In this episode, we reflect on the biggest ideas and lessons learned from the past 12 months of interviewing the top names in crypto. I’m joined by Anthony Pompliano, co-founder at Morgan Creek Digital Assets. Listen in to hear what types of companies could outperform Bitcoin, what we got wrong about crypto in 2018, and why debt hasn’t gotten as much attention as it should.
Today’s episode is broken up into five chapters:
- An introduction to Anthony and his investment thesis
- A discussion of some of the most interesting ideas and episodes from the past 12 months
- Some of the lessons we’ve learned making this podcast
- My pick for best episode of the year
- A quickfire round of the game “overrated/underrated”
In this episode we discuss:
- Anthony’s background
- The equity opportunities that Anthony finds most interesting
- Anthony’s outlook on media companies
- The concept of bootstrapping a crypto nation-state
- The major categories of use cases for security tokenization
- How tokenization affects disclosure
- The spectrum between centralized and non-centralized
- What Anthony has learned from doing his podcast
- The best episode of the past 12 months of Flippening
- What Anthony thinks about Grin
- Bear markets
- Anthony’s thoughts on generalized mining
- Impact of the Bitcoin ETF
- Ecosystem funds
- Derivative platforms
- Whether Binance is overrated or underrated
- Whether BNB is overrated or underrated
Thanks To Our Sponsor
The Nomics API offers squeaky clean and normalized primary source trade data offered through fast and modern endpoints. Instead of having to integrate with several exchange APIs of varying quality, you can get everything through one screaming fast fire hose. If you found that you or your developer have to spend too much time cleaning up and maintaining datasets, instead of identifying opportunities, or if you’re tired of interpolated data and want raw primary source trades delivered simply and consistently with top-notch support in SLAs, then check us out here.
Links Relevant To This Episode:
Quotes by Anthony:
“The idea that money equals power, land or scarce resources equals power, and the coordination of resources, I think is something that we have seen time and time again throughout history.”
“When you actually decrease the cost for the issuer in the issuance process and in the governance process, what ends up happening is you can drastically increase the return for investors.”
“Again, it all goes back to this idea that this technology can create transparency that increases the trust that you can have with the information that you’re presented with.”
Welcome to Flippening, the first and original podcast for full time, professional, and institutional crypto investors. I’m your host, Clay Collins. Each week, we discuss the cryptocurrency economy, new investment strategies for maximizing returns, and stories from the frontlines of financial disruptions. Go to flippening.com to join our newsletter for cryptocurrency investors and find out just why this podcast is called Flippening.
Clay Collins is the CEO of Nomics. All opinions expressed by Clay and podcast guests are solely their own opinion [00:00:30] and do not reflect the opinion of Nomics or any other company. This podcast is for informational and entertainment purposes only and should not be relied upon as the basis for investment decisions.
Hey, this is Clay cutting in here to let you know that this episode of the Flippening podcast is brought to you by the Nomics API.
If you need an Enterprise-Grade Crypto Market Data API For Your Fund, Smart Contract, or App then consider trying out the Nomics API. Our API enables programmatic access to clean, normalized, and gapless primary source trade data across a number of cryptocurrency exchanges. Instead of having to integrate with multiple exchange APIs of varying quality, you can get everything through one screaming fast fire hose. If you found that you or your developer have to spend too much time cleaning up and maintaining datasets, instead of identifying opportunities, or if you’re tired of interpolated data and want raw primary source trades delivered simply and consistently with top-notch support and SLAs, then check us out at nomicsapi.com.
If you’ll indulge me for a moment, I’d like to take a second to review with you the last 12 months of this podcast because they’ve been quite a ride. One of the inaugural episodes of this podcast featured an interview with Kyle Samani, cofounder at Multicoin Capital. At that time, both our podcast and Kyle [00:01:00] were virtually unknown to the space and we had no idea that both the podcast and Kyle would end up growing large audiences, but they did.
Using this formative content as a launching pad we went on to do interviews with some of the most influential investors and makers in the space, and eventually created our [00:01:30] tokenized securities documentary entitled Tokenize the World, which has gone on to receive hundreds of thousands of downloads.
The overwhelming success of our audio documentary meant that Flippening subscriptions were now on more smartphones than ever before. As a side note, if you haven’t heard our security token documentary, check out episodes 20-23 or just Google the phrase ‘Tokenize the World’.
Anyway, we continued the tradition of creating flagship reference content on topics relevant to [00:02:00] institutional investors by creating more high-quality deep dives and mini-documentaries on topics like OTC desks, tokenized debt, decentralized exchanges, and investing in smart contract platforms. We even hired professional voice actors to create two audiobooks.
Although I’m proud of what we’ve accomplished together, producing this podcast has also been A LOT of work. For example, the security token documentary took well over 150 hours and required significant planning, script writing, [00:02:30] re-recording, and post production edits. The effort and resources used to maintain the production level of this podcast has been incredible. Luckily, we’ve had a lot of awesome sponsors step up to help us along the way and pay for some of this.
Today, in this episode, we’re going to take stock of the past 12 months and we have with us, Anthony Pompliano, affectionately known as Pomp on Twitter. Anthony is a cofounder of Morgan Creek Digital Assets, [00:03:00] an asset management firm which recently and famously raised a $40 million fund from LPs that include pension funds which is pretty incredible for this space. You might know him for his catchphrase, “Long bitcoin, short the bankers.” He’s a thought leader on many topics including security tokenization, and indirectly, an investor of Nomics, and most importantly, a friend of the show.
This interview was broken up into five chapters. Chapter 1 is [00:03:30] an introduction to Pomp and his investment thesis. Chapter two is a discussion of some of the most interesting ideas and episodes from the last 12 months of this podcast. Chapter 3 reviews some of the lessons we’ve learned making this podcast. In chapter 4, I reveal my pick for the best episode of the year—it’s not what you think. Finally, in Chapter 5, I do a quick-fire round of the game over-rated/under-rated
We’re just about to start the show, but before we do that, I wanted to provide two announcements regarding Nomics.com, [00:04:00] the company the produces and funds this podcast.
The first announcement is that we’ve hired a producer for this podcast and we’re now coming out with podcasts each and every week. We’re enthusiastic about this because without trying too hard, this podcast has gone on to become the number one podcast for institutional crypto-asset investors, and we’re ready to up the ante. Given that we’re going to be releasing more podcasts, we now have room for a few more sponsors. If you like the work we do and would like to support this show, then a sponsorship might be a good fit for you.
[00:04:30] I can say from our own experience that Flippening sponsorships work. Each and every time we put out an episode of this podcast, we mention our own API. And to date, every single one of those advertisements has resulted in at least one customer. In fact, we would do these shows even if nobody else sponsored because of the business it brings to us. Over 80% of paying customers mention that they heard of us through our podcast.
