You obviously started all the companies that I talked about in the intro, which obviously led you to Shapeshift. You talk about what you guys are doing there and how that sort of fits into the ecosystem. Yeah. So some of your listeners will know about Satoshi Dice. That was back in 2012, 2013. And it was basically an easy way to make a bet. And you would send Bitcoin into Satoshi Dice, a roll would be done, and you would either win money or lose money based on that bet. And there was something very elegant about the way it worked, which was that there was no need to sign up. And it didn't matter where you were. You could just send Bitcoin in and a calculation gets done in a transparent way and then you win or lose. And Satoshi Dice didn't hold anyone's funds.

It was just kind of like an application that used blockchains in a way that people found entertaining. And when I started ShapeShift, I wanted to bring that principle into the act of exchanging. So, you know, back in, ShapeShift started in 2014. And back then, it was the wake of Mt. Gox, which had just gone under, lost $400 million, which was a ton of the money in the whole industry back then. And I really wanted to provide a way for people to trade one digital asset for another without suffering counterparty risk. And so that was the purpose of ShapeShift. So you would send one asset in like a Litecoin and you'd get Bitcoin out the other side. So ShapeShift has had its own journey. And back in 2018, we'd gotten to the size where we realized we really needed to

dig in deep on the regulatory side, came to the very tragic conclusion that we'd gotten to the size where we realized we really needed to dig in deep on the regulatory side, came to the very tragic conclusion that we were going to be treated as a bank because we were an intermediary in the trade. And so then we had to implement KYC and all this compliance stuff, which I found highly unethical and did not want to be doing at all. We dealt with that for a couple of years. And then over the course of 2020, started seeing all these decentralized exchanges spring up and not just provide the ability to exchange in a purely decentralized way,

but to do it like at scale. So Uniswap was obviously the great example of this. And as we saw that success, we realized we should just integrate decentralized exchange protocols into Shapeshift. So we started saw that success, we realized we should just integrate decentralized exchange protocols into Shapeshift. So we started doing that in the fall. And as of January, we have now gotten out of the business of exchanging with customers. And people can use Shapeshift to hold their assets in a self-custody way and do trades without any intermediary of any kind.

One of the regulatory ramifications of that, I mean, you talked about how obviously difficult it was to go to KYC, and this is clearly reversing and going to the original intention. Yeah. Yeah, fundamentally, our reading of the law is that if you are an intermediary, then all sorts of financial regulations apply to you. If you are not an intermediary, then they do not under the current law. So a couple of years ago,

we did not have a way to offer our customers trading without us being an intermediary. So we weren't holding a balance for them, but they would send a coin to us and we send a coin of our own inventory back to them. We are arguably an intermediary, even though it's just brief. These decentralized protocols are fundamentally different. They act fundamentally in a different way. So the user is never sending an asset to Shapeshift or never receiving an asset from Shapeshift. They're simply using the Shapeshift interface to send their asset to a decentralized liquidity pool. And that liquidity pool is sending an asset back to them. So that removes us from being an intermediary, which changes the entire regulatory analysis. And so that's what we've

been working on over the last several months. And thank goodness that these technologies are continuing to advance so fast because it's really been a relief to see it. And for us to be able to provide that kind of good service again to customers has been great. Every time I have one of these conversations, I think, and I had the same very similar conversation with Sam Bankman-Fried about regulation. And it's kind of funny because it seems you all do what you need to do to be compliant. You read the law, you get the best interpretation, but then isn't there always the fear that they just re-regulate or there's some dumb regulation comes down and you're retroactively in violation of some regulation that didn't even exist when you made your business decisions? Yeah.

I mean, regulations can always change. And so we can't just like, now that we have made this decision, we can't just sit back and ignore what happens from here. We watch this stuff really closely. But thankfully, we still live in a society in which regulations are generally not applied retroactively. I think most people understand how that would be very problematic, purely unfair and unethical. So yeah, we got to watch. And now we need to see what the regulators want to do. They obviously do not want people to be able to have freedom with their assets. That is not in the interest of a regulator. However, these protocols are open and transparent and honest. And so hopefully those things are in the interest of a regulator. And hopefully regulators realize that a open financial system that is immutable and which no party can corrupt, that that is something that is clearly in the interest of society. So the regulators will have to figure out how they want to respond to that. And we will respond in kind to the next moves that they make. It's been astounding, sort of, as you said, how much And we will respond in kind to the next moves that they make.

It's been astounding, sort of, as you said, how much progress we've seen in the decentralized exchange space really in less than two years, almost in a year, you could almost say, obviously, with the crazy DeFi summer last year. Do you think that there's a world where centralized exchanges become moot and everything moves to sort of the decentralized world? Or do you think that we'll kind of see parallel rails where, you know, people sort of choose which one works better for them and approach it that way? Yeah, I think ultimately decentralized exchanges are going to become the majority of trade volume. Centralized exchanges, I think, have a long lifetime to still live. And in terms of fiat, it always has to be centralized. You can't have decentralized fiat. However, you can have decentralized stable coins. So I think a lot

of people that want to exit the risk of a crypto asset and move back into fiat, now they have an option of moving into a stable coin. And it can be like a decentralized stable coin like DAI. And then they never have to move to a bank again. So that I think is going to become very prominent. And the real innovation here was the move to this pool model that Uniswap popularized. Bancor, I think, had it first, but Uniswap really popularized this idea that instead of trying to build a order book exchange on a blockchain, which has all sorts of latency issues and liquidity problems, people were doing that in 2017 and 18, and they just were not catching on. These peer-to-pool liquidity pool models are really effective.

