Crypto’s Undeniable Use Case | Erik Voorhees

Transcript

I don't ever think that it's going to be exclusively decentralized protocols and it certainly doesn't need to be you know like you know some tiny fraction of one percent of global trade is currently happening on decentralized protocols um if we get that to Simply 10 or 20 or 30 percent uh let alone a majority then the entire world has already changed [Music] [Applause] this episode is brought to you by paraswap the leading aggregator to find best prices across various dexes you'll hear more about them later in the show all right everyone welcome back to another episode of Empire we are joined by Santiago and Mr Eric Voorhees one of the oldest ogs I guess uh I guess you

can't say old OG I guess just one of the ogs of crypto uh built shape shift uh Eric would you get in the into crypto 2012 2013 2011 2011. all right of 2011. and I think I think everyone that was around back then is just thrilled to see that this is working you know like it was so so theoretical back then and no one cared about it and to see it as like a major financial asset today um a little over a decade later is is really thrilling um hopefully hopefully anyone who's been around that long in this stuff you know through all the trials and tribulations that come with it has realized that like if you keep your eye on the ball

um the ball has moved downfield considerably yeah Eric you strike me as someone that is rare in this space in the sense that you're early but also you've maintained a level of flexibility and you know you've you've taken an interest in things other than Bitcoin you know D5 and and pretty eloquently I think and and so it's rare to find someone like that um I'm curious like at what point in your journey um do you become interested in things other than Bitcoin yeah good question uh I I mean we should go back to like what got me into Bitcoin which was a set of principles right so like I I found Bitcoin because I believed in certain principles principles of you know money being

something that should emerge from a market principles of people should have Financial privacy uh if they wish to have it principles of you know the Global Financial system should be uh open Fair um free to everyone to use and um with those principles you know Bitcoin became the most fascinating thing I'd ever seen and to to then find Bitcoin and to um to close one's eyes to all the other innovations that also Express those principles I think would would be really tragic and sadly a lot of people have done that I think generally it's because they didn't they didn't enter this with with principles as their fundamental basis

they entered it maybe because the price was going up and they bought some or because they they learned about Bitcoin they got into it and then they felt sort of a like a tribalist kind of like group that they were in with and um it didn't come from like these these economic or political philosophy principles uh so as I've seen them expressed in other ways for example like um privacy being expressed by Z cash romanero better than Bitcoin um obviously I'm going to be interested in supporting those Technologies even if they're not um even if they're not Bitcoin so for me it wasn't a hard change I mean I was

certainly a maximalist early on I probably dropped that around 2014 when um when I started seeing that some of these assets were not just like a clone of Bitcoin with a couple parameters changed but we're actually useful Innovations in and of themselves and expressing the principles that I cared about Eric what's your current framework of Bitcoin is it a store of value is it the inflation hedge narrative is it a currency that eventually completely replaces Fiat what is your current mental model and framework around Bitcoin yeah well it's been the same since the beginning which is that it is the best form of money that's ever existed for Humanity so if you think about it as like a

monetary technology um it is superior to all others that I currently see in the world um Superior to Fiat easily Superior to Gold Superior to other cryptocurrencies largely because it is more stable more conservative than than these others less experimental so in that regard I see it as the the best candidate to ultimately take the Throne of you know Global monetary base um this is obviously a multi-decade thing we're a decade into it and it's it's growing and it's approaching that um so yeah that's where this should go um Bitcoin becoming the base money of the world and I imagine all sorts of

things get built on top of that uh in parallel to that all sorts of complementary Technologies and other Financial systems that get built around it um Bitcoin being based money does not mean that it is the sum total of all Financial innovation in the world certainly it is not but um yeah I think I think it completely trounces Fiat you know that's like and it's going to be the most exciting story of our of our lifetimes it's going to be a story that people write about for many generations it's going to be scary it's going to be transformative and ultimately I think we come out on the other side of it with a much healthier world to build on Eric I want to get your take on something that I I haven't seen as much widely discussed in the Bitcoin Community which

is the security budget of Bitcoin um you know transitioning from block emissions as a primary source of revenue for miners towards a fee Model A lot of people just say oh it's too far out that it doesn't really matter we'll have plenty of time to figure it out but I think if you discount it today it is something that I think about I'm not sure if this is something that um I'd love to get your take on that um how do you think about that transition it's interesting that this question is coming up again um it was definitely something debated heavily you know many years ago um what is what is bitcoin's long-term sustainability as new coin emissions approaches zero

so you know there's nothing recently that's changed um in terms of Bitcoin that would make this conversation come back up but it's interesting that it is um I mean my my position is that long before the emissions actually run out it's either an issue or it's not meaning that the the emissions approach zero and long before you know the year 2140 or whenever it's planned to be zero it's essentially zero right it's like in the year 2080 for example emissions will be essentially non-existent um and what it means is that like the security budget of Bitcoin mining will come solely and exclusively from the

fees paid on the network so the question is like are those fees enough to to sustain mining um whatever amount of fees there are you're going to have some lower bound of security budget and so the big question is like will that security budget be high enough to thwart um attackers or not no one knows the answer to that question like no matter how technical you are no matter how much of an economic expert you are no one knows what the usage of Bitcoin will look like in 20 years no one knows what that fee Market will look like if it'll work or if it won't so I think the right answer is that like it's unclear if that can work it's plausible that it will work and I think the fee market in terms

of like the dollar value of fees already today is much higher than the mining rewards and dollars were you know five or ten years ago um so already there is more budget from just fees than there was from the mining rewards years ago and um I think we just need to see that unfold if it doesn't work then some like if it starts not paying enough for a sufficient security budget and no one can really Define what that even means like what is the sufficient security budget then something will need to be done or if it's not done then Bitcoin will be out competed by other forms of of digital assets um that's the environment that it lives in yeah do you find the the Bitcoin