The second announcement, not so incidentally, is that this episode of the Flippening podcast [00:05:00] is brought to you by the Nomics API. If you need an enterprise-grade crypto market data API for your fund, smart contract, or app then consider trying out the Nomics API. Our API enables programmatic access to clean, normalized, and gapless primary source trade data across a number of cryptocurrency exchanges. Instead of having to integrate with multiple exchange APIs of varying quality, you can get everything [00:05:30] through one screaming fast fire hose. If you found that you or your developer have to spend too much time cleaning up and maintaining datasets instead of identifying opportunities, or if you’re tired of interpolated data and want raw, primary source trades delivered simply and consistently with top-notch support and SLAs, then check us out at nomicsapi.com.
Okay, back to our regularly scheduled program. Here’s our interview with Anthony Pompliano, founder and partner at [00:06:00] Morgan Creek Capital Management.
Clay: My idea today is I wanted to review our top learnings and takeaways from 2018. I had a blast producing this podcast in 2018. It was also a huge pain in the ass, and I had no idea what a large undertaking this would take. [00:06:30] I wanted to recap, and I couldn’t think of a better person to join me in this than Anthony Pompliano from the Off the Chain podcast. Anthony, thank you so much for joining me today.
Anthony: Absolutely. I’m super excited to do this. Thanks for having me.
Clay: For the three people in crypto land who don’t know who you are, can you tell us a little bit about your background, and your podcast?
Anthony: Yeah. I previously built and sold a [00:07:00] few tech companies, ran product and growth teams at a Facebook snap, started a venture fund, and now today invest throughout the blockchain ecosystem on behalf of institutional investors as a day job, if you will. In my free time, have found it fascinating and frankly, very fun to interview and talk with a number of the largest names or most interesting people in crypto. I do that on my Off the Chain Podcast.
Clay: Cool. Is the investing that you do [00:07:30] primarily in crypto assets, or do you also invest in equity as well?
Anthony: Almost everything is in the equity of companies in crypto, so that’s everything from exchanges, data providers, infrastructure companies, etc.
Clay: Interesting. Of those sort of equity opportunities, what do you find to be most interesting these days?
Anthony: I start every investment with, Bitcoin is the best investment to make. Anything that we invest in that is not Bitcoin, we have to believe has [00:08:00] the ability to outperform Bitcoin and its appreciation in the future. With that, Coinbase, for example, if you invested in the seed round, it’s outperformed Bitcoin’s appreciation to date. If you invested in crack in series A, it’s outperformed; if you invested in Binance, it’s outperformed, etc. There’s definitely companies where that has happened. They are few and far between, but it’s definitely happened. Really for me, what gets me excited is not only one, companies who can do that, but then two, businesses where there is less dependence on a single digital asset.
[00:08:30] The digital assets today, some of them are going to appreciate value. Some are going to depreciate in value. We look at that very much as stock picking, where you’re trying to pick individual digital assets based on their merit or utility. Rather than that, we would much rather invest in these infrastructure companies that are somewhat agnostic. If you think of Coinbase, for example, Coinbase doesn’t care if the price of Bitcoin goes up or down. It also doesn’t care if some other asset becomes popular or goes away. Their job is to connect buyers and sellers of digital assets. That business is somewhat agnostic. [00:09:00] There’s a little bit of overlap to the price but for the most part, they’re able to sustain kind of bare markets. For example, the company made more money in 2018 than it did in 2017 even though we were in a bare market. That’s really exciting to us.
Clay: All those companies that you just mentioned are exchanges that have outperformed Bitcoin. Are there any other types of companies that, as a category, you see outperforming Bitcoin?
Anthony: I would say that most of the companies that at least have a chance to, right, and I probably won’t go into the numbers themselves, [00:09:30] but most of the companies are going to be exchanges, mining companies, data providers. It’s going to be these infrastructure plays, right? It’s going to be hard, I think, for non-infrastructure companies today to outperform the appreciation that we foresee for Bitcoin moving forward and so that doesn’t mean that a number of companies can’t do it. It’s just as a category that the high concentration of the companies who are successful and outperforming Bitcoin’s [00:10:00] appreciation is likely to be in that infrastructure category.
Clay: It’s easy to go from zero to substantially more than zero. It’s hard to do that over 10 years. Bitcoin probably has a pretty good chance of doing that. What’s your outlook on media companies? I definitely have seen this trend among companies that have raised money especially during the bull market that hired a few developers and hired a ton of content creators because crypto Twitter’s seductive. Are you bullish on content businesses in the space, [00:10:30] or do you see them primarily as just a way to augment other core businesses?
Anthony: It really depends, right? You could make an argument that data providers are actually content businesses, and they’re a little bit more scalable. They’re less kind of what I would consider digital media or traditional journalism. You’ve got some aspects there where people are consuming content in a more automated way versus, you know, let’s take businesses where they fit the traditional journalism kind of model, if you will. [00:11:00] They’re having to rely on conferences, events, things like that to be sustainable.
The problem we’re seeing across all of traditional digital media is just it’s really hard to build a sustainable business when you don’t have the staying power, the brand, or the audience. That’s what’s hard to build today because people have so many options. Really the content businesses that I get most excited about are the ones who have either content that you can’t [00:11:30] get anywhere else. Two, they’ve got very sustainable high margin, monetization plans, or three, businesses that are able to figure out how to use data automation, visualization of information to create these offerings. There are some businesses that are doing that today and we’ll see how those evolve over time.
Clay: I haven’t thought a lot about data companies as media companies. They do seem to be intertwined a bit. On the other hand, with more traditional content, thought pieces, journalism, it does seem like there’s a bit of a hamster wheel of death. You have to always be producing content to stay relevant, [00:12:00] and a lot of that content is tied to personal brands that aren’t really sellable assets. That can be a little bit difficult.
Anthony: For sure.
Clay: Thanks for a little bit of background on you. I’m going to consider this Chapter One as an intro to you for those of you who are listening to my podcast who don’t know who I am. I actually don’t talk about myself very often. I’m the CEO of Nomics. Most people don’t know if that’s pronounced noemics or nawmics but it’s Nomics like economics. I thought that would be obvious. It has not been obvious. We’re a crypto asset market data company. [00:12:30] We’re an API First business. We think of ourselves as a developer tool and we are very focused on making products that developers love. We’re having a lot of fun at the same time. We’re probably going to open source all of our front-end stuff at some point. You can check us out at Nomics.com.
Let’s dig into Chapter two which is an overview of some of the biggest learnings and takeaways from our first year. I’m going to start off with the second part of the [00:13:00] Eric Meltzer interview where he talks about bootstrapping a crypto nation state. I found this topic really fascinating. It wasn’t something that I expected us to cover in any way, shape, or form. But Eric basically walks us through how one might bootstrap a nation state.