And Uniswap is doing billions of dollars of volume a day. There have been days when Uniswap alone does more volume than Coinbase. And it is like two and a half years old. Coinbase is eight years old. Uniswap, I think, raised like $20 million. Coinbase has raised like a billion dollars, right? And so you can clearly see how quickly these decentralized projects can match the scale of the centralized alternatives. And it doesn't take long to just project that forward a little bit and realize that that's where people are going to end up. They have less regulatory friction, they have less development friction, less overhead, and it's a better user experience. And so that's where this goes. I'm curious, then you talk about Coinbase, obviously, no matter how much they scale, seems they still go offline every time there's volatility,

right? Is that a function of the difficulty that you're talking about? I mean, there's obviously skeptics who say it's part of the business model and they're counter trading. I don't necessarily believe that that's what's happening. I think it's just people don't appreciate the level of the scale and that being able to accommodate that. But is that something that will always be problematic as they have more users and more people coming in and trying to trade on the exchange? Yeah.

And it's certainly easy to hate on them. But for every customer that they are upsetting, you know, they are serving 10 or a hundred customers really well. Right. So they, they are now processing like a ridiculous amount of, of orders and customer onboarding and customer support. And so, yes, they could be better, but you know, like they also deserve a lot of credit for building like the, the most influential company in all of crypto's history. I would still give that title to them. Binance is a close second at this point, but Coinbase has done a tremendous amount and it's always easy to like armchair quarterback what someone else is doing, but they've certainly built like a hugely valuable business and have served tens of billions

of people well. What do you make of their public offering? I mean, is it something that the community should cheer on? Or is it something that people should be critical of? I personally am on the cheer on side, just because I believe that, you know, a rising tide lifts all boats, and I just want to see anything crypto related do well. Yeah, it's a hugely important milestone for the crypto industry to emerge out of this kind of like niche world and demonstrate to everyone else that like, this is pretty serious. We're not here to trade Dogecoin all day, even though that's what we're doing over the last week, right? We're here to change the financial system. And when you have a project like Coinbase achieve a $50 billion valuation, more user accounts than like Robinhood and Charles Schwab put together, it's impossible for

traditional financial people to not take notice of that. That's valuable because that starts their journey into learning about what Bitcoin is, why it's important, and some portion of those people will end up getting involved. So yeah, I think it's fantastic. I don't own Coinbase. I was never an investor, unfortunately, but I certainly cheer on their success. And I think on that, it's extremely good for the industry. Yeah, I agree. And I think it brings more attention. And it's interesting because in the follow-up to Coinbase, now we're kind of seeing the Morgan Stanley announcements and the JP Morgan announcements. And that I think there's just enough demand from customers that even the biggest critics have to service crypto to some degree to their clientele.

Then you got the Warren Buffetts and mongers of the world who just had their Berkshire annual meeting and had nothing positive to say. What do you make of the fact that guys like that just literally like don't get it? Not only did not get it, they call it rat poison and that it's damaging to civilization. I mean, really hyperbolic. I would love, I mean, they're, they're obviously very intelligent people. My guess is they do not really understand it very well. I partly because it's highly technical and just people of that generation my guess is they do not really understand it very well.

Partly because it's highly technical and just people of that generation don't tend to understand these things very well. They probably see a lot of the superficial nonsense, right? They probably see a lot of the Lambo memes and they don't get it because they haven't actually understood what's beneath that. I would love to speak with them for an hour and talk to them about why Bitcoin is important and why those of us who care about it so much care about it.

It's not for the Lambos, right? And they may not understand why it's so important for the world to have an open source form of money. So I would like to talk to them and see if after a long in-depth conversation with someone that was knowledgeable about this, if they would actually still hold their opinion. Maybe they would, and that would be a shame. But my guess is that their understanding is so superficial, they just are not in a place to really have a strong opinion one way or another. Have you ever had the chance to have that conversation with someone who's in the limelight and is so critical or even someone who just has that much financial influence

and was a skeptic on that level? Without naming names, I did have a chance to speak with a billionaire a number of years ago who I was surprised at how little he understood about Bitcoin. And this is someone who should have known more much earlier. I think there's I think we project on people like that, that they sort of know everything and have their opinions fully formed. But often there's just an ignorance there. And, you know,

I wish, I wish those two would have acknowledged the ignorance and to just say, like, we don't, we don't get it. We don't understand it very well. And we haven't done the work on it. Yeah. I'd rather than say, I don't care. Like we're 187 years old between the two of us. We just don't care, you know? Yeah. But maybe like yeah, like the, the more sinister and cynical way to view it is that they do not want people to have an open standard for money, that for whatever reason, they believe governments should run money itself. They probably do think that. Sure. Clearly, most people do. Yeah, that's what Munger literally said. He was like, it was made out of thin air.

That was his biggest criticism is like money should not be. Right. Which is hilarious because the dollar, you know, if he wants to say like only government should be able to create things out of thin air, at least that could be logically consistent. But yeah, they and someone that old obviously lived back when the dollar was gold, when it was just a receipt for gold. And they somehow believe that in a market economy, the most important good should be centrally planned. anyone who had built what is at least seemingly a capitalistic enterprise like Berkshire Hathaway would have an appreciation for how capital markets form and why it's so important that capital and money itself be a market product rather than a government controlled product. That's so obvious to me and it's shocking that it's not to them.