Community too ossified I mean I think Bitcoin is meant to slowly change uh that's that's a feature not a bug and I think rightfully so it shouldn't be experimenting and innovating perhaps as fast as other more you know newer coins in some respects but do you find that when you have these discussions with people that have been around in the community for a long time are they totally kind of shut to the idea of even talking about this uh because there is a lot of I think in the community of like just let's not change anything let's not talk about this bringing it up feels like you know they just it's a hostile kind of environment at least I've found do you find that to be true in your circles um and is there a camp within the Bitcoin community that is you know

talking about this talking about you know upgrading the network adding more features I'm curious from your standpoint if you see that I mean in terms of the specific like fee fee market and Mining rewards security budget question um people in my circles aren't aren't wondering about that because it's kind of been a settled question not settled in that people know it will work or not but settled in that the framework has been laid out and Bitcoin has its rules and those will even work those either work over the long term or they won't we'll just have to see um I think certainly like the the Maxi crowd is going to be hesitant to talk about any blemish on bitcoin even though there are some and that's that's never

productive what is productive I think though is a culture within Bitcoin of severe um severe conservatism I think that's that's very healthy that's what it has and um people should be extremely cautious and slow about making changes to bitcoin so I think that culture is now well endowed within Bitcoin and uh not endowed in other chains and that's fine like I think I think ethereum's um ethereum obviously moves and upgrades faster than Bitcoin I think that's fine but it also makes it more risky than Bitcoin and that's just like part of how these things fit together nicely so yeah I also feel like this this question of

the fee the fee market and the security is a little premature like it isn't something that is a problem in five years or ten years and no none of us know how these technologies will change right like if if Bitcoin fails 100 years from now if it's not you if it's not used 100 years from now I would guess that some other thing happened right some other problem occurred uh maybe some other digital asset became a better form of money or more widely used um so in terms of my concerns over its long-term future the the fee Market is really quite low there's there's so much time to figure that out and to evolve Eric uh balaji's Balaji Street in Boston just wrote this new book on the on the

network state that just came out um and I haven't read it yet but I heard him talking on a podcast and he said America ends up coming down to basically two different cultures he says woke culture and Bitcoin maximalism and I thought that was a really interesting uh way to put it and I'd just love to get your take on on Belushi's thoughts there like he's saying that today that's the culture or he's saying that you project it out and that's what you projected out you project American culture out far enough and we basically end up with two pretty severe ends of the spectrum one ended spectrum is woke woke culture and one ended spectrum is this Bitcoin maximalist uh culture I'd like to understand his his rationale there that seems like a strange thing to put it at Polar Opposites

um uh perhaps I I definitely feel like the culture in America has fractured into two and instead of one culture you know generally across two political parties it's it's changed into two distinct cultures that are that believe each other are like uh Satan incarnate and that that is getting worse and worse and worse and I don't see that getting resolved um I don't feel like Bitcoin is the opposite of either of those Bitcoin is like this open neutral technology which I would hope people in both of those camps find Value in virtue in yeah Balaji is obviously like a brilliant thinker and I would love to hear his his thoughts on why he said

that yeah I'll send you the uh I'll send you the podcast after this um all right we can I think it's I think it's the Tim Ferriss Balaji thing we can put the link in the show notes but yeah Santi go ahead yeah I was gonna say Erica like obviously you've um been a builder in the space and um most recently like shaved shift is probably what most people like know you for um how do you see I'd like to get your thoughts on just the current state of affairs obviously in this cycle uh I think every cycle kind of there's a Hallmark to it I think this one is like the contagion that we've seen C5 a lot of these institutions just taking risks that weren't properly understood and I'm curious to get your thoughts on on the recent events of what's happened three

arrows uh Terra um and all the kind of systemic effects uh of the space um for folks out there like what is kind of the how do you see kind of this progression uh and and how do you see the space evolving like where do we go from here yeah I the last few months has obviously been fascinating um I think the correct lesson to take from this which people are starting to wake up to is how beautifully D5 performed and how chaotic and messy sifi was the big problems right now are these centralized custodial firms that made bad judgments and defy does not make judgments it has

it has code that executes and that that difference in how Finance is operated between like people with their discretion and their relationships with each other and Mathematics and blockchain and immutable code people are not certainly the the normal society is not appreciating this yet but even people within the crypto Community do not realize how different those two paradigms are and um this this whole example I think has been a really good uh Testament to to the Brilliance of moving Finance out of the discretion of fallible humans and into the realm of immutable code this was The Virtue that Bitcoin first expressed when it moved the production of money and that the

