The Wolf Of All Streets - The Future Of Staking | Lex Sokolin, ConsenSys

Episode Date: February 19, 2023

After Kraken closed its staking program in a $30 million settlement with the SEC, and Brian Armstrong warned that the staking for U.S. retail customers may have come to an end, staking became the hottest topic in crypto. I invited Lex Sokolin, the Chief Cryptoeconomist at ConsenSys, to my podcast to talk about staking and its role and future in crypto.  Lex Sokolin: https://twitter.com/LexSokolin ►► JOIN THE FREE WOLF DEN NEWSLETTER https://thewolfden.substack.com/  ►►NORD VPN  An essential crypto product to protect your privacy and keep your crypto safe!  Sign up on my link below & enjoy the benefits of NORD VPN from just $4 a month.  👉https://nordvpn.com/WolfOfAllStreets  GET UP TO A $8,000 BONUS IN USDT AND TRADE ALL SPOT PAIRS ON BITGET FOR ZERO FEES! ►► https://thewolfofallstreets.info/bitget   Follow Scott Melker: Twitter: https://twitter.com/scottmelker  Facebook: https://www.facebook.com/wolfofallstreets   Web: https://www.thewolfofallstreets.io  Spotify: https://spoti.fi/30N5FDe  Apple podcast: https://apple.co/3FASB2c  #Staking #Crypto #Bitcoin Timestamps: 0:00 Intro 1:05 Staking 7:40 More capital is better? 12:50 Voting & bad actors 18:48 Free market 24:20 US attacks on crypto 31:00 ConsenSys ecosystem 40:40 Multichain vs. one chain  47:00 Crypto adoption  52:00 Crypto moves according to a price 53:50 Macro  The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

Is the United States going to war with crypto or are they actually taking sensible steps to protect consumers? Also, what things are being built in Web3 that we should be excited about and how will those tools eventually lead to mainstream adoption? I talked with one of my favorite guests today, Lex Soklin, about all of this. You don't want to miss it. Yeah. We can also do 10 minutes. Yeah. Just, uh, three minutes. We're all done. There's no more staking anymore. Now it's just, uh, we hand crank it, you know, conversation finished. So, uh, thank you guys for listening listening. Let's talk about staking. Obviously, that's the hot topic at the moment. Kraken seemingly quickly settled with the SEC $30 million and has decided to disallow staking for US customers. What's going on here? You know, I think there was this moment, right, coming out of the financial liquidations last

year where it became really clear that centralized exchanges could disappear with your money. And not just one, but multiple companies did that. From FTX to Celsius to lots of good names as well. And so that risk of bankruptcy, which is really just credit risk, is fuel for regulators to come in and point to it and say, we can't have this happen again. right we those consumer protection um we've got to make sure that um if people are investing into something and putting money into something then that something is well described is registered there's recourse there's insurance and so on and so forth i think that can get taken too far or that can get taken to apply to to products sometimes technology products, not necessarily like financial instruments, that you're using the excuse of what has happened prior and applying

it to situations that don't quite match. But if I understand what's going on with Kraken, it's not dire for the crypto industry. It's not dire for staking or for protocols as a whole what if you really kind of narrow the scope of what's going on it's about a centralized exchange that is offering um a yield generating product that's backed by uh staking and various networks and so you are you are doing this motion of giving somebody your money, right? Somebody is taking your money in a custodial manner and you're relying on them. And so there's credit risk involved.

So I can see why the SEC kind of went after the Stargate. It's pretty narrow. I can see why you wouldn't want like industry-wide statements relating to staking out of it because there's many more, much more, you know, hairy, complex issues that probably neither the SEC nor Kraken or anybody else really wants to put on display right now. And so I think it is really challenging for custodial institutions that do have the structure. But again, not all custodial institutions have this financial instrument structure either, right? So the argument there, once again, boils down to C5 versus DeFi. Although this isn't as gratuitous as a Voyager BlockFi

Celsius that was literally structured to just take your money and go take risk and earn yield. But this is a transactional thing where you're giving them your money. They're doing something that you may not know exactly what it is and making money. And therefore, it applies to the same framework. so like we can have a bunch of toy examples here right like um you could have and and by the way i'm not coming out and saying that the process by which the sec has done this is fantastic and fruitful right like we're gonna talk about coming out yeah coming out with enforcements and and just um you know shooting shooting companies in the back of the head maybe isn't the best way to go about it.

Maybe saying here's the right way to do it and also acknowledging that legislation from 90 years ago from the Investment Securities Act, maybe 90 years ago you did not have science fiction networks running metaverse architecture with attention glued to internet money. Like maybe that wasn't there. And so potentially you might want to have sort of rulemaking that's appropriate to the asset class that you're making these rules about.

