Unchained - Introducing Unconfirmed - Brian Kelly on Token-Curated Registries, Robinhood Crypto Trading and the Petro - Ep.002

Episode Date: February 23, 2018

Subscribe to my new show, Unconfirmed! Here's a sample: Brian Kelly of BKCM talks about token-curated registries, such as the proposal for Messari, by Ryan Selkis, formerly of Digital Currency Group and CoinDesk, and why such TCRs are probably a good idea, but what pitfalls they may face. We also discuss the highly anticipated launch of crypto trading on Robinhood and look behind the scenes at Venezuela's new crypto offering, the petro. Token curated registries: Proposal for Messari: https://medium.com/@twobitidiot/a-token-to-self-regulate-tokens-but-really-a61da77e6a7b TCRs generally: https://medium.com/@ilovebagels/token-curated-registries-1-0-61a232f8dac7 A curated list of resources on TCRs: https://medium.com/@tokencuratedregistry/the-token-curated-registry-whitepaper-bd2fb29299d6 Robinhood launches crypto trading: http://blog.robinhood.com/news/2018/2/21/robinhood-crypto-trading-is-here https://techcrunch.com/2018/02/22/free-crypto-trading/ Petro: A good tweet storm on some of the issues surrounding the petro's launch: https://twitter.com/alemacgo/status/966072887319973891 Some meeting having to do with the petro that Laura found amusing -- the guy's smiles begin around 00:25: https://twitter.com/infrabolivar/status/965777624516759552 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey everyone, just a reminder that I've launched a new podcast called Unconfirmed, Insights and Analysis from the Top Mines in Crypto. It launched last Friday, and today we're releasing the second episode. In case you haven't had a chance to listen or subscribe already, you can check it out here on the unchained feed. My guest this week is Brian Kelly, founder and CEO of BKCM and a commentator on CNBC's Fast Money. We discuss token curated registries, which has the crypto world abuzz these days. Plus, we get into the launch of crypto trading on Robin Hood and Venezuela's new cryptocurrency, the Petro. If you like the episode, be sure to go to the feed for Unconfirmed Insights and Analysis from the Topmines in Crypto and subscribe today. Hi, everyone. Welcome to Unconfirmed, the podcast that reveals how the marquee names in crypto are reacting to the week's top headlines and gets the inside scoop on what else they see on the horizon. I'm your host, Laura Shin. This episode is brought to you by OnRamp. Your branding and website are the first things your users will see.

and in the current Wild West of ICOs and blockchain startups, you need to stand out from the path. OnRamp is a full-service creative and design agency that will help amplify your brand with a perfect website logo, collateral, or custom design project. Get big results in no time by visiting ThinkOnRamp.com. My guest today for Unconfirmed is Brian Kelly, the founder and CEO of BKCM and a commentator on CNBC's Fast Money. Welcome, Brian. Thanks for having me, Laura. Great to be here. So what did you think with some of the more interesting news? in crypto this week? Well, for me, it's one of these new topics, but everybody was talking about

token curated registries or TCRs. And it caught my eye because you had some of the more, the well-respected folks in crypto talking about it. And also, it's a new subject, and I think it's just really fascinating. So let's define what that is for listeners. How would you describe a TCR? Well, it's, yeah, how do you define it? Basically, what you're doing is your, you're taking a list, let's just call it, any list that you want to be on, and you're creating an economic incentive one way or the other for the people that are on that list to curate the list. And so it is a new business model, which I think is kind of interesting, using the token model. So essentially, if I want to be on a list, I can pay the be on the list.

If people want me voted off that list because I've done something that doesn't represent what that list means, then people can vote me off and there's an economic incentive to stay on versus off. And I think this really came up because Ryan Selkis was talking about it as a way, as a self-regulatory organization for crypto. Yeah. And for people who don't know, Ryan Silkus used to work at Digital Currency Group and then Coin Desk. And he was recently entrepreneur in residence at consensus. And I think he's started developing this idea there and he's working on a new company that he's calling Masari, which he is describing as the sort of like Edgar database for tokens. And I actually think also, so I'm going to link to this in the show notes, but he wrote a

post about this. And I think he's really viewing this as a way to solve a big problem that we're seeing in the industry that for those of us who were in crypto, before 2017, I think all of us had this experience where before 2017, our lives were about learning by interesting technology and what the future could hold. And then 2017 devolved into this mess of, oh my God, there are all these scammers coming in the space that see that there's really easy money to be made. And so as people saw in the Senate Banking Committee hearing that had featured the chairs of the SEC and the CFTC. Even our regulators are urging that we self-regulate.

