The Wolf Of All Streets - Visa Is Finished - Crypto Is Coming To Eat Their Lunch | Mark Smargon, Fuse

Starting point is 00:00:00 Bitcoin was originally created to be peer-to-peer cash, but not necessarily to handle all of the payments and all of the transactions in the world. Ethereum was another step towards this, but many would argue that we need more purpose-fit layer one blockchains, and that's what Mark Smargon is building over at Fuse. We talked about how crypto and blockchain can replace the payment networks of the world and how the existing parties that dominate the payment space will eventually be using our technology. We should probably start with you offering a bit of background on how you got into this crazy crypto space and what you're actually building right now so feel free to go ahead and give us that story sure so um i'm the ceo of fuse and we're

Starting point is 00:00:52 building uh um for the last three and a half years uh an l1 uh for businesses and before that i was one of the founders of colu which was was building the colored coins protocol on top of Bitcoin. And that was one of the, you can call it the predecessors of Ethereum. It's a very veteran project, still being used here and there, but mostly being completely overtaken by ethereum uh before that 2013 i think i bought my first bitcoin not i think it's actually been 10 years exactly and it was a it was a roller coaster but the first thing that that i was uh doing in crypto was really uh you know i just wanted a whole bit one whole bitcoin something psychological where people want a whole coin. And my background is e-commerce. I'm an entrepreneur in that space for 20-something years.

Starting point is 00:01:55 And I've been doing websites and e-commerce back when it wasn't fashionable in the early 2000s. And if you look at Bitcoin, you know, for me, it was like an aha moment. This is where, like, the first thing that came to my head when I used it, when I tried to play with the technology. I'm not an investor. I just wanted that one whole Bitcoin. And the first thing that popped into my head is like, that's amazing. Now people from Israel can sell to Americans because to this day, if you want to sell to Americans, you need to be

Starting point is 00:02:32 physically based in the US. If you want to use Stripe or, or Blade or something like that. So that's actually still the case 10 years later, you know, nothing changed, nothing changed much. So that, that's really why really why everything I did in crypto, I had three companies, all of them were trying to solve that aspect. And I think this last iteration fuse is really the culmination of everything we learned. We tried to sell Bitcoin as a means of payment. We realized nobody wants to pay with Bitcoin. So we thought what we can do with this technology to do something that today people call stablecoins. Back in the day, we did NFTs, stablecoins, nobody called them that. But we saw that technology wasn't really like Bitcoin wasn't meant to be doing anything other than Bitcoin.

Starting point is 00:03:21 So for us, you know, it wasn't really the right technology. And then Ethereum came and still in 2017, it was very, So for us, you know, it wasn't really the right technology. And then Ethereum came. And still in 2017, it was very, very clear that, you know, the future is probably not fully centralized or fully decentralized. It's something in the middle. And this is how FUSE, you know, was born. Because somewhere between Ethereum and Visa, we need something like FUSE that is right in the middle.

Starting point is 00:03:45 We're going to dig into Fuse in a minute. But I love that you were involved in Colu and Colored Coins. I mean, that was obviously, I remember Yoni from eToro kind of was championing the Colored Coins idea. And I know people in Israel who use Colu quite frequently as their main means of payment in those years. And so now we're back to this debate again, interestingly, with ordinals and all the things being built on Bitcoin about what to do with that block space and whether things should be built on Bitcoin. It seems you moved on. So what do you make of the debate now?

Starting point is 00:04:19 I think that technology should not be speculative. You know, there's a lot of speculation around, you know, pieces of code, and that's just not how technology works. Technology is, you know, when people use a technology, they usually don't talk about it. If everybody's using it, nobody's really, you know, selling, you know, the technology. They're selling the usage. And what happens with Bitcoin in the early days is that we really try to see what we

Starting point is 00:04:49 can do with the technology, the discussion back then was, do we need a blockchain? Because maybe it's a way to just not say Bitcoin. Back in those early days, people were saying that technology is not interesting if you remove the token out of it. If you remove the name Bitcoin, you're left with something that is not interesting if you remove the token out of it if you remove the name bitcoin you left with you know what and something that is not really usable so that was the uh disagreement back then the bitcoin folks were saying that bitcoin should not be used for anything other than bitcoin that building your own blockchain is a blast for me and that everything