But putting all that aside, like you can imagine a crypto exchange that says, come here, we'll do staking for you. You give us your money and we'll give you 20%. You know, and in one example, that exchange is literally just opening accounts on your behalf and kind of pass through into the validator. And then you're getting the rewards and the technology is like a thin layer to make that easy for you from a UX perspective. Or you can imagine the same example, except the crypto exchange is levering up 10 times because staking will never fail. And YOLO, right? And also buying some houses because it's hard work

levering up. You got to feel your in your real estate ownership i guess and then um he's talking about ftx people continue yeah i don't think it's just ftx i think you know but maybe there's a boat involved i don't know maybe you created antivirus he's talking about three ac guys yeah there's lots of there's lots of good there's good people on both sides um so the point being is like knowing what you're doing knowing if you're actually staking into a network or knowing that or or maybe that's just marketing copy and what you're doing is you're financing some crazy structured product with exposure that you don't understand and the marketing person describing it doesn't understand, then that's a completely different environment, right?

The different sort of situation. And we don't want to be in that situation. We don't want to roll the dice on whether this crypto exchange is a good actor or a bad actor, because we've rolled the dice enough to know that, you know, probably, probably don't trust them. Right. Um, the thing is the solution to probably don't trust them is very obvious and it was invented in, you know, 2008, um, and, and, and, uh, 2015, right? Like the, the don't trust them problem is solved pretty well with trustless

and non-custodial software. So I think there is a silver lining in it, but it's maybe you have to squint to get there. I mean, the implication is that the silver lining is it pushes people towards DeFi and to participate in staking in the networks themselves directly. But are you concerned that this action and sort of the entire tone from regulators right now, the enforcement after the fact is a slippery slope towards also disallowing it for the individual. Yeah, I think the second order effects are actually quite complicated and a bit hard to figure out. We can speculate about them, right?

But they are a bit hard to figure out. So I think as a general statement, like the more assets, the more capital that is there to secure proof of stake networks, the more secure the proof of stake networks. So you know, ConsenSys as a Web3 company and more generally like crypto natives want there to be more capital securing Web3 networks. An analogous statement would be something like after the 2008 crisis, the banks were so levered up and they had very low capital. And so the government had to come in and bail out their balance sheet with T you know, with TARP and buy up all their

assets because there wasn't very much equity capital. So the regulatory response to that was banks should have more capital on their balance sheets in order for the financial system to be more secure. So generally speaking, we want more capital to secure financial systems. it seems to be a pretty good idea. Now, when you get to like, okay, well, who and how, right, there's, there's kind of this balance for, for blockchain networks, where on the one hand, you want to make it really easy for people to have access, you want to, and I apologize for the word democratize, but you want anyone with any amount to say, yeah, I'm participating in the validation of this chain, whether or not I have 32 ETH, whether or not I have the technical know-how to run a server farm in my basement.

I'm not precluded from actually participating in the benefits of securing this chain and being paid by the network for the use of my capital. Like that's sort of a unbanked question. Like you, you want people to have access to credit, uh, or to banking services. You want people to have access to the internet. Um, I'm not going to say it's like a human rights issue that you should be able to support your network of choice. But in 10 years, it might be equivalent to voting and do staking on their own. It's prohibitive, right? So that's the trade-off. You want more people, but it's difficult to do it in a permissionless way. But then on the other hand, the flip side is the industry structure to make it really easy to stake right now is a custodial one, right? And so that's

why you've got intermediaries popping up. And there's always going to be a value chain. There's always going to, people will make things easier for other people and be paid for it. Like that's just, it's economies, it's how they work. And so intermediaries are pumping up and saying, look, instead of having to do this thousand steps for which you're not qualified, click this one button and we'll take care of that for you. And the downside to that, even though it democratizes things, is that there's counterparty and credit risk. And we don't like that. That's one of the things that we're trying to get away from. The additional sort of complication is you make it really easy for lots of people to delegate their money into these custodial accounts, and then you end up with more centralization in the staking itself. So you end up with, you know, an industry structure where the pools of assets,

um, securing these, these networks end up being really, really kind of cranked into an oligopoly, uh, oligopoly where the concentration is really high with the large centralized exchanges. So there's always also kind of like one potential positive side effect is a forcing function for a more decentralized staking infrastructure or more people individually contributing rather than... And that creates anti-fragility, right? So Kraken having to pull out of securing all these networks is fragile. It's like China turning off Bitcoin

mining. It's fragile. But if you spread it out over every country or you're spreading it out over individuals running their own hardware or software, then you get to a place that the networks are a lot more resilient. Yeah. You just spoke to the fact or to a problem that we've actually seen playing out in real time recently, which is Andreessen Horowitz basically being a huge voting block and sort of a damned if you do, damned if you don't situation. If they vote, it's basically centralized and they decide what the vote is. If they don't vote, they'll be criticized for not participating in the network. So how do you stop with proof of work systems, a centralized authority or a single actor from basically just accumulating so much of the asset that it effectively becomes centralized?