And so I think Ryan thinks that this could be a great way to do it. And I actually, I really find the interesting, the idea of token curated registries interesting. And I think they have a lot of promise. One of the issues that I sort of feel like they'll need to work out is like in his post, he gave this example of how, for instance, you could have a curated list of like the top hedge funds. And let's say it included Andreessen Horowitz and Union Square Ventures. And, you know, so maybe like last year, if this existed last year, they were thinking about letting in like polychain and metastable.

Well, the interesting thing is like, you know, they would have done that because I know they think that those are good hedge funds. But the other thing is they think they're so good that they invested in them, right? And so in that case, like, in that sense they're almost you could say quote unquote pumping their own book. I don't know if you would necessarily go that far. You know, it's like when I interview investors like you and I say what tokens are interested in you, you can answer me honestly about what tokens you think are interesting. And, you know, it's not necessarily that you're wanting to pump up your investments,

but your honest answer will have that positive effect on their price. Right. Do you think that that could be an issue? Yeah. So, right, exactly. I mean, I've always gone by the mantra is that if I'm going to talk about a token, then I would rather talk about the ones that I put my money where my mouth is, right? And so, but when it comes to a self-regulatory organization, I can see where there would be a conflict of interest for sure. You know, you don't want a self-regulatory organization that has a financial interest in the companies they're regulating.

So, you know, what they do with FINRA and the NFA, the National Futures Association, it's an independent third party that runs itself, has its own budget, has its own operating expenses. And so I think there's probably a model that we could follow from the more traditional financial markets here in the crypto space. But what I do find interesting is that this token model at the center of it is really a new business model. That to me is what's fascinating about it. Yes, we need some kind of self-regulatory organization. The regulators are telling us, please do this. Otherwise, we're going to do it. And you know what?

Better off that the community gets together and say, here are our rules, here are our standards. But at the same time, it's also an opportunity to show a new business model and a new way, at least in this case, to regulate. And that, to me, is what I really found fascinating. Yeah, I agree. because those other organizations that you mentioned, Finran, the NFA, they of course are funded by just fees from their members. And here we have this opportunity, I think, to show how you can incentivize good behaviors using a token, which is obviously what a lot of crypto projects are already trying to do. And so to do that in this self-regulatory body, I think, is sort of a neat way to do it in a meta fashion. Right.

And it's the perfect match, I think, or at least it's the perfect sandbox to give it a shot in for sure. Yeah. And there was actually one other example of, and I don't even know if conflict is a word because it's this weird thing where it's like it could be seen as a conflict, but in a way it is like a self-regulatory thing. But, you know, another example he gave was that some of the top exchanges in the space could be token holders and decide who gets into the registry. but then I was thinking like, oh, well, you know, if Coinbase has a vote or Gemini or whatever, and then they vote a token into the registry, it's sort of like, oh, then they know that it will have this mark of quality. And so if they list them on their exchanges, then there will be demand. But, yeah, I don't know. I don't know if I should think of it as a conflict or just like

it's going to be a natural thing that happens, right? If you think something's a good token, you're going to reinforce that no matter of what sphere you're in. Yeah, and I think for the majority of it, you know, I think it'll work. We're always going to have those outliers, and that's really around the fringes there where the problems are going to be. You know, one way to think about it is if you have a country club, let's say, and everybody, you know, it's a very exclusive club. So everybody behaves in a certain way because they want to stay in the club. So they behave within the standards and regulations of the club. There's always going to be one or two members that don't behave that way.

And that's really the behavior you're trying to disincentivize. And when it comes to an exchange, okay, you know, an exchange has an economic incentive to list as many profitable tokens. But profitable to them is a very different profitable than maybe to you, me, and the average investor. Profitable to them is trading volume. Profitable to you me and the average investor is, is this actually a good project, a company where the token price will appreciate.

So we'll have to resolve that because there are different definitions of what is optimal behavior, let's say. So I think that is something without a doubt, it's going to have to be resolved. But again, it's, you know, it's probably that less than 5% of the universe that we're talking about. With AmX Platinum, almost every purchase made with your card can be covered with points, including new tastes, new fits. Virtually everything in between.

