DAPPCON 2024: Fireside Chat - Joe Lubin

Transcript

uh thank you so much everyone for being here Joe thanks for sitting down with me pleasure um it'd be really hard to start this without talking about some of the ETF news so why don't you kind of catch us up on what you've been hearing in just you know the last 12 hours or so um well there might be good news um so we've been tracking the uh the Bitcoin spot ETF um evolution uh which has been an inflection point for our ecosystem um and the uh the more negative trajectory of the ethereum spot ETFs um we were pretty confident many um knowledgeable people in the space were very confident that uh we were not going to see uh uh the SEC and the US approve uh the 10 uh

ether spot ETF applications uh starting on March 23rd 24th Etc um uh and it looked like there were um nefarious activities and gaslighting and um just some some bizarre arguments that uh um were being constructed um by the SEC uh maybe behind closed doors uh to try to figure out a way to to slow the ETFs or or um make them uh unapproved um but um there there's been a lot of activity in the last couple of

weeks in our ecosystem uh one uh consensus sued the uh the SEC to uh to get some clarity on on how the SEC is internally uh classifying ether um be nice if that weren't necessary yeah exactly it'd be nice if uh if there was open discussion and clear rule making from your your credential regulator um but that hasn't been the case um and so um uh a lot of activity from us and others um has caught the attention of our ecosystem certainly um journalists um thank you uh and uh uh and uh regulators and legislators um a

regulator I think head of strategy of the SEC uh just quit interesting news um and uh uh in the US the Republican party's been closely tracking our ecosystem uh really the the presidential campaign and other Republicans are tracking us very closely uh there are many in the Democratic party that are are heavily in favor of this technology and very positively vocal about the technology um and so it's now becoming a pretty giant um election issue uh and in elections um uh that are one or lost by 1% or 2% uh when when you uh are doing things that are harming 30 40 um and

growing percent of the American population uh because they're either holding digital assets or or they care about the technology for some reason uh then you got to S rethink your strategy and so both sides of of the American political divide are rethinking their strategy and somebody um very recently I think uh whispered in chair gendler's ear uh and said you know maybe you should take a different approach to to all of this and so we've seen a flurry of activity uh we became aware of it yesterday morning I was speaking with one of uh one of our lawyers a guy named Bill Hughes and he uh he had some contacts and he said uh something something is going on and it sounds

positive so that so we heard that yesterday morning and uh and it sort of ramified by last night in Berlin um as uh as a bunch of spikes in some prediction markets uh and then spikes in crypto markets so hopefully hopefully great news uh um we're certain to get ether spot ETFs by 2025 and and maybe even this month and and that'll that'll just open up a Floodgate that is likely to to change a lot of things there's been well there's already been a huge bit of you know number go up um but I want to you know just kind of be mindful of the fact we're not sitting in a room full of Traders necessarily we're sitting in a room full of people who are building so how might an ETF approval start to change things for the ecosystem

the people who are building um so an ETF approval um will bring a giant amount of capital and attention into our ecosystem um in the Bitcoin space there's a huge amount of capital um and that Capital isn't really staked um it's a a uncorrelated digital asset U very Financial in nature a kind of money um in the etherum system uh it's a work token um and it is staked or used as a security bond in lots of different contexts including the ethereum protocol uh and so having a lot of attention and having much more capital in the

ecosystem is great for for Builders um and other than that it hopefully and what we're trying to achieve is that it shouldn't change anything um uh software Vel opers in the US and in the world um should not be looking over their shoulder uh worrying if they uh build software would they have to register uh with finro or or with the SEC in the US as a broker dealer that that's just Preposterous right the SEC in the US has a mandate to regulate Securities uh and they're supposed to do it uh in a merit neutral fashion uh so if if somebody uh wants to start a papaya juice company um