Starting point is 00:05:23 you're doing and with colored coins is spam you know that that's not something that the community community like just just uh said on twitter this is like formal uh discussions we had with like the the core developers of bitcoin yeah yeah yeah yeah so it's it's it's it's's just say that they're changing something in the Bitcoin space to accommodate it for something that is not Bitcoin is, is not even, you know, on, on, on, on the list of priorities. There's much, and that's one thing. What the other thing is that, that you look at this and you say the technology is not important, like how to create something because everybody knows if you're enough time in tech, you know, that there's no like almost every technological effort, you know, if you put enough time and money on it, you can solve.

Starting point is 00:06:15 So it's really a question of like, what would be the trade offs? What would be the business model? What the regulators would say? We understood today that those ideas like we had at Colu just a decision to make. Do we want to solve Bitcoin's scaling problems or we want to tackle a use case?

Starting point is 00:06:39 Prove that there is a demand. And we definitely found the right use case to do because we had half a million installations and 4000 merchants here doing a city coin like just very similar to maybe not that similar, but because we actually had traction and you have like things like Miami Point and the. Which have quietly. Yeah.

Starting point is 00:07:03 Yeah. So I'm saying we actually had a centralized product because we understood that the Bitcoin technology is not ready for even that scale. The numbers I told you is way, way above what the technology can handle. And in terms of timing, it just was the first payment app in tel aviv uh ever so we we brought like the the local version of venmo for the first time so banks are really interested so it was a really good use case um but we didn't prove that bitcoin is ready to a bitcoin was ready for prime time yet. And we already saw it was in 2015, Ethereum already was released.

Starting point is 00:07:48 The minute Ethereum went out, colored coin became obsolete. So it made it obsolete overnight. We were one of the first teams to work on Ethereum and see its potential. And we understood that even Ethereum, it's not really, it's a step in the right direction, but it's still not something we can actually use for our product.

Starting point is 00:08:10 And the effort of my team was always, how can we create a product that attaches consumption, sorry, attaches, like create a loyalty program, a consumer club where it has a token that is pegged to the consumption of the community so the more the community spends and grows the higher the token will go but make it you know make it something that is equivalent to you know starbucks loyalty program and not something that resembles bitcoin and that was the big uh like in the world without

Starting point is 00:08:41 like before stable coins it was really hard to imagine something like that so that that was uh you know it required a lot of uh trial and error you know and took a lot of years to reach this point that we are now so it's interesting your trajectory in crypto sort of mirrors the trajectory of crypto right that has followed the evolution. Fuse, obviously, I believe is an L1, correct? Yes. To aptly describe. So you had Bitcoin with layer one, really. Ethereum, another layer one. And now after working on Ethereum,

Starting point is 00:09:13 you have another layer one that you said sort of sits between Ethereum and Visa or the legacy financial system. So why create your own chain, right? With so many in existence, what does creating a new chain offer? What's unique to it? And what is the problem then exactly that you're trying to solve?

Starting point is 00:09:31 So first of all, Ethereum allows us to... The reason we really were excited about Ethereum and the new frontier or the new thing that it enables is really the ability to separate the consensus layer from the business logic. The fact that we have smart contracts means that we can start talking about, you know, very elaborate, very complicated business models, which is what I think this technology is good for, you know, to innovate on new business models. And we don't need to think about the scaling problem as like one thing. You know, you can start to look at blockchains or this technology as something more modular, where you can think about a use case like NFTs, and you don't really need to think about the NFTs

Starting point is 00:10:26 connected to any single ledger. So you can separate very complicated questions about governance, about who's the issuer, how do we manage permissions and how do we talk about it with regulators and still do experiments. Because you can't really experiment on on cbdc's on a large scale or stable coins uh without something like stable coins right so um when

Starting point is 00:10:52 i'm looking at uh at fuse i'm saying we're not really i don't see myself as necessarily an l1 uh it's just that people uh you know there's's a hype around it. Once we just looked for something that allows us to build the layer that we need for our use case. Something that we know will be future proof, something that will interoperate with other networks. And actually our pitch for investors in 2019 was really simple. Although blockchain payments were not really a thing. People really weren't, you know't talking or fundraising stuff like payments. Actually, today it's very different. But back in 2019, it was really hard to explain Web three or payments or stuff

Starting point is 00:11:34 like that, early stablecoin projects almost didn't have any like it was really the beginning for them. So what we really said in 2019 that the future is multi-chain, there are probably going to be more than one blockchain and we need to build the different ecosystems for different use cases. And what our ecosystem is not has nothing to do with permissionless censorship resistant prediction market or a completely decentralized new economy.

