Validated

Live from Breakpoint 2021, Ali Yahya (a16z) moderates a discussion about wallets, custody and the User Control Layer with Brandon Millman (Phantom), Filip Dragoslavic (Solrise) and Maria Phillips (Slope Finance). 00:10 - Intro02:32 - Custodial vs. Non-custodial models for keys holding07:11 - Education is key11:37 - Building on top of user-controlled layers16:48 - Unbundling Wallets20:04 - Mobile vs. DesktopDISCLAIMERThe information on this podcast is provided for educational, informational, and entertainment purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose.The information contained in or provided from or through this podcast is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice.The information on this podcast is general in nature and is not specific to you, the user or anyone else. You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented on this podcast without undertaking independent due diligence and consultation with a professional broker or financial advisor. Ali (00:10):All right, welcome everyone. So today we have a great panel to talk about the user control layer. So everything that has to do with UX, interfaces, wallets, how people use their private keys to interact with blockchains, and how all of that plays into web 3.0, and the things that are being built in DeFi, NFTs, et cetera. And we've got only 20 minutes, unfortunately, which is an egregiously short period of time to cover such a meaty topic, but excited for it. It's going to be a great conversation. I'm going to start by letting our panelists, maybe introduce themselves. Maybe one minute kind of introduction, and then we can dive in. Does that sound good?Filip (00:50):That sounds good. I'm Filip from Solflare. We actually built the first wallet on solana. That was actually before magnet, July last year. And Solflare was the first taking wallet, and right now we have over 20% of solana circling supplies stake through Solflare, and we are expanding onto all platforms. We have a web browser, we have a browser extension. We just launched mobile on Friday. And we are just looking to give all our users the opportunity to access Solflare from whichever platform they want to. And that's what we're all about.Brandon (01:37):Hey, everyone, I'm, I'm Brandon Millman. I'm the CEO and co-founder of Phantom. Just got started back in May, and it's just been such an awesome journey. I just wanted to say thanks to everyone in the audience and listening back at home for helping support us on this journey, and to hit 1 million users recently. Each and one of you are one in a million to me, so really appreciate it.Maria (02:03):Hi everyone. I'm Maria Phillips with Slope Finance, I'm head of communications. Slope Finance was the first mobile wallet on solana and we have over 150,000 downloads and an MAU of 95%. We are mobile first. Yeah, fantastic. Delighted to be here today.Ali (02:23):Amazing. Well, thank you guys. Well, let's start with, I think one of the basic questions about how user interfaces should interact with a blockchain. And that is the question of whether the keys should be held by the user, or if those keys should be held, or might be held by a company in the middle, like say a company like Coinbase or a company like that, where that would be kind of a custodial model versus having things being non-custodial and sitting at the edges. And I think we all kind of know what the ethos of this space is, but of course there are many trade offs. And so I'm curious to talk through how you guys think about those trade offs, and what are the kinds of things that we can do to empower the user as much as we possibly can.Filip (03:04):There's two different approaches like custodial and noncustodial. Noncustodial is in a true spirit of crypto where you actually control the keys. You control their finances and no one can actually take it away from you. I talked to someone from Algeria and he told me how important that is for them.Ali (03:24):Yeah.Filip (03:25):Since I don't live in a country like that, I didn't know that's so important for them because at one point in time, someone can actually get something from the bank account, they lose everything. But on the other hand, all people are actually used to, don't have that responsibility of just holding all their finances with them. So we have bank accounts, we trust banks with our money and it's going to be a long road to educate old people, to get from the custodial to the non-custodial thing. And I don't think that it's ever going to happen in a big way, but as all crypto people here are, we are like early adopters and we want to try new things, but the vast majority will always stay non-custodial. And there's always going to be those two approaches.Ali (04:19):Yeah. Makes sense. What do you think, Brandon?Brandon (04:22):Yeah, I'll start off by saying that at Phantom, our goal is to make the decentralized web safe and easy to use for everyone. And you know, what that means is expanding past like the very small number of users we have now to tens of millions and billions in the future. But you know, the thing is that giving private keys directly to users, is sort of akin to giving them keys to like a super car Ferrari, it's like super powerful, but not everyone needs all that power. And I'll say, actually, I think there's actually more than just this dichotomy of like non-custodial and custodial. It is actually a bit of a range of different techniques that are kind of somewhat in the middle. So I think there's things like social recovery, multi-party computation, premier secret sharing, tourists, those sort of things. And I think all of those techniques have not really been given the chance to really been taken to their like full extent. So yeah, we're really excited to kind of explore a lot of those options and sort of bring more custodial flavor, to non custodial tools.Maria (05:32):When we look at our user base, okay, number one, India, number two, US and number three, Malaysia. Everyone of our customers really are accessing via mobile, and that onboarding, and that access is a huge concern to us to make it as easy as possible. So we are looking at different innovations in this space. And especially because we're looking at being the gateway from web 2.0 to web 3.0, and being able to link activities in decentralized identity is what we're calling it. Being able to identify people in specific ways, according to their activities. And hopefully we're going to use that to lower the access and entry barrier for our customers to make it as easy as possible. And a better experienceFilip (06:16):Just wanted to add that actually education is so important and just getting people to know how crypto actually works and why is it so good for them? That's actually one of the things that, what we actually launched our sulfur academy. So we have blogs and guides to capture the users and tell them, okay, this is how works. Because there's a lot of scams out there. I mean, we both know that because before we actually launched mobile, we have caught three fake wallets. We actually met one of the developers who made those fake wallets reached out to us. And told us, oh, I'm so happy that you're using our wallet at the wallet that I made. And he was actually commissioned by someone else to produce fake wallets for Solflare and Phantom. So that was mind blown to us. He felt so bad, but he didn't know that. And so education is key actually to preventing users, for getting scammed and actually get so burnt that they say, oh, okay, all crypto is a scam. So that's why...Ali (07:22):I think this point of education is really good because I think there are two philosophies in this space. One of them is crypto wants to be seen. This is a line from Cavan, who's a founder of foundation. And his view is over time, people should become aware of what crypto is. People should become aware of the way that private keys work. They should become aware of the fact that holding your own private key is very different than signing into a web 2.0 service. And that's one philosophy that these things will become front and center. And that education will be a big piece of this and that you actually, as an application developer, should not be trying to hide it away, right. That you should not be trying to fully abstract it such that the user actually does not know anymore that they're interacting with a blockchain.Ali (08:05):And then a different philosophy would be more like a product and a very pragmatic point of view, which is people have a very hard time understanding how all of this works. And so instead, what you should do is you should abstract it away. You should make it look as much like a web 2.0 thing as possible, so that you can get people on board. And then over time, maybe you shift towards a more kind of web 3.0 native user pattern. And those are two very different ways of building a product. And I'm curious how you guys think about that. I mean, your point about education, how do you think about education?Filip (08:38):Yeah, I think educating users is actually the key to it. I mean, they don't need to know like 90% of it.Ali (08:45):Yeah.Filip (08:45):It's totally fine if they do the very basics and if they interact with, for example, much more complicated protocols, they don't need to know what goes on in the background.Ali (08:55):Right.Filip (08:55):But they need to know when the app says, okay, you're now signing a transaction, what end means on the blockchain. And this is the only thing that they should know. And we should actually push as an industry, users to educate themselves just in those basics.Brandon (09:15):I feel like none of us here really know what the final conclusion of all of this web 3.0 tech is really going to look like. And I think we're just so early in the vast majority of people who are going to use these centralized technologies have not really used it yet.Ali (09:30):Yeah.Brandon (09:30):But I agree. User education is super important. Support is another thing that we've seen that's super important. Unfortunately, the status quo nowadays is to kind of throw everyone into this zoo of a discord and let whatever happen. And unfortunately, a lot of projects basically just turn a blind eye to what happens in there. All these scams happen, people get DMed and whatever. So yeah, I think we really all need to take a much more user focused approach, not just in the applications themselves, but in, around just all of the surrounding infrastructure, support, education, et cetera.Ali (10:06):Yeah.Maria (10:07):Financial literacy and traditional financial services isn't great either to be honest.Ali (10:11):Yeah.Maria (10:12):But I do see this whole e-commerce space that we're involved in and looking at, I think that is a way to bring people into the space to understand it better.Ali (10:20):Yeah.Maria (10:21):If they start using cryptocurrencies or if they start using this in their normal daily shopping or activities, this is a way for them to understand that it's safe. You know, I paid for something, I got it. Yay. This is good. That's a real great way for them to understand and onboard in a really low level way, but get there.Ali (10:41):Completely.Filip (10:42):I just wanted to touch on the topic that Brandon actually mentioned, with support. We both did in our discords, people get scammed and stuff like that. So we tried everything. So we take this try and see what works approach. So we tried with telegram, we tried with discord. Yep. But people always get scammed. So I think we're launching periods to our live chat support on the website, but it's always like this fine line of, okay, how do you actually provide the users the best experience, but that they also feel still completely anonymous. It all depends on that fine line, and we need to see what works best actually.Ali (11:22):Completely. Well I think this actually segues well into how a user control layer application like a wallet or other kind of applications at that layer enable developers to build on top of them. Right. And I think that there's another kind of spectrum of different schools of thought or different approaches in that world as well, where you can think of meta mask or the kind of wallet that is very un-opinionated about how developers build things on top, as being on one end of the spectrum where you can really just sign anything using meta mass, you can sign just a binary blob because it doesn't provide you with very much context as to what it is that you're doing. And it's really on the developer to inform you as to what you're signing actually is.Ali (12:18):And then on the other end of the spectrum, can be much more opinionated about how the wallet integrates with specific applications, such that the wallet itself, the team who builds the wallet itself might integrate directly with a protocol that does lending. One example on ethereum world would be compound, you integrate with compound directly. And then there's a whole spectrum in the middle where a wallet could provide the tools for developers to build applications for it that are standard. And that give a little bit more structure and context for what that integration should look like, but it's not done by the team itself. And it enables an ecosystem to kind of emerge, to improve what the user experience might look like by enabling them to do things in a way that's more structured. So I think we need certain standards that help us build these applications in a way that are intuitive. And I'm curious how you guys think about this factor, or if you agree with it and, and where you guys kind of land on it philosophically.Brandon (13:19):Sure. Yeah. I can lead. Again, I'll preface everything by saying that we're in this mass experimentation phase where a lot of things are still being figured out. That being said, I feel like some of the walls that you've alluded to that have done more plugin type architecture. So namely origin, I feel like have sort of been left in the past a little bit, just because they were not really able to keep up with the explosion of all of these permissionless daps.Ali (13:50):Yep.Brandon (13:51):And, therefore were not really able to sort of participate in the network effect that gets created between daps and the users of those wallets. And so our opinion right now is to keep it very permissionless. Keep the current model going, as it has a lot of momentum and all of that. But again, that being said, I feel like we still have yet to see the final conclusion of all this, so things are always changingFilip (14:19):There's different trade offs between both approaches because if you integrated directly into the wallet, so firstly, the UX is going to be way better. And you could actually provide safe haven for all those new users because the permissionless world is the wild west. So you have like five great applications, you have five applications that will actually scam your money, so you could actually protect them. But on the other hand, you actually are gate keeping with your wallet. So this is why the panel is called whole user control layer. So the wallet actually dictates to which application the user can actually connect. And this may not always be in the best interest of the user because maybe that wallet has, for example, a business model with the dap that they have. So this is one part of it, in a permissionless system, the other thing applies.Filip (15:22):So there's inherent risk. And if we're going that way, then we need to go back to the previous topic and that is education. So if we educate them, then it's completely fine to do as permissionless because they know what they're doing. But if there's a big influx of new users who are just coming into the space, wanting to experience something and they want to do it quickly without educating themselves, we're in a really tough spot with permissionless systems. But as Brandon pointed out, we're so early, we don't know which way is actually going to work best. So I think there will be wallets with different approaches and we'll see which one is going to be the most successful one, which the users will actually choose that perspective.Ali (16:10):Completely. Do you want to add something Maria?Maria (16:12):Yeah. We have integrated with over 80 daps, but we're very lucky, we have 35 engineers, and we've created a standardized way for them to come to us and work with us and partner. So that's been fantastic and it grows, our list is growing, we're meeting people here, so happy to connect.Ali (16:29):And Maria are those integrations integrations that the team has pushed forward, or are those collaborations with the teams, or I'm curious how they end up working.Maria (16:40):It's collaborative. Yeah. Yeah. We absolutely work with them and make sure that they integrate with us seamlessly.Ali (16:46):I think an interesting question that also duck tails with what we're talking about here, with respect to integrations, is whether it's possible to kind of unbundle what a wallet is. And I mean, there are kind of standards out there that are being pioneered to things like wallet connect and I'm curious how you guys think of what the actual kind of user controls layer looks like. What are the various different components? What are the roles of that piece of the stack and how you think about what you're doing plays with that?Brandon (17:20):The wallet is actually, in its current form, a very complicated multifaceted product. So there's so many different parts. So not only in the app and outside of it. So inside the app, there's things like key management, there's things that people expect, like being able to do everything that you expect from your tokens.Ali (17:39):Yeah.Brandon (17:40):And if view, NFTs, swap tokens, like interact with daps and all that. And so it is a very challenging thing to juggle all of those things at once, especially in such a fast moving environment. And I think we're already seeing those sort of things, getting unbundled with like NFT viewing specific daps and daps that are more geared towards very fine gain grain control of your token accounts and things like that. And so I could see a world where they get unbundled, but I could also see a world where someone's kind of able to solve all those things, and under one umbrella,Filip (18:26):That's an interesting question. So it's basically the WeChat and other things. So is it a super app that can do everything?Ali (18:34):Yeah.Filip (18:34):Or is it an app that does one specific thing and then lets you connect to others? I think a really interesting approach is actually to have that super app, but in a light version. So you, the let the users do very basic operations with NFTs, with SPL tokens, with whatever they want to, because the space is evolving so fast, user demand is shifting from one week to the other and if a wallet can end up fast enough, then they could provide them those basic functionalities. But if they want to do some really heavy, deep stuff, then it's almost certainly going to be unbundled because you can't have 50 different integrations, fully integrated into the app. This just becomes exploded at one point. Especially on mobile. Dap is doable.Ali (19:35):Yep.Filip (19:35):But mobile, when you're limited with space, it's going to be almost impossible.Ali (19:42):Completely.Maria (19:43):For us, it's the super app approach. We love to keep our customers internally within the app. And you know, we do everything from activities, news, ranking centrally in the app. That's what we're trying to do, and it keeps our open rate really high as well.Ali (19:59):Yeah. Well, in a related question, which you alluded to is the question of mobile versus desktop and how the patterns of usage of web 3.0 and crypto might evolve and what might become the dominant vector for using keys for interacting with web 3.0 apps. What are your thoughts? How do you guys think that this will evolve?Brandon (20:20):Yeah, it's interesting. Because I feel like web 3.0 on mobile in more recent memory has had a hard time sort of getting started.Ali (20:30):Yeah.Brandon (20:30):And I think it's actually a function of the user base that has been using blockchain apps for the past couple years, which it has been more of like this prosumer DeFi type of user that prefers using complex DeFi apps on desktop. But what we're seeing now, I think is a couple paradigm shifts that are really setting the stage up for mobile. So first is this kind of new cohort of users that is much more NFT focused, and therefore a lot more casual. And so I think those people actually expect a really polished mobile experience. So I think that's one paradigm shift that's happening. And the second one is why we're all here today, is scalable and cheap blockchains, which their nature actually lends themselves much, much better to a mobile environment. So I think those two things are actually setting us up for the sort of new age of like web 3.0 on mobile. Which I think was not as tenable as before.Maria (21:37):Well for us, it's definitely mobile. Okay. We do have a Chrome extension as well, but for our customers, they don't really have laptops. It's very much mobile and that's their experience and how they onboard and how they continue to access. So it's definitely mobile for Slope.Filip (21:53):I'll go back to the last point and I'd say, it's going to be mixed. So you're going to do complex operations on a desktop, most certainly because mobile won't have the ability to provide them, but I see actually mobile and mobile wallet as your signing device for everything. When you connect to your desktop application, you just sign it with mobile. So because it's much more secure on mobile. I can't imagine myself, I can't imagine a lot of people actually, I don't know, sitting on a couch with a laptop open and browsing NFTs, as opposed to just sitting on a couch and browsing NFTs from their mobile app.Ali (22:38):Yeah. Yeah.Filip (22:39):And buying, selling. I want to connect to radio and harvest my farm in the morning from mobile. I don't want to do it from a desktop, open the desktop, type in radio, something like that.Ali (22:51):Yeah, it does feel as like, as web 3.0 begins to intersect more with a consumer world, mobile becomes increasingly more important as a result.Filip (23:01):Completely. Especially with NFTs.Ali (23:03):Yeah.Filip (23:05):Because NFTs and games in particular, so all those web 3.0 games are going to provide a huge user base, actually that is younger, the opportunity to experience crypto. And then you need a mobile wallet because all those mobile games will need a wallet.Ali (23:20):Of course.Filip (23:21):Unless they integrate one themselves, but talking to a lot of them, they don't want that responsibility because it's actually hard to build a wallet and maintain a wallet for it to be safe and secure for all users.Ali (23:33):Completely agreed. All right. Well, I think this is a good point to wrap the conversation. Thank you very much for joining us. This was awesome. This was awesome.

Live from Breakpoint 2021, Austin Federa (Solana Labs) moderates a discussion about the transfer layer and cross-chain bridges with Hendrik Hofstadt (Jump Crypto), Bryan Pellegrino (LayerZero), Alex Smirnov (deBridge) and Andriy Velykyy (Allbridge.io). 00:10 - Intro02:50 - The importance of bridges not relying on Trust04:28 - Moving wrapped assets12:00 - Capital Efficiency of Bridges14:02 -  Future of bridges16:28 - Integration of bridgesDISCLAIMERThe information on this podcast is provided for educational, informational, and entertainment purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose.The information contained in or provided from or through this podcast is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice.The information on this podcast is general in nature and is not specific to you, the user or anyone else. You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented on this podcast without undertaking independent due diligence and consultation with a professional broker or financial advisor. Austin (00:10):All right. Welcome guys. We're here to talk today about the transfer layer, scalability, cross chain bridging, the technical problems, the operational problem, the UX problems. This is just a panel of problems today, but it's also a panel on opportunities. We've seen a huge amount bridge over between other protocols in solana between other protocols and other protocols. We think of bridges as something new, but bridges are how DeFi has used Bitcoin as collateral for quite a long time at this point. It's kind of funny to think about how this started as we're taking an asset that's considered quite stable and solid that has no smart contract ability and being able to use that in Ethereum and that early day work really set the stage for, I think, a lot of what we're seeing today.Austin (00:55):But bridges go far beyond just this idea of how do I move something from chain A to chain B. There's roles in them as being decentralized ways to pass messages between different chains. There's a role for them in making users feel safe about trading across chains, and there's a role about them, about creating an exit ramp too. So that if you do something like buy an NFT for $69 million, you're not dependent on one chain to hold that. There's an ability migrate in a decentralized and trustless way. So we're getting into a bunch of that today. I'd say, let's just go ahead down the line and give a quick introduce to yourself and your project.Hendrik (01:31):Sure. I'm Hendrick. I'm with Jump Crypto and as Jump Crypto we're core contributors to Wormhole, which is a cross chain messaging protocol, connecting high value chains. And message passing in this sense means anything can flow between these high value chains, meaning assets and data. So your coins, NFTs, but also governance decisions and more information like as a base layer for developers to build on top of.Bryan (01:54):Bryan from LayerZero. Our focus is purely generic messaging interop. High level is connect every contract on every chain to every contract on every other chain.Alex (02:05):Hi everyone. My name is Alex Smirnoff and I'm co-founder of the deBridge Protocol, which is cross chain interoperability and liquidity transfer protocol. So the protocol itself allows to breach any arbitrary assets or data between any blockchains including solana of course, down the road.Andriy (02:23):Hi I'm Andriy from Allbridge, I'm a co-founder there. We currently support seven blockchains, and I hope that this number would increase to 12 by the end of the year. We started in July and since July, we bridged to solana one point half billion worth of assets.Austin (02:44):It's great to see. So I want to start out with just a level set question and Andriy, we'll start with you. Why is it important for a bridge to not rely on trust?Andriy (02:54):You see, when we speak about trusted bridges and trustless bridges, and that is the question, I suppose?Austin (03:00):Yes.Andriy (03:01):We have to consider that while we all here are building decentralized future, which should be completely trustless, in my personal opinion, sometimes we may sacrifice some layer of some level of decentralization to provide faster and better user experience. Because we are, in the end of the day, we are limited by the technology. And I have been thinking a lot about that because in the very end, we are building for our users and we want to create the product that would be used and used easily. And when we, in some cases, add too much of decentralization, that can affect user experience in a bad way. And this is something that we should consider as the owners of the business. So it is not so simple. I mean, as I said in the very beginning, I'm like a hundred percent over decentralization. I'm just saying, let's not forget about users. They going to use other product in the end of the day.Austin (04:08):Sure. So Bryan, when you're looking at something like this, is it possible... We talk about bridges, but these are more than just bridges. It's not like you're just, you take a bridge on a car, you're over the bridge, you're done, if the bridge falls down next week, you're still fine. You've gone over the bridge. But there's a different relationship here when we're moving wrapped assets. Can you talk a little bit about how users manage that and how you're thinking about that?Bryan (04:33):Yeah, I mean, I think that is the case when you do use wrapped assets, but I think wrapped assets are... You're always going to need wrapped assets for the primary chains. Because it's not like Ethereum can deploy a contract to mint Eth anywhere. But when you're talking about projects, Aave, Curve, like MIM, all these things, you're getting as projects move more and more to multiple chains, they're starting to deploy their token more and more on multiple chains and you have the ability to actually use native assets. So you can swap a real MIM for a real MIM rather than having four different bridges, which have four different versions of wrapped MIM coming in. And so I do think it's important to realize that over time the expectation should be that we do move away from wrapped assets. I don't think wrapped assets have to be the future for every project.Bryan (05:14):We've done it because we have something that's interesting on one chain and we want to create a synthetic on another chain, but these projects are starting to deploy wider and you will see much more of their own native. And especially when you have something, whether it's rebalancing or something like xSUSHI or [inaudible 00:05:32] any of these things. It's very important when you're getting a wrapped asset, you're getting like a Vanilla ERC20 equivalent where there is none of that and it creates a lot of issues. So I do think it's important to realize that move moving forward we will likely see or want to see native assets much more than wrapped assets.Austin (05:46):Yep.Alex (05:48):[crosstalk 00:05:48] I can adhere that wrapped assets is only kind of a gateway to get into the asset that user wants to get in because eventually cross chain interoperability will be all about the user experience. As a user, I don't want to know what is bridged at all. I just want to open my wallet like Fantom or MetaMask, I want to swap from one asset to another. And I don't care whether it went through wrapped asset or through some liquidity pools. I just want to receive the desired asset in the target chain. So I truly believe that eventually bridges will be kind of TCP/IP. What TCP/IP did for internet. So that's what true cross chain interoperability protocol will do for the internet of blockchain. So it's all about delivering of the user experience and yeah, the only point of interaction between user and DeFi will be the wallet or like decentralized applications, like 1inch or ParaSwap.Austin (06:42):Yeah. Yeah. No, I'm going to push you a little bit on that because every step in the wrapping process is a point of either failure or a point of trust. You could have Bitcoin that was originally wrapped onto Ethereum that's moved to Polygon, that's moved to solana, that's moved to Binance Smart Chain, that's moved back to solana. How do you simplify that chain of custody experience for a user? And how much should users actually care about that?Alex (07:08):I believe that users do not care about that. I mean the regular user. And as a wrapped asset, for example, what we do at deBridge, we have a wrapped asset in different blockchains, but if you bridge from the secondary chain to the secondary chain, so you basically burn the wrapped asset in one blockchain and you mint it in another. And of course there's kind of a additional risk of the consensus algorithm of the specific blockchain, but that the risk that user takes, because he know that he's going to bridge this asset to this blockchain and in case something will happen, like with the consensus algorithm in this specific blockchain, it's just the kind of collateral in this specific blockchain will be drawn. And that's the risk that user takes.Bryan (07:49):Yeah, I think the user doesn't care until something goes horribly wrong. And then the user cares a lot generally, but definitely.Austin (07:56):Do you think wrapped assets should trade a discount?Bryan (07:59):That's a good question.Alex (08:00):Of course not, I think.Bryan (08:03):I mean, there's some inherent risk depending on the wrapping mechanism. And I think likely over time, you could see that. I think demand right now, the value of a wrapped Bitcoin is... Well, all right. I don't want to trigger a lot of people, but you can generate yield on a wrapped Bitcoin that you can't generate in an actual Bitcoin. So there's actually maybe the argument that the wrapped asset should trade at a premium rather than a discount, but... [crosstalk 00:08:24].Austin (08:24):I love it.Bryan (08:24):I'll leave it there.Austin (08:25):I love it.Hendrik (08:26):I think the core assumption below that is really that notion of trust because that's essentially what the bridge establishes. The bridge establishes trust between chains that can't verify each other, or can't [inaudible 00:08:37] yet like verifying and proof of work chain, verifying different consensus mechanisms, all of these. In order to verify or establish trust between these chains, there's complex mechanisms that differ between any kind of chain. And I think that's what we all essentially bridge in the beginning at the very base layer. We establish trust between these chains and of all bridges I think the most important aspect should be establishing that trust and making sure that the bridge is going to be alive and the bridge is going to be secure.Hendrik (09:06):So the notion of [inaudible 00:09:09] and safety as the core properties of the bridges and then applications being built on top, but relying on this core aspect. And the risk that sits at this core protocol then trickles down into the applications built on top of the bridge, eventually wrapped assets. And that's where you could apply risk discount to wrapped assets. But that would hopefully be as small as possible if we all do our jobs right.Andriy (09:32):There is one more thing to that, like combining trust to the bridges and what we discussed before about the wrapped assets. So let's say we have an asset coming from Ether to Polygon. So it's being wrapped issued on Polygon. From Polygon we take this asset and rewrap it on solana. Then on solana, this asset, I'm speaking from experience, it's get on Saber our partners converted to the native asset on solana. So for user it is one seamless flow. It is good. It is all under the hood. But for us, it is sometimes scary because ultimately that means that bridges should trust each other. Because a point of failure before the assets come to my bridge can essentially affect my performance as well.Andriy (10:19):And it would not be my security problem. It would be problem of other bridge, but I will end up with the wrapped asset that is locked on my bridge, which due to the [inaudible 00:10:30] or something, it costs zero. So what should I do? And this is, again, the question, how can bridge trust each other? What should be the protocol? What can be the thing to unite us and resolve this issue?Alex (10:42):But that there is that liquidity providers actually [inaudible 00:10:46]. So it's not about like cooperation between bridges, but more like whether users are able to swap from like wrapped asset to any other asset within these specific ecosystem or like solana or Polygon, whatever. So, yeah, basically when liquidity providers provide liquidity in pair of like wrapped asset pair with a, for example, most liquid asset of these specific blockchain, they trust to bridge and they should kind of believe that bridge is truly the decentralized and trustless.Alex (11:12):So users do not bear so much risk, in fact. The risk is mostly on liquidity providers, but the question interoperability is not only about the swaps. First of all, it's all about the delivering of arbitrary messagings or arbitrary call data. Because what I personally would like to see is when protocols on Ethereum could be kind of composable with the protocols on Polygon. So let's say algorithmic stable coin on Ethereum opens up position on the Mango Markets to maintain its [inaudible 00:11:45]. And that would be awesome. And in order to accomplish that, we need to have truly decentralized channels to deliver messages between cross chains.Austin (11:54):Yeah. So Hendrik, you guys have been doing a little bit of work on that. I want to ask you two questions. The first is on the capital efficiency of bridges. And the second is on use cases for bridges that are not just assets.Hendrik (12:04):Yeah. I mean, right now, if we just look at the wrapped assets, I would say, of course they are in a sense capital efficient, but there could be more. Like there have been people talking about increasing capital efficiency by using the capital on the one side where it's locked into the bridging contract and then also using the wrapped asset on the other side. So essentially double yielding and double earning. I think that is something that is interesting, but I think that should live, obviously, above the base trust layer of the bridge. But this is something that is certainly interesting. But then when you're talking about should wrapped assets trade at a discount, you involve even more smart contract risk. You layer risk, risk, risk on top of each other. And they're the point of view X comes in that we've approached a couple times here.Hendrik (12:50):How does a user understand who they need to trust when I use this wrapped asset, when I use this bridge, when I use cross chain lending. And I think right now the user experiences do not really do that well. I think we've got a lot of work to do in educating users, giving them a reliable risk score, and then we can tap into these pools. But before, and especially as everything's moving so quickly, I'm kind of afraid in tapping into that. But as long as users are getting educated that this is happening, I mean, the bridges already allow that in a sense. Like for example, the Wormhole has message passing and you can add new layers on top, as we said, it's kind of like the TCP/IP layer. You can build a protocol that is more capital efficient on top of it and launch it today.Austin (13:37):Yeah. So let's talk for a second about that component of both moving things like NFTs and enabling protocols that are now moving cross chain. Something like Lido, which now exists in multiple chains, multiple layer ones. How is that communication being managed for something like that? And as a broad concept, not Lido specifically. And then what is the role of a bridge? Is that the right analogy to think of for something passing messages back and forth?Bryan (14:01):I also just want to chime in real quick and say that one of the things everybody right now is... Because you said you wanted to kind of touch on future. And I feel like everybody right now is focused on an individual coming like one user coming and wanting to bridge their assets from chain A to chain B. But my very firm belief is that in the future, 12 months from now, whatever, 95% of bridging is going to be driven by applications and not by users. Users will come and they'll use a Uniswap or they'll use whatever it may be that they're going cross chain and they'll be completely abstracted away from the bridging process. So it's not going to be driven by an individual user coming and saying, "Oh yeah, I'm doing this bridge. I'm accepting this risk, et cetera." It's going to be, how can you integrate that into an actual UI that's functional and makes sense. And the application is comfortable with whatever the trust assumptions are, if there are any, and yeah.Austin (14:48):Yep. So you see that layer moving from something that's more user facing, like a Venmo style experience, to something that's more like an interbank transfer.Bryan (14:56):I mean, I think the user, whether it's lending or whether it's swapping right now, I think the process is not going to be that you do some action in a protocol on chain A. You leave, you grab a bridge, maybe you have to jump through another chain and then another bridge and then like you go do something on the other thing. It's taken an hour, you've paid seven fees and switched wallets and got native gas. Like that just can't be the way that's going to happen. The user's going to sit in an application, do a transfer, and something is going to happen on the other chain. I think, everybody's sort of talking about that process of triggering arbitrary messaging on the other chain, but I think that has to live at that application layer, not at the individual user walking through this entire process piecemeal.Hendrik (15:34):I think that's a really good point because actually when you ask us about future, we also can only make assumptions. It's like, if you had asked me one and a half years ago, "Will I be trading Degenerate Apes and like getting yield on NFTs?" I would've said you, "Austin, are you crazy?" But now we're in this world and proof there's I think none of us can predict what exactly is going to happen. What we can do is design the bridges in such a way that we enable developers. And I think that's the key goal to build these experiences, to build new applications that can do all these things.Austin (16:07):Yeah. I love that. So talking about enabling developers. So if we go over to Andriy, you've been talking about, like on solana, you guys have bridged a ton of assets.Andriy (16:18):Yes.Austin (16:19):And that's not just going into direct people's wallets, oftentimes it's going into different dApps across solana. Talk about that developer work, how that integration works between the bridge and the application that the user's trying to use.Andriy (16:31):We were speaking the future. And that is exactly the future way of thinking about. It is like, we are calling this concept bridge as a service. Bridge, it is just the tool for users and for developers. So we would be more and more moving from the UI itself to some APIs and some connection with projects and developers. And this is how, for example, we built our whole strategy. We're not just the bridging assets. We bridge the asset and then on the destination chain, we partner up with Saber. We partner up with Orca. We create a flow because for users, the bridge, it is just like, it's a tall road and people they don't want to think about the road, they want to drive with their wife and kids from point A to point B. They don't care about the road.Andriy (17:16):And this is what happening here. And those bridges that would provide more flexible functionality. So for developers, it would be easier to build on top of them. Those are the ones that would succeed in future. And by future, I mean like six to 12 months from now. It is not distant future. It is not years. It is soon. This future is coming in soon. But in this sense, bridges is more like B2B business. Because I believe that other protocols and projects should be integrated with bridges, not user themselves. And we provide decentralized infrastructure, decentralized framework so that other protocols and projects can build on top of it.Andriy (17:55):And yeah. So for example, I think eventually like many projects and protocols, you'll want to kind of scale up and tap into user bases of other blockchain ecosystems like solana, for example, for project from Ethereum. And the main challenge here is to let actually protocols to build on top of this infrastructure. And in this case we don't need to have kind of censorship wide listing, et cetera. So we just need to provide kind of tooling so that any protocol can bridge their asset and any protocol can pass an arbitrary data cross chain that we will be executed in the target chain. We can actually let like protocols to decide on how they can do partnerships like with Orca or other dexes in other blockchains as well.Austin (18:40):So in a way we're talking about a composability layer for bridges.Andriy (18:44):Yeah.Austin (18:45):Interesting.Hendrik (18:46):And I mean to a certain degree, we're already there with applications building that on top. You already said Lido. Lido has staked. So they've staked Eth and then they get bridged to a protocol like [inaudible 00:18:57] and suddenly you have like a savings product. And that is what the user then consumes. This is the end user goal. I just want to put my money in and get interest or get some kind of yield and everything else is abstracted in the background. And I mean, this is one of the first steps and then we go further and further and further. We bring protocols truly like multi chain. Like if I hold COMP on solana, maybe I want to be able to participate in governance. I shouldn't lose that right on another chain and enabling this, but these are next steps. And I think to a certain degree we're already there.Bryan (19:29):Yeah, I think unified governance is something that's going to be a very hot topic over the next period. Almost certainly.Austin (19:35):Yes. Well, we'll have to do another one on cross chain governance protocol sometime later. Thank you all for joining us today.Hendrik (19:41):Thanks Austin.Andriy (19:41):Thank you.