Paradigm of money into immutable code Defy is now taking that same principle and applying it to financial tooling and financial services um I think it if for all these like politicians that like to get on TV and and talk about how they care about consumer protection and financial stability um if they were genuine in that regard and if they understood this technology they would see this bifurcation between how C5 and D5 performed here and they would be hailing the virtues of defy which executed perfectly brilliantly without issue even in this Major Market stress and they would be going on TV and talking about hey America and World this

has a lot of promise this is a better way to do money for the planet and yes there are still bugs and and growing pains but this is a serious Improvement for for the human race none of the politicians are obviously saying that because defy also pulls away control from those people but for those of us in the crypto Community I think that's the that's the important lesson here so yeah it's been it's been fascinating and I think a brilliant example of why we're doing this in the first place I think that's such a good point and Santi I saw you tweeted about this this weekend as well right this is but we've basically just seen a big credit crisis in crypto and we're all watching just to figure out how the debt is unwinding Celsius obviously closed there oh I guess they didn't close their doors but

they closed withdrawals debts are getting paid back first the most interesting part of what's going on with Celsius is that smart contracts are getting paid back first to maker compound Ave Etc yeah one of the biggest criticisms I guess around D5 is I agree with Eric okay like you know code is sort of sacrosanct can't be corrupted it's transparent it executes it's like there's a very predictability to the logic which is comforting um one of the criticisms around D5 is capital inefficiency most people say look it's great I get it but it's never really going to scale because it's just not efficient to do it uh you and what I mean by that is there's no kind of reputation layer uh credit historically has been enforced by the

perceived kind of threat of violence right a recourse uh but in in D5 you kind of have this over collateralized system which look in in today's world is great to see right um whereas but I'm I'm curious like do you envision a world of you know makers kind of experimenting with bringing real world assets which could get messy um and and how does that kind of transition look like like what is your view for D5 in like five ten years um Can can you marry kind of these two world like off-chained on chain yeah so I don't think D5 can express or control or manage all Financial transactions for example like physical items in the physical world are

very hard to express and control in defy um maybe it will be able to do that in some crude ways but I think it's okay if it doesn't you know like most most transactions most economic um trade and exchange happens in purely digital ways to already today and I think the the share of that only increases in the future so D5 doesn't need to like handle all of the world's transactions in order to create a much more sound base for the world to build on um you know even if only 60 or 70 percent of the world's economic exchange which is purely digital is happening through these immutable protocols I think the entire world is far far healthier and it doesn't replace or

um prevent human relationships and discretion from from also interacting right there's always going to be people that will extend each other credit based on reputations and there's nothing um intrinsically wrong with that but when an entire Financial system is built on the squishiness of human character then you get you know some very dangerous systemic risks so if those systemic risks can get removed then you can have a much healthier system with with D5 is the fundamental base and you know plenty of discretion area human interactions upon that as well what's the logical limit of this like how much can you put I know I would I would categorize you as Eric as a as an on-chain maxi right how much uh how much what are The Logical limits of that

on-chain maximalism though um well there's no limits to the number of chains that can exist right so there's not really a limit to what can be done on chain because you can make more chains and the chains can be built differently there are chains that are more centralized and faster and there are chains that are more decentralized and slower but you can also scale it horizontally like people should consider that part of the part of the scalability of this stuff is the horizontal nature of multiple blockchains doing multiple things like this is kind of heresy to say but part of bitcoin's scaling solution is actually that other chains exist to handle lots of lots of transactions like

the the fact that ethereum is around handling a bunch of transactions is part of bitcoin's scalability if you view this as a perspective of you know uh digital blockchain based assets versus traditional um analog assets then these things need to be seen as as complements to each other so that that scalability can really happen without without limit but if you're in the perspective of like only a single chain must handle everything for the world and everything else is is a sin then you're not going to be able to see that expense I guess I wasn't really asking the question from a tech perspective more like fundamentally from how our society is set up and how how our existing uh Financial system works

today right so like if you look at if you look at what happened in 2018 the big thing that happened was like C5 companies got built the block files the anchorages and the fire blocks is and the big custodians and there's this enormous attention on building Prime brokerage and like professional infrastructure for institutional investors now if if I'm uh someone with capital I'm looking at what's happening with C5 I'm naturally moving capital from C5 over to D5 um but I'm I guess it's like where when does that progression stop does that does that like does D5 permeate through all of all of financial markets eventually is it like you've got this regulated Capital market system and then this like deregulated Capital Market System maybe it's like maybe the real

question here is just walk me through your view of how you're viewing defy integrating into more like societal Capital uh in the next five to ten years yeah I think I I view it as as like traditional Finance migrates over time across into centralized crypto firms and in then into decentralized you know blockchain based uh immutable Finance and that's sort of a progression that most of humanity will move toward um it does not mean that everyone is going to end up self-custing their own Assets in all ways all the time I think that's probably inefficient and no one should

be no one should be Desiring that as like the the end state but everyone should become comfortable with some portion of their assets being self-custodied and what that means and that obviously relies on really good ux that relies on on a culture like a global culture change where people take more responsibility for their own Financial assets obviously in a world where the government has assumed control over people's money and responsibility for people's money there is a culture globally of not really caring or understanding about Finance at a fundamental level and hopefully as that culture changes people will use these tools that are available to them um but I don't ever think that it's going to be exclusively decentralized

protocols and it certainly doesn't need to be you know like you know some tiny fraction of one percent of global trade is currently happening on decentralized protocols um if we get that to Simply 10 or 20 or 30 percent uh let alone a majority then the entire world has already changed I'm curious to get um your thoughts on you know because obviously a lot of times we say look people should learn about Finance it's daunting though like you look at the number of users in D5 and it's sort of laughable you look at the number of users in axi and nfts it starts getting more interesting but people don't like to think about money they don't like the you know it's something that is kind of something people avoid um how does like how do we get people

just other than UI ux but like how do we get people to really take this idea of self-custody seriously um or or do we kind of settle for some sort of Middle Ground where an aggregator is still kind of manages your keys but you know it's a more transparent system so like you keep them accountable I'm curious how we really on board you know millions of users uh in a way that is secure or more secure I think the the main catalyst for that onboarding is the friction that gets added to centralized Financial firms with time this is largely regulatory friction um anyone who's dealt with a bank like hates Banks right and crypto firms