Yeah. So, I mean, I guess the nice thing about staking, you know, staking versus it's not quite define my mind, because it's not it's not like a DeFi protocol that's running on the computational network here, you're at a lower level of the network. And so you're you're securing the network that does the computation. And you're you're not really, you know, ETH stakers don't vote. They don't come together and make governance decisions to the protocol. Instead, they all have the same experience that scales with their capital. Like they don't get preferential treatment when they're larger. Your return

from staking versus, you know, crypto exchanges return from staking is going to be the same and that's good the problem there is more you know being a bad actor trying to own 50 of the network um trying to attack the network with your financial and economic power like is that possible and then you know if if you take the capacity out is the network more fragile more fragile and not as resistant to adversaries? You know, that's kind of at the protocol level. I think to your other question about Andreessen exercising their vote, I think it's such a fascinating and weird, again, right? 90 years ago, the Investment Securities it was it was not going to be

like how can a venture capital firm um buy a bunch of tokens to vote in a technology network on the internet like it's just we've got to think about different rules for that um but, we can't blame a player in a system where the system is set up to be played in this particular way. Like if the whole point is you can vote with your money because you can acquire, you know, things that you love, you buy a participation stake in, and then you can help move them along. And that's why you're excited about the space. And that's why you're excited about the space. And that's why you're growing it.

Um, you can't really be mad when people actually exercise that right. Because they just, when they disagree with you, right. That, that just doesn't work. I think the problem becomes when, you know, it's like people love, people love Amazon until it destroys all the, in their neighborhood, right? It's kind of the same thing, which is at first it's so great and then it's, oh, but my, you know, or Starbucks destroying your coffee shop. So if there is a, you know, a consistent record of clearly attempts to, you know, market manipulate or corner a market or

change pricing or, you know, destroy competition. There's a whole body of law that relates to that. Like that's not new to Andreessen or clicking buttons on the internet. That's just sort of market industry structure. And you go back to Teddy Roosevelt and the trust busting, right? Because there were companies that had enormous industry power to shape things. You know, JP Morgan had industry power to shape the entire country. It's not an Andreessen shaping if you're buying a Bored Ape. Sort of the implications were even more profound. No offense, please, to anyone who I'm going to hide now from Ugo Labs. But the point being- You meant pudgy penguins, guys. You meant

pudgy penguins. I said nothing at all. Nothing happened. The point being is like, yeah, now we're sort of applying this like monopoly power to fairly, um, to fairly niche things. And, and I think there's probably a moment when it becomes really dangerous, but at this stage, to me, it just looks like participation. Um, you know, the other thing I can say is, um, like at ConsenSys, we, um, we have a governance practice that my team stood up. And it's actually like, it's pretty awkward because consensus is at the center of the industry.

And so we know people with different views and those people will reach out to us and say, hey, can you vote? I want to do this in Compound. I want to do this in Aave. I want to do this in Uniswap. Like, vote for me and I'll vote for you and that kind of thing. And again, that's natural, that's politics. That's the basic unit of politics. I'll do this for you, you do this for me. And I'm pretty happy with how we've behaved and what we've done, which is

literally a year ago in setting up this function, which is Dow governance function. Um, we set out a whole bunch of principles. Like we wrote down principles of literally like the four or five things that we cared about that we evaluated when we were going to make a vote. And so it's going to sound a little bit web three sort of frou-frou idealism, but it was, you know, decentralization. Does it push the technology forward? Is there going to be more competition? Is it more anti-fragile? And we just vote according to those principles. We do our best to stick to something objective because otherwise you're going to get caught in this trap of market power and political power sticking together. Much of what you described is literally the core facet of a free market. I talk about it quite often with Bitcoin. People always say Bitcoin price is manipulated, but if that manipulation is simply because someone has more money than you and can drive

