Episode Highlights

• The cryptocurrency market is poised for exponential growth as DeFi (Decentralized Finance), NFTs (Non-Fungible Tokens), and the Metaverse continue to mature. These innovative technologies are primed to revolutionize traditional banking systems by reducing complexities and introducing transparent operations, thereby attracting more users and investment as they become more mainstream and user-friendly.
• The adoption of Web3 in enterprise organizations is gaining momentum , particularly through Bitcoin and other cryptocurrencies as they become integral to modern trading and business operations. Companies are recognizing the value of integrating these decentralized platforms into their business models to enhance aspects such as digital identity and supply chain management, tapping into the vast potential of blockchain technology.
Learn more.
• Abra, an emerging player in the new global crypto banking environment, is leading with a vision to simplify the cryptocurrency experience while maintaining transparency and integrity. By enabling Bitcoin holders to leverage their assets for dollar liquidity without the need to sell, Abra presents a novel approach to digital asset management, appealing to a broad spectrum of users from casual investors to serious traders.
• Regulations within the crypto space are starting to bring a level of certainty previously missing, making the market more approachable for institutional players and spurring further market expansion. As the framework solidifies, it provides a safer and more predictable playing field, encouraging greater participation and investment.
• Moreover, global events such as the war in Ukraine, prevailing inflation, and the ongoing energy crisis are creating ripples in the crypto market . These factors are influencing investor sentiment and market dynamics, highlighting the interconnectedness of cryptocurrency with wider economic and geopolitical developments.

Episode Highlights

• Learn how to launch, manage, and grow digital economies on Rally
• Hear why Rally allows creators to keep more value in their own micro-economy
• Learn about the benefits of operating a sidechain including improved speed and security
• Hear why Web3 organizations experiencing exponential growth have the strongest user interface and user experience
• How to stake your subscription, interact more efficiently, and keep money in your wallet while supporting your favorite artists
• The future of social tokens and why growth is on the horizon

Episode Transcript

Ray Chohan: Brian, welcome.

Brian Mark: Thank you.

Ray Chohan: Really excited to have you on the show today; big fan of yourself and Rally and what you guys are building. It’ll be cool to lay the table out really, in terms of your background in your journey into Web3, because we are meeting a lot of Web2 execs who have made that transition, you definitely have. It’ll be great to get your background story, and how you ended up at Friends With Benefits, and then at Rally.

Brian Mark: Yeah, you bet, and thanks for having me Ray, glad to be here. My path is a bit of an unusual one, but it’s been quite a bit of fun. I went full time into Web3 November of this past year. Started working at Rally, where I lead content and education for the team, and also I work on the digital event side for Friends With Benefits.

Prior to that, I was at Adidas for five years, where I worked on a team that supported retailers in going to market with Adidas products, supporting mostly mall and fashion retailers in building their plans. That was Omnichannel Marketing. We were thinking about social, paid media, live events, in-store events, in-store marketing fixtures, CRM staff; really the full suite on working with marketing execs from retailers to help build programs and plans that drove sell through for Adidas products.

Prior to that, my background is in the cycling industry. Started out in bikes, got really into bikes in college, and used that as a way to get into sales, and then marketing, and here I am today. The shift into Web3 for me, started with some exposure that I received at Adidas. The leadership team had put out a call for submissions early 2021, looking for ideas as to how Adidas could stake claim in the metaverse, and in Web3 in interesting and fast ways. Adidas does a great job of open sourcing great ideas, both from inside the organization, and from outside.

I teamed up with a couple other people from Adidas, North America, and we put up a couple plans, one of which ended up being selected and is some of what you’ll see from Adidas today in the metaverse and Web3 pace came from that same work stream. I was lucky enough to be able to work on that while I was at Adidas up until as I left. The big NFT project launched about two weeks after I left the brand, so it was sad to have missed the coming home of it all, but more fun to see there, and more to go as well.

Ray Chohan: Yeah. We’ve had Diego Borgo on

Brian Mark: Oh, I do, yeah.

Ray Chohan: … Episode one, so I know they got a great team there, and I think Ben Mayor White. Yeah.

… Also part of the team there. Yeah, I observed that, and congrats to that team, and Adidas for having the foresight. I hear there’s a story that one of the big names in this space was messaging one of the team there. I caught it, who’s the name of the guy? He’s huge in the NFT community. His name slips my mind now.

Brian Mark: I know that the team from people, the artist people, they were talking with him at one point and just having some pretty wild conversations.

Ray Chohan: Yeah. I think it was someone from the community who was messaging Adidas.

Brian Mark: Yeah.

Ray Chohan: Messaging someone from there, but I think this, oh, God, I’ve got his name completely slips from my mind, but he’s a huge figure in NFT. One of the OGs in this space.

Brian Mark: Yeah.

Ray Chohan: He mentioned, I was pinging Adidas, I was surprised they were engaged, but literally for the first five weeks, I didn’t know if it was an intern…

Brian Mark: Yeah.

Ray Chohan: … Or a exec, literally. I was just going back and forth and just going with it.

Brian Mark: Yeah.

Ray Chohan: The story is, he was in Europe and they popped down to the office and I hear the story starts there. Kudos to Adidas, and all you guys, for picking that up. It seems you guys are one of the big brands to really lean in and get the community excited.

Brian Mark: Yeah. They don’t really do anything halfway, and I think this is a good example of it. Something that I think is maybe not talked about enough with the team that brought that over the line, is that out of the entire project, the actual full-time employees working on that, it was only one or two people whose whole job was working on that metaverse, and the NFT project. It was really skunkworks ad hoc projects for everyone else. It was, basically, just people from the Adidas community, the employee community, who raised their hands and said, “This is interesting work. This is something I want to be a part of,” and that’s how I got involved. I still had my day job while we were working on that. It was essentially just bonus work for no additional reward beyond the work itself, which I quite enjoyed, though.

Ray Chohan: Brilliant. It was that journey with Adidas that sparked the interest, and from a fundamental standpoint, what caught the imagination, because it’s a big ecosystem? What, in particular, made you think, “I’m going to take my career, all in, in this space?”

Brian Mark: Yeah, for me, I’ve spent my career helping connect people and products. What’s fascinating about the world of Web3 today, is we barely have products and there’s not a lot of folks really focused on that connection, that true consumer mentality, or consumer mindset. Today there’s a lot of people in the space who are here because of the technology. They’re excited for what the technology is, and what it can do. The next generation of adopters in Web3 are going to be people who care less about the fact that the technology is the technology, and more about what it can do for them.

For me, the open door of the possibilities, that blockchain technology, and just a rethinking of the traditional paradigms of value creation and value exchange that it unlocks, are really exciting for me. That’s really where, for me, jumping in headlong came from, is a desire to be on the train that I see leaving the station.

Ray Chohan: Yeah. Rally… On to Rally. What do they do? I know they’re in the social token space. The mission for Rally, and I know definitely people, will be like, “What are social tokens?”

Brian Mark: Yeah, totally. Yeah. Let’s dig into Rally. Rally is a platform that allows creators, and communities, to own more of the value that they create. The way that we do that is essentially through tokens.

The two kinds of tokens that we use are social tokens, and NFTs. NFTs, a lot of people have talked about, but an NFT is essentially a one of one. If you have a unique digital object, that’s an NFT. Social tokens, though, think of them essentially as un-unique objects. Any one social token in a batch could be replaced with any other. Sometimes we’ll refer to the tokens as non-fungible tokens, which is an NFT, and fungible tokens; fungible just literally meaning interchangeable.

Thinking about a social token, you could think of them, essentially, as tiny micro-economies of their own cryptocurrency, and that’s how we think about them with our creators, is we’re essentially allowing creators to launch, manage, and grow their own digital economies on the Rally sidechain, through the platform as it stands today.

Ray Chohan: Okay, makes sense. Looking at it from a macro standpoint, what inspired that vision at Rally? Are there some big macro tailwinds where you think right time, right place, and Rally will really capture this vision of social tokens?

Brian Mark: That’s a great question. Rally launched a little over a year ago. It was December 2020 that it first came online, and the founding team, which was also the founding team of the RLY ecosystem, which Rally is a part of a larger group of companies and orgs that are all based on the RLY sidechain. The founding vision was really centered around this idea of helping creators keep more of the value that they create.

If you look today at the dominant Web2 ways that creators connect with their fans, those vehicles tend to be pretty extractive. The best example that I point towards is something like Instagram, where today, if you’re a creator who uses Instagram, you have no way to directly monetize your audience, your fan base, on the Instagram platform. Instagram is making all of the money off of you using their platform and tools.

Another example that I think has been in the news a lot lately is Spotify. The amount of revenue that artists are able to generate from Spotify is pretty paltry, given how much work those artists are typically putting in, in order to make and distribute their music to even get people to listen to it. Then, to be rewarded with, a third of a penny per listen; pretty tough to make a living there.

What we see the opportunity as, I’ll throw out a $2 word here, but to disintermediate those corporations that have been so focused on extracting value, and to instead allow creators to connect more directly with their fans, and to collectively own more of the value that can be exchanged there. The easiest primitives to point back towards, and this is something we spend a lot of time talking about internally, is thinking about how to frame this in the context of things that already exist in the world.

One that comes to mind pretty readily is fan clubs. You could think about something like Patreon, or a product even something like Kickstarter, or a traditional fan club, where people are able to buy in and directly support the creators and artists that they love. I would say that, similar to a fan club, too, a lot of the creators we’ve seen find success on Rally, have focused the platform on supporting and connecting with their top hundred fans, or their top thousand fans. This really becomes a place where your most loyal, and most connected fans, can come to connect and exchange additional value with you as a creator in a more direct way than they might be able to through traditional platforms.

Another good analog is thinking about rewards points or reward systems; something that’s different about a token economy, as opposed to maybe a traditional point system on a platform like Twitch or something like that, that is, the rewards can go both ways. We’ve seen creators who reward their fan base for specific actions for joining their discord server, or for retweeting something that they’ve shared. They can reward their fan base with some of their social token, and they can also then give that same fan base opportunities to spend that social token for rewards, or benefits, that fan base might like or enjoy.

We’re able to create economies that, rather than just driving value from out of fans’ wallets through big corporations, and then into creator’s wallets, we’re able to create economies that essentially have their own closed sphere; their own little economy that can operate within a community. For Rally, their big focus out of the gate has been specifically, communities that center around one creator.

Ray Chohan: Wow. It really elevates the creator to a … it’s a quantum leap in effect, isn’t it, in terms of the direct nature they have with their fans from literally day one, especially if it’s an early artist.

Brian Mark: It really is.

Ray Chohan: That’s fascinating. You mentioned, Web2 was definitely evolved into maximizing extraction, for sure. They were quite open initially, if you recall back in the day?

Brian Mark: Oh yeah.

Ray Chohan: Then rug pulled so many great companies, we know all the stories, right? It just wasn’t a good look. From what you share, it looks like, just culturally, a lot of people have been bitten in the past, and wow, this seems an interesting solution. Evolving into, say, a forward looking lens, this all makes sense, Brian, where you basically have potentially a million micro economies, right? An artist basically has their own sovereignty, to a certain extent, around their art, which is great.

Where do you see it evolving? I know how people, artists, can reward fans with more tokens, or tokens for doing X, Y, and Z. Is it just constantly evolving into special gated access, special privileges, also the online flexing for having X number of tokens for fans? It also becomes a flex, which it’s sad but that’s a part of the community, right? We all do it for thousands of years. So is it a mixture of that, which makes social tokens a compelling capability?

Brian Mark: Yeah, I think what’s most exciting about social tokens, and about the potential applications, is that the applications are in essence limited only by the desires of the creators, and the creativity of the engineers who they employ to help figure out how to make the smart money, or smart objects, do what they want it to, which is a real paradigm shift. It means that essentially, the platform that we’ve built today has been turned into different applications, or different products, by the community. What we see is, thanks to the rich developer network that we have built around the Rally ecosystem, we’ve got people who come up with a great idea that they want to see for their community, and then go out and build that application. Often, then, the application that’s been built is something that’s shared with other creators. They’re able to then implement the same thing if they’re interested in an application there.

Some good examples of this. There is a creator on our platform who has a coin called play coin. He spun up an online arcade full of little in-browser games for people to play, and he allows other creators to use that same platform for their fans. Essentially, there’s a gamification side where you can reward the fans who get the top score in a given game, on a given day, with a bonus of tokens, or a special NFT prize. He built all of this for himself, because it’s something that he wanted to see exist, and has now opened access to it to the rest of the creator network. Other people are now able to use the same.

We also have a really strong network of developers who we put out bounties for, and we’re able to say to the community, look, this is a feature, or utility, we’re looking for. Things like the ability to gate a WordPress site, or the ability to gate a Shopify store with your social token, or with an NFT. Those are bounties that we’ve put out to the community that then developers pick up and help us solve for. Those are utilities that, for us, our focus on NFTs and on social tokens is really on creating abundant utility. We want to make sure that there’s as many ways to use this as there are demands from creators for that utility.

The long answer is, as we look to the future, I expect to see this], and this is essential to the Web3 mentality today, just more broadly, is around composability; the ability to build out of component pieces something that does what you need, or solves a particular problem you have. I believe that we’re going to see that push towards abundance continue to go, and continue to become a center point in social tokens, and in NFT utility, as well.

Ray Chohan: In essence, is Rally really going after a platform play, you guys are trying to be the picks and shovels for anyone who wants to build a social token capability into their creative art or their passion?

Capability into their creative art or their passion.

Brian Mark: It’s a good question. I think from our end, just having the picks and shovels today, I think the longterm answer is yes. I think for right now though, in order to prove the utility of the picks and shovels, the analogy that I use a lot is thinking about building a city. Right now, we’ve got really great roads. We’ve got really great tunnels. We’ve got really great infrastructure that underlies it.

What we’re focused on today now is helping people understand what it takes to build a house on the platform, and how to successfully launch and grow a project. The first few are for sure the hardest. I think today we’re just under 300 creators on the platform, and this is essentially a new way of building for creators and a new approach. The ways that we found creators reach success are as diverse as those creators and their communities.

I think over time, the goal is for us to build enough clear ramps and clear processes, that more people, especially people who aren’t here for the technology as much as they are for the utility or the benefit from the tech, we want to create simpler, smoother on-ramps for Web2 creators to make the transition to Web3.

Because I think today we’re able to articulate the benefits. We have some of the features, but I think that building a really clear one, two, three is really the next big step for us, is helping people really understand what the steps are that they need to take, to bring their community from say Twitter or Instagram or Facebook, wherever their community lives, to bring that community to Rally is the next big leap for us, helping educate that next generation of creator.

Ray Chohan: So this blending of features, what’s the Web2 analog, if you could use one, on where it’s going?

Brian Mark: It’s a good question. I think that blending of features, I would think about composable apps that exist online today. I would say that some of those are actually the earliest versions of a decentralized ethos that we have. I’m thinking specifically about Slack and all of the Slack plugins that exist. I’m thinking about WordPress sites and the number of integrations that exist there. Discord is a really great example with how reliant they are on bots for added utility on Discord servers.

I think what all of these have in common is that the core team has done a really great job of building stellar products that feel like a cohesive thing. It’s clear what the inherent utility is, but then they’ve partnered with externals and given really a big stack of resources, as well as keys to the API, keys to the back end, to be able to empower the developer community to build what the community dreams of, to build what the community wants for that platform.

I think that WordPress is actually probably the most pervasive example. The amount of integrations and how reliant most WordPress sites, WordPress shops are on external integrations, is to me a good indication of how ready consumers are and how easily many people are beginning to understand how we can do Lego building of processes and products.

It’s no longer I think that the age of the beautiful super slick one-stop shop tech product. An analogy that we use internally and I like it personally is, we’re not growing a tree here. We’re not building one big, massive thing. What we’re doing is we’re helping foster like a mycelium network, a mushroom network that grows in a distributed way.

We want to be that thin layer that then can allow multiple mushrooms to pop up where they need to, essentially building a wide and flat structure, rather than something that’s really tall and massive.

Ray Chohan: That makes sense. And so in terms of where you guys are heading, so it seems like you’re at this phase, I think Chris Dixon from a16z, done a really good essay a couple of years ago, where he’s mentioned everything looks like a toy, and it’s a toy which people play with on a weekend. And that becomes the next big industry or the next technology primitive.

Are you guys at that phase now where you’ve got 300 creators, but you’re still trying to find that one or two killer use case where then you get mass adoption, where people go, “Look, I get it. I get Rally. I’m going to Rally for these two capabilities. I’m launching my social token because I can very quickly and very easily get this incredible utility.” Is that the current journey you’re on?

Brian Mark: We’re at a really interesting spot along that journey. I think today, the people who’ve found the most success on the platform are the ones who’ve cracked open the product, are essentially hacking their way through it. And for some people that’s really fun and the rewards are there. As a platform, Rally distributes over $2 million a week in rewards to people who hold the tokens. It’s massive. It’s an incredible sum of cash. These are rewards being delivered back to people who are holding tokens and the creators that they’re supporting.

Thinking about, and with just 300 creators on the platform, there’s a lot of centralization, a lot of opportunity there for people to find growth. I think what’s interesting that you pointed at is that idea of, what’s that one killer use case that’s really easy to understand, easy to onboard for and feels well packaged?

I think that that’s really the moment that we’re in, is an exciting one in that we have killer infrastructure, we’ve got those great roads, bridges, tunnels. Now it’s a matter of figuring out how to make really clear to people, what are some specific use cases that we can build the right tooling for, from an engineering side, and can also build just a stellar stack of education and on-ramp tools for people who might not be already in the Web3 space?

And with my role in content and education, I end up being the tires of our car. I spend a lot of time thinking about how we can end up… At the end of the day, whatever we build, we have to be able to explain it to people who may not give a hoot about the underlying technology. What they’re interested in as people, as creators, as business people, is what it can do for them.

I think that relentless focus from a product perspective on utility and on clarity and utility is the infection point that we’re at today. We’re really focused on figuring out how to package and clearly communicate stellar utility for specific smaller target audiences.

I’d encourage, if folks are interested in more about where Rally is heading this year, on the Rally Association Forum, our CEO Bremner Morris put up earlier this year, a really great vision doc that points at where we're heading in 2022. And it centers a lot of what we’re talking about here, just with regards to utility, specifically around expanding utility for creators, but also on that idea of getting just sharper and cleaner on how we communicate the utility that we’re building towards.

Ray Chohan: Definitely. It’s great you guys are building out the education framework. I think that’s key in terms of what you’re doing and packaging it and make it really clean and simple. Because I think we’re getting to a phase, I know we’re really early, but you see a couple of folks getting really itchy on, “Just show me the outcome. I’m not really here for the tech. But if I used to use YouTube, I am on Spotify, but if you show me this wow outcome, I’m all in.”

But to your earlier point, this is fascinating, and congratulations to you and the team. So you mentioned you’re doing $2 million in awards per week of 300 artists. So could you unpack, is that just the actual appreciation of tokens that fans hold or is that additional kickbacks they’re getting for doing X, Y and Z for the creator? What does that look like?

Brian Mark: We as a company are incentivizing our creators and their fans to join the platform through a program that we call Rally Rewards. And there’s a very long white paper on the site as to how the rewards work and are calculated. It’s complex, but at its core, we essentially have a growth fund that we are empowered to use, to help drive additional people into the ecosystem and to reward the kinds of behavior that we want to see.

And so the kinds of behavior that are rewarded are the sorts of things that are positive for a micro economy. We want to see people using the token, so exchanging value with each other. We want to see people holding the token, locking up essentially and keeping money in the ecosystem. We want to see growth. We want to see people adding additional wallets and additional holders to their community.

And so in exchange for helping us grow the platform, we’re able to reward the community with those incentive funds.

Ray Chohan: But it’s a great way to get over bootstrap the… Well, not bootstrap, fund that classic cold start problem.

Brian Mark: You’ve got it. And it’s a huge difference between Rally and other social token platforms. There’s a lot of services today. You and I, while we sit on the phone, we could pull up a site and mint a social token. You can mint it on mainnet. You can mint it on a sidechain and then you have your token.

I think the challenge for a lot of creators is, how do you put any liquidity behind it? How do you make it worth something, is essentially the core question. Some creators, if you mint on a service on mainnet, the services, well, they’ll give you instructions and basically say, “Look, if you put 50 or 100K in lockup behind this, you’re going to make each of your tokens worth a penny or two.”

What launching a token on Rally does is we use an automatic market maker called a token bonding curve that essentially allows us to have immediate value and permanent liquidity in tokens. As a creator launches their economy, the token is worth something from day one. That’s great. It’s great for the creator because it means that there’s immediate value for them. It’s great for their fans, because it means that if they come in, there’s the opportunity for fans to come in early and really invest or to bring money into the ecosystem at a lower cost to the fan.

Essentially, being early is its own reward. If you come in and support a creator early on, you may be able to buy that token at a lower price than it ends up at later on, which is great.

Ray Chohan: What do you mean the bonding curve? It’s tethered to another digital asset, thus, accruing value. Uniswaps are big AMA out there, in terms of the defi space. Are you guys coming over that cold start problem on bringing liquidity by composing in some form of very micro form factor of defi?

Brian Mark: That’s right. There’s a good connection there to it. Rally operates on a sidechain, and being on the sidechain has a few benefits, speed of transaction, security. The carbon impact is a lot lower as well. One Rally transaction is about the same as one tweet, which is great.

But for us, on that sidechain, when creator coins are purchased, essentially the underlying value is RLY. It's the RLY token. And that RLY token is traded on mainnet. It’s also now listed on Solana. You can get it there too. And that RLY token, essentially buying a creator token locks up a proportionate amount of RLY.

So from our side, there’s essentially an underlying asset in RLY that we can use to provide value for the economies as they grow and grow.

Ray Chohan: So that RLY token then can be used in OTC markets, just as confusing nuanced defi world-

Brian Mark: That’s right.

Ray Chohan: Where you’ve got the money markets, but then that, a tiny fraction of that can then accrue back directly to the fan token, to come over that cold start problem. And say to a fan, “Look, off the bat, your token’s are already worth

Brian Mark: Something. They’re worth something which is great. And it gives people some things-

Ray Chohan: It’s amazing. This is ecosystem so… It’s amazing. Isn’t it?

Brian Mark: It’s just wild.

Ray Chohan: You can do this unique financial engineering with linking into the world of defi and the AMA markets, which God, they’re confusing to everyone, aren’t they, what happens on the back end.

Brian Mark: It really is. Our white paper for it is fantastic. I think it’s about 30 pages long of how the token bonding curve works, and our head of product the other day was like, “All right, can you help me get this into something that’s about 30 seconds? Can you help me get a good 30 second explanation of how our token bonding curve works?” And my immediate question back was, “Can you tell me in 30 seconds how it works?” And the answer was no.

I think that this does though point to some of the challenges is that, some of the challenges in Web3 and in communicating what we’re building and what we’re doing, there are a lot of people who are curious about the space. I think that because of how transparent so much of what’s being built is in Web3, if you click in one or two clicks down from the homepage of most websites into their white papers, into the back end, there’s a lot there. A lot of it’s really complex.

Transparency has its ups and downs. I think one of the upsides is the information’s there if you want to see it. The downside is that we don’t have a lot of those same walls built around information that exist in a lot of traditional tech orgs, where if you ask Facebook, “Facebook, tell us how your algorithm works,” they’re not going to.

And whereas here, if somebody asks, “Hey, tell us how your market maker works,” we’re going to show you the white paper that sits underneath it. I think for people just coming into the space, the amount of information can be really overwhelming. That’s really, in thinking about my role in content and education, it’s figuring out what are great analogies to use? What are great use cases to show? What are great ways to explain complicated concepts in simple and easy to grasp ways?

And then also, this is a really fun one for me as somebody who’s for sure fallen down his own rabbit hole over the last year, what are the opportunities for continuing education for creators and for their fans? If people are interested in going deeper, I think we should encourage that. The next generation of great minds in social tokens and in defi and in Web3 generally, are going to come from people who are coming into the space with a lot of questions and with a lot of experience from outside the space.

I’m really eager to figure out how to smooth the on-ramps for creators and for their fans, because I’m long on the space generally, and think that it’s up to the people who are here today to help figure out how to explain all of the wildness to more people who are coming.

Ray Chohan: You see, Brian, you raise a fascinating topic here, because this whole space and the primitive of the blockchain, it’s open, permissionless by nature. That’s the beauty of it. But when you’re trying to scale a business and trying to attract customers, it’s a double-edged sword. Because you could now have an artist go and download the white paper, get excited, but then back off, because they just literally freak out and go, “Oh, what’s this bonding curve thing? What is the underlying of RLY?” It can then sometimes confuse the situation.

Do you see a time where this is just…

Do you see a time where this is just literally abstracted out, just like this call today, like we’re using this Squadcast app. We could have been using Zoom. We don’t really care what’s happening on the back end, right?

We care about the outcomes, like clean connectivity, clear sound, no breakout. Do you see us getting to that point where customers actually don’t care and even want to know what’s happening backstage, they just want to care about an efficient outcome?

Brian Mark: Yeah, I really do. And I think that it’s one of the challenges that I think we face today is so much of the narrative in the press has been around the kind of big, shiny objects. It’s about apes. It’s about the Ethereum price. It’s about all of that.

money is fun to talk about, especially when people are making a lot of it or losing a lot of it. Because the other narrative that we hear, some of this people getting very rich from crypto stuff, the other is all of the scams and kind of like the negative side of it, which exists as well.

And I think what I’m hopeful on is that over time, the technology itself becomes less of the topic of conversation and sublimates. It kind of falls into the background, the same way like what you’re talking with Squadcast.

There’s for sure a lot happening under the hood here, but what we see is a really beautiful and really smooth user experience. The user experience in Web3 right now, and I think this won’t be news to anyone who has a crypto wallet or who’s purchased an NFT, it’s a little kludgy. I know.

I would go as far as to say that most of it is not consumer grade. And if you look at the organizations who are driving the most growth in the space, they’re actually the ones who’ve built the strongest user interface then the strongest user experience.

I’m thinking about OpenSea. I’m thinking about Coinbase. I’m thinking about Foundation. Some of the bigger NFT platforms have done a great job of productizing something that otherwise is just a sea of contracts and information and makes it shoppable, makes it browsable, makes it feel, frankly, a lot like the Web2 platforms that we’re all used to.

And that comes with its own risks in the sense that there have been some critiques of these larger platforms that they maybe run against the ethos of Web3 and openness and decentralization.

But like with that said, being able to access blockchain technology in a way that feels familiar, safe, and comfortable to more users is a benefit and an end in and of itself, I think.

Ray Chohan: I mean, you can see it. I couldn’t agree more, Brian. I was listening to the VP of product at Coinbase. Everyone knows they're launching their marketplace soon, which will have more curation and a social element to it.

And they’re very much going for payment rails, which are Web2, where you can just buy your NFT from your Visa or debit card and off you go. And they’ll even do the custody for you. You don’t have to have your own wallet.

So you see the big juggernauts, and Coinbase are definitely the granddaddy when it comes to exchanges, they’re actually leaning on some of the principles from Web2 just to enable that big mass adoption and that gentle on-ramp.

Brian Mark: I don’t know that that’s a bad thing. And I think that there are going to be a lot more platforms that maybe push people further out of kind of where they’ve been and bring them into kind of a new mode. But I think that for the time being, the technology still remains very tangible. The technology has not disappeared.

I think what I’m excited for is the moment when we can collectively start talking more about the utility that sits behind NFTs and social tokens than talking about the digital objects themselves. And for me, that aligns really well and it’s part of what I love about Rally is the mentality that Rally has opted for with regards to NFTs is one of abundance rather than scarcity. Today, the dominant narrative on NFTs has been some of these are very rare, so some of them are very expensive.

And it’s been more focused on kind of the commodification of rare items and then the value that that creates than it has been on what people can actually do with those items. And so what I mean by that, if you think about the utility that a digital item could offer, we tend to think about it at Rally in four buckets.

There’s keys, tickets, badges, and collectibles. And each of those, a key lets you into something permanently. A ticket lets you in one time. A badge shows that you were somewhere or did something. And a collectible is just that, it’s something that you want to hold on to.

I think what’s interesting is NFTs can be any of those or all of those or some combination. Because of the composability and the codeability of the objects, you can even change the functionality of digital objects over time.

So something that starts out as a key could be sunset at some point. Let’s say it lets you into a private Discord server. You could at some point turn off that access and then it just becomes a collectible.

But let’s say later on it’s something that people will look back on and say, “Oh, that’s a badge that I was there in season one of Ray’s private Discord.” It’s really interesting to think about how digital objects can kind of change over time.

But I think to really point back at that idea of abundance over scarcity, I think that in the future, we’re not going to have one or five or ten NFTs. I have a feeling that NFTs will become everywhere. Any digital object that’s permanent and is bound to us will likely be something that that gets brought on chain.

And I think that over time, we just won’t talk about it as much. There are some really great examples of the potential here in things like Ticketmaster, thinking about the ability to send and receive tickets securely online, it feels like a place where it could happen already.

And even if you think about digital goods as they exist, the fact is companies like Ticketmaster are likely using some sort of a database that would look an awful lot like a blockchain, it’s just not public.

The only people who could edit that Ticketmaster database are Ticketmaster themselves. And so I think really, people talk about cryptocurrencies or blockchain technologies as though it’s magical. And in reality, it’s simply a public ledger.

And so any data set that’s currently held by a private entity could potentially be made public and validated and secured the same way that blockchains are in order to allow additional utility to emerge.

This is all kind of a very long way of saying I think that we’re going to end up in a place where NFTs and social tokens become a more pervasive part of our daily lives, whether we know it or not. The technology has utility that extends beyond the current thinking around scarcity.

Ray Chohan: Yeah. I love the way you break that. It’s what you are doing there with content and education, Brian, which makes a massive difference, where you use the analog of tickets, collectibles, badges. That makes sense to people instantly, right? “Oh, I get it. I’ve used that many a time.”

I think what people will have to learn slowly is, well, what I actually own digitally can actually change. So it was a key, now it’s a badge, or it’s a key to even more access than I originally purchased.

Brian Mark: Totally.

Ray Chohan: I think digital assets will now enable humans for the first time to own something which actually morphs while they’re owning it, which is quite a unique feeling.

Brian Mark: It’s really wild. Yeah.

Ray Chohan: It’s wild, right? I bought this in one way. Now I’ve got keys to this kingdom. Wow. Who would’ve thought that two years ago?

Brian Mark: I mean, an example that’s definitely of the moment is the launch of the Bored Ape Yacht Club ApeCoin.

Ray Chohan: Yeah. All over the news today.

Just to speak all over the news. That’s actually something that we at Rally have been talking about a lot is that we think that we’re going to see a swell of NFT projects embrace their own social tokens and embrace their own coins.

Because frankly, now the social token that more people have heard of than any other social token is ApeCoin. It’s a coin that started from a place of community and a place of connection rather than starting as its own blockchain or its own kind of new native L1. It is a social token.

It’s a token that was granted to members who held specific NFTs. Also some of it was made available for public sale. Something that we’ve talked about a lot is the idea that NFTs are great at being objects of permanence and objects that can hold value.

They can be of value themselves, but that value isn’t exchangeable. There’s no liquidity in an ape. You could have a Bored Ape in your wallet today. You could maybe find somebody who would lend you money based on you holding it, but you can’t give somebody 1/1000th of your ape, at least not easily.

What layering on a fungible token, a social token on top of it does is it gives that community now the ability to exchange value in a native currency and to build incremental value in that project and in that token.

So all of a sudden you’ve got a project that there’s a ton of value in the Bored Ape community. And we see even with the price of that token, that token is inherently worth $0, but it’s today trading, up over $12 a coin because people collectively believe in and want to hold something that’s a fractional part of this bigger project. It’s wild.

Ray Chohan: Yeah, it is wild. So in this microcosm, your NFT becomes your store of value. You don’t want to trade it. You could fractionize it or lend it. And the actual social token becomes your medium of exchange.

Brian Mark: Totally.

Ray Chohan: So you’ve actually got the analog of gold, and dare I say it, dirty word for this, fiat currency.

Brian Mark: Totally. The analogy that we use a lot is it’s digital goods and digital money, but it is kind of that same idea of, what’s the thing that maybe has some more permanent or intrinsic value or utility? And what’s the thing that you use to exchange parts of that utility or to purchase incremental utility? And that’s where the means of exchange or the social token can come in. It’s really stellar. Yeah.

Ray Chohan: The way you frame that is brilliant. But I still think there’s loads of people saying, “Okay, Brian, I get it. It makes sense to me,” especially folks who are already in Web3. Look, where do you see the real utility?

Because I’m sensing people are going to be itching for that wow moment soon. So I know Bored Ape have launched their coin today and they’re doing some brand pieces, but it’s still speculative at the moment. It’s like Uber speculative.

And nothing wrong with the Bored Ape community. I think it’s interesting what they’re doing. But I did watch their I think original founders talk on YouTube. I turned off in 40 seconds. I didn’t know what was going. There was no context.

It was all just broad words, but no meaningful meat to the conversation. So I couldn’t watch it anymore. I just couldn’t handle it. Because I was like, “There’s no point here.” It was becoming cringeworthy. You could see the comments afterward. I don’t know. It wasn’t presented well.

I felt they could have done a lot sharper job. Other communities have represented better. Because you mentioned obviously Rally, you guys are doing a great job. 300 artists. Kudos. $2 million a week in terms of activity on the platform.

But you mentioned earlier, people are trading, like you’re seeing that velocity in the market. A, what’s happening at Rally? What are they going back and forth on? What are they purchasing? But in a big macro context, what do we need in terms of utility to have that wow moment? What’s coming soon?

Brian Mark: That’s a good question. I think regarding utility today on Rally, the best examples that we’re seeing are ultimately it’s creators giving their communities additional access to what they’re interested in already, essentially allowing us to help capture and connect the love that fans already feel for the things that they’re fans of.

So the best example is we’ve got an analog synth musician named Colin Benders. He has VCA coin on our platform. And he token gates an archive of longer cuts than he offers on YouTube of sound banks that his members are free to use. And essentially, if you hold X number of his tokens, you’re able to get more of what you already love. So I think that’s a really great one and that’s probably the most common is essentially just rewarding fans with more of what they’re already into.

Ray Chohan: So just pausing on that one, Web2 has that equivalent, right? So I’m a member of say a couple of intelligent services and they’re always saying, “Ray, upgrade with premium. We’ll give you more content because I can see already what you joined.” So it is a version of that, like premium access. Is there anything different?

Brian Mark: Two pieces there. I think one is a subscription model’s really different than a hold-to-access model. You’re giving them money and that money leaves your wallet and goes away. The difference is to access the content that Colin or others are sharing, you just need to hold the tokens.

And holding those tokens could potentially, if the token is earning those rewards that we generate, could earn you additional tokens that you’re then able to hold onto or do something else with.

The token price can also move. Token price can go up. Token price can go down. But you’re essentially rather than buying a subscription, you’re staking a subscription is I think a good way to think about it.

You’re keeping money in your wallet that gives you access to things. So if at some point you decided to walk, you’d walk with what was still in your wallet afterwards. Nothing being spent essentially is a big difference.

Ray Chohan: Makes sense. Yes. Staking as a service is something we’ve looked at. I find that fascinating that evolution from subscription as a service.

Brian Mark: I really do too. And if you want to think about proof of enthusiasm, for me as a fan it’s really important. I would I think be more willing to put $100 into an account and leave it there in perpetuity in order to kind of show my fandom for someone than I would be to write them a check for $100.