Yeah, it's so true. It's funny because when the dollar was on the gold standard, they were older than us now. So it's not like they were just alive for it. They had probably formed their entire opinion and belief system about money by the time it even left that system. Yeah. And it's shocking that people that lived back then so easily adopted this idea that what was money, that asset is now just gone. And now it's just like this nonsense thing that could be created out of thin air billionaires. You said that you sort of project this assumption that they understand everything because they've gotten to where they are, that there's sort of these behemoths. And I think the Michael Saylors of the world and some of the others, the Paul Tudor Jones,

the guys who have come around, clearly it's more like they have strong opinions loosely held. And actually the mark of their intelligence, in my opinion, is their ability to process the new information and make a new opinion and decision. I mean, Michael Saylor, everybody loves to say, well, look at what he said about Bitcoin in 2013. He hated it. So, right, you're allowed to evolve. Yes. And it's

good to see when someone can actually change an opinion on something. I mean, that's certainly a sign of an intelligent mind. If you've been paying any attention to me or have been following me for any length of time, then you know I absolutely love Voyager. Every single time someone tweets me or asks me, hey, Scott, where do you trade and invest? The answer is always Voyager. They offer over 50 assets to trade commission free. I save so much money, it almost feels too good to be true. And that's not even my favorite part of Voyager. My favorite part is the insane interest that I earn. Up to 10% on my USDC, 6.25% on my Bitcoin, and 5.25% on my Ethereum.

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If you want to trade like I do, sign up for Matcha now and join the tens of thousands of traders already a part of the movement. Start now at thewolfofallstreets.link slash matcha. That's M-A-T-C-H-A. So I'm curious. So where does, I know that your major passion, or at least it would seem right now is ThorChain. Can we talk a bit about that? Yeah. So in my entire 10 years in crypto, obviously the project that excited me most was Bitcoin when I first learned about it. And I just had this feeling of like, this is something so special and profound. And I never had that with Ethereum, not because Ethereum is not special and profound. It absolutely is. But I was not smart enough to understand Ethereum when it first came out.

I understand generally how it works now and why it's so powerful. But certainly when it was being proposed, I did not. ThorChain, I understood when I started looking into it. And ThorChain is, without exaggeration, the project that has excited me most ever since the first learning of Bitcoin. Right. So I don't want to. Yeah, I mean, that's a powerful statement. So what is ThorChain? Basically, ThorChain is a decentralized exchange protocol to allow people to trade assets across chains. This has never really been done in a peer-to-pool model. So for years, we've had atomic swaps. Even when I started Shapeshift in 2014, people said no one will ever use Shapeshift because there's just atomic swaps.

Like people will just use that. Atomic swaps are technically interesting and they do work. They have never achieved product market fit and they've never achieved high liquidity or scale. There's a number of reasons for that, but they have empirically not worked. Pool models, these AMMs like Uniswap empirically have worked. They use a model which overcomes the liquidity problem and they work on blockchains, even relatively slow ones. And so now ThorChain provides the model of Uniswap, these liquidity pools, but across chains. And what this means is that the biggest crypto

market in the world, Bitcoin to tether, that is the biggest market of all, that can now exist in a decentralized way. That has never been possible before. That's a hugely profound change for the industry that you can move from the biggest stable coin to the biggest cryptocurrency in a decentralized way, borderless with no intermediary or custodian. That's huge. You can move from Bitcoin to Ethereum, which is probably the second biggest and most important market. This is awesome because the whole point of Bitcoin is immutability. And if immutability exists at the money layer, but not at the exchange layer, then we're kind of handicapped. All Bitcoin trading to date at any scale is done in centralized exchanges, 99.99% or whatever. That sucks. And it's because there has been no way to trade it across chains in any high scale way. ThorChain has provided that way. of Bitcoin from just the money layer out to the exchange layer and exchange Bitcoin in an immutable

open way with other assets. Hugely important, hugely influential. And I think I'm just, I'm thrilled that it exists. Like when I see this, I just get amped up about it. And so when I learned about ThorChain back in August, I dove in deep and Shapeshift has been working on an integration with ThorChain for at least three or four months. And we launched our integration with ThorChain when ThorChain launched about two weeks ago. So that's a quick summary. It's awesome. And I think it is so important and just has been largely missed by the community. I think, you know, they definitely, I should not say that Thorchain is a very passionate community, but I think, you know, as with any of these projects,

you sort of get the people that get it. And then there's everyone else who's either never heard of it or just didn't quite understand it at first. And you touched on that. It is so important that you can do that, but I think people don't realize how powerful tether is and how much volume is done on Tether. So when you talk about Bitcoin to Tether, people are kind of like, okay, that's cool. But like Tether volume is bigger than the biggest banks in the world by far.

Yeah. Yeah. The Tether trade volume is bigger than the Bitcoin trade volume. Tether is this massive, massive asset. And Bitcoin is this massive, massive asset. And now the two things can trade with no one stopping it. That's profound. It's the very core of, like you said, that entire point. And I don't think it didn't even process to me until you really just described it, even after looking into ThorChain many times, how important that is, because that was the whole intention of Bitcoin in the first place, the decentralization, right?