the price in a certain direction, you as a participant in that market have the option to be on the right side of that trade right and so it's a very similar i think phenomenon you can't have a free market without larger players being able to set the direction or tone of that market yeah i think there's this is a topic. You know, and I think the example that sticks out to me, because the law here is so, it's so interesting, all of these things have happened a million times before hundreds of years ago, you know, and so when you when you actually dig into like the case law, what you see is these like repeatable patterns of problems that people have about information you know and like what feels fair and to whom and why and so on and and um you know insider trading law laws and all of that like i think to the example

of mango markets being um let's let's use the word hacked right and so this dude is on twitter uh being like i'm a sweet hacker um is it abraham eisenberg is that right yeah and i think he made the argument he's basically just a sweet trader even more yeah yeah no no he's like he's like i look it's the rules it's the rules of this protocol um and so code is law i'm just gonna i'm gonna follow code as law and if i can whatever it is flash flash borrow this much and play with this oracle and that breaks the price of this option and then you know i end up with 150 million um position in my account and your protocol is dead. I guess you're just like a bad developer and I'm a really great hacker.

And I will document this on Twitter because, you know, I just want people to know how not to make mistakes. Of course, that's also called market manipulation and the Fed's got them, right? Like literally for market manipulation, which iss got them right for like literally for market manipulation which is if you show up in the equities markets and you're like i'm gonna play around with the price trying to trap people and trying to break you know various like positions based on the market structure that i know um you're manipulating the price. And there's a reason for why this is bad. And the reason for why this is bad is because you're essentially fooling people into losing

their money. Like they're not acting on commonly available information. So there's like a level playing field concept in capitalism, in markets, you know, and when you have a situation that's not a level playing field, you start to get pretty close to theft because you're stealing people's assets by manipulating the environment in which they trade. And so I just thought it was like, it was just such an insane moment, you know, after that Mango hack to see that. I mean, I know it's not the hot topic of conversation here, but it's been blowing my mind left and right how many of these bad actors go out and lay their playbook out and

their crimes out on Twitter publicly. It feels like their ego just has to be fed. I mean, SPF went on his little roadshow before being arrested and said, forget my lawyers. I don't care. I'm going to put all this garbage out on the internet. The three AC guys are obviously back the minute that SPF blows up along with the Celsius guy. I mean, it just feels like the egos are so big that they're willing to literally document their crimes in real time. Yeah, there's a lot of cognitive dissonance between the actual impacts of the effects on markets has real impact on people's lives, right? Like, we can't on the one side say this is going to be a financial liberation platform for anyone who's willing to buy into the new future and, on the other side, but on the Robinhood numbers, for example, during the COVID pandemic, Robinhood had incredible volumes and everybody day trading GameStop and so on on Robinhood and fighting the big fight against hedge funds made all this money. Within two years, after the end of COVID, on average, the average Robinhood trader had lost value. All of the gains that people had made were gone and they were in the

red. And so I think we just have to be consistent and honest about what we're doing, which is creating this new economic architecture and not create lots of financial businesses that end up walking away with your cash. You sort of alluded to the fact that the Kraken situation is a bit niche and it was a sort of a specific product against a specific exchange, but it does feel to me like the attacks are increasing from multiple vectors at this point. I mean, Silvergate Bank, cash withdrawals from Binance being halted, Custodia Bank failing to get their Fedmaster license. It seems that all at once we're getting dinged basically left and right.

So again, I mentioned the slippery slope, but are you concerned right now that this is sort of a wholesale attack on the industry? Or do you think that this is all just reactionary to the collapses we saw last year? It's a difficult question. I think that technology and innovation and progress is kind of like water. So it'll flow. It'll flow around any of the barriers that are going to be in its way. And if the end result is that the entire United States is a barrier, it will flow around the United States, which is, you know, patently insane because web three is denominated in the dollar. And meanwhile, you know, China and Russia are trying to de-dollarize. So and then Chinese investment in artificial intelligence is like a national priority. And so the one thing that we're like really winning on which is to build um a next generation digital infrastructure um that is dollar based like we're also attacking um so it's that's that's a little bit it's a

little bit funky but as it relates to like this feeling of the attack look i think that there's the story right like that defy summer some of in crypto, including me, like it's still amazing that worked, that DeFi worked, right? Because let's say you're a digital lending entrepreneur or you're like an exchange operator, you know, that's not a six month build, you know, that's like raise 50 million bucks and build it for two years and hope that works. And so it was amazing to see DeFi click on and work. And it was amazing to see the commerce coming out of the NFT space. And it's been incredible to see stable coins

actually being used and plugging into the credit card networks, right? Like so fast. But the flip side of that is if it works, there's actually something for the rule makers to react to. Like if they weren't doing anything, that means that crypto wasn't doing anything, that it wasn't getting anything done, right? The only reaction before was to ICOs because that's what was done and the rest was just PowerPoint decks. index. Now you've got performant protocols that are actually doing the things that they say they're doing in a way that is fundamentally more efficient and more interesting and so on.