That feels like it’s an interesting flip. And I would potentially lock up more of that kind of staking funds against creators who I love than I maybe would sign up for a subscription service. So I think there’s something to that.

The other one is the exchangeability, the ability for creators and fans to exchange value, not just in one direction, but to move that money around. So we’ve got some really great communities where the community managers…

Let’s say you’re a streamer. A lot of our strongest creators are streamers on Twitch. And Twitch gaming streaming platform, a lot of the communities there, they’ll hang out in the Twitch chat, but Discord servers are really popular for people who game.

And there’s Discord servers. They can get a little wild. There’s a few things that rallied us to help gel communities together. One is you can use your tokens to gate special neighborhoods of that Discord so that only certain people can kind of come in based on their token holder status.

You could do it with NFTs or with the fungible tokens. You could also though within Discord gift other members tokens. So you’d be able to kind of exchange value with members within the community via a bot that we’ve built specifically for Discord.

You could also, and we have some creators who are doing this, pay your Discord moderators. Let’s say you bring one or two community mods on. You could pay those community managers in your native token.

The ability to reward people who are fans for behavior that benefits your community in a token that benefits your community, it’s essentially creating closed loop or circular economies where people are able to, as new value comes into that, keep that value within the ecosystem rather than it leaving or becoming kind of part of a subscription or part of something that’s extractive.

I think a lot of our creators are thinking about what they’re building on Rally as something for the long haul, rather than a way to kind of pull money from their fans. It’s not a Patreon or a Kickstarter analog. It’s much more building something in tandem with their community rather than a vehicle for extracting additional value. I think that’s probably the biggest shift in thinking about what this does for the creator economy. It allows creators to own more of that value they can create for the long term, rather than for the immediate.

Ray Chohan: This is fascinating, Brian, because what you’ve described there is the base layer of staking as a service as a concept, just having skin in the game and being vested, which is why human nature encourages typically healthy habits or thinking long term. But also if you look at big picture, I’m getting a bit wild here, but this is an exciting vision for Rally, say you’ve got a mega artist scaling on Rally from day one. They’ve built a large community. They’ve got X-number of followers, X-liquidity in their micro economy, you then actually have the mega fans who are big holders, or even the medium fans who are medium holders, potentially building a career within that micro-fan community by recruiting community managers, encouraging good behaviors, encouraging more building of capability. A mega fan who’s early and the community scales have huge opportunity for themselves while being passionate of the original artist.

Brian Mark: You’re dead on. I think that it connects to something that we talk about a lot, which is that the creators who live in this space, they are good at what they are good at. If you’re a gaming streamer, you’re a gamer and you’re somebody who connects with your community. People are there not because you’re a great Discord moderator or because you’re a great graphic designer or because you’re a great email marketer, they’re there because of you are the product. In order to be successful with that product with your community, you likely need a little village around you. I think giving people a shared incentive way to compensate or to collectively build is a real unlock in this and a really different approach from, I think, the traditional approach to building in the creator economy.

Ray Chohan: I mean, this takes the game to another level because in a way, the artist is the original canonical. I think there’s a project called Loot you do this with NFTs where it’s just an original narrative, which could be just two chapters, and people build on top of that and it takes on a life of its own. You could have an artist who’s doing great content, and probably always doing great content, but then doesn’t mind that community evolving into something that we can’t even imagine because you’ve got all these smart people who have got their own superpowers, who also love the artists, but building on top of it, around it, and that could evolve into something else. In a way, software’s eating into fandom.

Brian Mark: Yeah, absolutely. I think that idea of co-creating with your community is the other unlock because I think it’s easy to talk about it in the financialized terms of like, “Oh, we’re sharing value from a token perspective,” but in reality, it’s the ability for your fans to elevate what they want to see from you and for you to respond and for you to say to your community, “Here’s what I want to see from you, my community,” and to let them respond in kind. I think there’s just the massive opportunity for exchange of information and exchange of ideas, in addition to the value that these communities can create collectively.

Ray Chohan: It makes sense. God, I mean, the design, the surface area for this, Brian, is crazy.

Brian Mark: It is crazy.

Ray Chohan: What are some of the wild things? We’re having a bit of fun part of it because at PatSnap, we’re all about innovation. A lot of our customers, our world, they’re all working on breakthrough innovation, be it life sciences, be it aerospace defense, be it building things in space, literally manufacturing things in space. We’re in that world as a business. What are some of the kind of blue sky things, which make you think crazy, but I think it could happen?

Brian Mark: Oh, I mean, I think that the sky really is the limit here. What gets me excited in this space is so right now where Rally’s been building, and I think where the social token economy is today, has been centered around individuals or around kind of single projects, single people. I’m interested in what happens if we start to build, or start to see the emergence of, headless token communities. Communities where you can take some of the thinking around DAOs, decentralized autonomous organizations, and layer that into the social token economy. Essentially thinking what happens if we have a community who pull together because of a shared interest, shared value, shared beliefs and allowing them to kind of co-build around a token? It shifts it from there being someone in the middle of this circular economy to instead the people who move to the center organically becoming that nucleus, becoming that core. There’s wild, wild opportunity there that feels pretty blue sky to me.

I think the other one though is just continuing to expand on composable utility and NFTs and thinking through what the next generation of NFT technology is going to look like from a coding perspective. The ability to send and receive non-transferrable tokens at some point, the ability to send somebody in NFT that can’t leave their wallet, the ability to send NFTs that engage with smart contracts based on timeframes or based on external constraints, imagine something that changes based on an external reference. Something happens in the stock market or something happens in the world and something you hold automatically adjusts or changes.

Ray Chohan: There’s a business call, I think, Athena.ai, which are talking about building in machine learning and computer vision capability into the NFT primitive. Then-

Brian Mark: Wow. That to me is really there’s another level coming there, for sure.

Ray Chohan: That’s another game because-

… then you’re sleeping at night and your NFTs on X Protocol, but it’s finding data or connecting with other communities to build value. It’s off the chart. I mean, I think we’re embarking, obviously, we’ve definitely been orange-pilled, blue-pilled, quite what have you, on this call, but I think we’re believers. But I think some of the early signals, I know we’re thinking very wacky and just having fun with it, and that’s what it’s about, letting the imagination roam free. That’s where all great things start. I think the design space is massive.

There’s one project actually, which I think is an indirect competitor for you guys, but went about it completely different, BitClout, who just were this, it seemed like an annymized community tethered a famous name to your coin and then allowed people to claim their profile. Is that a similar kind of concept of social tokens, but just going about it in a different way to Rally in a nutshell?

Brian Mark: Yeah, I think it’s a pretty wild one. I think that it’s probably, while they might be neighbors to us, it feels like we built our houses differently. I think we built ours from the foundation up, which is I think the right way to build a house. From our side, that the focus is on individual creators and allowing them to really shape and build their economy. I think the BitClout story, it's an interesting one. I think it’s a really different approach to take though.

Ray Chohan: Yeah, a different approach. They just kind of threw it out there and then kind of people, peer pressure claimed it.

Brian Mark: Totally, yeah, yeah, totally.

Ray Chohan: Because it is an interesting one, but, I mean, in terms of final points, Brian, bull case for this year, where do you think we’re heading in this space? When do you think social tokens, ApeCoin was out today. I think that will get in the zeitgeist. That’s going to be great for Rally, I personally think-

Brian Mark: Agreed.

Ray Chohan: … in terms of this phenomenal news. Do you think this is the summer, we are approaching summer soon, for the social token? Last year was all about NFTs and NBA Top Shots, I think hit the trigger and the rest is history. Do you think this is the year of social tokens?

Brian Mark: Yeah, I’m long on social tokens, perhaps for obvious reasons, but I think the best bull case that I can see for social tokens becoming part of the dominant narrative in Web3, kind of in this narrow world, is the rise of things like ApeCoin and that desire for fungibility and the desire for collective value creation within, specifically, the flagship NFT projects. I can just about guarantee that what we’re seeing with ApeCoin will not be the last of kind of the blue chip or bigger and brighter NFT projects who mint their own social token this year.

I also think that the social token phenomenon, it’ll likely be a slower burn than something like NFTs. Where with an NFT, the value can be really apparent for, especially based on the buying and flipping and kind of the commodification of it for a lot of people, I think that’s part of why it hits so fast this year is that gamified, or almost gambling, impulse that it connects to. Social tokens tap into a similar desire, kind of a basic human want, but it’s a different one. I think that desire is one of belonging and one of collective ownership. It’s a really unique feeling to join a community and to own part of something that you’re building with other people.

It’s something that I’ve experienced a few times over the last year in the Web3 space. It’s a really powerful feeling. Collective ownership is pretty magical. I think that it’ll be something that once people get a taste of, and once we see a few kind of big projects like ApeCoin, but also potentially like other creators who are higher profile picking up in the space, I think we’ll continue to see people build appetite to be a part of something larger.

Ray Chohan: Do you need that little kickstart now, a big name, joining like a Rally, like a Drake, for example, saying, “You know what? I’m in. I’m going to do this on Rally.”? Is that a moment that would be helpful just to get it going in terms of massness?

Brian Mark: It’s really interesting. I think there’s, for sure, merit on kind of both ends of the creator spectrum of having somebody come in who is huge name, huge fan base, huge audience. I think it would drive a ton of sign-ups. It would drive a ton of new onboards and people who are new to the space too, which ultimately is something I’m really passionate about. I think that the creators who we see find the most success with Rally do tend to be those who are really leaned in and focused on making this the centerpiece of their economy. As a result, for a bigger creator to find kind of bold success on the platform, I think we would want to see them really commit to making this a centerpiece of their economy.

We’ve got some bigger profile names on the platform who are using social token holding as a gate for early access to tour tickets. That, to me, feels like a really good sign. If we were talking to a larger musician and they were willing to say that, “Hey, if you hold our token, you’ll get first shot at concert tickets,” that feels like a pretty good read to me that they’re leaned in.

Ray Chohan: I think Gary Vee has done that with VeeFriends. You’ve got X commitment, three years to the VeeConference. I think stuff like that’s really meaningful on the event side. But, Brian, I mean, we could go on for ages. This has been fascinating. Thank you so much. I think you’ve really enabled our audience to get their arms around this new world. It will be great to do part two maybe in Q4 and see where we are.

Brian Mark: I’d love to. It’s been a pleasure. Thanks for having me.

Ray Chohan: Nice one, Brian. Take care.

Brian Mark: Hey, take care. Bye-bye.

Episode Highlights

• Explore the opportunities in blockchain moving from Web2 into the decentralized world of Web3
• Thirdweb, bringing the ability to mobilize and incentivize communities towards social goods in an inclusive atmosphere
• Thirdweb’s Mission: reduce complexity of web3, tooling for developers, provide seamless innovation space within web3, as well as updated and unique mechanics
• Reduced complexity in web3 enables builders and developers to focus on business logic, while cutting out the middleman
• The upside of dashboard: permission access and simplified on-chain analytics for no-code or low code builders
• Music is disrupting web2 and how web3 allows for artists to make a livable wage
• See what companies are taking huge leaps into web3, and what’s holding others back

Episode Transcript

Ray: Pat, welcome to Frontier3. Great to have you on the show today. And it’ll be great to kick off from your story really, in terms of your professional journey and how you got orange pilled, red pilled, blue pilled, call it what have you into the wacky world of Web3, Pat.

Pat Kearney: Yeah. Thank you so much, Ray. It’s a pleasure to be here and I’m honored to be a part of the Frontier3 podcast. It’s been an up and down journey, I’d say. I started off my career in finance working for Merrill Lynch and UBS and a brief stint in consulting, and then got the entrepreneurial bug working for Epidemic Sound, a Swedish based music licensing startup, which is now I think well over a billion dollars and had an opportunity there to really grow their operations here in the US. Since then, it’s really been no looking back. Growing ventures in that early stage is arguably one of the most exciting opportunities you can have as an employee and to really impact the overall vision of the company.

And that led me eventually to agency-side, working more on measurement and facilitating one to one touchpoint experiences between brands and their stakeholders, what has become very much known as experiential marketing. And I think that foray into the measurement side and really working with brands to prove the ROI to their upper management and making sure that they’re focused on their goals and objectives eventually led to a foray with Superplastic, which is a collectibles brand similar to a Kidrobot, Funko, Kaws, but very much rooted in IP. So they’ve created characters that have social profiles and have their own personas, their own lifestyle and content that they’re putting out. And initially that manifested itself in the form of physical collectibles. And so this was right around the end of 2020.

I vividly remember being on a call with my colleagues and a couple of agency partners out in LA and one of my colleagues just dropped the term Web3 in the conversation. And I paused at that point and I was just like, “What in the world? Is this an app? Is this a brand?” And I remember for the rest of that day, diving deep, deep down the rabbit hole, as I’m sure yourself and many people as they take that first step and getting lost in a variety of Reddit threads, articles, Twitter threads, and come to find out it’s becoming this term that now is much more mainstream, but describing the iteration of the internet in a more decentralized capacity.

Ray: Excellent

Pat Kearney: And once I saw that and you started to see the writing on the wall with NFTs at the end of 2020, Nifty Gateway and all the other platforms that gained popularity in early 2021. And from there it was just off to the races I think. As you extrapolate the market in general, I could get lost in DeFi in and of itself, but NFTs in its own right is incredibly exciting. And then I think even more so recently, DAOs obviously have captured quite a bit of the conversation.

Ray: So Pat, really it’s Q4 of 2020, you’re on that call with a couple of folks in LA and someone just drops Web3, and then you go down the rabbit hole? But obviously the ecosystem is absolutely massive and there’s so much nuance. We’re still super early from smart contracts to NFTs, to just different forms of blockchain capability. I mean, last week, I think I saw athena.ai, which now will bake in advance NLP and machine learning into NFTs. That just blew my brain and I was like, “God, this is too much to absorb. I just have to take this in baby steps.”

So if you go back to Q4 2020, and then going into 2021, was it specific parts of the ecosystem, which caused you to make that leap into obviously thirdweb, which we’ll come into shortly? But was it specific parts of the primitive that is blockchain, which made you really lean in and go, you know what, I want to steer my career in this direction?

Pat Kearney: Yeah, that’s a great question. I think at that point, I was familiar with blockchain and obviously bitcoin was very much in existence and I think many people looked at it as a joke, laughable, didn’t really see the opportunity, but from a technological perspective, I think blockchain and the value that it offered was at least in my eyes, very apparent. The idea of decentralization and progressing from Web2 of centralized players and having that back and forth interaction, but really housed and owned by one player, that next iteration of the internet was incredibly exciting.

And I think the first two areas that I really nerded out around were very much social tokens, specific to Friends with Benefits and the Whale DAO, and Whale and their vault of NFTs, if you will, which is their underlying valuation for Whale as a whole. And I think seeing how FWB was focused more so on the community aspect and bringing in elements of cultural expertise, giving access to individuals who really wanted to innovate and iterate within the space was really what captured my attention.

And I think if we extrapolate, especially now in 2022, from a high level, the thing that excites me the most is mobilizing and incentivizing communities to do certain things. And I from a base level, growing up Catholic going to Catholic school pretty much my entire life have a pretty rigid moral compass. And so I ultimately am most excited about mobilizing and incentivizing communities for social good and creating positive impact and I think that’s where I’ve seen the greatest opportunities.

But certainly, those initial social tokens, which now I think NFTs actually offer at greater value and functionality as it pertains to social tokens, but that was definitely where I nerded out in the first place and in getting an understanding of really the mechanics that will drive this space forward and increase adoption and those pieces that will resonate the most with a greater market.

Ray: Yeah. This community building, and I think Raoul Pal, the founder of Real Vision, who I love their content, he coined, well, I don’t think he coined the term, but he mentioned this, he said, “Culture is basically an asset class now and it’s an asset class that we can build Lego blocks on top of, and from a commercial standpoint actually will generate meaningful revenue.”

So it’s really interesting, that community dimension and obviously your background growing up, you thought, wow, this is a great business opportunity, but also in terms of your values as an individual regarding community and giving back, it seems like it has all these ingredients infused into one.

And it’s interesting you mentioned community and doing things which are different. I actually have seen something recently, it’s actually a golf project actually, Pat. So golf historically, sadly is only, well, the perception of golf is it’s certain types of communities who can only play golf or who have access to that type of sport, the cliche archetype of people who are members of exclusive golf clubs. So golf has always had that barrier to entry, right? It’s not like soccer or basketball where everyone can play.

So there’s actually a really interesting project right now in the golfing space, where someone just launched a golf DAO, they've raised 11 million bucks. It’s actually the former founder of The Block, which is an analyst company in this space, similar to Messari and some of the other ones. And when I looked at that project, I thought, wow, okay, again, another social good standpoint. This is more from a sporting context, but trying to make golf more inclusive.

I think they actually have Serena Williams as one of the backers or a person who’s part of the governance of the golf protocol. So this is interesting. I think that, for the good of the world element of it, I mean, that’s going to be limitless because it’s very inclusive and you can include participants from all over the world. So that makes perfect sense. Thank you for that context.

So then we come to thirdweb, which Steven Bartlett is the co-founder of, and Steven is huge here in the UK, because he’s on the UK Dragons’ Den. I mean his pod’s massive globally. So what was your journey into thirdweb, because they look like a fast moving horse? But that sounds fascinating how you’ve joined so early there. There’s only 17 people in the company if that, so it looks like you’re one of the early employees for that mission. So what’s the mission and background for engaging with thirdweb?

Pat Kearney: Yeah, it’s a great question. I was actually in a position towards the end of 2021 where I was essentially looking for a full on role within the Web3 space and I’m having a number of interviews, OpenSea, SuperRare, a variety of others that just didn’t really, I think hit the value props that I was looking for.

And it just so happened I was on a final interview, was just about to move forward with the offer and I got a LinkedIn DM from Catty who is very close to Steven, creative director at thirdweb, just brilliant, brilliant mind in how he approaches the space. And we had a nice conversation around what thirdweb’s approach is, had an opportunity to talk with Steven and Furqan the two co-founders. And I think it was after five minutes of chatting with Steven that I was pretty much bought in, if you will.

From a high level, thirdweb is really trying to create the picks and shovels for the Web3 space in trying to extrapolate or rather abstract away a lot of the complexity. And as we look at thirdweb as a whole, what we’re really doing is building tooling in the native frameworks or languages for developers initially to enable them to onboard and start creating and innovating within the Web3 space as seamlessly as possible and continuing to update and provide unique mechanics on top of our current feature set as the market continues to move and pushing that aspect of the space forward. So seeing what is going on from a macro perspective, but also understanding that this is how we see the space progressing.

NFTs for an example, very, very popular as PFP projects. That is probably NFT 1.0, if we had to dumb it down. And per your point, Athena seems already to be pushing that envelope forward in a meaningful direction. And I think it’s important that people understand that NFTs are not just some kind of visual art that is encapsulated within a smart contract, it is so much more than that.

And as the technology continues to progress and really the builders continue to take their vision and implement it, we will continue to see … I think music is probably the area that I resonate with the most because I have a background in DJing and producing and stuff like that, and you look at the complexity in the Web2 format, right? You look at Spotify, the major labels and the artists.

And you pay Spotify $10 a month, a premium subscription. Spotify then takes that revenue and based on plays and number of streams and their various models in the background will end up keeping about 30% of the royalties that are paid out, and then the remaining 70% then goes back to the labels, which keep the vast majority of it. Some of it goes to publishing, marketing X, Y, and Z. And by the time it actually reaches the artist, as I’m sure many people are well aware at this point, there’s very little left. It’s not a business. As an artist, if you don’t tour, especially in a pandemic where there’s all those considerations, you don’t really have a revenue stream or an income stream.

As we talk about that in a Web3 format, the technology enables all sorts of functionality to streamline the royalty process, to cut out the middlemen and to actually offer an opportunity for artists to make a living with communities that are passionate about their work.

And I’ll give a very tangible example. A close friend of mine, Sam Hysell, who's the co-founder of nft now, I think it was about two weeks ago, released his own track on the blockchain as an NFT. And there were, I think, 10 one of ones that were available for purchase and sold out within a day or two. It would’ve been the equivalent of one and a half million streams on Spotify to generate that same amount of revenue, which is wild.

Anyways, a bit of a tangent. To circle back in thirdweb, really what we’re trying to do is abstract away that complexity to enable initially developers and builders to segue into this space and start building and focusing more so on their end application, their business logic, if you will, and giving them the tools to do so.

And eventually those capabilities will manifest for a no-code or a lower-code builder like myself, for example, to be able to do the same things that are currently available in … We’re not building APIs, we’re building SDKs. And so I guess to give you a high level, the holy trinity, as one of our senior devs calls it, is the contract level that interfaces with our SDKs, which then also is available in the dashboard.

And the dashboard for a no-code or a low-code builder like myself has a ton of upside, but even for developers and as you look at brands and orgs that are going to have multiple individuals interfacing with a project or multiple projects within a greater org, there are lots of considerations around access permissioning, even as we talk about analytics, right?

On-chain analytics is such a complex area that we’re very focused on simplifying for our users because it’s important. You’re only able to make informed decisions based on the data you have access to. And I’ll just pause there, because that was a nice little foray into thirdweb and it hopefully created a couple more specific questions.

Ray: Pat, that makes sense. So just to simplify it, it seems like thirdweb is the Wix, Myspace, Squarespace for the developer community, right? So it’s trying to, I know it’s early, but trying to abstract away the complexity as much as it can considering we’re in what, January 2022. So you could be a builder in this space use thirdweb and a lot of that complexity is abstracted away and it offers some form of Wix, Squarespace, Myspace for developers’ capability, which is more out the box. And then they can focus on, to your terms, business logic and business outcomes. I’ll just pause there. Is that in a nutshell where we are today?

Pat Kearney: Yeah. Yeah, I would say that that’s a good comparison. I would counterpoint that the better comparison would almost be Stripe.

Ray: Okay.

Pat Kearney: Specifically because Stripe has leveraged their underlying technology to make it very composable for builders to integrate in a variety of different formats. And so thirdweb 1.0, if you will, is very much taking that same approach from the developer perspective and giving them the tools and technology they need to build within the Web3 space in a programmatic format, so layering on top of whatever they’ve already built and bringing that closer to the blockchain.

Or we have the ability to really build, there’s a lot of really, really exciting stuff, one of which is actually launching tomorrow, projects that are forthcoming with some very, very large organizations, one of which I think would resonate very strongly with you. And Steven is I know very excited about it because it hits a close passion point for him in the sporting world. Keep your eyes on the trades and stuff like that because there will be some good news coming forward.

But I think ultimately we will see ourselves probably as an interesting combination of a Shopify and a Stripe, a little bit of Squarespace because we do want to empower the lower-code and no-code builders, but I think a lot of the innovation and opportunity as it stands now is going to be with the developers as we build in the spaces. It’s still early. I don’t know if you would agree, but I don’t know that we’ve crossed the chasm yet, but yeah.

Ray: Yeah, we’re really early. I mean, I think if you’re always in the community and tracking all the headlines and some of the detail, you feel like we’re past early, but I was at my sister’s yesterday for dinner and my brother-in-law’s from a Web2 background, he’s a builder, he is an engineer and more on the data side and he’s like, “Ray, could you unpack … I know you’ve got this pod now and I know you’re all into Web3, but I don’t understand it.” We spent last night, I was just walking him through NFTs, just some foundational things, which he should just look at, to activate his learning journey. And when I was speaking to him, he was like, “Yep, we’re getting it on team calls now, but we don’t know what it is.”

So really this whole paradigm shift on what the primitive of the blockchain will enable, I feel like we’re in 1997 of where the internet was, really. And if I look at NFTs, Chris Dixon of az16, I love his stuff, he goes, “You have to see NFTs right now like a webpage. In Web1, webpages were basically online catalogs. That’s kind of where we are with NFTs.” So it’s super early.

And to your point, I love what you were covering around … I mean, what you’re alluding to is the stunning exponential design space for NFTs, right? Right now it just seems like expensive JPEGs to be fair to most people, but if you really look underneath the hood, the Lego blocks, which can be built on top of NFTs, the design space, I mean, we’re not even 0.5% of the way in. I think 2037 will be like, oh my God, this is crazy this is possible from NFTs, right? Because who’d have thought in 1996 there’d be Airbnb, Uber? No one would imagine that. Or enterprise applications like Slack, for example, people probably didn’t think that back in ’96.

So yeah, I share your sentiment and actually to your point regarding music, it is actually scary. I think with Spotify, I think the number’s nuts, where it’s a tiny percentage of Spotify artists who actually earn over 50K a year in terms of revenue. That number is supposed to be minuscule compared to the number of artists on Spotify. So I love your background in music because you’ve had frontline experience of the pain, which artists through.

And I think there’s organizations like Audius, royal.io, which are doing some great work in that space as well. So yeah, it’s fascinating to see you’ve got this really unique blended background of music already in technology. So I can actually see why you really leaned in, on your current organization.

So what is the long goal for thirdweb? Is it one day to get to that holy grail of where it can be a mom and pop shop person at home who’s got no-code or very low-code knowledge and they can spin up some form of Web3 capabilities? Is that the long term dream, north star?

Pat Kearney: Yeah, it’s a great question. I think it’s iterative, day by day, but from a high level, we really want to capture the whole space, I think as it relates to NFTs, gaming in marketplaces. And I think back to your point about that conversation with your brother-in-law, a lot of that initial legwork is going to be education and really doing that in a digestible and snackable way, similar to how content preferences have shifted quite a bit and finding those bits and pieces that are going to resonate with a general audience. And so to me, I see that a lot of it in the IRL experiences as we talk about people going to their local Starbucks or going to a venue that they happen to frequent a lot or supporting an artist at a live show, things like that.

And I think thirdweb, as it relates to that conversation will continue to empower both on the building and the tooling side and making sure we’re keeping an eye on the space and innovating from our products and feature set. But I also think we’re probably going to end up going downstream quite a bit and starting to innovate there. And this is where it’s probably best to get our CEO, Furqan on the phone, or our CTO, Jake, who are incredibly literate from a technological standpoint.

An understanding of indexing I think is one of the things that we talk about quite a bit, because as we talk about indexing, you’re indexing the entire blockchain, which is just pause there, because that is insane. And so there’s a lot of infrastructure considerations in going more downstream, but I also think there’s a ton of opportunity per your point of supporting small to medium sized businesses in the future that will absolutely have value in terms of being on thirdweb, but also in empowering their own business objectives.

As the market continues to innovate, as the greater economics start to change and Web3 becomes more mainstream, it’s going to be very important for them to one, be able to take that first step and understand this is Web3, and then how can I interface with Web3? Where is my opportunity? And then just to go back again to NFTs and how early it really is in that iteration, we’re going to start to see NFTs that are packaged or wrapped in so many different formats.

I think one of the aspects that really interests me is as we talk about education and empowering builders to take that first step of building their first app and they’ve achieved an NFT, but then five to six tutorials later, they’ve built an entire end to end marketplace and they now have, that NFT has now progressed.

They’ve gone through those levels of learning to now be essentially a badge of commemoration or of a skill level that they can then get hired with within, for lack of a better way to put it, the thirdweb hiring portal or whatever we want to call it down the line. And so I think that’s how I see both initial and long term vision and making sure that we continue to develop the product, to make it as seamless and easy to use, whether you happen to be technically minded or not

Ray: Makes sense. And so looking at phase one of thirdweb, who is your target audience there now, Pat? Where are you guys seeing exciting traction?

Pat Kearney: It really is that core developer audience who primarily have either a curiosity for the space or are already active within the space. And to your point, there’s also brands and orgs on the side that are curious and need to know more. They need to be educated, to understand how they can integrate it, at least in this initial phase and then keeping it open ended and composable so that they can continue to build on top of their initial campaign or initiative moving forward.

But so primarily we’re really speaking to and empowering technical teams within orgs and individual or decentralized developer teams that need specific tooling to enable them to build quicker and iterate. I can’t tell you how many conversations, Ray, that we’ve had maybe six months ago with a dev team, oh, we’re going to go out and actually just try and develop the contracts on our own. We’re going to take that foray into Rust or Solidity.

And a month later, maybe a couple weeks later, maybe two months later, you get an email and it’ll be like, “Hey. Yeah, we tried to do this, but it actually is a heck of a lot more complex than we anticipated and we really just want to keep pushing this forward. What can we work out and how can your tooling or specific contracts and stuff like that streamline our go to market?” And we keep coming back to this one word, but accelerate is really what we’re doing for a lot of our partners and accelerating to again, allow them to really focus on the business logic and to recommend and provide expertise on how they can get there.

And so sometimes it’ll be situations where they have a very, very specific use case that they want to achieve and we’ll end up doing some custom development and working with an external dev shop to really get them from start to finish, but then there’s tons of examples of people coming in and us already having the existing tooling and frameworks for them to essentially plug and play right off the bat, whether it’s …

Secret Food Society was created by James Brooks, who’s an influencer in the UK actually, who really focuses on food. And he was able to do this, I think it was a hundred PFP NFT drop with one line of code, which he was able to embed within his website. He is technically minded, but he’s not a developer, very much like myself. Then you’ll have someone like Filta, which is a face filter app. And they’re very much like a Web2 consideration and they’re utilizing the SDK as a layer underneath programmatically to create on-chain face filters.

So that’s a little bit, a more complex build where they’re going to be interfacing directly with the SDK, but all of that tech was already in existence, so they’re not having to go out and develop contracts on their own. They’re able to see from a business perspective, what kind of royalties they’re generating, what their payouts are like, the analytics from a wallet perspective and stuff like that. So yeah, that’s the current thirdweb 1.0.

Ray: Okay. Just pausing there. So with the working with developers directly at the brand level, because I know there’s a bunch of these decentralized teams who are getting a customer base from all the big brands, because a lot of the big brands have done nothing internally, but are you actually seeing a pickup where you’re seeing technical teams directly within brands, be it small, one or two headcount, who are like, “I’ve just joined brand X and I’ve got to build something,” and then also some of the large agencies who are now servicing their customers with a Web3 capability? So when it comes to brands directly and large agencies working with brands, what does that cohort look like for you guys?

Pat Kearney: Yeah, it’s a great question. I think oftentimes we’ll see dev teams specifically within larger orgs or brands, they might have a three or four person headcount, maybe higher, who are incredibly bullish on thirdweb’s tooling and SDKs because they know it will make their go to market much, much easier, and also their internal conversations much quicker, much more streamlined. They’re thinking through a lot of the questions and considerations that maybe upper management might have around permissioning access and stuff like that.

But then you’ll also see smaller brands who may be working with an external dev who might be a full stack developer. And I think oftentimes that’s where we end up having that conversation around, oh, well maybe we’re not ready, we’re going to try and develop the contracts on our own.

Ray: Okay.

Pat Kearney: And there’s that timing consideration where they’ll come back and realize it’s actually not quite as simplistic or straightforward as they’d imagined.

And then on the agency side, oftentimes we’ll see it’s education to get the agency onboarded and understanding how they can go back to their partners and enable deeper conversations around the space, or it might be like a co-pitching scenario where we’ll actually go with them and work to both educate the brands and brainstorm and provide them some creative direction around this is the direction that you can go now, this is how we see it progressing in the next 3 to 6 to 12 months.

And again, it goes back to that conversation around keeping it open ended and composable because as you and you I have gone back, the market is still so early, it’s going to change in the next two weeks. It’s going to change probably in six months, and God forbid, two years from now, it’s going to be very interesting to see where everything lands.

Ray: Yeah. It would be great to get a pulse because a lot of our listeners are part of the LinkedIn community. So spinning into January this year, we’ve had Nike I think, maybe at Christmas or was it Jan? I can’t remember this pace is moving so fast, but you had Nike acquire RTFKT and just bake them into the Nike mission. You’ve had Adidas build on that initial release and do a little bit more tentatively, but they’re still moving quick. So I’ll look at Nike, Adidas, they’re in, and then they’re there. I’ve seen Mercedes come in this morning with some stuff, very light, but interesting. It’s a competition to win a G Wagon, so they’re dipping their toe very slowly.

At a broader level, what’s the pulse of the market, Pat? Obviously you’re on the front line of brands, individual teams, servicing brands, agency-side where it’s more evangelizing education maybe, generating revenue right now. What’s the pulse of the market? Where do you think we will be in say October of this year from what you’re smelling just in January of this year?

Pat Kearney: It’s a great question, a challenging one I will say and exciting as well. I think we’re going to see a lot of Veefriends style access and membership functionality towards the middle and later of this year, as brands start to really, I think upskill their knowledge and start to see the different functionalities and use cases in effect. So seeing other contemporaries really making that jump into the market.

Pat Kearney: And I think Veefriends is such a wonderful example because it really was a first mover in the space in that context of taking an individual like Gary and focusing on the things that he really loves whether that’s FaceTime conversations or gaming, dinners and the more recent mechanics that they just rolled out. And I think it’s going to take brands a while, I would guess towards the end of this year. Some will be earlier, those that push the space forward. But a lot of it will be incentivizing, rewarding their fan bases, stakeholders for the loyalty that they’ve shown and probably creating unique mechanics as it pertains to the brand voice or brand story in an initial Metaverse kind of capacity, if you will.

That is high level I think, where we’ll see, and there will be outliers probably like Nike, probably it very well could be Gucci, just seeing how they’re approaching the space. And having an inside scoop on the project that they were working on with Superplastic, I think next year we’re going to start to see significant innovation.

And I think some of it is the UX consideration of onboarding people to the space, in addition to technology catching up. And you see stuff like Magic Link or Tara having better onboarding and UX experiences for those crypto curious who had not taken that first step. And then we’ll probably continue to see DAOs really pushing the space forward in the most part, in my opinion, as you look at ConstitutionDAO, as you mentioned, Links. ConstitutionDAO is such an interesting, interesting concept.

Ray: that one, wasn’t it?

Pat Kearney: It was wild. I’m a little annoyed at them because they won the Golden Kitty Award for Web3 on Thursday against us and a couple other contemporaries. But at the same time you have to give them all the kudos because I think of half of the donors that ended up donating to the project, half of them had not had a crypto wallet before. And I think actually Veefriends is a very similar-

Ray: Wow. Just pausing, I didn’t know that. I didn’t know that detail. So with ConstitutionDAO just for the audience, just to remind them, what was ConstitutionDAO again? Was it like owning the constitution in the form of an NFT in essence or actually buying-

Pat Kearney: Yeah, exactly. So it’s like initially-

Ray: But also buying the original as well. You’d own fractional ownership in the original US Constitution, the documents?

Pat Kearney: Precisely. And unfortunately, they did not end up achieving their goal, but I think from a principle and a concept standpoint, it’s incredibly powerful and Veefriends is a similar way. You look at a lot of the tent-pole or hero NFT projects, which back to our earlier allusion really are, I think culture manifested in Web3 in the best way possible. But then you look at Veefriends, Veefriends, a lot of the early adopters and users of Veefriends did not hold a Bored Ape DAO or did not hold another NFT. More than likely the only NFT they held was that Veefriends NFT. And so I think that’s super powerful for people to understand that if the concept is strong enough and you make the on ramp simple and intuitive, then you can bring people who are maybe not endemic to the space currently.

Ray: Yeah, I agree. I mean, because I use Metamask. I was showing Metamask to my brother-in-law last night and he is technical, but even he was like, “Ah, Ray, is it safe? Does my NFT sit in the wallet? Does my remaining balance sit in the wallet?” I mean, even when you use OpenSea and it’s wrapped ETH to put a bid on something, I know that would freak still 99% of people out, even folks who are developers in Web2 might get a bit cautious.