That's one layer, like Bitcoin into dollar stablecoin, the biggest in the world. That's now decentralized. That's awesome. But also think from a privacy perspective. So soon, Monero and Haven will both be integrated with ThorChain. These are both privacy coins, right? Bitcoin can be converted into Monero through ThorChain in a decentralized way with no user accounts. If you care about privacy and you care about immutability, that is hugely important and hugely valuable. If you're trading your Bitcoin for Monero at a centralized exchange,

everyone knows it. You're missing the point. And people have had to do that because there's no way to go across chains in any liquid fashion until now. So the privacy angle is there. And beyond trading, there's a number of Bitcoin maxis that might be like, okay, Eric, that's kind of interesting, but I don't ever want to own any other asset other than Bitcoin. I never trade. I never will trade. So I don't care. Even in that case, you should care about ThorChain because now you can earn a yield on your native Bitcoin. Right? Now you can earn a yield on your native Bitcoin, right? So if you have 10 Bitcoin today, it's earning no yield. And maybe you put some of it in BlockFi and the rate there is going down and down and down.

And that's a centralized intermediary. They've KYC'd you, right? And you're back in like a banking system to get yield on Bitcoin. That's not ideal. You can put Bitcoin into a Thor chain liquidity pool. You're trusting the open source protocol. So there's risk there, but it's code and you can learn what that is and it'll get better with time. And you can earn like 10 to 30% in the liquidity pool on native unwrapped Bitcoin. In Bitcoin. In Bitcoin.

Paid in Bitcoin. Right. So deposit Bitcoin, earn a very healthy return on that native Bitcoin in a decentralized, immutable, open source way where there's no custodian, no KYC. That is such a beautiful thing. Like any maximalist who has no care about Tether or Ethereum or any other asset, doesn't care about privacy or Monero or any of that, just wants their Bitcoin. Even that person should still care about their chain because they can earn a native yield now on that Bitcoin. Right. Now we're down to like the other 10% of maximalists who had never earned yield on their Bitcoin and just wanted, you know, which is fine. Yeah. And that's fine. You know, no one should be forced to do anything. But certainly BlockFi has made a great business out of taking custody of people's Bitcoin and paying them a pretty minimal yield on it. So if there is market demand for BlockFi, I think the market demand for a private,

higher yield, no counterparty risk alternative is going to be massive. Also nothing against BlockFi or any of the DeFi, CeFi, whatever we want to call the crypto banks for yield. But if you put it into ThorChain, you don't have to trust, you don't have as much counterparty risk. Like you said, you're trusting code. You're not trusting a trader at a prop desk to not make a bad decision with the Bitcoin that you've lent them, which I don't think people realize. And I don't think is a tremendous risk, but you have to realize that, I mean, there's a reason that BlockFi's rates are dropping. It's because they were taking advantage probably of a GBTC premium that no longer exists and they can't pass that on anymore. Right. And have some Bitcoin there, great service, but it is not immutable. They can freeze your account.

And if the government sends them a letter, they will freeze your account. So there's something incongruent about that versus Bitcoin, which is this open immutable thing. And if you can extend the immutability of Bitcoin into exchange and into lending markets and yield, you have now improved Bitcoin and the entire financial system that's built on top of that. So that's why I'm so excited about 13. What I find so interesting about now, I didn't get into it until 2016. So I was much later than you. But even seeing in this five years, the evolution, what I find interesting now is there's sort of like a level for everyone. I don't think that was the case.

I didn't feel that way before. Like if you're only comfortable, literally, like if you're 70 years old and you're like, I just want to buy some Bitcoin. I don't care. Just go on PayPal and buy some Bitcoin. Great. Yeah. Right. And then obviously there's I buy it on my exchange and I leave it there.

And then there's the take it off and I want to have my hardware wallet and then to multi-sig. And then there's all the levels now of yield as well. Like we just described, if you're comfortable with the level that BlockFi has, great. And you can go all the way down this rabbit hole. So it feels to me like in 2021, we have something for everybody. Yeah. It's an enriching ecosystem. This is emblematic of this asset going from just the money to being an entire financial system alternative. And we're only partway through that process. Most of the cool stuff hasn't even happened yet. Do you think that DeFi can wholly be built on Bitcoin with that in mind? Or do you think that there's a lot of it? Yeah. So DeFi, I use that term broadly to refer to all decentralized finance. Same, not just Ethereum.

Right. Now, most of it has been built on Ethereum because of the smart contracts, but we're now seeing DeFi projects kind of everywhere else on these various other chains. The whole decentralized financialization theme is what's important. Not really what chain it's built on.