And so I think there's just like mana to respond to something. It's not some sort of conspiracy, like people are just doing their jobs. And there are regulators in lots of different divisions who are full-time focused on understanding crypto assets and who have a really great grasp of what's going on. And obviously looking at the SEC, you see Gary's position and you see Hester Pierce's position. It's the same. There's nothing wrong with the SEC. These are individuals who have different positions., Hester's position is very substantive. And you can look at the OCC and it's the same story, actually. It's really interesting what's happened with Custodia, right? So there was a period of time, I think about two years ago when the acting commissioner

of the OCC, which is the bank, the federal bank regulator, um, was the former general counsel of Coinbase. And, uh, he did some interesting things while running the OCC, which is he lit, he put out, I think something something like three different statements that were basically intended to allow federally chartered banks to hold stablecoins as deposits. The high-level version of that was stablecoins are money, banks have always held money, this is just a different technological infrastructure for holding money, henceforth, you know, any bank can do stablecoin deposits and connect to blockchain networks. You know, and by the

way, this is just a clarification because banks have always held money. We now have a different person in charge of the OCC. And the statements following and the clarifications as to like why Custodia was denied, they are really quite, they're contortions. They're really quite something if you read them. And it goes something like, when we said earlier that banks can hold stable coins, what we meant was that banks can try to hold them and then that will be subject to the customary review of the OCC fully in our discretion. So you can go ahead and do it, but then we, on a one-by by one basis, will tell you whether your risk management and so on, like systems are good enough and consistent with general bank risk management systems, even if they're Caitlin Long, who is probably one of the best people in the world at creating risk management systems for crypto and putting them inside of a bank. So look, this stuff is so individual and so contextual. It's not like

an agency going after something. It really is political forces going back and forth. It's individual personalities pushing particular agendas, using experiences like the 2022 collapse to motivate things that are out of reach and so on. And so I think it's important to continue fighting for the principles that are important to us and continuing to invest in government relations and trying to create transparency in the industry. Such an indictment of politics in the current system, even outside of the way that they treat crypto. You can have a favorable ruling or law put in place, and then you just have to be scared that the next guy who comes in will flip them and they will not remain any longer. But we don't need to talk about that any further. We've there's a lot of that, yeah.

Yeah, I think we've talked about a lot of the bad, the fears, the things that have been happening. Let's be optimistic and talk about the good. I mean, ConsenSys obviously has a massive ecosystem. We know that historically the best products and ideas are built during the bear market, which we're obviously in. So what are you guys actually working on, looking at, what are you excited about for 2023 and moving forward that maybe people are missing because they're so focused on

regulation or price being down? Yeah. I'll give you the product answer, kind of what we're doing and then share like a thesis and areas of focus that we're seeing growth in. I think the first piece is just the continued tightening of the company on the places where the company is doing its best work. So Consensus started out as a venture studio and seeded lots of companies and then spent a lot of time trying to persuade enterprises and building enterprise Ethereum

and exploring the market and kind of standing up this ecosystem. And for the last few years, we've been much tighter around our product strategy. And especially going into this year, we've done kind of one more turn of focus. And so that focus falls into two things. The first is helping people actually use web three. So that's metamask, making sure that anyone and corporations or people too, um, anyone can come and. Connect to any protocol, use any part of web three that they want in a non custodial manner. You know, if they need, uh, if they need to do it in a more compliant way, uh,

from, from like a institutional perspective that's available, but really. Going further with MetaMask as a wallet and not just in terms of like, Hey, can you make the user experience prettier and feel like Robin hood? Cause of course we know that, um, by the way, there's a button for portfolio dashboard as well designed. It's not in the it's one click past the extension, but we are, we are doing stuff there, but it's also the developer side of MetaMask.

So making sure that everywhere you go, it works. And I think a lot of users, you don't think about that. You don't care about that. You don't see it. But the fact that you can go on pretty much any Web3 chain, but for a couple, and we've got paths to get there, that you can bridge to any chain there's now bridging ability inside of the wallet then you can stake on a bunch of the chains um there there's an aggregation of staking providers that you can move money between them through an aggregation of

token swapping and then developers can plug stuff into MetaMask on the other side, that's taking an enormous amount of development power. And it's testament to just how complex and fragmented things have become. It's like MEV, but on every chain with different data structures and so on and so forth. So just getting people to be able to go on and use things is really important. And then the other part is helping developers build things through Infura. So again, using Infura as a core platform for permissionless innovation, right? So like powering every single version of a DeFi protocol, powering multiple different chains and nodes for multiple different chains.