and Cher gansler uh feels like hey their formula for Papaya juice has too much sugar and that's not healthy for people um so they shouldn't be able to make those sorts of of Merit judgments they he shouldn't go on uh CNBC and say that this technology is just too volatile uh stay away from it it's bad yeah um so not yes mandate to regulate Securities um not mandated to regulate technology um when we um were asked to put together lists of software developers who worked on 1559 or the merge or or other things U when we became aware that uh uh the SEC was subpoenaing uh software

developers in different companies and even uh scrutinizing independent software developers who were working on the protocol uh we got very alarmed um and so um we took this action um suing the SEC to get some clarity on how they were interpreting um ether the classification of ether and it it did become clear that they had internally decided to reclassify it as a security without telling anybody and then um using sequenced strategic enforcement actions uh try to you know um uh regulate by fud um scare people uh and so um if metamask was in fact forced to

register as a broker dealer so a piece of software uh that enables you to um create and hold your private keys and exercise your digital Authority in web 3 applications but doesn't custody any assets so if that thing is a broker dealer or if we and that thing are a broker dealer um we don't really know what it means to to register as a broker dealer for a piece of software we don't even know whether anybody in the audience for instance who downloaded metamask um would themselves uh them and their metamask would have to register as a broker dealer so it's just nonsensical um and uh fortunately it will hopefully

remain um as a historical footnote uh that uh um the SEC once secretly considered uh ether to be a security they punished they tried to punish lots of companies they tried to make it illegal to buy and sell uh this unreg registered security because you'd only I think there's only one entity that uh uh chair Ganer uh would deem acceptable um to buy and sell um ether and that's this uh this bizarre company called promethium yes interesting name sure prium it's like good ethereum or or something like that it ought to mean

that yes you can't make this stuff up it's it's hard to believe and so um I believe we are in the process of avoiding that Bizarro world uh and software developers can just be software developers yeah um so on the road to hopefully kind of averting you know things being that way where people have to figure out how to register as broker dealers what what can developers and you know Builders do now to protect themselves you know it it could be that we see more turbulence before this all gets cleared up and nobody's trying to go after a software developer what kind of precautions can people take now to be safe um I I think it's crazy um that anyone has to ask

what sort of precautions a software developer has to take question don't to protect themselves um um get some antivirus software for their laptops So like um this shouldn't be an issue um and um I think we're going in the right direction um I think uh so maybe on the other side I have uh some thoughts um I think things are going to get so weird and interesting um when people in the general population so so our technology our ecosystem um is to the point uh where usability is getting better um and scalability is getting quite significant

um on the internet if you if you add a new computer uh you're adding more throughput you might have really good latency there or not uh but that's under your control um in the ethereum the Metropolitan ethereum ecosystem we're now horizontally scalable and vertically scalable and and so we can add we can improve the protocol at the base level making it more vertically scalable uh we can add new networks layer twos layer 3es layer fours Etc um and so we can add infinite um throughput transaction throughput over time uh and it's going to take a while we're going to we're going to keep bumping up against uh um the capacity transactions per second uh

as we build more and more applications and they go viral Etc um uh but uh uh we're now in this this infinite scaling period um and that's that's the paradigm shift that that we've all um that we all signed up for that the all excited about uh and so if this ETF set of ETFs get approved the the supply demand Dynamics get a little little bit weird because there isn't a lot of ether out there uh that isn't already being utilized in the protocol um and so um if there's too much demand from these ETFs it could

cause um Supply demand imbalances let's call them which could affect the price quite significantly bringing a ton more attention into our ecosystem so that's great if it brings a lot more software developers uh we have igen layer we have avss um uh companies uh startups can now instead of uh raising capital from from a VC and then trying to figure out how to grow your community to to mine to validate uh to otherwise uh uh participate in your protocol uh very soon in igen Lair you're going to be able to provision um elastic security uh for your network and that's just a total

phase shift a total game Cher uh for our ecosystem so um we're at a moment in our ecosystem where there are a lot of vectors aligning uh for for pretty tremendous growth and so what is that going to mean it's going to mean the paradigm shift is going to accelerate and things are going to get hopefully weird and good really soon yeah I want to um this is kind of related to that you know this idea that we need to scale I want to talk a little bit about um decentralization we are sitting in the country that's the second largest represented among validators um what should Builders or developers what should teams be thinking about in how to approach or how to encourage this idea