So this is interesting. You’re seeing this? Obviously, let’s look at it. So there’s one end of the trend, which is just the brands and they’re building, obviously Veefriends as an example, but then you’ve got Nike, Adidas and then all the other ones gently adding some form of NFT drop and then dipping their toe. But then on the other side of the convergence trend, you’re talking about UI, UX, right?

And it’s interesting, that’s moved quick in the last two months because if you look at Coinbase, I was listening to their VP of product, who actually was on nft now, your buddies. I love nft now. I think they’re awesome. But their VP of product’s really impressive, Pat. He’s ex Instagram, ex Airbnb, and they’re launching their NFT marketplace. And on that, you can just purchase via your card, your debit card or credit card. So it’s going to be super easy. They’ll do the custody for you, so people don’t have to worry about that.

I think you had MoonPay over the weekend, launch a capability where you can just whip out your card. See, my brother-in-law would completely get that and then great he could buy some NFTs, which he’s passionate about. So I completely agree. It’s that on ramp from UI, UX standpoint, just to make the masses feel comfortable with it, and then the brands dipping their toe in a little bit more.

But interesting you mentioned Veefriends, if I look at what Gary did, his first drop was pretty meaningful because he actually programmed in, I think it’s three years in a row you get to attend his annual event. So I think the average floor price was like $2,000 for his first drop and I think they’ve gone up to 40 now because he’s building that community and that event’s going to have its own cool community too, and he’s going to build on top of it.

And then also you add, I think Impact Theory. I think there’s a … Oh God, his name. I think it’s Tom Bilyeu.

Pat Kearney: Tom, Tom Bilyeu, yeah.

Ray: He’s done Founder’s Key and then you have ownership into the rights and then it could be … He’s trying to build the next Disney. So if I look at Gary Vee and Tom, they’ve taken the big risk because if you look at these drops, a lot of it’s reputation risk, right? That’s why a lot of the brands are being very gentle because they’re worried about over promising and under delivering, where Gary just went in hard with his conference, which seems big. But I know he does conferences all the time, so it’s probably not the biggest deal for him. But if I look at Tom, he’s baked in quite a bit.

So is there any brands that you’re seeing who off the bat are promising a lot, hence they’re really leveraged on the NFT capability being the business? Because at the moment all the rest are very delicately, they’re not baking it, it’s just art and maybe one or two attributes. So they’re being very careful. They’re taking the right advice and gently going in. Is there any brands which have shocked you where you thought, wow, you guys are taking some risk and you’re all in, that shows me you’re all in on Web3? Anything which has grabbed your eye on that front?

Pat Kearney: That is great, a great, great question. I think Superplastic has done a good job of making that nascent introduction. But even still, I think they’re still somewhat endemic to the Web2 space. And I think a lot of the brands that we know and love and talk about on a daily basis, Facebook, Nike, Adidas, whoever it might be, they’re going to have difficulty making a very clear foray from Web2 into Web3. It will probably be in bits and pieces or certain tests and some of them will get it wrong and that will delay and cause them to take a step back.

I think the other piece is knowing the audience consideration, right? It’s like, as you look at Veefriends, and I think Gary Vee as a whole, that brand has been building. He’s been building that community for, I don’t even know, over 10 years. And I would argue that everyone that follows and is passionate about Gary Vee, probably would buy into almost anything that he does because they believe in his ethos and his approach to, I think life and business.

You could say the same thing about Tom. I mean, Tom has a really, really holistic vision when it comes to Impact Theory. And even if you listen to some of his podcasts or like when he was on nft now, it was almost like he had a conversation and two or three days later, he was fully bought into Ethereum and bitcoin and building into that vision almost immediately.

And so I think there’s a dichotomy there. You have bigger established brands that are going to be slow to move into that space and you will have visionaries that could be a part of a more agile company, or maybe just an entrepreneur or a founder in and of themselves that have more agility and freedom to move into that space. Some of it being how the business is set up and structured, but also what is their community like? What is their audience and how will they respond? Will they resonate with that initiative?

We’ve had so many conversations and I’m excited to launch this project tomorrow, because it is going to be really one of our more exciting forays into the gaming space, but again, and again, in conversations with gaming brands and gaming esports orgs, they’ll talk about one, you’ve seen a lot of players, a lot of esports players, a lot of streamers get involved with NFT projects or at least even on the traditional influencer side and a lot of rug pulls, a lot of controversy and just some bad press. And I think that has given a lot of these brands cause for pause, as I say, because they don’t want to open themselves up to litigation or liability in that regard, but they also don’t want to turn off their core customers.

And so it’s going to be a slow but steady burn I think in terms of figuring out what that first initiative in the space is, and how they’re going to ensure that they’re actually doing something that’s going to resonate, reward, or empower their community.

I think what we will also see, I don’t know if you follow Rex Woodbury and his newsletter Digital Natives, which is one of my favorites, but a couple weeks back he was talking about Web3 very much as a backend revolution, and I think we’ll probably continue to see this iterate this year is that we’ll see less people talking about crypto, we’ll see less people talking about wallets.

I mean, inevitably we’ll have to talk about wallets, but some of the more specific technological aspects will start to go away as we talk about abstracting complexity and really focusing on the core concepts that an average user can understand and take into their own principles and understand how this is going to impact them as a stakeholder, a fan of this brand, or a fan of this individual. And from a brand perspective or the creative perspective, communicating that initiative clearly, simply, so that the user can understand why, and why they should be involved is going to be super important. And I think that’s going to be a major focus for the rest of the year.

Ray: Yeah, I couldn’t agree with you more, Pat. And I’m really happy it’s going that way, because if you look at the first couple of years, we’ve been talking about the protocol layer and if you look at it from a Web2 standpoint, that’s TC/IP and Linux, or talking about iOS or Android. Obviously from an investment standpoint, spectacular, it’s the first time in history where Joe Public can own a network, that’s crazy. So the folks who understood that back in 2015 onwards, congrats to them, fair play, they were smart enough to see that.

But I couldn’t agree with you more. I like it now moving forward, because it’s more outcome based, it’s more value based, and it’s now tethering in fashion, art, music, things that ignite our soul, things that we deeply do care about. So I think this phase is going to be a lot more fun and a lot more inclusive for people from all backgrounds. And also the language will change from L1, L2 to okay, this NFT drop for this game and I get what it is because I play it and I’ve been a gaming fan my whole life, or I’ve been a sneaker fan my whole life.

But one thing which is interesting, Pat, a little bit of pattern recognition from what you’re sharing regarding your journey, if you look at history, it’s actually the native players who end up being the next Amazon. So an example, I think there’s one brand, you might want to check them out, they’re called Cult and Rain. I think they’re a sneaker brand or something like that. But if you look at that brand from ground up they’re Web3 native, that’s their core foundation of their business. So they can go all in from day one.

Then you’ve got more skeuomorphic motions, skeuomorphic meaning existing business, it’s been around for a long time. And if I look at those brands like Adidas, Nike, and I’ve got a lot of respect for Nike actually with that RTFKT acquisition. They seem very innovative for a large company, but all the rest will really gently come in and move a lot slower.

From what I’m seeing, it looks like the native brands, the native projects, like you mentioned, Friends with Benefits and some of the other DAOs moving quick, those are the ones which are going to end up just being huge and just build out their own markets. That’s what I’m sensing in the market. I don’t know if you share that sentiment or do you think it’s actually going to be the Web2 brands who will also grab a big part of the pie early?

Pat Kearney: It’s funny that you say that and I’ll definitely have to check out Cult and Rain because I think any endemic Web3 brands that is not either infrastructure related or building up tooling for the space itself is incredibly exciting, but I’d have to fully agree with you that anyone that is native to Web2 and is very, very much established in that space is going to have a hard time really making an initial leap into Web3, fully adopted.

And I think we’ll probably see a lot of, as you said, skeuomorphic use cases around having Web3 initiatives or Web3 elements to their business, but I don’t think it will ultimately become the overarching principle for their business use case, if you will. I think we’ll absolutely see that next wave of major players coming out of the endemic Web3 brands that are being built today or over the next four to six months. Who knows? And I think that’s what’s most exciting about the space.

Ray: Yeah, I couldn’t agree more. I think that’s going to move really quick. And so looking at more at the blue sky, exciting stuff, obviously you’re now knee deep and all into this, what really excites you about the ecosystem during the next 12 to 18 months? What’s really blown your mind, something our audience can look up on Google and just research in terms of, be it NFT capability, smart contract capability? What should we keep a close eye on?

Pat Kearney: I do have a feeling that OpenZeppelin is going to continue to create some interesting technology in the space, as we talk about underlying infrastructure. I would absolutely keep an eye on thirdweb, just shameless plug, but I do know in the next two weeks we’ve got some really, really incredible product innovation coming out and just knowing who we have on the team. We just added another senior dev who is incredibly talented, and so I can only imagine that we’ll continue to innovate on our product set and pushing that space forward.

Let’s see. Beyond that, I really think keeping an eye on music, I think that’s going to be the first market that really has the Web2 space disrupted for Web3 version, if you will. I think so many artists are frustrated with the current state of the world, right? And we talk about Spotify, it was supposed to be the change. It was supposed to be better for artists and it wasn’t, it just simply was not. And I’m sure at this point they’re frustrated. You put so much time and effort into producing this art only to have it garner X, Y, and Z royalties over time.

And then I think that the final piece that is really exciting to me, there’s a project by the name of Lost Worlds that I’m really close with a couple of the guys that founded it there. They essentially, it’s proof of location. And so you have to be within a certain radius of GPS location in order to be able to mint. And they’re building out a ton of functionality on top of that that is very, very exciting.

But given my passions around DJing and just IRL events, that is something that really gets me jazzed about this space and being able to go somewhere. The concept of being able to go on a hike and once you get to the overlook or the final trail head of that hike, you’re able to earn an NFT for outdoor activity, like cardio or whatever it might be. And let’s say that NFT, suddenly you’re in a national park and within the smart contract there is also a split that goes back to the national park service to promote wildlife conservation or something along those lines.

We talk about impact again and social good, that’s what really gets me excited is we’re in a space now coming out of still being in a pandemic, but there’s also such political polarization, to have something, to create something that regardless of where you stand on those issues you’re able to resonate with because it’s pushing us as humans forward, that is really what gets me incredibly excited about Web3 and all that there is to come

Ray: Well. Awesome, Pat. I mean, we could probably go on for hours, but this has been amazing learning about your journey. Congratulations. It looks like you guys are building something very special there at thirdweb. So hopefully let’s catch up for maybe part two in Q4 of this year and see how far we’ve come, right? God knows where we’ll be by then, but it’s definitely going to be a super exiting next eight to nine months.

Pat Kearney: Yeah. Yeah, I really appreciate you having me on Ray and I really enjoyed our conversation. Would love an opportunity to obviously come back, but who knows where we’ll be at that point?

Ray: Awesome. Nice one, Pat. Have a great start to the year and look forward to seeing you again soon, my friend.

Pat Kearney: You too, Ray. Take care.

Episode Highlights

• How Circularise’s mission to build transparency, traceability, and trust in supply chains go hand-in-hand with the pillars of a circular economy.
• How sustainability will disrupt the global market, and what companies can do to prepare.
• Why enabling transparency and data sharing in complex global supply chains strengthens circularity efforts.
• The future of zero-knowledge proof, and why it’s key to facilitating data sharing on a public blockchain while maintaining confidentiality.
• Want curated insights into innovation across deep tech, IP and more, straight to your inbox? Sign up to the Connected Innovation Intelligence Newsletter.

Episode Transcript

Ray: Mesbah, welcome to Frontier3, really excited to have you on the show today, and I would love to kick off with your background because as I touched upon off air, Circularise really stood out to me because we’ve been trying to keep a close eye out on enterprise software businesses, which have that Web3 component and you guys are a brilliant example of that. So Mesbah I would love to kick off with just the original genesis story. Your professional background, your personal journey, and how you came to starting your own business.

Mesbah Sabour: Well, first of all, thanks for having me, Ray. And to give you a background, so I was born in Afghanistan, in 1992 and lived there for a couple of years when I was very little, obviously due to the war and the conflict moved to the Netherlands when I was only seven. And that’s where I spent the rest of my life, never really been back. And I was always interested in engineering and in all kinds of different mathematical problems, as well as architecture and design. And I decided to do Industrial Design as a Bachelor. So that was more than a decade ago now I, where I met Jordi who’s my co-founder now. Within the first couple t through the chamber of commerce because Jordi had a great idea. We were, “Awesome. Let’s just start a company.” So, we’ve been kind of entrepreneurs for more than a decade now with several startups in the past and really loved doing that. And while Jordi quickly moved to do an MBA, I really fell in love with Industrial Design. And I’m not sure how much you know about a Bachelor Program, but there is this big part called a minor, which is six months or so of program, that you can choose yourself as a student. So, I was late in enrolling and all the nice stuff that everybody was picking and the popular stuff was kind of gone.

And I had to choose from whatever was left. And one of these courses was called Sustainable Design Engineering. And it was a course six months together with Aerospace Engineering and then to teach engineers how to incorporate sustainability and a different way of thinking into their day-to-day activities. And that’s where I met some professors who are now on our board and they were introducing the idea of a circular economy. And I was like totally sold with within a couple of weeks. And I was, “This is way more important and interesting than simple Industrial Design.” And back then that faculty was just a couple of people with… So, the Department, “Circularity and Sustainability,” were just a couple of people within the faculty. And now it’s like a full department with lots of PhD students and it’s really, really grown in the past couple of years. That’s how it started. So, I decided to focus on circular economy and trying to understand the problem as much as I can. And in 2016 we kicked off Circularise from the results of my Masters thesis, which identified the problem of a lack of transparency, trust, traceability, in global supply chains.

Which is prohibiting a move towards a circular economy. And that’s has been our mission all along to enable that. Had very little affinity with blockchain and Web3 back then. But as you can imagine, there’s this great tool to solve traceability and transparency, and introduce trust where it is lacking. So we became kind of experts in that area as we went into that journey and tried to learn as much as we can. And that’s it, in a nutshell actually.

Ray: And Mesbah, what is the circular economy? Because there’ll be many of our audience listeners who might have heard about that term, from a hundred thousand for overview. But in a nutshell, what is the promise of a circular economy?

Mesbah Sabour: So the easiest way for me to think about it is understanding the current economy. And we just often refer to as the linear economy. So linear means that we are extracting resources from the planet, all kinds of materials, raw materials, and what have you to make our products. Let’s just focus on a simple example, a smartphone, right? There is a lot of different elements and materials that go into that. So, most of that are extracted from the planet, made into different parts and components, and eventually the final phone. And over 90% of the cases, that phone will never make it back into the economy after the first life cycle. Right? So, the idea of a circular economy is that we shouldn’t design systems that always end up either in landfill or incineration at some point. That should be prevented at all costs. That’s leaking from the system, meaning you’ve got all these great resources, but landfill or incineration means you lose the resources. So, what we need to do is design systems to keep those, ideally the whole phone, but at some point, that’s going to be at a real end of life.

And then the components, and then eventually the raw materials keep looping them back into the economy by using refurbishing, reintroducing into the system, repairing, and as well as recycling methods. So that’s it in a nutshell, to explain circularity. To keep these materials and resources into the economy as long as possible. Which is not only good for the environment, but also really on a financial perspective, it makes sense, but it is very, very complicated because the world’s supply chain hasn’t really been designed for this at all. And that means there’s all kinds of challenges when it comes to collaboration within these supply chains, as well as data sharing. Because most of the time when at once a material, or a part, or a final product is manufactured and it’s been shipped to the next party in a chain, all that data is lost. It gets stripped from all that data. And you do need that to make these circularity decisions and activities happen properly.

Ray: Well, your timing is absolutely perfect, Mesbah, isn’t it? In terms of, you’ve got this key ESG journey that we’re all on, thankfully. And that’s picking up pace, touch wood. And then at the moment, really unique unprecedented supply chain challenges. So it’s the perfect cocktail, isn’t it for you guys being a solution tackling some of these problems. But taking a moment to pause, so the current state, is it fair to say it’s very much monolithic linear economy, because that’s the legacy, that’s where we’ve been entrenched in the past. Looking forward now into this decade, what are some of the big things that need to change at ground zero to enable a circular economy? And out of a hundred, how far are we along to that circular economy promise? Because it sounds amazing, right? And it sounds like the right thing to do from a environment standpoint. From an economic standpoint, it makes perfect sense. So for our audience to understand those two dimensions, what are the big, hairy problems we need to solve first? And then how far along are we as we sit here in March 2022?

Mesbah Sabour: These are a lot of important questions and I wish I had all the answers, but to unpack that, there is a number of different pillars, which the circular economy concept is relying on. And one of these is transparency, and traceability, and digital tools. Which is what we’re working on. But there’s a whole different pillars as well that has nothing to do with this. But they’re much more around product design, and consumer acceptance, and business models. And these are all fields that are under heavy development and we have seen some great examples, but I don’t think we have had such a great adoption as a skill that we can say, “We’ve got these pillars solved.” We don’t have all the answers when it comes to digital capabilities and digital enabling technologies. We don’t have all the answers when it comes to business models. Because, we see a lot of these examples, where you’re moving to what is called a Product Service System. Where you sell products by their usage, instead of by the actual product. So there’s a company that sells washing machines and you get the washing machine for free, essentially. You get to borrow it almost. But you’re paying per cycle, right? And that means that the ownership is still with the company and they are incentivized to keep that product as long into the economy as possible.

Build something that can last for ages as opposed to something that they don’t really care about if they would’ve been selling the products. And then there’s a whole realm of products designed, like, how do you make something that is easy to repair? If you like at a smartphone, there is this strong trade off right now. We’ve lost repair possibilities in smartphones, right? Because they have been glued to each other. And it’s very, very complicated if not impossible for consumers to repair smartphones. But there has been counter movements, where things like fair phone. Where they have a modular smartphone that consumers could take apart and replace the screen, or a battery within seconds and minutes. So in all three of these pillars, product design, business models, as well as in digital enabling tools, we are just at the brink of trying to see and getting some sort of a clear picture, how it can be solved. But then next challenge is how do you scale that beyond these smaller examples and towards massive option. And some companies like Apple, are doing a great job. They’re moving towards recycled content. And a lot of their products, they have this concept around product disassembly, robots, which is amazing. But then again, small scale doesn’t happen across the board.

And it’s not that your current iPhone can be stripped away from some of these parts and become a new iPhone yet. That’s the dream. But we’re not there yet, and there’s a lot of challenges. There’s a whole different area I haven’t touched upon, which is to do with regulatory aspects around, “How can regulation, pre-enroll standardize things?” Specifically in a digital realm where there’s a lot of different solutions, different markets, but there’s also a lot of what I refer to as cross contamination between industries. Where if you have a smartphone and that contains chemicals and that contains metals, et cetera. And then you start to build something that could work for these areas. And then you go to these chemical suppliers and then they’re, “Yeah, but I’m only supplying a few percent of my materials to the smartphone industry. The majority goes to the medical equipment, or to construction buildings.” Well, now all of a sudden, you’ve introduced such levels of complexity, that without standardization is kind of impossible to go and solve these things. So there’s also a big regulatory aspect.

Ray: Got it. It sounds like an end-to-end journey, right? From early-stage ideation, R&D, product design, to the business model, to the digital capability. The exciting thing, Mesbah, and hence your excellent growth, looking at things at a macro view out of a 10, 15 year outlook, you’ve got really good tail winds in the business, right? Because those three vectors you described, let’s face it. They are front of mind, right? Maybe not executing on them right now, but most boards at large public companies, emergent businesses know this is coming. So let’s start doing something now, or we got to get our act together by at least 2024, 2025. Because really you follow out what you described there, it’s inevitable, right? We have to get there.

Mesbah Sabour: Absolutely. We are convinced that this is the case, it’s really inevitable. We have to get there. And the question is rather, “Who’s going to be doing that first? And how much are they going to benefit as opposed to laggards?” Right. And I think a lot of the companies start realizing that and putting a lot of resources into all these areas. And we have often said, like five years ago in 2016, when we started, we were probably too early. We were doing a lot of education. Now with a lot of the recent developments in supply chains, and as well as some regulatory aspects that are coming up. There has been such a acceleration happening that we strongly believe that in the coming years it’s going to be too late. A lot of these markets will be getting much more saturated and mature. So, it’s a very exciting time.

And we do also see… sometimes we don’t even look them up anymore, because we were working with these larger corporates, and virtually all of them they have very strong ambitions that they have made statements on publicly. And often you can just find them on their website. And it’s funny where we were talking with some of these employees who aren’t really aware of it, and you’re screen sharing, go to their own website, and it’s, “Hey, let me see what your guys are committing to in 2025, 2030, 2040.” And then all of a sudden, their eyes open up and, “Oh, how are we going to realize that, if we don’t have the right tools and everything?” So, there is a lot of momentum that have been building up in the last couple years.

Ray: Yeah. Because Mesbah, you described a couple of really compelling forcing functions there, right? If I unpack one, the business model component, where everything is as a service, right? It’s that SaaS business model is now in the consumer realm, in various factors from my Whoop band on my wrist where I didn’t pay for the hardware. And I just pay my $30 a month for my sub to even, various other products, right? Where we just pay for the sub and the hardware is free. So you’ve got some natural consumer driven, forcing functions already happening in the background, which is great for your business, but going down to say product development, or just the digital capability across an enterprise. What are some of the big forcing functions, which are picking up pace naturally within the enterprise, which are accelerating your business, which gets you excited in the morning?

Mesbah Sabour: So there’s a few. One of them is that indeed, that you’re rightly saying, product service systems and products as process service are becoming much more the norm, even within enterprise. Whereas it didn’t start that way, right? It was all mainframes, and a lot of on-prem. And now it’s getting much more acceptable to do everything as a service. And it’s rightly so because that whole development and that field has been maturing so much. And there is a lot of proof that these things can work and can operate safely. And then on the other hand, there is also a growing awareness of Web3, even within enterprise, I would say. There’s a lot of movements towards standardizing credentials and identity, et cetera, using Web3 principles or principles that are not necessarily Web3, but are very close to that philosophy of self-sovereignty. So these are very exciting things and there is a still to be honest, a lot of companies that we work with that have no idea. But there is also a smaller group of companies that are really… I wouldn’t expect them to be leading these efforts from a large, very international corporate perspective. They’re really leading in some cases, the Web3 adoption within their organization, which is really amazing, inspiring to see.

Whereas we were most of the time under the impression, a couple years ago that in the beginning, it won’t really be fully decentralized because a lot of companies aren’t ready for that, and they will be managed by others. But we do see very strong interest from enterprise themselves, towards Web3 concepts, when it comes to their identity management and then some of the credentials that they’re having. So that is very exciting, as well as auditing schemes and auditing bodies. Which issues, certificates, et cetera. There has been also lots of interest from that perspective, which is very exciting to see as well. I think it’s getting more into the beyond that level of basic understanding for most people now in this space, where initially the question was, “Okay, go. So, wait, what is blockchain,” right? “What is it even like? Can you explain me the difference between this and Bitcoin? And that question has luckily been less relevant recently, where most companies get a good understanding of that. And they’re moving beyond that towards better or more sophisticated concepts such as credentials.

Ray: Okay. So I just want to pit stop here, because this part’s fascinating, right? And this is a big part of Frontier3’s mission is unpacking this wonderful world. Because I share your sentiment, I think we are getting there and it’s exciting, but if I just benchmark, analyzing things on LinkedIn, in terms of views, likes, re-shares. Energy around Web3 posts, it’s there, but still not there. If you take 10 steps back and look at the wider community on LinkedIn, which is a brilliant community, right? Some amazing practitioners there who should be working in Web3 in my opinion, but have not even started their learning journey. So just to pause on your business model so, could you describe the very day and the very moment, where you are building Circularise, and it’s this… I’m guessing back then, a classic enterprise software play, and you get touched by this wonderful primitive, which is going to change the world and the blockchain. So could we turn that day or that week, or those months into a 4K definition moment? Because that would be great for the audience to understand. What was your, “Aha,” moment and why?

Mesbah Sabour: Yeah. It was a lot earlier than you might expect. Because again, going back to beginning of the conversation, the problem we identified was, there’s a lack of transparency in collaboration and trust in supply chains, leading to inefficient efforts towards the circularity. So then the next step is, “All right, how do we enable transparency and data sharing in complex global supply chains?” Well, you could do it in a traditional source model and then try to collect all that data and have a great experience for suppliers doing that and figure out incentives for all these stakeholders to start doing this. But then inevitably, you’re creating this central data bank of all that data. And without even going into that area, we ask ourselves, “Is that something we want to do? Is that something that companies would even accept that skill? Having this central repository of supply chain data.” Which either is going to be relevant data, and then it’s a gold mine, or it’s going to be irrelevant data, which we have seen in the past that it exists and then it doesn’t really help anybody, right? So that is kind of where we started. And early on, we were, “Okay, we need to have a solution for this.” And obviously one of the solutions that you can very easily come up with when it comes to a lack of trust is blockchain.

You can introduce trustless ways of handling certain transaction also, or the data points. However, it still doesn’t deal with privacy and confidentiality. And on a contrary, it makes the problem even worse because now everything is public. So that is why you could go into different routes and this is still very early days, within the first six to 12 months of the company, we were in this crossroads of, “All right, we can either do it on a central way, or we could do it on a blockchain way.” But then do it all privately and run the whole system and the consortium ourselves. But that really didn’t feel right, right? It feels like, you’re trying to something, but at the same time you’re taking away the most valuable aspect. Which was the decentralization and security aspects, and trying to put it in your own control. So then there was this whole gap over it, blockchain on itself, if it’s public, it solves the trust issue. But it introduces complexity, certain privacy, and confidentiality. And it’s the other way around with a centralized system, where you can solve privacy by essentially storing all the data and encrypting it, but you introduce trust into the system. So that wasn’t real solution, right? And that is where we started digging in deeper into the realm of Zero-knowledge proofs. Which was, 2016, 2017, very early days of this field.

And as we know now, everybody is now looking at investing in this technology. And we started looking in how this specific cryptography, Zero-knowledge proof cryptography, can then enable data sharing on a public blockchain without risking anybody’s confidentiality. So this was really the working idea, “Either we do it this way, or it’s going to have so many compromises, that it’s not going to be a tool that can be used globally, and achieve the grand mission. Which is enabling circularity.” Right? Our mission is not to enable traceability for a couple of companies. For that you don’t need blockchain. You need something that works, and it’s probably central. But if the mission is able circularity, at a global level, you can’t have a tool that doesn’t scale beyond just a couple of companies. And in order to have something that can… And I mention this earlier, we work suppliers who supply to virtually any market out there. The same materials that they’re manufacturing, they go to automotive equipment, they go to electronics, they go to consumer household appliances, goes to construction. It goes to medical equipment. It goes to the fashion industry. Imagine the complexities, right? And you can’t have closed private systems running these things. Unless the same company’s going to install 12 kinds of different traceability tools, each for every other customer that they’re serving.

So, given that mission of enabling global supply chain, circularity. You have to come up with a solution that does not make any compromises around trust nor any compromise around confidentiality. So that’s our initial thinking, very early on within the first couple of months of the company’s existence, “Either we do it this way, or we’re not going to be able to actually fulfill our mission. Never.” So, we took the hard route of investing in 2017, 2018, in Zero-knowledge proofs, and understanding that making a solution or an architecture solution around that actually resulted in a patent. So, which is still patent pending right now on specific previous application. And we’re rolling this out right now in a lot of different industries, primarily focusing on plastics and chemicals. But again, these go into virtually every market.

Ray: Wow. So Mesbah, you guys were early, right? So late 2016 talking, discussing, huddling as a team. And then 2017, 2018, unpacking Zero-knowledge proofs, rolling up your sleeves, and trying to build when a lot of those primitives, even now with Zero-knowledge proofs… I know that we’re getting there with the technology as a good promise, but what I’m hearing in the market, if you really look underneath the hood and speak to the developers, they’re, “We still got a long way to go.” Is that fair to say so? Actually before we geek out too much on Zero-knowledge proofs, because that can sometimes scare our audience. What is… Because Zero-knowledge proofs, when I quickly understood them, I was like, “Holy shit. This is going to change everything. It’s going to be massive.” But I want to pass the ball to you. What are Zero-knowledge proofs?

Mesbah Sabour: I had the exact same reaction. The first time you hear about it’s like, “Holy.” This is going to change everything. And it is important to understand that this is a technology that is probably going to change the face of any matter that touches privacy and confidentiality, not just supply chain has. It has applications way beyond supply chain and enterprise use cases. So the best way, I really tend to think about it from a very simple analogy perspective is, imagine you have a person who wants to buy alcohol. And right now the thing that we do is we force that person to show their identity. Which reveals a lot of data, right? That reveals their, birthday, place, it reveals their social security number, and depends on how the ID is made. And all kinds of different aspects that might totally be irrelevant for that exchange of proving, that you’re of a certain age to be able to buy alcohol. But that’s the kind of the best thing we have. Another solution could be to centralize it. Have some sort of a central authority, always in the middle, but that’s also very impractical, right? So then you get this realm of Zero-knowledge proofs. Which kind of introduces a very paradoxical solution saying, “what if you could prove that you’re of a certain age without showing your age?”

Or the names your knowledge proof is coming from, “How do you prove something without revealing any knowledge about that proof?” And on the first site it becomes… It’s almost like, “What do you mean? How can you know something without… How can you prove something without having knowledge?” It’s a paradox. However, it seems to be the case with Zero-knowledge proofs that this is definitely possible. So actually, if you look at the technology from a very first principle perspective, it’s very simple. It relies on game theory and probability. The way it works is that you can prove something with a mathematical proof without revealing the secret behind it. And in the case of the age with alcohol, you could prove that your birthday is of a certain characteristic, meaning it’s beyond a certain date, or after a certain moment without revealing the actual date. You just do mathematical calculations and then a proof of exchange between the two parties. And by doing that over and over again, you can prove it. So one of the easiest ways to explain this and that analogy has some shortcomings, but it works. Is that you can explain it with the game, “Where’s Waldo?” Have you ever seen this game?, You’ve got these pictures with all kinds of different little characters on it. And somewhere there is a character hidden called, “Waldo,” and he usually has a very distinct outfit. And imagine-

Ray: I’ve heard of the game, but never personally played it.

Mesbah Sabour: So if you Google, “Where’s Waldo?” You get all these pictures, it’s almost like illustration. A very, very simple, detailed illustrations of a random environment where those hundreds of characters. And one of them somewhere is a very specific guy, with this very specific outfit. And the game is almost a puzzle, where you need to figure out where this guy is. So one of the ways to prove that you know the location of this character in this picture, without showing the location, is to actually take that picture, put it behind a black sheet of paper and just cut out the location. Just cut out the Waldo’s character. Take that picture where he is, put it behind a black sheet of paper and cut out his location. So by doing that, you can show somebody, “Look, I know where Waldo is, because I literally put his picture behind this black sheet of paper and cut out his silhouette.” But you don’t reveal the location, do you? So that’s a very simple analogy of proving that something without showing the exact secrets to the thing that you know. In this case, the location of Waldo in a very complex picture of hundreds of characters.

So that’s a probably very long way of saying, “It is possible to prove something without revealing the secrets.” And that has been a new whole frontier in cryptography that is exploring, all right, “How can we then implement this in practical levels, where you don’t have to give anything as a consumer or as a business without proving something about about yourself or about the business.” And in our case, in supply chains, it’s often around supply chain data, transactional data, material composition data, and all potentially very sensitive information points. “How can you prove some of these characteristics potentially that prove that your product has been made from recycled content? Or proving that your product adheres to certain regulatory aspects and doesn’t contain harmful chemicals?” Without showing the actual chemical composition or without showing the actual full history of that products manufacturing.

Ray: Thanks for that context Mesbah, because when I first understood that primitive within cryptography, I was, “Wow, this is going to unlock the Zero-knowledge proof economy.” It’s going to be a whole sector in itself, right? Because the use cases are endless and I think that’s going to be so powerful for our audience, just to initially get their arms around this and then kickstart their research on YouTube. I recommend everyone do something, a16z, do a bunch of presentations, right?

Mesbah Sabour: Oh, yeah.

Ray: On explaining that what Zero-knowledge proofs are. So, that’s fascinating. So going back to your specific use case, and now looking at Utopia, right? We’re three, four years out, you now have gone through that learning journey or educating journey with your customers across various industries. What does good and great look like for customers? When you described the supply chain, I can imagine you might have a smart phone OEM saying, “This all sounds great Mesbah and team, but I don’t want my competition knowing X, Y, and Z in my supply chain, because that’s my competitive moat. We spent years building those relationships and getting that momentum. I’m never going to share that publicly.” That’s an obvious one, right? And that probably applies across all industries, but this holy grail of Zero-knowledge proofs and abstracting out an ESG statement, a regulatory statement, something which invites other people to come into their ecosystem because they can offer X optimization in a supply chain. This all makes sense to me. I can see how this would be an amazing vacuum for a big company to build on their business in terms of new revenue, hit certain goals in terms of ESG, build their brand.

Dude, this ticks so many boxes. It’s crystal clear. I love what you guys are doing there. It’s crystal clear in my mind. But where are we today in the reality, if you go to a customer, so I can see you’ve got amazing automotive manufacturers, some amazing brands as customers, where are we today on that blockchain capability? On actually them using Zero-knowledge proof capability. Are they actually using it today in a meaningful way, where they can express their entire supply chain and only abstract out key promises or key bits of data, which allows them to hit their ESG targets, their supply chain, economic targets, their business development targets. Are we there now?

Mesbah Sabour: So we are there yet. We are there already in certain closed cases. We’re not there yet as a generic model that is easily scalable across a full portfolio of ESG claims, as well as a very complex multi-tier continuous end-to-end traceability systems. That is really the challenge of the coming years to scale that towards that level. Today we can do it. It is often however, tied down to more simple claims, as well as relatively simple, or not necessarily simple, but short pilot based supply chains. We’re not there yet at a level where we’re working with a company like Apple, and all of their suppliers, which can be thousands, right? So that is really the challenge that we’re facing, in the coming years to really these operations, to that level. And we’re learning a ton of stuff, working with suppliers right now in closed environments. Where we’re talking about a couple of dozen suppliers instead of thousands suppliers. And that is really where we’re at right now, as well as, and we kind of touched upon this, Zero-knowledge proof technologies are really, really recent. Even though we started thinking about them in 2017 or even 2016, they were not at a level of production capable systems.

And there are some today that are getting to that level. And that has also, “What are the limiting factors, in getting this towards large scale environments.” Because a lot of these pieces are now coming together, the demand and interest from suppliers, as well as the technology getting to a mature level. So, in the coming 12 to 24 months are going to be crucial in terms of scaling these smaller scale, couple of dozen supply chain examples, and use cases to hundreds and even thousands of suppliers being connected into these environments. And then it’s going to be amazing to see the level of Zero-knowledge proof. So OEMs can do then, on data from thousands of suppliers and then build that into their reporting as well. So there is a lot of different things that we can do, and it’s really going to be extremely exciting because, this is like one part of it. But there is so much automation and that’s been the vision from the company very early on, without a proper infrastructure to share data and supply chain, we won’t be able to unlock a lot of the circularity activities.

And nowadays, now that ability to share data in a supply chain is getting closer and is becoming a reality. We can already start, dreaming about what this can unlock for circularity activities. Imagine products, having their own unique NFT almost, that can be used by OEMs, and brands, and suppliers for take back schemes and put them back into the economy. And have a level of traceability and sharing data that is almost impossible to even dream about a couple of years ago. So I think that’s really where it’s going to be super exciting, where you might even get offers from suppliers in the near future, they want to buy back your old products. And that all that stuff can only be enabled by the right level of traceability and confidentiality.