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The McDonald's Frank's Red Hot menu. They put that shit on everything. Breakfast available until a little. 11 a.m. at participating Canadian restaurants for a limited time. Franks Redhot is a registered trademark of the French's food company LLC. Yeah, well, one other thing that I noticed, and this is just in Ryan's post in particular, so this is maybe how he's thinking of doing things at Missari, which I don't think is the only project working on this. But so at different points in the post, he seems to indicate that the registry will make judgments on quality of project. But then at one point there was a line where he

said that they actually don't want to base it on quality of project, but on factors like transparency and best practices. So I was kind of surprised by that because I felt like the examples he'd been giving before then were not only based on that because I, because I feel like that's sort of like those are, that's a fairly low bar. Well, it's also hard to, hard to define. I mean, what is high quality or what is, right? We all have different definitions of even just transparency, how much transparency is enough transparency. And I think with the token model and what Ryan's getting at with this token curated registries is that you use a consensus algorithm and crowdsourcing to determine what is high quality and what is transparency. I think that's what

he's getting at. But I think that's the model we have to use. Yeah. And I think the only other thing that I worry about a little bit is if that kind of situation could result in some sort of bubble where because so I think elsewhere in the post he kind of indicates that you could even have like different levels of standards or something like that and they would have different values. And so then I just wonder like, oh, for tokens who or for projects that get this reputation of being the highest quality, then is that going to feel some sort of bubble behavior? But I don't know. I mean, I find that, I mean, bubble behavior and human behavior is unique to human beings. I mean, just because a stock gets listed on the NASDAQ or the New York Stock

Exchange doesn't immune it from being a bubble and doesn't make it more likely to be, to react in bubble-like ways. That is just, you know, human beings getting on board and saying we all like this type of thing. So I don't know. I'm not sure this is the mechanism to prevent bubbles, but maybe that's just my bias that I don't know if we can prevent bubbles. All right. Well, overall, at least for me, I personally like the idea of self-regulation. And also, I actually think that with that you could prevent more bad actors than the way that it's happening now, which is more whack-a-mole, where after the bad actors have already taken money from people, then the regulators come in.

Right. Right. Yeah. And regulators, you know, I actually think what the regulators said here in the U.S. and actually now kind of globally is the tone that is exactly right for what a regulator should do, is that they should foster innovation, but at the same time, make sure that people aren't defrauded. The challenge for a regulator is, you know, they generally can't act until somebody has been defrauded. So I would hope that if we have a self-regulatory organization, that it would put in place some best practices that might be able to prevent some of that beforehand. Yeah. Yeah, I totally agree. So before moving on to other topics, a quick word from our fabulous sponsor, OnRamp.

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So the other thing I wanted to chat about was Robin Hood launching crypto trading. What do you think is the significance of these fee-free trades coming to crypto? Yeah, it's, you know, it's not even the fee-free trades. It's the idea that they had a million plus people sign up for their app to trade cryptocurrencies. And so, you know, if your e-trade or your Schwab or any of these major kind of retail brokerage firms, when's the last time you had a million people sign up to buy your product? You know, you got put on notice that, listen, this asset class is here. And what's interesting is Robin Hood obviously targets the millennial generation.

Millennial generation tends to be the people that are most interested in digital assets. So I think the fact that it's gone live as of today, I believe in some states, that they had so much interest is game changing for crypto. because it's really told the traditional finance world, hey, guys, we're here and we're here to stay, and this is a real asset class. And so why did you say that you actually don't think the fee-free aspect is that important? Because, I mean, I think it's important for them to gather, to get people to come in and trade.

But ultimately, well, ultimately, I think that people are going to trade where they want to and where they can. And by that, I mean, you know, I have a lot of friends who started and they said, how do I buy Bitcoin? And I would point them to Coinbase. And then, you know, a couple months later, they would say, hey, I want to buy this token. Where do I go? And it seems to me that this market is driven by more where can I trade the token than what is

the cost to trade the token. Eventually, we may get to a model where we might get to a market where cost matters. But that does not, at least in my experience, seem to be the driver. of where people trade. And is that a cultural thing? Because I remember back when the Chinese exchanges had fee-free trading, that that was obviously a huge pull over there. The volumes were insane, although a lot of people said it was meaningless.

What is your take on that? Yeah. Well, the fee-free exchange trading is definitely more for the algorithmic traders, you know, definitely what would be more professional traders. Whereas as I view it, and I just logged on to the Robinhead app today, you know, This is more of a, hey, I want to get some exposure to this, but I did not see anywhere where you could plug into an API and start market making or, you know, whipping around Bitcoin like you could, well, like you can on some of the exchanges. So I think kind of maybe a different investor base. But nonetheless, again, you know, it's fee free.

It's, hey, let me get you in there. It brings people into the ecosystem. And frankly, even if it brings people in with, you know, $5 or $10, it brings people into the ecosystem. and they get to understand this asset class. And to me, one of the kind of beauties of this asset class is it's very democratizing that you can come in and with $10 or $15, get a piece of the future. And I think that's a really special thing about this asset class. And when do you think the entrance of Robin Hood into this face means for Coinbase?

It puts them on notice for sure. I mean, Coinbase has a huge lead. They've got quite an operation in terms of, you know, they have GDAX, which is their more professional exchange. But, you know, they've had a massive lead. And I clearly, you know, there's going to be competition. People see how much money they're making. You know, they have a good team over there, so they should be able to compete quite well.