He starts by outlining what has previously been the most popular strategy of doing this and that is acquiring land. One might call this the ‘land first strategy’, [00:13:30] but he outlines an alternative way of doing this which is going about one, raising a lot of money, allocating it to a sovereign wealth fund. Step number two would be lending that money out to countries, maybe for infrastructure investments or other kinds of investments, but there are a lot of companies that want money and maybe asking them to put up land as collateral.
In return for these investments, and this would take a whole lot of capital, [00:14:00] I imagine, in the hundreds of billions, maybe even the trillions. In return for this asking for recognition as a country and maybe even land for an embassy. You would set up a distributed network of embassies in these countries that you’ve lent money to. Then once that country has standing in a variety of other countries through these embassies and recognitions, you could go about doing things like issuing visas, [00:14:30] allowing businesses to domicile there, issuing passports, all kinds of things like that as you’ve sort of gained traction and struck a number of these deals, you could maybe move to get you in status.
Pomp, what do you think of this? I wanted to start off with something kind of far-fetched and entertaining. But this is something that a lot of people have glommed onto. What’s your take on this?
Anthony: It’s a wild idea until it’s not, right? The idea that we could see nations really [00:15:00] go all in on the technology and the use case, I think, is becoming more real every day. The ideas here are pretty sound from historical context, right? The idea that money equals power, land or scarce resources equals power, and the coordination of resources, I think is something that we [00:15:30] have seen time and time again throughout history.
The questions that really come up or things that I think about are: how much of this has to be blockchain based or crypto based, and how much of it is reliant on some sort of centralized authority? When we think of nations today, we think of human led governance. There’s some sort of voting system, whether it’s actually democratic or it’s rigged and corrupt, there’s a human leader and it’s somewhat [00:16:00] top down governance. Whether that is more democratic or not it is country specific.
The things I usually think about are what would happen if we tried to govern with no single human leader, right? You actually tried to govern with, let’s say, software code, where you go to the exact stream and said, you know, ‘We’re going coordinate resources. We’re going to govern the people and resources through a whole host of automated products and services.” I don’t know if we really know what that would look like today, but I think what Eric’s hitting on is a bunch of things in and around that, that are pretty thought provoking. What about you? What do you think?
Clay: I think it’s interesting what [00:16:30] Estonia has done. They’ll issue a bunch of documents that will allow businesses to get set up there fairly quickly online. I believe they have what they call an e-visa. It’s kind of interesting to see a lot of the services that states, and governments provide as being unbundled from living there and having citizenship. There’s just a lot of functions that are served like banking, [00:17:00] the establishment of a business entity.
We’ve seen a lot of stuff flow through the Cayman Islands. I think, when you merge that kind of thinking with sort of the idea of a DAO. I don’t know if there’s any well-functioning Dow that exists yet, but the raw materials are there, and it’s not a stretched to imagine that this could happen. I imagine this kind of crypto nation state is at least probably [00:17:30] 20 years out. I think there has to be a lot of appreciation of Bitcoin in price before people would step up and make this happen.
By then, I think a lot of infrastructure will have developed. Blockchain based infrastructure will have developed, and I think the administrative aspects of this are going to be there. This could happen, and I don’t think it’s too far off.
Anthony: The thing that’s interesting about Estonia too, is this idea that you can have the benefits of a [00:18:00] rule of law, of resources, etc., and literally never have visited. The idea of physical geography as a precursor for the benefit of, let’s say, citizenship, for example, all of a sudden goes out the window. I think that we probably don’t even understand the repercussions of something like that today.
Clay: I think it’s kind of interesting to see the rise of golden visas, and I think [00:18:30] Portugal is doing something really interesting. I believe if you buy $250,000.00 worth of real estate in Portugal, you can get a visa. If you have a visa for some amount of time, eight to ten years, it might be less than that, it might be five, then you can actually get citizenship. Once you have Portuguese citizenship, you now have EU citizenship and you can live anywhere, and that has really benefited the country. They’ve seen an influx of capital.
[00:19:00] It’s kind of interesting to watch the commoditization of citizenship and to consider the range of administrative services the governments offer apart from a place to live. I hope there’s more of this. I think it’s unfortunate that citizenship and where you live has become one of these un-desruptible spaces.
I was listening to Bill Gurley talk about investments in healthcare and why he’s hesitant to invest in healthcare. He said when he first entered the space, [00:19:30] he assumed that normal market forces were at play. There’s supply and demand. There’s all the things that you think come with a market and none of that applied.
I think the same goes with citizenship. Market forces certainly are at play, but they’re not at play to the same extent that they are in other highly functioning markets, and to see market forces enter into this is a really interesting idea. Citizenship is one of these things where the switching costs are very high, where there’s a lot of lock in and where there [00:20:00] just isn’t a lot of freedom. If I was President of the United States, and I will never, ever run, I would just try, and brain drain the world. I would just be like, “Hey, if you’re smart and you want to live here, we’re going to put checks and balances in place, but we’re going to try and make that happen.” I’m bullish on this idea. I want it to happen sooner, but I think it could happen.
Anthony: The other piece of it is the idea that if this actually persists and becomes a thing, how other countries fight it. There’s [00:20:30] all kinds of things around trying to create regulatory arbitrage opportunities, trying to actually conduct combative operations. It changes the landscape when you begin to take away some of the core tenets of what we’d thought as nation states. You now start to say, how do warring nation states settle their differences, right? It changes a lot of things. I tend to think that most of this is a mental exercise. The likelihood that this stuff is going to happen in the next [00:21:00] five, ten years is pretty low, but I do think aspects of it can creep into reality and probably have an impact.
Clay: I think what’s interesting about what’s happening with cryptocurrencies and jurisdictional arbitrage and such is that there is this emergence of stateless people or stateless entities, and I think most of the time when we think about [00:21:30] stateless people, we think about refugees, or the Rohingya or people who have no homeland at all or citizenship. There’s kind of the opposite of that that’s happening where there’s this global elite and you’ve got people like Vitalik Buterin who basically lives in a plane or Binance that’s just going to go wherever it makes the most amount of sense for them. Because of their wealth and power, they can decide whose rules they want to play by, [00:22:00] so there’s this market for roles and people want to make these decisions. I hope there’s more of this. I hope it leads to more equality for all eventually.
Anthony: For sure. What was your second one?
Clay: The second one, it’s an episode that I really enjoyed, and I thought didn’t get more attention. It’s an episode with Nadav Hollander from the Dharma Protocol. I scratch my head a lot because I think there isn’t [00:22:30] enough talk about debt markets on the blockchain. There’s lot of talk of derivatives and tokenized securities but I don’t know why we don’t talk more about debt. Everyone needs to borrow money. Rich people borrow money. Everyone wants to borrow money and when you think about Bitcoin as a replacement for cash or digital gold, as a commodity, it’s like the M2 money supply, one of the more generous measures of money supply is at 13.5 trillion. The stock market is at [00:23:00] 30 trillion, and then, bigger than both of those, is the bond market at 40 trillion. That doesn’t include household debt and a lot of other forms of debt. Here a company comes along. They’re trying to address this, and for some reason, it hasn’t received anywhere near the amount of attention as tokenized securities. I don’t understand that. Why do you think debt hasn’t got much attention in the space?