that are custodial will and musts become more like Banks over time they they're regulated in the same way not the exact same way as a bank but under the same framework um of how how a bank has to control and surveil money and so the friction that gets added to that world only gets worse right like there's no there's no um the the progression of rules and restrictions and surveillance doesn't ever Abate it never gets better it only gets worse either slower or faster and as that friction is added to that system and people periodically try the alternative they will come to realize that like this is actually a matter of ease of use

um you know so regardless of the principles of self-custody once you're a little bit familiar with like metamask and you try to use um you try to use a decentralized exchange there is a little bit of a learning curve but once you once you know that learning curve it is so much easier to do a trade through a DEX and metamask than to use money going in and out of a centralized Exchange in terms of the friction so I think it's it's people's laziness for lack of a better word that will pull them toward those systems which have less friction you know this was like shape shifts whole point in the beginning was that like you make this way to trade digital assets without friction and people will start doing it and even though under the hood it was designed in such a way to protect

people without holding custody of funds the reason people used it wasn't that virtue it was because it was easier than the friction added to some of these centralized exchanges yeah I can agree more I mean certainly for me the aha moment was like if you're trading stable coins in size you would have used car curve instead of using some sort of exchange centralized exchange because it was just cheaper it was better and finance is very efficient in that manner um I think I'd like to transition a little bit into some catalysts that we're perhaps seeing that will push people more towards this direction of taking control of their assets and valuing self-custody you know you're seeing Bank runs in China you're seeing uh potentially monetary experiments collapse uh or vary for agile you know

look at some like Japan and you know I think the world is coming into a pretty kind of precarious uh situation um what are your thoughts on on the current state of affairs in terms of macro um there's been certainly a lot of pain in crypto sounds like we're we're certainly in a bear Market but um what are your thoughts in on on sort of the global economy and and where we are in that cycle yeah um I think you have to look at this stuff in short-term and long-term perspectives right so the the correct short-term perspective is that digital assets are new and risky and speculative and they're going to get sold off and and abandoned during the times when there is

monetary tightening like any risk asset right and that's that's very true so when we see Bitcoin falling um you know with global stock markets as the FED Titans for example there's there's a logic to that but that's the short-term view right that's the few months to a year or two kind of view the long-term view is that this money is better and will hold up value relative to Dollars far better over time and as people see that as they as they deal with inflation that's not just like six months of inflation but three four five years where their dollars are just like continually losing value um they will slowly realize that like even though Bitcoin is volatile it is a

better store of value over over a long-term time perspective um you know regardless of bitcoin's fall lately uh if you look at its historical performance versus dollars it's unspeakably better and um as the world realizes that like Fiat is just decaying in their hands and there's this super liquid asset that can't be frozen or confiscated and that you have full sovereignty and autonomy over um you know that's that's an inevitable ending for people that that want to escape Fiat which is just falling apart if the laws of of Economics matter at all um then the move from an asset which

falls apart consistently to an asset which appreciates with volatility um should clearly happen it's just a long-term thing you know and and it's hard for people to think long term like even you know myself like if I see the Bitcoin price drop tomorrow that bums me out even though intellectually I know that like that doesn't matter and it's just noise um it's still a bummer and humans are just wired to look at short-term things but over the long term the principles and the virtues of of the asset will Express themselves all right everyone really excited to share a special update from our friends at paraswap paraswap has been pushing the boundaries of what is possible with D5 for years and they just did it again they just rolled out the first ever nft

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get your gas refunded go check them out go download the new pair swap nft trading app pair Airsoft dot IO forward slash beta paraswap.io forward slash beta now let's get back to the show so in your vision of the World Eric are so I agree with Santiago things seem to be kind of falling apart across the world right you have Dutch Farmers protesting Argentina uh strong anti-government protests you have Albania uh strong anti-government protests if the bank runs in China Sri Lanka what's going on in Sri Lanka right now is crazy um so in your view of the world are do folks start basically holding their capital in Bitcoin and then when they go to make like purchases they that's when they basically move out of Bitcoin into their local currency make a purchase and

then when they get well when they get assets they move it back into into crypto based assets like into into Bitcoin so your wealth is basically held in Bitcoin um but at some point you are moving out of Bitcoin to make purchases is that like is that your vision of the world starting in places maybe like a Sri Lanka or Albania or Argentina and then on the long enough time Horizon into the United States as well yeah um but I think that process unfolds a little later you know like the vast majority of people today really if they had a choice they just want to hold dollars because if they're in these other countries dollars to them look like a virtuous stable hard money and relative to their to their local Paradigm like dollars are a really good

alternative they know how they work they they have used them before they know they're accepted so they're not going to switch from like you know the local Sri Lankan currency to bitcoin tomorrow they they would prefer dollars but as currency controls prevent them from getting dollars and they learn that oh you can get dollars actually through something called like usdc or tether and how does this work and like here's how you store dollars on a blockchain they're starting to make that transition which I talked about earlier from from you know centralized analog Finance into this decentralized finance and that might just mean going from local currency to a digital Dollar in terms of usdc but now they're getting familiar with how like addresses work and how

sending and receiving transactions of a crypto work um and then as they see something like Bitcoin or something like ethereum appreciating against the dollar over time they're going to feel more comfortable moving over to that but we're not we're not certainly at a point where people are questioning the US dollar like that's really when things get crazy is when when people realize that oh it's not the issue of of my local currency here isn't about local currency it's it's about Fiat itself being a road to disaster and I must get away from Fiat and to understand why Fiat is falling apart and then it's just printed Without End uh and moving away from Fiat into crypto