Live from Breakpoint 2021, Brendan Eich sits down with Anatoly Yakovenko to discuss integrating Solana into the Brave Browser, the huge potential for a decentralized search engine and NFTs as an entry point to the metaverse. 00:09 - Intro00:54 - Integrating Solana in Brave08:00 - Challenges with creating the browser09:23 - How to scale crypto to the general public11:57 - A Decentralized search engine14:46 - NFTs as entry point to the metaverse16:35 - Mobile vs. Desktop18:00 - Languages and smart contract development20:40 - How to grow crypto to mass adoption22:44 - Global Peer-to-Peer environment in Crypto DISCLAIMERThe information on this podcast is provided for educational, informational, and entertainment purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose.The information contained in or provided from or through this podcast is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice.The information on this podcast is general in nature and is not specific to you, the user or anyone else. You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented on this podcast without undertaking independent due diligence and consultation with a professional broker or financial advisor. Brendan (00:10):Great conference.Anatoly (00:11):I know. Thank you. I'm really excited to be on stage here with you. You're-Brendan (00:15):Same, [crosstalk 00:00:17].Anatoly (00:16):... One of my heroes. As a programmer, JavaScript is a language that really revolutionized how we do application development, how we build. It's the foundation of the web. And I often think of web 3.0 really just being the web, just part of the bigger web.Brendan (00:34):Yeah, me too. That's how the web grows, by evolution. So we think the web 3.0 browser should be the gateway to a billion crypto users. And we are therefore integrating Solana into Brave soon as we can. And here's the cool thing, this is an evolutionary path. We're going to make it so any dapp that is Solana enabled, wherever other chains, EVM compatible or Ethereum, whatever it supports, if it supports Solana as well, we'll make it use Solana by default. So dapp builders who build for Solana as well as other chains. In Brave it's going to use Solana. And that's going to just help, I think, pull all the dapps on the Solana.Anatoly (01:24):Super exciting.Brendan (01:25):You like?Anatoly (01:25):Yeah, it's wonderful. Yeah.Brendan (01:28):Let's see what else. What do we like about Solana? We like NFT games, we like DeFi a lot. We want to make it easy for users to earn and get yield without having to be super expert or do a lot of complex operations. So we're going to work on building that probably in the first half of next year into the wallet so that you can just robo-earn, robo-yield. And we want NFT galleries and NFT transactions to be super slick. I was inspired by the Jules Urbach talk earlier today, and the demo earlier here with NFTs, there were several of them actually, it's all good.Brendan (02:07):We want as many NFT marketplaces integrated as we can, so that's on the agenda. And yeah, [Radium 00:02:13] is there, of course. Radium's still earning, yielding good. The thing that we do now with basic attention token tends to have to settle on Ethereum and it's going to cost you gas. And our valued settlement partners like Gemini, Uphold bitFlyer in Japan, but once we're on Solana, I suspect that BAT, which is already reflected through Wormhole, proxied through Wormhole, might just find it's better to settle on Solana. What do you think?Anatoly (02:41):Yeah, for sure. Absolutely.Brendan (02:44):I'm giving you the softballs here. And we really do want to get this out to all users. We think, whether you're having a hard time in some part of the world where it's hard to get banks to let you save or borrow, or you're beyond banks like a lot of us are or want to be, Solana is the way to do it. And I mentioned auto earn already, got ahead of myself, but I think this is going to be huge. It takes some skill, you got to make sure if you get on the wrong side of yield farming, you go somewhere where the grass is greener, but we'll make it as automatic and easy as possible. And it's just so much better on Solana. I'm making you blush. And yeah, the dapp ecosystem is growing, but if we do this Solana default on multi chain dapps, I think we'll just pull every dapps that's really popular over that Brave users want, and I hope that's going to be every dapp.Brendan (03:37):So here's more NFT marketplaces. There are lots of cool projects in crypto, so we're not doing only Solana, we have obviously Ethereum, we're going to do Bitcoin in the new wallet. It's coming up fast, it's in the Brave nightly builds. And we might do other chains, but I think it's important to pick a chain as default. This is a lesson we learned the hard way with search engines, because when you make a search engine the default, first of all, you can get paid if you get a deal, not always true. And really the user expects to just type keywords into the address bar and search. We want the wallet to have a fast, good default and that's Solana. So enough said. And we're bringing it to mobile too. This is important. I think a lot of fragmentation has occurred due to how wallets are split across mobile and desktop. We're seeing some good mobile first or mobile also wallets. We want to do it mobile and desktop feature parody, evolve at the same time. And we're happy to do that with Solana's partner.Brendan (04:42):So the last bit of news is the BAT system is a triangular system that involves privacy preserving ads. And users opt into it to get 70% of the gross revenue. What we've built so far has a part of our BAT ad system requiring us to verify things, to be the trust third party, which is a security hole. And so we started a project called Themus and worked with several crypto projects to see if we could bring it to high speed chains that can do things, like you need smart contract systems for zero knowledge proofs, you need some part of it in the browser because you're measuring attention. You don't want to put your detailed attention log on any blockchain, however fast, because it'll fingerprint you. So we're using black box accumulators in the browser with Themus and we're then minting ZK proofs. And the cool thing about Solana is we can just put those on-chain, no aggregator, no trusted third party. So we're getting rid of ourselves, we're firing ourselves as a trusted third party. And that's something we're excited about.Anatoly (05:40):And that's awesome. That was, feels like two years of research. It took quite a while to get to that design.Brendan (05:47):And now it's going fast. I think now we've got good working relations with Solana and we can crank out the Rust Co, because we love Rust. Because I was executive sponsor of Rust at Mozilla, so I have a tear in my eye to see my little babies all grown up. And Amazon's hired a bunch of the Rust core team. It's okay, they need jobs. But yeah, we want BAT to be fast, low fee, DeFi base pair and for ads on Solana. So Brave and Solana are doing the new crypto and ad system and it's going to be awesome. Thanks.Anatoly (06:24):That's awesome. I'm a huge fan of the web, huge fan of all the work that you guys have done and Brave. And I remember pre-mobile days, I was working on Brew and I was trying to optimized the web and flip phones. And there was a brief moment where the iPhone came out, we had a browser, and it felt like the web has opened up. And then it just got away from us.Brendan (06:49):That's right. Jobs said when he did the iPhone one, he said, "The web finally works on a phone." And then the story I heard from somebody who would is that they had to port a bunch of games which were C++ or whatever, and they had to do native apps. And they never looked back after that. But I think the web can always catch up and should catch up. And web 3.0, if you have this evolutionary path with dapps and dapp triggers from webpages, then you just evolve into it.Anatoly (07:19):Yeah, that to me is the really exciting part, is there's now an opportunity to have cryptography power the next generation, how web is monetized. Whether it's through advertisement, like with zero knowledge proofs or through direct payments and micro payments. Do you feel like Apple's going to crush us?Brendan (07:41):People a few years ago were worried about this Facebook thing, Libra and now DM. And they got crushed because some politicians hate them. But Apple is very cautious, and if they're doing anything with blockchains, it's a ways out. And then when they arrive in, it's going to be the diva at the party at midnight, like, "Start the party now," and the booze has already run out. So we're going to drink all the booze first.Anatoly (08:06):All right. I'm down for that. What are some of the challenges with building a browser for general consumers, but also with cryptography?Brendan (08:17):This is the problem with browsers is they are universal apps. You spend a lot of your digital life or online life in them. And so if you make the crypto stuff be this expert only area, or it's scary. I use wallet apps, I use ledger hardware wallets, but it's a little bit scary because you feel like, "Did I forget my pin in or did I have to reset it and do the word list?" And there's some anxiety and fear of loss. We want to make crypto be a positive sum, that's why the robo-earn is important to us. Just like with BAT private ads, you could get 70% of the revenue.Brendan (08:53):So you're always building up your assets as well as spending or sending them. And it should be slick, it should be for e-commerce. You can even do things like dis intermediate Amazon. I won't give away all my secrets, but we think we can do that without having a bunch of JavaScript user scripts attack every merchant checkout flow. We think there's a way to get into the interchange charge and do it. And crypto everywhere. It should be slick, should be easy, should be comfortable, make you feel like you're going to win, not lose.Anatoly (09:23):What about custody and keys? How do I get my parents to understand this stuff?Brendan (09:28):Yeah, it's really a little different, but we're looking at Taurus, we're looking at various ideas for backing up your keys that don't just put it on paper and word list in the safe, which we've all been through. And in some ways, the old web went with username and password and had to add a second factor, which often had to be a temporary access number generator on your phone. So at that point you're almost as complex as self custody. I would say you just have this more conventional recovery path. You lose your phone, you know your email, you can try to prove that you're the same person to Coinbase or whatever. But I think self custody has a complimentary role and we want both. We want people to use self custody and be comfortable with it, so we're looking at all these usability challenges. And we think we can get it just almost as good. And then unfortunately the regulators insist, if you want to do Fiat on/off, you're going to go through a custodian.Anatoly (10:20):Of course. The challenges, that's the exciting part. No one has figured this out yet and we're going to dive right in and see, how can we actually scale crypto to the general public?Brendan (10:31):Make it easy for your parents.Anatoly (10:32):Yeah. Yeah, would love to see it. What do you guys see as the tension between the app store on the mobile device and the mobile web?Brendan (10:42):Discoverability is always a problem. And we don't want these brutal curators like Apple. So having lots of stores is good, but then you have the need for a search engine, which Brave now has, which is a private engine and also involve users opting into building the index incrementally, that's the web discovery project. So we're going to aim, because we're very crypto first and our ad sales teams, one of who's here, always looks at crypto options and NFT options, we're going to aim at making our search engine best for crypto. It already uses [inaudible 00:11:14] charting, and it's still in beta, but we're working out all the kinks, so I think search, the good old search we remember from 2004 when Google was great needs to come back and it needs to be the way you find stuff in marketplaces and crypto exchanges.Anatoly (11:29):That's awesome. What kind of information do you think users would want out of a crypto first search engine or curated environment that's different from the traditional web?Brendan (11:39):Search almost gets into, is somebody trying to SEO you and compete for keywords? We're aware of this problem and there's no silver bullet. But we think with crypto, you might actually have a better chance at mechanizing this and having a fair playing field, an automated system for finding the lowest fees and the best yields.Anatoly (11:57):Is there hope for a decentralized search engine?Brendan (12:01):Yeah. So I had a friend who was involved with pre-research, Rich Scrantom, and pre-research looks like it's running a bunch of nodes [inaudible 00:12:07] Google, which Google does not like. And if they're running on [inaudible 00:12:10] IPs, Google's going to shut them down or use their anti-bot team to take them out. We're building a legitimate search engine, but we can't decentralize the algorithm easily because search is sharing queries, looking for some kind of objective best results like page rank, the eigenvalues of the random walk. And decentralizing that is a research problem as far as I know. But we have an active team, we're evolving search and we need your help because we're trying to crowdsource the incremental indexing of the web, we're not trying to index everything from 1998 on. Only Google can do that. Hats off to them, but their time is passing.Anatoly (12:49):When I was growing up as an engineer, the web was just starting, I was really passionate about Linux. And I had this dream of a Microsoft-free personal computer. It feels like the web 3.0 is potentially a dream of ad exchange free, that parasitic Google free web. Is that possible?Brendan (13:13):If you don't collect the data you won't go wrong that way. There's still other ways that central powers can turn on their users and take advantage of them. But I think there is, and that means ultimately you might need hardware that's indie or that's user first. And Brave's not capitalized to do this yet, but I know people, including friends from Firefox OS, which actually after it folded at Mozilla, continued in [inaudible 00:13:37] OS. And there's an open source lineage that you can trace back. And people at Qualcomm, we both know-Anatoly (13:42):Of course, yeah.Brendan (13:42):... We are working on it at the time. So I think there's a chance for a new open source OS that has web 3.0 and none of this Java or swift native stuff. And JavaScript, web 3.0 All the way down.Anatoly (13:55):Are we going to end up building a phone?Brendan (13:57):Brave OS. I don't know, I'd have to raise some more capital.Anatoly (14:03):Yeah. Yeah, that's a way to nerd snipe me for a couple years.Brendan (14:07):But people need independent hardware that serves their interest first. Absolutely.Anatoly (14:10):For sure. It always feels like that's a really tough challenge. But every two it gets easier and easier, hardware gets cheaper and cheaper and the tools get better and better.Brendan (14:19):And then Apple has something new and shiny that the commodity hardware can't match for another year or two, but that's just the nature of the game. So I'm sure we'll have iPhones, but we can probably have BAT phones too. Solana phones.Anatoly (14:33):The BAT phone. I love that. The BAT phone sounds really cool. As you guys see the web 3.0 evolving, I think from your presentation, NFTs were such a huge focus as well. Do you think this is the entry point for the Metaverse as people call it or that really interactive rich environment with ownership of the stuff around you?Brendan (14:56):Yeah. I think you have to keep running at these problems. And usually if you're a startup and the timing isn't right, or something goes wrong, you run out of capital and then the investors reset, or maybe they try again. With crypto, we have this great ability to just keep leveling up. So we're seeing Bitcoin, now we're seeing smart contracts on Ethereum, now we're seeing Solana. And as you level up, you can start to do some of these things that seemed hard before. Like you want some kind of cryptographic proof of ownership.Brendan (15:26):I think one of the demos talked about this. You want to make sure that somebody doesn't copy the pixels. And if you get into VR, there's been interesting research on this. And my friends at [inaudible 00:15:36] have done some work on this. You can actually watermark in a way that's indelible. And if somebody copies your art and tries to remove the watermark, they degrade the quality, because it's been convolved with the luminance and the chrominance. So I have hopes for this being useful in games and connected verses. And to me, that's the Metaverse, it's not going to be something centrally planned at Menlo park by Lieutenant commander data.Anatoly (16:02):I hope not. What I see out of the gaming companies that we talk to is that, especially the ones that are crypto focused, is the one to build browser first games. Everyone that I talked to had this idea that as soon as you open the page, you jump right into the game. There's no sign up, there's no friction, your wallet is your identity. And you're just exactly where you left off.Brendan (16:24):That took a lot of work at Mozilla, by the way. We did [inaudible 00:16:27] JS and that led to web assembly. And you could show games, in the story, you can start playing them and then you just convert. I think it's a great model.Anatoly (16:34):Do you feel like mobile is expressive enough for that? Or is the difference between iOS and Android and desktop is too hard to actually make that work?Brendan (16:45):There's certainly a difference. Even with the latest chip sets, you're just not as fast, you have less bandwidth all around. But games can scale down because the view port's smaller, there's hope that you can use the kind of tricks that we see with the remote rendering, cloud rendering. So I think mobile is the future, but I heard this 12 years ago, people would say around Silicon valley, mobile's the future. And then they would say, "That means there's no desktop." And that is very false. Everybody with a laptop or any big enough screen and a keyboard is still very high value. And that means the economics there don't go away, it just doesn't grow as fast.Anatoly (17:19):That's true. If you look at the growth of the Solana ecosystem, a lot of the users are basically dust up only.Brendan (17:27):Yep.Anatoly (17:27):That to me says that a lot of folks, maybe there was a switch during COVID where we went from being so much immobile to where we're staring at screens again.Brendan (17:36):A bit of that. You go to India and a lot of people are mobile only, but you need both. And I think as mobile gets stronger, you're just going to see more parody, you won't see this need for apps, which is often artificial. It's like holding the browser back, sandbagging Safari a little bit. This is what my friends at Google, or one of them who went to Microsoft, always accuse Apple of, and it's not wrong. You got to give the browser it's due and then it can compete with native better.Anatoly (18:00):Got to ask you about languages.Brendan (18:03):Okay, [inaudible 00:18:04].Anatoly (18:03):How do you see smart contract development in the future as somebody that had incredible depth and understanding how application development happens on the web?Brendan (18:12):Yeah, I think the thing you're seeing with type script, especially with large teams, is more information that you need some kind of proof system or it could be just a warning system, but it's based on model checking. Often it could be based on higher level models than you can express in sound type system, which is something where there's just this timeless world of types that's potentially syntactically checked and prevents bad things from happening at runtime. You need dynamic systems, dynamic code, JavaScript, and the static checkers.Brendan (18:44):And you get the best of both worlds if you have really good ones. So I remember at Mozilla, we were investing in model checkers for C++ because it's memory unsafe. And you could build these higher level checks that knew about security properties you wanted to enforce. And I think this is what you're seeing with smart contracts. I was talking to somebody I met at the hotel bar about this, because it's still a very fruitful area that's had good research in computer science, programming language theory. And it hasn't always been brought to the programming masses like it should. There were companies like [inaudible 00:19:17] Covarity and others like that. The compilers themselves grew the ability to do plugins for static analysis. And now [LOVM 00:19:26] is there.Anatoly (19:27):Do you think that smart contract development needs to have a high level, easy to use language environment? Or can it be driver code?Brendan (19:37):Yeah, exactly. Driver code in the era of C was the worst code in the kernel.Anatoly (19:42):Driver code with Rust is a little bit less frightening.Brendan (19:45):In fact, a friend of mine who was at Microsoft at the time went to Mozilla and has his own startup now, did it at Microsoft, a checker for driver's C code. Which he could skirt the halting problem and kind of statically reason about it and say, "This is garbage driver code, send it back to the vendor." But yeah, I think you don't want to have happy, fun, JavaScript looseness if there's big money at stake. So I think it's important to have the right tools with the right static and dynamic checking.Anatoly (20:13):Do you think smart contract development is strictly financial or are we going to see things that are not financial that you can actually [crosstalk 00:20:21]?Brendan (20:20):You'll see things that are not obviously financial, but they'll turn into reputation in a game or gifting and those tend to matter too. So you still don't want too many dynamic errors.Anatoly (20:32):That's true.Brendan (20:33):So I talked about this in my chapter in coders org, I'm still a fan of static, even if it's unsound semi-static checking.Anatoly (20:40):What do you guys see as like the opportunity for us to grow crypto to a hundred million users, actual signers?Brendan (20:49):Yeah, I'd to get Brave to that scale in a year or two. It depends on everybody here and others. It also, I hate to say it, depends on the nation states of the world not doing something adversarial. But I think given the state of the world, not a great state, but there will always be options to do things with crypto. The internet routes around censorship, and that's true in the web 2.0 And the web 3.0 world. And it's true with blockchains. You still have concerns you have to fork to undo the censorship, but at least you have options. DoAnatoly (21:26):What kind of applications do you envision will actually drive that growth?Brendan (21:30):I think at first it's going to be people using crypto for payments and for DeFi. And some leading edge of that user base will be getting more sophisticated in doing other things. But just having things like gift cards, where we often find that they're useless points, even if we can use them or Congress passed the law to don't expire, we still just don't use them. We should have much more liquidity. We should have liquidity across all kinds of assets. And this is where you start talking about tokenized securities, and can you have primary and secondary liquidity for companies? I think if you're as old me, you all had a tiny piece of some startup that went sideways for 10 years and then sold. And you couldn't trade it easily. And you might have wanted to do that because you might have been squeezed out when it sold. So there's lots of room for blockchains to solve these problems. I think in general, connecting people more directly getting rid of these officious or censorious intermediaries. A lot of room for application.Anatoly (22:29):In this new evolution of the web, I often describe crypto as a fully connected network, as opposed to a social graph, like on Facebook.Brendan (22:40):Yes.Anatoly (22:40):Do you think that's true? Do you think we're going to enter a stage where I am effectively with my cryptographic signatures, I'm in this true global peer to peer environment?Brendan (22:50):I hope so. I showed at web summit last week, I showed the slide with the correct diagram, which is more like a mesh for decentralized, and the incorrect one, which sometimes is called decentralized, which is really distributed, but it's mostly tree structured. Or if it's a graph, it has a dominating spanning tree. That's Google, that's Amazon. So with projects like Helium, with web RTC making it so you can make connections into the endpoints instead of only out. In the old days in the nineties, we could only make TCP connections out from the browser. I think we're heading toward this world. We have to build it iteratively and collaboratively, we have to get around the concrete firewall problems that web RTC mostly got around, it's still a little dodgy. And I think that is the future. I think we should all have Helium nodes if we can. I'm a fan of the project.Anatoly (23:38):That's awesome. The idea of decentralized browsing on an open source phone connected via an open network.Brendan (23:49):Low raw radio.Anatoly (23:50):Yeah, run by the people. Accessing Solana, that would blow my mind.Brendan (23:55):It sounds too good to be true, but I think it could be true, especially if we build it carefully and quickly enough and get it out there and make it usable, which is why I've always wanted to make Brave be about crypto. Even when we started using Bitcoin for our prototype, it was clear once you shield the user by blocking all those trackers, you break all the economics that pays advertising money into the publishers after taking a big slice out for the middlemen like Google. And if you cut that out, how are you going to reconnect it? It's crypto, peer to peer.Anatoly (24:26):All right, let's do it.Brendan (24:28):Awesome.Anatoly (24:28):I'm excited. So thank you, Brendan. Thank you so much for doing here, for working with us.Brendan (24:34):Thanks.