Anthony: I think most people don’t understand debt. [00:23:30] Frankly, it’s not sexy. The thing that you have to appreciate about crypto, whether you agree with it or not, is a lot of people who just want to walk into a casino, put it on black, and come back with 10x. That’s just human nature. That’s not specific to crypto. We see it with everything from the lottery tickets to even the stock market. People get in their own way and they don’t have discipline when it comes to investing. We know that. We call it the emotional bias [00:24:00] and all that stuff that’s kind of been beaten into us over time.
I think that part that becomes really interesting when talking about debt is this is already happening in a very real way. Last year we saw MTS, which is a Russian telecom, do a $13 million corporate bond. The World Bank did an $81 million issuance over the summer, and then, towards the end of the year, the investment arm of the Abu Dhabi government settled a $500 million tokenized bond. Those are real organizations. [00:24:30] The World Bank and Abu Dhabi governments are not Joe Blow and Jane Smith in their basement. This is real stuff.
The part that becomes interesting to me is, not only can you do this more efficiently on a global scale, but you can do it cheaper. When you actually decrease the cost for the issuer in the issuance process and in the governance process, what ends up happening is you can drastically increase the return for investors. [00:25:00] In a world where we’re talking about most debt offerings are single digit return profiles, and if you get really risky you can kind of creep into the 12%-15% type stuff.
I think that it’s a good mental exercise to think that we put a lot of this stuff into just automated fashion. I don’t even go to blockchain necessarily or cryptographically secure, just an automated digital world. All of a sudden, you’re talking about the ability for investors [00:25:30] to get higher returns. You’re talking about issuers having the ability to prevent or decrease the default rates. It just makes the system better over time, which is super exciting.
Clay: I’m very, very excited about debt, particularly because I think it could be the killer app for getting this stuff in the hands of the masses. There’s a fraction of the population that has disposable income that can make a real investment in Bitcoin [00:26:00] but everyone needs to borrow money. The embanked, poor people, rich people, the middle class, almost everyone is borrowing money.
If your fiat currency is relatively stable, or if it mostly, kind of, sort of works and you’ve been using for a long time, I think you’re going to continue to use that, but if the only way you can get a real loan without having to bring a horse into a bank and put it up as collateral, if the only way that you can really get a loan is [00:26:30] through blockchain or new tokenized debt products, I think that could really work. I think the infrastructure probably isn’t there. We haven’t proven out these systems. There aren’t any lindy effects, but I think this could get a lot of people involved in this space. We just need to work out the kinks.
Anthony: I’ll take it even a step further. I actually think this is the first way that large financial institutions are going to come to the market. Here’s the part that people forget about debt, for example, let’s take a company’s [00:27:00] corporate bonds, or some sort of organization, the equity of the organization is actually one, much heavier regulated, and two, much more complex. There’s more moving parts. There’s more inputs in terms of what determines the price and price movement. When you have debt, there’s a number of very simple, well-defined,] easily regulated applications that I think just gives people more confidence. [00:27:30] If I’m going to try this new thing, this new technology, I want to do it in a kind of controlled environment, right? “I give you money. You go and you pay me every month for that money and at the end I get paid back X percent plus the principal.”
Okay. Timeout. I’m going to do some native advertising for the Nomics API. This episode of Flippening is sponsored by the Nomics API. The Nomics API offers squeaky clean and normalized primary source trade data offered through fast and modern endpoints. Instead of having to integrate [00:28:00] with a bunch of exchange APIs of varying quality, you can get everything through one screaming fast firehose. If you’ve found that you or your developer have to spend too much time cleaning up and maintaining datasets, instead of identifying opportunities or if you’re tired of interpolated data and want raw primary source trades delivered simply and consistently with top notch support and SLAs, then check us out at Nomics.com.
Anthony: That’s pretty simple compared to the compounding risk of, let’s say, an equity where I’m going to give you money, I’m going to hold the equity, there’s a whole bunch of factors outside of my control that can affect that price. Even if the [00:28:30] technology works and you do everything you’re supposed to do as the issuer of that equity, I still may lose money. I think that scares people, that compounding risk there, and so debt’s a great way to get people involved in these large institutions without scaring them away.
Clay: It’s a very simple business model. It seems to me like most of the organizations that are making a lot of money by issuing debt, as institutions, the problems that they’re solving for are that they can [00:29:00] pass regulatory muster and they can accumulate a lot of capital to be lent out in the first place. Blockchain, you know, it’s not a panacea, we all know that, but it does solve some of the trust issues, not all of them. It allows a lot of people to pool money together and allocate loans. I think these industries that are really only solving the problem that it takes a lot of money and [00:29:30] legal fees and a bunch of crap to get the government to give you their stamp of approval so you can operate, I would hope that those types of industries, including lending businesses can be disrupted.
Anthony: We made a couple of investments in companies. There’s one called Bravo Capital, where they essentially lend money out to people who have mobile apps and monetize through subscriptions. What they do is they hook into all of the analytics that you have, so your bank account, your advertising, your analytics, etc. They underwrite the [00:30:00] borrower using LTD and cap calculations, etc., and then, when the borrower gets paid, that revenue from the subscriber goes to the app store.
The app store takes their cut and the app store gives the money to Bravo. Bravo takes their cut and then finally the borrower is given the capital. You’re reducing the counterparty risk in somewhat of a relatively automated fashion. There’s no blockchain. There’s no cryptography involved in that. I think that’s the type of stuff where you get kind of unique [00:30:30] lending opportunities and you also get reduced risk for a lot of these lenders as they start to use more technology to do their job.
Clay: I could definitely see payday loans, for example, working in a similar fashion where a lot of risk can be reduced. If you’re an employee somewhere and that employer offers some kind of loan, the stipulation is that we will pay you through this smart contract address, and everything goes to this smart contract address first and then it will [00:31:00] disperse funds to you after we’ve been paid. I think that could have a similar impact. There’s a lot of ways to do this and I think the future is bright. I don’t know if there are any business models yet to be created, but definitely lots of potential, like most of the space.
Anthony: We’ve talked a bunch about this idea that somebody should build a way for a lender, take home mortgages, right? Instead of me underwriting the borrower and the asset, meaning [00:31:30] the home, I’d rather underwrite the asset and the employer of the borrower. The reason why I would do that is cause I’m going to take less risk. The counterparty in that situation is much more solvent than the borrower traditionally. What the employer can do is, when they go to pay that paycheck every month, they make two payments. One goes to the mortgage provider and one goes to the employee.
What you can do is you can offer it as an employee benefit. You’re able to get [00:32:00] reduced rates for those employees. You then are able to, as the lender, be able to have lower default rates and just have more confidence in what you’re doing. There’s a whole lot of details that would need to be figured out there, but that type of change in the mechanism of lending and borrowing, I think, is super interesting and it’s going to happen.