Ray: Wow, God. You took me down a different rabbit hole there now, Mesbah, when you talked about Zero-knowledge proof, converging with an NFT capability, right? So if I’ve used said product for… Say my Peloton, for example, I’ve used it for three years. But then they ping me and say, “Look, here’s a give back scheme and you get rewarded Ray with X, Y, and Z to participate as a customer.” You now even invite the consumers to participate in the circular economy, right? So the incentive structure is literally end to end.

Mesbah Sabour: Absolutely. And not just consumers, but also recycling companies. Where you might not be able to reach consumers in all levels, but in some products it might naturally end up at end of life collection centers. And then upon entry, there is a more a centralized way of scanning these end of life products. And instead of them all being processed in the same way right now at like a municipality level, you might have bids from all suppliers, all around the world, depending on supply and demand. Start extracting these resources back. And we’re talking with a lot of suppliers who are concerned about their future feed stock. They want to start making everything that they manufacture traceable today, so they can in the future take their own products back and put that back into the economy and recycle them and make new materials from their own materials. But for that, they need to know that it’s been their material. They need to know the quality, they need to have them traceable, and identified at the end of life so they can put them back into their own operations.

Ray: Yeah, this makes sense. Because what you described there optimizes a vertical integration play, tops that up. But also some folks who can’t vertically integrate because they just can’t, that gives them this additional piece of value as well too, to say, “Optimize the economics and optimize their outcome.” So God, it’s fascinating Mesbah how far we can go with this. But one other thing I was keen to unpack, because now our audience will look at this, right? So you described earlier that the challenges… One vector of the challenge was hearts and minds, within the customer base. Because at the moment you mentioned they are on board, but they’re using very small pointed use cases. Which is great for now, because you’re just landing and then hopefully you’ll expand. And then there’s a second part, which is just a pure technology problem. We’re not there with the Zero-knowledge proof capability, and some of it isn’t production ready or scalable. In a pie graph form factor. How would you split that, versus hearts and minds in the customer base, and a technology problem? What’s the split right now as we stand?

Mesbah Sabour: That’s a good question. I would say technology is less of a barrier. It’s probably anything between 20% to 30% of technology, and the remainder is not necessarily the hearts and minds of customers, I think that though the hearts and of minds are probably at the right place, is much more guiding them in a way that it makes this digestible, right? There is a gap that is in user experience. If you imagine yourself as somebody working at a big corporate that has tens of thousands of employees, hundreds of manufacturing facilities around the world, and thousands of SKUs, that all need tracking, and thousands of suppliers that need to be connected, hundreds of customers that need to be connected. And you’re tasked with something like this. It’s very easy to become extremely overwhelmed, because ESGs, that whole portfolio is, there are so many different elements to it. And I think that is probably the majority of that pie is, it’s very easy to get overwhelmed, and it’s very hard to have a user experience from, “Okay, this is a problem we need to solve it, to all right, this is the exact way to solve it for us.”

Because it’s such a complex, broad problem. Just traceability in general, enabling all activities around carbon emissions and [inaudible 00:43:39] So that is probably the biggest portion of the pie. Where their hearts and minds are probably just a few percent and the technology as well, the majority of it will be making the technology so easy and accessible, that we don’t need experts and super early pioneers who are willing to dive into the rabbit hole and understand everything themselves. Because that’s not going to scale. You really need a technology that is easily digestible, abstract away all the unnecessary things, and then speak to the heart and minds of the early majority. And the larger groups out there who are interested in doing so, but they’re not the group who’s going to watch YouTube videos on Zero-knowledge proofs and try to understand that. Those are the early pioneers and we really need to get serious steps towards also catering to the wider groups.

Ray: In a way I’m maybe already doing this now, and you and your team, but I’m just maybe visualizing a year out from now, or even this year. Where you get on a screen share demo with the economic buyer prior to that call, they were able to share some data with the team, with an NDA. So you can quickly demonstrate Zero-knowledge proofs without going too deep, and go, “Here you go. We’ve abstracted out all of the data, which you don’t want the world to know, but this is how it looks like in a graphical output.” And if I look at what you guys are doing, there’s a great business and maybe you can correct me from, but there could be a day where you could be… there’s a great business called Dune Analytics, where a lot of the dashboards are public, right? So they could one day be just an open public marketplace, where a company is expressing their supply chain, ticking certain boxes.

Ray: And then that invites the entire world from a B2B standpoint to go, “Actually, hmm, I should be working with those guys. I can optimize that part.” And that head of supply chain doesn’t even know it. This is a window into their world without knowing the knowledge, but just knowing the abstracted piece out. So the optimization capability is huge, right? Because you don’t know what you don’t know, right? So if I look at what Dune have done, they’re just inviting people to look at those dashboard. This is more from a capital allocation standpoint. But the concept could be expressed for what you guys are doing. So well, you guys could build something really special here. I think it’s a fascinating business. And so at the moment, what is your business model for our audience? Is it a SaaS type business model where someone would just subscribe for a year and pay in annual upfront payment, like software? What does it look like?

Mesbah Sabour: So our traditional business model has been very, very similar to what you just described. It’s a SaaS model where there is a fee per month that is being charged for companies to start using our system. We do have some very exciting new stuff that is upcoming, which I can’t publicly disclose yet, unfortunately. But it is going to be very exciting to see what new upcoming technologies that are going to enable us to do here. So I think at the end of the day, it’s all boils down to whether traceability and transparency, and the data that then makes something traceable and transparent. Whether that holds that value. If it doesn’t, then there is no real business, right? But if it is, if there is somebody in that supply chain looking for that data and interested in that data, I think that’s where the business model is at, right? So, we’re going to start experimenting with a lot of different models as well in the coming months, next to our traditional model, where there is a… because that also is easy to explain to enterprise. It’s a model where they’re paying a fee to access the system per month.

Ray: And just say, “Look, don’t worry about the blockchain. Don’t worry about Zero-knowledge proof.”

Mesbah Sabour: Exactly.

Ray: “It’s software. The rest, don’t worry about it.” I think Kevin O'Leary one of my favorite capital allocators, and he’s always doing great sound bites on YouTube, and now LinkedIn. He just goes, “It’s software. The blockchain is software, USDC is software, like it works with software rails.” I think that’s probably just a really thoughtful way of just cutting through all the learning journey. Because most buyers and enterprises go, “Okay, I get that, it’s software. It’s just a version of software.” So I think, that way of working it. So obviously you’re now using Zero-knowledge proofs, the blockchain primitive, where do you think you’ll be in two years’ time, in terms of your Web3 effect within the business? Will it evolve to NFTs, tokenizing, certain dashboards? Where are you guys heading, do you think?

Mesbah Sabour: I think in a one to two year timeframe, what we also want to… because to be fully frank, there is a lot of centralization in what we do, right? Even though we do use blockchain. We’re actually running a lot of our stuff on public main net ethereum. So we try to get as decentralized as possible, but there’s always some weak link somewhere. And oftentimes that comes down to wallet management and that stuff, where it’s still centralized and breaks the whole decentralization aspect. So I think that is really in a one to two year timeframe, our mission to become as decentralized as possible, at least for those customers who are willing and capable of running the whole thing themselves without any interference from us. And then if you look at maybe five to 10 year timeframes, I think there is a really interesting development where, there’s this concept in blockchain where everybody’s talking about, “Garbage in and garbage out,” right? Especially a supply chain, if you’re feeding the blockchain and the system with a lot of garbage, that’s what you’re going to be storing permanently, and temper proof, and immutably. So that will also get out of it.

So that is a different way of saying, “Quality data input is really important.” And right now, in all use cases that I’ve seen so far, that data input relies on third party certifications, auditing, and third party attestations, right? So I think in a five to 10 year timeframe, we’re going to see some sort of a fusion between Web3 blockchain enabled tracking databases, essentially, and Web3 enabled IOT devices. So imagine a manufacturing facility that is enabled with all kinds of IOT hardware and sensors, which report directly to the blockchain. Meaning that level, the quality of the data input is extremely high, because it’s coming directly from a machine to the blockchain. And it can be fully signed and sealed, and independent of human input after it’s been installed. Meaning you could get rid human input in certain cases completely. And there is no more garbage in, there’s just quality data in those cases. I think that is something that I’m excited about. The long term vision of five plus years.

Ray: That machine to machine flow is one of the holy grail, right? Because when it comes to data quality coverage governance, it’s an untouchable business model. That’s why we’ve had the team from Helium on the pod, which will be coming out soon. I love what they’re doing around connectivity and connecting manufacturing devices at the moment. I can see them only scaling and probably converging with what you guys are doing, right? So how you’ve got all these great businesses like yours and Helium, all one day partnering together. And that’s like a Venn diagram in terms of transferring value. So, Mesbah, today’s been brilliant, we could probably go on for hours in terms of building [inaudible 00:52:26] but I just want to say massive congrats. You’ve got a fascinating story, and I’d love to check in for part two, maybe near Christmas time, to see how far you have come. We are big fans of the business. So hopefully-

Mesbah Sabour: That would be great.

Ray: … part two.

Mesbah Sabour: Thanks again. Great for having me.

Ray: Mesbah, take care. Bye bye.

Mesbah Sabour: Bye.

Episode Highlights

• Why neutrality is important in blockchains, and the benefits it offers for developers and entrepreneurs
• Solana’s current market strengths in the DeFi and NFT space including maintaining composability, low cost, and high TPS
• How dApps like Audius may give power back to musicians in the futureA peek into what it takes to be an economically relevant validator, and their role in censorship resistance and decentralization
• Why Bitcoin may become the new “gold standard” and how it solves today’s economic problems
• Want curated insights into innovation across deep tech, IP and more, straight to your inbox? Sign up to the Connected Innovation Intelligence Newsletter.

Episode Transcript

Ray Chohan: Matt, welcome to Frontier3, really excited to have you on the show today. And Matt, I would love to just kick off with your journey really, in terms of your professional journey and how you ended up at Solana or in the wonderful world of Web3.

Matty Taylor: Yeah. Well, thanks for having me on the show. I’m happy to dive into it. I guess I started my crypto journey in college. I wrote my undergraduate thesis on Bitcoin, proof of work and the economics of Bitcoin mining. I was just taking a lot of economics courses and I had an internship in the tech industry. And so I combined those interests when I found Bitcoin, and yeah, still to this day, a big Bitcoiner and really interested in that. But I got interested in Ethereum shortly around the same time.

And I didn’t work in crypto initially after graduation, I worked at a large payments company called Square. But then in 2017, obviously crypto started to take off in terms of adoption and awareness. And so I had been just really interested in since college and I decided to jump in full-time and I joined a Ethereum project called 0X, which is a decentralized exchange protocol. And then about a year and a half ago, I learned about Solana and got more involved in their community, and yeah, now I work for Solana Labs, which is one of the core development teams behind the underlying blockchain. And yeah, happy to talk about my experience.

Ray: You’re the head of growth at Solana, and that job title, it means different things in different context. When I think of growth, I’m thinking more Web2 SaaS where it might be product growth or some form of growth-led marketing, or if it’s say Spotify, trying to grow user base. So what does head of growth mean at a Web3 trailblazer like Solana? What is your day-to-day there?

Matty: Yeah. I wear a lot of different hats depending on the day, it’s a small team. And I guess, the main thing that I view my responsibilities as are just growing the developer ecosystem, getting developers interested in the technology, introducing them to existing projects, building on Solana and so, yeah, it’s somewhat traditional tech like growth hacking, but it’s also just talking with teams in more of a business development fashion and getting folks excited about crypto generally and, yeah, Solana specifically.

Ray: Yeah. It’s interesting you mentioned developer numbers. We’ll just put a pin in that because Electric Capital released a really interesting report looking at the developer numbers. So we’ll just put a pin in that for now, but a lot of our audience will probably be aware of Web3 because I think it’s getting more and more on the zeitgeist every month and actually more and more in LinkedIn in time, but there’s still probably the large majority who have got no clue or don’t even have a foundational understanding on the underlying principles and the inner why behind Web3. So in layman’s terms, if you could unpack in your own words, because everyone’s got a slightly nuanced narrative to this, what is Web3 and what attracted you to this paradigm shift?

Matty: Yeah, everyone’s got a different answer to this. For me, I’m going to carve out Bitcoin from Web3. It’s going after disrupting central banking and Fiat money and I’m going to keep that separate. But when thinking about Web3 on smart contract blockchains like Ethereum and Solana, I think it comes down to giving people, for the first time, one digital property rights in the new digital world, and secondly, it provides developers and entrepreneurs a credibly neutral platform for building their applications and products.

And so, those combination of benefits of digital property rights and this credibly neutral platform for development, I think is what’s really exciting about this space. And I think we’re seeing a lot of interesting verticals pop up, whether it’s decentralized finance, DeFi, blockchain, gaming and this whole long tail of different use cases that remove the intermediary that you see extract rent or take hold in the Web2 world. So hopefully, that’s helpful in shaping the conversation.

Ray: It makes sense. So when you talk about incredibly neutral, are you alluring to the fact that most of the protocols are open source, so it becomes like a dreamland of composable Lego blocks where you can build on top of previous work? Is that your context behind incredibly neutral, Matt?

Matty: Yeah. So credibly neutral, not incredibly neutral, but yeah. I think that’s definitely a part of it, just the open-source nature and the composability of using existing open-source primitives to build out your application. I think that’s part of it. More, what I’m referring to there is, maybe a good example is, looking back at the beginning of Twitter, the products, it started out, this open-source protocol for messaging and the feed of information from your followers and all of that was open to the external developer community, to build products and services around that using core protocol.

And so you saw, like in the early days of Twitter, a lot of flourishing of external applications like TweetDeck and other things like that would modify the UI, but still tap into this core protocol. But what happened and why Twitter is not credibly neutral is that, one day, the Twitter company, the centralized company said, “Well, we’re not actually getting a lot of the value out of the customers that are using the protocol. And so we’re just going to cut off API access to all of these external developers.” Which ruined their businesses, right?

And so when I talk about this neutrality, it’s just that, it’s the confidence that you’ll have complete open access to these underlying blockchains, the data and users can interact with these things without working with this central intermediary blocking them or shaping their experience. It’s more of a free market.

Ray: So there’s no situation of that classic Web2 rug pull, where you’ve built a meaningful business through the API offering, and then one day you wake up and it’s that quintessential rug pull, and it’s goodnight Vienna in essence. So that scenario is not possible in a pure play Web3 format?

Matty: Yeah, that’s right. And I think another great example, I don’t know if this story is actually true, but there’s this legend that Ethereum was actually born when Vitalik [Buterin] had this game item, a warlock. I think it was in either League of Legends or a game like that. And the company that made League of Legends, took away his warlock and he was like, “This is not credibly neutral, I need to build the better alternative for gaming companies to build on.” And so, yeah, I think it applies to much more than just traditional Web2 social media platforms. I think there’s a whole long tail of things that this applies to.

Ray: They always say, great entrepreneurs can link their creativity to some form of childhood trauma. So, if his warlock scenario might have been one of his moments that really peed him off to go one day, “I’m going to build something interesting.” I actually have heard that story regarding Vitalik, because he’s quite an interesting and a mythical figure, isn’t he? But yeah. So, it’s actually segueing into Ethereum and your early journey, Matt.

So obviously, you go down the Bitcoin rabbit hole while you’re in college and then get enticed by more the smart contract, layer-1 world with Ethereum. And just taking a step back and then obviously you’re now at Solana and I know they’re one of the fast-moving trailblazers within the layer-1 space, but just unpacking layer-1 protocols and fundamentally what they offer. Because again, there’s going to be so many folks on LinkedIn who might have heard of Ethereum, Solana, maybe Polygon and some of the other, well, Polygon’s more layer-2, but some of the other layer-1s like Katana, and I think there’s a whole bunch of other ones out there, but who don’t really get what layer-1 protocols mean and what’s their value. So, could you unpack that just as a primitive, so the audience can get a little flavor of just the underlining principles behind the likes of Ethereum and Solana?

Matty: Yeah. So, I think you can think of layer-1s as the lowest level of infrastructure, that developers and entrepreneurs build these decentralized apps on top of. And what they provide is, a way for transactions on these networks to be uncensorable, and they provide kind of a development environment and almost like an operating system to build out applications and that involves tooling and all sorts of developer resources. And I think they, the layer-1 landscape is differentiated, based on the performance of the underlying chains, in terms of how many transactions can this blockchain process concurrently? What are the average fees?

And then really, most importantly, and maybe we can get into this about Solana is this notion of composability in a single state, that developers can tap into. And so, those are the core properties, and each one of these blockchains has a community around it of developers and projects and stakeholders that have different views on how to scale this underlying infrastructure. And so that’s where a lot of the differences come in and so, I’m happy to talk about that as well.

Ray: Yeah. Because I know Ethereum, obviously, they’re the OG in the smart contract world, but then you add some really compelling, fast followers during the winter, right? I think Solana, it was 2017, 2018 when the founder started building that technology out. So obviously, you were curious about Ethereum along your journey, but then swiftly you were attracted to Solana. What specifically attracted you to the Solana protocol and their wider mission?

Matty: Yeah. I think working in Ethereum, I had a front row seat in 2018 on seeing these new use case verticals where there’s a lot of demand. So, that’s primarily like DeFi, right? And seeing how that ecosystem was developing and then later on, NFTs and gaming and other use cases. But I think what I saw was that, one, first of all, Solana viewed Ethereum as this amazing technology and trailblazer that allowed for these new verticals to arise, but that it was running up against some issues with its scale.

So, there was so much demand for Ethereum blockspace and these applications that fees were rising very quickly and transactions were not getting confirmed in a very fast manner. And there was a community effort in Ethereum to one, add layer-2s and two, add this new architecture known as ETH 2.0, that involved sharding. And that was how it was going to scale, but that was going to sacrifice, massively, on composability between the applications building on top. And so, Solana architected its infrastructure around maintaining this composability, as well as just an order of magnitude, better transaction throughput.

And yeah, I think that was interesting to see, and there were a lot of, I guess, interesting benchmarks that they released 2018 around the white paper and what this system could do. And I was pretty skeptical, but the network launched, I think, on March, 2020 and the core team did it initially. And I think that was very, very telling that the technology was real and that it worked.

And then second was, it’s not enough to build out a blockchain that’s a better product, right? The best product doesn’t always win. You need to convince a bunch of developers and this whole community to keep it going and to build and to grow it. And that’s really difficult. And what I saw that convinced me in mid-2020 was that, not only did they build out the technology and it was ordered as a magnitude, more performant and composable than Ethereum, it’s that there was a community forming around it and developing it that I thought was really special and that I felt like I could help contribute to. So, yeah.

Ray: That makes sense. So, yeah. Ethereum, I think they’ve had a lot of challenges with their ETH 2 theoretical launch, which keeps on getting pushed out and obviously sharding, roll-ups, there’s a whole ecosystem behind that, right, like Albitrum and I think Polygon play into that.

Matty: Yep.

Ray: They’re one of the layer-2s trying to increase the transactions per second and reduce the cost. So, it looks like they’re trying to stitch things together, as they go, right? Which is like trying to, this may sound a bit extreme, but it’s trying to repair an airplane while they’re in flight, if that makes sense. So, which is possible, but very awkward and high risk. So yeah, it makes sense why you were drawn by the more focused vision for Solana. So, with Solana, you’ve got this exponential improvement in TPS, transactions per second. In terms of building on top of, it’s probably a lot. What I’m hearing from builders in this space, they do say the dev kit and actually building on Solana is really cool in terms of ease of use. That’s some of the feedback I’m hearing.

But one thing that a lot of people did say about Solana in the early years, that the original use case of Solana was very much geared towards a central limit order book. So, very much for the high frequency trading world, for more doing perpetual contracts, financial derivatives, so more hardcore financial services use case. Hence why you had Sam Bankman-Fried go, “Yes. Solana, I'm all in. FDX are impressed with your capability.” So, is that the main superpower for Solana in terms of dApps being built on top of it, more financial services products rather than Ethereum and some of the other folks, which probably have a more diversified ecosystem of financial services, like DeFi but also NFTs, other enterprise applications, other forms of use cases? So, what does the current state and future state look like for the dApps on Solana?

Matty: Yeah. Well, first I want to say that, I think, in my mind personally, I don’t view Ethereum and Solana as direct competitors in a lot of senses. I feel like Ethereum is going to continue to grow and fill the need of many use cases and so will Solana. And so, when talking about what those use cases are, I think it’s pretty broad. Anything that requires high frequency and low fees and a composable ecosystem, I think Solana is a great fit for today. And I think, yeah, a lot of those use cases are more in like DeFi whether that’s decentralized exchanges or lending protocols or derivatives, that really haven’t been able to function correctly on Ethereum, just due to the nature of the speed and fees right now on Ethereum. And so, I think we’re seeing a lot of developers tackle those areas, but I think it applies also to things like NFTs, right? Minting NFTs on Ethereum, it that can be quite expensive and on Solana, it’s really not. And so, I think NFTs have grown considerably.

I think OpenSea is the largest NFT marketplace on Ethereum. They have most of the market share, although there’s a project called Magic Eden on Solana, that’s catching up in just in terms of total transactions and users. And so, I think we’re seeing quite a bit of usage on the NFT front. And then, I don’t know, there’s just a long tail of interesting projects also being built on Solana like Audius, which has, I think has 7 million monthly active users. It’s like a decentralized SoundCloud or a Spotify. And so, I think the long tail of use cases is pretty unlimited, but it seems like today, just given the current state of the crypto market and where most of the developers are building, I think DeFi is the best product market fit for Solana right now.

Ray: Yeah, it definitely seems that with the TPS, transactions per second, and some of that central limit order book capability, which is one of their superpowers, but we’ve also seen some cool projects like I think, Helium are doing some great work on the Solana protocol, and also, I think Hivemapper, which is some form of decentralized Google maps capability. So it does seem like things are spreading out. Is there any ultra emergent dApps which are gaining traction outside of Hivemapper or Helium, which really caught your attention Matt? Like, “Wow, this is going to be big, but no one’s talking about it.” Is there emergent dApps which you think are really going to blow up this year and get into more of a public profile?

Matty: Well, first of all, actually Helium is not built on Solana, I think they use their own chain. I think they’re considering maybe Solana. I’m not sure, but, yeah, that’s like a separate project, but they’re great. I love Helium, it’s growing really well. I would say, yeah, Audius is really interesting, I mentioned that before, but it has I think 7 million monthly active users. So just to give some context, I think, Uniswap maybe has like 1.5 million monthly, and I think that’s probably the top decentralized app across any ecosystem.

So their usage is really high. What’s really interesting is that their user base really doesn’t know that they’re using a blockchain under the hood. They’re just music fans and artists of all types and sizes that just feel like they can make a direct relationship with their fans and stream their music freely. And so I think that’s an interesting use case in this long tail Web3 world.

I think outside of Audius, there’s a wide range of projects that are tackling everything from a decentralized social media platform to a decentralized discord, to a decentralized GitHub, and so, any use case where, I guess, a large part of the user base is feeling like they’re being restricted and they wanted a more open free market platform, I think is fair game. But, yeah, we’ll see what ends up working in the long run.

Ray: Yeah. It seems like things are moving fast with Solana in terms of number of projects being built on top. I don’t know, were you at the event in Portugal last year where they had that big gathering?

Matty: Yes. At Breakpoint in Lisbon. Yeah. It was great. It was our first in person conference and it was great just seeing the whole community get together and yeah, meet each other face to face for their first time. So yeah, it was awesome. And it was great also that a lot of people that were not necessarily building in the ecosystem, but were just curious about Solana were there to meet ecosystem projects and founders, and talk to our team and get more involved. So, yeah, it was a great event.

Ray: Did it surprise you the attendance? Did you get that feeling at the event that, wow, there’s actually more people here and more energy than you expected? How did it compare to your expectations and just a wider team? What was their post-conference feedback?

Matty: Yeah. I think if you would have asked us, I think when we were thinking about planning this, first of all, COVID was tough to plan around just over the last year. We had tried to put together a plan even in December, 2020 for a conference later in 2021. And we were thinking it would be great if we have a couple of a hundred people, of our ecosystem, just to spend a couple of days together, and we’ll try to make that work. And so that was our expectation going into the year, but obviously, just throughout 2021, just the ecosystem grew so much. And there was so much attention on the community and just the projects building in the space. And so, I think, yeah, just the Solana Labs team was really excited to see that. And yeah, hopefully we can do it even bigger and better next year.

Ray: Great. So you’ve got this USP in terms of transactions per second, low cost, a really user friendly developer kit. So the on ramp is probably a lot more easier than other layer-1s to allow entrepreneurs to build on top of Solana. What’s next Matt, in terms of this year and next year? Is there any new innovations at Solana, which should really accelerate the protocol’s capability and ability to be a leading layer-1? Is there anything in the pipeline which gets you and the team really excited?

Matty: Yeah. I think this is another big difference between Solana and pretty much every other layer-1, is that, the way that it’s architected is not really relying on any computer science breakthroughs to continue to scale. It’s really built on, and I guess this comes from Anatoly who’s the creator and the founder. And the team he initially hired, they’re all from Qualcomm and experts in distributed systems from Web2. And I think what they realized was that the way that a blockchain should work is not that much different. And what it takes to continue to scale is just continually getting better hardware thanks to Moore’s law and just optimizing in every layer of the stack, so that you get just incremental and incremental, better performance over the years.

And so in terms of what the Solana Labs team is focused on, on the engineering side, and not just Solana Labs. Solana Labs is just one development team in the ecosystem at this point. There’s a bunch of external developer teams and individuals that are contributing at this point. And so I think it’s just optimizing every layer of the stack and getting block times down from 400 milliseconds to 200 milliseconds and max TPS up from whatever, 50,000 transactions per second to a hundred thousand transactions per second. And so it’s just, there’s no breakthroughs that need to happen in order to scale to millions of transactions a second. It just needs to continue optimizing and hardware just continues to get better. And so that’s the focus.

Ray: Okay. So the journey to that a hundred thousand TPS and lower cost, lower friction, more ease of use is more based on what’s happening in the hardware and ASIC world, and you guys will then engineer to that internally. Is that what you say is more of an external force in the ASIC market? And then you guys just jet ski on the back of that, but then do a lot of hardcore engineering to configure, to optimize that hardware upgrade. Is that the school of thought there?

Matty: Directionally. So it’s not ASICs. ASICs are for proof of work mining. Solana is a proof of stake blockchain, so it’s a little bit different mechanism. But generally, you’re correct. If you look at like an Xbox 10 years ago, it costs, let’s say like $500 to buy it, an Xbox one, and it had a certain speed. And just over time, processors, chips, silicon development in computing just continues to get exponentially better. And it also creates cheaper hardware. And so, I think we’re just riding on that wave, as you say, where we just are expecting that that will continue to happen into the future. And the community and all the developers around the validators who really run the network are optimizing around that trend. So, yeah.

Ray: So that framework for growth is that from Anatoly’s background in Qualcomm and his background in semiconductors, where he is like, “That’s happened in that industry well, and it works well, why can’t we just use that methodology in the Web3 layer-1 blockchain world?” Is that the general school of thought?

Matty: Yeah, exactly. And I think that also translates into why Solana can process so many transactions a second, just architecturally. So one difference that may be of interest to your audience is that in Ethereum and other layer-1s, transactions are processed serially, which basically means, one transaction enters a mempool of unconfirmed transactions and it’s confirmed in that order. But in Solana, it doesn’t really work that way where, if person A sends a transaction to person B and person C sends a transaction to person D, those two should be confirmed at the same time, because they don’t affect each other’s accounts, right, and state on the blockchain.

And so partially, what these machines the validators run are doing is just processing in parallel way more transactions rather than serially in order, like on other chains. And so just these architecture decisions based on how parallelization works in Web2 and distributed systems previously, have been brought into this Web3 world. And I think that’s where you see all the performance gains.

Ray: Okay. Makes sense. And obviously, we hear the term validators a lot in the world of blockchain/Web3. I know a lot of folks haven’t got a clue, Matt, on what a network validator is. So in the most simplistic format, imagine I’m a nephew, and it’s Thanksgiving dinner, how would you explain what validators mean in the world of blockchain and Web3?

Matty: Yeah. Well, validators are entities that run these machines that confirm transactions on the network. And so they’re really important because of that. And it’s important that there are a lot of these folks, because if there’s only one validator, then the network isn’t very decentralized, right? It’s just, if you can shut down that one validator, who’s processing all the transactions on the network, then it’s not decentralized or censorship resistant. And so, it’s important for many of these validators, who are these entities often businesses that are running these machines, or running the Solana network software, abiding by the rules of the protocol and are confirming transactions on the network on behalf of all the applications and users that are using the network. And so they’re really important stakeholders in the ecosystem.

Ray: That makes sense in terms of creating that trust factor, right? And there’s always this battle about how decentralized the network really is. I know the Ethereum community really bang on about the importance of decentralization, and it’s one of their things they’re loud and proud about. And they rebuttal to some of the other layer-1s as they’re not as decentralized. They’re working in partly a Web2 mindset, when it comes to spreading that risk. What are your thoughts there? Because then there are some on the application side is, the users don’t really to give a shit about decentralization. They want speed, low cost and they want the outcome. So, what’s your school of thought, as a fast-moving practitioner in the space, on the order of magnitude something should be decentralized?

Matty: Well, I think, censorship resistance and decentralization is really important. It’s core to this notion of credible neutrality, right? And making sure that the system is fair, open and unstoppable. So it’s a really important concept that’s core to all this technology that crypto has produced. I think in terms of the way that I think about it though, is maybe a little bit different in the sense that I think you have to look at, when evaluating, okay, which network is more decentralized than another, I think there’s a lot of factors that go into it. But one of the core ones from a technical level is just, how many validators or miners are economically relevant in the network? And not necessarily the total number.

So for instance, in so Solana there’s a lot of validators. There’s, I think, something like 2000 validators that are live right now. And that’s important, that’s one factor. But what’s more important is, well, how many of those validators are actually confirming transactions that have actual economic weight in the system? And that’s more like 19. So a much smaller number. And that is the number that if a government or some bad actor wanted to shut down the network, you just target those 19 validators, shut them all down at the same time, and that would halt the network practically.

And so you have to look at, what is that number on other networks? And so on Ethereum, it’s three mining pools, on Bitcoin, it’s two or three mining pools. And so I think the total number is important, but even more important is optimizing for this, what we call the Nakamoto coefficient. What is the total number of validators that are economically important that if you compromise, it would shut down the network? And so that’s partially what the Solana Foundation is working on improving. Their sole focus is, how do we increase that number and make it easier to validate, to basically maximize decentralization?

Ray: Okay. That’s really clear. Thanks for that, Matt. So it’s the ones who have economic significance, right? So that economic significance, is that directly correlated to proof of stake, like how much they actually have staked themself on the network?

Matty: Yes.

Ray: So I’m jumping ahead. Sorry. We’re getting to the more intermediate conversation.

Matty: Sure.

Ray: But back for the beginners for our lovely LinkedIn community, what is proof of stake, Matt?

Matty: Okay. At a high level, in order to confirm transactions on the network, you have to prove that you are, one, running a validator, like machine that is capable of doing so, and two, you have to prove that you have economic weight behind your machines and your entity. In Bitcoin the way that it’s done is called proof of work, and you basically connect to a big power source, whether it’s like a hydroelectric dam or like a wind farm and you convert that energy into these machines called ASICs, that basically compete on a global level across all other ASICs to confirm transactions and earn a reward in terms of a block rewards, a little bit of Bitcoin.

In proof of stake and in Solana, there’s this reward of SOL tokens for confirming transactions and locking up, basically, your tokens instead of power. And so that’s what it is at a … I tried to say at the highest level possible. I don’t think that’s very high level, but it can get a lot more technical than that.

Ray: That makes sense. It’s basically the meaningful validators back up their work with actually having skin in the game. But that skin in the game in Solana tokens is actually locked in. It’s not like they can draw that down. A good validator might … I’m sorry, I’m butchering this right now, so please correct me. You might have a good validator who does really good work, but maybe locks in their tokens for 36 months. So they’re a meaningful validator because they actually got a high amount of value staked and they’re locked in for a meaningful amount time period. So does that play into the equation, amount and time duration locked in?

Matty: So in terms of duration, I don’t think there’s any specific timing that you want to lock in. Although in order to participate, in order to continue earning SOL token rewards, you need to have a staked SOL. And so it’s just a requirement to even participate in the network generally. And when looking at validators, the ones that become the top validators, that scale their operations and earn more block rewards than others is that they have an extremely high uptime and yes, they’ve staked their tokens for a longer period of time. And so I think those are factors that lead to building out a successful validator business.

Ray: Yeah. I get this question a lot actually on LinkedIn, where do these validators come from? Are they people at home or many businesses? Could my 16 year old nephew be a validator? Who are they and what’s their background?

Matty: Short answer is, yeah. Anyone with a good internet connection and a really good gaming rig basically, can become a validator and participate in consensus. And there’s plenty of people that do that. Having said that, in order to be economically relevant and really grow your business and actually earn staking rewards, it’s more of a business at that point where you have to connect with a data center and you have to hire employees and ensure uptime and making sure you’re connected to the network at all times. If you just go to solanabeach.io, you can see all the validators listed there. A lot of those validators at the top are professional businesses that this is their job, is to provide validating services across, not just Solana, but all of these proof of stake networks. So, yeah. And they’re pretty globally distributed. There’s a bunch in Europe, they’re in United States, Asia, South America, so it’s really all over the world.

Ray: It makes sense. And another question I got often is, what if in a Web2 form factor, you have a specific validator which is a professional outfit? Like you describe on, everyone should check out solanabeach.io. But that validator ends up having X private capital backing. So, it becomes more and more powerful, has more and more staked, has more and more of the share of the economic activity. So then it imposes a more centralized risk in a proof of stake network like Solana. Is there certain guide rails in place at the cooperating system level where that’s not allowed and certain rules which circuit break that scenario happening, Matt?

Matty: So not in that sense, they’re not rules around that. But I think you’re right. There is a moat that some validators have. What’s interesting though is that, the way that a lot of these validators get the stake size that they have is that they allow individuals who have SOL tokens to stake on their behalf. So they delegate that to these individuals, like myself delegate my tokens to a validator, right? And so there’s also this natural, and I think we saw this with the Bitcoin, honestly, with Bitcoin pools in 2014, 2015, where if anyone pool or a validator in this case becomes too powerful, you see a lot of folks unstake or pull out of that pool to distribute the stake. Because you don’t want someone that has even that risk of centralizing the network.

The other really important thing here is, and we’re getting, I guess, definitely into the intermediary section is this notion of being able to delegate to a stake pool. And what a stake pool does is that, it delegates the tokens to people outside of that top 19. And so it distributes stake evenly across people that have good uptime, that are following the rules that are trying to become a large validator and it automatically shifts stake to those folks to add more numbers to that, I guess, super minority that could shut down the network if all of them are compromised at the same time.

Matty: And so the reason why you would want to do that though, is, one, it helps just the network and two, you get stake tokens. And you can use these staking derivative tokens in DeFi. So you can earn extra yield on it or you can trade them, you can make them economically viable in a lot of DeFi protocols. And so that’s what a lot of people do because of just the extra rewards that you get from doing so.

Ray: Okay. So who are the big staking pool providers for our audience? Because I think that term is getting banded about a lot, but again, people have no clue what staking … Are those individual companies as well, where you get applications which are purely focused on being a staking pool for token holders?

Matty: Yes, absolutely. So the main ones on Solana today are Marinade, Lido and Socean. There’s probably like 10 to 15, but those three are the largest in terms of usage today.