You know, and I think it probably means more of, you know, are there going to be other entrants into the marketplace? And I think the answer is yes. Yeah, so actually, let's move on to something rather different now, which is let's talk about the Petro. What was your take on what happened? there this week, which, by the way, for people who don't know, this is the Venezuelan government's cryptocurrency that's backed by oil, apparently.

Yeah, so here, and it's funny you say that it's backed by it apparently. This is what I thought was fascinating about is, you know, cryptocurrencies, digital currencies are all about transparency. That's the whole point. You don't have to have a trusted third party that, hey, guess what, this is backed by it or it isn't backed by it. And now they've gone, this state actor has gone and issued a quote-unquote, cryptocurrency with absolutely no transparency whatsoever. I mean, you know, at one point they were saying

it's going to be on the Ethereum blockchain. Then in the last minute, that they changed it to NEM, nobody's really sure what they did. Is it backed by oil? You know, they say they raised 750 million US dollar. Did they? How do we know that? Like all these, all these things that this problems crypto is supposed to solve, they just completely ignored in this case. So, you know, I think it's fascinating, though, just because you think about this. We're in a place where a government has issued a digital currency. That's massive. Yeah, but whether or not it actually got issued is a totally different question because

there was someone on Twitter who was like, hey, this is the address and it still contains all 100 million or whatever of the petros and they haven't moved. So it's not clear if any were sold at all. Right, exactly. I don't know. Listen, the whole reason why they decided to do this was to refinance themselves. Well, just because you switch the product to a cryptocurrency from a bond doesn't mean that people still want to give you money. So I don't know who decided to invest in this.

Yes, yes. If I find out, I will report back listeners. If any of you invested in the Petro, please let me know. Yes. The other thing I just want people to do, and I will put this in the show notes, when I was looking into this, there was this really funny tweet where someone posted a video apparently of some official. signing some documents that had something to do with this. And it's so funny to watch because there's this really young guy in the corner who's like

in a track suit, or not in the corner, but he's at the table like everybody else. But he keeps looking over at the camera and smiling like he just wants to giggle. And it's like some like absurdist theater or something. And I was like, yeah, I'm pretty sure if that were me, I would be doing the same thing. So we've just got a couple minutes left. But what else has been top of mind for you these days? You know, the regulatory change or the tone of the regulatory change, I think is the biggest thing in this market. I mean, if you remember three weeks ago, four weeks ago, middle of January, you know, we were going through what people were calling a regulatory crackdown.

And, you know, South Korea was going to shut things down. China was already shutting things down for the 29th time. We didn't know what was going on here in the U.S. And with that Senate banking hearing and Giancarlo speaking front of it, that changed the global tone of regulation to foster innovation, prevent fraud. And I think that is an underappreciated change in tone that's sweeping through the market now. Yeah, yeah. And I mean, this goes back to what we were talking about earlier, where, you know, afterward they even said, like, we think self-regulatory bodies would be. a good way to govern this. Like, it does sort of feel like there is this kind of, you know, more open-minded attitude

and maybe less fear around regulation. I mean, it remains to be seen, you know, exactly how all this will play out. But certainly, I think it gave people a lot of confidence. And, of course, we had the guidelines or I don't even know what they were that were issued in Switzerland, where they even, you know, had these different classifications for the different types of tokens and how they were going to regulate them. And just having clarity, I think, is something so important for these projects. And that sort of gives them this framework in which to proceed and know, like, okay, if I go this route, then the regulators, you know, will treat me

this way. And if I go that route, then I'll be subject to these kinds of regulations. And then, you know, it just means, I think it gives them a lot more confidence in knowing that if they do a certain thing. Yeah. No question about it. Absolutely. It's exactly. To me, what we needed here is because now you can really start to use this technology for what it was designed to do, which is kind of an innovative way to raise capital, and you're going to be able to use it to solve problems that couldn't be solved before cryptocurrencies, blockchain, and digital currencies existed. So I definitely, the regulatory clarity to me is just a big, big watershed event for our industry. Great. Well, it's been so wonderful having you in the show. Thanks for being on Unconfirmed.

And congrats on Unconfirmed. Great to be here. Thank you. Thanks so much for joining us today. To learn more about the topics we discussed, be sure to check out the links in the show notes of your podcast episode. Also be sure to follow me on Twitter at Laura Shin. New episodes of Unconfirmed come out every single Friday.

If you haven't already, rate, review, and subscribe on Apple Podcasts. If you liked this episode, share it with your friends on Facebook, Twitter or LinkedIn. Unconfirmed is produced by me, Laura Shin, with help from fact to record. Thanks for listening.