Daffy Durairaj is the co-founder of Mango Markets and is currently working full time as a developer in service of the Mango DAO.00:28 - Origin Story04:44 - Seeing the order book10:20 - The idea behind creating Mango Markets15:38 - Going from creating smart contracts to creating Mango17:32 - How big is the DAO?20:01 - The Launch29:15 - VCs and the launch32:43 - Decentralization and getting stuff done34:55 - Will DAOs ever compete with big tech companies?40:43 - What’s next for Mango Markets?DISCLAIMERThe information on this podcast is provided for educational, informational, and entertainment purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose.The information contained in or provided from or through this podcast is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice.The information on this podcast is general in nature and is not specific to you, the user or anyone else. You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented on this podcast without undertaking independent due diligence and consultation with a professional broker or financial advisor. Anatoly (00:09):Hey folks, this is Anatoly and you're listening to the Solana Podcast, and today I have with me Daffy Durairaj, who is the co-founder of Mango Markets, so awesome to have you.Daffy (00:20):It's great to be here.Anatoly (00:22):So origin story, how'd you get into crypto? What made you build Mango Markets?Daffy (00:30):How did I get into crypto? So, I started off really not wanting to get into crypto. I was really interested in algorithm training. I did that in college and did some competitions that I did well in, and I wanted to trade equities, but it turns out if you have not enough money, if you have a few thousand dollars it's just not allowed. You're not allowed to algorithmically trade. There's a patent day trader rule, and I was infuriated and I was just looking around and I found Poloniex where you can do anything you want. The thing that actually hooked me first to Poloniex was the lending market because immediately as soon as I saw an open lending market, I was like, "Oh wow, I have to buy some bitcoin, and I have to lend it out." And, Poloniex was all bitcoin, and then it gradually got into just the meat of it, which was algorithmic trading and everything about crypto seemed exciting, but I actually didn't want to hold bitcoin. Poloniex was all bitcoin, but again, I think the government sort of pushed me in the right direction.I was like, "Okay, I don't want to hold bitcoin, I'll hedge off my risk on BitMEX, but again, not open to US persons, and so I was kind of reluctantly holding bitcoin and thinking, all right, I have a few thousand dollars if things go bad in this whole bitcoin thing. I'll come out okay. I'll get a job or whatever, but just never got a job, just kept holding bitcoin and continue to trade crypto, and I did that for about five years. Then, I wanted to actually start trading on chain because I thought this was probably for a lot of the reasons that you built Solana, the censorship resistance, and the global liquidity of it, and the openness of it, the fact that you're not excluding people that have a few thousand dollars. I wanted to build on chain and I was just not very bullish on a lot of things, so I kept going back to trading, and then I saw Serum DEX, and I was just hooked. I placed a trade and it felt totally natural and normal. It wasn't like $40 and takes 20 seconds and you don't know if it... And, then MetaMask was jammed and you're like, "Oh, but how do I cancel this?" So, that was a long-winded way of saying I was a trader and then I saw Serum DEX and then I had to start building the tools that would make Serum DEX even more fun.Anatoly (02:59):That's awesome. I got into it by trading. Basically, I set up like an Interactive Brokers IRA account, and that let me kind of bypass the rules.Daffy (03:11):Really?Anatoly (03:13):With a very small amount of money. I think they probably closed these loopholes already. I wrote a bunch of stuff on top of their Java STK and started trading there.Daffy (03:22):I remember I actually got started that way too. I did a bunch of stuff for their Java, and we can tell you we're both programmers. We wanted to build this money machine. It's so fascinating, and it's a machine that-Anatoly (03:40):It prints money.Daffy (03:40):It does things and it prints money. What more could you want? So, I got started with Interactive Brokers, but I guess the whole IRA thing... Because I was a college student, and so even talking to an accountant would take a huge dent out of my net worth.Anatoly (04:01):Totally, it's all really not designed for... The whole financial system in trading in the US is designed to funnel retail towards an app like E-Trade or Robinhood, which takes a cut, and then sells that trade to somebody else, who will take a cut, and then 10 other people until it gets an exchange, and that's how everybody's protecting their neck. They're all taking a little slice, and I think what's cool about crypto is that even centralized exchange like FTX is 1,000 times better and less extractive of the users than anything in traditional finance, simply because they can guarantee settlement. Such a very simple thing.Daffy (04:49):You feel it right from the beginning. You go to Poloniex in 2016, and it's like, oh, you have an email, you have deposited bitcoin, and now you're just lending to people. So, just talk about not being extractive. To see the order book through Interactive Brokers or Ameritrade or whatever costs you a lot of money and it costs them a lot of money to provide it, and I don't think I'd ever seen an order book. This was my passion, this is what I love to do, and I've never actually seen it.There's that story of the blind men who are touching this elephant, and so I had kind of figured out maybe what the order book looks like, but then on Poloniex, you go there and you just see the order book and you see all the lights flashing and you're like, "Oh, this is it. This is where the trades are happening." And, that's free, and of course, a big part of Mango Markets as well is you can see the order book. That's it, that is it, there's nothing more, and it's all on chain and all this stuff. So, in terms of not being extractive, it's a really big piece of what motivates people to come in.Anatoly (06:02):I don't know if you ever tried to get data, real data. I wanted timing information when a bid comes in or when an ask comes in versus when it's filled. How do I get access to it? Because when you get data from any of these places, basically it's like a little better than Yahoo Finance, which is like every five minutes they give you a low and a high.Daffy (06:27):I don't know, did you ever succeed at doing that in Interactive Brokers?Anatoly (06:32):No, I recorded some of it, but it just never had that fidelity and it always felt like a gamble. I'll build some models and sometimes stuff would work locally against my simulations, but then whenever I would actually try to run it, I'd see that fills take a little longer than they should and all this stuff really feels like you're not interacting directly with the trading system, that somebody when they see your order they're like, "Well, maybe I'll put my order ahead of yours or do whatever or slow you down a bit." It just sucks.Daffy (07:16):It feels very opaque, it's like a black box, and of course, this is all for people like me who are kind of looking on the outside looking in. So, if I had gotten a job at Citadel or somewhere, then I could probably see what's actually happening, but the fact that the vast majority of people are going to look at it and not really know it's actually happening, not everyone wants to see an order book. That's an important fact, but there are a large number of people who need it to be a little bit transparent to be involved.Anatoly (07:49):What I hate about it is that there's a lot of people that make a lot of money from you not seeing, that they're in the business of information assymetry and fuck them.Daffy (07:58):So, it's not a family friendly podcast, so it's good. I was going to ask that. So, there's a funny story on RuneScape. I don't know if you've ever played RuneScape.Anatoly (08:17):I played Ultima Online, which is I think similar vibes in the early days.Daffy (08:22):Yeah, so on RuneScape, just like on the point of no one being able to see anything, on RuneScape, also they had an order book because that's the most natural thing to do, and I actually had to figure it out from first principles. I would place a trade and I would see that sometimes it would get executed and sometimes it would not get executed, then I realized, okay, if I place a trade for these water runes or something or oak logs or something, and I put the price really high it gets executed at some price that's not the price that I said, and then I was able to form this concept of that's the asking price. I didn't even have the terminology for this, and then I did the same for set the price to zero for a trade and now I found the bid, and now I can make a lot of money actually underbidding the best asker and overbidding the best bid.Anatoly (09:18):So, you're market making.Daffy (09:20):Yeah, so it's funny, I was reminded because you said there's a lot of people who make a lot of money in you not knowing, and I was just minting money. It took me years to accumulate like 1 million gold pieces in RuneScape and then I was able to just 30X it in a month.Anatoly (09:46):Too bad RuneScape is not a crypto currency. Whoever is running RuneScape, you're missing a huge opportunity right now to just go full crypto.Daffy (10:00):There was some talk about some NFT or something on Twitter. Somebody was trying to encourage Jagex, the company, to get involved in crypto, and of course, I tried to signal boost it, but eventually everyone falls in line.Anatoly (10:17):How did you end up with the idea for Mango Markets?Daffy (10:21):So, I have to give credit to dYdX. It was like 2019 and I hadn't really considered that this was possible. I was heads down writing, trading algorithms and trading crypto just kind of holding all of my wealth in bitcoin and I was borderline bitcoin maxi on that, and just seeing dYdX do it in those early days... Now of course, they're way more successful now. Those early days seemed that you could do leverage trading on chain, and they kind of showed it as a proof of concept, which I just kind of started pacing back and forth like, oh my God, this is changing our worldview completely.Ethereum was slow and whatever, so years went by. Actually, maybe just like a year, and then I saw Serum DEX where I felt finally, okay, all the pieces are in play and also I wanted to market make on Serum DEX, but I really need leverage. I don't really need leverage, it just makes market making dramatically more efficient and safer. Leverage is just this tool that people who are involved in the financial plumbing really need, and it wasn't there. I was like, "Okay, this is the time and I have to learn how to code smart contracts," which sounds like a very scary and daunting task, but it was not that bad.Anatoly (11:54):The scary part was that you guys were building on a platform that was really rough around the edges at the time.Daffy (12:02):Well, no one told me that shit was really rough around the edges at the time. That was actually maybe important. You come in and there was nothing to do, this was August of 2020, things were not locked down necessarily here in the United States, but people kind of scattered. No one was hanging out in the major cities, they had kind of went to go live with their families, as did I. I fled San Francisco and went to the rural part of North Carolina. So, there was nothing going on and you just have all the time in the world and bitcoin is doing well, so that's funding you in a way.Bitcoin is this big, or crypto in general, it's all the people who bought it or own some crypto, as long as it's going up, it's kind of funding whatever zany side projects you have in mind. So, this is just a side project. Wouldn't it be cool if I could access this part of the world or this technology? And so, that's why chewing glass... You probably coined that term, I don't know, that's why chewing glass wasn't so hard because that pressure to... You have all the time in the world basically.Anatoly (13:30):Basically, COVID and lockdowns were so boring that chewing glass to learn how to code smart contracts with Solana was like a reprieve from the boredom.Daffy (13:45):And, I've heard you kind of say, okay, a bear market is when everyone is coding. To give the opposite perspective, I feel like a bull market, unlike much more chill, oh yeah, nothing really matters. Crypto is going up, it doesn't matter what I do. The rent is going to be paid for, everything is going to be fine, might as well engage in high variance new ideas, new projects. In a bear market, I'm very I got to grind, I got to squeeze out a couple of more bips out of this trading algorithm because I got to pay rent. So, that's the bullish case on bull markets.Anatoly (14:30):That you can try something crazy. That is the point where people enter this space is in a bull market. It's that they kind of start coming in droves because they're like, "Everything is crazy and I can also be part of the party." But, it's hard as a founder to stay focused because you are in that high variance, high risk taking kind of mindset.Daffy (14:58):There's a trade off of during a bull market there's a lot of things looking for your attention, and a bear market is very calm, or it can be. If you built up a lot of liabilities during the bull market, now you have to stay afloat during the bear market. Maybe it's calm in the external world, but internally it's not calm. You're like, "I got to do X, Y, and Z today every day." There's that natural pressure.Anatoly (15:32):So, you decided to learn coding on smart contracts on Solana. How did you end up going from there into Mango?Daffy (15:39):Initially, it was called Leverum. Not it, there was just an idea and there was a command line tool where you could... The YouTube video might still be out there, and Max was out there somewhere on the internet and he saw it and he thought it was a great idea. And so, he reached out to me and we did some other things like speculative about a prediction market, and then we were like, "Okay, no one is going to build margin trading." A lot of people are saying it, but it doesn't look like if we just wait it's just going to happen in the next couple of weeks or something. It's probably we just have to build it.Not we just have to, but we totally should. This is clearly a very important piece of the Solana ecosystem. So, we started building it. Mango was just we were thinking alliteration is good. Everybody loves mangoes, it's a fruit that I have never heard of anybody who doesn't like mangoes. It's probably the high sugar content and Mango Margin was the idea, but then we got the domain Mango.Markets. It's kind of evolved now. When you're starting off with something, you have kind of a narrow scope. You're like, "I just want to be able to borrow money." And now, there's this Mango DAO and people are talking about NFTs and drones. I'm talking about drones. I don't know if anybody else is, but it's just gone way higher and now I'm like, "I'm a humble servant of the Mango DAO." And, that's totally a normal thing to say.Anatoly (17:27):How big is the DAO?Daffy (17:28):How big is the DAO? That's a good question.Anatoly (17:30):In humansDaffy (17:31):That's like a philosophical question. In human terms, wow, again, even still a philosophical question. So, I think if you go to MNGO token, if you go to the Solana explorer and just type in mango or MNG or something, you can probably... I don't know if they have a list of unique token addresses, so in some sense that's the DAO, but in terms of the number of people who actively post on the forums and make proposals, that's much smaller. I'm guessing there's thousands of people who have votes, but the number of people who make proposals and add meaningful commentary on the forums is maybe 20 people, and it's expanding pretty quickly.I always see new people coming in. There's also not just people, there's the wealth of the DAO and the cultural reach of the DAO, the spiritual significance of the DAO, all of those seem like size if you ask how big is the DAO. You interviewed Balaji Srinivasan, and there's this idea that he had on Twitter that was like a DAO should buy land in Wyoming and send a drone to circle it and this is kind of like a moon landing sort of kind of thing or some kind of significant breakthrough where the DAO is controlling physical objects in the real world. So, this is very exciting to me, but it has nothing to do with margin trading, it's just something exciting that maybe in a bear market, I don't know, I'll push to get this done.Anatoly (19:23):Do you want the control to happen on chain?Daffy (19:25):Yeah, I think that's necessary. Maybe not the total control, but some kind of signal that distance... So, you can kind of think of Congress authorizes a certain thing and then the executive branch does it. If we could make that link be as automated as possible, I think there's something useful there, at the very least something exciting and interesting, kind of like the moon landing where maybe there wasn't anything useful, but it was inspiring for sure.Anatoly (20:02):So, the DAO, if you guys decided you want to do something with leverage and lending, and how you guys launched was really unique. I don't even know if people did this in Ethereum. To me, this is the first time anyone's kind of done this style of launch. Can you talk about the design and how you guys thought of it and what let you make those choices?Daffy (20:25):So, people early to Solana may be familiar with the Mango market caps and how that went, which somewhat argues the first NFT on Solana, and that was done pretty much sort of like how NFTs are typically done where there's a mad rush to grab the caps as soon as possible and the price is swinging wildly and there's a lot of people. Now, I think we put that together as an April Fool's kind of thing, very quickly, and so it was great for what it did, but the experience from that was, okay, there's going to be a lot of angry people. If you do it in this way where the DAO is raising funds, and this is the inception of the DAO, the DAO is raising funds for insurance fund, you probably don't want it to just be distributed to the people who were the fastest to click.And, that was the idea. We probably don't want that. It doesn't seem useful, it seems like a lot of angry people, and a lot of frustrated people. So okay, so you take out the time component, you take out the luck component, and then you're left with you kind of have this sort of auction that lasts 24 hours, but then what if X somebody comes at the last moment and dumps in a huge amount of money and raises the price for everyone? Everyone gets the same price. So, our design was we'll have a withdrawal period or a grace period at the end, the remaining 24 hours where if you kind of don't like the price, you can bail out. It had some flaws and I think we knew about those flaws from the beginning. We were like, "Okay, we just pushed to this game of chicken to a later point where someone can put in a lot of money to scare other people away and then they pull out at the last second. And that did happen, but it's not clear if that was net positive or net negative.Anatoly (22:28):And kind of in summary, there's this 24 hour period where people deposit funds in for a fixed supply of tokens.Daffy (22:36):Correct.Anatoly (22:37):And, then the period is over, and now everybody knows what the total amount in the pot is for the token and there's kind of this price that's created and then if you don't like the price, you can withdraw the entire bid or as much as you want. You can only reduce your bid.Daffy (22:54):Correct.Anatoly (22:54):But, you don't need to withdraw the entire bid, you can just reduce it.Daffy (22:57):Correct, yep.Anatoly (22:58):So, then that pushes the average price down at the same time, so for every dollar you take out, you kind of get a better price per token.Daffy (23:07):And, you see the price ticking up during the first 24 hours as more and more people are putting money in and then the price ticking down over the next 24 hours.Anatoly (23:19):I'm a huge fan of this setup because it creates a lot of... There was news, you guys made the news because it was almost half of all of USDC that was minted on Solana ended up in that smart contract. It was like 45% of it.Daffy (23:43):I remember actually because we saw the USDC on Solana was 700 million the days before and then it had climbed up to like 1.1 billion or I don't know what the number was at the end, and there was 500 million in the contract at the end of the first 24 hours. That was not the intention.Anatoly (24:05):It's like it was minted.Daffy (24:05):And honestly, I think you could appreciate it better from the outside than from my point of view for sure, and of course, I also could appreciate it better from the time distance, but that was not expected. We kind of knew that there would be a lot of money placed in the beginning and then money would go down. That was in all the documentation that we wrote, and that was expected and we had all these dev calls where everyone was always talking about it, and I was like, "Okay, come on. Literally, there isn't that much USDC in Solana." So, it can't be that bad, but of course, I underrated the possibility that someone could just mint a whole bunch of new USDC and bring it in from somewhere else. It made the news and a couple of other projects did the same thing, and I wonder if maybe it's a one time kind of thing. The game only works once. You can't expect to scare people every time or use the tactic every time.Anatoly (25:10):Maybe, I think a lot to be said, but there was no other way to go. Mango took it all, so there was no private round, they were never listed anywhere. This was really the only way to get it, and the anticipation of a project that was awesome, and from every other perspective is... What I always tell founders is that you should always raise the least amount for the highest price. The VCs kind of have more power than you usually because they have more information, they look at many deals, people come to them, they have the money, but it's sometimes the founders have this asymmetry where they're the only ones without equity. They're the only ones without tokens and that moment is if you can get everybody at the same time to compete for that thing, then you've kind of created the symmetry there and you maximize the capital raise for the DAO, for the project, for the community, and therefore that actually is a good thing. You have more resources to build a vision.Daffy (26:16):Although, I'll clarify, I think the DAO is still handing out a lot of tokens, so there's still a lot of ways to acquire Mango tokens, and that was kind of the inception for the insurance fund. The DAO has been paying people out of the insurance fund, and so it's been useful, but there's still more tokens to be had. There is a slight private rounds and I totally understand why people do them, but like I said earlier, if you are in crypto for a while, and this the cool thing about bull markets, I don't actually need money, I just need to pay rent and bitcoin has gone up 50%, so I'm solid.And, no one was paid anything. There was just Mango tokens that were given to people and they were told the DAO values your contribution or this is the inception of the DAO, and everyone worked to build this thing. People worked without even the Mango tokens and sort of the tokens were given after the fact. I think it's a valuable way to build crypto projects actually.Anatoly (27:30):I want more teams to try to totally from genesis this DAO first approach, but it's really tough because you guys had such a principled view on how things should be done and there's a lot of people out there that are offering money for that one thing. How did you guys have the discipline to just go stick with this?Daffy (27:54):We had a lot of discussions about all these things. We talked to VCs and we still do and we like all VCs actually. So, I think Satoshi, I'm not trying to draw a comparison to us to Satoshi or anything, but there is this beauty in that story and I think there's a lot, maybe even the majority of bitcoin's value at least to me... To me, I just love the narrative. I love the story of Satoshi, the pseudonymous founder who is one of the richest people on the planet right now. Obviously, they're in a no VCs. This person wanted to not make a big fuss. It was kind of like this clockmaker prophetic person who just came and then left, built this thing and then left, and that's such an amazing story.There are these long, long payoffs. Maybe they take a while, but they definitely do pay off that if you're not hurting for rent, again, I was in a position, all the other Mango devs were in this position as well where it was a bull market, we're not getting eviction notices or something, we could kind of float the boat for a while. Just consider the longterm payoffs, consider the five year payoffs. Stories are amazing.Anatoly (29:17):The weirdest thing is that every good VC will tell you that you should maximize for the highest return. Don't worry about the middle exit, or don't compromise. Actually, imagine you're taking over the world, what are the steps to get there? And, the risk don't matter. Actually maximize for the high and this is the irony here is that I think this kind of fair launch, most distribution will probably result in overall longterm, better, and higher returns, but the risks that I always find is that humans are hard to organize and at the same time, cryptography is this new tool for organization.It is what allows us to massively scale agreement and complex problems, really, really complicated problems. We can just click a button and vote and agree on that one and you know. You know that the decision was made, but I'm curious, do you see tension between the decentralization, kind of the disorganization of the DAO and getting shit done? I've got to build stuff.Daffy (30:34):No, 100% actually, on a daily basis actually. There was a podcast with the guy on Twitter that goes by Austerity Sucks and this was back in April. We talked about this and he brought up a similar point and he was, "Yeah, this DAO thing, it's all a fine and dandy idea, but do you think this will work?" And I, to be honest with you, am skeptical, however it is always felt to me sort of a high variance idea, kind of like if you were in the 16th century Netherlands or the 17th century Netherlands and you were like, "Okay, we've got to get spices from India. How do we do it?"And, you come up with a joint stock corporation and then the join stock corporation is everywhere and I don't think anyone has really figured out how to do DAOs well or what's the right mix, how do we communicate, how do we coordinate, all those things. I don't think anyone's quite figured it out yet. No one had figured it out like six months ago. I still don't think we have figured it out, but if it works, the payoff is enormous. There is global coordination, there isn't a jurisdiction. I imagine the DAO is controlling drones one day. It could be wild. So, even taking into account all of my skepticism, I was still like, "Okay, we should do the DAO idea." Anyway, not just me, Max is totally on board with this and Tyler and all the other people who kind of built Mango Markets. But on a day to day basis, as of October 2021, now I'm thinking, okay, maybe what we need to do is have small teams that build things and then pitch it in front of the DAO and get compensation. So, the DAO is kind of the government and it subcontracts out to people. Maybe not like direct democracy rules everything and we'll try that out and if that doesn't work, we'll try something else out, but try new stuff out quickly.Anatoly (32:45):That's awesome. This is actually a really good strategy to incentivize product development. Building an MVP, which means you're the PM, and the implementer, the dev, and you go do all the work and here's your management. It's all done, just give me money.Daffy (33:09):And, there's some maintenance tasks, so it's not purely new products, so I'm thinking Mango V4, but also in the meantime, there are all these nodes that need to be paid for.Anatoly (33:24):I think you guys will need to split. We called it KTLO, keeping the lights on work. You for six months, you're on KTLO duty, and you get paid a salary effectively, and you just got to keep the lights on, but then some other folks are like, "Go build something that you can propose to the DAO and the DAO will fund it."Daffy (33:49):I think that's basically what we have coalesced on is that, well, some people should be doing KTLO and other people should be doing new things, building the new product, and it takes kind of the risk out. The DAO doesn't have to pay for whatever stuff that I produce for Mango V4, but we both have some kind of incentive to be honest about it. If it's clearly a huge improvement or even a very substantial improvement, DAO should pay me something because if the DAO doesn't, then you can expect future builders to not go for it. And, we have these discussions on the forums.People make good arguments like this. I think the average IQ in the Mango Markets forums is very high. I think probably higher than most legislative bodies. I'm just going to go out on a limb and just say that. Not ours of course, ours is obviously very high IQ, smart people in our government, but you know.Anatoly (34:55):Do you believe five years there's going to be a 30,000 person DAO. Imagine a tech company, 30,000 engineers, or 30,000 people, they got product managers, teams, layers of bullshit. Is there going to be a DAO that's competing with a big tech company?Daffy (35:16):It's legitimately really hard to figure out how this might look. The reason why I hesitate so much with the question of a 30,000 person DAO is I'm not sure it'll look exactly like a corporation that we can say, okay, these are these 30,000 people. You might never be able to figure out who is part of the DAO and maybe that's one of the benefits of the DAO. If I asked you, how many people are part of Solana, not Solana Labs, but Solana the community? It's a little bit difficult to even answer, lots of people, various levels of involvement, and financial. Some people have a lot of financial stake until you don't, but some people have a lot of financial stake and no involvement at all. It's wild all over the place. Does Bitcoin look like a country or a corporation? I can even point my finger on what it is.Anatoly (36:20):So, even LINE had a battle that had 8,000 people all coordinating over something and I think they have corporations within that game that are maybe probably span up to 1,000 I'd imagine. So, that's people organizing using tech for a common goal without a job, without a structure that you normally have at a company. Linux was built by people organizing online. I think as soon as you have something to lose and in Linux and even LINE you start building up a virtual token, your reputation is a contributor to this thing and becomes a thing that we don't normally think of as valuable in a monetary way, but it's valuable to that person, but I definitely care about my ability to continue contributing to an open source project. So, where tokens I think can get there is if there is something of value being created by the community, some common goal that everyone is working on and that token is in the middle of it and is uniting and organizing it. I think that could scale as large as a corporation.Daffy (37:45):No, I agree with you. I just think it'll always be a little bit hard to figure out how many or who is involved, just by the nature of it. I just think it'll be always a little bit hard to figure out, but will 30,000 people be building on Mango or some DAO? You already know the numbers better, but we might even be approaching that with Solana. So, I'm not part of Solana Labs or affiliated with Solana in any way, but building on Solana, and also I have a financial incentive too, but also I have a reputation incentive and it feel like I'm part of the Solana corps or whatever it is, but I don't know what it is. It doesn't even exist. It's not even a DAO. There isn't even a DAO there.Anatoly (38:39):Oddly enough, I feel the same way about Eth and bitcoin even is that we're competing with them.Daffy (38:50):But, it all feels like we're actually kind of a part of the same team and-Anatoly (38:54):This is the weird part that I think is going to be really interesting how it plays out because I don't think it's obvious to anybody what is crypto. Is it the token? Is it the coin? Is it the network? Is it the cryptography itself?Daffy (39:10):It's not the cryptography itself, so we can strike that one out.Anatoly (39:14):Are you so sure? I think it's honestly the power that a person has to be able to make these very concrete statements that are unbreakable no matter how... That's the math. The math behind it is what allows them to do them.Daffy (39:36):I don't totally know the cryptography itself. I know basic 101 number theory stuff, but I remember going through my first programming class and coming up feeling just very powerful. I'd write stuff down and then it happens. Kind of like a king, actually, more powerful than a king in a lot of ways because I was writing these training algorithms and it was happening around the world in ways that probably a medieval king couldn't imagine and crypto brings that to finance where things of actual value can be moved.Mango Markets exists and you can go there and place a trade right now, but it was just somebody who wrote it. I was involved based on you can see the GitHub contributions, but it was just people who wrote it and that's probably... We can maybe chalk that up to the cryptography.Anatoly (40:43):So, what's next for you guys?Daffy (40:46):There's drones on the horizon. Yes, sometime in the future, but we have to do a lot of the nitty-gritty, roll up your sleeves kind of work. On Solana so far, there isn't... Maybe a lot of projects are struggling with this, indexing all the data and providing it for people in a usable way because there's just so many transactions. It turns out if transaction fees are really low, people just make a lot of transactions and they don't think about it.And so, gathering it up and displaying it in a useful format to people, that's a very immediate term and then slightly medium term is sort of becoming the place where everyone does leverage trading and does borrow and lending, all the crypto natives. And then of course in the longterm, I would say it's somebody like my mom should be able to store her money in Mango Markets and not think twice about it. It's not a good idea right now I wouldn't say, but that's the goal. That involves a lot more social things than just technological things. That's get it to a level where she can do it safely and feel comfortable and manage her keys, or even if she's not managing her keys, have a solution for how the keys might be managed, that she's not falling for scams, and that's I would say my longterm goal.Anatoly (42:09):That's awesome, man. On that note, man, really awesome to have you on the podcast. Great conversation. I'm always excited about what you guys are doing and how the community is building this ecosystem of its own, so really amazing. It's serendipity that you guys started going on Solana, just really lucky to have folks like you in the ecosystem.Daffy (42:35):Thanks a lot. It means a lot. This was really fun.