It will get built on whatever chain is most optimal for that use case. Some stuff could get built on Bitcoin. A lot of stuff will get built on Ethereum. Some stuff will probably get built on other chains like Binance or Cosmos or Polkadot. And that's all fine. That all,

that all is in service of a decentralized robust financial ecosystem. Yeah. So you don't see a world where one dominates and the entire system is built on it. You see sort of, it sounds like where they're, again, parallel systems and each one runs that particular thing that's, you know, works best on that chain yeah i don't and then they're interoperable hopefully through yeah the interoperability is going to be like the theme of 2021 um so i'll get back to that in a second but i don't see a world where there are like a million blockchains but a few dozen, I think is very reasonable because these blockchains have to have

design attributes, right? They have to optimize one variable, which inevitably happens at the expense of another variable. And so you can't optimize all those variables for all use cases, right? So you're going to end up with chains that are optimized for rapid innovation and arbitrary complexity like Ethereum and and smart contracts. Bitcoin has optimized for being conservative and stable and unchanging, both a feature and a bug, right? Those are different paradigms. And if I'm going to be holding money long-term, I want something that's very conservative and unchanging. If I'm going to be building a financial application, I'm going to be wanting some like super advanced blockchain technology that's fast and cheap. Both of those things, I think, are reasonable,

logical paths. And so all of us are better off in the existence of both of those than if we were only stuck with a conservative Bitcoin that could do very little or a super highly iterative Ethereum that was taking chances with everyone's money every day. Good to have both. Right. And everything in between. And just to circle back, you said that you thought 2021 would be the year of interoperability. So can you talk about that a bit more? Yeah. Right now, all the blockchains are their own islands, right? Bitcoin's its own island. Ethereum is its own island. The Binance Smart Chain is now an island. ThorChain is a way to bridge it now where you can move value easily between chains. So that's one form of interoperability. The more interesting form of interoperability comes from projects like Cosmos, where you actually have an ecosystem of chains

that can talk to each other and assets can pass between the chains and messages and communication can pass between the chains. And so you end up with chains that are designed for different use cases. Like for example, ThorChain itself was built using the Cosmos SDK. So it's part of that ecosystem. The original Binance chain was built using the Cosmos SDK. So the Binance chain, the original one, not the smart chain and Thor chain can talk to each other through the Cosmos SDK and through what's called IBC, inter-blockchain communication. Point being, we're getting to this point where different chains that are optimized for different things can start interacting with

and talking to each other. This is going to be, I think, really profound for the industry and good for everyone. You get the advantages of different chains with much less friction of using more than one. Yeah. And then you don't have to be as definitive with your decision to commit to one because you actually have a bit more flexibility. I mean, I love Cosmos. They're one of the sponsors, actually. Their community is one of the sponsors and have supported me. I think they're absolutely incredible. So they're the ones who kind of turned me on to ThorChain in the first place, actually. Yeah. Cosmos is fantastic. And I think it's easy for people in the industry to get burned out on all the projects. There's so much noise, so many blockchains with so many promises and it's understandable that people kind of hone in on one and kind of dismiss everything else.

It's in some ways just a coping mechanism of like noise. Yeah. So I get it, but there are some really profoundly cool blockchains all kind of working together. And that's, what's really going to make this powerful. That makes perfect sense. So when we were talking about ThorChain initially, you were talking about obviously the ability to sort of go between all of these assets and never leave now, right? Because you don't have to go on a centralized exchange. You don't need to worry about your dollars. You can go into DAI or USDT or whatever. Do you think that we get to a place where people can live in that ecosystem and literally never go back to the dollar?

I mean, I'm in the United States. They're not going to let me pay my rent or my mortgage, I should say, in that manner or my taxes. But do you think that there's going to be places or a future where you just never come back and you live completely in the DeFi ecosystem? Yeah. And we're getting there pretty quickly. Like even already today, you know, you can't pay your mortgage with crypto and you can't pay your taxes with crypto and most stores do not accept crypto, right? That's still true. However, for your mortgage, you can take out a loan from a DeFi protocol. Let's say you have a bunch of Ethereum. Put it up into Aave.

Take out a USDC loan. Convert that USDC into fiat in a bank. You now have fiat and you can pay off your mortgage and all that kind of thing. You now have a debt you owe back to Aave, this decentralized protocol. Let's say you have some Bitcoin in a Thor chain pool, earning you some yield that can be converted into USDC and paid back into the Aave contract over time. So you end up, you end up never having to take fiat from the fiat world back into crypto.

And you're not selling any crypto to put into the fiat world. You're able to use the power of your crypto to get a loan and you pay it off with the yield of that crypto over time. So these kinds of arrangements that couldn't at all be done three years ago are now becoming pretty robust. And I think people will find increasingly creative ways to stay more and more in crypto and to have less and less exposure into the whole fiat nonsense. And to only acquire fiat assets at the time that you need it. Yeah. It's like an ATO. You just withdraw whatever little fiat you need for your day-to-day purposes

and never really exit the ecosystem otherwise. I can't remember the specifics of it, but Peter McCormack had that hilarious thread where he talked about how he had structured loans to buy a Lambo and basically the Lambo would pay for itself in that exact manner. It's like my yield will pay more than the payment after I take the loan. And it really can be done though. But there's two things to say that one, one is what you described is not something 99% of people are going to do. So, right. Yeah. So that was the next question is, how do we get to a point where you log into one thing that has a great user experience and that's all sort of there and explained, right? I, here's my coins. I want to take this much out. I want that to be, you know, paid back within the ecosystem without me having to jump around because people just

are not that savvy. Yeah. That's basically what Shapeshift is trying to do, is to build a decentralized financial interface that people in one experience, without much technical sophistication at all, can interact with these things in a seamless way. Click a button and earn a yield on your Bitcoin. Click a button and take a loan. Click a button and turn that loan into fiat in your bank. Those kinds of actions done from an interface can be pretty easy for people. They don't need to be interacting with

smart contracts or understand like 50 different pools on a decentralized finance protocol, the best actions that they may want to take can be turned into an easy to use interface, you know, over time. So yeah, this stuff obviously gets easier. The competition between these interfaces and apps and wallets will cause that to occur inevitably. So, I mean, it begs the question, obviously, all of this is really exciting and works exceptionally well when the number goes up, you know, but, you know, loans are not without risk. And if you see the volatility return to the downside, you know, what are the odds or the chances or risks that somebody gets liquidated thinking that they've sort of created this safe ecosystem, you know, to not ever sell their crypto and move into fiat and come back? Then all of a sudden they're, you know, they get liquidated on the Bitcoin or the Ethereum that they're taking the loan on.