of more decentralization better decentralization because I think it's still the case that you know the US accounts for just shy of half of all validators so client diversity this is a client diversity t-shirt um and um so we we just need to remain Vigilant at all times um uh Bitcoin um until recently was finished and perfect uh and and that that's great sure um but but ethereum has always been a platform for decentralized applications and so so we need to to keep evolving it uh uh for usability and security and scalability and uh um uh multi-dimensional fees and and Etc

uh and so um we will continue to introduce Innovations um people really smart people will continue to find uh weaknesses in the protocol ways to exploit things ways to centralize things we'll have moments like uh Lio appearing uh too powerful um I was never concerned about that uh I knew that there would um so many different ways for for people to make use of of their technology and and we're already uh seeing pretty big shifts uh in that space so uh in terms of decentralization I I think it's all about um building um identifying um strengths and weaknesses uh in what's

been built um um uh relying on the community to be hyper sensitive uh to freak out on crypto Twitter um about uh all sorts of uh important and immaterial things uh and just uh um to um not not rest um and and be extremely Vigilant and creative uh because we need to uh put energy into protecting decentralization radical decentralization um and and I'm confident that we will continue to to come up with Solutions we do need

something like a uh a framework that defines uh the many different dimensions of decentralization I've talked about that with some academics and and there there's been some work uh that people have done over the years um we need to Define all the different dimensions whether it's um uh software teams clients protocols themselves um nation state laws energy grids M climate systems all these things uh um could potentially um be an attack vector or or a single point of of failure or weakness uh so Define the dimensions figure out metrics um for uh how we're doing along

those dimensions and and continually uh improve and maybe come up with one or a small number of numerical scores on how all the different Protocols are doing with respect to decentralization um and then I want to get your take on I guess this idea that you could try to encourage or rather disincentive you could disincentivize too much centralization by looking at very large validators and then disincentivize too much too much centralization so say like you you manage a ton of validator clients because you're very very large maybe you're pooled maybe you just have that kind of money um the it's already partly the case um that you get slashed if uh uh if too many uh of of the same or making the same mistake or I'm I'm

alluding to a blog post that FAL put out recently where he was kind of putting out this idea I don't think he was officially proposing it but it was this idea that like okay if you manage a lot of clients and you've got them all in the same spot then surely the penalty you pay for something going down should be a bit higher than what you know you have a solo uh validator yeah so um good idea in theory if you can do it cleanly um and and if you can do it in a manner that isn't easy to cheat or spoof um and you can gather reliable information uh to make that work without um forcing people to to surrender too much information and and

sure just disclose who they are so yeah you don't want to create new risks just by trying to fight them yeah so great goal um difficult to come up with a clean solution for that um so our uh we we uh um build the Basu client and the teu client and uh and there's a a graffiti field uh and so excuse me um our team is working to uh have a tag uh installed in that field uh by default we don't want to force uh people running the client uh um to keep that tag in but uh it's a little marker that uh um that uh can be used uh for

people tracking client diversity to to help that said uh if you prefer to run another client and you want to pretend uh that that you're our Basu client then uh you know you can do that sure it's uh um if there was a way to to come up with a very reliable signature uh on all the uh the different clients and the different client fairs that would be interesting but I can't think of something that wouldn't uh wouldn't uh improperly disclose information that people might not want to share okay um and then I want to be mindful of the timing because we do have enough time for a little bit of Q&A so if anyone's got a question if you could put your hand up someone will find you with a

microphone I can barely see because of the lights but they can see better than we can yeah yeah or if not I will continue all right I can't really see any okay cool I'll keep on um the other thing I wanted to ask you oh yeah no go ahead I was just going to ask you about what uh U what you read from Alex Thorne oh yeah sure we can talk about that yeah so I getting ready for this this morning saw a tweet from Alex Thorne over at Galaxy digital he was hypothesizing that because the SEC like we might be getting close to the SEC approving an ETF that the way they could thread the needle on