Live from Breakpoint 2021, Alexis Ohanian sits down with Raj Gokal to discuss web3 and the $100 million fund to support decentralized social media projects on Solana. 00:10 -  Intro2:20 -  Announcement of Seven Seven Six and Solana Foundation collaboration9:53 - GM, Twitter, #FreeRaj14:31 - Discussing Web 3.0 and the future of decentralized social media18:04 - User experience and building on Solana22:48 - New types of governance and delegation25:59 -  How crypto can change the way we see the world DISCLAIMERThe information on this podcast is provided for educational, informational, and entertainment purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose.The information contained in or provided from or through this podcast is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice.The information on this podcast is general in nature and is not specific to you, the user or anyone else. You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented on this podcast without undertaking independent due diligence and consultation with a professional broker or financial advisor. Raj (00:10):(silence). Ooh, beautiful.Alexis (00:11):This is fun. Hey everybody.Raj (00:13):It's electric.Alexis (00:13):All right. All right. Nice to see you all too. Oh, there we go. Okay. This is big. This is just the building of a new internet. Probably nothing.Raj (00:26):Probably nothing. It's such an honor, Alexis, really, to be on stage with you. It's like a dream. I've been a power user of Reddit, and I saw the way that you created that and the intention that you brought into it, and the intention you've brought into how we build technology that connects people together, and the conviction you have about how you want it to connect them for good. Not pull them apart but pull them together. Three things that connect them, their interests, their common grounds, and give them the tools to do that.Alexis (00:59):Thank you, man.Raj (00:59):Yeah, it's been really awesome.Alexis (01:00):I feel grateful. I was a dumb college kid in 2005, starting Reddit. The inspiration were like message boards. And I ran a PHPBB forum. Shout out PHPBB. I think those bulletin boards are still cranking somewhere in parts of the internet, but it was a hope for a more connected internet. But I really had no idea what would come from it. I'm obviously grateful. Hopefully a few of you all are Redditors. Any? Couple, one or two? Thank you. Thank you for all of your upvotes and thank you for also admitting you're the least productive people here. So thank you for your candor. I got so excited as crypto started taking off because Reddit is where I dove in. R/Bitcoin is the community that inspired me to first invest in Coinbase back in 2012. R/Ethereum was the community that got me really excited about what could actually be done with programmable money and this concept of building an internet that was decentralized and truly in the hands of all the people creating content. And now what I am seeing here, especially within the Solana community, is nothing short of awesome.And we can just cut to chase and one of the reasons why I'm here is to announce a collaboration that we're doing. I have a venture fund called Seven Seven Six. We're earmarking with the Solana Foundation $50 million to invest in the next wave of social built on Solana. Because I think this new world... We were debating whether to do the announcement at the start or at the end, I'm happy we did at the start. It's good vibes. But my job these days is with our team to look for the next big thing, put our money into it, give our support, our advice, our feedback, and help build businesses that'll be even bigger than any of the ones I've created. And it's exciting because this actually fulfills ambitions that I remember having 16 years ago but that we just couldn't execute on because the technology did not exist. And so I'm going to take you down memory lane a little bit. We'll fire up some slides.This is actually the very first version of Reddit that went live in 2005. I was not a great web designer. I was not. I'm really proud of Snoo, our mascot. I created that while I was bored in marketing class. But this was the first version, and a couple of things to notice, karma score, absolutely stole that from Slashdot. But I realized, okay, if we can get people to be incentivized to post good stuff, we can get more people to post more good stuff. And we'll just use internet points. It'll just be made up. And so if you got an upvote, you would gain a karma point. If obviously you were downvoted, you'd lose one. As you can see here, I posted the first link to Reddit, the Downing Street memo, and I was promptly downvoted because my co-founder is a dick. I knew exactly who it was, because it was just the two of us in an apartment. I knew who did that, and I have -1 karma. But internet points were the way we got people to come together and produce high-quality content.If you could believe me, in 2005, no one believed me when I said that people would spend all this time on the internet creating content, sharing content, commenting on content, but clearly it worked. And as we saw more and more progress, I obsessed over even designing the up and down arrows. I probably did like 10 iterations. I'm embarrassed by how many different versions of up and down arrows I designed. But this was all with the idea that we could reward people and get them feeling like their contributions mattered and encourage the best behavior. You'll notice the leaderboard there, the stats. That little janky link was one of the most important part to the website back in 2005 because the top submitters cared so much where they were on the leaderboard that when the stats thing went down, we would get a flurry of emails from people saying, something's wrong. Fix the stats leaderboard. I grew up playing video games, probably like a lot of you, and this seemed like a pretty obvious mechanism to just motivate people to keep posting content.But again, we're talking about internet points that outside of the community don't really amount to much, even awards. So once karma points exceeded their value, because once people got far enough along on Reddit, a new user would come on and feel demoralized because the idea of one day getting a million karma points seemed impossible. So I had to create new games. These awards, I was inspired by GoldenEye on the N64 because the end of Deathmatch, even my friends who were terrible at the game and never won would still get a little fun award at the end, like most cowardly. And we would ridicule them for that. It turned out that's like you spend the least amount of time on the screen of other players during the match. And it was these novel awards that inspired the Reddit awards today. I literally have people who introduce themselves, not by their government name, not by their username, but by the fact that they are a 12-year Redditor or a 14-year Redditor.These badges, these awards that were just a game mechanic that I created 16 years ago without much thought have become a sense of pride. But I look at all these things and I think, damn, if only there was value beyond this world of this ecosystem, because there's clearly value there. And everything I've seen in the last few years, the reason I'm so excited about Web 3.0 is this is all the same mechanisms, except with real ownership. With real value gained by the people who did all the amazing work to make these platforms function. And then I can't not talk about swag. This was Reddit's original business model, and it was actually the first fight we had. So the first two months of Reddit, we got into a big fight because I really wanted sell merch. I knew that even though we had this burgeoning user base, that random strangers on the internet would want to buy t-shirts with our logo on it as a way to show solidarity with our tribe. It was a huge fight, finally won it, and I built a store. And this was before Shopify, before Stripe. This was like a janky PayPal. It was really hard to take money from strangers on the internet back in 2005, okay? But I get this janky storefront up. I filled the bedroom with probably like 300, 400 t-shirts and put it online, and within 24 hours, sold out. And then I spent the next day stuffing envelopes and taking garbage bags full of these t-shirts to the post office. And with every one of them I sent out, I felt a little bit validated because random people on the internet wanted to show their pride by making their torso into a billboard for us, and give us money for that privilege. Today, just seeing someone change their profile pic is an even bigger statement of that tribal solidarity. And again, maybe if you have one of these original 400 Reddit shirts, you could probably fence it on eBay for a few bucks, but you didn't actually capture the real value. There was tremendous value in being one of those early adopters and signing up to say, yes, I am a part of this. I want you to believe.And everything I see play out, even the most basic profile pic project, is a reminder that this is like the core atomic unit of building community online. And I just can't help but get even more excited because the rate at which this will grow is... it is hard to overstate. And even just thinking about where you all were, we were reminiscing backstage a year ago or two years ago with how far the Solana ecosystem has gone, I'm just very excited. So I'm thrilled to be announcing this fund with you. I hope we can do some amazing stuff together and fund the next generation of the social web.Raj (09:45):I think we totally will. It's totally going to happen.Alexis (09:47):Are you going to do that? Are you down with that?Raj (09:53):It's going to be incredible. I don't know if anyone was paying attention yesterday. Something interesting happens, right before Alexis and I went onto a... I think it was Fortune interview to talk about this... or Forbes, one or the other, to talk about this fund, I had gone on Twitter... GM everyone, by the way. GM.Alexis (10:20):Yes. Good morning.Raj (10:22):So someone who happens to be a good friend of mine, Sam Lessin, he used to run product at Facebook. I've known him for 10 years. He's the first person I've seen negatively respond to the idea of us all saying GM in crypto. And we all love GM. It's just good vibes, right? And so I went on Twitter and I said, "I'll kill you." But this wasn't me threatening Sam. I've known him for 10 years. We trust each other. Sam talks a lot about how... he was in the room when Venmo made the trust feature. I should be able to trust Alexis to be able to take as much money from me as he wants. We have a relationship. We should be able to flag that, right?All these little features, the nuances of how we connect with one another and how we trust each other and how we have relationships should be reflected in social. But right now there's only little pieces and it's the pieces that happened because one platform that becomes monolithic decides which features it's going to differentiate on. And so, yeah, I guess I should have expected this, and my comms people tell me that I should have expected it, but I got suspended on the first day of Breakpoint. And it was actually amazing because I'm super addicted to Twitter. This is the first time I've spent 24 hours not on Twitter in probably years.Alexis (11:44):Jack just wanted you to have a respite from [crosstalk 00:11:47].Raj (11:46):Jack's a meditator. He wanted me to just meditate on my feelings and beliefs and my actions, and I did. Just another point on this, it was a joke. It was a reference to this Costco founder who, when the CEO talked about increasing the cost of hot dogs, he said, "I will kill you." So this was sort of two ideas to get other in one tweet. There's a lot of nuance, like I said, in social. Sam and I know each other, so of course I would never kill him. And also if you know this joke, it's the idea that there are some things that are sacred, that are positive, that are inherently good. Like a chief hot dog for everyone that comes into Costco is like part of their belief system. GM is like part of our belief system. We should wake up every morning and talk to each other with good intentions. And if you're going to threaten that, I will kill you, right? And that joke...Alexis (12:47):Like a Costco hot dog.Raj (12:49):Like a Costco hot dog. And that joke, Twitter doesn't get it. The rules don't get it. It's going to be hard to regulate these things and moderate these things. But when all of it comes from one place, we just see that nobody's happy. Jack's not happy with the rules that he's been forced to put in place, which is why he's deciding to turn Twitter into a decentralized protocol. I think my fear, and I don't know if you agree, but Facebook's going to do the same thing. And Reddit's going to do the same thing. Everyone's going to do the same thing, but these things happen pretty slow, and there's opportunity to build from all directions. It doesn't have to be the old social platforms converting. We can build new ones and it doesn't have to be competition and it doesn't have to be winner take all.There will be hundreds of successful social media companies that are protocols and clients to those protocols, and choices will be made in programmable, modular ways between communities, just like Subreddits do that in certain ways. But it'll be much more fluid and we'll be able to govern these rules. I kind of see this pretty clearly, but I only see like maybe five or 10 companies trying it and building it. There should be 100. There should be 100 like tomorrow. So as we were talking with this reporter yesterday, it was a flurry of thesis. And even backstage, we just couldn't stop talking about all the ways that this future is going to happen. And I think it's going to happen quickly. And I realized $50 million is not that much for the number of teams and stabs at this problem that I think can happen in the next 12 months. So we're going to increase it to a $100 million.Alexis (14:31):That's right. See that, we lured you in with the 50. Surprised you with the hundo. And look, this is real. Normally, incumbents have had, and Zack has taken full advantage of this, incumbents have had a huge unfair advantage with the distribution. As social evolved, Facebook can gobble up, Instagram can gobble up, WhatsApp can get the economies to scale that distribution. But I would argue in Web 3.0 it's actually a liability because the intention with which you're building these new protocols and these new communities starts from the very beginning. It seeds the foundation of how people think about the platform. And the baggage of Web 2.0 infrastructure and the Web 2.0 precedent is that you're ultimately just harvested for an advertiser. And that factors into product decisions. That factors into design decisions.And what's really exciting is that there's a whole new slew of founders who have a chance to jump into a very energized community and actually start building something with a very different business model in mind and very different product instincts and very different design focus, and that's compelling. And I think we could see new platforms emerge very fast. We talked about Discord backstage and how... 2015, I think, I first started noticing them on the sidebars of gaming communities on Reddit and I thought, damn, they're onto something here. And as someone who's suffered through TeamSpeak, it was like, okay, clearly there's got to be a better way. But that was five years now, six years now Discord is the dominant platform for all the real-time conversation around NFTs and a lot of things in crypto. But that window for a new platform to emerge keeps getting smaller and smaller. It keeps moving faster and faster, and we haven't even seen what happens when people build this way first.Raj (16:33):Totally. Yeah, the cycles are getting faster. And we don't have to wait. And I think even just the rise of Solana and the cycles in the blockchain industry have been getting faster. And a lot of folks are surprised by how much and how fast so Solana has grown. I think this next wave of companies are going to get to a billion... we set it at the top of this whole conference, a billion users. And we didn't set a timeline. We set as fast as possible. I think it could happen in 12 months, 18 months. It's very feasible if we build that future. And I think it'll happen in waves. Applications protocols will be quickly saturating to a billion, 4 billion users in rapid succession because it doesn't have to be a competition of a monolith against another. It's just ideas and changes and protocol shifts and forks that can propagate very quickly.So I think this future's going to be happen very quickly and it's all connected. This is why we wanted to have Solana be one giant global state machine. A lot of people call it monolithic. Yeah, it's monolithic. That's the point. It's all one computer that we can build all of this together on because if you saw... I realized a lot of people miss some of the best talks here, but Jules Urbach from Render is making a photorealistic metaverse. We will be able to connect these social protocols to that rendering engine and we will be living in the metaverse faster than anyone thinks. It's going to happen.Alexis (18:04):And when that user experience hits, it will hit. In 16 years of designing product, of investing in product, I keep coming back to great user experiences, almost always end up winning. And that's broadly defined. That's the literal user experience as well as the figurative. How does it make customers or users feel? And what's exciting is we can do things on Solana that... and I'm not a maximalist in any regard. You'll see me, I'm very pragmatic on this stuff, but we can do things on Solana that just make so much more sense to create that amazing user experience that people have come to expect. And that's it at the end of the day. That's what wins. And you tie that in to being able to actually own the content you create and actually get rewarded for things like community building. It's going to be exhilarating.The second wave, Web 2.0, whatever we're calling it, I really believe it's going to look like this transition period, almost a bleep in the internet where we first got online, everyone's on the World Wide Web and we were making our geo cities' websites and just trying to build for what was largely a pretty read-only internet. And it's so obvious to me, even in these last few years now coming out of the crypto winter, that this era we're in now is going to define, really define the internet as we know it. And when I'm explaining to my daughter about these phases of the internet, she's going to look at me and be like, "Wow, dad. You played all those video games without being rewarded for any of your time or effort." And she'll be shocked. She'll be shocked that I bought things on the internet that I didn't really own. She'll be shocked that so many of the things that are really some of the most valuable work online, whether it's content creation or curation or community building weren't rewarded in any way, shape, or form.Alexis (20:07):It will seem like this weird, dismal, brief period of the internet. And I think we'll all be better off for it, ultimately, but I'm just excited to see what people build because we're all still in the very early days where we're actually just trying to take better versions of what we've known for Web 2.0, and I think things level up once we get out of that mindset and then eventually start building the things with a first principled look at what Web 3.0 really can unlock. But I'm already excited for this stuff that's coming, which is why we're going to put $100 million towards funding it.Raj (20:43):You know what else we should do is make sure the app stores allow NFTs and tokens. Are we really going to hold this back at the...Alexis (20:54):The good news is, look, Epic on the one hand has been fighting the good fight and on the other, not so much, but momentum here is on our side in a world where I know most of you all are probably default skeptical of regulators, which is a fine thing to be. I really do think though that the principles of what is getting built now are so aligned with the average person, with the consumer. And I still do believe that those people are represented by people in government who are at the end of the day beholden to the voters.I do think the more that we can tie the relevance and the value of crypto to the average American, especially beyond our initial early adopter community, the more we can make crypto a big part of people's lives, the better, because that ultimately is going to put leverage on the couple of monopolist or duopolist with their app stores. And I think it's still one of the strongest leverage points we have, which is it's just not good for consumers to have one of two app stores to choose from, and both that are pretty egregious in what they charge and the control they have.Raj (22:05):It's clear that social media affects government. It affects political movements. It's just very clear all of us. And I think one of the things that I always have tried to do, building products where people are taking on social behaviors, connecting is replicate what they're already doing, but do it in a positive way. I think you did that really well with Reddit. Focusing on upvotes, focusing on content creation and elevating each other and our creations and our content. And I'm curious, do you have any ideas about how the types of forces that have coalesced political movements in social media might be reflected in this next Web 3.0 Version of social media?Alexis (22:48):I really do think we're seeing some really interesting types of governance emerge. Look, for those of us, whether we're in European democracies, American democracies, these are global democracies, we ostensibly like these ideas of everyone gets a vote. And what's interesting now is you're even seeing what some of the recent ENS stuff and some of this... Just even the concept of vote delegation, being something that is getting more normalized. What I love about Web 3.0 broadly is we get a chance to think about, from first principles, how we can architect better and more representative systems. And so on the one hand I'm like, would I ever delegate my vote for a president of the United States? Would I ever delegate my vote for some company I'm a shareholder of? Maybe not, probably not, definitely not. There's a spectrum of answers to that. But what we get to build is whatever we think is the best tool for the job and then the broad market basically decides, okay, this is what wins.And this kind of experimentation, I think, tends to be among the most, or will ultimately reward the most egalitarian way possible because it's not controlled as basically every institution has been from the top down for so long. So I do think there is this pretty strong streak throughout the crypto community that almost by definition is built in opposition to institutions that have had top-down authority and plenty of times abused it. So I think when you combine community and capital, which we're seeing play out right now, really surreal things happen. And WallStreetBets is probably the most visceral example that I get asked about all the time back in the states. But that's one example of many where you are seeing a power shift from the traditional top-down structures to the bottom-up, where it's people who are connected online able to communicate in real time, at scale, for free, essentially, and now able to also move dollars. And even though those dollars individually may not be that much, in aggregate, especially when coordinated, can move markets, can shift all kinds of things. This is the experimental phase of it so I'm excited to see what's to come.Raj (25:16):The word delegation, I think, that I heard there is so important because delegation is happening, like you said, every day in crypto. We delegate to validators. In Solana there are stake pools and there's nested delegation that can happen. And our representative democracy is a delegation of responsibility and decision-making authority. But there are really only a few ways that you can do it and a few bodies that you delegate to and a few people. And then you mentioned this idea of would I delegate my presidential vote? Maybe not that one, but there's probably 100 offices that we're voting for. Right now we just go one side of the ticket. That's a pretty dumb way to do it. Not everyone's doing their research.Alexis (25:59):This is the opening of a lot of doors for a lot of people because with all the progress that we have made so far, we are still a pretty insular community. We are all still early. Just being here means you are in a very, very select group. Congratulations, you're going to make it. You're among the earliest adopters. Yes. It's true. And so you're among the earliest adopters of something that I... I've been on record. I was on Rogan CNBC 2014 saying that I was cautiously optimistic about crypto because it just felt like, no, this is too good to be true. Somehow it's going to get screwed up, someone's going to mess it up. But I've gone from that to pretty irrationally exuberant now in the last year. It now feels inevitable. And so everyone who is here, you are among the earliest adopters for this. You all have a mindset shaped by being immersed in this space for a little while now.There is a whole world, the vast majority of people still have not even started to think about the world the way that we do now by default. And that is going to unlock even more creativity and even more motivation and even more energy. And I'm excited to see that. And I encourage you, please, go out of your way to find people in your immediate community. Your friend group's an easy place to start. Don't be that person who just at every dinner just keeps talking about crypto, but please create this to be as welcoming and open as possible, because that is actually the long-term greedy move to make, because the faster that this adoption spreads beyond the early adopters in tech, especially the dudes who tend to look like me, the faster that this actually comes to fruition, and the more powerful it actually is.Alexis (27:54):And I'm excited because we get to rethink so many systems. And because finance is tied intrinsically into this, it means rewarding people for work, for effort, for creativity that historically have not been. And I get excited about that because selfishly, I just want better stuff. And so whether it is better democracy, whether it is better art, whether it's better social networking, we will get to see a flourishing, a literal Renaissance happening because of what is getting built here. And that is an amazing thing to be a part of because there will not be another time like this.Raj (28:31):There won't be. That's awesome, man. This is so cool. Look, I just want to close on one note. The one thing that came out of yesterday was this idea of #freeraj, which I love, but I'm back now. And so I don't need to be freed, but I do need to be freed from centralized social media. I want to get off Twitter. I want to get off. Help me do that. Build the next Twitter, build the next Facebook, build the next Instagram. I'm going to have a special prize for whoever helps me get off and delete my accounts from those centralized services.Alexis (29:16):Oh, the bounty is out there. I love it. Right on.Raj (29:20):You can come hang out with me and Alexis. Dude, thank you so much for coming, Alexis. This has been phenomenal.Alexis (29:25):Thank you.Raj (29:25):And I think we have many more great conversations to come and so many teams are going to form. It's going to be truly wonderful. I can't wait to do this with you. And thank you for committing capital and your time to these builders. It just means the world. Thank you.Alexis (29:37):I'm excited. Very grateful. Very grateful you all.

Tommy and Taylor are the founders of PsyOptions, a DAO developing the leading options primitives on Solana. 00:09 - Introduction and Origin Story04:04 - What are the challenges / improvements in Solana?11:49 - Integration of Serum v314:32 - ​​Adoption of PsyOptions17:19 - Architecting the system22:11 - Liquidity mining vs. options trading26:27 - Background in trading options28:05 - DeFi vs. Traditional finance products30:56 - Gaming as a market32:56 - Exciting things out of the hackathon34:09 - Announcements for PsyOptions37:53 - If Solana could change one thing? DISCLAIMERThe information on this podcast is provided for educational, informational, and entertainment purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose.The information contained in or provided from or through this podcast is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice.The information on this podcast is general in nature and is not specific to you, the user or anyone else. You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented on this podcast without undertaking independent due diligence and consultation with a professional broker or financial advisor.Anatoly (00:09):Hey folks, this is Anatoly and you're listening to The Solana Podcast. And today I have with me Tommy and Taylor, co-founders of the PsyOptions protocol. Awesome to have you guys.Tommy (00:18):Thanks for having us.Taylor (00:19):Thanks for having us.Anatoly (00:21):Cool. So what's the origin story? How did you guys get into crypto and what made you build PsyOptions?Tommy (00:27):Crypto, it goes back to... I remember watching the Ethereum ICO, just being a broke college student, but felt we were too broke to actually throw anything into and that's a big regret, but that shaped up how we got into Solana later on. Really dove deep into everything back in 2017, right before the summer hype. And then in the summer hype, tried developing a little bit on Ethereum, doing some solidity development in the spare time, but I never jumped full time into it until PsyOptions. Taylor has a little bit of a different history with crypto.Taylor (01:03):Yeah. I've actually been full-time in crypto since late 2017, after Tommy and I shut down a previous business we started in school. We were looking for different things to do and I knew crypto had a lot of hype in 2017. I was like, "All right, this is definitely an industry I could see myself being a part of." I eventually took a job at Blockfolio and then as well as doing some freelance solidity development and then been full-time ever since.Anatoly (01:27):How did you guys meet? What was the genesis for you guys to go build PsyOptions?Tommy (01:32):Well, Taylor and I are twins, so we met a long, long time ago. We've always been hacking on ideas and stuff. And I guess, Taylor had his eye on Solana from 2018, right Taylor?Taylor (01:47):Yeah, pretty early on. I remember Multicoin writing about it. I was like, "Oh, this is actually a really sweet architecture, solves a lot of problems that we saw in Ethereum." And kept following before Mainnet beta was launched.Tommy (01:59):Yeah. And so we had been tinkering around, created a GitHub organization last summer, like the same one we're using now and just started reading the documentation. And then had a few projects we tried in the fall that never really took off. And then in October we were surfing with Tristan from FTX and he was just talking about Serum and everything that they were working on. So we knew what was in the pipeline and had that in the back of our mind. We did the first hackathon, did in place, built a trusted third party Oracle. And then after that had an issue with TradFi, trying to get API access to automate a options trading strategy, and that was what kicked it off. We were for fresh off that first hackathon, wanted a fresh idea, had our feet wet in Solana. And it was like, "Taylor, what if we just built options into the blockchain? We can get this API access built in. We have the order book already there, there's some basic infrastructure." And that was the genesis.Anatoly (02:59):That's awesome. Limited access to data was one of the reasons I started building this thing. Because I used to try to build stupid deep learning models on interactive brokers and you never have access to data. It's always even the quality is really suspects. It's like, "Do I really know that this is where things got executed? Or did they just copy and paste stuff from a database with a bunch of errors?"Tommy (03:26):Yep.Taylor (03:26):That's terrible. Yeah. If you want good data quality, you have to pay up for it. That's why Bloomberg Terminal is what 20, 25K a month. And if you're just the hobbyist or just trying stuff out, it's just not feasible to pay that much.Anatoly (03:41):Yeah. This is to me I think part of the beauty of the space right now, is that you can build up a lot of what finance is with just a bunch of hobbyist. It's like Linux. Linux in the '90s, you're competing with Microsoft, billions of dollars of engineers buildings stuff, but it's just a bunch of people over the weekend can compete. It's crazy.Tommy (04:03):Yeah. It's wild.Taylor (04:04):I think that's one of the best parts, all that coordination.Anatoly (04:07):So what are the challenges? You guys are one of the earliest I would say teams working on Solana. What have you guys seen, or what were the real painful points? What got better? What still sucks?Tommy (04:18):Oh man. All right. This first Solana season hackathon, the one that we won, we wrote everything in Solana native. I remember pinging [Armani 00:04:29] back in February saying, "Hey, I hear you're working on some framework, can I poke around? And checking out the repository." But it wasn't anywhere near complete or, I didn't dive in enough to use it for the hackathon. So now I rewrote the entire American option protocol in Anchor and it took me very little time to actually write that. So the development life cycle and just ease of getting up to speed, has improved ridiculously.Taylor (05:07):Yeah. And documentation has improved too.Anatoly (05:07):That's awesome. What is Anchor doing for you guys that Native, Rust isn't?Taylor (05:13):It's helped simplify our integration tests. So that's one thing that we try to do when we first started was, we wrote our own integration testing framework in Rust. I guess I wouldn't even call it a framework, it was pretty rough. But Anchor takes care of that. You're just writing your test in JavaScript, it's pretty easy to get up and running. And then also handling a lot of different edge cases that you wouldn't have to think about, checking account addresses and other things just to bring safety in. And it removes a lot of those headaches that, if you're just getting started and trying to hack something together, you're not really going to be thinking about.Tommy (05:48):Yeah. I think the account, de-serializing accounts, token accounts and things like that. You just have your accounts structure, passing that into the context and it de-serializes all that. The amount of little issues we had just because oh, we mis-ordered one thing in the array when we were refactoring, the accounts array, and it's like, "What the hell is going on?" And then you're trying to debug and add messages and stuff, because you're just like, "Oh man. And what is..." And then it all turns out to be a typo or you fat fingered moving one line up or, and it was... So the account structure and dealing with that is just incredibly easy. You don't have to de-serialize anything yourself.Well, anything that has a token, SPL token program or even some of the DEX infrastructure. And it makes cross program invocations a lot easier. I've been working with some teams for this hackathon, and wrote a bunch of cross program invocation examples for these teams to get up and running with PsyOptions pretty quickly. And it was just seamless for them to use our data structures and serialize it, de-serialize, because as long as we're all using the same framework, it works.Anatoly (06:56):Yeah. This was is my decision, so you can blame me, but I really didn't want to build a shitty framework. And until people started building on Solana, it was really hard to know, what do they need? I think it would've been worse if we built a bunch of code that nobody could build with, because it would've been incomplete. I'm going to say, it takes a lot of discipline to do that, versus laziness.Tommy (07:22):It makes sense to offload it on to the actual DAP developers. It's a different beast when you're programming the underlying system versus the actual just Solana runtime program. So it makes a lot of sense how Anchor came out and who really is leading it.Anatoly (07:40):Can you guys tell me what worked really well? Or what features or anything for any other Devs that when they're coming into building on Solana, what stuff actually feels like a superpower?Taylor (07:52):Well, one thing that's improved a ton is the SPL token program and how you manage the token accounts and whatnot. That's definitely something that a lot of the new developers on Solana don't have to deal with. But back then we were building into our UI the ability to have multiple accounts for the same SPL token and it was super frustrating and whatnot. So using those associated token accounts and other kind of, I guess you could call them rapper programs or things like that, that just improve the UX significantly. Understanding those and why they're there is pretty important when someone's getting started.Tommy (08:30):I think taking it a step further too, how does the associated token program work? And what's really under the hood is the program derived address. I put together some documentation for people starting to onboard to PsyOptions or related protocols. And I'm like, you need to read up all these Twitter threads, these documentations on PDAs, because