Yeah. So that's always a risk. First, it's important for someone to understand if you take out a loan of a million dollars and then your Bitcoin or Ethereum again. So that's a real issue that you need to figure out, but you've now received the million dollar loan that doesn't have to get paid back. Right. So that's important. You can mitigate this risk obviously by over collateralizing, right? You can mitigate this risk by not going crazy with it, right? Don't put all of your assets into a loan, you know, keep, keep these

things hedged and small, right? Walk before you run, like get a feel for how these things work. But it's an option and you can always take the option to not use it, right? So, so a crypto-backed loan forces no one to do anything. It's just for some people, that's a much better option than selling the crypto, taking that tax hit where you've definitely now missed out on the upside. At least with a crypto-backed loan, you've reduced the chance of missing out on the upside from 100% to 10 or 20 or 50%. So that's a win. I mean, we touched on earlier sort of my question about legacy systems and what happens when they get a hold of crypto, obviously, with Wall Street and institutions. What happens when banks, Mellon, and we were

already seeing them talking about it, start to collateralize Bitcoin first and then probably Ethereum and just becomes part of their system? Yeah, it's going to be wild um i just don't see them moving fast enough to be competitive here so like if you watch the defi space it is overwhelming like even for those of us who are in it and live and breathe this every day like i can't keep up with it it's just it's just crazy each project is iterating fast and then you have a branching of functionality that's iterating. So the stuff you could do today, you couldn't have done three months ago or nine months ago. And then you look at what the traditional institutions are doing. Some of them are finally like, okay, we'll let some customers buy Bitcoin. Like that's an eight-year-old service at this point, right? Like Coinbase did that eight years ago. So that's how quickly they're moving. And I just, some of these projects,

these DeFi projects are going to be bigger than the banks this year. I mean, some of them already are. You know, Uniswap, the Uniswap token- Uniswap made $133 million last month, I think. 123, 133 million. Yeah, I think, $123, $133 million. Yeah. And the market cap of the UNI token is like $20 or $30 billion. Double that, which will probably happen in the next couple of months. And it's bigger than most banks.

So fast forward just a couple of years and what you're going to get is before the financial institutions have been able to get their project even through the committee, the DeFi protocols will have grown so much that they are now more important than the banks. And this is like that kind of exponential thinking that's very hard for humans to do, but in hindsight, it's going to look obvious. And these banks are going to be in big trouble. I mean, they'll continue to exist for many years, kind of like how cable companies will continue to exist on many years, kind of like how cable companies will continue to exist on this kind of long tail of people that never adopt it. It just kind of dwindles over time to zero. But where the exciting part of the financial world will be, it's all

going to be DeFi within five years. I mean, they should realize how good of, how amazing Bitcoin is as collateral, right? I mean, they can actually hold it and liquidate it. Michael Saylor, I think he made the joke about how he has a yacht and he can get a loan on the yacht, but good luck coming to get the yacht. Right. I know. And banks will loan on that kind of thing, even though that's highly illiquid. Like valuing the yacht is hard, right? There's not a liquid price to it. It can be damaged. It can be hard to understand the quality of the yacht at any time. There's a lot of friction into using that lot or in that yacht as collateral, whereas Bitcoin, immediately liquid, right? Perfect collateral.

Come repo my yacht. Yeah. So banks haven't even been willing to do that simple stuff like offering a fiat loan with crypto as collateral. I was speaking with a bank that I use several months ago and trying to get a line of credit. And I was asking them, like, can you use my Bitcoin as collateral? I don't even count it. And they're like, yeah, they have no idea even how to do that. And so instead, they attached it to some property I own, which is far harder for them to ever use in a liquidation situation. And so they're just so far behind the times.

I don't see how they're going to catch up. Yeah, I have a friend who couldn't literally get approved for a mortgage that was probably one one hundredth of his net worth if you counted his crypto holdings yeah yeah there's when you're lying you don't have the you know they're not going to allow you to show them your coinbase account or your or your ledger or your you know your casa like they're just not they're not going to check your wallets doesn't count so if you don't have it in assets that they consider part of your net worth, you don't exist. Yeah. And there's obviously a phase where that would have been understandable, right? Like