this is that they could approve these ETF to hold spot ethereum but they wouldn't make it you know permissible for they wouldn't permit anything that's going to say okay we're going to hold this ethereum and then we're going to stake it and then we're going to pass those rewards on to the people who've invested in this ETF and then that becomes you know we were just talking earlier the dirty word yield like that's how you make some extra money off of holding this um but that that's how the us could try to thread the needle and then you were sharing that there are some ETFs that do this so like so in Canada uh um possibly UK Hong Kong they're exchange traded products um that uh do stake The Ether uh and I I think they keep some of the yield for

themselves and I think they pass pass some or or all of it in Canada I think it's 50% they pass on uh to the owner of the exchange traded product um and Alex I guess hypothesized uh or or suggested and we know that uh um that vanc and and Arc and some others were asked to remove the yielding uh the the staking element um from their applications a little while ago and so some people realized that hey um why would you do that unless a regulator was talking to you and so there there was some indication that uh uh that things might have been moving a little while ago um but uh um why why would the SEC um forbid staking

um I there may be Securities Law issues but it shouldn't be a Securities Law issue because uh you're just posting a performance guarantee so that you can um devote your resources and some labor to helping the protocol operate and and you should be able to get some income from that so there's there's no investment contract at all uh in staking ether uh in the protocol um so why does the SEC want to effectively make these products less attractive less attract Ive um to operate um less attractive to purchase for for the consumer um and it could be uh could go to my thesis that the SEC is

trying to either slow um the Paradigm Shift uh slow the uh the growth of this technology because it they might think that it's jarring uh for uh the American economy or the world economy um they may be trying to slow things uh so that certain Financial interests or government interests can position themselves better they may be trying to to slow and uh co-opt or dumb down uh the the technology there there one thesis that that I and others have held is that uh they're trying to weaken uh the decentralization of of ethereum in America um so they're not trying to disconnect Americans from ethereum but

they're trying to create a uh an SEC approved uh uh uh registered security everybody registered broker dealer kind of American ethereum uh and so maybe they're they're trying to slow things down and uh sort of uh co-opt the ecosystem but yeah I wanted to ask because I know I've heard you kind of paraphrase the whole idea like history doesn't repeat itself but it often Rhymes um do you think we're going to see things with ethereum and this ETF getting approved knock on wood uh play out quite the same way we did with Bitcoin I mean we had we went on that crazy run after the Bitcoin ETF got approved um so in terms of how the SEC

is going to do approvals assuming they do um uh they denied Bitcoins about ETFs for like a decade um and then were forced by the courts to approve and I think they tried to do it in as Fair a way as possible uh approving them all together I don't know if that's going to be their strategy um I don't know if they've had enough time um and conversations with all the different entities so that they can get that done um so we'll we'll see I guess if they can get all of them done at the same time on on Thursday I guess the 23rd uh then perhaps they've been working on

this uh for a while uh and in terms of what happens after uh they're just uh in terms of US dollar equivalent they're just isn't a lot of ether uh for all of those ETFs um to purchase uh so that they can satisfy the demand um there's probably going to be a lot of pent up demand every institution that's invested in a Bitcoin spot ETF um should prudently diversify into ether unless they they're uh religious Bitcoin maximalists which which is possible there's those in some cases but but really the right thing to do uh even Bitcoin Maxis are are probably