Clay: I think Lambda School should do something like this. The school’s free but you have to be paid in some kind of stable coin through this smart contract [00:32:30] address for the rest of your career, but we’ll take our cut out of it.
All right. Moving on to takeaway number three. This is around the security token documentary that I did. I think what struck me about this and one of the biggest things that I learned is that there aren’t a lot of use cases just yet for security tokens outside of the ones that you might think of like publicly traded companies. [00:33:00] VC-backed companies are not a good use case. Real estate is a good one because it’s easy to price, right? You don’t have to worry about price discovery.
I thought that one day we might do a security token offering and then I realized that I don’t want to do any kind of disclosure, before we’re public, that would allow the markets to price our token, and I don’t want a bunch of people in a telegram group, you know, hounding me about all kinds of shit before it happens. I think I just got a lot [00:33:30] more crystal clear on the good uses for security tokenization for private companies. What do you see as the major categories of use cases for security tokenization, for private companies?
Anthony: I think that every stock bond currency commodity is going to be tokenized in the world. When it comes to these stocks, we already have digital stock certificates. When I invest in a private company, I almost never get a paper stock certificate anymore. I get it on Carta, AngelList, etc. [00:34:00] I get some digital form, again, not blockchain based, not cryptographically secure, but it does create a lot of benefits to us to allow people to issue digital tokens. One of the aspects I go to that people don’t talk about a lot, I actually think the regulators are going to mandate this. The reason being, today, if you and I are both investors and, let’s say, I’ve invested in a reg D offering in a private market and I want to get liquidity. I’ve probably had KYC AML, an investor verification done [00:34:30] and let’s say you have it as well, and I go to make a non-compliant trade with you.
Most people can’t stop us, right? Regulators can’t stop us, etc. They’re going to spend a bunch of time, money, and resources to figure out who we are, what we did non-compliantly, build the case and enforce on us. That can take millions of dollars and one, two, three years. In this new tokenized world what happens is, you’re going to KYC AML and investor verify my wallet. You’re going to KYC AML investor verify your wallet, and then the token itself is going to have a bunch of [00:35:00] criteria or details written into it. Who’s the issuer? What jurisdiction? What regulatory exemption was used? When was it done? All these things.
When I now go to send you that reg D offering, let’s say I’m an accredited investor and you’re an accredited investor, the code will check and say, “Okay, here’s all the rules and regulations. This is a compliant trade,” and it will allow us to execute that trade. In the instance where you’re a non-accredited investor, I’m accredited and it’s within one year, that would be a non-compliant trade [00:35:30] and the code will recognize non-compliant trade about to happen and it will actually reject the trade.
What it does is it takes regulators from being reactive and having to spend a bunch of time, money, and resources to enforce the law, to now they can become proactive. They can make the system actually more compliant, more efficient, and they save money, they save time. I think that, from their perspective, they’re going to mandate all of this because it just makes a better world.
Clay: It makes the cost of enforcement much lower. [00:36:00] There’s a lot of folks that talked about hyper-bitcoinization and I think a lot about hyper-tokenization and it’s not just about security tokens, it’s about any kind of financial product or representation of value anywhere is likely to be tokenized in the future, and this is just an extension of that idea or thesis. What do you think about the role of security token exchanges? The reason why I ask this is because it seems like the way these systems are set up to work is [00:36:30] antithetical to centralized exchanges, right?
If I’m making a trade with you and it’s happening on an exchange, I’m not interacting directly with your wallet. You have to create all of these systems that basically replicate what already exists in order for centralize security token exchanges to work. It works a lot better if I’m just trading with you directly with some sort of billboard system or some kind of decentralized exchange, maybe relaying the transaction or lining us up, right? [00:37:00] But it would work just as well, and perhaps even better in some cases. If we just met at a coffee shop or if we just–like I sent you the tokens and you sent me something back, you know?
Anthony: Absolutely. I think that makes complete sense.
Clay: As more things are tokenized, do you think the role of disclosure is going to change? Does this affect disclosure? When I consider the thought of tokenizing equity in our company, the thought of having to prematurely disclose things to an unsophisticated market or to anyone who doesn’t have [00:37:30] information rights in our business really makes me cringe. Do you think security tokenization changes that or do you think it’s just another way, a more efficient way, to represent ownership and everything is going to kind of operate as it always has?
Anthony: I definitely don’t think everything’s going to operate as it always has. I think what we’re going to see is improvement or evolution. It’s less likely to be revolutionary there, but I do think that there is a world where [00:38:00] a whole bunch of people have no clue what’s going on. What I mean by that is I’ve got a buddy who always says, “If you look at the cap tables of early stage startups, they’re almost always wrong.” If you think about that for second, almost always wrong, that’s literally how much of the company do you own, right? When you get into a world where investors are joking about it, that’s not good, right? [00:38:30] I think that a lot of what we’re talking about around disclosures, around information of who owns what, is going to be important.
Then another aspect that I think is going to be really important in the future is this idea of reporting and auditing. One of the things that just absolutely blows my mind is, if you think of the large internet companies in Silicon Valley today, there’s two different aspects of what they’re valued on. One is their financial performance and one is growth, or user metrics.
Financial performance is audited. [00:39:00] We literally send people to school. We train them as accountants. We tell them, “Hey, here’s how you report things, how you define them, how you count, when you report it, right, gap, non-gap, all that stuff. We’re going to audit what you say and then if you’re wrong, we’re going to punish you.” On the growth side, the companies are valued on their user metrics, we don’t train anybody, we don’t certify them, we don’t have any sort of definitions or guidance as to how to count or when to count. [00:39:30] When you report we don’t audit it, and so there’s no punishment, right?
It just creates a situation where the regulations and laws haven’t caught up yet to business and the environment, but I think blockchain and crypto can start to chip away at that. We’re definitely hoping that it does.
Clay: Two responses to that. One, even people with incredibly expensive educations who have been doing this for a long time still can’t get freaking cap table math right. The second thing [00:40:00] is that there isn’t a lot of standardization on non-financial business metrics. There’s a public company, I was reading some of their disclosures and they were talking about their churn. They were talking about their LTV. Then I go to the fine print on the churn and they only count someone as churning if they have an account value over a certain amount of money and they made it through the trial, and they had been on the platform for three months. That is just the most bogus churn number I’ve ever seen in my life, [00:40:30] but it’s done all the time. You ask people, “How do you measure churn?” Nobody can tell you. There’s no one way to do it.
I don’t know exactly how it relates to blockchain, but I completely agree with you that a lot of this stuff is all over the place, and it’s probably where a lot of fraud is hidden.
Anthony: Some of it is not intentional and some of it is. I think that’s what we’ve got to figure out. Again, it all goes back to this idea that this technology can create transparency that increases the trust that you can have with the information [00:41:00] that you’re presented with.