Starting point is 00:12:07 We actually wanna connect into the visa world. We wanna connect into Stripe and Square. We wanna be able to create a system that works not only for Americans, and even in America, in North America, there's a very small amount of players that charge a lot of money. So all of the payments industry in North America is dominated by three, four companies that all charge 3% roughly. There's no real interoperability between payments infrastructures. And definitely cross-border payments is almost not even discussed.

Starting point is 00:12:45 That's not really even possible. If I want to sell to Americans, I need to do it all over again for Europeans. So I'm saying that there's a lot of innovation for this technology when it comes to payments, because payments are mostly done on legacy infrastructure. And the only companies that benefit from this are companies that try to plug in all of this legacy infrastructure like Stripe. They're the only beneficiaries of this inefficiency. And if we replace them by a blockchain, we're not necessarily replacing them by one company.

Starting point is 00:13:31 We just let more competition happen. So building a blockchain for this, let's say that we get to the point where you can service companies all around the globe, become their merchant, that we have a global payment system without having to reinvent the wheel in every single jurisdiction, as you described? Are we going to be transferring dollars? Are we going to be transferring stable coins?

Starting point is 00:13:53 What's going to be the base layer currency for doing that? Or is it going to be all currencies? Yeah, so I think we need to think about it in the context of, you know, we see now, we didn't see it before, but we see now a competition on stable dollar stable coins. We'll start seeing more and more demand for alternative coins, alternative currencies. And we will start to see more experiments on CBDCs. And I see stablecoins as the last mile for CBDCs because usually central banks are not good at retail products and they're definitely not good at products where they need to be the guinea pig and they need to be the first operator.

Starting point is 00:14:38 Or where they actually have to build the technology. Or they actually are. Yeah, they're very risk-averse. And I think they want this especially the macroeconomic data in real time. They want the benefits of this, right? And CBDC

Starting point is 00:14:53 is really the start of how you regulate stablecoins. That's my assumption. That's my hope. I definitely don't want to see a China-style stablecoin, but definitely don't want to see a china style stable coin but i don't think you can call what china has a stable coin but i don't want this to be also what the u.s government is doing what what i hope that will happen is that all the retail

Starting point is 00:15:19 a part of of cbdc's will be the. You know, you will be able to monitor the exit and entry point of people into the local fiat system. And you can do this in every country. So theoretically, you could move money much easily between countries. You can get instant settlement and funds. You can effectively have lower interest rate uh less friction in the system and velocity of the currency will be higher and there will be more you know power for every dollar that is moved inside the system uh because it's uh it's processed digitally you know still most of the world is not yet online.

Starting point is 00:16:05 Like if we're looking at the e-commerce, that's not even in the US, it's not the majority of shopping, right? It's still a long way to go until we envision, you know, everything digital. And I think this is one of the missing blocks because the Internet right now, everything that has to do with payments is still being done offline. You know, somebody needs to wake up in the morning and flip the switch. And even if you look at countries like Israel, it's very advanced. You know, technologically, I would say it's probably one of the biggest tech centers outside of the Silicon Valley. But in terms of local payments infrastructure, there's nothing here. It's mostly four or five banks that are managing a communication system between themselves.

Starting point is 00:16:55 So there's no stripe, there's no square, and everything really expensive because of that. And you see even in advanced countries, you have this problem. Obviously, this is a very disruptive technology for payments and quite a few other things. And you've believed that for 10 years. Do you view this as a replacement for the existing system? Do you view it as a parallel rail for the unbanked, sort of as you described? Or do you think that this is just the future technology that these huge stripes and plaids and all the systems you described, do you think they're just going to adopt it and utilize it within their existing systems? Yeah. So I think this is not a Bitcoin type of solution. I see this as a non-consumer focus.