Diversified a little bit yeah uh and so uh there's just uh a natural pent up pressure I think um and the supply demand Dynamics are going to get a little bit weird because there isn't a lot of supply of ether um and the more transactions that happen the more ether gets burned more ether gets burned the more price goes up the more people talk about it the more people realize hey this isn't just a dis inflating uh digital asset this is a deflationary currency uh and so that's going to draw a lot of people in so that's a that's a positive feedback Li that could uh uh that could drive a bit of a frenzy and so uh it's great to see what uh with the

approval of the Bitcoin spot ETFs did um I anticipate that it'll be something like it it might be uh lower key it might be much more intense we'll see and then I I checked this morning the last time we saw the SEC put out this call to all you know the Bitcoin applicants say okay you've got to update your I think it's the 19 B4 Form B yeah one of those like we were less than a week away from the approvals it's hard to say if it's going to go quite that way this time because as you were pointing out there's so many things asking the exch to approve what three two three days beforehand is uh that doesn't seem like they were uh um on top of this issue this might be an emergency yeah all

right um I want to check again to see if there are any questions I do see a hand this time okay we've got a question right here yeah you can yell it out too oh here comes a mic I see we can repeat it or you can yell or you can use a microphone you hear me yeah uh yeah so thanks a lot for for uh being bullish on ethereum so hard for me so my question is related to the thing that you said that you know crypto Twitter kind of stays Vigilant and

checks whether we achieve decentralization and uh lately there was this conversation about EF employees you know getting some steak in aen layer and so on yeah and just Dr yeah had a disclosure though yeah and you know you are literally co-founder of ethereum that started his own company that was very valuable for the community and I'm wondering what's your perspective on this conflict of interest how to manage that you know and how to think about it in the first place yeah um so I don't know if it was Justin or a commenter that said uh um the people at the ethereum foundation are a enormously

talented uh brilliant people but also people of um immense Integrity uh so I don't worry about that at all vitalic is an individual uh with more Integrity in his little finger than than virtually everybody else I've met um um not to mention um his Brilliance um and so uh we're we're still um in the early days of a paradigm shift the paradigm shift is based on technology it's based on this new invention of decentralized trust decentralized trust as a foundation is great we need to build decentralized finance and and uh there will be so many opportunities uh for building good and great things or for

corrupting uh things and so we need to be vigilant um uh from the perspective of consensus um we've had a lot of great people um move through the company leave the company um start up projects uh we are almost always delighted uh when that happens and we almost always invest in those projects because we just want to seed the ecosystem uh with great and talented people and there's so much to build uh and so I wouldn't restrict anybody um in the ethereum foundation or anybody in any company uh in the ethereum ecosystem uh from supporting more

projects even if they're financially incentivized to do so um at consensus uh we just say you know you can be an advisor uh you can take um some sort of compensation uh just disclose it uh and make sure that uh there is no conflict of interest in any sort of decision that you're making for the company and I'm sure the ethereum foundation operates similarly great and uh we have time for one more question I think we've got one right here weird conversation uh I'm curious maybe on your kind of like long-term bull case for ethereum like more as like like this original thesis of the global settlement layer tokenizing everything like what do you think is the key things that stand in the way of like having the

whole world like uh settle on ethereum like every aspect yeah um so the only thing that stands in the way um is um the friction inherent in uh transforming a paradigm top down command and control centralized trust um um to this new decentralized bottomup trust Paradigm uh so we've uh humans have uh have lived uh for you know organisms have lived on this planet um in contexts of violence and abuse um and um

and um scarcity uh scarcity mindset uh uh or scarcity leads to a fear mindset um we're in this inflection point moment uh where we built the technology to get away from top- down command and control force uh Etc um and we can we we do great things uh when we can bring collectives together uh and we need trust for that uh and we now have this technology that can enable us to to bring a large amount of people in some contexts or a smaller amount of people in other contexts uh uh into

um a context in which we can reliably trust each other either uh via automated trust or or social trust mechanisms that are mediated by software uh and so uh I don't know how long it takes to to heal uh the generations of of damage um that uh that we've been living under um but we have the technology now that's the issue it's social um Technologic scalability Etc is proceeding really well it will proceed um probably as fast as it needs to um because it's the social political elements that that are going to be the the frictions um so um it's pretty exciting time to to be alive

it's uh probably the biggest Paradigm Shift uh in human history the trust Paradigm Shift great uh thank you for the candid conversation today um I guess should wrap that up now but uh yeah Stacy Joe thank you uh thank you so much