Clay: Takeaway number four is around my interview with Alex Wearn from IDEX. He’s the CEO of Aurora DAO, it’s by many measures, the most popular Ethereum smart contract. They typically lead when it comes to decentralized exchange volume. We had a really good discussion about kind of the spectrum: [00:41:30] on side, centralized exchanges, and decentralized exchanges. I think most people, when they think about decentralized exchanges, they don’t dig into that much deeper, but there really is a range.
On one hand you have centralized exchanges. We’re all familiar with them, Coinbase. Binance, etc. Then you have non-custodial exchanges which aren’t really decentralized. There is some kind of risk during the amount of time that they have your money and prior to making the trade and giving you money back [00:42:00] but they’re definitely on the spectrum. Then you’ve got exchanges with matching and order books off chain and execution is on chain, and then you’ve got maybe the complete other end of the spectrum where the order book is on chain, the execution is on chain, literally everything is on chain, cost [inaudible [00:42:19], etc. That’s not even all the points along this spectrum, there’s even more gradations than that.
The takeaway is that there is a huge spectrum [00:42:30] on this range between centralized and non-centralized. It’s important to call out different points along that spectrum. Do you have any thoughts on this?
Anthony: I think it’s possible. It’s definitely possible, right?
Clay: Yeah. Cool. It was a good interview. I am definitely looking forward to more decentralization. It feels like when the government, and I’m not anti-government or anti-regulation. I think people should be kept safe, just as long as you [00:43:00] don’t treat them like children. I am excited about unbundling a lot of things that are traditionally bundled and the opportunities that creates for permissionless innovation.
I think if there’s anything we’ve learned about this space is that you can take an area which was previously boring and uninteresting and frankly, didn’t have a lot going on in terms of innovation, simply by unlocking the ability to do stuff that [00:42:30] couldn’t be done before which required a stamp of approval from the government, you can get a lot of really smart people involved. I’m just continually impressed by this brain drain out of centralized, traditional, like vertical SaaS companies or the Facebooks and the Googles of the world into new startups that are taking real risks and doing new things. I think decentralization is part of what is enabling that.
Anthony: For sure. [00:44:00] Let me ask you this. What do you think is the thing that everyone talked about in 2018 as this is going to happen, but you don’t think that it will? What do you think people got wrong?
Clay: I think people got Ethereum wrong, frankly. I think people were thinking of Ethereum like Bitcoin. Even I took a look at that and saw what appeared to be second order network effects. It’s like, “Hey, Ethereum has this network,” and then there’s all these [00:44:30] network effects that are piling on top of tokens that are issued on top of Ethereum. This is going to be huge. I thought we could see a flippening in terms of the value of Ethereum versus everything else. I saw so many smart people piling into that community and ecosystem and, man, it just did not happen. There’s a variety of reasons why I think it didn’t happen, but that definitely kind of stands out the most to me. What’s your take on that, and/or [00:45:00] what is that thing for you?
Anthony: I definitely think you’re actually correct. It’s hard to know exactly how this all plays out. I do think that a lot of people got really excited, frankly, about everything, and we’re seeing the [inaudible [00:45:14] now. I think Ethereum perfectly falls in there. It’s got some challenges. There are some really smart people working on those challenges and so I think they’ve got a shot to kind of recover, but we’ll see how that plays out.
For me, frankly, the thing that I go back to just [00:45:30] what did people talk about that got wrong, definitely one was price. Everyone, including myself, had all these price predictions that ended up, some were more accurate than others but frankly, no-one got it right. I think that’s one piece. The other thing that is pretty interesting is the institutionalization. When I’m talking about institutions right now, I’m talking specifically about the large financial organizations.
I think they came really close at [00:46:00] a lot of the Wall Street banks and stuff, and then as price fell further and further, they started to hedge a little bit, or back away from the table. At one point it looked like they were really going to come in forcefully and kind of go all in, if you will, but we didn’t really see that happen yet. I think we’re getting closer. That’s something I’m watching in 2019 is how many of those people who were excited or who were talking about doing things last year, actually are going to pull the trigger this year.
Clay: I think we were all waiting for this wall of institutional money to come in and pay us a ton of money for a Bitcoin, and that didn’t happen. The ETF didn’t happen. [00:46:30] I think my price predictions, I never posted them on Twitter or anything, but they were off. I got involved in 2013 and I believe it was the end of 2013 where we went from around 300-ish then it spiked to 1,200 and then it just took a nosedive in 2014. It took all of 2014, all of 2015, all of 2016, and then into Q1 of 2017 to see [00:47:00] 1,200 again then it spiked to 20. Now we’re down at like 3.5, 4K. I think it could take us all of 2019, and all of 2020, and maybe we’ll see that pattern repeat again, or maybe the cycle will shorten. I really don’t know, but I’m just glad that I got in early and that these price movements didn’t wipe me out, other than maybe my taxes.
Anthony: Let me ask you this question too, as you’ve done the podcasts, what’s the number one thing that [00:47:30] you’ve personally learned. We kind of talked about things that other people wrote or did that you found interesting or valuable, but what is the number one thing that you learned?
Clay: I learned, more than anything, how easy it is versus other spaces, to establish a personal brand, to make a name for yourself, and to get access to really smart people. When I started this podcast, nobody really knew who we are, [00:48:00] what we are doing, and I’m not like a huge personal brand in this space right now, but I frequently get emails from Coinbase or Circle. Actually, I got a note from someone in the government saying that they listened to a particular podcast or a particular deep dive that we did. During the peak of early last year, each episode was getting about 50,000 downloads. It’s just insane that some guy here in the midwest [00:48:30] is getting that kind of reach having only gone about this for about a year.
In terms of learnings from the guests, I think there’s a lot of things that we’ve covered and there’s a lot more that I could go into, but I think it really was around the opportunity to make a contribution and how early we really are in the evolution of this space.
Anthony: You’re definitely early. It cracks me up how easy it is to get lost or kind of in the weeds [00:49:00] of the excitement and everything’s being built and all this stuff, but at the end of the day, I think it’s what, less than 1% 4% of all Americans own a crypto asset or have owned one. I think it’s only like 40 or 50 million people globally out of seven plus billion people. To say that we are early, I think would be an understatement.
Clay: For sure. If I flip that question around on you, what would be your answer?
Anthony: Mine is pretty simple. [00:49:30] It has reminded me how amazing people are. I think that when you ever sit down and just talk to somebody about themselves, their life, how they think, what they’re doing, why they’re doing it, etc., you walk away saying to yourself like, “Humans are the fucking most incredible creatures in the world.” Just the complexity of which we are able to synthesize information, make decisions, why we do things, the emotions behind it, how our backgrounds have shaped who we are and [00:50:00] why we do things—I’m just fascinated by it all. The podcast has given me an excuse to convince some pretty smart people to come and let me conduct my little science experiment.