Starting point is 00:17:41 I don't see blockchains as something that is going to be consumer focused in the future. It's not gonna, like when you look at the product and you're not sure if it's B2C or B2B, it's probably B2B. When I look at Ethereum, I see something

Starting point is 00:17:58 which is in the direction of a cloud product, a cloud solution. It doesn't make sense to ask the consumer to pay for AWS bill. You know, it doesn't make sense for consumers to interact directly with the US dollar contract without any form of abstraction in the middle. We're actually doing account abstraction for the last three years since day one because we understood that the fees in the system

Starting point is 00:18:22 will never be paid by regular people. Because regular people don't know the term cost opportunity or opportunity cost. They don't see the fees the way a professional would see them. The consumers in today's world, they want something like Robinhood. They don't want any minimums. They don't want any fees. They want something like Square Cash. They want something like Venmo. They're definitely not going back to paying any minimums. They don't want any fees. They want something like Square Cash. They want something like Venmo. They're definitely not going back to paying fees anytime soon. They don't want to invest in Ethereum to buy an NFT. They don't want to show their wallet contents to every person in the street or, you know,

Starting point is 00:18:57 getting with an NFT to a bar so everybody can see how much money you have in the wallet. They don't want those things. And they're like, it's not, you can say it's not a bug, it's a feature. But at the end of the day, that doesn't scale. Our market is currently about 30 million users. I feel like we're reached. The way we work today in crypto is probably not going to look the same when we'll have billions of users. So what I look at with Fuse is that it's

Starting point is 00:19:28 completely white label B2B product that is focused on hiding the technology, making it easy for businesses to use something that is completely open source, but don't pay for it with bad UX. So that's the trade-off that we're trying to solve with Fuse. Because usually if it's open source and decentralized and transparent, it's usually not really that comfortable to use. So I think that's a trade-off that Fuse tried to solve. And this is also why we called our network Fuse.

Starting point is 00:20:05 It really tries to fuse together. Perfect name. So then the natural question becomes, so that seems like Fuse is a product that's very much built for the existing market, the problems that we have, and sort of, as you described, abstracting away the complexity of decentralized protocols. And we always get into the idea that grandma is never going to use these things because the UX and the UI are so complicated. That said, do you think we can get to a point where developers and programmers find ways to abstract away all that complexity and everything with crypto to where it does become as simple as I use the internet and I don't think about the underlying technology. I use a phone. I don't think about the underlying technology. I'm just making a payment and it is decentralized

Starting point is 00:20:54 in the future. I'm saying, can we get to there where you also don't have to know how to open a MetaMask wallet or buy some Ethereum or any of those things? So I think I'll start from saying absolutely 100% yes to your question. We will get to a point where people are not building the infrastructure, but they're using it. There was a point in time where Web 2.0 was new. People were talking about Web 2.0 and Web 2.0 was enabled by also a set of technical improvements. And back in the day, it wasn't that clear.

Starting point is 00:21:33 When the internet started to be more robust and new functionality added, there were still a lot of ways to do stuff, right? Look at perspective of 20 years and how technology evolved with the internet, and you see that every person that gets into web development today takes about 10 times less time or 10 times faster than it was when web2 was new because the best practices weren't there the tooling wasn't there people were not really thinking you know you know i need to build this and that, they were thinking about the technology and usually you don't need to think about the technology

Starting point is 00:22:09 today when you're building it's not technically difficult today to do stuff that were very very complicated 10 years ago, I see definitely 10 years from now today we use Facebook, that would be absurd thought 10 years from now

Starting point is 00:22:26 I'm pretty confident because if you want to compete with Facebook it's almost impossible nowadays and it's not a technical problem right if we are clear on the vision of Web3

Starting point is 00:22:42 building a social network or competing with facebook should be easy you should ask the users for their social graph and give them some incentive to share it with you and the the tech stack should be all almost you know already figured out this is also how i see for payments you know if i want get paid, stable coins today are a game changer. Because before stable coins, if I wanted to pay somebody in Africa, I would need to go through Upwork or Fiverr and share 20% with them, 30%. Let's say that I want to sell something on the App Store. You know, I have a scooter and I want to sell something on the App Store. I need to send