Ray: So then this segues into another mythical topic, which we hope this year, people will try to demystify. Because I think NFTs that part of understanding is moving quick, Matt, and I’m sure you see it in the market where people are … I’m getting carried away here now. It’s still in the minority, let’s face it. But, the understanding of what NFTs are and digital scarcity and the way you can program an NFT to offer X capabilities, I think that train is picking up pace. And with Coinbase NFT coming out and with the announcement with MasterCard to make that unwrap super easy where my sister could do it, I think NFTs are progressing fast.

I felt DeFi, which is a really meaningful value on lock, especially with all the money printing and the fact that no one can get a meaningful risk free rate on return on their capital, is causing so much pain in the world, right? That’s why people are going so further up the risk curve to fight inflation and make sure their fear isn’t a melting ice cube, which it is.

And last year, everyone talked about DeFi summer. Everyone last year, thought this is going to be the year of DeFi. And it’s not really happened because it’s still very complicated. Most people haven’t got a bloody clue of what DeFi is, but I think I’m getting a lot of questions on where does the APY come from? So is a lot of that APY from things like Marinade and Lido, where you are offering your token to a staking pool, they go away and spread that across the more minority validators, and that value exchange, that spread offers some form of yield back to the original holder. Is that an example of DeFi or a way of another financial instrument where people can actually generate yield from holding a Solana or Ethereum?

Matty: Yeah. So just as an example, I think you’re right. So inherently in Solana, according to the core protocol code, there’s an inflation rate. It tails off over time where it becomes very deflationary. But right now that there’s an inflation rate, I think it’s something like, I don’t know, six and a half percent for block rewards. So that means there’s 6% new tokens entering the market. And when you stake, you get to basically get that 6%, because you’re locking up your tokens in a staking validator. And so that’s one way to earn yield, I guess, on your existing tokens. But what’s interesting with stake pools is, you don’t just get that. You get that automatically, but when you use a stake pool like Marinade, it automatically generates an mSOL token. A new token that you can basically go onto a decentralized lending protocol, like Solend and get an additional 5% of just traders who are borrowing tokens on a short term and earn an extra APY that way. And so that’s what’s interesting in terms of stake pools and the ability to earn yield.

Ray: So wait, when it’s things like wrap SOL, which becomes some form of MSOL, for example, that’s then staked with a pure play DeFi protocol and then it goes away off into the mist to those, really exotic, derivatives players who want access to that collateral. And they go away and do their ultra complex trading, which you as a customer at the end doesn’t need to know because it’s far too damn complicated, obviously you’re taking risk. And in that market, that new parallel system, that’s where you get those compelling APYs, because it’s a brand new market and there is some frankly risky, but interesting and exotic things happening. Is that the whole, I know it’s a simplified [crosstalk 00:47:42].

Matty: Yes. That’s generally correct. Although I think the risk is less than you think, because you’re not necessarily like … The way that a lot of these lending protocols work is that they’re over-collateralized. So, when you borrow tokens, you can get liquidated very quickly automatically, if the market turns against you. And so, I think lenders are pretty protected on, on that sense. I think the risk with all of this stuff is that it’s one big experiment, right? Our contracts haven’t been around that long. And so there could be a variety of different bugs, both economic and technical that have happened where, there’s this smart contract risk. But if you’re comfortable with that, if you’re comfortable living in this Web3 world, it’s an interesting world to play around in.

Ray: When do you think DeFi is going to drop? Because I look at the TVL today on say, DeFi pulse, it’s always flirting around 75 billion for sometimes. I think it touched a hundred billion for like a couple of days, but that’s still like tiny in the world of bonds and equities and real estate. It’s nothing, right? When do you think, because I think DeFi is really useful. I know a lot of family and friends who would love to just use an app based DeFi protocol and go, not understand what’s happening on the backend because they don’t need to. And they probably can’t to be fair with them, probably could if they had the time, but they don’t have the time and they just want to get a meaningful yield of six to maybe 8% or further up the risk curve if they decide.

But I don’t see DeFi really blowing up yet, in terms of really accelerating it. But everyone’s mooted before Christmas and January, this is going to be the year of DeFi. From what you’re seeing in the Solana ecosystem, because it’s got a natural superpower for that use case, do you think this year is going to be the year of DeFi, Matt, where it does cross that chasm in terms of adoption and traction?

Matty: First of all, I don’t know. Well, all I know is, where are the developers building? And by far, where they’re building the most is in DeFi. And so that’s why I’m super excited about it. In terms of when mass adoption happens, I don’t know. I think partly, that is determined on a few different funds. One is just, we need better user interfaces and better product experiences that integrate with these core protocols. I think that’s happening quickly. I think things like Phantom, which is the main wallet on Solana, is pushing forward on the UX front and making it really easy to interact with these things. But that’s been something in the past that’s prevented people from entering the DeFi world.

Second, I’m not a lawyer, I’m not a regulator, but I think regulation is a big thing that scares folks in some senses. And it’d be interesting to see how that piece of it plays out, because a lot of this technology is inherently very different than previous technologies and how it functions. And so, I think regulations are going to need to follow suit in order to accommodate the ecosystem.

Ray: It’s interesting, there’s this exponential gap between the tech and regulators, right? You look at securities laws, they’re from 1933, they can’t really understand the context at the moment. The SCC just more have a lazy posture that, “God, these are all securities, period. Right?” And that’s not really an adult way of going about it, right? I think that needs to be revamped. From what we observe and it’s kudos to the community in Web3, they’re just moving so damn quick that regulators just can’t even keep pace. Can they Matt? It’s just too much to digest.

Matty: Yeah. At least in the US, they’re trying to wrap their head around Bitcoin, let alone all this stuff happening in Web3. I remain somewhat optimistic that … This technology is global in nature, and so if any one jurisdiction decides to try to shut it down, or restrict entrepreneurs from building in the space, or holding crypto or whatever, it’s just going to move somewhere else and flourish in that place instead. And so, I think there’s an inherent incentive, at least in the United States to be very, yeah, accommodative to this technology, because I do think it’s the future of the financial space generally, in a bunch of other industries. And so if we want to ensure that we have a good place in the world order in the 21st century, it’s going to require us to have pretty friendly laws. And so we’ll see how it plays out. But I think that’s going to become very apparent, very quickly, in the next couple of years.

Ray: Yeah. I share your optimism, Matt, because there was a big hearing just before … There was one in Q4, right? Where you, I think, was it Brian Brooks, you had to chat with the CEO from Celsius, you had Sam fly in with his, you look funny in a suit.

Matty: [crosstalk 00:53:15].

Ray: Yeah at Coinbase. I think it was Coinbase legal counsel there, which was really cool. Everyone was trying to represent and speak well. And to be fair, Matt, the questions were pretty good from the senators. I think 80% of the questions were good and well researched. I was pleasantly surprised. There’s always one hero in the crowd who doesn’t know anything and can just ask stupid questions, but you could tell everyone actually done their homework, didn’t they? And they were trying to learn and trying to meet people intellectually, halfway. I don’t know if that was just a thing [crosstalk 00:53:53] publicity, but it seemed promising.

Matty: Yeah. It’s interesting. I think there’s a few things that are, just narrative wise, going for crypto. One is just that, China has functionally banned things like mining and exchange within its borders. And so, a counterbalance to that is one narrative that I think is resonating. I think another thing is, there’s this huge push to disintermediate, I think, Google, Facebook, these big Web2 monopolies in a sense. And the government is seemingly, very much, not happy about that. And I think Web2 or Web3 is a technology version of that, right? That I think could gain alignment. And so, yeah. Well, I remain optimistic. If you go to Crypto-Twitter, people are always complaining about the US government and other jurisdictions on their regulation. But I think so far, it hasn’t been that detrimental, at least to the development other than some DeFi protocols don’t feel comfortable offering their interface in the US. But other than that, I think it’s going okay so far.

Ray: Yeah. I think for the US, this is a massive opportunity. So anything they do from a regulatory standpoint, which is archaic, they’re just going to lose entrepreneur and jobs, right, and ingenuity in the economy.

Matty: Yep.

Ray: So fingers crossed, US has got a great history on putting their arms around innovation, right, or the next new paradigm. And that’s been proven out with the internet. So it would be shocking if they let this one slip outside their borders, because you’re right, this time round, it can go global, right? You’ve got different hubs in Southeast Asia, Singapore, I know things are happening in UAE, I know certain parts of Europe. We’ve had a number of guests from the dark region, Germany, Switzerland, Austria. Matt, I was really impressed with some of the active there. UK’s getting there. So US has a shot here, right? To get some impetus back.

So it’s more of an opportunity, but that one we could talk about for hours, because I think that’s going to be a big journey for everyone, right? It’s not going to happen overnight. But going to a key metric, which is always foundational is, they always say follow the developers, right? And Electric Capital published a really good report, I think a week and a half ago where they, I think they mentioned there’s, what? 18,000 plus developers in the ecosystem now. Obviously they were only the open source folks. They could actually track a lot of people. I think the number is a lot bigger than that. But how’s it been at Solana in terms of traction and numbers? What does it look like in terms of that volume and that excitement in that community?

Matty: Yeah. The Electric Capital Developer Report is great. Every year, I always read it. And I think it showed this year that Solana has really increased it’s developer ecosystem. Yeah. And I think you’re right. It’s directionally correct, but it doesn’t include closed repositories on GitHub, which there are many teams building. I think they admitted that it didn’t include like NFTs and gaming and such. So I think it’s directionally correct, not exactly correct.

But in Solana, I think that’s where it stops and ends in terms of why people are so excited about this technology is that it has attracted such a high-quality ecosystem of developers that’s just growing faster than any other chain by a mile. And so, yeah, I think that’s what’s super exciting and obviously, the core technology and its performance is attracting these really quality entrepreneurs. And, yeah, this is what’s most exciting, I think about Solana right now.

Ray: And breaking that activity down, where are you seeing compelling dApps? Is it within the NFT space or B2B enterprise use cases, is it DeFi? What are the top two use cases? What gets you really excited in just the Solana community?

Matty: Right now, I think, yeah, as we’ve talked about just like DeFi, and specifically DeFi use cases right now that can’t really work on other chains, especially like options protocols, other derivatives, margin trading. Things that struggle on other L-1s are thriving on Solana right now. And so that’s one interesting area. And then obviously just like … It was supposed to be the year of DeFi, but it was definitely the year of NFTs, right? And just a huge explosion. I think I mentioned this, but Magic Eden is the main NFT marketplace on Solana right now. And there’s a ton of usage of that. Just a ton of different NFT projects that are plugging into that core infrastructure.

So, yeah. A lot of these projects have started, it’s like generative NFTs, right, like profile pictures, but what’s interesting is, it’s evolving into, first of all, they form like a DAO, right, on discord and they are trying to figure out, “Okay, based on this IP that we all hold, we can build a game, we can build other experiences that incorporate these NFT primitives.” And so I think we’re seeing a lot of games specifically pop up in that vein that I’m really excited about. So yeah, we’ll see how it plays out.

Ray: Awesome. And obviously you’re a practitioner in this space and naturally bullish on this, but some predictions, I know predictions are always a challenge, Matt, in the wacky world of Web3 and the beautiful primitive of the blockchain. But what excite you in the next 18 months to two years, A, in Solana and just B, in the wider Web3 world, what you’re really bullish on and just excited to see come to fruition?

Matty: I’m excited, I guess, for Solana to just continue growing across these various use case verticals like DeFi, NFTs, gaming, I think we’ll see in the next 18 months, very, very large companies and organizations plug into these DeFi protocols and probably just organically some protocols are going to reach a hundred million users. And so, yeah, really excited about that.

Outside of Solana, I think, like I said at the beginning, I’m still a massive Bitcoin believer and I think we’re just macroeconomically and just politically in the world by now, we’re in an interesting spot where there seems like there’s rising inflation on some level, there is a schism in how governments are treating each other, potentially escalated by COVID, I think is a big factor. And I think Bitcoin, obviously I think that it could solve a lot of the issues that we have with our central banking system and inflation, but I think it unifies people in a sense of having a global monetary standard, which I think people are just completely underestimating what the outcome of that will be, but it is a unifying monetary phenomenon and asset, and I’m really excited to see what happens in the next 18 months around Bitcoin.

Ray: Yeah. I couldn’t agree with you more. I think people putting the price action aside, I think that gets looked at too much. It’s not really about that, it is really, if you look back at history and I’m sure you’ve read things like the Bitcoin Standard, there’s a great piece by the same author called the Fiat Standard, which I highly recommend. And if you look at history, the gold standard was meaningful back in the day, right? Because it meant something. It gave you some peg and some meaningful store of value, which Fiat was pegged against. So gold did serve a purpose, right, for all those, God, for thousands of years in the 1900s, it was something. But history is full of so many events where you’ve got central banks, always trying to run away from being pegged against gold, right? And just run away and just be naughty and print and just destroy the monetary base.

So history has proved they can’t be trusted to behave and stay on a gold standard or stay on some form of peg, which protects wealth. So it looks like the Bitcoin network it’s like adult supervision, right? Independent adult supervision on having an effective monetary system in a way. It seems like the mature, mathematically program, beautiful system in the room, right? Which can solve this world problem, which leads to so many socioeconomic problems, inequality in wealth and all the other side effects around that. So what’s your thoughts on that? Is that the way you like to think about Bitcoin or would you like to also add to that perspective?

Matty: Yeah. I agree with a lot of what you said. I think the way maybe I’ve recently, after years, convinced my parents that Bitcoin matters is that, I think two factors. One is that, central banks, it’s just a group of people, right, that are influenced often by politics and their view of what the state of the economy is, which is often imperfect. And so, we’re just relying on a small group of people to make a decision on what the supply or demand of money should be. And I think that was proven out in the 20th century that that central planning doesn’t work in markets very well. And I think Bitcoin is immune to that. It’s more of a market based solution to the money problem.

And so that leads to one really important thing, which is the ability to economically plan, and I think this also relates with Web3 where if you look at, yeah, again, like the lessons of the 20th century were like, where economic prosperity happened is often in places that provided, one, certainty and stability both in rule of law and it’s economy in terms of building businesses and creating entrepreneurship. And so, I think Bitcoin and these incredibly neutral, smart contract platforms are setting up a digital country or nation in a sense of having that certainty and that ability to economically plan for everyone, no matter where you live. And so, I think that’s a super powerful concept and I think we’re just seeing the beginnings of it right now, but yeah, just super excited about it all generally. Yeah.

Ray: Yeah. I love the way you put it there, Matt, economically plan and that opportunity being open to everyone. It could be someone with say, a blue collar job but works really hard and wants to plan for their children’s education. So allocate somewhere where they get a meaningful yield and they can just have a happy life and have structure, or it could be someone who an ultra high performer and works really hard and achieves something great. But then can still not have to spend an exorbitant amount of time, like Michael Saylor who was an enterprise software guy, but he’s gone so far up the risk curve and research rabbit hole to go, “I need to protect myself, right? I’m really pissed off with the system, I’m going to go all in on investing, but also advocate and make this a global standard because the world needs to change.”

So, I think the existing system is forcing people to even not do anything. And I feel so sorry for them because a lot of them don’t even know. The ones who do know are super frustrated, hence all the challenges we have on the social side of things. But also, the people who do know are forced further up the risk curve, right? Enough to do growth equities and do this and do that and do handstands just to defend themselves against basic inflation. And inflation is a vector, right? And for most people, in most areas, if you live in the Bay Area, you might argue your inflation rate, depending on your context, can be up to 35%, right, if you’re into prime real estate and you are quite ambitious around where you live, right?

So it’s all these handstands we have to do, that energy can be used on creating the next new great medicine or building something in your community which helps children, where all this other energy is now being used on protecting your wealth, which you can have math and code do that and go, “Guys, I’m taking care of this, go do some other cool stuff.” It seems so obvious, but I know it’s going to be a challenge getting there.

Matty: Yeah. And I think it’s just also so many people. I think what’s interesting about DeFi and Bitcoin and some of these things is that there’s so many people working within the financial industry, these huge monolithic companies. And these people are like, “Should some of the best and brightest PhDs in the world be working at hedge funds to make an 8% return on their capital, right? Is that the best usage of their time?” And I don’t think it is. I think, if there’s more certainty, I think a lot of these folks will choose things that they’re passionate about. And so, yeah. I completely agree.

Ray: Yeah. You’re from the Elon Musk school or camp I think. Elon says it all the time. He goes, “The amount of engineering talent which gets sucked into finance engineering because of the economic rewards, is a complete waste of talent.” So obviously, we need financial engineering in Web3, but once it’s built, it’s built, right? It’s software.

Matty: Yep.

Ray: So, yeah, I couldn’t agree with you more. Those engineering chops needs to go into machine learning first medicine and life sciences or anything around the environment. So, yeah.

Matty: And I think what’s interesting also is, I think we’re just seeing the beginnings of this is, this notion of a DAO and a group of people forming around a certain cause or want to buy something, right? I don’t know if you saw … Obviously you’ve probably heard of the ConstitutionDAO.

Ray: Yeah. The ConstitutionDAO, that was crazy, right?

Matty: But then there was more recently this group of people that didn’t believe like Ross Ulbricht, the founder of the Silk Road shouldn’t be in prison for life. And so, they’ve banded together and are formulating a coalition to get him out of prison, right?

Ray: I wasn’t aware of that one.

Matty: Yeah. But that notion of just seeing people form capital, form a group until it’s a group that’s non-sovereign to solve some problem that needs attention, I think is really interesting. I think that’s where you’re going to see maybe climate work and education and all sorts of really interesting use cases for DAOs. And so that’s another pretty exciting area. I think we’ll see, maybe not in the next year or two, but five, 10 years down the line.

Ray: Matt, on that one, I think DAOs might happen a lot faster than we think. I’ve got a little sneaky feeling.

Matty: What’s your reasoning for that?

Ray: I just think, obviously you had the ConstitutionDAO, right?

Matty: Yeah.

Ray: And then obviously, you got the Silk Road situation. And I’m seeing a few emergent use cases. I’ve seen a really cool one, which does it on early stage R&D within life sciences. They’re doing some work around longevity drugs, which I thought was quite cool when that spun up. But I think, the actual model of a DAO, and the way you can spin it up, and the way you can bake in all the incentive structures, we actually have a lot of those picks and shovels, either ready or about to be ready and very scalable.

So, the actual stack is pretty much nearly there. And I think, with right marketing and the right packaging for folks at scale to understand what a DAO is and how they can participate at scale, might happen a lot faster because it can then jet ski on the back of other, obviously using Kickstarter, other FES AngelList, there already is Web2 type. You’ve got Republic, there already are examples which people are aware of and they’re successful of capital formation through retail getting involved and many parties all across the world.

So I just think mentally, if it’s packaged well with the right team doing it, I think people will get it and go, “Wow. I want to participate. I want to work for a DAO. I can work there and get even more values.” And I think that’s going to converge, because I think a lot of things move fast when things are secretly converging. What’s happening with NFTs and Coinbase, MasterCard, all of these periphery things just quietly in the background will accelerate the timing for DAOs and the understanding of DAOs. Am I making sense where all these background things accidentally end up accelerating DAOs, and the adoption of DAOs, and the way they gather momentum and traction?

Matty: Yeah, no. I think I generally agree. We’ll see what people do. I think one interesting, maybe point to add on to that is, if you’ve ever joined, let’s say one of these DAOs that exist in NFT land, where you have a bunch of people that bought into this vision of an NFT project and they have profile pictures or whatever, cats or monkeys or whatever, if you go into these Discord channels, what’s interesting is that there’s usually a skills channels, where people will post, “Hey, I’m a designer.” Or, “Hey, I’m an accountant.” And the vastness of experiences and people that are in these things is insane. You could never hire for this diverse group of skill sets.

And I’m curious to see if that results just like in very different ancillary products and services or movements around it. And I don’t want to say that DAOs are going to disrupt the limited liability corporation model, but I think their ability to attract a bunch of different types of people under a shared vision is really interesting. Yeah.

Ray: Even the LLC model back in the day was a huge innovation.

Matty: It was huge, huge innovation.

Ray: There’s actually a book about it. I forgot the topic. I’ll ping it to, Matt.

Matty: Yeah.

Ray: But that was huge because before that, you didn’t have that where people were like, “I’m not going to invest. I’ve got crazy exposure. See you later, right.” People underestimate how massive the LLC form factor was. You described it, Matt, you raised a crazy point here, when you talk about, not only capital formation, but top quality talent formation.

Matty: Yep.

Ray: So analogy I would use is, it’s more of a Web2 SAS analogy, but you’ll know, you’re a growth guy and you’re from Square, you spent four years there. You don’t need people talk about product-led growth where the product’s that good and it just grows itself because you have a free in your model, people use a product they’re not paying. With DAOs, you are going to have talent ape into a project because talent will be aware, I can shop for a job. I can actually look inside the kimono and see what this is and make my own decision if I want to participate. When that genie is out the bottle, top people are going to be like, “Mate, I don’t need to go speak to a recruiter or apply for a job. There’s plenty of DAOs out there. Here’s a repository of DAOs or a subset of DAOs, I’m just going to go out there and find it myself or create my own one.”

Matty: Yeah.

Ray: And suck up talent. [crosstalk 01:16:14].

Matty: Yeah, no, I agree. I know this is already happening in the crypto industry where I know some really top investors, data scientists, designers that were leading VC firms and crypto projects that just quit, and now they issue out proposals to DAOs of DeFi projects or NFT projects for their services essentially. And they’re making a living doing that and a much better living than they were when they were working for some VC firm. So it’s interesting.

Ray: Yeah. And if these things scale, this is more finance talk here, but it is meaningful to people, the liquidity profile is revolutionary. Once these projects scale, people stay in the projects because they’re passionate about it, but people can gain liquidity if required, right, because of a personal reason. A is in your classic startup model, this is just a whole new way of capital formation, talent formation, business execution and having liquidity whenever you want it, because you’ve done the work and you’ve earned it without no process. It seems so much better on all fronts, Matt.

Matty: Yeah. I think that the way that you laid out is good, where I think in 2017, it’s interesting, there’s the explosion of the ICO, right?

Ray: Yeah.

Matty: The narrative was like, “Look at how ridiculous this is, all these crappy projects getting tons of funding.” But what was the missing huge benefit to this was, there has never been in a time in history where you could accumulate capital so efficiently and effectively across the world from so many different people. And I think that was the model that was pioneered in 2017. But now I think with the, like you said, the DAO tooling and services have allowed for this next, really important critical part, which is, yeah, attracting talent to all this capital. And good things happen when those two things meet, right? And so, yeah, we’ll see what happens in the future.

Ray: Yeah. It’s definitely one to watch. But Matt, man we could go on for hours. This has been an enthralling conversation. For our audience, top resources that you recommend online or books for someone who’s entry level or slightly entry/approaching intermediate, whatever intermediate means in this wacky world. But any recommended favorite learning resource where people can continue their learning journey.

Matty: Yeah. This is a good question. There’s a ton of noise in crypto generally. If you’re someone coming in fresh, actually it’s hard to sift through. I don’t know if I have any books necessarily to recommend, but they got to get on Crypto-Twitter. This is the epicenter of crypto information and starting to spend the time finding people that you trust that are in the space and that will lead you to follow and create a feed of information coming out of the crypto industry that you can learn very quickly from. So that is my one recommendation is definitely get on Twitter.

And then, I don’t know. If you’re interested in Bitcoin and want to learn just about the principles, I would just like YouTube, Andreas Antonopoulos, he’s got a bunch of great videos about the philosophy and economics behind Bitcoin. And at least when I was first starting out, I learned a lot from him. So I highly recommend him on YouTube.

Ray: He’s Andreas, he does that Internet of Value series. I think I’ve seen some of his stuff.

Matty: I haven’t actually checked out that I’m more of, search for his stuff from 2013 and 2014, to be honest.

Yeah. He just has a lot of overviews about what Bitcoin is, why it was built, what the problems of the current system are and, yeah, how it could potentially solve it. So, yeah, highly recommend him.

Ray: Brilliant. Well, Matt, it’s been awesome having you on the show. Mate, let’s do part two maybe in September, right? When a part of the season’s being played out and we’ll see where Solana is and all the great work you are doing there. So are you up for part two in maybe late Q3?

Matty: Yeah. Happy to do it. Happy to jump on again. It was great chatting with you.

Ray: Awesome, Matt. Well, I look forward to catching up with you soon and you have a fantastic start to the year.

Matty: Okay.

Ray: Cheers.

Matty: Bye.

Episode Highlights

• How Helium became the largest IoT blockchain operating in the world
• The global benefits of taking a Web3 approach to IoT for sushi restaurant owners, rat catchers, and more!
• How organizations like Helium are partnering with well-known Web2 companies to shape the future of networks
• Want curated insights into innovation across deep tech, IP and more, straight to your inbox? Sign up to the Connected Innovation Intelligence Newsletter.

Episode Transcript

Ray Chohan: Mark welcome to Frontier3, really excited to have you on the show today. And it’ll be great to kick off with your background story because I can see you graduated from Syracuse University back in ’07. So it’ll be great to kick off with your career arc.

Mark Phillips Yeah. Happy to do that. Thanks for having me on the podcast here, Ray. My career arc is a little bit non-typical for what I’m doing, but I guess that’s not too surprising. So as you mentioned, I went to Syracuse University in New York state here in the United States studied political science with a minor in French and managed to apply pretty much none of that, quite frankly, after leaving university. And then moved to the Boston area. I’m from Massachusetts and moved to the Boston area, looking for something to do professionally and ended up working for a company called Basho Technologies, which at the time was making this sales optimization platform. And I joined them as a writer. So basically I was writing sales pitches for sales people, which is a hilariously meta thing to do.

And then worked in a few different roles there until the company actually shuttered due to lack of funding. But I had the ability to work amongst a group of remarkably brilliant engineers and learned a lot about how technology and engineering worked in that role. And then what happened with Basho was most of the company was unfortunately laid off because we couldn’t raise money and that’s a longer story, which we can get into over drinks. But the core engineering teams stuck around to basically take this database that the company had built something called Riak, R-I-A-K, and you can still find people using on the internet. And it was an open source distributed key value store. And so the company paired down to about seven engineers, the CEO, the CTO, the COO and myself. I was lucky enough to be kept around.

Accidentally managed to keep the job by calling up my boss saying, “Hey, I’d like to buy my computer because I don’t have one.” He said, “Well come in and work a few days and you can have it.” And then from there we went off and tried to build a database with the storage layer for the sales platform into something interesting. And so I grew into a sales engineering and community development role there at Basho. And then after about six years, one of my colleagues at the company, a guy named Sean Carey ended up co-founding Helium along with Shawn Fanning and Amir Haleem, our CEO. And he asked me to come over and join Helium to run business development about eight years ago. I think my eight year anniversary is next week, which is pretty wild. So that’s how I ended up here at Helium.

Ray: Congratulations. I really appreciated that on your LinkedIn profile you’ve got this really meaningful tenure at Basho, and congrats eight years at actually a business which is in Web3. That’s rare.

Mark Terrifying, but thank you very much.

Ray: You’re at the 0.01% for sure when it comes to tenure and time in market. So you walk through the door at Helium in February, 2014. What was the business like back then and how have you guys evolved to a Web3 business model? Because correct me if I’m wrong, the business didn’t really start off with a Web3 thesis.

Mark Yeah. I will not correct you because you’re not wrong. No. So when the company was founded, so Amir and Shawn Fanning had met through some mutual friends, primarily in the space of gaming. And so through those conversations, they started to talk about the idea of building something for connectivity. They actually had a few peers who were building companies that needed to connect devices to the internet. And a ton of the options, they’d be things like cellular and wifi and crazy things like Zigbee, didn’t really worked very well. So they said, well, we’re not doing anything. Let’s give this a shot. And so that was the genesis for starting Helium. Fun fact, the company was actually called Skynet when it was founded. If you look far enough back, you can find some press releases about this mysterious company called Skynet raising money.

And so Helium was very much a commercial organization that was building public wireless networks. And there was not any blockchain component to it at that point. And so when I joined in 2014, the mission was to build a public open wireless network, but it was through somewhat traditional mechanisms. Which was you’d go out and you would sign customers who had a use case for connecting you a foot traffic sensor to the network, you would sell them some hardware to deploy in their building or on their building or inside of their warehouse. And then they would procure the sensors and they would put these on the network. And then the cloud piece was very basic, data from sensor to the network, back to a cloud endpoint. At that point the cloud of course was much less mature than it is now so there was still a lot of people running this in private data centers. And then they would build applications on top of this stuff.

And so we built various versions of this product for about five years. And then leading into the most recent funding round. So the seed C raid… raised rather. So seed A, B, and then C, which was led by Multicoin and Union Square Ventures. That was back in May, 2019. Up until that point, we were still building traditional… it wasn’t traditional in the sense because it was public and open, but there was no Web3 blockchain component to it whatsoever. The shift for us happened out of a confluence of necessity and the available tools on the market. Right around when we started talking about this crazy idea of incentivizing people to build coverage, bitcoin and ethereum were becoming, I think they were having their second surge popularity.

We used to walk around the San Francisco office talking about how we might put the bitcoin blockchain onto hardware and have people operate this in their house. But ultimately we decided to build something brand new from scratch and have a go at this wild experiment of incentivizing people to create the coverage that was required for IOT or internet of things use cases. Because what ended up happening in most of these enterprise deployments previously, let’s say middle of 2018, was that people would want to use the infrastructure but no one wants to maintain a wireless network if that’s not their core business. So we kept hitting that wall. And so we basically went back to the drawing board and said, let’s just try something absolutely crazy here. This thing called blockchain is getting somewhat popular. Can we integrate this into the hardware that we’re selling and distributing and make the network coverage go a lot faster? And that has exploded in such a wild way that no one even imagined could be possible at dealing.

Ray: Just pausing there, I just want to unpack one key point for the audience because a lot of our audience are folks on LinkedIn. So folks who’ve spent most of their career in Web2 are probably exploring Web3, but let’s face it Mark, probably at scale don’t really get it. They kind of get it from a distance. So just put pin in. So initially the business is trying to scale a wireless network and the original thesis was we could now go to say, mom and pop shops, warehouse owners, any business location and in essence, ask them, would you like to be part of the network? So have some picks and shovels and hardware to be part of this network. But at that time there actually wasn’t no real incentive in terms of feedback loop to those different nodes on the network. Is that right? So you were going to them in a kind of evangelical fashion, but there was no real what’s in it for me doing this for Helium. Is that correct?

Mark Yeah, that’s mostly correct. Right. Basically at that point we were selling something specifically catered to the IOT use case. So one example is we used to actually have a product I think it was called Pulse, so Helium Pulse. And this was a pre-packaged cold chain monitoring product. And we would go to quick service restaurants, McDonald’s, Cava grill, that sort of company and say, listen, you’ve got a bunch of refrigerators, you probably don’t know what the temperature is. If you do know what the temperature is, someone’s doing it by hand on a clipboard once every 10 hours just to make sure that they’re checking boxes. But in some cases, sushi restaurants have a quarter million dollars worth of inventory that might just go bad in the middle of the night because somebody unplugs something.

So as an example, as a sushi restaurant, we know this from market research and talking to customers at that point, you might have a quarter million dollars worth of inventory at a sushi restaurant in a refrigerator. And a lot of the times these things just fail in the middle of the night to a compressor issue or someone unplugging something accidentally. And so we would sell a solution that would monitor that. And it was great. There was a dashboard that would show you real time data, you get alerts on your phone. But to your earlier question, there was no real incentive for the people deploying the network outside of the fact that they did get some value from it in that use case, which of course is extremely valuable and that’s ultimately what the network is about. But at that point we were selling specifically to a business need versus building this community of people who were incentivized to build a network and use it.

Ray: So, use case one was, for example, let’s look at that, refrigerator monitoring, IOT capability. So, that was probably more of a classic subscription model, like enterprise software and hardware, where if I am a sushi restaurant, like Yo Sushi for example, which is a brand here in the UK, I might actually would love to have the front end software because yeah, we do have inventory which parishes due to things which happened with refrigeration. So at that time prior to adopting the Web3 model, was it like a classic subscription based model then back then?

Mark It was, yeah. I’m forgetting the exact pricing, but it was some combination of the cost of hardware, plus a monthly subscription to the service that tailed down over time as you pay down the hardware or the CapEx, I guess. And the buyers for that product are facilities managers, heads of operations, if it’s a smaller outfits, the CEO or the CTO, but yeah, that’s exactly what the model is.

Ray: And what was the network model in that model then? Of the more you have on the network. What was the wider value to the community, the more customers you have? Was that part of the story and part of the long term value prop?

Mark We planned for that to be part of the story. The issue is that it just takes so much coverage for it to be useful in a public sense. Meaning if you look at the Helium network now where we’re well over 500,000 gateways, we have extremely meaningful coverage in many countries throughout the world. Deploying with the previous model, we may have gotten there, but there was really no incentive to make people go faster. So, I remember that we did use this in our pitches and as part of our strategy, but we just hoped to get there over time, by massively deploying this wireless network through our customers.

Ray: Okay.

Mark We certainly would not have gotten to where we are now in terms of the amount of coverage if we had stuck with that model.

Ray: Okay, great. So, I want to be really pointed here because your story is fascinating. What was the specific month, moment, business conversation where the business said, let’s go Web3, let’s go on the blockchain, this is the way to build that ultimate incentive structure, stroke feedback loop. What exactly happened?

Mark It’d be hard to pinpoint it to a date. A time range would be sometimes toward maybe the middle of 2018. From a company perspective we had tried, I mentioned that we built this vertical solution for temperature monitoring. The company’s specialty is building distributed systems. And we never really wanted to build a vertical solution for IOT. The plan was we would try a few verticals and prove that they were useful. If they got successful enough, we sell off the business unit to somebody who was interested in running it. But the company, Amir and the engineering team… and a lot of the engineering team came from Basho, the company that I came from, at least a lot of the early engineers. And so the desire was always to build resilient, scalable distributed systems.

And so I would say sometime around the middle of 2018, I believe what happened was one of the engineers, a guy who goes by the name of Bone said… Bones isn’t his actual name. That’s what we call him at the company. His name is Andrew. He said, “I’m going to write a white paper. Everyone who does these blockchain projects has a white paper. And I'm going to take a pass at one that would describe how we would build a decentralized open IOT network using a blockchain incentive model. And that’s really what started it. And it was we’d been sitting around having a bunch of drinks, kicking around ideas to basically save the company, because at that point although we had raised $37-$38 million US worth of funding, none of our models were working. And so we pretty much only had one more shot at it. Yeah. So I would say it was in the back half of 2018 where we really decided to make the switch. And it was just based on some crazy exploration. At some point, Amir said, “I mean, this might just work, so let’s go for it.”

Ray: Awesome. So someone internally picks up the bag and said, Hey, I’m going to spin up a white paper. The founder’s leadership, like yourself, are like, there’s actually legs to this. Let’s just do it. Was that literally the moment where let’s just execute and run an experiment?

Mark Yeah. That’s pretty much what it was. And our engineering team is so hungry and talented that it’s likely that as that white paper was being produced, somebody else was off writing code for a proof of concept, right? So we probably had something working very quickly. And we determined that the existing technology in the blockchain space, primarily Ethereum and bitcoin, those blockchains were not going to work for us due to the requirements of how the Helium blockchain operates. And maybe we’ll get into that. But it’s a ridiculous proposition to say, well we’ll save the business by building a blockchain and layering the wireless network onto it. Nobody wants to build a wireless protocol. Nobody wants to build a blockchain. I would still generally advise people not do that. I think if you talk to our engineering team, nobody would want to do it again. Yeah.