there's just so many things you can do with a PDA that's very unique. You can get a mapping just to accounts, you can create a unique constraint. So for PsyOptions, there should never be... Right now, there's no reason to have more than one of the same option and the fungibility of those options are based on the expiration date, the strike price, the asset pair. And so we just have a PDA that is seated with those parameters and it creates this unique constraint.Anatoly (09:24):Oh, that's cool. So you encode the constraints as, basically hash it into the address.Tommy (09:30):Exactly.Taylor (09:30):Exactly.Anatoly (09:31):And the taker then has to satisfy those constraints to be able to take that trade.Tommy (09:36):No, not on the trade level, just on the general structure for creating the option. It's like, okay, if you want to spin up a BTC 70,000, USDC strike for the October 29th expiration, just that structure that creates that... because that's structure is the core structure of PsyOptions, the Psy American program. And that's what then controls the option TokenMint and writer TokenMint and how you dull out those option tokens. And so it's just there can never be more than one of those specific to those constraints. So it's separated from the trading concerns.Anatoly (10:14):Got it.Taylor (10:15):Yeah. I think you thinking of your stateless escrow. I thought that was a pretty cool proof of concept.Anatoly (10:21):Yeah. I wasn't sure that you guys already built... I think this idea has been around in crypto for a while, so I wouldn't be surprised if you guys use it too. But I like that idea that, because you don't want to generate infinite number of these markets, if everybody enters the same data, then it's going to spit out the same BTC month increment whatever, like May 2021 option or whatever you want.Tommy (10:47):Yeah. And we've seen it too. It's really useful to have these deterministic ways to look up an account address. So it's like, "Look, I can just check if this option market already exists by using these parameters, the PsyOptions market exists." And we also ran into some issues that we had to hack together, on the client side, because Serum doesn't have these kinds of constraints. And an adversary could come in and spin up multiple Serum markets for the same asset pair. And then when you're pulling that data from the chain on the client, it's like, "Well, which one is your UI using? Which one are these automated traders using? All that kind of stuff. How do you sync them up?"And so that was a pain point, and we had to whip together a package. But now with Serum's permission markets and some other stuff, we can now use PDAs to say, "This is deterministically how the UI is going to determine the market. Here's how everyone else should do it. These are the seeds." And then it keeps everyone in line in a more decentralized way, rather than having to have some NPM package with metadata and it's painful to maintain.Anatoly (11:54):Got it. That's cool. What actually runs the market? Is it a Serum Q, a Serum V2 or V3 Q?Tommy (12:03):Serum V3 right now, for the Americans. Yeah.Anatoly (12:05):Awesome. Man, that's super cool. How was that integration? Is that blood, sweat and tears still, or are the tooling itself around Serum getting better?Taylor (12:15):It's getting better.Tommy (12:16):Blood, sweat and tears.Taylor (12:17):Yeah, but it was definitely blood, sweat and tears. I think that's what took us the longest part in the original hackathon that we won, was doing the Serum integration. And we weren't even doing any cross program invocations to Serum at that point, it was literally just client site integration. And that was really difficult. No documentation, got to read through the source code. I think we even found some bugs in their type script package and had to patch it ourselves. So yeah, definitely blood, sweat, and tears there.Tommy (12:48):There's still room for improvement. I'm like drop in list every time as hackathon participants start asking, or users are complaining about settling funds. I'm just at a constant stream of, "Hey, we should document this and add a flow chart for that." Because all the customer surface is offloaded to the people using the Serum stuff, so we get that inflow of feedback from users and other developers building on top.Anatoly (13:12):Yeah. People don't realize how strapped every team is.Tommy (13:16):I agree.Anatoly (13:17):It's literally like three, four engineers at best to, no customer service, no nothing, just pure software, open source software. It's not like when you look at a market cap of something, you think there's a equivalent to market cap S&P 500 company with 30,000 engineers just all cranking away. Thank God it's not, honestly.Tommy (13:41):Yeah.Taylor (13:42):Yeah. It's got its ups and downs. At least you can move fast, it's not a bureaucratic process. But at the same time, customer support definitely dwindles and I think 70% of people are probably testing in production. So the end users are just going to have to deal with that and understand that's just the way things are done in crypto right now.Anatoly (14:03):I guess, how close are you guys to launch and what are the next blockers?Tommy (14:07):So we actually are on Mainnet trading with BTC and ETH markets right now. We have been live since the end of August, just with BTC and ETH for the September strike. Then we upgraded to a V2 of our American protocol with Serum permission markets, so we can eventually close those markets. And so that gives us the ability to open a bunch more. And so we're live with those, we're working with a couple other partners to get some SOL markets up pretty soon. So we'll probably announce that here.Anatoly (14:40):Awesome. What have you guys seen in terms of adoption, and how are people using it and has anyone surprised you with what they're doing?Tommy (14:49):It's tough right now from the retail side using our user interface. I think what the biggest thing that I'm excited... There's been a lot of great feedback. Options are not an easy instrument to use, managing your own positions is tough. And so we've gotten a lot of great feedback from the community and it's shaping what some of these projects that are work thing on during this hackathon. I think that's what's most interesting and surprising is these teams that are building on top and they're not user interfaces. These are protocols that are going to be managing certain strategies and rolling positions for users, and so you can have this more passive product. It's like a ribbon finance to the basic ones, where it's just selling covered calls and secured puts or things that.But there's a lot of plans, I don't want to leak their Alpha. But a lot of plans for additional products where it's more just, set it and forget it. And it has certain properties detailed out to hedge for various things, give you certain direction on volatility. And it'll make these... all these products, some more user friendly for retail, but also big institutions that are looking to hedge existing exposure.Anatoly (16:00):That sounds like you guys are building more of info level for options.Tommy (16:04):Yep.Anatoly (16:05):That's awesome.Taylor (16:06):Yeah. We chalk up the V1 American that we built as just a primitive, and as decentralize as possible. It doesn't rely on Oracles, it doesn't need pricing information. So the only dependency is the Solana runtime and SPL token program, I guess now Serum with the permission markets. But the original one had only SPL token as dependency.Tommy (16:29):Yeah. So there's capital inefficiency with the American style, because you can exercise at any time up until the expiration. So we're about to hopefully announce pretty soon, we have a European that we've architected and we're going to break ground on that and we'll crank it out pretty quickly. That will have a little bit more dependencies, but it'll be more capital efficient because it'll be auto exercised and we'll have a margining system built into it. And the American will continue on because we're going to build, I like to call it Carta for DeFi, but just a place where people... We whipped out a vesting contract the other week. And we'll be able to show people their tokens that are vesting, their options that are vesting, the ones that have currently vested and the options all in their portfolio and whether they should exercise them or not. It'd be less like trading based and more of just an interface for managing your portfolio of vesting stuff and options, so.Anatoly (17:33):That's awesome. How many engineers do you guys have?Tommy (17:38):We actually just hired another front-end guy today. So we're two full-time front-ends, and we hired another protocol developer, so we're two full-time protocol developers. Then we have a community guy and a marketing guy, and then couple of part-time and open source contributors.Anatoly (17:52):That's so small, I mean that's awesome. I feel this is the biggest thing in crypto, is how fast small teams can ship really sophisticated products.Tommy (18:04):Yeah. I think, as I've learned, the hardest thing nowadays or right now is, it's not the programming, it's the architecting the system to fit the runtime and developing the instruction set. And once you wrap your head around how that whole system works and you have your instruction set, writing the actual code is not that hard. If you actually take the time to just think and focus, and you have to have the knowledge and experience to understand that, it's pretty easy to start architecting a bunch of stuff and delegating and managing a little bit more.Taylor (18:35):The thing I will say on that though is that, the runtime changes here and there, but the changes aren't that drastic. But when you're using dependencies like Serum, Pyth, whatnot, those change a ton. And so you're seeing a ton of changes on Serum, so one week you might have architected something for Serum B3, sounds great. All of a sudden Serum updates to some new thing and that might change the optimal architecture for it. So you have to be nimble in order to just go with the flow as different protocols update, and as new versions come out and new architectures are viable.Anatoly (19:14):It's weird to think of immutable code still having dependencies. But something with Serum, you're so dependent on liquidity in those markets that if they move to V4, you have to update because you can't point to a empty market.Tommy (19:29):Yeah. We bring a lot the liquidity ourselves. Well, these are brand new markets that we spin up. It's not as much of a pain point, it's more just announcing and coordinating. But it's more of the European protocol and architecture, it depends on a lot of the stuff like... it doesn't depend heavily on the SPL token, contracts aren't represented as SPLs. And so it depends on this new architecture that they just announced, that Bonfida has been working on. So it's just interesting, you have to keep up to speed with what exists in the ecosystem, so you can constantly be like, "Is there an improvement? Can we squeeze something out of this is?"Anatoly (20:03):Is the European option, are you also planning for it to be Oracle free, or no Oracle?Tommy (20:08):No. We'll rely on an Oracle just for the exercise. We're wrapping up the architecture and probably just, we're going to develop this one totally open source from the scratch. I just put up the boiler plate repository and its open source. We're going to open source, or at least make public the architecture, so everyone can read and comment on it while we're just cranking it out in the next week and a half. So there's a Oracle dependency just on one instruction, just to actually lock in the index price, that would be for the expiration. But we don't see it being too risky of a dependency, considering it's not an instruction that has a lot going on so we can do a lot of checks. We could pull two different Oracles and reduce the potential pitfalls there.Anatoly (20:53):Yeah. This is a hard problem too. When an option is exercise it's still going to hit the Serum market to actually exercise the price?Tommy (21:03):No. So on the base layer, the European, it's just going to... essentially the architecture is locking in the price, and then users basically have to settle up the positions and collateral themselves.Anatoly (21:14):Got it.Tommy (21:14):The best way to describe this one is Deribit on chain. It's really just like P&L, not the full underlying.Anatoly (21:22):Okay. So you can actually settle in any collateral. You could have an option on SOL, but settle in wrapped ETH or whatever?Tommy (21:29):Well this one, it's actually going to be... well, it's going to settle in the currency that it's trading. So BTC, it's going to have this siloed market and account that holds all the BTC and manages the entire portfolio, margining for someone's BTC options. And so it has it's own realm of just, this is the BTC world. And everything settles in BTC, everything's traded in BTC and premiums are even in BTC, but then it just uses the USD index price to actually settle up on the strike. And then SOL would have its own world, with its own portfolio margins system. So they're not cross margined between all those at the moment.Anatoly (22:10):Got it. Is cross margining something you guys are also thinking about?Tommy (22:15):Yeah. It's one of those things where we want to just crank this out and ship fast, because it's improved from the existing architecture, for when it comes to a trading perspective. And then we'll discuss a more improved cross margining system.Anatoly (22:27):Do you think that there's a gap still in this idea that I think, what's popular on DeFi Ethereum is liquidity mining, and I just want to put my tokens and get yield? And is there a gap between that and options trading and central limit order books?Taylor (22:46):I think there's a knowledge gap. The closer you are to dealing with the primitives, the more knowledge you need to have, the more hands on you have to be in managing your positions and whatnot. So I think that reduces the addressable market or the end users that are willing to participate. And so that's why you have people building programs and tooling on up to manage the position, so it can be more passive. Because I think that's one of the biggest things that drove a ton of people to DeFi, is the passive yield, all the token incentive programs and whatnot. So I do think that there's a bit of a gap, but it's slowly being closed. And the more passive it can be, the more non crypto people or even crypto native people, but the less financially sophisticated you could say will come in and utilize DeFi.Anatoly (23:39):So you guys imagine that... or there's probably somebody already building this, where I have my token, I'm an LP, which is under the actual thing behind that position is a covered call or some other fancy strategy, iron condors or whatever, right?Tommy (23:58):Yeah. So there's a couple teams from the hackathon building that right now, actually.Anatoly (24:03):That's awesome.Tommy (24:04):That's what I'm really excited about. Because that's what we've seen is, there's decent order flow, I haven't looked at the volumes because we're just very focused on product. We know what the low hanging fruit is, so we're not focusing on the vanity metrics at the moment and not really talking about the TVL and whatnot. But it'll just increase order flow because these people can just get passive yield from covered call products, or they can hedge certain positions just by depositing tokens. And it's all going to be managing these underlying options and straddles and things like that.Anatoly (24:38):How long does it take to go from, let's say I wanted to build an iron condor or something that as a strategy, can I do that? Do you guys have examples already, reference implementations for things like that?Tommy (24:53):Are you talking as a protocol or as just a user, using the... like a client?Anatoly (24:58):As a, here's my DAP, I'll take tokens from LPs and then automatically generate the position on PsyOptions.Tommy (25:07):The hard part actually isn't to the generating the initial positions, the hard part is handling how they want to roll, if you're trying to do it over time, where they just can keep that open. So the generating the positions is super easy, placing the orders. We have examples, CPI examples in the repository for minting options, exercising, placing an order, opening a Serums open orders account, all that kind of stuff. Just been cranking out examples as people ask for them. And then, it's onto those teams to handle that really tough part of, how should we roll? There's certain concerns in there for manipulation. There's certain concerns for front running, there's certain concerns for eating through the order book and having to build your own TWAP into it and stuff like that, so.Anatoly (25:59):Yeah. Man, you guys are taking on some really tough challenges, that's cool. This is something that I wanted to get good at, trading. Trading options and deep learning into these things, but I got it to work.Taylor (26:15):Yeah. It's a full time job. That's why we try to focus on the primitive and lower layers and try to get that right. So then other teams can focus, if they're much more financially savvy or have of better trading backgrounds, can handle that. It's a full-time job to be a trader, to come up with those models, to build those positions and roll them, it takes a long time. And you constantly have to be updating them too.Anatoly (26:44):How long did you guys trade options before?Taylor (26:47):Not much. We're just retail traders. I interned at an investment bank once a while back, but to the extent of my full-time finance career, that was about it. And then we would trade options here and there, but nothing serious. And then, when we wanted to automate that option trading strategy, that would've been probably the first automated system we would've built. I don't think we built an automated option trading strategy before that.Tommy (27:15):Yeah. I would say we relate best with the retail, speculative, YOLO option users, rather than very sophisticated options traders. But it's been nice building this and winning that hackathon and getting some attention, because then those people show up. And we have some really smart TradFi people who have been around crypto, some really smart TradFi people who have never been around crypto, contributing to the thought leadership of where we should go, what's needed to get to certain structured products and things like that. And that's been super helpful because we've been early in Solana and have the engineering capabilities and knowledge to work with them of a translating their vision into a Solana architecture. And so we've just been helping as many teams as possible that have that background and can bring that knowledge. And then, that's why we're just like, "Look, we'll help you as much as we can because you're going to help us answer some of these questions that we don't know." So it's been good to fill out the team and the surrounding circles with that.Anatoly (28:23):Do you think that DeFi is something that... I always think of it as growing faster than TradFi versus replacing it. Do you think these products are good enough to compete with traditional finance, or are we just going to see more stuff being built on open finance because it's easier? I don't have to go talk to a CME to launch an option for my in-game bullets for my shooter game or something like that.Tommy (28:52):I think it will be just the fact that it's open and anyone can do it. Looking at the architecture here and designing an ideal architecture for the most capital efficiency system, it's just not really... You could do it in CeFi so much easier than you can do it in DeFi. I don't even know if it's truly possible. We're still just on the back burner trying to figure out how you could portfolio margin everything. I think a lot of teams that we've talked to are all thinking about that in the back burners. It's like, how do we margin against everything? So I think it's definitely moving faster. I think they will rival CeFi, a lot of these products, but I think they're still going to be both working hand-in-hand.Taylor (29:42):Yeah. I think both have their ups and downs. The speed that DeFi innovates because of the open source nature and things can be represented and it's all digitally native, it just makes the pace of innovation faster, also makes what you can build much faster. Like CeFi you're beholden to, not that you're not beholden to regulation in DeFi, but CeFi there's a lot more red tape. You got to jump through hoops in order to be able to launch a market or... You can't just launch your own equities exchange, it's takes tons of money and resources and whatnot. So it stifles innovation in that respect. So I think even if DeFi can't become as capital efficient as CeFi, you're still going to have more innovative products, more flexibility in what you can do with your assets, that at the end of the day, you might not need that capital efficient, high, super fast, low latency systems to do what you want to do with your assets. So I think there's a place for both. And I think DeFi is just going to continue to innovate and outpace growth in terms of TradFi.Anatoly (31:00):Well, our goal is to get that latency to be as low as physics allow, and then we're competitive.Tommy (31:10):That's why we're here.Taylor (31:10):Let's do it, man.Anatoly (31:11):Won't rest until we're building neutrino emitter detector. I just think with gaming especially, the first massive multiplayer games instantly within six months had a market for the digital items there. As soon as you get something like Star Atlas or equivalent, like World of Warcraft that's decentralized with all these assets on chain, I think the idea of options as a service, people are just going to, "Well, I got whatever... I got more gold that people want to use because this game is hot right now." People are going to definitely spin up those markets, it's just going to happen.Tommy (31:48):100%. We've been talking about game... we're gamers ourselves, and I haven't played a game since I really dove into Solana development 11, 12 months ago. But I'm hoping to get back to it once Star Atlas and Aurory and all those other... Kaiju cards, everyone starts actually launching the game play, I'll jump back to gaming. But we've been thinking about it a lot and what could be done with this American primitive, and that got us into talking to other teams and other games, just to see what's out there. And then I actually got connected with Metaplex and built out a contract that they just announced that's focused on gaming. And it all stemmed from trying to think about, these games, everyone's so early and not really thinking about how these game assets are going to plug and play into DeFi protocols and things like that. And there's still just so much work and research that needs to be done, and some infrastructure needs to be built for it all to work perfectly together.Taylor (32:42):Yeah. I think the interoperability for gaming is still... there's still going to be some rough edges there, because it's harder to build standards across games. But I think you'll have a few games come out and maybe they'll have transferability between games and whatnot, but it's going to take some time and some trial and error before we get to this on chain metaverse where you can transfer assets between different game worlds and whatnot. But I do think that is going to be one of the ultimate killer applications on blockchain.Anatoly (33:19):What are you guys excited about out of this hackathon?Tommy (33:22):Oh, for me, it's really just the stuff we've mentioned with the structured products, passive yield products, all that kind of stuff, being built on top of PysOptions. I'm very heads down on product and everything at the moment. So aside from the people that are ping me, asking me for help, I don't really know what else is being built.Anatoly (33:42):Yeah, likewise. I see NFTs being launched and then I'm deep in the trenches and optimizations. I guess that's good. It means that there's more stuff to do than you have time, so you started actually going heads down and working.Tommy (34:00):But there's a lot. The roadmap with just these teams alone, is ridiculous. We have so many products that we want to whip out on top, and hoping to launch the first few in the next week or two. And then the framework's there, it'll be a little bit easier.Taylor (34:14):Well, it's just fun to see people building on software that you've built. I'm sure you and the rest of the Solana team get excited as new projects come out and new people innovate. And I think that's one of the more fun things to do, is just sit and watch what people come up with because you can't come up with every idea yourself, so might as well open source stuff and have community run with it.Anatoly (34:33):For sure. What should we be looking out for? Do you guys have any announcements you want to leak?Tommy (34:40):Oh man. SOL options coming soon. Passive yield products that will make it extremely easy for people to get volatility exposure or generate yield. And this is yield that's not going to go away. A lot of these pools are based on rewards, and API is based on rewards and things that will dry up and aren't sustainable. But the volatility is a little bit more sustainable in a sense. Sure volatility will decrease over time, but.Anatoly (35:09):So these are like covered call strategies, basically?Tommy (35:12):The first few are the most simple covered call and secured put strategies. But then there's going to be a few other vaults coming out once these are launched, then it'll be focus on a few other vaults that have different strategies. Eventually, we started talking to some other teams like Symmetry, because we want to get a good crypto index, because then if we get liquid index options, we can create a nice volatility index for certain baskets. So that's all on the horizon. And so, you need that rolling and rebalancing and infrastructure, and that's what we've been working on the past few weeks, or other teams have been working on. And then it's formulas for just managing array of positions.Anatoly (35:57):What is your development process like? How do you guys go to build test and ship?Taylor (36:03):In terms of roadmap and how we determine what to work on, it's pretty ad hoc, things change up weekly, biweekly. But we try to run in two week sprints, at least just pick like, "Okay, what... base on user feedback, check GitHub for issues." Obviously anything that's blocking usage is number one priority. And then it's, "All right. What do we want to see built? What do our partner teams need, and how can we get them going?" I don't know Tommy, you have anything to add to that?Tommy (36:35):Yeah. Protocol development too. I'd sit and focus and start drafting up a full architecture doc with the instruction sets and potential functions that are needed, black box some stuff, just to make it a little bit easier and then put a to-do to dive in later. And then you have this whole instruction set and a general outline and framework, and you know it fits into the Solana runtime because you've made sure that the constraints are handled. And then I'll dive into running a test driven development process with Anchor, just doing full integration test. You end up writing a lot more test code, but I just find that the confidence level is so much higher. You can refactor and upgrade versions and you're just so of confident in your code when you have all those tests, so. And then, it cuts down the time from DevNet testing, where everyone just puts up a contract and then just relies on interacting it to test it. Especially when you're building a primitive, you want to have all those cases handled.Anatoly (37:36):In your use case specifically with options, what bug are the most worrisome? Is it overflow or actual logic and economic?Tommy (37:45):Probably logic and economics. The American protocol, overflow is not an issue, not really. We do all the check map of course, but it's not an issue. Maybe if we get some weird [Altcoins 00:37:58] eventually trading, then we'll have some weird issues. But I'd really just say logic, economic attacks, things like that, when we get into the capital efficient Europeans that has the margining system built into the base layer, and liquidation built in the base layer. And just always thinking about account management. You have that limitation of number of accounts you can pass in, and how to architect around that.Anatoly (38:19):So if Solana could change one thing, what would it be? Or anything, and things-Taylor (38:24):Two things.Anatoly (38:29):... two things. Finite numberTaylor (38:29):Fixed account length. If we could make it-Tommy (38:32):Oh, sure yeah.Taylor (38:33):... dynamic sized, I think that would be great.Anatoly (38:36):The length of the data.Taylor (38:37):Yeah.Anatoly (38:37):Okay.Taylor (38:38):The account data.Anatoly (38:39):That's actually... I don't know if you guys saw, but believe-re growing reallocation from the program itself or the account that it owns, I think it might be live already in 1.8.Tommy (38:49):Yeah. I saw ...Taylor (38:51):I think I saw the PR for that.Anatoly (38:52):Okay.Taylor (38:53):But that's one thing that... Sorry, but when people jump over from ETH to Solana, that's probably the biggest gotcha, that we're like, "Oh crap. I can't readjust or create a larger array, more mapping data, whatever." So that's one thing. And then also the number of accounts you can pass to an instruction [crosstalk 00:39:14].Anatoly (39:13):In a transaction. Yeah.Taylor (39:15):... open up more. Yeah.Tommy (39:17):And I think 1.8 handles a lot of these headaches, but you still, when you're trying to think, for the long term, just the limitations in general. I'm assuming they're always going to be there, the number of accounts you can pass in, can't be-Anatoly (39:32):109, the goal is to double the transaction size basically. So the number of bytes that a transaction can maximum size. That means you can double the user data or encode more, put more accounts in there. So there's always a limit because of the real time nature of the system. You're not submitting an arbitrary large transaction that then the block producer decides, "Okay, I'm going to pick this one." You're really like, "How do I write to the block right now?" And making sure that doesn't slow everything down, is a challenge. But really cool, man, you guys are shipping like crazy. It's awesome. It blows my mind that you guys were hackathon team that is now... there's teams in the hackathon building on top of PsyOptions.Tommy (40:23):I love it.Anatoly (40:24):Yeah.Tommy (40:24):I've been doing office hours, every Tuesday and Thursday, just letting people come in and ask questions because it's just nice to see people building on top. And we're going to do whatever we can to help them out and keep them there.Anatoly (40:36):That's super cool. Man, really good to catch up with you. Thank you for coming on the podcast. Is there anything you want to add for the listeners in the final bit?Tommy (40:46):Yeah. I would say, check out PsyOptions to trade your BTC and ETH right now, SOL coming soon. And then we'll be announcing an under collateralized European protocol pretty shortly, going to try and crank that out as quickly as possible.Taylor (41:00):Yeah. And get in touch. There's no shortage of projects that we can dream of and I'm sure others are too, but happy to help any team out that we can.Tommy (41:08):Yeah. And if you're a protocol too, looking to do option liquidity mining with American PsyOptions, reward contributors with options, or use the PsyOptions vesting contract, we're trying to get that. The vesting contract's a unique one, where you can delay your vest. The recipient has the option to delay their vest if the issuer grants it. So that way they can keep pumping the vesting and the potential taxable event. Not an accountant, so don't take that tax advice. Not financial advice.Anatoly (41:39):Not accounting advice, not financial advice. That's awesome.Tommy (41:42):Yeah.Taylor (41:42):No advice.Anatoly (41:44):That's super cool. Well, thank you guys.Tommy (41:46):Thank you.Taylor (41:47):Thanks for having us