Starting point is 00:23:23 Google and Apple 30% of my revenue. And some projects, it's a no-go because they don't make even 3%, let alone 30% margins. So you have so much innovation that is just waiting to happen just because the technology is not there yet and just because people are using platforms instead of using you know the internet um so yeah that that's that's uh definitely something that's gonna happen and the the

Starting point is 00:23:52 will be some point i don't know if it's it's an it's it will take i think it would take something like a year or two it's not that far that people will stop building new infrastructure for stuff and we'll just have something robust standard battle tested and proven will that be fused so this is this is also why our stack is almost identical to ethereum we don't want to sell code we don't want to sell data and we really don't see ourselves making money from fees like Visa. It's a completely different business model where you're really using an EVM, but it's just running with the different tokenomics behind the scenes to make it usable for real world businesses. Things like recurring payments, things like private credit payments,

Starting point is 00:24:41 things like consumer protection, things that are not handled by current infrastructure. And how low would the fees be in the future, in theory? Talk about 3% with Stripe and Plaid. What is somebody looking at if they use a more decentralized or blockchain-based solution? Yeah, we actually wrote a lot about it in the last two years. At the beginning, we said that the fees need to be capped,

Starting point is 00:25:04 just like they're capped onnosis chain, Exdae, former Exdae. So they have like a fixed fee model, which I am less sure about. You look at the different publications we did over the years at the beginning. We were also doing that approach. Do they understand that because we're really building a vertical integration and thinking about simple payments, simple transfers, the cost can be very, very low.

Starting point is 00:25:36 If you actually try to optimize for a specific use case, you can generate really big cost reductions. So we very much subscribe to the roll-up vision that Vitalik created for Ethereum 2.0. I don't believe that Ethereum will ever be... The base layer of Ethereum will ever be usable for retail, right? So... Ethereum will ever be usable for retail, right? We've seen individual NFT projects like send gas fees across the entire network to over $1,000. So I think that's been proven.

Starting point is 00:26:13 Exactly. But I do know what is hurting because we have pilots like our use cases on Fuse, this is why we really wanted to build an L1 because we really wanted to get those use cases out there. We have loyalty programs in Thailand. We have a charity project in Spain. We have food delivery and sharing economy startups in UK. You know, we have different use cases in different places. And you can see that, you know, if you charge even 10 cents for a transaction in Africa, it's a no-go sometimes. So we're really trying to look at the cheapest transactions possible.

Starting point is 00:26:54 That's not our main selling point, but this is one of the big achievements that you can actually be 99.9% cheaper, not only for the operating cost, but also for the one-time development cost because it's open source. And can blockchain-based protocols for payments eventually scale to handle everything that the Visa and MasterCard and bank networks are handling? Do we have enough transactions per second, throughput? Can it happen fast? Can we handle this? So not only... So I think people are looking at it backwards. I think that there's a better chance that those systems can handle this better

Starting point is 00:27:40 than the legacy systems. Like if you remember, you know, if you look at the Visa, Visa is not really, you know, Visa is not really doing the last mile. Visa is more on the backend. The clients of Visa are the banks. It's not the, it's usually not the consumers. And you know, Visa has the data and it's the system that,

Starting point is 00:28:02 you know, that passes all the messages and sits on a gold mine of data. It does consumer protection and makes a lot of revenue from that. But if you put every transaction in the world on Visa right now, it will collapse. It's definitely not ready to handle the volume. POS transactions, point of sale transactions in Europe are still mostly done in cash. I don't know the situation in America, but I think it's probably better, but it's still not... Mostly credit cards, I would imagine, in the United States.

Starting point is 00:28:35 Yeah, but you do have a big problem in every place that you have a lot of visa penetration, you have a lot of cash penetration. And who doesn't have cash where you don't have visa? Places like China, places like Nigeria. So why is that? If the technology is that good, it's not cheap and it's not fast. That's the problem. You kind of talked about central bank digital currencies, seemingly as if they're an inevitability, which I think that they are at least in a lot of countries.