And then moving towards decentralization of that architecture, because we're also anxious about centralization issues in key architecture. And so we've got a bunch of projects going on on how do we create a network out of Infura? How do we open up various sort of DAO or tokenization elements around Metamask? Like all of that stuff's in flight. That's a bit of the pitch. I think in terms of what we're excited about or what's working going forward, like for me, I'm, I think the progress around the infrastructure of the protocols has been totally fantastic.

Um, you know, I'm so used to not believing things will scale and to not believing that staking will be implemented and not believing that staking will, you know, unstaking will be implemented and not believing that there will be shards and all of this. But the practical reality is that the network is way more performant. There's lots of staking options, lots of scaling options, right? Through arbitrum and optimism and so on. There is privacy being worked on through ZK proofs. Um, the Shanghai upgrade is really interesting, right? So like all of the things that people have struggled with are actually

getting unblocked. Um, and I think, you know, this sort of like the multi-chain story is, is very powerful, but it seems to me that the best attributes of the different chains actually have a pretty good chance into being integrated into a coherent Web3 settlement layer, whether that's Ethereum or Ethereum plus other stuff, or whether it's like a bridged version of things. But the fact that the architecture is coming together and it is now starting to get competitive with databases is really cool and great. Another place that I'm personally really excited about that I think we need to have is whatever you can frame as a Web3 economy. Whatever you can tell yourself is an economy, right? And for me that the way I think about it is you've got people making things. You've got people coming to contribute labor into producing goods and services, but goods in particular. And so the labor is people coming to DAOs. That's they're spending time there. They're putting labor

into, into small businesses which are the dows and then the digital objects that they make are everything from nfts to experiences um to memberships and so on so i i the more tooling and actual kind of coherence and stability that we can have in a web three economy that's closed loop that doesn't rely on us to get more people in and create you know circular token engineering loops um the more we can have like actual GDP on chain the better um so that's number two I'm a little hand wavy there but I think you know you can point to the progress and like uh nft markets in in the resurgence of nft projects in the yugo labs game um you know that they ran like there's lots of

cool stuff like that going on and then number three and i kind of hesitate but given the macro it's it's important number Number three is real world assets. And so there's been a lot of learnings as to what doesn't work. Security token offerings don't work. You know, nobody wants like Vietnamese private equity in the middle market tokenized on chain like nobody wants the you know the iphone cover supply chain risk like that's not the the thing but getting so it's not about taking kind of bad

assets and putting them into the crypto market hoping people will buy them as an error um there's plenty of crypto native bad assets i think what it's about is taking you're welcome yeah it's fine it's fine um yeah so i think but i think you know like with the collapse of the leverage markets in web 3 and you just you can look at compound or avi and the interest rates being close to zero, right? That's actually really good for getting treasuries on chain, for getting big fat interest rates from large issuers like governments or big corporates and figuring out how do you get people exposure

to the inevitable 5% interest rate that the American government is going to print on the dollar? How do you get that into crypto so that I can use my stable coins natively inside of the DeFi ecosystem and not have to go back out into the banking system, also by the way doesn't support really um treasury investment very well so i think there's some real world assets that are good to try and pull in um and kind of the key is that those assets have to be high quality and people actually want to own them you know and and i bring up the the treasury is one just because it's so so clearly obvious that you know that interest rate is maybe preferable than sort of the margin lending uh in this particular market environment

although the interest rate in a treasury from the united states government may be even more attractive but that's i guess a conversation for a different day you talk about the fact that things are fragmented and you basically are just sort of connecting all of these blocks together, but nobody's really wholesale come up with these solutions. Does that mean that maybe the multi-chain narrative is wrong and that we should be focusing on a single chain and building everything there? Because it seems like when the chains start communicating is when we start to have the really big hacks and problems. Yeah. So I think there are people much smarter than me on, on, or at least more technical on this particular problem. Right. Um, and the problem being, how does Ethereum function relative to Solana or Polygon or BNB in the long term? Are rollups

going to be single chain or are rollups going to be multi-chain so they anchor in a bunch of different chains and so on? I don't know the technical answers to those questions, but what I do know is the places where stuff breaks, right? So as you pointed out, the places where things break are bridges. Bridges are an imperfect solution, and maybe there are better technological answers that are functionally similar, like they do the same thing as bridges. And I've seen a bunch of protocols that claim to do that through messaging, you know, and layer zero and wormhole