Ray: So, you make that change in 2018. Is that when Multicoin come in or did you guys start building momentum with number of customers / revenue, where they came and what was the story behind Multicoin jumping in?

Mark Yeah, so Multicoin along with Union Square Ventures ended up leading the C round of funding that we did in May, 2019. They were not involved to my recollection in the very early conversations around integrating and writing what became the Helium blockchain. But we did talk to them a while before they ended up leading the funding round. Those guys, Tochar and Kyle and the entire team, they were extremely instrumental from the beginning. Outside of the fact that they have deep knowledge in the technology and the economics of blockchain, they were instrumental, for example, in suggesting this data credit mechanism that we have, which basically enables us to build real utility around the token and also has some really nice properties when it comes to making the Helium network usable to people who don’t want to actually interact with the cryptocurrency at all. Yeah. So, they were a huge part of the success for sure.

Ray: Makes sense. So, unpacking now the core value prop. Now you’re fully all in on Web3. Like what is Helium today? Like what is the vision and mission, value prop of the organization?

Mark Yeah, that’s a great question. So today, in the easiest and most straightforward terms, the Helium network is the largest contiguous wireless network in the world. It’s also probably the largest blockchain in the world. We don’t talk about that too much. We probably will more in the future. But we’ve got over 5,000 full nodes running on the Helium blockchain. But again, more importantly, it's the largest wireless network in the world. It specifically is made, at this point, to send data from IOT devices, small devices. And we believe that we have a shot at being the largest wireless network, the largest decentralized wireless network in the world within the next five to 10 years. So, that’s where we are currently.

And so the value proposition is two-sided. For people who want to have a stake in building something brand new and transformational, it’s as easy as acquiring a $400 piece of hardware and spending 10 minutes to set it up and then becoming part of the decentralized network. For users of the network… and again, all this really drives towards is utility, because that’s all we care about in the end. We hear day in and day out from large companies and small companies, but mostly large companies, that have use cases for an IOT network, but were not able to do it because the network just didn’t exist. And so that’s really the important takeaway here is that we now have given people the ability from a utility perspective to send data from devices back to a cloud application that powers GPS location trackers, and mission critical supply chain and logistics pieces on this open decentralized wireless network.

Ray: It makes sense. So to simplify it further, is there a future state where it’s retail, local grocery shops who participate in the Helium network? So they buy a 400 pound device and they’re now a node on the network. Is that in essence how it would look like now and in the future?

Mark I mean, that’s a current state, right? So, what’s fascinating about how this gets deployed is that the typical journey for someone who wants to create coverage, there’s not so many early adopters now. Of course, because we’re a few years into this. But one learns about Helium on a message board, they’re on Reddit, they’re on Twitter. They see this thing about a blockchain for IOT. They do some research. They buy a piece of hardware and they deploy. It’s called a hotspot. So they deploy a hotspot in their home. And then they get very addicted to the mechanism of deploying it because the community, aside from being attracted by the incentive mechanism, is actually very committed to changing the way that wireless networks are deployed. So they tell their parents, they tell their sister, they tell their neighbor, they tell the person running the grocery store.

And what’s typically the limiting factor to how much someone can contribute to the community and create in terms of coverage is locations to deploy hardware, right? You probably have an apartment. You might have an office where they’ll let you deploy something like this, or maybe you own your own office and you put it there. And for most people that’s pretty much it. We’re now starting to see the emergence of very well funded and very sophisticated coverage deployers that might own towers, they might lease tower space from traditional companies like Crown Castle in the United States. They’re talking to billboard companies.

So people are doing fascinating things to actually deploy coverage. And then to your specific suggestion about grocery stores, what happens is after someone learns about how the economics work and the actual use of the network, they then actually go about forcing utility. What I mean by that is they say, well, great. I live in, I don’t know, Topeka, Kansas. I’ve got 20 hot spots running. I want to deploy another 50. What is it that I can do to convince people to put this in their location? And sometimes what they do is they share a percentage of the mining, right? So they’ll say I’ll give you 20% or 30% of HNT. But more and more what we see is people saying, Hey, listen, you’re a grocery store operator. You have some refrigerators, there’s a bunch of pre-built sensors that I can take and put into your refrigerators and I can deliver you this very nice dashboard and I’ll do it all for free, or I’ll do it all for $5 a month per sensor. And that gets the network deployed extremely quick.

And what’s amazing about that is that if you recall the story before about that vertical application, we didn’t want to build that. We just felt that we had to prove that the network had utility and now the community is actually forcing that utility for us. It’s quite fascinating.

Ray: Wow. This is fascinating. This model, this naturally incentivized model, you in essence build the world’s largest decentralized SalesForce in essence, because A, they’re part of the network themselves. Say someone in an apartment will have a node, but then to your point, Mark, at Thanksgiving, tell family and friends, and then continue evangelizing at their local grocery store. And the list goes on and on. So what does that look like now? And obviously then you mentioned the B2B side, which is interesting where you’re getting people who might have access to specific towers or other types of localized infrastructure where they’re connecting at mass.

So, simplifying it at the more retail level. What does that look like for you guys now? Is it exponentially in terms of the uptake where you’re getting folks approaching Helium and wanting to be part of the network? Well, what does that look like? Do I send an email to you where you send me a device? What does that actually? Because I know a lot of our friends say, “Okay, Ray, how does that work? Do I have an app on my phone where Helium are constantly sending devices to people I proposed a network to?” What does that look like in practicality terms?

Mark Yeah, it’s gone through a few phases. So when we first started, so the first hotspot came online, I think it was July 29th, 2019, and so the strategy was to start with one city in the United States. We started with Austin, Texas for a variety of reasons. We determined that there was a lot of forward thinking technologists just down there. There were some crypto fans. And so we pre-sold, I think it was 150 Helium hotspots into the Austin market and we launched the network. We kicked off the blockchain, the first HNT was mined at the genesis block, roughly July 29th, I would say August 1st, 2019. And at that point, Helium Inc. was manufacturing and selling and supporting Helium hotspots directly. So we built the first version of this for a variety of reasons. The wireless technology that we use is known as LoRawan, which is a specification that's owned by a company called Semtech, which builds the silicon that does the wireless protocol, but it’s generally an open specification.

So we used that for the wireless. And we had to build a blockchain minor. There was 30 companies that were building LoRawan gateways at the time, because as a protocol, it was gaining some momentum. It didn’t have a ton of usage, but it showed some promise. And so we decided to use that. But none of the existing hardware could handle the Helium blockchain requirements, even though they’re quite minimal compared to other blockchains. And so we built the first version of the hotspot. We built and manufactured, I think about 17,000 of those. And so those were the first gateways on the network. And then we along with the community at that time, and that would’ve been 2020, made a very specific decision to open up the manufacturing pipeline for other companies to manufacture Helium enabled gateways. And so along with that, we have pretty much moved out of the business of instigating coverage creation. I used to spend a lot of my time working with people who wanted to deploy 10, 50, 100 gateways and help them acquire those and give them advice on locations and talk them through the whole process.

We generally don’t even touch that anymore only because the coverage engine is really just working now. We add, I think 3,000 or 3,500 gateways a day, which is pretty staggering. 3,000 miners to the network every single day. We’ve got about 40 different companies that are approved by what's called the Decentralized Wireless Alliance, which is the foundation that governs the network. And so these are companies like Seed and Bobcat and TEKTELIC and 35 others. And there’s another 30 in the queue that are manufacturing gateways that should be approved in the next two or three months. And so to that specific question, we don’t spend too much time actually on coverage anymore. We’re spending a little bit more time thinking about how to instigate different wireless coverage creation. So cellular wifi, for example. But when it comes to the core LoRawan gateways, that’s entirely in the hands of the community now. And the ecosystem is remarkable and accelerating that still.

Ray: Wow. So, this is really key. This is what I want folks on LinkedIn to really understand. Like what you’ve described there is, I mean, it sounds like utopia, Mark. But I know the execution must be so hard. It’s blood, sweat, and tears. What you and the team have done is exceptional. I know there’s lots of nitty, gritty and execution and effort behind this. But is it fair to say now you’ve approached a part of that exponential curve where gateway providers, be it retail, be it smaller, local businesses doing things at mass, and now you’ve got the Alliance on the hardware side. The incentive loop is built now, like the flywheel is going. Where be it you’re a hardware provider as a part of the Alliance family, or a gateway provider, be it retail, be it more B2B at mass, everyone’s just all in, because the incentive model is a creative to everyone who helps the network scale and operate effectively. Is that the lay of the land now?

Mark Yeah, that’s entirely right. That’s entirely right. I mean, we have, as I mentioned, there’s a half a million LoRawan gateways that are online now. We’ve been told through our manufacturing partners that there’s upwards of 3 million additional chip sets that have been procured to build hardware just for the LoRawan line. So yeah, that is operating as we could have hoped. We’ve certainly reached escape velocity when it comes to with the incentive mechanism aligning with creating coverage. So yes, that’s working now.

Ray: And unpacking some of the economics. So we’re going to have a lot of folks here from BTB enterprise software, marketing, all types of tech companies, a lot of our listeners work in R&D, actually some of the folks in the Alliance might be some customers. So we’ve got quite a broad audience. What do the economics and incentive structure… first let’s start with kind of mom and pop or retail. Say it’s a bright 22 year old who’s just graduated, all in on Web3, is a Helium token holder anyway because he or she just loves your mission. Like how does the economics work for that individual who decides to be a gateway operator at home or in their apartment in downtown New York? And then kind of scale that network? What do the economics and the incentive look like in the most simplistic format?

Mark Yeah. So I’ll say that they’re generally uniform across all demographics. So there’s two incentives to deploying the network. And I’m going to talk specifically about the LoRawan and IOT incentive, because for future wireless protocols that get added to the blockchain, and we do have those starting to come online now, the economics, of course, we’ll still be based on HNT, but we’ll be slightly different in the specifics. But for LoRawan and IOT, we started with incentivizing just raw coverage. So the blockchain at this point, when it was launched it was slightly different, but now about 67% of all HNT goes to hotspot operators. And within that 67% of HNT, most of it goes to people actually just deploying raw coverage.

So to your example, this person buys a hotspot, they deploy it in their home or business. They put it online and to get it online you have to just give it power and give it back haul. So usually wifi or ethernet, but increasingly cellular. And then to just from that simple act, you’re providing coverage and the hotspot will continue to provide coverage, but in the process do something called proof of coverage, which is to emit radio packets and also capture other radio packets from hotspots that are geographically approximate. So that’s the primary incentive mechanism, just simply providing coverage.

Over time the proof of coverage algorithm is weighted to push more HNT to people who are actually providing coverage for real devices. So real devices are the examples we’ve just talked about with refrigeration monitoring. One of my favorite devices is a Helium enabled rat trap from a company called Victor Mouse Traps in the United States. If I had my camera up, I’d show it to you. I show it to everybody that I can. I’ve got about five running in my house because we live in an older house and sometimes we catch mice. But every time this trap has a mouse wander into it, it sends a packet back over the Helium network that ends up in a phone app that says, “Hey go check trap seven. There might be something there.” And so over time, the network incentivizes more about data routing from devices versus raw coverage. But you earn as an operator on the network, or a host as they’re called, HNT for both of those activities.

And so the two things that dictate it are the quality and breadth of coverage that you can provide. And what I mean by that is, if you look at a city like New York, there is a tremendous amount of Helium coverage. I think there’s something like 3,500 or 4,000 hotspots in the five boroughs of New York. We probably don’t need that much coverage. And so what happens there is that using a mechanism called transmit scale, basically you’re rewarded less than you could be because there’s too much Helium coverage. Conversely, if you are a scrappy individual that wants to deploy 10 hotspots in an area where there’s none, you’ll be providing net new coverage to the network and you’ll likely earn at a higher rate versus someone who puts one in Los Angeles or London or Paris due the fact that there’s less coverage in that new location, and it’s not as saturated. So the network weights it more heavily, if that makes sense.

Ray: Makes perfect sense. And what does it look like? I mean, say you get someone who’s bright, young and enthusiastic, they’re already started developing coverage for your new network, does Helium enable them directly as well? So send them enablement content, support, allowing them to speak to say local businesses or a local factory, which is around the corner from their apartment and they should be using the Helium network? Like, what does that process actually look like? Because they’re not full time employees of the business, right? So to enable them with the Helium narrative and just that starter pack, do you guys provide that as a business for all these evangelical people who are part of the network?

Mark Yes. So we actually provide very little and that’s by design, and I can describe why that is. So, it’s worth drawing a distinction between two entities. One is the Helium blockchain, right? The protocol, HNT, all the code that makes up this wireless network. That’s all open source, it’s all very much decentralized. It operates on its own. It’s very much a decentralized open blockchain based on a utility token. And pretty much everything that happens in that realm happens on its own, just pushed and managed by the community, under the leadership of the foundation, the Decentralized Wireless Alliance. All that generally just happens thanks to the ecosystem. Helium, Inc, which, which of course founded the blockchain network, we do you very little when it comes to actually enabling people and that’s because the community is so powerful in doing so.

And this was always the plan, right? We thought we would have to enable this for quite frankly, a much longer period of time, but the ecosystem and the companies that have come into the ecosystem and the community that operates are just so efficient and so rabid, quite frankly, about enabling the growth that we actually have to do very little for that. I mean, at this point, I’m not sure if you’re in our Discord server, we’ve got about 150,000 people in our discord server. And so these people show up every day to do things as simple as optimize antenna heights, right? So there’s a channel for figuring out which antenna to use. If you want to put something outdoors, you go into a different channel and ask questions about I’m putting this on the side of a mountain, what solar panel do I need? Et cetera, et cetera.

We also have a remarkable local grassroots community piece to it. So people form groups around specific states in the United States or specific countries, even down to the specific neighborhoods. There’s a fascinating set of tools from the community that lets you basically connect in the real world if you want to, with people who are deploying coverage in your same geography, so you can optimize deployments. So no, Helium Inc does very little to this. We’re not giving people materials, we’re not giving people collateral, they’re learning on their own, right? They’re going to Reddit and reading about it. They’re going to Discord. They’re reading blog posts. If you go to TikTok or YouTube, there’s an absurd amount of content on Helium and HNT, but also a ton about how to optimize antennas, which antennas to use, how to do a safe antenna deploy.

Because what’s happening is people who knew nothing about wireless and were just interested in the blockchain component and the incentive are now becoming very, very knowledgeable on all things wireless and signal optimization. It’s remarkable. So no, Helium Inc. does very little. The community manage pretty much the entire process.

Ray: Well, this is amazing. And how has the impact been internally back at base at Helium Inc.? I know you guys decided to make the move in 2018 with the funding from Multicoin and various other believers. But have you guys been surprised with the speed and the up take and just general adoption?

Mark Oh, yeah. We continue to be blown away daily by what the network does. I’m trying to remember the first hotspot sale, right? So we did a pre-sale for hotspots. We launched it when the company was at an offsite. I think it was somewhere early 2019. I think it was March, 2019 or April. And we were selling hotspots for delivery in July and August and so on. And a bunch of us had friendly wagers as to how many units we would sell on that first day. And I think I had the highest guess at something like 1,100 units. I think it was maybe 350 or 400 hot spots were sold on the first day. But we’re now deploying, as I said, about 3,000 or 3,500 of these hotspots every single day across the network. It’s still very hard to get your hands on a hotspot, even though there’s 40 approved manufacturers we’ve managed, or the community has managed to basically be bankrupt the entire LoRawan hardware supply chain.

And that’s getting better because large players like Semtech, for example, have built new FABs just to build chip sets for the Helium community. But now the company’s still quite small. We’re only, I think 45 or 50 people, and most of them are on the engineering side. The sales and marketing org where I fall, I think we’re about eight or 10 people. And we do have a fairly sophisticated usage adoption engine. And what I mean by that is we do have people that focus on getting usage on the network. And so if you look at our blog or you look at Twitter, you look at YouTube, we have tons of videos about people actually using the network and walking through specific use cases. But yeah, I think if you asked us where we would be when we launched this, nobody would tell you we would be this far in the mission.

Ray: And now looking at 100,000 foot context, right? A lot of your mission feeds off this exponential curve around IOT, right? And IOT has been talked about for a number of years. There was kind of a mini winter in the adoption curve. I think couple of years back, if you recall where people thought is this actually going to happen? So in a macro context, what does that look like now? I mean, for example, PatSnap, we have tons of customers who are hardware providers in that space, innovators in that space so we see some really interesting use cases now. But generally, how’s adoption curve been on IOT in manufacturing, in retail? Is there specific sectors which are moving quicker than others? What’s your macro view?

Mark Yeah. So it’s funny. Getting back to proving utility, we used to debate what verticals we should spend a lot of time on, right? I can remember numerous go to market exercises where we look across all the different verticals in IOT and try to figure out which verticals we should go after. What has ended up happening is due to, again, the power of the ecosystem and the LoRawan protocol, which had a very good base of technology before we got into it and now has just really exploded. All the verticals are happening in parallel.

So for example in LoRawan, if you wanted to build a supply chain and logistics tracking application for your fleet of 100 trucks, you can now do that with completely off the shelf technology. Meaning you can buy a sensor from one of five different companies. You can pair that with the Helium network coverage or deploy some of your own gateways, which tends to happen, if you’re looking at providing coverage in areas where there might not be coverage traditionally, or at least not yet. And then you can pick one of five different dashboarding companies, two of whom probably have a dashboard specifically built for supply chain and logistics, and you can get this application running in the course of a few weeks.

So we’re really seeing adoption across all of the verticals. What we’re seeing the most in, I think is probably things that look like both consumer and business location tracking. So for consumer think like, we just did a big deployment, I don’t think it’s public yet, but the company that makes basically LoJack for scooters, right? So I think Ray, maybe you’re familiar with LoJack, but if you’re not, they make location tracking hardware. Typically they use cellular and GPS for location. So with Helium, you can build that same sensor for much cheaper. And so there’s now that just did I think 1,000 sensor deploying in the Pacific Northwest with these very small hideable trackers that sit on the back of things like scooters that you might rent for a few hours. And those applications were impossible before because the cost to send that data on a cellular network was far too high, the hardware cost to build that sensor was far too high. And so that application is huge.

And then similarly, we’re seeing the same usage patterns but on the commercial side where someone wants to track fleet of 20 trucks that move between Boston and Washington, DC at all times, delivering linens that they might have just washed for a restaurant. Those are some really interesting ones.

Ray: And so obviously the transportation thematic, that’s looking exceptionally bullish at the moment. Is there any other verticals which have caught your imagination and are moving quick in terms of outside of logistics?

Mark So we’re seeing some interesting movement in… so consumer hardware, for example. So I’ll refer back to the rat trap example that I made before. So, Victor, for example, has always had a connected line of sensors. So they were a first mover in this. They started with wifi and people’s wifi networks weren’t working too well. And then they looked at cellular. And then they landed on LoRawan and the Helium network. And what’s really fascinating about that is it’s opening up new business models for them. So they traditionally would sell to a pest control company that would then go service a bunch of different restaurants. And then they would have to sell connectivity along with it. So they have to sell a gateway, for example.

In a lot of cases, now they don’t have to sell the gateway, right? So the cost of the product actually comes down significantly, which makes it a lot easier to sell. In pest control there is a very big resistance to paying more than $2.00 dollars for a snap trap, right? I think their Helium connected traps, one model sells for $50 US and one model sells for $100 and that’s a 25X increase over the standard wooden trap. But their cost of service is now coming down because they don’t have to deploy connectivity. When they do have to deploy connectivity, they actually don’t mind doing it because they’re deploying Helium coverage and they’re earning HNT for doing so.

And so, for someone who straddles both sides of the network, right? So they’re creating coverage, but also using it, it’s a remarkably compelling proposition because when you actually provide coverage, what you’re doing is you’re earning HNT, but you take that HNT and you use it to actually fund the cost of sending data over the network. And there’s without a doubt, always an overage there because it’s so cheap to send data over the Helium network. You can send 100,000 packets for effectively $1.00 US dollar. So you’re always mining more HNT that you need. And that actually, that accrues to the balance sheet for these organization. And it’s pretty wild.

Ray: So I’m just pausing there, because this is fall out of your chair crazy in terms of the business model. So, because I know you’re just so used to it, so you’re quite relaxed in the way you deliver that, because you’re living and breathing. You’re just like, yeah, this is how it works, Ray and cool. But to me, I’m literally falling out of my chair here. So even as a user of the network, say I’ve got a manufacturing, I’m a clothing manufacturer, for example and I’ve got a bunch of machines all using IOT capability, right?

Mark Mm-hmm (affirmative).

Ray: And I’m benefiting from the network in terms of monitoring and productivity, but also it doesn’t cost me anything because I pay in HNT but also I earn in HNT for using the network. So, and that balance always ends up being more. So in essence, for getting value for the network, I’m also getting a new revenue stream.

Mark Yeah. I mean, it’s likely. I mean, we generally, so much like the community operates coverage on their own and people figure out how to use the network on their own, we don’t really get involved in suggesting to people that there might be some revenue number attached to this. But inevitably what happens is IOT sensors, they don’t send very much data, right? Even if you have 1,000 sensors sending 10 every minute, you’re not really going to use that much data. And again, the way that the network is constructed because we have the community that essentially takes on the cost of operating and acquiring the hardware to build the network, we can offer to enterprises or the blockchain can offer to enterprises, a remarkable low cost of connectivity, this data credit. Specifically what it is one data credit sends 24 bytes of LoRawan payload. And you can do a lot of stuff in 24 bytes.

And so when you do the modeling with these organizations, and I do this a lot as part of my role, you say, “You’re going to have 100,000 sensors and they’re each going to send 10 packets a day. The cost for your full year is going to be this amount of dollars.” And their jaw drops saying like, “Well, that’s remarkably cheap.” And then you say, “Well also listen, you’re going to use public coverage for 65% of this, but you are going to have to deploy some gateways. If we look at our coverage map, the cost of gateways is X, but you are providing something that the network or that other customers are using. And because of that, the blockchain incentivized you to do that.”

And so, yeah, it’s entirely different. It’s entirely new. We do have to do a tremendous amount of education because still a lot of these large organizations are very new to blockchain. There’s a lot of reluctance. But yeah, it’s a remarkably compelling model when you get what you want, which is a usable network for your sensors. And then on top of that, you’re incentivized to keep that coverage running and you’re incentivized with HNT and the token. It’s quite remarkable.

Ray: Okay, great. So just so I understand this, so I could be a manufacturer. I deployed the Helium network because I’ve got a bunch of machines. Great. And I’m paying for that, but it’s exceptionally good value for the return. But then on top of that, your team might approach me as the owner of the factory and say, “Look, Ray, you should all also run a bunch of gateways.” Is that in other locations outside my factory and just be part of the network, because this is a way for you to generate HNT to maybe offset what you are directly paying for it in your own factory? Is that in essence, the positioning of it?

Mark It is. And actually what ends up happening quite frequently is the person whose responsible for deploying the project at a given company will come back to us very quickly and say, “Well, where can I get another 15 of these? Because we have all these factories that might not have a use case for sensors today, but if I’m going to create the coverage and earn HNT for it, I might as well just start now.” One really good example I can give without naming the customer is a Fortune 500 company in the United States that does a lot of agricultural business. And one of their lines of business is they have this distribution network of fertilizer tanks that sit at these large locations, and then farmers will come from miles around and fill up their smaller tanks and take it back to their farm. And the tank sits on the farm for a month or something. And they use that fertilizer and they go back and refill it, and so on and so forth. And so they had never done any actual IOT monitoring of these tanks.

And it came to us looking for help for building this. And so we walk them through the technical side of solution. And then we started talking about the blockchain and HNT and providing public coverage and went down the path of helping them think about how they would deploy coverage on all their locations. And so now, they’re very quickly moving down that path and they’re now looking across their entire US infrastructure to figure out where they can put additional hotspots because they’ve done the modeling on the utility of the coverage, right? They can start deploying these applications, not just the tank monitoring application, but pretty much anything else where a sensor can come in handy. But there is also this added public network utility component where they’re earning HNT for do that in the process. And we at pretty much in all the enterprise deployments that we’re doing. Once people wrap their head around the economics and how the network gets deployed, they generally go all in and want to deploy as much coverage as they can.

Ray: That makes sense. And stepping back, this model that you guys have rolled out, what are you competing against? What are you displacing, replacing, or removing out of the conversation? Like, what is your competition?

Mark So in a lot of cases, and maybe you’ve seen this with your clients, I mean, some of these applications just weren’t possible before that people wanted to build. In the last month alone, I’ve heard from four CEOs saying, “Hey we couldn’t build this application before the Helium network came along, because we knew we needed something like LoRa, and we didn’t want to build the coverage and no one was doing it. And so you guys have really saved us in that sense”. We even heard the same thing from nationwide connectivity providers that rely on cellular that have always wanted to offer an IOT line of business and just could never do it.

From a competitive standpoint, for most of these sensors, you could look at something like Bluetooth or wifi. Typically the range doesn’t work, or the power doesn’t work. The device isn’t static typically, right? You want it to be able to wander 100 yards or a mile or something, and still have coverage. There are from a pure connectivity standpoint, cellular networks and all the major MNOs and carriers in the US have an IOT offering. And there’s a bunch of companies that basically use their network to productize IOT offerings. We see those most in the competitive sense. And there are some use cases where the cellular networks are better for a specific device, but generally, if you can constrain the amount of data that you have to send, and you can live with coverage that isn’t complete but is generally where you need it to be and is growing remarkably fast, then the Helium network is going to be a fit for what you’re trying to deploy.

From a crypto economic standpoint and the utility, there’s really nothing out there, right? There’s a few other wireless blockchain projects that have a little bit of momentum. They’re mostly garbage between you and me, but there’s no pure competitor that marries the demand side which is the sensors and supply side, which is the coverage.

Ray: So in essence, you guys have this compelling first mover advantage, a phenomenal team and momentum. And in essence, you’ve got network effects already, right? You can see the numbers in your Discord community and all the people adding gateways on a daily basis. And so just for context, in terms of the classic competition, it might be an MNO who have an IOT offering, but it might be a very pointed offering focusing on a specific use case and has to move around certain size of data. That’s why it’s meaningful, but it’s very niche and focused on specific use cases.

Mark That’s right. So in the enterprise sense, the Helium network is what’s referred to as a LoRawan network service, or like a public LoRawan network. And so in that space globally, there’s probably 100 companies that offer some commercial LoRawan service. There’s a few Telcos in Europe, for example, that have LoRawan service. In the United States you’ve got companies like Actility, which is based in… I forget which country they’re based in, but those are the two largest LoRawan commercial networks across the United States and Europe. And they’re now partners of Helium. And what that means is they plug directly into this public coverage that our community is built.

And so sensors that are deployed to their core network can do what’s called roam onto the Helium network and use our public coverage. So they get access to the largest LoRawan network in the world virtually overnight using basically an API integration. And then our operators love it because companies like Senet bring customers like… I forget. Oh, Volvo for example uses Actility, not Senet. So companies like Actility bring customers like Volvo, who actually put devices on these Helium network, drive utility through our coverage and operators of the hotspots that route those packets for Volvo get compensated by the blockchain for providing that coverage. And what happens on the backend is that Actility, after plugging into the network, they pay the blockchain directly for those packets. And then that ends up getting pushed down directly to the hotspot that routed the packet. That’s been one of the biggest developments for us when it comes to usage. I firmly believe that roaming partners for LoRawan will drive the most usage through the network over the next five to 10 years.

Ray: You mentioned, is it LoRawan network? So if you could kind of simplify it.

Mark Sure, sure. Yeah. LoRawan, so L-O-R-A. I believe it’s short for long range. It’s the naming and the ecosystem is quite dismal. But yeah, L-O-R-A, LoRawan is the protocol.

Ray: Okay. And is that a specific protocol which is for a lower density of data packets, but for a specific range? So it’s kind of more of a lightweight entry point?

Mark Yeah. Compared to something like wifi, for example, it’s optimized for much longer range.

Ray: Yeah.

Mark So a gateway, a LoRawan gateway for example, if it’s deployed correctly, can provide upwards of hundreds of square miles worth of coverage. But the trade off you make there is that the transmitter, the sensor, can only send very small packets, right? So hundreds of bites at the most. So the data profile device is relatively constrained. That said, you can do a remarkable amount of things in just a few hundred packets. Yeah, so LoRawan is specifically crafted to enable coverage over huge swaths of land and huge areas, but for very, very small data.

Ray: How big is that TAM? Like forward looking, how big is that segment going to get, the LoRawan segment? In terms of like, how far are we in terms of number of use cases, number of diverse ways to use that type of data transfer? Out of a percentage out of a hundred, how early are we?

Mark Oh, I think we’re still sub 10%. I mean, it’s incredibly early. I’m trying to remember the exact usage that’s on the Helium network specifically from the last month. There’s hundreds of millions of packets right flying across the Helium network per month. And then we see probably 10X that number of packets from other networks that have devices that we just hear from a coverage perspective, but don’t actually route. But I still think we’re remarkably early. I mean, if you read the research reports from the last 10 years, they’re all projecting hundreds of billions of devices in the next 10 years. And we haven’t gotten there yet. And I think a lot of that is due to the fact that the low cost connectivity for these small computers that have to send data just hasn’t been there. But I think we’re remarkably early still.

Ray: Yeah. So looking out, moving forward, and we have so many customers in this space, the mind’s going to boggle, isn’t it, Mark, in terms of everything will have a sensor. I mean, the wall in your house will probably have a sensor for some specific use case probably.

Mark Oh, absolutely. Yeah. I mean we’re seeing some applications where people are putting sensors, there’s one company in that LoRawan and that does this already, they embed sensors in concrete, right? So when you pour concrete in a building, they put a sensor in there that can transmit and give you a state of the concrete over time. And as I understand it, when concrete hardens, it’s incredibly critical to the success of the building over time. And so, yeah, I mean, as the cost of microprocessors continues to go down and the ecosystem for off the shelf sensors increases, I don’t think I’ve seen a use case in the last year that didn’t have an off the shelf sensor that can satisfy. Because most of these companies shouldn’t be building their own sensors, but there’s very few situations where you need to actually do some innovation on the sensing side at this point. You can get them all off the shelf.

And so, yeah, it really does boggle the mind, right? You should be able to put a sensor in any location to do just about anything. I would argue that you don’t need them for everything, quite frankly/ some things are better left un-sensed, I guess. But it’s incomprehensible, or I guess it’s hard to enumerate all the use cases, given the potential.

Ray: Yeah. I mean, is there potential hurdles around more demand for larger data packets? Are you using the LoRawan network right now, which is great for distance, but has a relatively low trans capability? Is there any challenges around that where the market does evolve and they need a higher bandwidth of data transfer and so your technology will have to evolve? Do you think that’s around the corner? What’s your thoughts on that?

Mark Yeah. Once again, the community has already brought us to that point now. So if you look back and read the Helium white paper, which actually I’d recommend, it’s a pretty short read, a lot of this stuff isn’t present in the network as it’s described in terms of exact technology, but we always talk about a new blockchain for incentivizing the creation of wireless networks. And so the idea long term was always to build, basically give people the ability to build any type of wireless network using the Helium blockchain. We started with IOT because that’s what we knew, right? We had various lines of business that were IOT and sensors, but we ultimately, we didn’t care about that being the only wireless network incentivized by HNT in the blockchain.

And so about eight or nine months ago, a company proposed to the community that we add cellular connectivity, specifically, 4G and 5G in the United States to the Helium blockchain. We integrate capabilities that would enable handsets and anything with a cellular modem to use the Helium network. And the network has a governance mechanism called a Helium improvement proposal or a HIP for short. And so anybody can come in and propose changes to the economics or changes to how the technology works. And I think at this point, we’ve had I think 50 HIPs that have been proposed by the community. And so one of the HIPs was to produce a cellular gateway and integrate HNT earning economics for cellular gateways.

And so that work has been ongoing for about a year now, a little under a year. And we’re now starting to see the first 4G and five G capable hotspots deployed in the United States. There’s a Twitter bot that tracks them all. I think there’s something like 5,000 or 4,500 that have been deployed just in the last month and a half. And there’s one approved manufacturer now to make cellular enabled gateways with another four in the queue. And so, yeah, the community is moving very quickly to satisfy the use cases that require more data. So cellular in the United States and we’ll probably see cellular outside of the US. It’s a little bit tricky for a variety of reasons, which I’m happy to get into, but cellular is starting now and we’ll likely see wifi relatively soon.

Ray: So with the cellular use case, then you’re going after the elephants in the room, right? The classic incumbents. So eating into their market share, I mean, they’re going to be doing what they can right? To kind of respond. So-

Mark Yeah, I mean, yes and no. I mean, so to be completely transparent, it’s no surprise or people should not be surprised to learn that we’ve talked to most of these companies, right? We announced a pretty big partnership with Dish networks in the United States, about three or four months ago. Where Dish alongside Helium and a company called FreedomFi, which makes the first cellular enabled hardware in the United States, Dish has agreed to do what’s called roaming onto the Helium network, which basically says, okay, you guys are out there building all this coverage. It’s impressive and we find it useful. In the event that one of our subscribers phones uses the Helium coverage, we will purchase that handset data from the Helium blockchain. So there’s already some precedent there for MNOs in the US to find it useful.

We’ve talked to most of the MNOs in the US, a bunch of them in Europe, even companies that are ISPs, right? The Comcast and Cox and that caliber of company. They’re all generally very curious about Helium, right? Some of them are farther along in conversations than others and thinking through how they might actually use the network. I would say that on some timeline, I think most of them will be friendly to the network. Sure, some will be adversarial. But it’s just really hard to argue with the economics of how quickly the Helium community can deploy useful coverage, right? As an operator of a business who’s always looking to optimize and cut costs and look for more margin, you really just can’t argue against it, right? And so you’re better served to figure out how to make use of it and potentially integrate versus get aggressive and adversarial. So, yeah. It should not be too surprising to most people that we’ve talked to most of those companies.

Ray: Yeah. Because I’m guessing with the advent of self-driving progressing well, I know the data requirement for that is very different, right? It is an identity and rapid data requirement, especially if you’re asking a car to urgently stop in a dangerous situation. So it looks like things are all trending this way, right? You’ve got a lot of macro technological tailwinds and primitives, which should naturally in time in due course, you’d need expansion of the network, right? Like it seems very bullish on that front.

Mark That’s right. And one of the things that’s really driving… so 5G, which has a tremendous amount of promise, has to be deployed in a much different way than traditional cellular infrastructure. So it’s much more focused on deploying a lot of small radios or RANs they’re called, or N nodes essentially. Traditionally, Telcos have deployed on towers using huge base stations and blasting out as much power as they possibly could across their own spectrum that they’ve acquired, but 5G is much different, right? You need a lot more saturation.

And so what we’ve proven is possible is that people will deploy this infrastructure in their homes and in their businesses. I mean, if you’re AT&T and you call up a subscriber and say, Hey you want to put this piece of hardware in your house? It costs X amount of money or X amount of dollars, and we’re not going to give you anything for it. They’ll say, no, I’m not going to do that. Right? But with Helium where we’ve built in this incentive mechanism where you can buy a piece of hardware, plug it into your house, you create better cellular coverage for yourself, you get to use the coverage, your neighbors get to use the coverage. And then from a Telco perspective we’ve figured out how to get more coverage into locations where they couldn’t.

Ray: I mean, this is spectacular. I know this is at the core of Web3 values, right? It’s the first time in history where the customers get to own the network, but still the more and more you dig in, I mean, this is huge, Mark. Like what you guys are doing-

Mark We certainly think it is.