Larry Cermak joined The Block as one of the first employees with the mission to provide professionals with accurate information about crypto. He now leads a 30-person research team that delivers insights to institutional customers.00:09 - Intro00:20 - Larry Cermak’s origin story / His work at The Block08:25 - The fundamentals of Bitcoin16:03 - The value of SushiSwap19:35 - Investing based on Memes23:42 - Market Value for future gains in Crypto26:12 - Will NFTs be backing internet money?28:44 - Thoughts on Algorithmic Stablecoins31:00 - Regulation in the US34:47 - Decentralization and tokens in the context of regulation39:45 - Volume of users / social networksDISCLAIMERThe information on this podcast is provided for educational, informational, and entertainment purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose.The information contained in or provided from or through this podcast is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice.The information on this podcast is general in nature and is not specific to you, the user or anyone else. You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented on this podcast without undertaking independent due diligence and consultation with a professional broker or financial advisor.Anatoly (00:09):Hey folks, this is Anatoly, and you're listening to The Solana Podcast. And today I have Larry Cermak, who's the VP of Research at The Block. Awesome to have you, man.Larry Cermak (00:18):Nice to be on, it's a pleasure.Anatoly (00:20):Yeah, so tell me your origin story. How'd you get into crypto?Larry Cermak (00:24):Yeah, it's probably slightly longer. But really high-level, I got involved in late 2016, I was in college in the US and was thinking about what to do my thesis on and Bitcoin seemed like one of the more obvious options, to not make it incredibly boring, so I just decided to go with that. And throughout the research process, I just kind of found that there isn't good research about Bitcoin, just in general crypto. There was either the super bullish people that were like all in on Bitcoin, or super bearish academics, and there nothing in between, and I felt like I can fill the gap a little bit.So after I published that research, I shared it publicly as well with a few people, and based on that I got my first job offer to work at Diar which is a research company, focusing only on crypto. So I worked there for a couple of years, and really just tried to focus on data driven research, which now it sounds kind of obvious, but back then it just wasn't very common. Most people were just looking at the really simple metrics and munging data, but mostly it was just price discussion, price predictions, all that stuff. And we were really looking at just analyzing the market a little bit more fundamentally, that sounds even more silly now looking back.And I got lucky that in 2017 when I joined full time, like early 2017 I joined full time, and that's when everything popped off massively, and it was just a bunch of shit ICOs, like a lot of sketchy stuff. I consciously started looking more into these projects, so I was one of the people that were kind of cautioning against some of the ICO stuff, and it was a lot of fun but I was quite skeptical back then still. So actually, a lot of people who have followed me for a while, they know initially I was a no-coiner, I had no crypto, and I was convinced that initially actually that a lot of this is just kind of hype mania, it's just all like overblown massively. But something really drew me into it, and it was mostly the permissionless nature, ability for anyone to participate, but what really I didn't like was just the hype around it, the marketing, the emptiness, and all that stuff.So I over-focused on that I think initially, but after some time, I realized that that's probably not what this is all about. Initially, I didn't think that it was necessarily important for most projects to have tokens and I was very skeptical that most tokens need a project, and I started massively changing my mind on this with the DeFi beginnings. So early 2020 my mind started completely changing on most of the space and I stared allocating a little bit more, and now I also do seed investing privately. And obviously, I lead the research department at The Block which is now 25 researches, probably the largest research team in crypto.Anatoly (03:33):So you went from Bitcoin skeptic to full shit-coiner.Larry Cermak (03:38):Kind of, yeah. It's a little bit concerning honestly.Anatoly (03:42):In four years.Larry Cermak (03:44):Yeah, I don't think I was really a massive Bitcoin skeptic, I was just skeptical of everyone is just so positive, and Bitcoin maximalists, I just could not handle that. When you just start using really bad arguments, just kind of shit-post and being really negative about everything other than Bitcoin and not being open-minded, that really pissed me off and I wasn't open to it.Then I was like relatively active in the Ethereum community early on and DeFi. We had Teo on the team initially who was one of the people the most involved in DeFi early on, he's now the Director of Strategy at Uniswap, and he definitely showed us all on the research team why this makes sense. And when I really started understanding that these tokens are not just useless, they can actually be used for real things, and they do get closer to almost equity in some ways, even though obviously a lot of them try not to, but when you have some sort of a claim and some sort of cashflows, that's when it gets interesting to me. And governance obviously as well, but that's when I really completely started flipping.Larry Cermak (04:57):But yeah, you're kind of right, I went from a skeptical no-coiner to then kind of a shit-coiner now, like spreading seed investments that I like.Anatoly (05:06):Do you still believe in this idea of sound money, or?Larry Cermak (05:10):So a lot of Ethereum community members think that Bitcoin is just a meme, it's going to go away, I actually don't believe that myself. I do believe that what's really powerful about Bitcoin is that it's been around for the longest time and it's very hard to compete against what it has, which is basically just the belief of a lot of people, and it's difficult to break that. And then you also have a lot of buy-in recently from, not only hedge funds, but also larger institutional investors, and that counts for a lot more than just blockchain, even though it sounds silly, something that's established as internet money and a lot of people pushing for it is really powerful.So yeah, I still kind of believe in that and I don't think that Bitcoin is going to be surpassed by Ethereum anytime soon, I actually have a bet going with Kyle from Multicoin about that. But yeah, generally I believe there is some merit to it, but I definitely also believe that people should be more open-minded, and because a lot of people are close-minded, they are missing on a lot of really obvious opportunities. Really my bread and butter is exploiting these things, when people underestimate something, and when there is actual merit to it that they don't see because of some reason or another, that's when I usually perform really well.Anatoly (06:35):Yeah, that's digging for alpha man, that's real work.Larry Cermak (06:40):Yeah. But yeah, The Block's research team, when I started obviously it was just two people, and now we have 25 full time researchers that a lot of them digged that up for me now thankfully. It is a lot of hard work like doing a lot of that myself, but now there's a massive team behind me. It's going really well, like we're reaching a lot of institutional customers as well, and the market just exploded massively this year for institutional access.Anatoly (07:08):That's amazing. So 25 researchers at The Block, how many people total?Larry Cermak (07:15):Around 70 or something, 75 maybe. But The Block initially, even when we started, I joined one of the first employees like 2018, and the vision was always to go through all the noise and bullshit and price predictions, and SEO plays and all the click bait nonsense, and try to go through that and have more data driven, research oriented coverage on the news side. We started with that and then eventually turned into actually a research product that just mainly focused towards institutional customers. But obviously, the news part is still a really important part of the business, it's what most people know, the institutional product is not really accessible for regular retail customers.And it's been a really, really fun ride, just going through this in the last three years. I don't think people realize how really difficult it is to go from nothing to building a media company that's recognized by people and somewhat respected. It's something that took a lot of hard work, and it's a very thankless business, like media, it doesn't usually make too much money, it's something that's really undermonetized in a lot of ways. So that's why we're going more into research, more into data, and just going after the institutional customers because they just have deeper pockets and they're more sophisticated, which is easier.Anatoly (08:44):What are the fundamentals with something like Bitcoin, something like money? It's just such a dumb idea for somebody that's like a value equity investor that's looking at the Amazon.Larry Cermak (08:56):It's a really good question, a lot of it is just a common belief that this is worth something. If you ask the same question about a lot of other things, you're going to arrive at the same answer, it's basically like the value is because a lot of people believe in it. Similarly with gold, like who's using gold for stuff, very little people for jewelry and chips and all that. Most people don't care about that, most people use it because they believe it will retain value and because they believe there is some sort of a scarce supply that's somehow protecting their investment.And it's Bitcoin, it's something similar, where you have a lot of really, really religious supporters who are the holders of the last resort who are just never going to sell, that creates a pretty powerful price for a lot of these things. And then on top of that, you also have guaranteed fixed supply, which obviously I think there are going to be some issues about in the future, but it is a meme that people buy, it is a meme that people believe in, and I think that in itself is more powerful than-Anatoly (09:58):But people don't write research reports on gold, or fundamentals of gold, or how gold is going to get more gold.Larry Cermak (10:06):... Yeah, no, I agree. And I think it's like funny, we started the research firm three years ago, and since then what can you really research about Bitcoin? We've done obviously a few research pieces about mining, and few like micro looks basically on how Bitcoin is performing, but ultimately there really isn't much you can research. It's more so about just like enough people believing, and the better the buy-in is and the longer Bitcoin survives, I think the better the likelihood that it will continue surviving, is kind of my thesis. But there are a lot of issues obviously, like it's still not exactly figured out how everything is going to incentivized when there is not many subsidies anymore, and a lot of people just don't want to answer these things right now, because they just put it off.But generally, yeah, there isn't much to research, we don't research much. What we also do from time to time is just explain what Bitcoin is, explain how it works, to just institutional customers that want to learn just fundamentally what it is. But generally yeah, if you want to dig a little bit deeper, really like Bitcoin mining is the only thing where look at a lot of data and analyze how that's going, everything else not much honestly.Anatoly (11:19):Part of this research right is to give you some ability to predict price I would imagine, like why would I care about Bitcoin, is because I hope that it doesn't crash or it goes up, something. So where does that come from?Larry Cermak (11:36):It just comes from people that... and I think that this is somewhat justified, let's see what's going on around us for the last two years and see that inflation is spiking while a lot of people have been denying that this is going to happen. It's just like this belief of finally having control over something, something like being programmed before, is a powerful concept that a lot of just hedge fund investors and institutional investors just buy into.Anatoly (12:02):Is it like a fundamental though? Are we going to have accounting standards for how much of a religious belief is spread?Larry Cermak (12:15):I think that by itself is somewhat fundamental, like why are people investing in gold, you can be asking the same questions. Central banks have some gold, but ultimately it's just because enough people believe that it will retain value, and it has done that relatively well historically. And as we are moving, everything as you know is now moving to the digital world, everything that used to be physical is somehow transforming into the digital world, and there's probably no reason why that shouldn't happen to money either.And I think fundamentally, there also is some value to Bitcoin not changing that much. A lot of people make fun of it and I think it is kind of funny as well, there is not much innovation in Bitcoin, but also that it's one of the benefits, where you have something that's totally predictable, you have something that you know what to expect from. I kind of buy that as well, I think Bitcoin is one of the most boring things that you can invest in, but it's also the thing that usually gets people in the door, and it's always when friends come to me and when they say what they invested in, it's almost always Bitcoin first, just because it's talked about the most.It's kind of like also the most safe, if you think about it. Everything else is kind of still unclear, even Ethereum, even Solana, it's not totally clear if all this is going to end up working out and if there's ever going to be some larger issues. Whereas with Bitcoin, it's a lot of more guaranteed that if people keep having this belief and if something is digitally scarce, it will probably retain the value in the future. So yeah, it is kind of ridiculous, but almost everything is a meme recently, so why not Bitcoin as well.Anatoly (14:02):Well, I mean it's weird, again, we're not looking at a company even like Google or Facebook, which has people and memes, or Twitter, but they still have like cashflow.Larry Cermak (14:14):Yeah, but Bitcoin was the first as well, which in itself has a lot of value. For every project, if you look at everyone who was always the first, even in crypto, there is always a big premium to that. And I don't think it matters too much if there are cashflows and if there are real people, it just matters if enough people believe that this will retain the value in the future and if enough people do.I think like Tesla was a massive fundamental shift, like we saw that with our customers on the research side, it absolutely exploded after the announcement, just institutional interest, more companies inquiring into what Bitcoin is, more companies thinking about treasury management. Those things really matter, and it's hard to go back from them.Anatoly (14:59):Can you like measure that? Can you measure how many people believe that Bitcoin is safe or like an inflation fund? You're literally just testing how many people are part of the religion basically.Larry Cermak (15:20):I think you can say something similar about Ethereum, probably about Solana as well, you always need some sort of a belief. Of course, there is some backdrop of some sort of cashflow, some fee generating, but it's the same shit as people saying oh, I'm only investing in cashflow generating DeFi projects, but ultimately who cares. Ultimately, if the price goes down generally over the market, it doesn't matter if you have cashflows or not, everything is going to crash. It's just like a general belief in the market overall.Anatoly (15:48):Especially if they're marked in the token itself, then if the price goes down, so do the cashflows.Larry Cermak (15:58):Exactly, yeah. So a lot of TVL metrics and all the revenue metrics, and not only that, but we've talked about this before as well, but a lot of the revenue or what people call revenue is basically just going to the participants, like LPs, it's not even distributed in any way. So a lot of this thing, I think it just doesn't matter too much, what's important is social belief. It really is, it does sound ridiculous, even to people on the outside, but when more people are buying into it, it is basically a Ponzi but it's really like a well working Ponzi.Anatoly (16:32):You said it. What about something like SushiSwap? What is the value there?Larry Cermak (16:42):I think SushiSwap is interesting, and the value is your belief that this will continue existing in the future, that the people involved in SushiSwap, the developers will figure out ways how to get some value out of the ecosystem. And even though I said it's kind of bullshit, it is, but it does have some claim to cashflows, unlike Uniswap at the moment.But yeah, the value is just you believing that the currently associated developers and the community will just build something that will end up sticking around. So right now, a lot of people are betting on the fact that they're developing an NFT platform to compete with OpenSea, they also have a token launching platform, it's always just going to be a bet on the people involved with the protocol and on the community.I think that's one theme that I see constantly, time and time again, crypto is very much about the community, it's very much about engaging with the community, listening to what they want. I think what SushiSwap has shown even though it was really, really cold early on, for some really good reasons as well, is that it does listen to what people actually want, because if they listen to what people want, they will get more support, they will get more public support, price usually is pretty reflective of that. So that value is just like betting on this being around for a longer period of time, adjusting to the market, so if people figure out that AMM is not the right way to go and it's [inaudible 00:18:17] based exchange, they're betting on the fact that they'll be able to pivot to something that is meaningful. I think that's a relatively reasonable bet, but SushiSwap is still giving out, or was giving out a lot of incentives. What a lot of people don't realize or maybe don't want to realize is that if you look at how much they're giving out in incentives and how much they're actually generating in revenue or cashflows or whatever, it's usually negative, even for the most successful protocols, because it's still right now-Anatoly (18:50):Like Bitcoin even.Larry Cermak (18:51):... Yeah. Bitcoin is slightly different, where you're ultimately burning energy to prove something. But yeah, it is similar.Anatoly (19:00):So why couldn't Sushi become the meme for internet money or a store of value?Larry Cermak (19:07):I just think because Bitcoin was the first, it's the most established, it has probably closest properties to something like gold which is also a meme that people believe in. I think it potentially could, it's just unlikely. Ethereum could potentially replace Bitcoin at some point if enough people believe that that will happen, but I don't think that's going to happen anytime soon. If I was betting someone, and I think I bet Kyle that this is not going to happen by the end of this year which is ridiculous, I don't know why he made that bet, but even in the next three or five years, I don't think that's going to happen.Anatoly (19:47):I'm a logical person, I'm an engineer, this stuff doesn't make sense to me, so I try to break it down into things. The pieces that I see is that there's the technology to coordinate shared state, Makimoto, BFT, whatever, and then there's the people participating in that shared state, and the size of the people is that super connected social network and the technology is the piece of tech that does it.Larry Cermak (20:13):I mean, look at equities right now, no one fucking cares about the fundamental value, no one is investing based on that. People are investing based on meme, based on what they believe the future will be. So even something as dumb as Tesla, no one is looking at the cashflows, everyone is looking at the potential to become something larger in the future, and I think that's the same in crypto. People are looking at Bitcoin as being able to capture a lot of that. If you have someone that's right now, institutional investor or a big hedge fund, and they're looking for instruments to hedge the inevitable inflation that's coming in the market as central banks kind of went nuts in the last two years, what are your options right now? You're probably not buying Ethereum, you're probably not buying Solana. Maybe you're buying some gold, but probably you're already overexposed to gold in some way, and then also the upside in gold is probably relatively small, it hasn't really moved, it's not volatile, the opportunity isn't that great.So if you're looking at it from like a really pragmatic approach, and I talk to these people so I know how they're thinking and this is how they're thinking, I mean it just works that way, it doesn't matter if there's no logic to it, what matters is enough people just buying into this meme and buying it because they believe that the price in the future will appreciate.Anatoly (21:40):Because the meme will get stronger so you get more people into that?Larry Cermak (21:44):Yeah.Anatoly (21:44):So if these are like memes, these are basically social networks.Larry Cermak (21:49):How much of the recent price appreciation in Solana do you think it's because of strong memes and because of strong community buy-in? Maybe you think differently.Anatoly (21:59):I can be totally honest, I think it's purely people comparing us to Ethereum. And they're like, well Ethereum is more and this [crosstalk 00:22:07] good.Larry Cermak (22:07):Exactly. And then if you make this comparison to Bitcoin and gold, it's exactly the same stuff. People are like, oh shit, what if this goes up to the gold's market cap, the upside is still 5 to 10x, or whatever it is. It's just like, that's how people think, and I think that's exactly right, you're totally right, it's because people in Solana or a lot of investors in Solana, they're like all of a sudden, what if there is 5% chance that Solana takes Ethereum's users and replaces Ethereum in some way?Anatoly (22:39):They're not doing the fundamental valuation comparison of what is the actual value of this thing to the world? What is the benefit derived from it even?Larry Cermak (22:51):Again, we can go back to this in almost everything, what's the benefit of any company, it's to satisfy shareholders, and people don't really care about cashflows anymore lately.Anatoly (23:05):Sure, but we can remove the cashflow component, maybe in a fully super connected peer to peer system, that doesn't make any sense. Maybe there is no cashflow because you don't have like a centralized coordinator that's doing it, it is purely peer to peer, then how do you measure what is the fundamental value that this thing is providing to the world? Like if this didn't exist, is the world poor? Can we even say that?Larry Cermak (23:34):Yeah, probably not, but again, you can this about everything. A lot of things don't need to exist.Anatoly (23:40):I can say that about Tesla, I can say if Tesla didn't exist the world would be poorer, because there would be fewer electric cards, high quality electric cars. I can clearly say that.Larry Cermak (23:54):I guess so. But the utility is always a small aspect of why people are buying into it, it's more so just your bet that in the future, this will become more important. And as people are grasping with how much inflation is hitting right now, there just aren't many other options, and I think that's really the main reason.Anatoly (24:14):So I can see price being inflated due to... there's so much money available, so much capital that is seeking future gains, that anything with potential for upside is now overvalued. But maybe not overvalued, maybe it's just market value, it's just the market value for future gains is so large right now. But I can still kind of look back at the dot.com era and look at like okay, Amazon was overvalued, Microsoft was overvalued, because there was a huge crash, but I could see that if I remove this thing from the world, the world is poor. Are we there yet with crypto, 10 years in?Larry Cermak (24:58):I think honestly we're getting there. I think crypto now, in the last two years, showed us there's potential to do good, which is basically giving access to something that they didn't have before, and tangibly making their life better for one reason or another, and also just giving people access to this new asset class. I think those are really powerful concepts by itself. And on top of that, you add like composability of all these different protocols working together.I think yeah, I would say if crypto wasn't here, the world would probably be worse of, and I also think that the longer crypto is around, the higher the chance that it's not going to go away. I'm very sure, I can't imagine a world where in like three years, we bump into each other on the street and we say, holly fuck, this crypto thing was dumb and it's not around anymore, I just can't see that.Anatoly (26:04):We're all infected with the same virus.Larry Cermak (26:06):The concept of crypto makes a ton of sense to me, and it is definitely empowering people, even in jurisdictions that normally don't have that much access to the financial system. For example, we have a researcher from Kenya on the team, and we only pay her in stablecoins I believe, or it might be crypto, and we initially tried to pay her through the regular banking system and it was almost not possible. She's just one example, but there's tens of thousands of examples like this, where you have people all of a sudden getting access to something that they couldn't access before, and even if crypto just helped with that, that by itself, I love that, I love giving people more equal access to stuff.Anatoly (27:01):Okay, I'll throw some theories out and see if they stick. I think NFTs are a clear good to the world because any luxury spending that we move away from, like fast cars that burn fuel or penthouses into digital goods, is good for the world. Let people waste their money on digital things, because it costs nothing to create, that's great. So that's one theory.Anatoly (27:35):The other one is, if we are moving into post-capitalist society totally where everything is plentiful, what would people be doing? They would just be messing around in the digital metaverse, this is all just part of it.Larry Cermak (27:56):No, I think those are pretty good theories. I think it is kind of fascinating how you had this shift from NFTs basically being in like a digital flux, the most luxurious NFTs only owned by the elite, that's really, really interesting to me. I remember 2017, I was looking at CryptoKitties, and none of that made sense to me, and even with CryptoPunks, I was probably one of the biggest CryptoPunks skeptics as well, even earlier this year. The price is probably like 100x or 1000x since then, it makes almost no sense to me fundamentally as well, but it's what it is.I think NFTs are quite similar to Bitcoin, Bitcoin is basically one of the original NFTs. It's the same thing, you're trying to collect as many of them as you can, and because you believe it's something that will have some value, and similar things are happening with NFTs. And yeah, maybe it is removing some luxury overspending on dumb cars and watches and all that, but who knows, I don't know if this is going to stick, but it seems sticky so far.Anatoly (29:08):My theory is that we're going to see internet money be a perpetual basis trade of a NFT floor market, that's going to be the asset that's backing internet money. It's not going to be Bitcoin, it's not going to be ETH, it's going to be entirely backed by culture, [crosstalk 00:29:32].Larry Cermak (29:36):Yeah, maybe. But I think that you kind of hit it on the head, a lot of this is just literally backed by culture, backed by communities, backed by culture, and that's what matters.Anatoly (29:45):Do you think algorithmic stablecoins can make it?Larry Cermak (29:48):Oh, no. Again, there are going to be people that are going to say, I'm super dumb and not looking at it from the right perspective, maybe I am, but I think algorithmic stablecoins are fundamentally broken. You're always relying on some sort of demand to be the backdrop of stabilizing these things, and I'm just not skeptical that that's going to hold up in really maybe not as favorable market conditions long term, and I have not seen a single evidence to show that these things will be resistant to some sort of scrutiny in the future. That being said, stablecoins are probably going to be regulated by the US government, and maybe if you create enough demand for these, it can sustain for some time. A lot of the algorithmic stablecoins have performed incredibly well, because they're really like, what happens if stablecoins are called securities in the US now, it severely impacts the rest of the crypto space. And when you look at something like DAI, it's backed massively by centralized stablecoins as well, and then all of a sudden what's the alternative. If none of the centralized stablecoins are allowed to be used by investors in the US, even on Solana, a lot of the DeFi apps still use USDC and on Ethereum as well.I think that's why there's a lot of interest, is because people are realizing that centralized stablecoins are obviously prone to be regulated, and if they are, it's going to affect how the rest of the space operates. DAI hasn't shown that it's actually really decentralized, especially now that it's backed massively by centralized stable coins, and you don't really have any other options at the moment if you want to just transact value in some sort of stable instrument. But generally I think the idea of algorithmic stablecoins is never going to work. It's much better to just use Ethereum, or Solana, or Bitcoin as [inaudible 00:32:06] value and just [inaudible 00:32:07] if stablecoins are regulated, at least that's my belief.Anatoly (32:11):How much do you guys spend researching regulation in the US specifically?Larry Cermak (32:17):Not much on the research side, mostly on the news side, we have people in Washington that talk to these guys. But I guess the problem with researching regulation generally is that it's super opaque, like you don't see into it. Unless you talk to people and actually ask them what they're thinking, you don't really know. We know some people who are talking to the SEC, we know some people that are talking to CFTC and some regulators, and we have a directional idea of what will happen, but ultimately none of us can know until this is actually going to go into effect. We sometimes talk to the lobbying firms as well and they also don't know, it's a black box completely.But I think what most people that we talk to that actually are in the know or some sort of insiders, they agree that some sort of regulation is coming. The SEC obviously, there have been tons of indications already, but the SEC will do something, the question is how severe this will be. And it is very likely to me right now that within the next year or a year and a half, there will be some sort of a framework for crypto assets from the SEC, so they can actually with some sort of certainty know if it could be a security, or if it just a utility coin, or a governance coin.And there are also some serious indications that stablecoins are going to be in some way regulated. I've heard rumors that there are a lot of people who are trying to label it as securities, but none of that is final, and I don't think we're going to find out until actually that gets released in some way.Anatoly (34:00):Yeah, there is this like a lot of big uncertainty. You don't think there's any hope of US actually just creating clear, simple rules that just open the space up to innovation? Are you both bearish on regulation and bullish on crypto at the same time?Larry Cermak (34:22):I think the US is likely going to release some guidelines, the SEC will likely release some clear guidelines for what is and what isn't a security, I think that's going to be coming. That could be positive in some way, it's probably going to label a lot of the governance coins as securities, it could be negative short term as well.Generally, yeah, I'm pretty bearish on US regulation. What I've seen anecdotally is a lot of people just getting out of there. I frankly don't understand why DeFi teams are based in the US, why Uniswap team is based in Brooklyn, it makes no sense to me. I think if you're trying to build a really censorship resistant DeFi protocol you should get out of the US, because there is uncertainly for you right now and also for people to invest in your protocols, there's just too much uncertainty. And I think a lot of the future in crypto will be anonymous developers developing these protocols, I'm pretty convinced about that as well, that this eventually will shift into pseudo-anonymous developers that are not doxed. I don't think this will happen to like L1s, so the networks that will be securing these protocols, but I do believe that those that are really trying to empower people without being limited by sometimes nonsensical regulations, I believe those will have to be build by pseudo-anonymous developers, in some way or another, and then just decentralize early. I think that that's going to solve some of the issues. There are obviously some doubts about people trusting these projects, but there have already been some hints at this potentially happening. So I'm pretty optimistic that this will happen.Anatoly (36:12):What is decentralization mean in that context for these projects?Larry Cermak (36:16):For me, it means just inability to shut something down. So if you're the SEC and if you're looking at Uniswap, maybe you can call the UNI token a security, but ultimately what are you going to accomplish if you go after the project? You're not going to able to shut it down, you're probably just going to look like a fool afterwards, so you don't have that many options. So to me, decentralization means if someone really wants, if a regulator really wants, or if some third party really wants, it's possible to shut you down. So just having unchangeable [inaudible 00:36:50] is a point on Ethereum or on Solana, that's decentralized to me, and I think a lot of that will go towards that direction.We've seen examples of this with 1inch for example in the last two weeks, 1inch started limiting US customers or at least letting them sign a message. And that's partially because they're doing a lot of [inaudible 00:37:15] computing and they can be targeted in some way by these regulators, they can be threatened, whereas some other protocols really can't be. And I do also think that in the future, like in the next couple of years, there's going to be a lot of front end basically blocking or geo blocking, and restricting uses, blocking assets. So there's going to be a shift into alternative front ends for example, or making people interact with the protocols more directly that what they do now, which is they google Uniswap, go on the Uniswap's website, and then swap an asset, like that's not going to be sustainable, I'm already pretty certain about that.Anatoly (38:00):I'm just annoyed that like, if this is pure code, what is there to regulate? The token right, or the UNI token. So to speak to your original point that you've become a believer of every project needs a token, but if the contract itself doesn't need a token doesn't do anything, besides run this mathematical function, there's nothing to regulate.Larry Cermak (38:22):That is true, that is all true. I think why projects need a token is pretty simple, it's because it builds communities and it builds engagement, and it helps you incentivize some sort of usage or bootstraps these protocols. So I don't think that if Compound didn't do the initial liquidity mining last year, I don't think DeFi would be where it is right now, and the same goes for Airdrops. It just helps to engage people, it helps to get them invested in some way, and that's why I think they're important. But you're totally right, they are opening up a possibility for regulators to go after these tokens and regulate it in some way.But tokens are also opening up opportunities for not only people to invest, but also institutional investors and more capital to be draw in. A lot of the VC firms right now, they're completely stacked in cash, there's billions of dollars on the sidelines right now waiting to be deployed, they're only investing because they know there's some sort of an exit strategy, which to them is selling the tokens at some point in the future to enough people that think it's going to be more valuable. And I don't think this would happen if there were no tokens, I used to believe this myself as well. It's like Uniswap doesn't need a token, it's a perfect protocol, it's totally fine the way it is, but because it does have a token, it just attracted more usage and it's trending more people to actually use these things. And I think that by itself is something that probably overweighs the negative consequences which is more regulatory capture.Anatoly (39:56):Do you think we could separate the devs from the community? Could you have the Shiba token adopt the best developers in the space? They built the distribution and the community and they're like, we're going bribe Vitalik to work on some more contracts for us.Larry Cermak (40:26):I don't think that can happen or will happen. We've seen this before as well, a lot of projects raised a lot of money, like Tezos or EOS, and they haven't been able to do much with it, they haven't been able to accomplish much. And I think a part of it is just because communities are built by people actually believing in the project, in the future, and I just think that communities rule everything in crypto, and that's how I think it's going to stay.Anatoly (40:55):This is like both utopia and dystopia at the same time.Larry Cermak (40:59):Yeah. I think it's just a pragmatic approach. You look at how everything has worked in the last three years, and the conclusion is like it makes sense for people to interact with these protocols early because you believe that in the future there's going to be some sort of an Airdrop. And then there are like loops to this, if enough people believe that there are going to be Airdrops for all the protocols on Ethereum and on Solana, they're going to use these protocols more. So even if you look at the number of transactions on Solana or just generally how many people are using these things and for what reason, a lot of it is just speculators, a lot of it is literally completely useless activity, and people just hoping that they're going to make money out of it. And that's fine, like if you're bootstrapping usage, if you bootstrap attention with purely capitalistic intent, I think that totally works. If Compound didn't do the incentives, I don't think we would be here right now talking to each other, I don't think Solana would be worth as much. And it's just a way to get more of that interest, and almost like abuse the speculators to get more attention for this, to get more mainstream media to cover this, to get more investors interested in this.Larry Cermak (42:11):I think it's much deeper than you think, where yeah, a lot of these are probably useless to some extent, but a lot of these are just social experiments, social tokens, and a way for people to get exposure to some of these things.Anatoly (42:25):If we use that as like the fundamental thing, then you really should be looking at these as social networks, how many people, how connected they are, what are they doing?Larry Cermak (42:35):Yeah, you should be, and then also utility on top. If I can get a stablecoin swap for cheaper than I can get it on [inaudible 00:42:43] exchange, that's probably worth something. Similarly for Uniswap, if some of these players have more liquidity and it's cheaper for me to go there instead of on Binance, if I want to sell $1 million of something, that's also worth something. But generally yes, it's absolutely a function of how many people are using these things, how many people are interacting with this. That's why I think for crypto, the most powerful indicators are really social indicators, it's like looking at how many people are using these things, how many people are actually transacting. What's more difficult sometimes is to remove all the either fake activity or non-essential activity, and that's the hard part. But generally yeah, it's just a function of attention, function of which people are involved, and eventually you hope that this will turn into a mainstream thing.When I look at DeFi right now on Ethereum, and even on Solana, it's a relatively meaningless number of people using these things. Even Uniswap, maybe 150000 users maximum, it's a joke. None of us think that this is why we're here, all of us think that this will eventually go to tens of millions of people using these protocols, and that's really the end game. And I think even obviously for Solana, one of the premises for why it's designed this way is to support a lot of these new people.Anatoly (44:06):Yeah, I've said this a bunch of times, that trying to predict how this stuff is going to be used is like trying to predict Facebook in '94, zero chance I would've believed you that sharing pictures of your cats is going to be worth a trillion dollars, it's ridiculous.Larry Cermak (44:24):I totally agree, and no one knows. I think that's kind of the fun part, that it's like enabling people to really do whatever they want, it's really cool. Even just me talking to some small teams about seed investing, it's like you're talking to people in Pakistan and India, those guys normally would be somewhere closed up in their office, not really having these opportunities, and now all of a sudden they can develop these protocols, they can arbitrage them, they can make money. Like we have a guy in Russia, a genius coder, he's exploiting these arbitrage opportunities and making a ton of money, that's awesome. That's really powerful.Anatoly (45:07):Awesome man, really good to go deep down the rabbit hole with you.Larry Cermak (45:13):Yeah. Honestly, I didn't expect I would be the one convincing you of crypto's potential, I thought it would be the other way.Anatoly (45:21):I'm an engineer, so I look at a system and then I try to like, where does it break down? What does all this stuff not seem backed by strong arguments and real physics? Why is it all bullshit?All right man, really awesome to have you. Thank you so much for being in the Solana Podcast, and always enjoy your work at The Block.Larry Cermak:Thanks a lot.