like that that comes with a little bit of Revelation later but I don't think it's it's happening yet and there's the protests that are occurring now like this is the tip of the iceberg When people's Financial systems fall apart you're going to see a lot more of this well you sort of alluded to this earlier which is at some point it it will probably happen but the road uh towards getting there is is very messy it could be pretty pretty difficult um I am curious um what is what does that timeline look like when I first discovered Bitcoin I said this is great but oh you know the governments are are going to resist as as much as possible and is there some scenario where it could be some sort of amicable transition or

uh or really not um and and does that even happen in our lifetime like and does this all does basically does all have to burn down for this to get rebuilt or can like can the system steadily be improved yeah I mean I I think first I have to say that I hope it can happen without everything getting burned down because everything getting burned down means like hundreds of millions of people dying and starving to death and entire populations like being destroyed um incredibly Bleak and horrible and and like a scale of human suffering that none of us have any appreciation for so I certainly don't wish that to happen at all I hope that the world can change the foundation of money without that

occurring but I don't have confidence that it that it can and the issue isn't that like this alternative has come come around and now there's going to be suffering because people are using an alternative the suffering comes from the fallibility of Fiat in the first place and thank God that there's now a set of lifeboats that people can use as that starts deteriorating and unfolding um in terms of like what to what degree governments will fight this tooth nail or permit it to to happen um it's been better than I feared it would you know like back in 2011 2012 my my great fear was that like this stuff would get banned like the Bitcoin would just get banned because it's so powerful

and the end state of it is the destruction of fiat currency but thankfully I underestimated the the hubris of politicians I underestimated their inability to understand how economics and markets work and none of them really think that Bitcoin is a threat so in that context um you know Bitcoin has grown slowly and a lot of people including a lot of politicians own some now and so if the if the transition is slow enough and enough people that are in these various places of government own it and understand the arguments of it and value it you might you might get a sense where it's just permitted to keep growing because the the entrenched interests against it becomes smaller and smaller

and the entrenched interests for it become become larger and larger but you know I really don't know and my expectation is that it's going to be incredibly bumpy and messy and difficult transition let's zoom in on this cycle again actually we're going really broad let's Zoom back back in a little bit um SPF said the worst is behind us now love to just get your current thoughts on like I know we're not you jumped on you're like I have no interest in talking about price I'm trying to not make this a price conversation but just thinking holistically about the space in general right now in the next maybe 12 to 18 months uh agree or maybe disagree with Sam when he says that the worst is behind us hmm

yeah I mean the superstitious part of my mind just like really doesn't want to go there because don't say it don't say it but the logical part of my mind knows that that's and it doesn't really matter what I say so um I feel like the worst is probably behind us at this point um if I I think it's more than a 50 likelihood that that's true uh so we'll we'll see obviously but I I think so it's been a painful Calamity lately um and if you you know if you look at the various like metrics of sentiment and how dire they've all gotten and the degree to which you know the the flighty

speculators are willing to to hold and own this stuff right now it's like pretty much non-existent and that generally tends to be the bottom so um yeah I feel comfortable I certainly like would not sell crypto at these prices that would be nuts but I've been through several of these cycles and I I see how they play out and uh it gets really dark and then when when the season changes again and everyone's making tons of money um they all wonder where it came from you know it came from like the people building and focused on this stuff during during the bear markets yeah I was gonna maybe go there like what are you mostly focused on now um and yeah uh yeah so so shape shift converted into a Dao and I'm no longer

the CEO of it uh it is this open source project governed by the community so I participate in that like it's definitely not a full-time job for me anymore I'm trying to step back from it both both optically so that people don't perceive that I'm the one running it anymore but also factually like I don't want to be running it and I can't run it anymore because I don't I don't control it so um that Community is self-organizing and building its own leadership structure in its own sort of decentralized governance and I'm a participant in it but not not the leader um and other than that I I'm trying to take some time like off you know like eight years of building a crypto company probably aged Me by 30 or 40 years and there's certainly like family

relationships and friend relationships and just like personal well-being that that has been displaced for a while and I I want to focus on that for some time um and then just you know keeping abreast of the cryptocurrency industry itself and everything that's happening economically in the world is is kind of a part-time job at this point two things I want to touch on there the first one is Dao's um a lot of a lot of what we've seen is sort of a decentralization theater a lot of these dials are a either not not really decentralized or if they are it's sort of a very difficult attempt of coordination um and getting done you know synthetics try to do this Kane had to come back he tried to kind of like

transition over to the community then he sort of realized he had to come back even though there was a Spartan Council the Dow spaces early but I think there are a lot of kind of failed experiments or will be failed experiments in your experience like is it realistic to assume um that a lot as you see current like Dao structured I'm curious to get your thoughts on are they gonna work is it too early to tell uh and just applying kind of the learnings that you've seen at shape shift of how that transition from you being kind of the leader to managing and delegating kind of responsibilities across an organization yeah I it's a great question I think in any any area

of of innovation and Frontier exploring people shouldn't just expect that some things will fail they should expect that most will fail right like 9 out of 10 or 99 out of 100 Dows will fail just as 99 out of 100 cryptocurrency projects you know will end up failing and that's not a sign of the concept failing that's a sign of being on the frontier of something and so um I think it's healthy to see experimentation when so much of it is failing because you actually know that like that's actually The Cutting Edge if you see a realm of human endeavor where most things are successful you're not actually at the frontier anymore so um so that doesn't that doesn't

dissuade me at all certainly a lot of dows will fall apart they'll have their own struggles people will learn how to build dials better through this experimentation um Dows are not a Panacea they don't solve all problems they don't solve like the interpersonal conflicts that humans just have based on their nature um but they are a really interesting new way for humans to organize and so I am a huge supporter of the idea even though I was kind of skeptical when I first heard of these things there's a there's I think a misunderstanding of Dao's and that when people learn about something like governed by the community they think there's like some kind of flat egalitarian structure in which everyone every vote is equal