Ray: It’s unprecedented. The innovation, the business model innovation, the ramp. Congratulations, Mark. I mean, this is an amazing story.

Mark Yeah. Thank you very much for the kind words, Ray. That being said, we still think it’s remarkably early for this.

Ray: Yep.

Mark Right? We think in five to 10 year timelines, it certainly is not going to be a change overnight that upends how wireless infrastructure is deployed. But no, it is remarkable the force and impact you can build when you give people ownership, right? What’s really exciting, what we think will make the cellular infrastructure go a lot faster is that with LoRawan when you deploy it, you typically don’t have a use for it. Meaning you’re an operator of a hotspot, you’re providing coverage, you’re earning HNT, you can see packets flying through your gateway. You can’t actually see what they are, but the network tells you that you’ve been routing traffic and earning HNT for that. But from an end user utility perspective, this is changing, but traditionally, most hotspot operators don’t actually use the coverage.

With cellular and wifi, if we get there, you get that, right? You earn HNT, you earn the incentive mechanism, you build the public network, but your phone can use it, right? Your computer can use it. You can always FaceTime call with your mom over the Helium enabled infrastructure that you’re providing. And so that connection to the infrastructure is entirely unique and there’s really nothing else out there like it.

Ray: Yeah. And with the 5G network, technically it’s all systems go in terms of all that hardware risk and development, that’s not in the hands of Helium Inc., right? That’s down to the manufacturer is building out the hardware to enable that connectivity, right? And that’s progressing nicely. So you’ve got no issues on that front.

Mark That’s right. Yeah. I mean, that’s another example of how we leaned on existing ecosystems. And it really does lend to the decentralized nature of the network. There’s 50 different companies that build high end cellular hardware that can be deployed in certain different situations. There’s a little bit of work that has to be done to get them approved to operate on the Helium network. But at this point, most of that is in software. But no, we’re not building up new sets of hardware specifically for this connectivity link. It’s all relying on existing prior art.

Ray: Wow. I mean, so looking out, now getting to wacky land, Mark. More in the kind of blue sky we hear. And Michael Saylor, I love the way he describes digital energy, the oscillation of energy like a hotel where you can slice and dice it a million ways, send it across the world and get it back and it becomes an asset. So looking out long term, say, 2030, right? Or 2032. What are some of the wacky stuff? I know it’s so early. This is pure speculative, but just super innovative. A lot of our listeners are dreamers, innovators, they love looking into the future. That's at the core of what PatSnap do as a business. So what are some of the slightly wild value props or use cases which make you think, wow, that could actually happen. I’m quietly bullish on that.

Mark Yeah. So we firmly believe that there’s a point in, we’ll say the five to 15 year timeframe, where you can access one unified layer of connectivity all powered by the Helium network. That’s the ultimate vision, right? So your phone, your computer, any sensor, other things that require wireless, all this will be unified under one Helium umbrella. And access to that will be metered by the blockchain and enabled by applications, like so called layer two apps that allow access to that connectivity. That’s really where we think this is going. And on top of that, all sorts of wild things can be built.

Actually I saw a really fascinating pitch deck recently where someone was planning to build a network of transportation assets, targeted at consumers, call them scooters, call them bikes, call them small vehicles that the entire network was predicated on the idea that the purchase and maintenance of these assets would be funded by the community. And then people would be rewarded basically for the utility of those assets over time. It’s one of those ideas that seems ridiculous when you first read it, but then you say, I mean, this might just work, right? If you give people some very well built tools to acquire and deploy physical assets and then get compensated as those things are used, it might just work. It’s not too different from how the Helium network operates.

And so I think you’re going to see a lot of projects go in that direction. There’s an interesting one on the Helium network, well they’re integrating with Helium. They’re called Planet Watch, where basically you’re incentivized to put weather data on the blockchain. There’s a token that compensates you for providing weather data. There's another interesting project that does use Helium called DIMO, D-I-M-O. That was just announced a few weeks ago where they’re making what’s called an ODB2 sensor that plugs in to most cars made in the last 15 years, provides data back to the DIMO blockchain then rewards users for actually putting that data onto the blockchain. There’s so much absurd potential. It’s hard to argue against projects where users get actual value out of something and then get rewarded for it. I think that’s exactly where things are going.

Ray: Yeah. I think at a first principles level, this feedback loop where the community and the customers have participation and equity in the network, like it’s the ultimate model of good behavior economic-… well, behavioral economics, which are driving good incentives, right? Like it’s one of the core of things which are beautiful to Web3. But Mark, I mean, I’ve really enjoyed the exchange today. I mean, we could probably go on four hours on some of the use cases where the business is heading. But this has been an enthralling conversation, Mark. Just want to say congratulations to you and the team. I mean, A, you’ve been there for eight years. That’s what I loved about your LinkedIn profile. Like wow, Mark’s a builder at Basho for X number of years, now at Helium. So I want to say kudos to you and the team for doing what you’ve done. It’s super inspiring. And also if people want to learn more where can they learn more about Helium and also get in touch with you?

Mark Yeah. So Helium.com, best place for generally learning about Helium. I think if you would only go one place, I’d recommend to go to the Helium Discord. So if you just Google for Helium Discord, it should come up. It just discord.gg/Helium. And then there’s a whole Reddit hole to go down. You’ll end up on YouTube, you’ll end up on Reddit, you’ll join the DUI community calls and have opinions on where the network is going. But the Discord is really the best place to get started. I will caution that it’s a little bit noisy. And so you have to do some work to tune what channels you care about, but definitely recommend Discord. For me, you can email me, Mark@Helium.com. I might respond within a couple days, if not, it’ll be a week or so. So, I apologize. And then I'm on Twitter as Pharkmillups, P-H-A-R-K-M-I-L-L-U-P-S. I’m generally on all channels Pharkmillups but that’s me on Twitter.

Ray: Awesome, Mark. Well, it’ll be great connecting with then. And hopefully we can do part two maybe in Q4 and see how far you guys have come. But looking forward to maybe connecting later on the year.

Mark Yeah, absolutely, Ray. Love to do that.

Ray: Mark Thank you.

Episode Highlights

• When someone comes up with ways to make the UX, UI, and security more user-friendly we will see a tipping point in this space.
• With companies looking to move more to DTC, Web3 just helps accelerate their plans.
• Once you get your salary through a DAO and get paid in crypto and pay for things in crypto your point of reference really changes.
• Felix believes Web3 will be the biggest job market in a few years because the advantages are massive.

Episode Transcript

Ray Chohan: So Felix, welcome to Frontier3. Really looking forward to our conversation today. Would love to kick off with just your story and how you ended up in the wonderful world of Web3 and blockchain and, your kind of art into this awesome space.

Felix Mago: Thanks so much for inviting me. I’m super thrilled to be here. Looking at the other previous speakers, very, very good to be here. So thank you for the invitation. I’m Felix, my name is Felix Mago. I’m in the blockchain space for a very long time, I have to say. So, it started off 2014. When I was writing for a tech blog, I was working as a consultant in the financial industry, PR media finance. And, I was blogging for, basically as a hobby. And we were seeing this thing called Bitcoin coming up and like, “Oh, it’s $1. It must be a scam. It’s $10. It must be a scam. And we were looking at each other back with my editor in chief and say like, “How can we get this thing?” Like, “What is it even like, how do you buy Bitcoin?”

And that was a challenge back in the day, because there were only very untrustworthy sites. Mt. Gox being one of them where you think like, “Do I really want to make a bank transfer there? Do I want to give my credit card details to any of these weird websites?” So, we started looking into it and there goes the rabbit hole, I think this is the story everybody knows. You open one door and everything becomes so fascinating, you just cannot stop looking into things. And then one thing came to another, I more and more moved into blockchain on my career. We opened the blockchain academy in Germany in 2017. And then, I was making a move to Thailand I found a great team there. We opened a company called FUTERIO, that does a lot of partnerships, business development, marketing activities in the last year, also a lot of events.

And we founded all the Dash operations in Asia. That was one of the greatest thing that we did in the last year. So we came to Asia when basically, there was no crypto payments, no nothing. Everybody was talking about this one use case of Bitcoin and blockchain that was payment, but it didn’t really exist. It was more people dreaming of it than anybody went to the shops, really taught the people how to use these systems to set up these systems, and especially teach them how to convert the crypto that is coming in to fiat money. So that’s what we did for last years. And man, so many things have happened. That was really just in a nutshell and I’m already talking forever.

Ray: And, it’s interesting. Well, thanks for that context. That’s really helpful. And over the Christmas vacation, it’s interesting, we saw quite an inflammatory post by Jack Dorsey, talking about how Web3 will only be meaningful to VCs and investors, and retail will get the small drops in terms of value. And that sparked a lot of interesting conversation over Twitter, and some of the mainstream, and stroke crypto media. Also, on a broader sense, obviously Jack views it a certain way. And then there’s so many different definitions or narratives around Web3. What does Web3 mean to you, Felix?

Felix: That’s a good question. I would say one of the key elements is turning around how everything, the architecture of things. So, you could argue that the whole internet is amazing and it has led to amazing things. It’s like we started off with the internet being that much because you didn’t know what to do. I remember when I was the first time in the internet, I made myself an email and then like, “Who do I write to?” I didn’t know. So since then, a lot of things happened. We see Uber, we see Airbnb, all these amazing things. But, there is a fundamental flaw in all these things because, my contact data, all my information is basically what? On 500 to 1,000 different servers, everywhere always, or I ever set up my profiles.

Everything’s basically stored on the server side, meaning my data is with the corporation. So, Web3 is turning really that principle around by saying, ‘Okay, there is a public private key architecture in the background and I’m logging into things. I’m logging into these platforms with my wallet.’ And this is a fundamental difference. That means, I’m in control of a lot of things that, all that evolve around that. So what does that mean and why is that so important? It’s important because I can start to automate all kinds of things without asking for permission from other people. And that is not only great because I am the master of my passwords and I have much less chances to… That a company is hacked and they still my see my passwords without me knowing this is one element. This is for me and for everybody kind of a key element. But the either side of things, and this is very hard to understand and to grasp in my opinion. Is that, the whole principles basically enables you to automate all kinds of things.

So, it doesn’t matter what you look into in the world. All companies have set up big processes and it always requires breaks in the flow of process because you cannot automate things. Take, for example, a loan process, or opening a bank account, or finding the best way to move your money around to get yields. Now you can build machines that just do that based on this principle, I just explained. So, and this is for me, really the most amazing element about all this Web3. It has many, many more aspects, but this is a key thing that really keeps me fascinating. And that in my opinion, started all this move to DeFi [Decentralized Finance], and to Game-Fi, and to play to earn, and all kinds of things. Because with this principle, you can essentially set up completely automated corporations that were just not… You couldn’t do that before. And this is really massive and revolutionary.

Ray: Cool. And in terms of the life cycle where we’re at, you have many people use the analogy, we’re kind of in 1998 of Web2. And where we are with Web3 now, some people say 2001, 2002. Spinning into 2022, where do you think we are in terms of the adoption curve within the wider context of digital assets and Web3?

Felix: I mean, obviously we are still very much at the beginning. If you take the big scale of things, because just most people didn’t get it. I mean, how many people do have a crypto wallet? And, how many people from these people who have a crypto wallet, how many people really use DeFi? And from these people use DeFi, how many people use DeFi 2.0? And, the more crazier you get, the fewer people it will be. But, at these edges is exactly where the innovation is happening. And the people who understand that are so deep inside that they’re really building.

So you could argue on the other side of this big picture, there’s a small group of people that are really building a lot of things that is capturing enormous value right now. And this is for me, really the fascinating thing. So in some ways, I sometimes feel like either you’re in the bubble and then there’s nothing else, or you are outside the bubble and you really don’t get it. And this gap is a bit hard. So, I would say we are still at the beginning, but we have built already things that have huge impact and that you cannot just get them away anymore.

Ray: I like your analogy. It seems like the folks in the bubble are building all the picks and shovels to enable hopefully, that mass adoption. What do you think are the big elephants in the room in terms of enabling that unwrap to away? For example, my sister, who knows nothing about Web3, probably doesn’t even care to think what Metamask actually is, or the Dharma wallet, for example. What do you think needs to be done in the next year or two years to enable that mass adoption? Because, it seems like we’re still stuck in the mud when it comes to that element of this journey.

Yeah, absolutely. And, I’m sorry for replying to your questions already. And I realize that again, in a very abstract way. And I think this is what many, many blockchain people always tend to. Because, it’s like, you get an abstract question and you try to answer it in a very general, general sense. And I think what is really missing is to break it down is like, why is it… Why does it matter? What can it do for you? And I can tell you, I was telling you at the beginning of my journey, we started to build crypto payment ecosystems. And I can tell we went to a lot of normal restaurants, MAMA noodles shops in the Bangkok street corner and talk to these people and say, “Hey, do you want to accept cryptocurrency? It’s amazing. It’s without the banks, it’s without government and censorships.”

And people look at you and it’s like, “What do you want from me?” It’s like, “I don’t even understand what you’re talking about.” But the moment you tell them, “Hey, listen, I have this payment system. It works the same, all these QR code things that you are used to, it works like WeChat, like Alipay, you know that stuff, you have it already on your door. You don’t have to pay any installation fee you because I’m coming here, I’m making it for free. And not only that, I have these telegram groups with Dash and they have hundred thousands of people in there. Even millions of people. And, I’m shooting your restaurant over there. I will make photos. And I will show these people that you exist. It’ll bring you customers, you don’t have to pay anything. And last but not least I will get that crypto money that you get, I will convert it Thai Baht and get it to your bank account. So basically I offer you a free end-to-end solution. You have nothing to lose.”

What do you think the people say, of course they say, Yeah, sure. I try it.” And once you realize, “Hey, I get new customers.” And once you realize, “Wow, this is my first crypto payment.” Things start to matter, and you have an emotional relation to these things. And, from what I realized is the moment people start to do their first crypto transaction, start to do their first transaction with Metamask, into a DeFi account and see, “Wow, I get interest rate for US dollars where I didn’t get interest rate on my bank account anymore.”

This is where it starts clicking. And these are the catalysts that I think are inevitable that this is scaling more and more. And, the moment you have something, the moment you see, “Hey, it makes sense.” You will tell your friends about it. And that is exactly what we are seeing. So, I don’t worry that it’ll happen. Is it one year, two years, five years? I don’t think it’ll be that long. And maybe one other topic that we can touch on is all this new move to… With the play to earn. So basically, playing computer games for money, you can see already that there are millions of people for… Just makes so much sense.

Ray: Yeah, obviously you had Axie Infinity in the Philippines. I mean, there’s kids in Argentina, Brazil, playing that game. It’s been one of the big standout stories in particular of last year. So it’s interesting, unpacking your journey with Dash then. So you described that story of being in Thailand, trying to win the hearts and minds of mom and pop shops, at restaurants, general groceries. And, just getting them on that payment rail and getting access to that type of customer. How has that journey been? I mean, it looks like a lot of what you do there Felix is, the real frontline business development, and marketing, and partnerships, to win those hearts and minds. Through various partnerships that you connect. I know what that is like when you’re building say a Web2 software business in the early years, no one knows who you are.

No one cares about what your software really does. No one knows your brand in a B2B context. So the first one or two years is demonstrating value, but also very much winning hearts and minds. It is very much selling. What are you finding? You’re on the front line? What are the common objections you are hearing from folks who from a distance know a little bit about Bitcoin and digital payments, but don’t really get it? What are some of the big hurdles that you’ve experienced with your journey at Dash, on the business development side of things?

Felix: The way we kicked off because, as I mentioned, when we started in 2017 to bring Dash to Asia, there was not much of crypto payment basically anywhere in the world and especially not in Asia. When we started there, a few people have put the bitcoin sticker on their door claiming that they accept bitcoin. We tried every single one of them in Bangkok, there was about 50 shops, just to realize none of them really accepted bitcoin because it was just a sticker on the door. After somebody put it there, it was just forgotten because nobody ever came and paid with Bitcoin. Of course, it’s like a constant process of training people and of making people aware of what it is, because at the end of the day, if you don’t use it and if you don’t speculate, you have no connection with it. Obviously, a lot of people are very skeptical because they have a hearsay about bitcoin. It’s like, it’s drug money, it’s a scam, it’s not real, it’s extremely volatile, and the government doesn’t like it. These are the things you really have to deal with, but then again, as I mentioned before, the moment you can present an end-to-end solution saying, “Hey, I give you the QR code. You get money on your bank account.” It’s actually the same, like Alipay, then people start to think, oh, okay, let’s try it out and shortly after realize it’s not so different. I would say, really, you have to sit down and try things and I think this is not only with bitcoin payment, but it’s also with DeFi, with DeFi 2.0, with NFTs, with play-to-earn, all that stuff, and frankly, everything in the world. I mean, learning a language is not so different and building muscles in the gym. You will not build your muscles tomorrow, but you will do it in one year when you constantly do it. If you really sit down and after three hours, you manage to do your first transaction and after two hours you set up your wallet, you do your first transaction, you learn two days more and you’re able to have a Metamask wallet and do your first DeFi move. Really it’s a matter of sitting down and learn it, I think, and once you do it you will realize it has very positive effects for you and for your life.

Ray: This is interesting. You’ve done a lot of great work in Thailand. What is the lay of the land, Felix, in that part of the world? I mean, where are they on the curve? Are they using stablecoins? Are mom and pop shops transacting in Satoshis for day-to-day items? Is it like El Salvador with what they do with the Lightning Network? What’s actually happened in Thailand in terms of the actual detail of what’s going on?

Felix: Mm-hmm (affirmative). It’s a very complex question, I have to say. I am German. I moved here from Germany, was working for a long time in the European blockchain space, especially the German one, Berlin being like a Mecca in the European ecosystem. But business is different all over, many things are different. Let’s, for one second, stick with the example really of the payment. The first obvious difference that if you’re in Asian countries, there is no unified currency like the Euro or a huge area that is covered by the US dollar. No, there is a lot of different countries with different currencies, completely different regulations, and really completely different consumer behavior or speculation behavior. This definitely was a big challenge when we started here in Asia because it meant for us we could not just scale all over Asia with the one that fits all solution like you would have in the US or in Europe. When you fulfill one regulation in Europe, you are kind easy to go to the other countries, but that’s not at all the case in Asia so that was a big struggle and obviously led to a lot of conversations with regulators, with banks, with different payment service providers, like all the backend infrastructure that enables payment.

But hey, I can say after a couple of years we figured out a lot of things and we extended our initially Dash Thailand project basically to become a global Asia focused partnership project. We found partnerships in Singapore, Vietnam, Indonesia, Korea, Japan, all over the place, basically. We had activities in different scales, but this is one side and this is the payment side of things, a lot of differences. But at the end of the day, like I mentioned before, more and more people are starting to use it and I would say still so far it’s rather exotic all over the world than it’s super standard to pay with cryptocurrency. At the same time, there’s more and more people earning cryptocurrency, so they have, I would say, a need to spend it because what you’re going to do? Either you speculate more or you do something nice for life. You spend it, you get a good restaurant, you get a good travel or something. There is more and more options to spend it.

But there’s much more in terms of cultural differences and one thing I always find funny being here in Asia or being in Asia and doing business here is that if you are Western grown up and educated, you often tend to forget that there’s a huge part of the world that is completely different with completely different cultures and completely different people. There’s like a huge hype in gaming, for example, we just mentioned it with the Axie Infinity hype. I mean, just if you look at the monitors of people, you will see even the games are different. It’s so colorful and for me, I mean, it’s making me crazy because it’s too colorful, I cannot stand it. But there seems to be a cultural vibe that likes different things and appreciates different things. I think that’s very important to consider and even scaling businesses, running businesses here in Asia might be different on many details, I would say. It’s very important to be here and learn about that.

Ray: Brilliant and obviously your experience, I mean, you are one of the trailblazers, early believers in this space. You’ve been doing BD [Business Development], marketing in the blockchain space, what, since 2017, initially in Germany, on the enterprise side, now in Thailand with Dash where it’s B2C stroke B2B. It’s a mixture of everything. Now, we’re going into 2022 and we’ve seen organizations, like Chainlink, do a hell of a job in terms of number of node operators, partnerships with really big names. I think they’re one of the lighthouse companies for the enterprise blockchain and getting the B2B world activated, but in a broader sense, where do you think it’s going to head in the next year or so? Do you think the big auto players in Germany, Austria, the big B2B brands in the US, in Asia will start deploying DLT technology, some form of tokenization, some form of fractionalized payments? Where are we on that journey, in your opinion, from a business development standpoint? Because you’ve got a great pulse of the market because you’re getting responses and feedback from economic decision makers and buyers every day. Where we are at on that journey, Felix?

Felix: Yeah. Thank you, Ray. Thank you for all the props here. We just had a quick pre-conversation and figuring out we both coming from this innovation side of things to help the good old traditional corporations become more digital and now become more blockchain, which is even a bigger challenge than just making them digital. It has different elements, again. There’s like all this traditional world and like I said before, frankly, I’m happy for everybody who’s using blockchain, but are kind of a bit over to convince you why you have to use blockchain and to be fair, it’s not easy to just do something different as a corporation that also, to be fair, is earning a lot of money without blockchain. Changing your running systems is very risky, it’s very expensive, and if you don’t understand the business case before, it’s very unlikely to happen. What I know in blockchain is that I don’t know what is happening next month and I know for sure that I don’t know any industry that is coming up with new stuff so fast and where people also, like everybody’s working 24/7, so people are pushing it just to the limit until they cannot work more physically. This is the environment and not because you have to, but just because everybody’s so super hyped to do these things.

Just to summarize before I go to what is happening in 2020, let’s just recap one second what actually happened in 2021. I remember being having Christmas time in 2020 going into ’21, there was a moment when the bull market started and we were like, yeah, finally we are out of the valley of tears, like the long lasting bear market is over finally. Just before DeFi started on Ethereum and extended to other blockchains, so it was the time when Binance Smart Chain was suddenly popular, but then a lot of things happened. Suddenly DeFi happened not only on Ethereum and on Binance Smart Chain, but it happened on 25 other blockchains and you see history repeating in the DeFi space with decentralized taxes, lending protocols, yield farmers, yield maximizers, leveraged yield farming, leveraged trading, all that kind of stuff, perpetuals coming out, and like I said, not only on one, but on different blockchains. Then we had the NFT hype with all the art stuff that is going on.

We discovered, hey, we can actually do DeFi with NFTs. We can use that stuff as a collateral to, again, build money making machines. We can make whole game economies that are based on a balanced economy that rewards players by playing and that enables secondary market for everything that is in the game. We saw the launch pads coming up because we seeing so much interest and so much money coming into the market that everybody wants to have a piece of that pie. There’s already so many things happening that are completely beyond what you just asked me in the initial questions like, is how do corporates moving in? Maybe it’s not even interesting that corporates move in as long as there’s people who get what it’s happening and that there’s people who want to be involved, there’re people who want to invest.

What I find really funny is that there’s not a lack of capital at all. As a matter of fact, everybody wants these early allocations, private allocations, early rounds and you can see that just on the plane numbers of the launch pads. I mean, I just saw, I think, on CoinList, I believe it was around 450,000 people registered for a token sale recently where I think 25,000 got an allocation of, what, like 200 bucks or something. People are lining up to get these allocations and it’s just insane what is happening there. In that sense, my prediction for 2022 is that it will only accelerate because more money is coming in, more people are coming in, and the ideas are not only evolving, but there’s building blocks that you can just use to put stuff together.

You mentioned Chainlink as kind of the Oracle and price feeds and everything, yeah, it’s a great company. There’s also a lot more, I would say. I mean, to have price feeds as one building block, but now you cannot only have price feeds, you can say, I take the decks from here. I take a decentralized lending protocol and now I find a way to make my NFTs as a collateral. We are just developing a project called Space, a Metaverse, with like a whole concept of NFTs inside. My idea is there to say, “Hey, let’s get a cool partner on board.” Swatch for example. Let’s sell watches, but let’s sell not only physical watches, let’s sell also digital watches and let’s make a collectors edition of them and find a way that we can either sell them together, sell them separated, create an own complete secondary market for the digital watch and in the long run, make a partnership with a lending protocol that enables me to use that watch as a collateral for the house I buy in, I don’t know, at the Thailand beach. So it’s like the things get more crazy as we go, and I think it’s getting easier and easier to pluck this stuff together once you understand what you want and what is the business case.

Ray: I couldn’t agree with you more, this kind of unlimited composability element of Web3. I think Chris Dixon and calls it Lego blocks. You can just build on top of someone else’s previous work and it’s the ultimate innovation flywheel. Probably the best digital innovation flywheel in human history we’re potentially embarking on, so it’s only left to the imagination and ingenuity of the community to see what can be built. Obviously, 2022 continued acceleration on the momentum we’ve had from last year, but when it comes to more of that mass adoption of wallet users, so you can see with Metamask, I think the monthly active users is around about, I think, 12 to 14 million. It’s absolutely tiny. What specifically needs to be done to make sure there’s a wallet on everyone’s phone? Because for example, I still don’t really use a wallet day to day, nor do any of my friends or family. It’s still a very niche capability but it seems like that would be one of the big moments to make it more of a mass technology. What needs to be done at ground level to enable that, in your professional opinion?

Felix: That’s a good question. One comment to what you just said before, I think bankers and lawyers are already extremely good in making these machines and putting the of stuff together and now, there’s kind of a new group of people with is the nerds and the people who can build technology, who are also able to build stuff together. I mean, just look at the variety of banking products that we are now rebuilding with all this decentralized technology. This is already kind of a massive thing and it’s a massive value driver, and just to put it in perspective, I mean, how many people are building these products, these traditional finance products, versus how many people are using them? So the core of the banker people is just the same niche, like it’s going to be in blockchain. So the question is does everybody need to know all these details about how to use Metamask, how to secure your passports?

I actually believe in order more … As long as it is the case, we will not reach that tipping point. I mean, how many people can explain the iPhone? How many people can explain how TCP/IP works to use your internet browser? Nobody, and if that would be the requirement, probably we wouldn’t sit here and do this interview. So in a sense, we will see it sooner or later. There’s going to be a tipping point of somebody who solves that UI, UX challenge on the one side and all the security and headache free using of blockchain solutions challenge that for now, it’s sadly, it’s just painful to do it right now. I agree. I mean, I’m using Metamask daily, I’m doing a lot of DeFi stuff so the more you use it, the easier it gets as well but as I said before, you have to sit down and learn it because stuff will go wrong.

Everything, something goes wrong, it will take more and more time but the moment you solve it, you can be happier about yourself, so I don’t know. I think it’s really UX, UI challenge on the one side and a challenge of what is actually the thing that you use. Will it be a computer game? I believe the moment some company or product will start to use it, that is really wanted by a lot of people. That’s kind of the tipping points we need and the more we have of them, the better, so just to give you some example, it’s like if GTA or Rockstar kind of a game in this size and usage is starting to use blockchain, that’s going to be very good for the whole industry. And frankly, that’s exactly what we are seeing right now with Sandbox, Decentraland, the Metaverse we are building right now with space so there’s a lot of promising things happening.

Ray: Yeah. It seems like Sandbox, they’re all in and then you’ve got, I think, Atlas. Star Atlas seems really interesting as a AAA rated game and obviously then Axie, I agree with you. I can’t look at Axie more than the minute. It drives me nuts, the too much going on. It’s popular in Asia, but I completely understand where you’re coming from, but it seems like the current incumbents, Microsoft, Epic Games, they actually don’t have much of an incentive at the moment to adopt Web3 capability because if they have this kind of war garden, it’s more profitable that way so do you see the big incumbents coming across? Because at the moment, it looks like they’re being very standoffish and they’ve pulled out, really. You even saw with Discord, they enabled Eth capability then backed out so I’m finding some of the incumbents who still are kind of modern incumbents and fast growing ones still sitting on the fence. So do you think you’ll see some big announcements this year where they actually come on board?

Felix: It’s funny that you say that because exactly the point that I was trying to make before. If you’re a big corporation, you have a running business and afraid, you’re not too much into blockchain, you won’t get that stuff but Star Atlas and GTA are amazing examples. What does GTA do and how do they earn money? They sell copies of their game and sometimes, they sell a copy to the end customer directly or there’s middlemen in between but at the end of the day, they sell their game and maybe they get a little bit from the subscription you make to play GTA Online.

Star Atlas took it to an extreme to say, “We are building an MMORPG, an open world game where everything in this game is sold by the company as an NFT.” So every star ship I use, every star ship that is flying around in this game, somebody bought it on the market and initially, the company was selling it to the market and not only did they sell the star ship, they also sell you the pilot license to fly the star ship because otherwise, ha ha, you cannot fly your star ship. They sell you a pet, they sell you a skin if you want to have a pink instead of a black star ship, they sell you a satellite that is flying around the star ship so just, I mean, just look at this business model.

My argument is that I would say these big companies, they just didn’t get it yet. The moment they would start understanding what is happening, there is no other way around because the business model is just so much better for them if they use it and not only for them, but also for all these people that are using secondary markets that have an incentive to trade these items, to arbitrage these items, to use these items, to earn money as a job, so I believe it’s inevitable. In hindsight, it was inevitable, is what I hear often in blockchain and it’s kind of a funny saying, but probably you need a bit to understand and digest it because it’s so big and so complex, what is happening there.

Ray: Yeah. I can agree. Essentially, what you described it earlier with the big guys, “Why change now?” But when they start seeing, and it does just take time. You’ve got to win hearts and minds. There is politics and career risk in large companies to make that type of decision because it’s people who will pull the trigger, and those people worry about career risk. Are they at that age where they don’t really give a shit? They’re going to be hiring soon so why take on that extra burden? There’s all these things going on. It’s people, but I couldn’t agree with you more because once they realize digital GDP is exponential and we can’t even fathom how big that value unlock will be, I see them slowly coming on board because I think no one really understands digital GDP and the fact that it’s going to be probably four or five times in the order of magnitude of analog GDP, GDP that we see every day to day and when we’re walking around at the shop, so I think that penny hasn’t dropped at the moment from what I can see.

Felix: Yeah, and I mean, just stick with the innovation narrative for a second. I mean, if you do innovation professionally and you help companies to become innovative, it’s not, how you say, you don’t change one thing and everything is suddenly more innovative. It’s a matter of culture, it’s a matter of process, it’s a matter of legal, of business model, of technology, of people. And obviously, and I think this is what we have seen before in the times where the internet suddenly came and suddenly, there were these young, fast moving internet companies, and Amazon came up and now, look at Amazon. Look at Uber. Look at Airbnb and how massive they are and how much they brought old industries into trouble. So if you look at that dynamics, I think it’s just so much more unlikely that a company that is established, that has already 300 or 500 people, we say they don’t understand this business model.

But even if five people off the 300, or let’s say 100 of the 300 just suddenly understand, “Hey wow, we should do completely different business model,” it’s not like this is changing the whole organization. On the other hand is if you are a new company that is just coming up, you start with three people, you grow to five, to 10, to 50, slowly you become more and more like that as well. I think that’s kind of an inevitable structural drift of becoming bigger and more established in the market, and I guess this is also a big factor that is really beyond blockchain, to be fair, and this is kind of just repeating and accelerating the more that tech becomes and evolves faster. So I think blockchain is just another making the thing that we have seen with digital and internet, is just making things more faster and even more crazy in terms of how much money you can earn.

Ray: Yeah. It looks like history always repeats itself, Felix, and it just rhymes different this time round so I would probably share your sentiment. It’s really going to be the native Web3 folks who are the next Airbnb, Uber of this space just by design and people. I would bet with you, I’m in your camp for that. However, there is existing incumbents who are doing interesting stuff. What I think is interesting is this, but it’s actually interesting, but actually quite easy to do. Let’s look at, say, Nike right now. You see what Adidas are doing. They’re obviously now deploying NFT capability and slowly tip toeing into the world of Web3 via NFTs but if you really look at it, it’s not much risk for them because they’re already trying to move their business to DTC.

Direct to consumer is the future for all of the big apparel brands so really, NFTs is just a potential accelerant of that DTC shift that they’ve been working on since 2014 anyway, so that’s why we are seeing interesting moves on the NFT side within the clothing and fashion market. However, I actually don’t think it’s that much of a big deal internally for them because selling it internally is probably a lot more easier because you just go to your board and say, “Look, we’ve got a DTC strategy. This is just a nice bolt on to accelerate our original fucking goal anyway,” so that’s why that’s interesting, but I don’t give it so much credit and eyeballs because it’s just building on a business plan they have in place already with direct to consumer.

Felix: Yeah, you’re right. You’re right, and even the same, I would even go a step further. It’s even more extreme if you compare that to governments. I mean, it’s not only blockchain but how to governments, right? I mean, it’s not only in blockchain, but look at how fast technology is developing and how fast we can do things and how fast governments are lagging behind. I mean, obviously crypto is more and more regulated. But now we’re at a point where we finally talk about is, can we tax Bitcoin, if we do a payment with it, or how can we use stable coins? It’s like, “Okay, we’re talking about stable coins, its 2022 in crypto. Right? We were just talking about DeFi 2.0 and what play to earn stuff for millions of people already have their income in cryptos.

So the gap is widening, and I would argue the gap between crypto development and regulations even bigger than the gap between corporate business models or moving into the blockchain space versus the native blockchain companies. But I totally share share your sentiment. It’s like probably the same people who were born after 2008 or were born in a world that just has the iPhone. Right? Whereas the people who were born in 1990 were still born in a world without the internet more or less, right? So I guess that’s a very important factor, too.

Ray: Yeah. I think demographics and timing always plays a big role in the cycle. It’s interesting, you mentioned regulation and you got to get the government on board. Right? There’s actually a great book. I highly recommend it, Felix. It's by a chap called Azeem Azhar. It's called the Exponential Age. That’s the title of the book, and he’s got a whole chapter on the exponential gap, and it’s a whole kind of part of the book, which is focused around how government always slow to catch up. Right? Because you’ve got corporate innovation, early stage entrepreneurship moving quick, but then regulatory frameworks stuck.

I mean, you look at the securities law in the US. It was composed in 1933. It’s crazy. Right? It doesn’t even have a framework to get its arms around digital assets and tokens. Right? It’s saying everything’s so security, but potentially it isn’t. But what I am bullish on and I’m curious to get your more say European and maybe Asia context, obviously there was a hearing the US, right just before Christmas where I think it was Mr. Brooks, Sam Bankman-Fried from FTX and a couple of other folks, I think the CEO from Celsius. I think it was a five hour hearing. I don’t know if you watched it. I was actually really impressed with the questions.

Felix: Yeah.

Ray: 80% of folks from Congress, we’re trying to meet folks halfway and trying to learn and actually had good questions, and then there were those 20% who just asked shit questions and they’re just there to try to catch people out, but 80% of it was really good. So that was a good signal. Where do you think we are in Europe and obviously your time spent in Thailand on the government side of things, starting off with Germany first and the dark region, where are we out on that front from a government standpoint?

Felix: Like I just said, in my opinion, we are so far behind, but it is what it is. We have to deal with stuff. It really depends on the perspective, right? It’s where we are at really depends what you want to do. So it’s a different story if you’re somebody who wants to accept Bitcoin as your restaurant and put that in your official tax papers, I think we are still in Germany and Asia and frankly in the US, in a situation where neither the guy who makes your taxes really knows what’s going on. It just has a cost-benefit ratio, that is not viable for you. Right? This is one thing I think, as a trader and investor, you’re way better of being a German than being an American. I mean, I’m not there. There is a good reason why all these platforms don’t want you if you are an American and as a German or European, you most likely have zero problems. Asia is kind of in the middle.