Packy McCormick is the author of the tech/web3 newsletter Not Boring and runs Not Boring Capital.00:09 - Intro01:34 - What are people building in the world of crypto / What does ‘Not Boring’ invest in09:36 - Ownership in Crypto16:00 - Conversation around Play-to-earn19:06 - The regulatory aspect22:14- How does Anatoly balance his time23:54 - Thoughts on DAOs29:33 - Network Effect and defensibility in Crypto32:18 - Centralizing in Crypto35:20 - Solana in relation to DeFi, the cultural and the metaverse side of things.39:13 - The internet is Silicon Valley41:12 - NFTsDISCLAIMERThe information on this podcast is provided for educational, informational, and entertainment purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose.The information contained in or provided from or through this podcast is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice.The information on this podcast is general in nature and is not specific to you, the user or anyone else. You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented on this podcast without undertaking independent due diligence and consultation with a professional broker or financial advisor. Anatoly (00:09):Hey, folks. This is Anatoly and you're listening to The Solana Podcast, and today, I have with me, Packy McCormick, author of Not Boring. Hey, man. Good to have you.Packy McCormick (17:27):Good to be here. Thanks for having me on.Anatoly (00:21):So, You're an author and you're also an investor. How did you get into crypto?Packy McCormick (00:26):Yeah. So, I got into crypto back in 2013. I read Fred Wilson's blog post on investing in Coinbase, bought a bunch of Bitcoin, I think 38 Bitcoin, and then I went on a trip to Oktoberfest, and I felt bad about it, I had just quit my job, so I was like, "You know what, instead of spending money when I'm unemployed, let me just sell this stupid Bitcoin and I will pay for the trip."So, because of that, because of the pain of selling then, I avoided it until earlier this year, later last year, and really, really got back into it as I was talking to a couple companies that I was thinking about investing in and thinking about the intersection of crypto and the metaverse and how an open economy just fits so much better with that vision, since then, I've just gotten deeper, and deeper, and deeper down the rabbit hole.Anatoly (01:18):So, you held Bitcoin because you can sell it? That's just too big of a pain in the ass.Packy McCormick (01:24):I felt so bad about selling it and missing out. I think at the peak, it was like a two million dollar plus mistake, and so I was like, "You know what? I'm out of this for a little while."Anatoly (01:34):That's funny. What do you guys invest in?Packy McCormick (01:39):Yeah. So, I run a small 10 million dollar fund called Not Boring Capital, and we really invest across stages, across geographies, across verticals. For the first, I'd say, half of the fund, it was really traditional investments, I'd say for the second five million in the fund, it's been pushing up against the 20% non qualifying limit. I'm actually investing in my first Solana based project this week, which is yet to be announced, so can't talk about it, but something in the real estate space and something I'm super excited about. But doing as much crypto as I can in there, but I still think some use cases are perfectly well suited to crypto and some are really not. There's plenty of things in Web 2.0 that I'm super excited about as well, so really trying to balance investing across both.Anatoly (02:27):So, by traditional businesses, you mean like software internet based ones?Packy McCormick (02:32):Exactly.Anatoly (02:33):Cool. I mean, I've been in crypto for like the last... I can't remember... it feels like a decade, and I can't imagine what the world is like. So, what are people building?Packy McCormick (02:48):It's a good question. So, today, I talked to a company, for example, that is making it a lot easier for a restaurant to order the food that they need. So, right now, if you're a restaurant and you're ordering food, you're getting a bunch of PDFs from suppliers every week that aren't even searchable, and then you're going through the 6,000 items on there and picking something. So, there are still a bunch of these huge unsexy categories that are completely ripe.There's some security stuff that bridges into crypto, but there's one, again, stealth right now, but is also dealing with some Solana projects on the security side that I'm really, really excited in, but they're also securing Web 2.0 projects. There's some FinTech stuff I wrote about a company called Uni, yesterday. There's definitely a little bit of mental gymnastics that I have to do to be super bullish on FinTech and super bullish on crypto, but I really think adoption cycles are going to be super long and there are some really huge opportunities on that side too. I think everybody is trying to make the existing system that doesn't work, make it work better for people, and so I'm all for things, on either the Web 2.0 Side or in crypto, that make finance better for people.Anatoly (04:01):The mental gymnastics are curious about. I always thought that crypto is just part of this general story of software eating the world. Is that your take on it too?Packy McCormick (04:12):Totally. I mean, I wrote about Solana and I wrote this in the piece, but then I'm a maximalist-minimalist, and that's cross chain, but that's also I don't think crypto is going to eat everything yet or maybe ever. Just like on the internet, Web 3.0 is really about the dynamic interfaces where you could interact with each other. While there are companies like Facebook and Twitter and all of this social media companies that were more interactive, there were a ton of huge companies built during the Web 2.0 Era that weren't social media, that weren't real-time interactive at all, and I think the same thing will play out. I think you need to pick the best stack for whatever you're building at the time. And so I think we'll see a world where a lot of stuff moves to Web 3.0, And hopefully, even things that don't incorporate crypto become a little bit more liquid, a little bit more decentralized, a little bit better for people, but I don't think that crypto is the answer to every problem that the world has.Anatoly (05:05):So, when you look at a company that is building out the basic, "Let's convert PDFs to a searchable interface," that feels like something that should have happened 10 years ago, right, in your mind, at least?Packy McCormick (05:23):Totally. I mean, I think there have been attempts in that space actually, and some of them haven't worked. There have been different approaches. People have tried to do marketplaces and different things like that. I think what changed in that particular case is that over the past year, one, restaurants are super cognizant of cutting costs and getting profitability to the best possible spot, and so they're more willing to try new things. These people are taking an interesting approach without actually changing the interface that the restaurants interact with at all, they're just making everything behind it more powerful. So, things have been tried... there's people that are trying new approaches every day. I mean, I'd say 80%, because that is the literal max that I'm allowed to do is 20% crypto out of my fund, so 80% of my investments are non-crypto, and there's a bunch of stuff that's growing fast and is really exciting.I think the other interesting thing is that there are a bunch of companies that aren't going fully decentralized but are incorporating maybe a DAO in one aspect, where they have members who might be running something and want to vote on what that thing is coming up, or will incorporate NFTs in a particular part of the business where it makes sense. So, I think we'll see that blur a little bit more, but even within companies, they'll be doing some Web 2.0 Stuff and some Web 3.0 Stuff.Anatoly (06:32):So, I guess, in a way, you're bullish on non-crypto on the rest of the world as an investor?Packy McCormick (06:41):Yeah, my worldview is bullish tech and innovation, and I think if you're talking on the... I have a medical device company in the portfolio and a machine learning company that helps make sense of medical documents, and all that kind of stuff, I don't see a need yet for crypto, and maybe there's better decentralized storage of that information in the future, so it's not a centralized entity. And so over time, I think more, and more, and more of it will potentially become decentralized as the tools catch up, but for right now, that's just stuff that needs to improve.There's a company called NexHealth that I invested in that has really complex long term plan to first, sell SAAS into doctor's offices, use that to connect the EHRs, use that to build out APIs, use that to build out a platform, to ultimately try to make it easier for people to just hack on medical products, because right now it's such a pain in the ass to do anything in the medical space. I am super bullish on that kind of innovation because if you ask me what doctor I went to two years ago, I'd have no idea, if you asked me what my stats were, I'd have no idea. So, anybody fixing any of those kinds of things, I'm super bullish on.Anatoly (07:52):Man, I mean, the internet is basically 30 years old, right, at this point, and it's wild to think that we're still connecting just data...Packy McCormick (08:00):Totally.Anatoly (08:02):... data to format.Packy McCormick (08:03):It's why I'm going to be bullish on all of this. The internet is still early in terms of penetration, and then crypto is a tiny, tiny, tiny percentage of that, so there's just a lot of room for all of this to run.Anatoly (08:13):It feels then like everything is happening at the same time, we're still onboarding the world to the internet or now, part of the internet is being on boarded to crypto. Is that something that you first saw? What do you think about that?Packy McCormick (08:29):Yeah. I mean, I think most of the world... I think well over 50% nowadays is internet connected. I think it's just more and more things that were not internet connected are being tackled. I think a lot of the big obvious opportunities get taken and then people realize like, "Oh, shoot." I think I've seen, in the past week, a couple of companies that are making it easier for truckers to pay for gas and track those expenses. There's just all these big things that touch the physical world, where primitives needed to be built first, you needed banking as a service type things to make it really easy for companies to issue cards, to build it for specific use cases, so I think it's all just a matter of what primitives have been built and then what you can do on top of that. That's one of the reasons I'm so excited about crypto is because you and other folks in the space are building such interesting things for other people to build on top of.Anatoly (09:15):Since you have, I think, a more maybe practical or realistic view, since you're dealing with non-crypto projects that are trying to get revenue, right? That's generally the pitch to an investor.Packy McCormick (09:33):Yes. Over a long enough time horizon, some of them need to get revenue.Anatoly (09:36):What do you see in crypto itself as promising to use crypto in a way that actually increases revenue for that business? What are those things?Packy McCormick (09:48):Yeah. I don't know. One of the fun things about exploring both sides is that I really try, when I look at any crypto project, to understand what business physics laws it's enhancing. Businesses are businesses because people buy things the same way all over the place or people like to make money. People are the same, and I think all of this comes down to people, obviously. Solana comes down to how many developers build on top of it and how many people use that. And so obviously, I think one of the big important things is the ability to build network effects by giving people ownership. And I think the idea of using ownership in crypto to even have negative customer acquisition costs, to be able to essentially make the price of something negative to be able to get adoption, to use crypto tools for retention and network effects I think is one of the big things that excites me.I think it's also just moving way, way, way faster. I mean, look at Ethereum and Solana, right? Ethereum, strong network effects, people building on top of it, and then Solana comes in and looks like the same chart but faster. And so you can get these network effects, but then somebody else will come in with network effects that are even faster, and I think it's going to be interesting to see how those types of things play out.Anatoly (11:05):Negative acquisition cost is a really interesting topic because that's basically yield farming, right, like DeFi? The foundation of DeFi, how I get users is, a lot of these projects give away their coin. Do you think those patterns is something that you're going to start seeing in traditional businesses, like AMC popcorn, if you buy AMC stock is some form of liquidity mining, right?Packy McCormick (11:39):I think the challenging part, right, is that people want either money pretty immediately or they want ownership in something, and it's really hard for Web 2.0 Companies to give away ownership, there's a ton of paperwork involved. There are platforms that are trying to make that a little bit easier, but it's still really hard for them to give away ownership the way that, if you're a DeFi protocol, you can give away your token to attract users in the beginning.So, maybe there will be some things that Web 2.0 Companies steal and bring over from crypto, but I do think that's one of the uniquely beautiful things about it, is that it's this... I mean, we'll see. It's still so early, right? But that it's this beautiful thing where because you're early, you're able to earn more, and then because you were there, you actually support the network and make the network more secure and all that. So, there's actual justification for it, but it's just that shift in who gets the ownership of things, which I think is kind of beautiful.Anatoly (12:35):Do you think that the Web 2.0 properties, or like Facebook, Twitter, that those are at risk for being disintermediated by crypto?Packy McCormick (12:44):Yes. On a long enough time horizon, absolutely. I don't know what it looks like, and I think the early attempts to do it have been a bit skeuomorphic, and that's one of the things that interest me here is that BitClout was, I guess, interesting, but it was Twitter with coins, and I don't think that the next social network will look like Twitter with coins, I think it will look like something that is maybe wallet first, or maybe in the 3D world, or something that looks different but then achieves a very similar end. And so I think, yes, 100% they're at risk, but I don't think that they're at risk from something that looks like a clone but adds a token.Anatoly (13:23):Man, I love that word, skeuomorphic, because that's how I started thinking about it as I'm talking to a bunch of projects that are trying to shove crypto into what is a Web 2.0 thing, a Web 2.0 product. Do you as an investor see that as a red flag or like, "Okay, maybe this might work and you should try it, but clearly, you're going to have to iterate away from it"?Packy McCormick (13:46):I think it comes down to what you're trying to do. I talked to an investor who is way smarter than I am about this the other day, and she was like, "You know what, actually for me, because I invested in the series A and beyond, if one of my portfolio companies came to me and said that they're going to incorporate crypto at this point, that would be a red flag because that means that they don't have product-market fit and they're trying to figure out how to get product-market fit by doing something else shiny." There are other projects, like there was something that I was talking to her that was totally Web 2.0 Based but that asked people for feedback, they were having challenges with retention, they were asking users to submit information, they were thinking about how to reward them, and for something like that, particularly when it's so early, I do think that adding crypto into the project makes a ton of sense.If you're trying to incentivize contribution and improve retention, crypto is an amazing tool for that for the right type of community. So, I really think it depends on what type of product it is, and some things I think skeuomorphic might work in some cases where you're ripping out an internal reward point and replacing it with crypto, I think that can make sense, but when you're trying to just shove money into something to see if you can attract more users, that's when I feel like there's a bit of a problem.Anatoly (14:59):So, Reddit Coins, do you think that's going to work?Packy McCormick (15:02):I mean, they're at least early and I feel like they're such an interesting community of people, and the idea of karma has existed in Reddit for a while, so maybe making that a little bit more fungible and exchangeable is interesting. I mean, there's a bunch of behavioral economics on the idea that if you just pay people for stuff, you actually fuck up incentives in a bunch of different ways that are hard to predict, so it could be tough. When you actually assign a dollar value to something, you make people think about it in terms of the dollar value, and they're like, "Wait, I just spent a day moderating the subreddit for $1? Are you kidding me?" So, I think you need to get that part right, right? Where you can give them a million karma points and it doesn't matter, but then it becomes $1 then there's an issue? So, I think people need to be wary of that, but certainly where there are internal scoreboards, giving people a way to actually monetize that I think is interesting.Anatoly (15:56):Have you looked into play-to-earn stuff?Packy McCormick (16:00):Yeah.Anatoly (20:39):Okay.Packy McCormick (16 :02):I wrote a piece on Axie. I think it's so fascinating.Anatoly (16:05):I'm terrified of a world where everything we do is like, "You got to do this to get your 20 extra cents on your dollar." Right? It just sounds like a nightmare.Packy McCormick (16:15):I know. I mean, I am of the mind that dystopia is probably overstated because people have to opt in at every gate, and so I've had conversations with people where they're like, "Isn't it wild that we'd be spending time in the metaverse? Isn't that dystopian?" And then you think about how we spend a lot of our time right now, we're in a two dimensional screen. Wouldn't it be more fun if there was an immersive environment that we were interacting with here, and would we just continue to choose to do the 2D version until the 3D version got realistic and fun enough that we made the shift? And so there's going to be those gates at all times where people can opt in or not.A lot of the people playing Axie right now are in the Philippines, were unemployed, thanks in large part due to COVID, and so their options were, "Don't do this and figure out some other way to make money or start playing this game, that you might be playing anyway, and actually make money while doing it." So, that's an incredible option that people have, but you also don't see a ton of people in the West flocking to Axie to make a couple of bucks because the trade-off doesn't make sense for them. And so I think the trade-offs have to make sense for people but everybody has agency, to some extent, and will opt in to the things that make sense for them.Anatoly (17:29):When I played Ultima Online, I bought digital items in that game on eBay with a cashier's check. So, I get this idea that you can get really into a game.Packy McCormick (17:41):Totally. And then you stop playing Ultima Online and that money is just wasted, right? And so the idea that you could easily transfer that item to the next generation or person that wants to go all in on the game is nice, it means that you're accumulating something while you play. I think, over time, those experiences will fade more and more into the background and it will feel less like play-to-earn and will probably just be play-and-earn, but there's going to be a transition period where you have to just be bold about it and the play-to-earn piece has to be front and center, but I don't know.We can go to deep down the philosophical rabbit hole on all of this, but there is a point at which, at some point in the future... and I know this is debatable... but at some point in the future, we're not going to have to actually work to eat, to shelter ourselves, to have clothes, all of that, and so what do you do that provides meaning, right? I don't think we're going to evolve into a world where we feel comfortable not having to work for anything, and so people will find new ways to make meaning.Anatoly (18:47):We're going to be NPCs in each other's games.Packy McCormick (18:51):Seriously.Anatoly (18:53):How much do you pay attention to the regulatory side of it? Do you think World of Warcraft is going to have to file W-2s?Packy McCormick (19:06):Man, I do not envy the IRS or the SEC trying to keep up with... I do this all day, every day. I'm fascinated by it and I can't keep up with everything. There's going to, obviously, need to be a total paradigm shift in the way that this stuff is tracked and managed, even taxes. I am going to figure out, at the end of the year, whatever the best tax software that I should use to make sense of everything that I've done all across Web 3.0 This year, but if I didn't, the chances that somebody sitting in the IRS for my small potatoes amount of money is actually going to be able to go and figure out what I did is minuscule. So, I don't know how they're going to do it, but there needs to be a common sense way that doesn't end up in just this constant clash.Anatoly (19:54):Yeah. All my Degen Ape trades.Packy McCormick (24:36):Seriously. I mean, there's a thread that went viral on Twitter a couple weeks ago that was someone being like, "Hey, by the way, did you know essentially that when you buy an NFT, you're also selling your coins at a game and you're going to have to pay taxes on that?" There's going to be a lot of people who get hit pretty hard at the end of the year.Anatoly (20:15):Yeah. I'm curious how that's going to play out. That's wild. I mean, like one of the investments should be like, "Here's tax software for all your crypto shit." That seems obvious one.Packy McCormick (20:28):Yeah, there are a few people working on that. I mean, the other one that I really want to see... I had mentioned this 20% limit. So, if you're not an RAA, if you're not a registered investment advisor and you manage over X dollars, you can only buy 20% non qualifying, and crypto is included in that. I really want to see someone build RAA in a box, and RAA means that you need a chief compliance officer and you need all this stuff. And so somebody who makes that easier to do and easier to set up crypto funds I think is going to make a killing as well.Anatoly (20:58):I mean, that seems like something that the smart contracts should be doing, right? If you're investing purely... Most of that compliance is just transparency, right? It's like, "Am I doing the thing that I said I was going to do?"Packy McCormick (21:10):Totally. But some of it is, "Is there a person here looking over what I'm doing?" The rules are written for a world in which it makes sense for a person to look over something instead of computers talking to each other. So, there's going to be a transition period there, but over time, yes, it makes a lot more sense as a smart contract, and I'm interested to see.Are you familiar with Syndicate protocol?Anatoly (21:33):I'm not.Packy McCormick (21:34):So, Syndicate protocol is I think mostly on Ethereum at this point, but it makes it easy to set up investment clubs, SPVs, a bunch of other things, and so brings a lot of the group investing activities on chain. Is there anything similar on the Solana side?Anatoly (21:50):I don't know yet. The network exploded in terms of people building on it to the point that I can't track.Packy McCormick (21:57):That's awesome. That's a milestone.Anatoly (22:00):Yeah, that's a milestone. It's just like, "Pooh," so now I'm like, "Okay, go back into the weeds, back into optimizations."Packy McCormick (22:08):Yeah. Sorry to turn the mic on you, but I'm very curious. How do you balance your time right now?Anatoly (22:14):Poorly, I would say. I think there was an effort to get the word out to as many developers out there that this is how you build stuff and these are the reference implementations, and now that that's moving on its own, I almost feel like me putting energy there is going to have such a small amount of gain. So, I think of it in value against replacement terms, which is a very dumb engineer perspective, or maybe that's a pretty good one. I don't know.Packy McCormick (22:48):No. I mean, if you can view yourself from a remove like that. I mean, that's the goal of running a company or an organization or a protocol is, "How can I replace myself in as many different spots as possible?" But are you in the Discords? Are you getting Degen on some of these projects and stuff?Anatoly (23:07):I used to be more Discord just telling devs, "This is where the doc started, this is how you unblock that compiler error or whatever." I was in there, and now there's enough people doing that, I'm like, "Okay, I'm useless here." So, in the early days of Metaplex, helping out people set up their Heroku servers or whatever, I spent a little bit of time doing that, but then all of a sudden, our engineers took off with it.I'm curious how you think about DAOs? Are these truly amorphous blobs where nobody knows anyone else and there's some voting mechanism that you trust, or as normal people actually that do this stuff, it feels to me that they are humans that are all know each other and they're coordinating with software?Packy McCormick (23:54):Yeah. There's been a meme going around, I feel like this week, again, on Twitter, where people have been talking about like, "Oh, it's impossible to get fired by a DAO. Why not just get hired by a DAO and then don't do anything because who's going to fire you?" I love the idea, and I love the fact that crypto makes it possible to organize and incentivize huge groups of people across the world and get them to work in the same direction, I also think there's going to be a ton of challenges.People are very used, for the past at least couple 100 years since the dawn of the corporation, people are very used to working in hierarchical structures where there's somebody making a decision. And so I think there will be a balance that gets struck in a lot of cases, like delegation I think will get more, and more, and more popular. And ideally, there's some projects being worked on that I'm excited about where people's on-chain contribution and activity and resume is almost tracked, and maybe you give more power to the people who've contributed the most and proven expertise in a certain area, and all of that. So, I think a lot of things need to be worked out there.I think that we're in the stage now, frankly, where a lot of DAOs will not do as well as a centralized thing would have done, but then some DAOs will just do this crazy emergent stuff that never would have been possible in a normal structure that was a little bit more hierarchical. So, I think we're in the, let 1,000 flowers bloom, phase of DAOs right now where emergence will produce some really interesting stuff, and then emergence will also produce some total failures, and we'll see where it all shakes out.Anatoly (25:25):Corporations have politics, right? There's definitely politics in large corpse, and I feel like small DAOs have politics, and that's typically not true of a startup.Packy McCormick (25:39):Yeah, I think that's true. Although it can happen faster to startup, but the interesting thing that happens at a startup is, if the CEO allows it to be political, it can get political really quickly. And so it's interesting, in the DAO structure, when you don't have a "CEO," that either the community ethos will be away from politics and you'll get shunned and banned or whatever for politicking, or there's no one to say, "Don't do that," in which case, it can get out of hand really quickly. So, if you have a bad CEO, it's probably better to be a DAO, and if you have a really good CEO, there are advantages to having somebody making the decisions.I'm also fascinated to see... and I don't know if you've seen anything on this side yet... but can a DAO build products that are as good as something with a little bit more centralized control? Like products are traditionally made by a visionary, and then a team, who has a clear roadmap and all of those types of things, and is it possible to do that in a more decentralized way?I mean, even Solana itself, one of the things that attracts me about the project, and again, not a decentralization maxi by any stretch of the imagination, is that you were involved, right? And when there were code errors, you were getting in there, you were telling people how to fix them and all of that. And I've talked to a bunch of people, since I read that piece, who were building things on Solana, who site that as one of the reasons that they like building on Solana, is that the team is there to help when there are errors and help direct them towards best practices. So, I don't know. I think something like that model is probably going to succeed.Anatoly (27:18):I can only get blamed myself.Packy McCormick (27:21):Exactly.Anatoly (27:23):At the end of the day, yeah. Balaji had this quote that I've used it a bunch of times, that decentralization is not the absence of leadership but it's the abundance of leadership, and I love it. I also feel like that because of Bitcoin and it's like history. People started assuming that disorganization also was required for decentralization, which I think is bullshit too.Packy McCormick (27:52):Yeah. How do you view DAO versus social token, or I guess more just governance versus upside sharing?Anatoly (27:59):I think tokens are social networks, almost first, and then anything else later, because any community, it's all contracts. All this open source software is reusable. I can take Uniswap, fork it, and then stick some random token on it, and it's as good as Uniswap. You cannot tell me that it's worse in any way, right? It's the same thing, right?Packy McCormick (28:27):Someone should do that.Anatoly (28:29):Yeah. And then that community takes it in a different product direction, right, for whatever reason. I think that really fast fail is probably the most important part of decentralization. Anybody can fork you and then just take it in a different direction and form a community around it.Packy McCormick (28:50):I agree. Which project was it that Justin Sun tried to take over and then everybody just stopped using it?Anatoly (28:50):Steem.Packy McCormick (28:55):Yeah.Anatoly (28:57):And that is, I think, part of the beauty of the space, right, is you can only be a benevolent dictator. As soon as you lose the benevolent part, they're like, "Well, everything's open. F off."Packy McCormick (29:12):It's amazing.Anatoly (29:13):Yeah. Did you follow the SUSHI saga?Packy McCormick (29:19):I didn't follow in real-time. I went back and looked at it after the fact, but I would not consider myself a SUSHI expert.Anatoly (29:26):Do you think that we're going to see these communities stick around for the long haul, like Uniswap, etc?Packy McCormick (29:33):I think that is the billion dollar, trillion dollar, whatever number you want to put on it, question. I mean, I was alluding to it before with these network effects being replaced by things that pick up network effects even faster and faster. I think that's the blessing and the curse that I was talking about. You could remove every single person working on Facebook except for the person who made sure that the servers were up, and people would keep using it for a long, long time. If the people disappeared from Sushiswap or Uniswap or wherever, it just fades away and they move on to the next thing, and that takes off. So, I think virality in crypto has been proven. You can get viral really, really quick. Defensibility over a very long time horizon I think is still TBD.Anatoly (30:19):Where does defensibility come from in Facebook, in your mind?Packy McCormick (30:24):In Facebook, Facebook has a clear network effects, one where I guess if the people on the network decided to stop using it, it would go away, but there's not a clear place that you would all go when you have... Maybe there's switching costs too because you have your whole network mapped, and they won't actually let it be portable. To your point, you can fork anything... you should be able to fork the relationship graph and all of that over time as people build new mechanics to make that happen, and when you can just bring your whole relationship graph with you across Web3, then maybe you just all go to the next place, or maybe there's not even a place, and it is just that your wallet, at some point, keeps track of all the connections that you have, so maybe the wallet is the central point where a lot of the value accrues and the thing that makes everything portable, but I'm not exactly sure. What do you think?Anatoly (31:22):When I first saw Facebook, I thought, "This is a shitty news group. I can run my own mail server and ask my friends." And then you realize that normal people don't want to run their own mail servers or news groups, but you centralize around convenience. Where things centralize around convenience in crypto has, for me, been really tough to pin down. NFTs especially are a really good example of people jumping from one set to another but still maintaining both, right? They're able to be in multiple places at the same time.Anatoly (36:44):I can be a Degen Ape and like a Monkey MBS member at the same time.Packy McCormick (32:12):Where do you think that ends up? Where do you think people end up centralizing, or do they not?Anatoly (32:18):I'm not sure. This is like, again, a trillion dollar question. I feel like if we get to, three, 400 million people self custody with wallets that are doing stuff, we'll start seeing those patterns of like, "Okay, this is like the Facebook, it's a social graph or the... I don't know... the super connected now," something.Packy McCormick (32:42):Yeah. I wrote about this a couple weeks ago, I wrote a piece called the Interface Phase, and it was a little bit like a high kid post where I was like, "What are the interfaces going to be?" But just the fact that the first internet needed Netscape and needed a graphical interface, Web 2.0 needed things like Digg and Facebook that were interactive for that kind of capability, the read-write interface to really be there, and I don't think Web3 has gotten there yet. I do think that either a wallet based thing, and I don't know what that looks like, and I'm not smart enough to figure out what that looks like, or the kind of metaverse. And I think it's such an interesting mistake of history or just a coincidence of history that the tech for the metaverse and Web 3.0 Are peaking at the same time, but a world in which...One of the things I think crypto does well is give physical-ish characteristics to digital things, and so I think a interface that makes that clear will have a lot of value in just making a lot of the stuff that feels a little more ethereal feel more real and tangible, and actually, there will be physical places that people meet up and all that.Anatoly (38:28):So, I think what's interesting about crypto is that it's more like Ultima Online. When I was playing the game, I got a mental model of the map and the ownership of those items because it was persistent. I would go to the thing and I would change something and then come back and it was still there, and your brain, I think, just rapidly just plugs it into the rest of the stuff that it interacts with. If you got a lot of humans all doing this together, I think they'll start forgetting that it's nothing more than a bunch of computers.Packy McCormick (34:23):Totally. I mean it's interesting. I forget the name of the book, but there's a book about the memory competitions and the world memory championships, and the way that they memorize things is by putting different objects throughout a house and then walking through that house, So, we are, I think, a lot better at memorizing things and grokking things spatially than we are... and maybe this is just me talking as a non technical person, but just picturing computer networks without some physical reference point.Anatoly (34:54):I don't have as good of a mental model of space crypto Twitter or like social networks. It's not a map to me in my mind. But with something like experiments like DeFi land and stuff, I think that actually might bridge that because of this ownership thing. And I don't still think it's the fact that I can modify stuff and come back and see it and feel that I'm doing it.Packy McCormick (35:20):Totally. Yeah, people like building, and showing progress, and all of that. I'm going to turn the mic again. How do you view Solana at this point in terms of DeFi versus the cultural side of things or the metaverse side of things?Anatoly (35:37):We don't. I think, to us, DeFi was always I thought was an important part because you look at any kind of markets, NASDAQ, those are the obvious ones, "Oh, yeah, that's probably going to be on some blockchain," but advertisement, right? It's like Google Search shows you a page, they take your data, sell it on an Ad Exchange, and that to market, that's centralized right now, how do you disintermediate it? Oh, you can do that with cryptography, right? And a replicated censorship resistant database. That's it.You can break those things down into marketplaces and remove the middleman. And that, I think, is how we think about it, is like, where does that make sense? And culture NFTs are I feel like that non skeuomorphic social networks. It's not somebody that stuck Twitter with coins, these organically sprung up, right? It's like lodges in the whatever, 1700s, like I'm part of this Masonic Lodge or this club or whatever, right? Now, I'm Degen Ape or whatever.Packy McCormick (36:57):Totally. And right now, I guess, that often manifests itself in Discord where people are hanging out. I've had this conversation with people before in this debate. Do you think there needs to be a decentralized Discord where this lives or where do you think all of this ends up living?Anatoly (37:12):I don't think so. Like a year ago, I thought somebody needs to build a decentralized Twitter, a decentralized Instant Messaging, and the working mechanics of it, being decentralized or on chain, don't change the social impact of it. You're still talking to people. Why does it matter where you talk to them, right? Who cares?Packy McCormick (37:34):Totally.Anatoly (37:37):It's like, I think, stuff where you can start making connected modifications of the same state, that mental model of like, "Hey, we're all doing this thing over here." That becomes a place and that's where people actually do things, but here's where they talk about it.Packy McCormick (37:56):Yeah. And I don't think you can find a more minimally extractive corporation than Discord, and they make less dollars per user than anybody.Anatoly (38:06):Yeah, they're pretty awesome. Also, yeah, the high fidelity audio and stuff like that I think is pretty cool. I think they built it for gamers.Packy McCormick (38:19):Yeah. It's so interesting, and I'm probably going to write about Discord at some point here too, but I've written something called The Great Online Game before, which is essentially we're all just playing this big video game across the internet. And so it's really funny that Discord, which was built for gamers, is where all of this activity is... If you're playing a big video game and the chat app designed for video games, it makes sense as the place that people go.Anatoly (38:43):Yeah. Crypto and the internet is... at least the internet part of crypto is very much a big video game.Packy McCormick (38:49):Exactly.Anatoly (38:50):Are you investing mostly in the US, US companies or all over the place?Packy McCormick (38:54):I'm investing mostly in the US but have done a few in India, I've done Sweden, I've done Canada, very open to doing anywhere on the world.Anatoly (39:06):Do you feel like there's been a shift towards everything becoming Silicon Valley, that it doesn't really matter anymore at this point?Packy McCormick (39:13):The internet is Silicon Valley. A more amorphous idea is Silicon Valley at this point, but I'm in New York, I'm probably 30 minutes away. I'm in Park Slope and the crypto hub has become Williamsburg, and I talk to all those people all the time, and I never take the 30 minute trip over to Williamsburg because I have Twitter, and I have Discord, and I'm pretty much right there with them. So, I don't think physical place matters nearly as much. Gathering in physical places is awesome. I think the idea of conferences, and quarterly team meetups, and all of that kind of stuff is absolutely going to explode. There's a really fun thing about only knowing somebody on the internet and then meeting them in person and feeling like you've known each other for a long time, but I don't think the physical place where you all live all the time matters that much.Anatoly (40:03):Yeah. I think what's weird is like I have a sneaking suspicion that the remote work worlds, everybody's working remote is actually going to mean more people travel and get together.Packy McCormick (40:17):And it's not just going to be like FaceTime and waiting around the office and sitting. When you're together, you're together, and then when you're working, you're heads down working, and I kind of like that.Anatoly (40:26):Do you think people are more efficient that way or is that the natural state?Packy McCormick (40:30):It depends how many Discords. Before this call, I was supposed to be writing and I've gotten obsessed with the Wanderers NFT projects, so I just bought another Wanderer and then was trying to figure out how to display it in my cyber gallery. So, I think there's not somebody looking over my shoulder, so in that sense, maybe it allows you to get a little bit more distracted. But I also think a lot of things coming together at the same time, more and more people are responsible for themselves, and so if I don't work now, then I'm working all weekend, and I have to get the same stuff done anyway. And so I do think that's, hopefully, the natural state of things, is that people are allowed to get their shit done when they want to.Anatoly (41:12):Are NFTs what you're looking at mostly in crypto? Is that the most exciting part?Packy McCormick (41:16):NFTs are, I think, very exciting to me. My first internship was on an energy trading desk. I should want to get into DeFi and I feel like I'm going to get wrecked unless I can spend all of my time getting into DeFi, so I've largely steered clear. I do think that NFTs are super interesting for the reasons that you suggested, and I think that they are a little bit like a social network. I think it's going to be really fascinating to see how these things evolve and the worlds that get built around them. And they're the most tangible crypto thing out there, right? You have an item. I like these Wanderers because there's audio, and they're these eight second clips, and so the richer that you can make them, I think the better, and over time, more, and more, and more things will just be ownable digitally, and I think that's very cool.Anatoly (42:09):I love the trend of like 2DR first, like really low res, because it's like a forcing function in creativity, right? It's actually hard to make something look good with that low fidelity.Packy McCormick (42:22):Totally.Anatoly (42:25):So, I'm a fan of watching the space self, almost evolve, right? This is definitely going to get better, right? You're going to have full scale renders with 3D models and high production stuff in a few years, but it's exciting to see what it is now, right?Packy McCormick (42:42):Totally. I have another portfolio company called Arco that's doing... essentially, it's trying to replace the design software that companies use. So, Autodesk has Revit to do 3D modeling, they're doing the Figma version of that, but then could you just take this physical building that somebody's designed for the real world, turn it into an NFT and let somebody bring it into the digital world? I would love to own the Chrysler Building and then bring it into my world.Anatoly (43:10):Skeuomorphism.Packy McCormick (43:14):I thought about that too when I was trying to write about the interfaces, I was like, "Why are we even thinking about buildings and worlds at all? If you don't have to follow the rules of physics, then why do you?" But I do think, through our conversation earlier about maps, reference points are also important, so you need to, one step at a time, go away from things that people are familiar with.Anatoly (43:34):Yeah. Cool, man. So, this is a really awesome conversation. Thank you so much for being on the show and really getting into it.Packy McCormick (43:43):100%. This was fun. Thank you.