2013, 2014, if a bank didn't understand Bitcoin well enough to use that as collateral, I get it. It's still pretty new, but we're 10 years in at this point. Banks are in the business of money and they've been totally blindsided by the most important development in money in perhaps all of human history. You know, it's endemic of an industry that has lost its competitive edge because they have licenses from government and they just kind of sit there collecting middleman fees and have been doing it for a hundred years. And they're about to just get completely swept up in this and destroyed. Yeah. And in the global, you know, the last global financial crisis in 2008 and beyond, I mean, for better or for worse, I'm making no judgments on

it, but they definitely were handcuffed from a lot of the behaviors that they were doing before. So now they move even slower than they would have 20 years ago. Yeah. They just, they just sit there. I can't do anything because it'd take them so long. So total pivot. Um, the talk this week seemingly has been taproot. It's all I'm hearing about all over the place. I'm curious, uh, what your thoughts are on taproot. Yeah. Um, I would like to see it activated. I mean, from my non-technical perspective, it seems like kind of a no-brainer. Hopefully it will be. We'll see. I mean, Bitcoin moves so slowly

and that's part of its advantage. But if it can't ever make any upgrades, then that's a problem. So I'm hopeful that that will happen. You know, after all the like block size debates and the horrible brain damage that caused to everyone. Like, I think a lot of people are just going to stay out of any kind of upgrade discussion at all. And so we'll see, we'll see what happens. Maybe that will help it happen more smoothly.

Let the miners handle it. Yeah. Yeah. I mean, that's been something that the Bitcoin community has been talking about for a couple of years, and I would like to see it move forward. Yeah. So speaking of upgrades, do you have any thoughts on the progress or pace of Ethereum 2.0? Yeah. So Ethereum 2.0 is obviously like several different stages some stages have already launched some are far out some are in the near term we're in the middle of ethereum 2.0 rolling out so um those who say it hasn't happened yet are kind of correct those who say it has happened yet are also kind of correct it's it's nuanced nuance tends tends to get lost on Twitter and stuff. But so far it's been working. The steps that they've been doing have been working. The biggest thing

coming up for Ethereum is this EIP-1559 upgrade, which is quite interesting. I don't have an opinion on it, but it is interesting. Basically, it reduces the fees that go to miners and instead takes part of the fee that a user pays and just burns it. Burns it. Yeah. So it becomes somewhat deflationary. I haven't really seen the economics on if it makes Ethereum truly deflationary or if it just slows the inflation. Yeah. I think the calculation is roughly that it'll move Ethereum from like a four and a half percent inflation rate annually to like a one and a half percent rate, which is very material. Yeah. So it will actually be less inflationary than Bitcoin, at least for X number

of years, you know, because Bitcoin becomes less and less over time. But there's going to be a period after EIP-1559 where the rate of inflation of Ethereum is less than the rate of inflation of Bitcoin. That's going to drive some Bitcoin maximalists crazy. They're going to hate that and they're going to harp on how, well, we don't know what Ethereum's supply actually is and all these arguments that are pretty weak. But different models, I think both are plausible. Oh my God, get me out of Twitter when that actually gets instituted. But it's interesting because you're going to have the Bitcoin versus Ethereum debate that you just sort of discussed,

and there's going to be probably a bit of cognitive dissonance by Bitcoiners about what Ethereum really is at that point. But you're also going to have the war within the Ethereum community about whether that should happen. And there's this world when Ethereum 2.0 is fully instituted that there are no miners and they serve no purpose. Right. Right. I mean, moving to proof of stake is a massive change. And it's not unreasonable to be very scared and hesitant to be in Ethereum until after that successfully happens, because maybe it won't successfully happen. Maybe it'll be a disaster. What does that look like? What does that look like? And the whole proof of work versus proof of stake is a debate I think that is not settled. I think it's clear that both can work. There are already proof of

stake systems that are running and working well today. I think it's also true that there are no proof of stake systems that are more decentralized today than Bitcoin's proof of work. Or certainly more secure. Or more secure, right. So I think it's reasonable to just be humble about that and to recognize that these are different systems. It's all super new. None of this stuff has really been tested at global scale over the course of decades with serious opposition from government. Like that's going to be a big test that all these systems have to pass through. So I just I just remain kind of like open to both and glad to see the innovation happening. I'm an Ethereum fan. I mean,

I definitely own Ethereum, but it's interesting. We talk about how slow global systems work, like the evolution of a bank making a decision. And you can sort of extrapolate that down to the different blockchains and innovation as well. I mean, because Ethereum is proof of work and is trying to go to proof of stake, even the staking on Ethereum to be a part of Ethereum 2.0 is already like nominal and almost irrelevant. The level of yield that you get, you know, months later, six, whatever it is. And I mean, what you can do in other liquidity, you know, in other places to gain more yield on that Ethereum, it's just going to take so long. Ethereum is so big that it also feels like maybe they could be out innovated during that time that they're still

trying to transition. Yeah. But you also have to remember that these are games, these are marathons, not sprints. Right. And a lot of the crazy yields that you find in DeFi will not last. Well, they're not sustainable. They're not sustainable. They will collapse and come down. And so what is the long-term yield that you'll earn on Ethereum staking versus Ethereum in a pool or versus Binance smart chain assets and some crazy pancake kitty swap?