Starting point is 00:29:07 Is that something that we should be adopting and building for? Is that something that we should be pushing back against because of the privacy concerns and control of central banks? So I think that the central banks are one of the major beneficiaries of blockchain technology. Bitcoin is a threat on the government model, but as a technology, the technology behind the scenes for Bitcoin to move fiat money is absolutely transformational for a central bank. And I'll explain why. The central bank currently has very little, it has an information gap. It doesn't have any real-time data. To do good policies, like monetary policy, you need more data.

Starting point is 00:29:59 You need, especially in a digital world, real-time data. You need to know what is the velocity of the currency. You need to make decisions on spending. And you don't have this macroeconomic data. You never had. You don't know how many people are spending and where all the decisions by the central bank are a few months in retrospect.

Starting point is 00:30:21 Of course. You have problems of not only, you you know in terms of monetary policy but also simple problems of banking you know the fact that it's uh it's a bit hard to uh to create a new bank like it's super expensive uh at least in israel there's some places in the world where there's no local banking at all they're too small there's a international system so cross-border payments usually the smallest countries pay the most amount of money like it's it's the most expensive to send money to africa and also another absurd thing is the fact that in every country, the smallest businesses are getting the highest fees.

Starting point is 00:31:07 You know, if you're McDonald's, I rest, I am sure you're not paying the 3% that Square is charging. They're probably not paying even the 1%. So you see that when inflation comes, people start to talk about those problems. When everybody is happy and the market is growing and everything seems to be invincible, but now I think the story starts to shift. Google is no longer at their all-time high. Apple is no longer. You can start seeing that not all business models, Facebook,

Starting point is 00:31:45 and then you start to look for alternatives. So this is, I think, the best timing for alternatives to Visa, alternatives to Stripe, alternatives to Square. We talk about the alternatives to the Googles, I guess, and we obviously talked about Facebook or Meta. Do you think that the alternatives to most of these things will come from the crypto or blockchain decentralized versions space or do you think that we will see just future iterations i mean it would be more likely right now facebook gets replaced by like a tick tock right which is another centralized platform that's just more viral and and different or do you think that we can solve all of this decentralized social media for example i think it's a it's an excellent do you think that we can solve all of this decentralized social media, for example? I think it's an excellent question. I think that the problem in the early days of

Starting point is 00:32:30 crypto, people were using blockchain as a solution for everything. I remember in 2017, you would go to a conference and you would see flying cars on the blockchain and like ICOs raising money for jewelry and, you know, giving out pamphlets. And so I really think that those days are over. Like people, it's like much more mature space. I still have one problem because I'm not really doing anything related to social media. We do work a lot on the ideas on the

Starting point is 00:33:03 central identity and trying to do like reusable kyc there's a lot of things where we touch that have to do with the social part but I think fundamentally ethereum is not built for that in my opinion ethereum is a is a financial product first and foremost it was it was a an attempt to rethink how our economy would look like if it was rebuilt completely from scratch by developers without ever prior knowledge of regulation. And it's not really a one-size-fits-all solution for every problem of humanity. In my opinion, it mostly has to to do with with with with money like it's mostly has to do with financial interactions with money that's the part that the internet is is is like lacking right now so i feel like the internet has

Starting point is 00:33:58 actually um like a lot of good stuff can be born out of it but maybe it's not the same technology like if look at near for instance you know you at some point of it, but maybe it's not the same technology. Look at Near, for instance. At some point, you do need to think if Solidity is a one-size-fits-all solution. If you can do just every use case. And I'm not sure about it. Yeah, I tend to agree. I don't think that we need swimsuits on the blockchain. Probably.

Starting point is 00:34:21 Yeah. Unfortunately, we're up against time. So where can everybody check out Fuse and follow you and keep up with everything that you're doing and building? At fuse.io. Check out our website. We actually launched a lot of new stuff lately and be sure to subscribe to our channel to get more updates.

Starting point is 00:34:41 We have a lot of like a pack type April. So go for it. i can't wait to have you back when you've replaced visa thank you always good to be back thank you that's dope

The Wolf Of All Streets - Visa Is Finished - Crypto Is Coming To Eat Their Lunch | Mark Smargon, Fuse

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