and that's not at all what a Dao is or I should say if a Dao is structured like that I think it will fail right um so there is absolutely a need for hierarchy and structure and rules within daos the difference is that they don't come from an established set of shareholders that can't really exit their position they come from the constantly changing set of token holders which can enter and exit at whim and that Dynamic makes it more more open it means that the people that are interested in a project can flow to it more freely and the people that are not interested can leave it more freely and and everything under that from the governance perspective can can sell form and we'll see lots of different

structures that work and that don't work yeah I think that's such a good point I mean I think a lot of people do think that it should be egalitarian it should be kind of totally kind of flat yeah we've certainly had those arguments within the shape shift out yeah like um people don't like that I have more tokens than other people and you know that's not that's not how this works this isn't a this isn't a democracy I'm not a fan of democracy I'm not a fan of every human having an equal vote when people are not equal right their contributions are not equal they're the risks they're taking are not equal right their time Horizons are not equal and so to to pretend that every individual human or Soul should be equal in a system is I think a bit of a a myth and

it sounds nice but it does not work when you're actually trying to build any kind of structure yeah I'm curious to get your thoughts should um adao be kind of economically weighted like economic voting or should it be trying to have some other definition of competence to take kind of these decisions um in maker for instance you see there's a lot of like passive holders which are a lot large funds that don't vote don't have an opinion on maker makers are pretty complex system to understand uh and you have other folks like Monet supply for instance who doesn't have a lot or hasu for instance but you know they're pretty competent you could delegate their votes to them so I'm curious how you think

about that waiting towards finding the right people to to kind of yeah um yeah I don't have a I don't have an answer to that I think that's the kind of thing that needs to get figured out certainly the number of tokens someone has is not a perfect representation of their relevance to the Dao right it's it's simply a a data point the reason it's valuable is because it's um it's quantifiable and it can't be civil attacked right so it creates a it creates a foundation of Truth where you know that different addresses have different amounts and you can build order on top of that um I I hope to see systems and methods in which people that are great

contributors are able to have uh more influence over a system just than their than their token vote the the ability of large funds that are passive to delegate to people that they know are competent I think is a really cool idea it's one I'm just kind of thinking of as we talk here but yeah I mean that could become a whole new a whole new type of role you know one in which you are a competent person involved in a project and people delegate information they delegate their power voting to you and you get some cut of that over time um that doesn't I think exist in the traditional world but it could very much endows and that would be a really interesting thing to see develop yeah it's kind of like crazy that we back to

the point of democracy that we assume that the politicians can be competent on so many things uh it's just like a crazy idea that we're going to look back and say like what were we thinking like the president like should I guess elect certain people but the reality is like sometimes they are forced it must be a really difficult job that you're kind of forced to be an expert on a lot of things and you get briefed in 20 minutes and then have to address the public on it it's like it's like a wild concept really yeah I mean if if anyone if anyone had any faith in democracy like all you have to do is look at you know the last U.S election in which like the the two greatest people that that the American society could put forward was Donald Trump and Joe Biden like those are the

Pinnacle humans on each side of the political Spectrum that is such a damning indictment of democracy generally um so certainly democracy is better than some alternatives but um I hope that people can kind of move toward different kind of systems which are more more voluntary more opt-in and which have structure in different ways and I don't want to see I don't want to see Dao's simply try to mirror this concept of you know uh of equal democracy which is which sounds beautiful and which is um highly problematic in a world where no one is actually equal everyone is different with their different attributes I just

rounded the discussion of dials is there a particular form of Dao or use case that you see gaining the most amount of traction in terms of what Dows are good for yeah I mean obviously a lot I think we're in this stage where we're trying to doubt everything um and experiment with that you have D5 kind of dials that have huge treasuries and you can Tinker on the protocols of parameters risk parameters whatnot you have dials that just you know come together to bid on a particular nft there's kind of like the spectrum is is kind of ever expanding um I'm curious if you have a particular thesis on what type of use cases most applicable or likely to get traction yeah

um yeah so I mean I don't want to like prognosticate too much on it because that flies in the face of experimentation and I don't think the rules are written yet but uh generally If the product is digital and Global it might be a good candidate and especially it's a good candidate If the product is let's say controversial from a regulatory perspective like one of the we can be honest that one of the best or most important features of daos is that they when done right are decentralized and as such cannot be shut down or targeted or censored in the way that a centralized company can so um it's no it's no wonder that a lot of these Financial applications which if

they were centralized would be heavily regulated are turning into Dows or start as daos because they avoid that friction um so I think that's you know that's an understandable place for this stuff to start if you had to look at like almost stack rank the reasons why shapeshift turned into a dow Eric is regulatory Arbitrage for lack of a better word the highest one it's top three yeah yeah it's top three um the hell that we went through trying to build a product that would protect people and running into the face of regulations at every opportunity taught me a lot of lessons and when I saw these decentralized protocols

um you know uniswap being a great example building something that protected people and created immutable open transparent finance and was not subject to these laws not because they were breaking the laws but because they built something in such a way that the laws did not comprehend so like like uniswap that protocol and structure operates legally even though it does something which if done by a central company would not be legal and so maybe those laws will change someday but even if they do how do they apply to something that is decentralized um I think the the game theory of that is is really fascinating and certainly shapeshift uh made the decision that