Jonathan "Moshe" Schemoul is the founder of aleph.im, a cross-chain p2p storage, computing network and first decentralized indexing provider for Solana.00:36 – Intro & how did Jonathan Schemoul got in crypto02:09 – What is Aleph and how does it work?06:48 – Is Aleph database a blockchain?09:20 – Understanding core nodes and Aleph’s economics11:22 – How does Aleph interact with DNS?15:29 – How does Aleph get verification of certificates?  21:44 – How does Aleph check integrity of computation?25:06 – What is Aleph’s vision?30:32 – Will Aleph always be project facing or will it one day be user facing?32:28 – What load can Aleph currently handle?39:00 – How do the economics work for people providing hardware and bandwidth?DISCLAIMERThe information on this podcast is provided for educational, informational, and entertainment purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose.The information contained in or provided from or through this podcast is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice.The information on this podcast is general in nature and is not specific to you, the user or anyone else. You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented on this podcast without undertaking independent due diligence and consultation with a professional broker or financial advisor.Anatoly Yakovenko (00:12):Hey folks, this is Anatoly, and you're listening to The Solana Podcast. And today I have Jonathan Schemoul with me, who's the founder of the Aleph.im project. Really awesome to have you.Jonathan Schemoul (00:22):Thank you very much. I'm really happy to be here today.Anatoly Yakovenko (00:25):Cool. We usually start these with a simple question, how did you get into crypto? What's your story? What's the origin story?Jonathan Schemoul (00:36):Well, into crypto it's a long story. I started way back in time, a bit on Bitcoin then I stopped because it was only money back then. And that wasn't the end game for me. Then I came back into crypto in 2015, 2016, and I started doing a bit of development because I saw that I really wanted to be part of Web 3, to do nice things with it. I started developing as an open-source developer for a few projects. One of these is the newest project which is Chinese blockchain layer one. I'm not really involved with it anymore.Jonathan Schemoul (01:16):But working with them as a community open source developer, I saw that there was some missing links somewhere that you couldn't decentralize all the stack with just layer one, it is not the one that they were building back then. So that's how the Aleph.im project is born. For me, besides that, I've been developing for a lot of companies before in the IOT space and also for big banks sometime ago. I've been a developer for a lot of years.Anatoly Yakovenko (01:48):That's great. I mean, that's a great background. The thing that you're focusing on with Aleph is this idea that Web 3 is just a small part of the piece, but you still need UI front-ends, business logic and things sitting on top of the blockchain. How does that work?Jonathan Schemoul (02:09):The idea is that, okay, now you can have smart contracts on Solana, that's great. You can even do way much more on like just money on smart contracts, that's great. Now, you need to have a front-end. So you need to have storage for that front-end. That's not all because a smart contract, a program doesn't have all the data that you need. So you will need some kind of indexing to get history. You will need a back-end for that.Jonathan Schemoul (02:37):Most of the DeFi application that we see have some centralized back-end behind them. They're running on AWS, sometimes on dedicated servers or stuff like that that is still centralized. If a government, and we just saw something about it today, wants to shut down the DeFi protocol that is organized like that, they can. With Aleph.im what we are trying to do is decentralize the last mile, because for that last mile most projects are using AWS, so we need to decentralize AWS.Jonathan Schemoul (03:11):So we provide storage, as in file storage for the front-end files, database storage, because most applications are just databases and also an equivalent to Amazon Lambda, where you start small functions that will be launched on a decentralized cloud, where there is place for them and will get you a return value, and these can be written in any language and connects the web and also a PC from blockchains here at Solana obviously.Anatoly Yakovenko (03:42):Got it. Super Cool. So this is a storage mechanism. Does it guarantee consistency? How's it decentralized? What happens if you nuke it? Yellowstone flows up, the current set of servers from Aleph get destroyed in the volcano. How do I move, switch, what state do I lose? Those are the hard distributed systems question.Jonathan Schemoul (04:08):Yeah. It's a really good question. Aleph.im is not a blockchain at all. We don't have a blockchain. There are enough already. We just accept messages from blockchains. All the supported blockchains are accepted on the network, that means that that message that is signed by a material address is accepted on network, a message that is signed by a certain address is accepted on the network. All our network, hence the name .im, dot instant messaging, the whole system works with messages on the network.Jonathan Schemoul (04:45):Those messages are organized by channels, just like you would go on telegram channels and get the history of them. The network keeps track of those messages and when you start a new node, you get the history of messages, not directly from the other nodes, you will connect two blockchains to specific smart contracts on blockchain. Look at past events, for example, on the Ethereum or on Solana. You look at past events for the synchronization of the network and you look, okay, there has been all these events, okay, let me ask the whole network what those messages were. Then you resync, when there are missing parts you leave them apart and then you get a view on the channels on the messages.Anatoly Yakovenko (05:31):So you write your software, your Lambda hook as if it's a re-entrant, right? So you're kind of recording your progress potentially on Solana as you're processing it.Jonathan Schemoul (05:43):For the Lambda it's a bit different. Here I was explaining how the network works for the messaging on the global state. For the state of pure application, you could either get your state from a blockchain here at Solana. For example, all the indexing effort that we are doing is using Solana as a source of synchronization for these Lambda. But then you can have multiple kind of volumes because since it's Linux Micro VM machine, everything is a volume.Jonathan Schemoul (06:18):So we have local storage volume that is local to the running host. And then the Lambda kind of issue messages on a decentralized database of data and project or under storage, and then raising to the local file system and then issue messaging, et cetera. And we are also working on another kind of phase system that is distributed, where any of them that can write in it on the overall receive the changes, which is kind of tricky.Anatoly Yakovenko (06:48):Is the database, the Aleph database, distributed database? Is that a Byzantine fault-tolerant database? Is it designed with that in mind?Jonathan Schemoul (06:58):Yeah. The idea is that when you send a message on the network, it gets stored by all the over nodes that are interested in your channel. And then there are synchronization node that go and write hashes of the data and signatures inside messages that they push on blockchains. So that when overcome, they can synchronize it and replicate all the data. So that even if one part of the network gets totally disconnected, you can have one part that gets reconnected to the other therefore the peer to peer network for blockchain, for APFS. We have multiple kind of different connectivity solutions so that they can reconnect on resync.Anatoly Yakovenko (07:42):So the Aleph database, if it's Byzantine fault tolerant, I mean, doesn't that make it a blockchain? Is there a token? Is crypto economically like fault tolerant?Jonathan Schemoul (07:56):Yeah. So we have a token, but the token is living on multiple blockchain, Ethereum, Solana, and a few others, but those are the most used today. We have a token, you need a token for your data to stay there. If you don't have any more your data gets garbage collected. But we don't have a blockchain because we go and write on over layer ones. We are technically a layer two database which is computing pre storage.Anatoly Yakovenko (08:23):But the data storage, like the Aleph distributed database, what is that backed by? Or can I pick my own blockchain to use it as a common interface or something like that?Jonathan Schemoul (08:34):Well, currently it writes on Ethereum, we're working on making it write on Solana. For this we need our indexer to be super powerful. So we'll get it writing on Solana very soon. Basically you can write on multiple blockchains and use it as a source of proof.Anatoly Yakovenko (08:53):Got it. That's pretty interesting. So it really doesn't have its own blockchain and you're just using the fault tolerance of the chains you're connected to.Jonathan Schemoul (09:04):Exactly.Anatoly Yakovenko (09:06):Awesome. Yeah, that's really cool. So the other challenge I think is like how do you deal with domains and the web? Where do you run these executed nodes? How do you connect all those pieces?Jonathan Schemoul (09:20):It's a really good question. To connect all the pieces together, we didn't develop some really fancy stuff like proof of space and time and things like that to verify that the data is really stored. We are using something much more low-tech, which is just a quality control. We have core channel nodes, which are the controllers of the network, which needs to keep some Aleph have stakers on such economics. They are verifying that other core channel nodes are behaving well. And that also the resource nodes are behaving well. Then the resource nodes are really doing the work of storing data, providing computing, et cetera. And they're continuously controlled by the core channel nodes.Anatoly Yakovenko (10:09):That's great. So they're basically like a tokenized health check, right?Jonathan Schemoul (10:14):Yeah.Anatoly Yakovenko (10:14):I can spin this up and they can continuously monitor whether this computation is making progress, right?Jonathan Schemoul (10:21):Exactly.Anatoly Yakovenko (10:21):Is that verification, is that programmable? Can me as an app developer, can I kind of code up my own apps, specific health checks or an interface or something like that?Jonathan Schemoul (10:35):It's a really good question. That's what we are working on exactly right now.Anatoly Yakovenko (10:40):I'm leaking all the features. My imagination is going.Jonathan Schemoul (10:44):No, no worry. Well, it's really interesting because to understand if an application behaves well on one host, you need to understand what the application is doing. So yes, we will give some kind of health check, which is kind of a unit test of how the app should work. So you will be able to provide unit tests for your app basically.Anatoly Yakovenko (11:11):That's really Cool. What about domains? Like actual DNS?Jonathan Schemoul (11:17):Yeah.Anatoly Yakovenko (11:20):I'm asking all the hard questions.Jonathan Schemoul (11:22):Yeah. These questions will be answered if I explain how we handle access to this virtual machine. Because for DNS, for just IPFS, there is already quite a few solution, that's not an issue. But then if you want to make a domain point to one micro VM, you want your micro VM to be able to serve your data. How we do first the load balancing because that's the important question. For load balancing we have two ways, one, which is a regular cloud load balancing, which could be blocked by government, could be censored, because that's what can happen when you have centralized point of control.Jonathan Schemoul (12:07):We will run it ourselves and a few of our partners might run some of the cloud load balancers that basically you can just point your domain to the cloud load balancer. And then the cloud load balancer will create certificates and stuff like that. It will work. We will run one instance. Ubisoft will likely run another. And like many of our partners. Well, for Ubisoft it's not sure, just some talks about it. But perhaps over partners could run cloud load balancers that we'd go on point on specific micro VM host to see where your app is running and point it to them, that might work.Jonathan Schemoul (12:48):Now What happens if a government says, "This app shouldn't work, this domain shouldn't work." Then you have two solutions, you either put the front-end inside IPFS, use some IPFS gateways, et cetera. And then the back-end is on the VM network. But then what happens if a government blocks the specific DNS inside the micro VM global.aleph.sh .aleph.cloud Whatever. Then we have a decentralized load balancing that comes into play.Jonathan Schemoul (13:24):The idea of the decentralized load balancing is that your browser will connect to the IPFS network using leap peer to peer, just leap peer to peer, find Pi Aleph nodes running, contact them directly then ask Pi Aleph node, "What micro VM host are running this software?" And then you can contact them directly. We are working on the JavaScript library that will do all this work on the client side so that you can have your front-end in IPFS that will then go and find all the back-end hosts that could answer your request.Anatoly Yakovenko (13:58):That's super cool. You guys are working on some really hard problems. I think it should be fairly easy to kind of have basically a resolver that points to ENS in the system, right. That's fairly straightforward. And basically you should be able to use any kind of like name, system, command any blockchain.Jonathan Schemoul (14:25):Yeah, clearly.Anatoly Yakovenko (14:26):Do you think that this is something that browsers are starting to recognize as standardizable? Is there a future where you think this technology could start percolating to the UI level where the end user can pick like blockchain based DNS resolver that kind of like connects all the pieces, right? From the human to this decentralized one.Jonathan Schemoul (14:51):I think that something that could come, I think that those that could really help in this is Mozilla foundation, I think that they would be the one to talk with. We aren't in talk with them because we don't really take that step right now. We have a lot on our plate. But in the future I'm pretty sure it's the way to go. We will connect to any effort in that area and we will recognize it. I know that for IPFS for example, IPFS, IPNS, there are some efforts on some browser extension that you can install to have it, et cetera.Anatoly Yakovenko (15:29):How does like certificate chaining play with us? What happens if I need to have a cert on my service and things like that.Jonathan Schemoul (15:38):A certificate on your service? Yeah.Anatoly Yakovenko (15:41):Like their sign or whatever.Jonathan Schemoul (15:43):Well, we use the one that everyone uses, which is-Anatoly Yakovenko (15:48):Let's Encrypt. The EFF one.Jonathan Schemoul (15:49):Yeah, exactly. We're using this one, we used the discovery with the content, so that we switch to a specific content when Let's Encrypt connects, then we serve this content, then we get a valid certificate, we can serve the good content.Anatoly Yakovenko (16:07):Can you unpack that a little bit?Jonathan Schemoul (16:10):Yeah. Well, Let's Encrypt has multiple ways to certify that you have a certain domain, for sub domains of .aleph.sh and .aleph.cloud, It's easy, we are using wildcard certificates. For custom domains that you could make point to your content directly, what we do is that you put a key inside your DNS to say, this is the virtual machine that should be mapped to that domain. Then you do a CNAME to our cloud load balancer and then the VM host when they get a request for this one, they go and check the DNS to see what VM they should serve on the generator certificate using Let's Encrypt for that domain and they start serving it.Anatoly Yakovenko (16:59):Oh man, this would be really cool. But if we could have like an ENS where in my ENS registry I set my Let's Encrypt domain, and then I run a local DNS server on my home machine where I run my browser and point that as a resolver, you could kind of tie these knots together and get-Jonathan Schemoul (17:23):Yeah, it could work.Anatoly Yakovenko (17:24):That's really cool. What happens if these instances die, where do you guys get more hardware? How does that process work?Jonathan Schemoul (17:36):Well, an instance can just stop, then the load balancing system will find another instance to run your code. Then what happens when an instance get a request for a code that doesn't have for the micro VM network. I mean, it goes on the network, checks, okay, what is the database entry that is in front? It takes the database entries. Has there been any upgrades to it? Okay. I get the upgrades. I subscribe using web socket to the upgrades of this database entry basically because it's a document about database entry.Jonathan Schemoul (18:14):And then it looks, okay, so this is the root FS that I should load. Do I have it? I have it, could I use it? If not, I download it from the network. I applied that root FS, where is the code? Okay. What volume does it needs and it builds and retransits and gets you the answer. For a cold start with no root FS or whatever, it can take a few seconds. But in general you use the same root FS as others. So you can get the code start. If you don't have the code, it's less than a second. If you already have the code of the application is like 150 millisecond for a cold start.Anatoly Yakovenko (18:53):Got It. And is the coordination to decide where to start this particular instance? Does that occur over the underlying chain, like Solana or Ethereum or whatever?Jonathan Schemoul (19:08):Again, that's something that we're working on. At start it's on the cloud load balancer. So the cloud load balancer are semi centralized for that. The idea is that each micro VM running node that starts running one will register a message, which is a database entry with a reference to say, "I am running this one." And then the cloud load balancer looks at the uptimes of the available micro VMs and say, "Okay, this micro VM has it ready." I'm forwarding it to it.Jonathan Schemoul (19:40):And then if there is none, then it could just route it to like a random one that has a good uptime. And then this one, the next time kind of like be choosing automatically because it is already serving it. If there is a lot of requests, it will provision multiple ones.Anatoly Yakovenko (19:59):Interesting. Got it. And you anticipate that you'll basically be able to move if the underlying chain is cheap and fast enough you should be able to move the coordination and kind of like start this instance, pull this volume. This would be really cool with like Arweave backed storage volumes. Because you could almost then see the lifetime, the life cycle of the application as its business logic is evolving, right? That state is very useful to developers who are being able to go back to a checkpoint effectively at any given time too.Jonathan Schemoul (20:38):Well, right now we are using our own storage engine, which is APFS compatible. But in the future we will allow to choose other storage engine and we will also develop gateways with like Arweave, Filecoin and other.Anatoly Yakovenko (20:53):Super cool. I used to work at Mesosphere so I don't know if you've heard of them, like D2iQ, this was kind of Kubernetes competitor, trying to build this decentralized operating system using Mesos as the jobs kind of Q-engine. There's a lot of similar challenges there, and this is really cool that you guys are building this in a decentralized web application that's kind of hosted in the real cloud, the mythical cloud.Jonathan Schemoul (21:28):Yeah. Well, there's a saying, there is no cloud, it's just other people computers. Here it's really other people computer. So it's pretty good because then you don't trust those computers because you know it's other people computers.Anatoly Yakovenko (21:44):How do you guys ensure the integrity of the computation itself? How do I know that the virtual machine, the execution environment that's running isn't malicious.Jonathan Schemoul (21:54):It's a really good question. There is multiple questions there. How can I ensure that this computation isn't returning a bad result because it knows who is on the other end. The load balancing system ensures that you don't really see who is in the other end, so you don't know who is making the request. So you don't know if it's a quality control call or if it's a real call. It goes back to your question of the testing of the application. And there is another one there which is the question of the secrets, because you might need secrets. If you want to do push notification based on a smart contract event on Solana, let's say, because that's something that we are working on right now, thinking about it.Anatoly Yakovenko (22:48):That's super cool.Jonathan Schemoul (22:48):So you would need secrets. You will need to story a secret to being able to go back to this device and send these device and notification. So you either store secrets in the local storage of the instance, but then if the instance dies, you can get it back or you try to get shared secrets between multiple hosts. We are working on it. We don't have a total answer on that. What we are working on is using free shirt cryptography, so that multiple host defined by the developer come under these secrets. And then you go back to a question of trust, which is problematic.Anatoly Yakovenko (23:30):By the threshold cryptography, is this like an MPC to compute, or are you guys thinking like BLS or like Schnorr aggregation?Jonathan Schemoul (23:42):More like you encrypt something that can be decrypted by multiple private keys.Anatoly Yakovenko (23:47):Got it.Jonathan Schemoul (23:48):And then if they want to send a message, it needs to be signed by at least x of y.Anatoly Yakovenko (23:54):Right. Got it.Jonathan Schemoul (23:57):Because this micro VM I mentioned can also send messages on the network. These messages on the network will be database entries that in the end might end up also on-chain using all records or whatever. Because these micro VM can read from on chain data and the idea is that we are working so that they can also write on chain as well. So then you might need some kind of trust somewhere. So one developer could say, I trust this host this host this host, but they need at least to do that calculation three times, let's say. But it's a bit problematic and we are still working on it. It's not finished yet, so yeah.Anatoly Yakovenko (24:40):That's what I mean, that's a really hard problem.Jonathan Schemoul (24:41):Yeah.Anatoly Yakovenko (24:43):Really cool. Yeah, the secrets thing is really challenging. I guess, what's your vision for this? You guys are tackling on some really hard problems, you get all of them done in the next year.Jonathan Schemoul (25:01):I hope so.Anatoly Yakovenko (25:06):What happens then? What is the vision for Aleph?Jonathan Schemoul (25:08):Well, here we are only speaking about a few crypto issues. We aim at bigger than just the crypto ecosystem. What we really want to do is decentralize the web, so getting bigger, way, way bigger, that's the goal. We are working with a few bigger partners who are part of the Ubisoft entrepreneurial labs, for example. We want to have a lot of hosting partners in the game that start providing resources so that I want it to be as easy as spinning up AWS server or whatever, you would just spin up VMs under the .im network. I want it to be as easy as using Firebase, using Amazon Lambda, et cetera.Jonathan Schemoul (25:51):And we have another big project going on, which is the indexing on Solana, where we are indexing data for a few protocols, currently Raydium, we might have another already soon. Well, I can say the name. We are working a lot on Orca, on port finance right now, and a lot of others actually that I can't really talk yet. But the idea is to have all these data available, have all these data feed coming up so that you can have events based on them, also do off-chain computation and things like that.Jonathan Schemoul (26:29):I really want DeFi to be totally resilient because until it's totally decentralized, you can stop DeFi. When it's totally decentralized, you can't. And if there is only the smart contracts that are decentralized, you can still stop it.Anatoly Yakovenko (26:48):Yeah. That's definitely a fair point. I think the UX issues around building also just like push notifications and all these other things for projects are really hard to overcome if it's a decentralized project, because who's going to host those servers, right, to connect to mobile and everything else. Yeah. You guys have a lot of work set out and it's pretty exciting. What do you think is missing? If you guys had like another, somebody else was building this other piece that you think is missing in the Web 3, what would it be?Jonathan Schemoul (27:26):What is missing today in the Web 3 ease of use for all this. We are trying to tackle this, but we have so much on our end. So this is a big issue, ease of use for developers, ease of use for users. Well, Phantom is already doing a great work on that end on Solana. But yeah, this and also I think that there is some kind of breaks between the ... In DeFi, if you want to move money into the real world, it gets hard really fast because there has been some kind of complications that have been put in place by regulators, by banks, by whatever. If we could just get all these parts simpler, it could be great. Some kind of link between FinTech and crypto that would work everywhere in the world, including Europe, USA, et cetera. It would be great. There are a lot of people working on it, but that's something that is missing as well.Anatoly Yakovenko (28:28):Yeah. Identity and like having those easy ramps is still hard. What about DNS? Just straight up resolving, do you think that's tackleable from a Web 3 perspective.Jonathan Schemoul (28:45):The issue is the way DNS is done. DNS protocol is great, but it implies centralization points, a lot of centralization points, which are problematic. Then you will need another standard on DNS. But if you have another standard on DNS, then you have the issue that the network right now is done, is not done for it and the browser don't understand it, et cetera, and operating system don't understand it. We would need gateways for that. I think it's doable. It's definitely doable, but it's a lot of work. And you would need multiple root servers, even virtual root servers, like what you said, local DNS server that would resolve your request, it could work.Jonathan Schemoul (29:38):If Let's Encrypt could understand it in the same way, it would work. Or we could even have something different than the root certificate that we have today, because with blockchain, we already have private keys. We already have signature. So if you sign your content with your private key, then you can verify it on the other end. And you don't really need all these chains of certificates that are here today. So that could also be another solution, but it would need another way, because right now we have roots certificate, children's certificate, et cetera. And it all goes back to central authority. The whole DNS on certificate system today goes with authority. With blockchain we are trained to remove authorities.Anatoly Yakovenko (30:33):Yeah. Do you guys see this as becoming developer facing, or maybe someday eventually kind of like client facing and want these decentralized applications running for me, kind of my own instances. Or is this always going to be here I am, team Orca, go to this domain as a user.Jonathan Schemoul (30:56):It's a good question as well. It's always the issue between hosted components, locally run components and kind of pragmatic on that. At start I would really like to, everything runs inside my browser, everything works. That's great. In reality, you have mobile phones, you have tablets, you have computers, you have a lot range of devices that can be running all the time. So real peer to peer application can't really work that well, unless you go and say, "Okay. While you are waiting for me, please send it to my friend, that will forward the data for me, et cetera.Jonathan Schemoul (31:40):Blockchains are really helping there is that we have a centralized authority, which is the blockchain that you can trust and that can hold data for you and can even encrypt it for you or store it on aleph.im, whatever, and only you can decrypt it. I think that the mix between the two would be good, like self hosted data and remotely hosted data on the decentralized cloud, a good mix of the two could be good. And the efforts by the leap peer to peer team, with the javascript leap peer to peer. And there are a few of us like that helps, because once you have access to a peer-to-peer network directly from your browser, you can cut middlemen. You can cut central authorities, et cetera, if you're the blockchain that serves as a central authority.Anatoly Yakovenko (32:28):What kind of loads have you guys seen or been able to test this out, in terms of like users request per second, kind of WebSocket connections per second.Jonathan Schemoul (32:39):It depends because when it's per server, that's not that much of an issue because the micro VM supervisor just forwards the request to the underlying software. If you don't choose local persistent volume, the supervisor can run as many instances of your program as needed, then you can spawn multiple one even inside the same supervised cluster. And then the network, if it sees that this one has issues adding the request load you can load new ones.Jonathan Schemoul (33:18):I don't think that there is really a limit on the request per second for that. So it's not really the issue that we have. And then on the database part, same, if you access one API server and you give it 500,000 requests per second, it would go down, because it's a server. If you target multiple API server, you are good. So that's also where the decentralized load balancing helps because if you use a cloud load balancer obviously even this cloud can go down. But if you contact a peer to peer network to know what host can answer, then you can contact multiple host. And all our core channel nodes, we are currently 54 of them are also API servers that users can connect to to get the data, which will be certified by our core channel node.Anatoly Yakovenko (34:10):Cool. As a whole, how many, I guess, do you have an idea of how many users per second or humans per second have you guys served in some peak times?Jonathan Schemoul (34:21):We don't, because we don't store metrics currently, we should. We don't have it because we didn't want to have any kind of log or whatever on the users, but we should add it, that's actually a good point, we will.Anatoly Yakovenko (34:37):Yeah. I mean, I think you got to be really aware of privacy and how that impacts some applications. But really interesting to see how this works. Caching is another one of those things, basically having a distributed cache around the world for often queried data. And this is an issue that I think doesn't have a good solution in Web 3 right now. You do all this work, set up a purely thin client, that's like loads from code, only talks to the chain and then you got to go fetch assets. And if you're using centralized ... Yeah, they can basically inject whatever they want.Jonathan Schemoul (35:25):Yeah, that's the main issue. And the good part is that if you also randomize where the request of the users go, if there is one bad actor, it will only inject bad data once in a while you don't even know where. Once there is a quality control it will detect it, so that can also be a solution. It's not a silver bullet either, but it can definitely help. So like for Solana what we are doing right now, for Raydium for example, is that we have an indexer that talks to multiple RPC of Solana then get the transaction history, store it inside the level DB, inside the micro VM, and then index the data.Jonathan Schemoul (36:09):Then we can get data on the pool's latest trades and stuff like that. The idea is that if there is too much request on one index, it will start another index or another index or another index, or et cetera, so that when you do a request, it reroutes you randomly to multiple hosts that have the same index.Anatoly Yakovenko (36:28):How fast is that?Jonathan Schemoul (36:31):Not fast enough currently. Well, it's fast enough for Raydium.Anatoly Yakovenko (36:35):Okay.Jonathan Schemoul (36:36):It works really well.Anatoly Yakovenko (36:40):Raydium gets a ton of hits. I mean, some of their IDOs have seen half a million requests per second-Jonathan Schemoul (36:48):Yeah. So for the Raydium data, it handles it well, like all the trades, whatever, it handles it pretty well. We don't get behind blocks in the indexing, so it works well. For Serum it's a bit more problematic because you need to watch, event cue all the time. I really hope they will have some kind of flux in the future. I think that they are working on it. So that would really help us either to get history even when we aren't watching their event cue.Anatoly Yakovenko (37:23):Yeah. So not half a million per second, half a million total, which is quite different, but yeah, they see some really good traffic.Jonathan Schemoul (37:30):Yeah.Anatoly Yakovenko (37:32):Cool. I mean, that's really cool. I think really hard part I think in designing these systems, one, is the problem is difficult, but then once you build the first version of it and you start hitting real traffic, there's a lot of parts that fit together that break under load. So what is your debugging like? How do you guys actually monitor like debug, like PagerDuty, what do you guys use as a team?Jonathan Schemoul (38:01):Right now our team is still small. We are growing a lot. Right now we are like 10 developers. A few months ago we were only three. A year ago I was alone. So we are growing really fast and we are putting all these things into place. Right now everyone monitors and checks what happens and it helps. There is Hugo who is on the micro VM side, Ali was mostly on the indexer side, myself we can get everything. But we are putting really real stuff in place right now to have it, because we are a growing startup so it takes time to get everything in place.Anatoly Yakovenko (38:43):Yeah, for sure. Do you envision a PagerDuty team for this?Jonathan Schemoul (38:48):Yes. I think that we will need one. Once we have more application that are using it, we will need one. So yes, if you have advices on that day, I'm really happy to get them.Anatoly Yakovenko (39:00):I mean, it's just part of life. It's not complicated. It's just work. This is I think that like response team I think is a difficult thing to set up in a decentralized community. If you guys are building a decentralized network with providers that are supplying hardware and all this other stuff, those are the folks that we found to be really responsive and have a lot of stake in growing this. How do the economics work for all the people actually supplying the hardware and bandwidth, et cetera?Jonathan Schemoul (39:36):Again, the research and economics aren't live yet. We are working on them. The core channel nodes economics is already there for like a year, now it works well. For the core channel node you need to have 200,000 Aleph to start a node and 500,000 Aleph, staked on a node, so that it can start to run. And then all the node operator get a share of a global envelope daily for all the nodes. All the stakers get a part of the envelope for stakers. The more nodes active, the bigger the envelope for staker is. But then for each node, they will earn a bit less if there are more nodes because it's a global envelope. So it helps stakers grow the number of nodes that are active, so that's for the core channel nodes.Jonathan Schemoul (40:25):For the resource nodes, to get storage or computing on network, there is two ways to get it. One that is already live, which is hold X amount of Aleph and get that amount of storage, hold X amount of Aleph and have the ability to start one VM with X megabyte of RAM, X virtual CPU, et cetera. And then the multiplier, and all that gives you the total count of micro VM I mentioned that can be running on your network based on your balance. The good part with that is that partner project could use a lending protocol to borrow Aleph where depositing their own token to get service. They would get the service for free just paying interest in their token, inside the borrowing protocol.Anatoly Yakovenko (41:14):Got it.Jonathan Schemoul (41:15):So that's a way for protocols to get it, but it's quite expensive because they don't directly pay for it. So for this way of using it, Aleph.im network is paying for them from the incentive pool, which right now it's one fifth of the supply, and we are changing it in the next few months, we'll change a bit of economics. It will be nearly half of the supply that would be dedicated to pay for that. Because since you lock a part of the supply, then you can release a bit inside circulating because of this new use. So that's for the hold X Aleph tokens.Jonathan Schemoul (41:51):And then there is another way that isn't developed yet that we will likely use Solana for, because it's fast enough for micro-payments in that area. It's like pay per action, pay X Aleph per gigabyte per month. You as a provider, you can say, "I am okay to be paid at least that much." And then users will say, "I want my data to be replicated at least four time. And I'm okay to pay at most that much for this." Then you get divided by those who provide service and the payment is done as micro payments. And same for the micro VM you pay per CPU per hour, et cetera.Anatoly Yakovenko (42:32):Got it. That's really cool. Well, this has been awesome to have you on the show. I mean, we got into I think the really deep, deep tells of how Aleph works, so I had a blast because it really reminds me of the spending, working on the stuff for centralized systems. It's really cool to see this kind of built ground up for decentralized ones as well. So appreciate the work you're doing. Thank you, Jonathan.Jonathan Schemoul (43:00):Thank you very much for having that call. It was really great talking with you.Anatoly Yakovenko (43:04):Awesome. And good luck to you guys. I mean, startups are blood, sweat and tears, so just keep working on the vision. You'll get there.Jonathan Schemoul (43:11):Thank you very much.Anatoly Yakovenko (43:13):Cool. Take care.

Jeff "Jiho" Zirlin is the Co-Founder of Axie Infinity, an NFT-based play-to-earn online video game. 00:23 – How it started through CryptoKitties?02:41 – What is Axie Infinity?04:13 – Game design and constant iteration05:52 – What is a blockchain game? A mix of social network, gaming and the start of a new economy13:15 – Why is crypto important to Axie?17:24 – Building and relying on your community  20:47 – Is the future of gaming the metaverse and user-owned assets?22:22 – The feasibility of crossover between games with NFT ownership27:35 – Where are Axies user from and what kind of players are they?30:45 – What's Axie's endgame?37:16 – Thoughts on competitors41:18 – Generative art and creating an Axie DISCLAIMERThe information on this podcast is provided for educational, informational, and entertainment purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose. The information contained in or provided from or through this podcast is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice. The information on this podcast is general in nature and is not specific to you, the user or anyone else. You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented on this podcast without undertaking independent due diligence and consultation with a professional broker or financial advisor.