Clay: I can concur with that. I am just blown away by the makers in this space, the people that are spending all their time, day in and day out, creating here. People that could make a lot more money in other places. People that could build more traditional businesses and [00:50:30] you see someone who’s been at Google for 10 years, or they’re fresh out of Stanford, or anything really along the spectrum and they are putting their heart and soul into something that is pretty apparently far off, isn’t likely to become a huge thing in the next 18 months, but they’re at it. That really, really inspires me.
Before the podcast, I didn’t have such a good understanding of really all the risk that’s being [00:51:00] taken in this space in the name of optimism, and I don’t know that there’s a lot of people that think they can launch a rocket and put it into space, but there are a lot of people willing to take risk and willing to transform a system that they think is broken when they are actually empowered to do it. When governments and institutions and all kinds of red tape isn’t in the way. I just am continually humbled and amazed by the work that’s being undertaken in the space.
Anthony: Absolutely. I completely agree.
Clay: Okay, let’s move on to chapter four. In this chapter, I want to [00:51:30] highlight what I think was the best episode of 2018. Although I enjoyed most of the interviews, the interview that stood out and therefore wins this not very prestigious prize in that it doesn’t have a prize at all, but the episode that wins is actually my two-part deep dive and mini-documentary with Nadav Hollander called “Programmable Tokenized Debt Markets.”
In this episode with Nadav, we not only [00:52:00] discuss tokenized debt, but we review the history of debt, different types of debt markets, and how Web 2.0 properties like Linting Club set the foundation for what the Dharma Protocol and the dive ended up doing. If you haven’t listened to this episode yet, I invite you to visit flippening.io/24.
Okay, Pomp. Let’s move to chapter five. We’re going to do a lightning [00:52:30] round of underrated, overrated mostly because I love your hot takes on Twitter. I’m going to name an idea, a concept, a project, and a company and you can tell me if it’s underrated, overrated, appropriately rated, or if you have no comment. Let’s start off with Grin, underrated or overrated?
Anthony: I can’t comment on the nuances of the technology but all I will say is that it is very rare for a company or product to rally up Silicon Valley and have everyone [00:53:00] clamoring to participate, invest, be associated with, etc., this early and it would be long term sustainable. If you work at most of the defining companies of the last decade in tech, many of the them or definitely a majority of them, did not have highly competitive seed in series A rounds.
Remember, for technology to have disruptive impact, they have to do something that’s different, something that’s non-obvious, and they’ve got to be right. [00:53:30] When everyone agrees and there’s high consensus around something, I usually kind of roll my eyes and say, “We’ll see.” That’s not to say that Grin specifically is going to fall into that, but just the math or probability leans that way.
Clay: You look at the series A sizes of Amazon and Google, they’re like three million, four million. These aren’t huge sums of money. It’s surprising how many of these Sequoia was involved in however but, yeah, completely agree. [00:54:00] The next smart contract platform with killer features, underrated or overrated? I wasn’t going to say anything specific. Maybe I’ll say Dfinity.
Anthony: I’m going to say that they’re all overrated because I think that the platform that ends up winning in a much bigger way than people are expecting today is Bitcoin. I fundamentally believe that there will be a flight to quality and when the different chains have feature parity, the most secure, highest adopted chain will have a dominant position and I think it’s going to be really hard to unwind the network effects that [00:54:30] Bitcoin has benefiting from over the last decade.
Clay: Bear markets, underrated or overrated?
Anthony: Highly, highly, highly underrated. I think that it’s fascinating to me that so many people are scared and complaining. I wrote yesterday and I said that, “Bear markets aren’t good for anyone.” Entrepreneurs are tested in a way that they’re not used to, and investors lose money. Investors losing money is upset, emotional, just kind of pissed off, feels pretty dumb. And then entrepreneurs, I think it’s been Horowitz [00:55:00] who talks about peace time CEOs and war time CEOs, right? To a lot of the individuals who went through 2017, what they got to see was kind of a peace time. They got to enjoy a lot of capital flying around, a lot of interest, media coverage, etc. Now, these entrepreneurs are in a war time. Margins are contracting. People aren’t as interested—customers and users. There’s just a whole bunch of issues that [00:50:30] I do think is quite different environment, so the bear market is going to test those people, but it also allows the real entrepreneurs, and real builders to come out on the other end in a much better position than they entered.
Clay: It’s kind of cool to watch some of these funds that have been started in the last few months. Think about the killing that they might make. It’s also interesting to observe the differences between companies that raised money in 2017 or early 2018 versus companies now and how they are [00:56:00] spending and deploying capital. I think about us, and it’s like four engineers and me. I don’t have all these fancy people around me. It’s easy to judge the companies that raised when capital was so abundant and they thought Bitcoin would continue to appreciate and they thought the money would always be there, you know, maybe I would have made some of those same choices, but completely agree that it’s just so important to have good constraints and to be capital efficient as a business.
Generalized mining, overrated or underrated?
Anthony: [00:56:30] I think the jury is still out, right? There are a lot of smart people who have made a number of good points that I find very interesting, and I think have some viability or validity to them. The hard part is, there’s just not that much historical information or context. I think we’re going to see this play out, but in my mind, I wouldn’t be surprised if it ends up playing out, but I’m kind of cautiously optimistic, if you will.
Clay: I kind of see generalized mining as an extension of [00:57:00] this bent that VCs have towards being services businesses. I think there are some investors that do treat it like a services business. If I were trying to bootstrap a crypto network from scratch, someone saying, “Hey, we’re going to do mining on your network.” Or, “We’re going to allocate so much capital to mining these tokens.” Obviously, if we believe in the project and invest in it, then we also believe that there is value for the tokens and it’s a new network and so we’re going to take a bunch of ant miners or whatever they have sitting around and [00:57:30] we’re going to mine this stuff. I think it’s interesting.
I also am dubious though in general of investors in crypto assets that try and approach what they do as a service business without owning equity. I just think the incentives aren’t always there. Actually, that’s my next thing. Value added services that can be provided by investors of tokens, overrated or underrated?
Anthony: What do you think?
Clay: I think it’s really hard to do. I think that they’re a [00:58:00] certain subset of crypto hedge fund GPs that wanted to be venture capitalists and probably didn’t have a line of sight to making it to partner in that space; saw an opening during the crypto boom, were able to raise funds, and in a lot of ways treating it like a traditional VC business. They like flying out and visiting teams and doing things like helping them hire, and maybe helping with [00:58:30] go-to-market plans or whatever they think they’re good at. I don’t know that the incentives are truly aligned when you own tokens that you could sell at any moment when none of this stuff, or none of these obligations are in a term sheet, when there’s no lock up, when there’s no board seat. I’m skeptical of that angle. I think it only lasts until they lose interest and sell and either tell you or not tell you. That’s my opinion.