and so on. Um, so, so maybe, maybe that's the answer, but so far it feels like, um, you're just introducing a lot of counterparty risk where the other it's it's network counterparty risk and you can get stuck in one place or another um you know what it looks like to me just observing what's been going on with ethereum and with the way i thought about like the proof of stake stuff is you know tezos was an early proof of stake blockchain and they ended up getting this like awesome nft community for being a green chain and um it was a real competitive advantage for them but now it's not because ethereum has proof of stake right and so um i think a lot of the features right now that we talk about are probably going to get integrated into Ethereum, right? So

like Avalanche and its ability to have subnets or, you know, the supernets and the cosmos nets and like all the, like that architecture is really interesting. Let's call it sharding. You know, is some version of that going to get built into Ethereum? Yeah, it will. And so there's kind of an arbitrage. And the arbitrage is, can the other chains develop a market or an economic value proposition faster than Ethereum integrates the innovations of those chains into the largest market. And you know, I think both in both cases, it's kind of a good outcome.

But that's the arbitrage. Yeah, Snapchat was really cool until Instagram just decided to make stories and be Snapchat. And Vine was really cool until Snapchat came out, right? There's nothing that stops the incumbent or the larger platform from just adopting the popular features of another. Right, and we're on Clubhouse right now, right? This is live on Clubhouse? Yes, Clubhouse is actually, I think, the most popular platform in the world. Last I checked, it's right right science i think yeah yeah it's um we got to get those clubhouse servers on u.s soil to be fair

i i mocked clubhouse from the first day and was never an adopter so i i crushed it in my mind before twitter spaces even got there yeah i'll um um i don't know why I'm having this like law school PTSD right now, but there's another just like absolutely amazing period in American history in the late 1800s. And it all comes out in these court cases of accidents, torts. And what was going on is that there were railroads being built all over the country and all the railroads were they had different different rails so there weren't standard rail you know measurements they were like uh railroad a was this wide and railroad b was wider or whatever and and so you had to um if you had a train that needed to transfer, like you would need to kind of gut the connectors or you'd need to switch them off onto,

into different things and all of the switching was done by people. So there'd be a dude on one side of a train car and then another dude on the other side and they're moving, you know, and they, they have to like hook into each other, um, and sometimes even hook under the train while it's moving. And so, um, these people were paid a little extra. It was, it was an attractive financial proposition because the whole thing was just a meat grinder, right? Like fingers, legs, arms flying in every which direction in between these trains as they smashed into each other. And therefore you have all these court cases about what are the railroads

owed to their workers. And because, you know, in America, of course, nothing. So, you know, so I feel like right now we're losing the proverbial arm and a leg, you know, in the bridges, but there was a very literal version of this. It was like people were literally getting mangled as this infrastructure was getting built. Fast forward 150 years, you're not as worried about the trains being murder machines. So it's going to get figured out, and it is going to be one network architecture, but in the meantime, like the work just has to be done. And I'm pretty encouraged by the fact that there is a lot of change.

Yeah. The work is being done and I agree with the vision. So then the next natural question is once it's built, how do we get people to actually care and adopt it? Aren't they? Are they? They are. I don't know.

I don't have the numbers. I'm assuming yes, but I would say that we probably have less users in DeFi than we did a year ago. That's my guess. That's true. Yeah, yeah, for sure. You definitely have, you know, so MetaMask at the height of 2021, probably, maybe early 22. I don't remember. I think we were at 30 million monthly active users. And it was a really, it was a challenging

number for me. Because I come into this industry from the startup world and FinTech. And so all my comps are FinTech comps. They're like, how big is Robinhood? How big is Chime or Revolut? You know, and in the FinTech world, like if you get to a million people as users, you can't, you made it. You're like, you're on the charts. You're a really good FinTech company. If you have 10 million people, you're like the most valuable fintech company

in the world, right? And so when MetaMask boomed to 30 million people, it would, clearly my paradigm to approaching it was wrong. Like this, it was not a financial app. It was not a Robin Hood for tokens, right? It was a way to use Web3. It was a browser. It was the iPhone, but in a digital version, right? Because it allows you to access this ecosystem. And so the growth curves that i think about are no longer like how do we get to 25 or 10 million users that have this this much in assets the growth curves are

you know the the facebook growth curve the the browser uh i was going to say the internet explorer growth curve you know that was at one point. So that's, you know, 500 million people, billion people, right? And we have that many accounts in Web3. So I think the total addresses across Web3 networks outside of Solana are something like 500 million or 600 million addresses. So I think the install base is there. Like we are ahead of virtual reality, which has a 15 million, 20 million VR headset install base, right? Like we're, it's a big group of people that know crypto and have used it the problem is a lot of the people from this past cycle have had a bad experience so that is the challenge right like they're already there they have assets they're they know how to use a wallet they know how to sign a transaction they understand what