You know, it's all so crazy and fun and exciting. And I can understand why someone looking at this industry would see it and just be like, oh, my God, this is totally batshit crazy. Because it is. Right. But we were talking about Buffett and Munger. They said that the internet was batshit crazy, right? And you looked during the dot-com bubble and they missed the Amazons and Googles at the

time. And I think that it is fair to criticize this period in crypto or to comment that it is somewhat like the dot-com bubble, but they look at it as a negative. And I see it as a positive, you know, if you want innovation in a space or on a technology, if you want blockchain, you have to have all the crazy entrepreneurs and brilliant people come try and accept that most are going to fail. Right. And that's part of the process, right? Like the dot-com boom, everyone likes to make fun of it, but that's what got the internet started. Yeah. Right. And the internet has totally transformed the world. Similarly, the bubbles that have happened in crypto before were disastrous on the other side, but they have

caused this industry to grow. And people just need to like, accept the fact that when you have a hyper-competitive open market, most things will fail and that's okay. That's a sign of health, not a sign of sickness. Yeah, I agree. It's never looked, I'm just surprised that even 20 something years later that people don't see that

when looking at the dot-com bubble. You know, it seems even if you're in your nineties. Yeah, they dismiss it as if they think it should not have happened. Like humans were foolish to have been in the dot-com bubble. And certainly some of the valuations became foolish and that's obvious in hindsight. But the infusion of capital

and the excitement around that industry and all the investment and time and attention that went into creating the internet was so clearly a net positive for everyone. I think that that boom should be looked at as a positive, not a negative. Do you think that we're at a comparable level of exuberance in DeFi and in innovation in the crypto market? Or do you think that we're still heading way up the curve? I don't think we're anywhere near the top of this cycle. I think, and I don't know how the numbers actually play out, but it's would not surprise me if some

of, if much of the dollar values ascribed to many of the projects today, dwarf what was going on in the dot-com boom, just because capital is so much bigger like you know this is 20 years later so the the amount of capital that has poured into the space is huge and is so fast moving so in some ways this is already bigger than i think from the dot-com boom um and that's okay like as long as people realize that the boom happens and it will bust and there will be a downturn again and that's okay too and if you want to hold long term you should seek out quality but in the short term quality almost doesn't matter at all both of those statements are true yeah you're the one who invented the dice rolling right so uh yeah you have and you have to know when you're

gambling right so that's exactly you just i mean you couldn't have said it better like it there's nothing wrong with gambling as long as you don't know when you're doing it like look at doge yeah look at doge look at doge doge is crazy i you've been through you've been through every doge cycle because you've been here since it was created right i caught the first you know 2017 like two or three times but you've seen them all i never thought this one would go this high well earlier this year it broke a penny and i was like that's wild it's such a frothy bubble for doge to ever break a penny is nonsense nonsense and here we are 50x higher than that right and i don't own doge like because i know that it's just playing

it's just playing roulette you know so um at the same time dogecoin is one of the most resilient projects and i think has has captured a part of of society that is is interesting and there are people that put value in that right and so Dogecoin is not going to die either. I think it's in a massive bubble. It's obviously in a massive bubble, but it's been around longer than most crypto projects. Yeah, it has. Yeah. It's really incredible. So I know we're kind of getting up against it with time. I'm just curious, like, what do you, A,

you just said you don't think we're anywhere near the top of this cycle. So what do you foresee? And I don't need grand price predictions, but an idea of where you think this is all going and what you think the next bear market or correction would look like if you still think we can see that 80, 90% drawdown on the entire market or whether this time it's different. Yeah, I guess first is to realize how these different assets go from most conservative to most speculative, right? So most conservative obviously is Bitcoin and then Ethereum. And then you get this long tail of more and more and more speculative.

The more and more and more speculative are going to be the ones that outperform during the bull market and that lose the most amount of money during the bear market. Like that's just kind of a truism. Literally could go to zero, right? Of course. Yeah. Some of them will go to zero. So you just need to realize that they're not all going to move up and down together. If you want to be more conservative, stay in the Bitcoins and the

Ethereums. If you want to get more speculative, then go out on the crazy shit. But it is a little weird to feel like Bitcoin and Ethereum are not speculative enough. And so you're not okay with a 10x return in four years. You want to go even crazier. So just realize the risk that you're taking. Yeah, I think Bitcoin goes somewhere toward 200k this cycle. And I think Bitcoin and Ethereum will probably crash down to not much further than the current prices. Maybe not even to where they are today. That would be an 80-ish per 12. That'd be a pretty big drawdown. Yeah. Yeah. And the drawdown happens not in like one big day, right? It happens over

like a grueling, miserable six, 6 8 12 months that everyone just hates and you spend half the time in denial that it's even happening so you know that's all part of the part of the thing and so i think my advice to people is just to keep your head sane you know to realize when you're gambling realize that this is high risk realize that any project including bitcoin can go to zero do not destroy your life over speculating on anything. Yeah. I mean, that would suck. I would certainly cry in my pillow for a while, but yeah, I don't think we would be okay if that would happen. No, it would be a shitty year, but Amazon can go to zero by the same rationale. Um, less likely. Well, I guess they can liquidate their assets and never

yeah Bitcoin can always any of these projects could always have a zero day bug that destroyed the protocol and that's very unlikely to happen in Bitcoin

at this point but it's always possible and it's just I think it's good for people to recognize that any of this stuff could go to zero and so act accordingly

can't think of a better way to end than that so where can everybody where should everybody follow you and keep up with you after this? Twitter's great, at Eric Voorhees on Twitter. And then I'm eric at shapeshift.io or.com, both work. And yeah, thanks for having me on the show. Thanks. It's absolutely amazing.

Like I said to you before we started, it's an honor. I've been following you since my first days in crypto crypto i love everything that you do and uh really great to finally get to talk to you so thank you very much i appreciate it all right have a good one