like we can either build something that we feel is virtuous or we can build something that is regulated now we can choose one or the other so we chose we chose virtuous and that meant that we we couldn't put ourselves uh at risk of you know being kidnapped and thrown in cages to build a virtuous product so decentralize it and no one's in charge of it anymore um so that's that's the Strategic move that we made yeah I mean obviously you've been um you know in touch with regulation um perhaps like every other genitals yeah well you know like we know it right I don't have to say it um I am curious it feels to me like look there will be a

regulation coming it is it would be kind of to assume that no regulation is going to come is is unrealistic given Tara and given mostly failures of C5 institutions as you say that it should be regulated like a bank you know Celsius should have been regulated like a bank should have been stress tested should have been um and then but but of course the risk is I think that politicians caught up in this narrative might not make the distinction between defy and C5 or decentralized applications and crypto Services crypto service providers that act more like a bank um what is your like you you say that you know is all regulation bad or do you think that some regulation in certain pockets of the

crypto economy industry uh would be helpful to gain kind of mainstream adoption I think market-based regulation is is very important right the regulation that was needed with Celsius wasn't the federal government to put a whole bunch of new laws and turn it into a bank the regulation was that they made a bunch of bad decisions and now they're gone from the market like that that is regulation the regulation that is in the Bitcoin blockchain regulation if you will it's a it's an iterative regulation uh it's it's a regulation in which um Bad actors will tend to get weeded out over time and good actors will attend will tend to accrue value over time but that process requires failure

and I think when a lot of people want government regulation they assume that by doing that you'll avoid failure and you'll continue to get the Innovation and all you end up getting is like an ossified imperfect system and you can see that with with banking right so like the banking industry is maybe the most regulated in the world you know internationally and we had the global financial crisis a decade ago um clearly regulations are not preventing these sort of calamities I think there's a there's sort of a myth or like um there's a desire of humans to believe that someone's in charge I think it's the reason that many people are religious is they want to feel that there's like some kind of being in

charge of the world and it's the reason so many people have faith and belief in these huge uh governments because they want they want to know that someone's in charge and someone is making rules and I think it comes from like a very ancient tribal structure in which we had you know the tribes of 10 or 20 30 people and like someone was in charge and we we wanted that system and when you apply that kind of structure to incredibly complex things like markets and Incredibly large populations with hundreds of millions of people you just get horrible horrible outcomes so the the regulation that we need in the crypto world is the regulation that comes from code executing as it's written right Bitcoin is regulated by code ethereum is regulated by code D5 is

regulated by code there are lots of regulations in that code and they are enforced without human subjectivity they're enforced transparently you can know what they are and what they how they will execute I think that is far superior regulation then you know politicians with all their human interests and human failings trying to apply broad rules using coercion and force against a bunch of people that are trying to act peacefully yeah now look I don't disagree with you I mean a code can't be corrupted as perhaps a Celsius kind of compliance officer risk management officer uh I mean like I agree with you I'm just putting on my practical hat on which which is I'm in the conversations that I've had with a lot of financial

institutions over the last like 10 years they all of I think increasingly warmed up to the idea that what you just said is they're like it's great look I don't disagree with you uh I think defying of itself probably we need like better Insurance Solutions and Risk Management Solutions either continue to be hacks and look I think that's one of the concerns but the other one is lack of regulatory Clarity it's just like we love this technology it's just give me Clarity whatever whatever it is I just need Clarity because there hasn't been clarity as a builder I think you can sympathize with that I think it's better to at least understand what the position of a government is around this technology than just being in this limbo of hey we're going to give you time to figure

this out which I don't know if you would agree with that um or do you think as you said around the Bitcoin kind of experiment which is the longer that Regulators kind of take their time to understand this technology is probably better for the space as opposed to trying to clamp it down like certain governments around the world like India and China have just been like outwardly Banning this uh in a pretty kind of crude way yeah I mean I don't advocate for regulatory Clarity I advocate for peaceful individuals to be left alone to interact with each other voluntarily um you know a tyrannical government can be very clear about what the rules are right that's that's not virtuous in and of itself um

there is a fundamental incompatibility that everyone needs to appreciate now that these blockchains exist which is that systems of money and value cannot be controlled uh in and of themselves like they are decentralized there is no government law that controls the Bitcoin blockchain the laws can try to influence people's behavior but they can't control the protocol and so you you have this mismatch between these these new immutable systems which do not and cannot respond to law and a bunch of politicians which want to write laws to control those systems it's it's um it's an incompatibility and Society is going to make a decision either that we want a world of of open

immutable rules-based Finance or we want a system of Finance built on humans and politicians and their rules and we've had the we've had the latter for quite a while I don't think many people are super happy with it and I think anyone who's actually looked into defy with all of its risks sees such a better world able to be built because the foundation of it is immutable and transparent and objective Eric what do you think the um the end State for the large exchanges is right so we started to see the end state for some of the C5 lenders right you you get a you get regulated B you get gobbled up by C5 or Trad Phi what is the end state for someone like a coinbase or

a gemini or an FTX um I think they they will have long and prosperous roads ahead of them like the the movement from traditional Finance into decentralized finances is multi-decade and those exchanges are going to make a bunch of money helping people make that transition for the next many years um and probably some of them will end up building decentralized projects themselves like already we've seen binance flirting with that concept and trying to move in that direction FTX has as well um so probably they will in even coinbase right like they have they have their their self-custody wallet and um they've been doing a lot more with D5 so I think they realize that like they need