Anthony: I think that [00:59:00] you’re definitely on to something there. The interesting part is we now see many of these funds and fund managers play out through maybe the tail end of an incredibly almost impossible to repeat bull market. We’ve seen them play out through, let’s call it half of a bear market. Some data points [00:59:30] definitely is better than no data points, but we’ve got a lot more to learn as this industry plays out and we kind of get a couple of economic cycles under our belt.
Clay: The Bitcoin ETF and the impact it will have, overrated or underrated?
Anthony: This is a good one. People are overrating the impact it will have in the short term and probably underrating the impact it will have in the long term. What I mean by that is, it’s not like the ETF gets approved tomorrow and then all of a sudden Bitcoin triples in price. [01:00:00] That’s just not going to happen. What is likely to happen is over a long period of time the institutions will get more comfortable. It demystifies. It brings legitimacy and validation to the asset. It decreases friction to allow them to invest. There’s a ton of benefits kind of medium to long term that we probably are underestimating, but definitely short-term impact, I think we’re drastically overestimating.
Clay: Institutions move slow and this is a path to institutional adoption. Ecosystem funds, overrated or underrated?
Anthony: [01:00:30] Completely overrated.
Clay: How interesting.
Anthony: Name one that has been successful, ever.
Anthony: [inaudible [01:00:35] like ever.
Clay: Yeah. I don’t have much context for ecosystem funds outside of crypto.
Anthony: I’m sure that there are some that have had mild success, etc., but there’s not been many that have been successful and so, again, I just go to the probability that one would be successful is much lower than people realize.
Clay: I thought that for a while too and I still mostly think that. I was talking to someone [01:01:00] who changed my mind a little bit. They were talking about EOS. They were talking about this kind of phenomenon that I think people believe that developers are incredibly rigid and philosophically loyal to one platform or another. They had spoken to some developers who were incentivized by an ecosystem fund to develop on EOS when they were originally considering Ethereum. I think people’s loyalties [01:01:30] are much less rigid and more fluid than a lot of folks would think. That said, it’s way too early to tell and there’s a big difference between incentivizing usage of an ecosystem and actually generating returns from the fund that don’t just flow through the appreciation in value of the asset because people are using it. I think it’s way early to tell. I think having a VC fund or any kind of fund that invests in early stage startups that returns money at all, that is a rare thing [01:02:00] in the history of the world.
Clay: Backed, underrated or overrated?
Anthony: We are very, very small investors so I will say that it is heavily underrated if they are successful.
Anthony: I’m too biased for you.
Clay: Yeah, you’re too biased. No comment if you recuse yourself. Ethereum, overrated or underrated?
Anthony: I’m not sure actually. I think the jury’s still out on that one. There’s no clear [01:02:30] overrated, underrated. [inaudible [01:02:32] different aspects that are overrated or underrated. You can’t really say that for the whole asset.
Clay: I think there’s a lot of things about Ethereum that make a lot of people stop and think. Not everyone knows what to make of it. Derivative platforms or products like DYDX?
Anthony: I think that short term, drastically overrated. I think long term, underrated. The market is [01:03:00] likely to be much bigger than we anticipate in the long run, but in the short run, it’s going to be harder for those types of platforms to gain traction mainly because again, the market is just so small. The thing that’s funny about derivatives is if people don’t understand or want the underlying assets, the derivatives are harder to market. I do think that there is a whole bunch of opportunity there. It’s just not likely to be 12 to 24 months away.
Clay: [01:03:30] Cash settled Bitcoin derivatives, overrated or underrated?
Anthony: I actually think probably underrated just because I don’t think a lot of people understand them or even know what that is. By nature, if nobody gets it, if it has any value then it’s underrated. How do you feel about that?
Clay: As a holder of Bitcoin, I do like derivatives that are settled with the underlying asset. I would be much more likely to use something like LedgerX or something like Backed is going to have. I like that those kinds of transactions actually move the market [01:04:00] and represent a little bit more skin in the game. I think that the cash settled scenarios is a little bit more like betting on a horse, betting on the performance of the horse without actually owning the horse. As a Bitcoin maximalist, I think they’re overrated. As a tool to give institutions exposure to a way to participate in the asset class, I think it’s probably underrated.
Anthony: Yeah, I think that that’s actually a pretty good framework to use for that one.
Clay: Binance, [01:04:30] overrated or underrated
Anthony: Oh man! I was just with CZ in Singapore. I’m going to go with heavily underrated. That’s a pretty big statement coming from, talking about it in an exchange that is one or two in the world in terms of the volume, but the reason why I think that it is so heavily underrated is people are caught up on all of these details of, “What are the assets that are listed? What is the regulation?” And all this stuff.
[01:05:00] This team has executed better than almost everybody in crypto. They’ve built this company in less than two years. They’re doing a lot of revenue. They’re doing a lot of profit and I think that the vision that CZ has specifically for Binance, and for tokens, and crypto in the world, there’s not very many people who believe as heavily or have as big of a vision, so if he is able to accomplish that, I think we’ll look back and be kind of laughing at ourselves at [01:05:30] how much we undervalued or underrated what they were doing.
Clay: Okay. BNB, overrated or underrated?
Anthony: This one’s hard for me because if you had asked me this two, three months ago, I would have said overrated. But now I’ve had a lot of conversations with folks, some people on the Binance team and then actually a lot of fund managers and I think that there’s this underlying sense of there is quite a bit of opportunity in the future and things that they will do with BNB that could prove to be quite valuable. [01:06:00] I think that remains to be seen how much that will play out.
Clay: It’s super cool what they’re doing. They’re taking winnings from their funds and burning BNB. They’re paying their employees in it. People are paying their trading fees in it. It seemed like a gimmick at first but they’re making it real. I think it’s an extension of their vision, and there’s no way for me to buy equity in Binance, so it feels like the next best thing. I agree with you.
Cool. This has been a lot of fun. Thanks for [01:06:30] making time. I really appreciate it. Any parting words or anything you’d like to end with in particular?
Anthony: No. I think the two big things are we are watching an entirely new world get built. It’s super exciting. I am frankly shocked every day that I get to spend time with these entrepreneurs doing all of this. Then the last, I would be probably be heckled on the internet if I didn’t say, “Long bitcoin, short the bankers.” I think [01:07:00] that’s the rally cry.
Clay: For sure. Thank you so much. I really appreciate it.
Anthony: Absolutely, Clay. This is awesome. Thanks so much.
Clay: This concludes my interview with Anthony Pompliano. I hope you’ve enjoyed it. Thank you for listening. We’ll return next week for an in-depth, two-part case study on a fund that decided to [01:07:30] tokenize and found out the hard way through a lot of struggle but they eventually did it, but they found out the hard way what a long and [inaudible [01:07:39] path it would be. Hence, it involves working with laws from three different countries, a team of attorneys and a 100k plus in expenses of all kinds. This case study is going to go live next week and it’s going to be a follow on our Tokenize the World documentary. See you then.
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