permissionless or decentral just decentralization permissionless innovation, they get it. But the industry has to offer them a good experience and people aren't going to fall for a bad experience. So, you know, if you're trying to build a bad experience for your own profit, like you're wasting your time, there's no point because your install base can already figure out how to not do that, right right so the stuff that is a little bit more weird right now is exciting to me so um the experiments around social media decentralized social media i think are interesting um the. Because the experiment happening at Twitter isn't going that well. Maybe not for Elon.

Not good. Yeah. Anyways, continue. Sorry. If you're a robot, it's going great. It's great. Amazing. Yep.

So decentralized social media, but then also using some of the crypto network infrastructure for like inside of open source products. So I forget the at the edges of what the tools are for is going to be really interesting, because that's how you get people to say, oh, there's, you know, there's something novel here that I want to try again. And so, you know, I'm not discouraged. The markets come and go. And I think the number of developers continues to be steady. And I think the number of people who are active hasn't fallen off that much,

even though the valuations and the TVL and DeFi has gone down. Yes, all 12 of them are still here. I kid, I kid. But I think the sad reality is we need the number to go up. Right? I mean, it's human. So once there's money to be made and the bull market is back, people will start trying these things and then we'll see an increase in adoption. So the tools

just basically have to be built before price goes up and people get interested again. Maybe that's my sort of pessimistic view, but I think that's probably the case. Yeah, I think the fact that this industry is tied to price just makes it move much, much faster. You know, so if like banks and finance, if government moves at like 0.1 speed and then banks are like, oh, government's so slow, like we're going to move at one speed and then fintechs move at 10x, you know, and

then crypto moves at 100x. I think the fact that it is financial just means that it markets itself really well going up and then it markets itself very loudly going down. And so it's an acceleration, but it's not substantive. Like it's not like for, if you're marketing something, you need to market a product. You know, marketing your ability to market isn't going to get you far enough.

You know, and so it's like another example, another analogy would be like, you don't want to confuse. You don't confuse your iPhone with Apple stock. Like you don't print out your Apple stock certificate and try to call people and press buttons on it. And that is what a lot of people do in crypto. They are deeply confused about what it is and what it's for. That's a really good point. That's extremely well put. So I know we're up against time here.

Are there any thoughts, any questions? I should have asked anything that I might have missed that you want to share before I let you go. Yeah, the other thing that i've been thinking about and i'm sure you've covered it in your other conversations is the macro economy and 2023 and kind of where we're at um the other thing that drives people's participation in crypto is um their ability to spend money, their discretionary spending, consumer discretionary. So the correlation of consumer discretionary spending with crypto usage and price is quite strong. I do think that we're probably still in a place where we'll have unemployment increase, and we'll have GDP slow, and we'll have a recession in a bunch of the world and then that has to be cleared out and once that's cleared out you need to start seeing

positive growth and positive signs again and then you'll you'll start seeing people save and then you'll actually have a pickup again in people, you know, being willing to buy digital objects and express themselves through, um, web three spending. So we've got to crunch through just like the reality of the world outside of crypto, um, for things to turn around. And at least for me, like I, if some of this stuff is investment and some of this stuff is consumption. And I think consumption won't pick back up until the rest of the world is a little bit more healed.

So that's frustrating. But at the same time, it means we don't have to... Crypto people don't have to blame themselves for the collapse of the world, right? It's not... Vitalik didn't invade Ukraine or sort of like engineer COVID. I'm sure there's people on Twitter who think he did, though. There's plenty of robots. They're doing great. Twitter's great. Love it. Follow me at Lex Sokolin on Twitter. It'll be fantastic. I have lots of robots.

Well, I will say that the silver lining to what you just described in the macro is that there will actually be more time to build these tools and test them and make sure that they actually work before we have those millions of people flooding in and using them. So hopefully the next bull run will look a little different. Absolutely. All right, man. Thank you so much for taking the time. Really one of my favorite guests.

You're very smart. I don't know if people have told you that, but pretty smart. Very kind of you. Did you actually go to law school, by the way? I went to Columbia for a JD MBA. And so I was there for four years hiding out and borrowing good government money, which I did pay back, but it was like TARP, except with my personal life.

Love it. Thank you, man. I really appreciate it. We'll do this again soon. Fantastic. Take care. Let's go.