to be in that space too but the centralized custodial model is going to be big important profitable for a long time and it's it's important it's like it is the bridge that helps people from traditional Finance over to this new stuff as we start to just think about wrapping this up um I'd love to get your take on just what what you're paying attention to right now and honestly what are the kind of areas of innovation in crypto that you think are the most exciting right now yeah I mean I'm always I'm always going to Shell Thor chain I feel like it's one of the the least appreciated projects in the space um it allows anyone to like convert layer one assets uh without any kind of friction or control in a borderless way and it is the only way to do that at

scale right now in the world um so I I find that personally extremely important and I want to see that project continue to grow and develop um I I'm just thrilled with like how D5 is is performing right um I'm thrilled with the fact that we have these lending markets I'm thrilled with the fact that we have these decentralized exchanges um I really like seeing that assets are being bridged across blockchains and I know that that has also been fraught with Peril but I think it's approaching like uh an interconnectedness between blockchains which didn't exist a few years ago and and when done well as we learn how to do this stuff will allow these blockchains to be more mutually beneficial to each other like I think

it's not unreasonable to realize that that bitcoin's layer 2 might actually be like wrapped Bitcoin on ethereum for example again that's heresy to say that but empirically wrapped Bitcoin on ethereum has become you know the way to do transactions of of Bitcoin in a in a faster quicker cheaper Manner and it comes with this trade-offs it's not a Panacea but this inter interconnectedness interoperability between changes I think I'm really exciting and that's that's what I'm watching really closely Eric you're someone that um you know has been around in this space has seen a ton of different cycles and and stuff in crypto uh what would you what kind of advice would you give to a younger version of you that is just entering the

space wants to build something um you know kind of like what what advice would you would you give them um well most people get involved in the space because of number go up um and that's that's okay for that to be the reason that people get interested but if you don't find something beyond that to care about like if you don't see the principles that this stuff is getting built on as important or valuable like intrinsically useful and important to you then you're not gonna you're not gonna last and you're just gonna get blasted in the next cycle so anyone who's like getting into this stuff really needs to do some soul searching and realize like okay yes I got I got interested in this stuff because my friend made two thousand

dollars and I wanted to do that also but like but wow this like this rabbit hole is deep and powerful and it's going to change the world and do I believe that do I believe those narratives about how this is changing and why that's important and if so um then focus on that and build toward those virtues and certainly we need more people building toward those virtues instead of just building things that'll make some money in the short term um so that would be that would be my recommendation to people and the other recommendation is the the best way to learn about these things is to use them so like the best way to understand Bitcoin is to get some Bitcoin and send it around and use it the best way to understand D5 is to go like take out a loan on on Ave and and

or do a trade on uniswap use the systems that you want to learn about don't just read articles about it I think that's a very practical piece of information I think that's it Eric anything else that uh you want to kind of convey to the audience chat about as we head into month eight of this bear Market um no no just uh stay safe be careful be prudent and um you know think about what what you're here for and um I appreciate that you guys have been doing the show and uh been been enjoying it very much I there's so much like um superficial content on mediums like Twitter this this these longer form discussions are are truly important and

so I appreciate and applaud you guys for for executing well I have a question for York that we've actually never asked anyone else at the end of this episode but maybe we should we should start asking it which is if you could pick one or two guests for Empire for this episode um that you could listen to uh that you would just want to hear their thoughts expanded in a 60 to 90 minute conversation who who do you want to hear from right now other than Jay Powell okay um I um I think it'd be really awesome to have a a civil professional debate discussion between um someone someone who is opposed to the state regulation being

imposed on crypto and and a politician or regulator of some kind who truly believes in what they're doing and and wants to impose it and to have a deep discussion to really suss out like where these people agree and where they disagree um that's probably a hard thing to organize because I think a lot of The Regulators wouldn't want to well for first of all many of their opinions are not based on logic and so under deep conversational examination may fall apart and I think deep down they kind of know that but I know that there are some of them that truly believe in what they're doing and I would love to hear their perspective which which gets us a little out of the bubble Zone that we're all all in all the time so I think that would be a

really interesting episode it has to be the right people but um yeah that would be valuable yeah that's that's a really good point I think we're starting to see early glimpses of politicians understanding how important crypto has become for their constituent base and actually you know realizing from a pragmatic manner that they want to be Pro Innovation Pro crypto because that's that's how they get reelected and that's kind of the The Hope and I think there are a few out there that we can probably bring on on the show and and if we do then maybe we'll have you back on to be part of that discussion certainly they all say that they are pro-innovation that's like one of those easy easy things like I actually am not pro Innovation I'm anti-innovation no politician has

ever said well Eric it's like web3 right you know people that miss the crypto boat early on renaming and rebranding it as web 3 is allow them to kind of save face and and it's the safe word that you can use an investment committee and and what have you so you know we got to give these people a shot to get on board and if it's under the in a pro Innovation Banner or whatever you want to call it then I think that's a win yeah I'd like to hear how someone who believes that they're Pro Innovation sees the rules that they want to impose as helping Innovation right like that's what I want to challenge and that's what I'd like a discussion on certainly we really appreciate your thoughts Eric um you're a great thinker and uh for anyone that wants to learn more about

what you're doing what's the best way to keep tabs on on you and the pro obviously shape-shift but where can people learn more about kind of what you're doing um Twitter's the easiest at Eric Voorhees um and I'm just getting my blog going again uh money and state.com so there's not much content on there yet but uh more more to come the recent piece is is basically a um a description of how shapeshift worked from a governance perspective as a centralized company which is pretty traditional versus how it is working and operating as a dow because a lot of people were asking like how did that actually change what what's different what's the same um so that's the most recent piece at moneyandstate.com I've got that here we'll throw the link in the show notes way of the Dow it's a really good read

cool Eric this has been great appreciate the time all right well thank you guys take care thank you [Music]