In that, I guess, on the other hand, there’s the crypto adoption. Just use it to have your daily life. That’s what we said before. I strongly believe that this will be the biggest job market in a couple of years from now because the advantages are just so massive, right? If you’re building a DAO, you’re building kind of this machine-like organization that has clear rules of inclusion that are way more straightforward and can get you your daily salary. You just have a big advantage. What I mean with that? I mean, I’m probably one of the few hundred people in the world that are working in the DAO, that get their salary from a DAO for many years now.

I can tell you it’s massive. It really changed your relationship to things. I mean, once you get paid in crypto, suddenly your whole points of reference in live are in crypto, right? You ask yourself, “Is a cheeseburger for 0.1 Dash expensive or not, or it’s the same for a $10 cheeseburger?” You wouldn’t buy that, right? So this is an emotional reference, but there’s other elements compared to who you are, where you are. So let’s say, you’re an African, or even me as a German, trying to get a job at a US-based corporation. I’m going to have a hard time because there’s so much paperwork to do, so much things that just make me less interesting than any other candidate that already has the green card or already has an American passport.

So I think these things are, at the end of the day, kind of the catalysts that will change a lot of things. I mean, for me, pretty obvious that there’s a lot of loss globally, and there’s a lot of people who are just disadvantaged by who they are, where they are from, what is their passport, what is their background? I would say, we are leveling the playing field with these styles and with these stuff, with these ways to pay and to get a job, to get hired, to contribute to something that you really like and enjoy. That’s beyond regulation, what is really amazing. I think the more you are off these first world countries, the more you will feel a need for it.

Ray: So unpacking DAOs. Again, there’s so many folks on LinkedIn, and that will be the big community, which is our audience with Frontier 3. They’ve got no clue what a DAO is, a Decentralized Autonomous Organization. What that form factor of an LLC will be in the future. So it’s interesting. You have frontline experience of this, as you mentioned. You’re probably a tiny, tiny 0.000001% minority in the world who actually generate their income for a DAO. Is Dash currently working in a DAO structure, and if so, in the most simplest format for our audience, how does that work and what are some of the benefits? Because the way you described it is like, “Right now, I’ve seen a DAO. I can never go back to working for a normal company.” It’s like, when you see the iPhone, you’re like, “Holy shit, I’m never going to go back to a Nokia 3310.” Right? So firstly, what is a DAO and just some nitty-gritty day-to-day detail of why you think DAOs have been so amazing to be a part of?

Felix: Mm-hmm (affirmative). Okay. That will open another hours of conversation. You start opening the door. So let me try to keep it short and simple, a DAO in a sense, it’s a completely automated organization that has predefined and completely automated their processes. It’s basically what many corporations try to do, but then you will see there’s always checkpoints where you cannot do kind of a completely, fully automated digital process, where you need people in between, where you have breaks in systems, where you need to put data from one to another point and you cannot automate it. So a DAO, in a way, is a way to automate an organization in all of its processes. So there’s different organizations where this is more or less complex.

What Dash is doing is basically like Bitcoin. They are creating new Dash with every block and miners who contribute, or usually in Bitcoin, there is a process where the miners are validating these blocks and therefore they’re getting incentivized by getting the rewards that are produced block by block. Dash says, “This is a very important element to have in a blockchain, because this is a one feature of the security.” But it’s not all, because at the end of the day, you also need people that make this project successful. So what they said is, “Hey, let’s divide these block rewards, essentially the money we print, we don’t only give it to the minors. We also give it to people who work for this system.”

How can you work for this system? We set up a forum looking like a internet page where you can say, “Hey, I have an idea. I want to do something for Dash.” So in our case, it was saying, “Hey, we want to build up payment ecosystem in Thailand. We want that merchants accept Dash in Thailand. Our goal is to…” I don’t know, “… to reach 50 or 100, or 150 merchants. This is the budget we need. This is the steps we take in order to execute that. Are you willing to fund us?” Then there is a community of people who have voting rights. Also, this is a predefined process, and they can say, “Yes, I trust you guys that you will do it. Here’s the money. Go out and do it.”

Felix: Once we have started, yeah, it’s it became a self-fulfilling prophecy that we were able to get more and more success there and reached our goals, reached our KPIs and built trust within this community.

Ray: Wow.

Felix: That was not too abstract, but-

Ray: No, no.

Felix: In a sense, it’s actually a set of rules that you have to go into and learn about these set of rules. What are the requirements? What is the process and how is the money distributed? At the end day, these are core elements of any DAO.

Ray: To sub DAO in Thailand, you’re compensated then in Dash or in Bitcoin?

Felix: Yes, in Dash. Mm-hmm (affirmative), of course.

Ray: Wow. You can imagine how companies could build a salesforce that way. Right? You could have people in region selling for you, but they’re part of more of a DAO rather than a company. So that’s fascinating, but I’ve really enjoyed the exchange with you today, Felix. I mean, we’ve covered a whole number of different rabbit hole. It’ll be awesome to do maybe part two, some point in the summer to get a sense of the lay pf the land. Just for our audience, where can people best find you in terms of getting in touch with you and the team at Dash?

Felix: Thanks so much for having me. You can find me on LinkedIn, Felix, M-A-G-O, or on Twitter @FelixMagoCrypto. There, you will find me.

Ray: Nice one, Felix.

Felix: Exactly.

Ray: Thank you.

Felix: Of course. You can also reach me at felix@dashnext.org.

Ray: Brilliant. Excellent. I look forward to part two, and you have an awesome start to the year. Thank you.

Felix: Thank you very much, Ray.

Episode Highlights

• The maturity curve of the crypto and NFT markets (according to Alex’s perspective)
• Alex’s major “ah-ha” moments on utilities for web3 and cryptocurrency
• Where mass adoption is likely to happen. Spoiler alert: it’s gaming
• The power of smart contracts via the blockchain and how they remove the “inefficiency” of the middle-man
• Coinpanion’s unique position in providing smart portfolios for all types of investors, and their plans to move into the NFT space
• Other big players coming out of DACH and what previously held this market back
• Want curated insights into innovation across deep tech, IP and more, straight to your inbox? Sign up to the Connected Innovation Intelligence Newsletter.

Episode Transcript

Ray Chohan: Alex, welcome to Frontier3. Really excited to have you on the show today. I know we’ve been going back and forth on LinkedIn. Your business really caught my imagination, in specific your location on the great work you’re doing in the DACH region. Alex, we’d love to kick off with your journey. How did you get orange pilled, blue pilled, red pilled-

Alex Valtingojer: Red pilled.

Ray: Red pilled. What happened, Alex? And how you got sucked into this world.

Alex: Yeah, actually it started quite some while ago in high school. So back in, I don’t know, 2014, 2015, I was going into a technical focus high school, and I was earning some pocket money by buying and selling and digital games, like Steam games. You know this gaming platform, Steam, from Valve?

Ray: Steam as a… I’m not a big gamer. I used to be many, many, many years ago, but Steam rings a bell as-

Alex: Yeah, it’s not-

Ray: …I think one of the brands of the game shops.

Alex: Yeah. Now it’s a digital platform where you basically have a collection of your games and you can basically play with your friends, and it’s completely PC focused. It’s pretty big. And back then, what I did is basically I started buying and selling game activation keys on different forums. And by buying and selling them, I often got paid via bitcoin. I don’t know. I was like 15. I was like, “Ah, wow. Okay. This is like a digital version of money. Pretty cool. Pretty cool. Nothing too special. To be honest.”

I was just using it as a medium of exchange, similar to PayPal. And what I found interesting, as just a technical concept, okay, I can limit it through an algorithm. And yeah, just by earning money on the side of selling and buying these game keys, I kind of got into this bitcoin game. And through that, this whole journey of me being a crypto- obsessed person started. Then in the end of high school, I actually developed a PayPal bitcoin marketplace because I always was so annoyed to exchange these two things. And just by doing that, I got a bit deeper into how the technology actually works with, okay, this is the mining, you have the wallet; okay, this is the private keys. Before of that, I just used blockchain.com and it was like, “Okay, let’s just earn digital money.” And always going forward, forward, always was a bit in context with the technology and bitcoin, especially.

But I never really got too deep into it until 2017. And I think everybody knows what happens in 2017. It was-

Ray: Price action. That was the price action year. Wasn’t it?

Alex: Yes. Yes. It was that moment where everybody noticed, “Okay. Crypto could be something.” The first time. I would say the first cycle of public mainstream acknowledgement of the industry. And I just kind of… I was following news and I saw this Bitcoin thing going up and I was like, “Hey, wait a minute. I still have some Bitcoins from my high school days, somewhere on a wallet. On Poloniex or blockchain.com. And basically I run to my wallet and checked it out and I was like, “Okay, fuck. I have a lot of money.”

So, this red pilling moment actually started of me just being like a 19-year-old student, luckily dropping into this crypto chaos and making some money on it. And yeah, now, that I actually have this personal stake into this whole industry, I got more excited about it. I started reading about it. I got super into this ICO game, checking out all these initial coin offerings, started trading around. And because I also had a technic background, I got really excited with this smart contracting thinking. Like Ethereum. And so, “Okay, wow. I can basically it develop on the blockchain. It’s so easy. There are so many possibilities.” And I started then doing freelancing on the side as a smart contract consultant, solidity developer. And also my student apartment, I’d built up a pretty big mining farm. So we were like three students living in an apartment and we were buying graphic cards together to eBay, everything we could get, just mine more. Just mine more.

Ray: So you and your friends are just ordering ASICs and just creating your own? And mini mining-

Alex: No, no more like normal graphic cards because ASICs, we bought one initially and the issue was, they were so fucking loud that the neighbors came complaining. They were like, “What are you doing in your apartment? We cannot sleep at night.” And we like, “Okay, shit, we have to sell them.” But Ethereum miners were just quiet enough, we could leave them.

Ray: Alex, just pausing there, because I can visualize you and your gang doing this. How old were you at that…? Like how old were you?

Alex: 19. I think I was around 19, 19.

Ray: Nice. Nice. So you-

Alex: I was studying here in Vienna, business and economics, and basically doing that on the side because, yeah, I just liked tech.

Ray: Brilliant, makes sense. So, okay… Sorry I interrupted. So obviously you kind of freestyled mining with a few buddies and then, yeah. Please carry on.

Alex: Yeah, basically it was all everything at the same time. I basically started mining down. I started jumping on and set selling: jumping on ICOs, selling, buying 'shitcoins', also, researching them, getting excited about what could be possible, and in the end finding out, okay, it’s a bit too early on the other hand. But I really got excited in the end, but also in the tech, like I said, also started developing on it.

And then what happened in end of 2017, beginning of 2018, was I was lucky enough to meet my today’s co-founder, Matthias, which is also our CTO, where we just talked a bit about crypto, what is possible, how is our work going to change with it? And we basically discussed this problem, I would call it, that it’s so fucking complicated to follow up with the space and to just passively invest in it. Because I was basically spending my whole day just trying to grasp what is going on. And lot of people I met during these days went, “Okay, this sounds exciting, but it’s just too complicated.”

So we started developing, as a side project next to university, as a first solution of this problem of asset management in crypto, some sort of crypto copy trading platform. So the idea was, “Okay, it’s too complicated for most people to manage their investments in the crypto space. Cannot just a professor take over it?” And what we did is basically interconnecting different exchanges like Crack and Binance and re-routing their orders. So people could just basically re-replicate portfolios. And from that on, basically we were developing that, did some other projects on the side, and with the time, with the status, I got more and more into basically asset management, investing, also started like doing ETF investments, stock investments, did some startup investments as well.

And in end of 2019, beginning 2020, we basically were at the end of the university, we had this copy trading platform and we were like, “Hmm, this is actually quite a shitty product we built. Because it had no nothing to do with actual investing. It kind of developed just into a gambling platform. And that was then the point where we said, “Okay, now it’s actually a good time… Do we want to be entrepreneurs? And do we want to do something in crypto space?” Yes and yes. What could we do? And then we decided, okay, we still are excited about just making accessibility easier and decided to basically build a digital asset management platform of crypto: cryptocurrency focus, which is based basically Coinpanion on what I’m doing today.

So the idea today is really to basically build a BlackRock for digital assets to make it easier to invest in different crypto categories. Like, “I want to invest in NFT space. I want to invest in a Metaverse. I want to invest in DeFi space. I want to invest in digital art. I want to invest in gaming items.” All these new innovative asset classes, to one platform in a simple manner. And that’s what we are doing today. So this whole high school years starting kind of developed into building a platform around investing in that space.

Ray: Okay. Makes sense. Thank you. Very organic, natural story there. So it looks like in your kind of mid- to late teenage years, you were red pilled or orange pilled, and then you kind of experiment and then kind of find your journey with Coinpanion. And just going back a few minutes, it caught my attention, you mentioned there were specific technological primitives, which really ignited your passion. I think we are similar in a certain way. It was really the smart contract capability, which caught my imagination because I’m from a B2B enterprise software space, and you could kind of connect the dots together on how that could be applied in a B2B context. Just for our audience, especially the folks on LinkedIn, I still think 85 to 90% of really talented Web2 professionals don’t really have a fricking clue of what smart contracts really are and what they will enable. So could you unpack that for the audience in a very simplistic format on, A, what it is, and what do you think the potential of that technology is, 2022 and beyond?

Alex: Yeah, sure. I can. I can at least try. Let’s say it like that. Yeah. I mean, I always had like a bit of a technical background, so Bitcoin… I’m not a Bitcoin Maximalist, but for me, mostly, okay, this is like digital scarcity. Makes sense. You have an algorithm which basically limits you to produce more than any initial asset. The smart contract thing was for me a way more efficient solution to more problems because it automatically automates away middlemen.

So in traditional products and traditional finance and traditional internet, you always have a middleman, which basically is a source of trust. So we too want to do a transaction, basically, or to have some sort of agreement; we have some somebody in the middle, which is this trusting entity we both trust, and in the end helps us to execute our exchange. And if you break down, a lot of things, a lot of things are just breakdowns, just exchanges between people. We exchange likes, we exchange images, we exchange money, we exchange everything, basically. It’s always this connection between people of sharing and giving away. And a lot of this happens with intermediates.

And the nice thing now with smart contracts is you basically can just automate it away. So you have this source of truth, which is basically blockchain because you know, okay, the code basically makes sure this transaction executes. And so we too agree: okay, if you do that, I give you that. And we don’t have somebody in the middle, which is basically escrow system. It’s just, if that event happens, the contract automatically executes and gives you your part of the agreement. Right? So, so that’s the interesting thing about it because I always like it on a DeFi base because I’m a bit more in a financial space. It’s like, why do I need banks or auto-notaries, or insurances as intermediates to move around people’s agreements? I can just like do it with code. If we two agree, if I give you, I don’t know, a house now and you pay it off, you can just basically tokenize it and do it through the blockchain and have the security there.

Ray: Yeah, yeah. It’s interesting… That’s what… I think we’re on the same page then. I mean, that abstracting away the arb and, sorry to offend anyone, the shitty middlemen-

Alex: Yeah.

Ray: …in the middle, who don’t really offer value, let’s face it. They offer no fucking value. They’re just arbing a scenario, and adding as a middle man proxy. And in essence, they layer in inefficiency-

Alex: Definitely.

Ray: …into the market. Right? So I think… Who said it? The name slipped my mind, but he’s a… , I’ll try to remember the name later, but it’s kind of the analogy that code is law and these languages can arb out any big law firm or an individual so-called specialist who tries to manage a transaction. So that pretty much makes sense. And on that curve, in your opinion, Alex, where are we? Because I know we are ultra early on the impact on what smart contracts will make in society and in the business world. Where we are in terms of time mark, are we where the internet was in 1995, 96? Or are we slightly further along, in your opinion?

Alex: That’s a really tough question. I would say we are still super, super early. I think especially like 2021 was the kick-starting year for all these technology developments. You also kind of see it with how the market developed around NFTs, which are like a super interesting concept, Web3 as an actual thought of, “I have like a decentralized wallet, a unit, which basically then connects to centralized institution to execute agreements.” So I would definitely say we are in 1995, 1996, of crypto and digital assets in general.

And you also see it still in the prices. I mean, 2 trillion, 3 trillion, crypto market capitalization sounds like a lot, but if you compare it with the potential it could have, it’s actually really, really low. And also with the NFT space going up, now it seems like it’s getting higher, but it’s still really early in the curve. If you look at the prices and the volumes, I think we are in a total of 60 billions right now with market capitalization around NFTs, which are mostly digital art. And we have in the classic traditional markets a US$1.8 trillion locked in art.

So I feel like, okay, people start now to recognize this is something, but it’s still in the early phase. I feel like we are running a bit into this .com bubble mechanism. So it’s like this moment, okay, technology is here and there is a use case, and we see the use case is developing, so people get super, super over excited. It’s always the same, this Gartner hype cycling here. They get super over excited. “Oh my God, the future’s going to be that and that, and it’s going to be soon and it’s happening. And Facebook is now Meta and they are going to be the Metaverse. The Metaverse is going to be built on NFTs. We are almost living there.” So that there’s this influence of a lot of hype, a lot of hype, a lot of hype, which gives you the feeling, okay, we are way further along the journey than we actually are. And then it will eventually pop.

And I’m also the opinion like 99 or 95%, whatever, of all these digital assets with we currently know, is it DeFi applications, is it cryptocurrency, is it the NFTs, will still go down and implode, basically. But what we definitely are, there, is we have the anchor point of adoption, of technical adoption. So I feel like, okay, we are early in the curve. We are way high with the adoption-wise. We are high on the hype, which then will pop, but the adoption will continue and will take another couple of years.

Ray: Yeah. I would share your sentiment. It’s that famous phrase, history always repeats itself, but it always kind of rhymes in a slightly different way. So if you look at that run up in the mid-’90s to the dot-com boom, you had this huge markdown and implosion, and you had, what, probably four to five meaningful players left. Your Ciscos, your Amazons, and a couple of others, who are still around today and built category-defining businesses. I actually think within this Web2 hype cycle, I completely agree with you, Alex, it’s going to be huge markdown. 95% of the projects will go to this zero or have a huge dropdown and be immaterial. But I think you might have, instead of four to six companies like they were on Web2, you might have 18 to 20 projects which are meaningful and build that out…

Alex: I definitely believe that too. I think it’s going to be more distributed.

Ray: Yeah, more distributed.

Alex: Because the impact is so broad on so many level. Basically we have a revolution on financial services, the complete financial sector. We have a revolution on a complete artist/creator movement. We have a complete revolution on internet in general, so I feel like this is going in so many directions that there will definitely be more than just three, four, five projects and companies which will succeed from it.

It’s always a bit hard. Where do you take the line? Where’s the line of what is digital asset, what is not? For me, it’s basic everything which is based on DLT [Distributed Ledger Technology] technology. So if you really say, okay, DLT technology, everything which is based on that is crypto, then I’m for sure that this is going to be the biggest space ever we can experienced. Bigger than the internet because it goes so, so far deeper.

Ray: I couldn’t agree more. And so moving away slightly from market and kind of price action forecast and just some of those areas. Back to the smart contract piece, so that made sense in terms of how that grabbed your imagination. But what are some of the other primitives, which made you fall out of your chair when you came across this whole space? Because again, there’s still so many people out there who don’t even understand the fundamentals of the blockchain and know how it actually works and how that is just a far more superior database ledger, it’s distributed. So is there any other specific slivers of that tech stack which made you think, holy shit, I want to spend my career in this space? Something which can catch our audience’s imagination, allow them to go in and do their own homework.

Alex: I mean, in the last couple of months, what catch my attention a lot is definitely the NFT space, but this is probably no surprise because it got really, really hot. What I find interesting is we already had it in 2017. You probably remember the, I mean, CryptoPunks are from 2016 or something. I don’t know exactly, but we also had the short hype of CryptoKitties. Actually back then, I thought, okay, what a bullshit. Now that I spend more and more time into the industry and actually connect us with more people around it, I see it becoming more and more a thing.

Also, a bit with the combination of this metaverse and this general idea of Web3, that we have unique things in the internet as well as in real life, so that caught my imagination when I started thinking about myself. Also, back when I was gaming, I started spending money. For example, game skins. I played a lot of Counter-Strike, so I bought game skin so people knew, okay, I have a nice weapon. I am a pro gamer.

I try to always look at bit from a macro level. If you see that the generation and the digital shift, which we are currently experiencing, you just look how much time you spend on digital mediums. I mean, we are doing this podcast through our web browser in a digital way, right? And the moment you are born to nowadays, the moment you are born, more or less at the same time, your digital self is basically born. Kids spend time on YouTube. They generate their feed. They start hanging out in communities. They start gaming at super early phases.

Once I really understood how deep this digital self or digital identity goes, which you already see like Instagram, Reddit. I mean, there are like thousands of examples, which you do it on the Web3 platforms, it kind of grasped to me also this sense of NFTs, why this is such a huge space. It’s like, okay, when I say my life’s is more than 50% digital, it is basically this. It doesn’t make a difference if I buy, I don’t know, a clothing for my avatar or I buy it in real life or I buy a luxury car or I buy it in the metaverse or buy it in real life. All these prestigious things for sure would be even bigger space in the internet, or in a metaverse, or whatever you call it, because more people can see it. And I’ve been pretty sure this will be based on blockchain technology.

And the second thing is I also see it on the interoperability when we really say, okay, our life is going more and more digital and we have this metaverse thing coming up. It kind of has to be blockchain-based because it won’t be that you have the silos of, okay, Facebook has their own system. And then you have, I don’t know, Microsoft their own system. I think you need like a common layer of interconnection of these things. And I see a lot that basically crypto tokens will be that intermediate. Because you, again, have this trust this database or trust this layer where I can store my things without having the central authority deciding of it, and I can just access it through different parties.

So going deeper and deeper in NFTs, I wouldn’t say I’m still 100% in it, but I definitely feel like this is something really, really deep on a macro level, especially always looking at Gen Z millennials.

Ray: Interesting. It’s really weird, this one. Our journey sounds very similar now because when I heard about NFTs, what is it, literally, it would’ve been Q4 of 2020, where I just started loosely looking at it. And then you had NBA Top Shots, right?

Alex: Mm-hmm.

Ray: In early part of last year. And if you look at OpenSea’s revenue, I think 2019 … Shit. I think it was like 2020 OpenSea’s revenue was $24 million.

Alex: Yeah. It was super low.

Ray: And last year, it was $15 billion. And if you look at last year, it was January when NBA Top Shots. That was NBA’s first foray into it. I remember showing my wife going, “Oh,” because I used to collect cards when I was a kid, so I was trying to just…

Alex: You’re always connected with the real life thing. Right?

Ray: Yes. That’s it.

Alex: It’s just a digital thing, right?

Ray: Especially at my age. I mean, I’m 40, so I’m 41, so I grew up with sports cards and collecting stickers and albums and obviously in the ’90s, the internet, Web1 and Web2. But it’s really dropped for me in the last two months, thinking about the whole surface area of what NFTs encapsulates. It, basically, if you look at culture as an asset class, that asset class is huge. It’s just self expression, right? And we express ourselves in so many different ways. It could be through clothing. It could be through, I mean, expressing ourselves online through pictures or liking or supporting certain causes in a digital format. It could be the car that you drive, where you live. We’re basically, as human beings, always signaling on what we believe. NFTs just amplify that and make that surface area a lot bigger.

And it’s interesting. You’re getting excited about this space, and I’m sure this might feed into the Coinpanion product roadmap, but we had some of the great team members from Adidas on our pod, a chap called Diego Borgo. Really talented NFT thought leader, and actually he works in Adidas. And obviously you can see in Adidas, you see Nike really ape into this space and kind of have the NFT and then back it up with a physical item. So if you buy, say, the Air Jordan 15 NFT, you get then gated access to X privileges, blah, blah, blah. But that’s the early design space. I think it’s going to be mind blowing where the design space evolves to. We probably can’t even imagine it right now on what it can become. So we’re definitely on the same page. So, digging into that further …

Alex: I really like how you call it the asset class of the culture. I think that kind of describes it perfectly. And culture is just such a huge thing. And especially now with more optimization, I feel like this whole creating stuff for pleasure and culture will always become bigger and bigger.

Ray: I mean, it’s been going. If you really think about, it’s been there for hundreds of years in the world, culture as an asset class. We now have a digital layer to kind of evolve it and allow people to exchange. This is the first time you can truly exchange value at scale and culture is the underlying kind of primitive behind it, so that’s interesting.

Going to Coinpanion, are you exploring an NFT product line? Is that something, I mean, obviously I know you can only discuss certain things, but it seems like that would be a compelling offering to get people involved into maybe an ETF, which is tracking top NFT. Is that something that you guys are exploring? If so, what does that look like?

Alex: I’m actually laughing a bit when you said that. That’s exactly what we’re currently exploring. I mean, we already had our feet a bit in DeFi, so we are excited about a lot of things in the crypto space. Like I said, I really think it’s going to go into every aspect of our lives. But especially NFTs is something we started exploring intensively the last three to four months, and that is a product coming up this year.

So I’m not going to go too deep into it, but I think that’s going to be our first step to basically offer access to NFTs in general as an asset class. But we also plan to go deeper into subcategories again, because NFTs is, again, such a huge and broad topic. Now it’s just starting, and like I said, I think it’s around 60 billion of market capitalization, the whole space. But going further and further, it’s going into all different aspects again. It’s going to go in music, it’s going to go in art. It’s going to go in gaming or it’s like just whatever you can imagine basically. And there will be, for sure, products around that on Coinpanion because our mission, basically, is we really make innovative new assets accessible and NFTs are such a fundamental thing of that.

Ray: Is the form factor, I know you can’t go into the detail, but in essence, will it allow folks to index-

Alex: Yes.

Ray: … into the asset class in a broader sense?

Alex: Yes. Yes. I mean, I can go that deep. Yeah, definitely. It’s exactly like that. What our focus is always be like exposure to the new things because if you go really deep in alternative assets, which crypto and NFTs still are, it’s like super complicated where to start off. Because, I mean, we notice there’s happening a lot of in digital art space, but it’s really hard to catch up with it. So I feel like for most investors, we just want to have exposure to certain industries and technologies. It’s just best to have like an index portfolio view of it. And that’s basically where we see our angle.

Ray: Because I think for Joe Public in retail, trying to cherry pick meaningful NFT projects, you’re going to get butchered because the big players in that space are the, I think, the individual players who are big on Twitter. I think Gmoney’s one of them, but I was listening to his story and he's got a long history in understanding culture and how that converges with gaming and future kind of customer demand. And I think DC is another chap I think in the US who’s got an insane collection, which is basically the who’s who of the big ones. So I think you guys are heading down a compelling route of allowing retail to have exposure without having to think about all the bloody different projects because it’s a landmine and you’re probably going to end up in a blood bath by going individually into projects, so that’s great.

Alex: I think, in general, cherry picking is it’s the same for stocks. I mean like for NFTs and less known, asset class is always more complicated. I would generally say cherry picking is always really, really hard. And for the average Joe, not to the right thing to do.

Ray: Okay. Makes sense. And now going into, in region, your profile caught my imagination on LinkedIn because I was like, I really want to unpack the DACH region because … So PatSnap, we've got loads of amazing customers in that part of the world. And I think Crypto Twitter, and a lot of what we might see on Masari or CoinDesk, it’s always kind of North American slanted. If it is Europe, a little bit of UK, but not much global exposure on what’s actually happening in Austria, Germany, Switzerland. So just backtracking slightly, obviously you’re doing 60 million Euro in trading volume on the platform right now from what I can see on your landing page.

Alex: Oh, it’s actually way more. I think that’s outdated.

Ray: Cool. Okay, so you smash well past that. I think you should update it.

Alex: Yeah, actually I just did. The moment you said it I was like, okay, we definitely have to update that.

Ray: What’s the trading volume now?

Alex: Well, I don’t know it exactly, but it’s way over 100.

Ray: Oh, a hundred million Euro. Congratulations.

Alex: Thanks. Thanks.

Ray: You’re trending in the right direction. At a retail level and just institutional level, what’s the adoption been like in Austria and neighboring countries?

Alex: I mean, Austria has a really good and known player, I would say European-wide, which is driving a lot of the adoption for the last couple of years, which is Bitpanda. I guess you know them, right?

Ray: The name rings a bell, but I had no clue they’re originally from Austria.

Alex: Oh, yeah. They’re originally from Austria.

Ray: Nice.

Alex: The main issue with Europe in general, or EU in general, is like that there is a lot of regulation, but it’s unclear regulation. There is some sort of regulation for crypto businesses and basically asset manager under it, but it’s not regulated enough that you have a European solution. So I think that basic, that stops a lot of the innovation at adoption of it. But a lot of companies are now breaking through.

So it’s always hard to say how far out of the adoption curve, but I’m pretty sure that I would say that Europe lags behind Asia, US, and the UK. The EU is lacking behind the English-speaking parts and the Asian countries, just because of its harder to access these products, especially through European players. There are not a lot of new players. PART 2 OF 4 ENDS [00:32:04]

Through European players, there are not a lot of new players. So we are definitely one or two steps before most other countries in that regards. But what is cool is that we see a lot of development, especially happening in Austria. So there is a pretty vivid crypto scene in Austria, with Bitpanda as the biggest player are there with, I think, 4.5, four billion valuation nowadays. But also happening a lot on the NFT space, I know a couple of developers and companies which are now working on new FT products, I know a couple of people working on DeFi.

So with the big player, which showed, “Okay, it’s possible to build a huge crypto company out of Austria,” that also gives the incentive for more people to start companies in that space, which then is this rolling effect, which also transfers in the basic general public. So to summarize it again, I think it is happening, I also see the growth there. Our product is basically the image of mainstream adoption, the average show wants to have exposure in that industry, but we are still a long way behind other players like Asia, US and UK, but it’s happening.

Ray: It makes sense. And I can see your offering, you’ve got cautious, balanced, adventurous, and obviously the NFT and Metaverse ETF. Is it out or maybe coming out soon?

Alex: No, you can already invest in it. But this is mostly technology based, so it’s not real exposure to NFTs. You don’t own a fraction of a Bored Ape or I don’t know, Crypto Punk. It’s more like the technologies of new use for this product.

Ray: Okay. Also the L1, L2s and all the infrastructure picks and shovels. Okay, great. Brilliant. So looking at that offering, How does it work on the back end. When you are constructing an index, what is your methodology? Because this can sometimes turn into a black hole, right? Because there’s so much nuance and there is no official methodology on valuation, it’s still quite ambiguous. So what does it look like backstage at Coinpanion on your differentiators, on how you can index things in a compelling way?

Alex: Yeah, actually you said it right, that’s one of the hardest things. So when we started out, we actually worked with an open sewers ranking system was scoring system for crypto, which was called the Fundamental Crypto Assets Score, FCAS, perhaps you’ve heard of it. But in the last two years, we started evolving from that and basically built an own scoring system for crypto assets, which you used to select cryptocurrencies. And this one is based on four pillars, so it’s completely database and we look at four pillars. So the first pillar is blockchain activity. So we scan, okay, how much is happening on the specific blockchain? How many wallets are created, how many transactions are executed, how many smart contracts are got executed, et cetera, cetera. And basically get the metric out of that. The second pillar is the development activity on the blockchain. So we look at okay, how many GitHub commits are, GitLab, et cetera, you know it. So how much development is happening?

Again, get a metric out of it. Then the third one is sentimental data. So we use different tools to scan Discord communities, Twitter communities, telegram communities, to see, okay, how much is any community going on around this project? Is the community growing, is the actual exchange, are this people in this community or just bots? And get a metric on their sentimental and social score. And the third one is classic market data where we look at especially money flows. So how much is going in exchanges of specific cryptocurrency? How much is going out of exchanges? How much is not moving around? How scrum are they holding hands? How concentrated is the whole holdership? Who holds most of it? Is it just 1% holds 90% of the token or is it pretty distributed?

And basically it’s done a mathematical system where we just bundle up these four pillars of data and get out of a score from zero to 1000. And if a cryptocurrency’s above 700, we say, “Okay, this is a project we will include in our portfolio selection.” There’s one more thing, which is happening in the end, there’s one more human touch to it that we check the project that not something really strange comes into it or that we have client regulatory issues in it. So then this is basically a selection process. And in the end we bundle them up together in a separate wallet per customer and balance the portfolios using risk parity. And risk parity is a state of the art management solution, so it’s almost not a secret how we do it.

So you basically analyze the volatility of the asset. And if you see, for example, Ethereum starts jumping up and down, jumping up and down, there’s a lot of market volatility happening in that specific asset, the algorithm starts reducing the exposure, so you are closer to the mean variance portfolio. Which basically then is an optimal mix between risk and reward. And I think the cherry of the whole system is really the selection mechanism. And we are currently working on a project to also make the public. So although this is not going to be a secret, how does exactly works, we are currently working on an own page where you use the Coinpanion crypto score and have a kind market cap page and you see all our fundamental assessment of the assets.

Ray: Nice. I think that would be cool. That reminds me of… God, there’s a business called HubSpot back in the day, very Web2, but you could grade your website. So upload your URL and it’ll grade your website for being fertile for SEO or driving inbound leads. So it’s great you’re-

Alex: It’s a similar concept, exactly. Exactly, that’s the idea. So I see there’s a lot of companies specific and niche popping up trying to assess crypto like, “Okay, how is it fundamentally a good product?” And we just said, “Okay, why don’t we just make our system public to the degree that people can just look it up if they’re interested in it?” Because in the end it’s a win-win situation, the industry becomes more professionalized, and we position ourselves also as a knowledgeable player in the feed because we provide the score.

Ray: There’s been a huge burst of analysts, shops and houses in this space. I’m actually speaking to one soon called I think EVI.io. I forgot where they’re based. Actually, they’re based in Dubai and they have a certain research methodology to come to an evaluation number, a network effect number. But then you have Masari, I love the team at Masari, I love their product.

Alex: We use a lot of their data.

Ray: Yeah. Yeah. You use Masari and then obviously I think there’s Nasan in Singapore is another one. And then you’ve got Into The Block who are interesting, I think they’re based in Europe where they do a lot of on chain analysis. There’s a whole bunch of players. This reminds me so much of the nineties and you had obviously Reuters with their terminal products pop up, you had SMP Global have a whole number of variety of debt products, credit products, market research products. A company I worked at when I was a kid called Data Monitor had a whole variety of market intelligence offerings. So the same’s happening in this world, but just a lot faster within Web3. So that’s cool, your methodology makes sense. I was actually making a note of some of the indicators, and you mentioned the GitHub analysis. And electric capital released a really cool report this week. I don’t know if you saw-

Alex: Yeah.

Ray: … Electric Capital’s developer report, which I thought was a cool proxy, gives you a rough idea where the ship’s heading, but it’s only open source submissions. We know a big part of the community is closed source, especially some of the folks in the Solana community and some of the other L1s. So in terms of developer adoption, where do you think we’re at? Because I think trick capital had what, 18,000?

Alex: Yeah. Yeah. I think something like that.

Ray: What do you think that number really is if you were to bake in close source, just roughly guessing?

Alex: It’s really hard. I think it’s at least 10 times bigger or 15 times bigger than that. Because like you said, because you said it like, and it’s always a question, what do you call blockchain or crypto developers? Because I feel like especially companies like Coinbase, BitPanda, et cetera, et cetera, I know they employ a lot of people which are also working on crypto products, the products are just not opensource.

Ray: Yep. Yep.

Alex: And I actually read a nice article a while ago from, I think it Wall Street Journal or something, where it is [inaudible 00:41:24] actually now a pretty big outflow of the classic Web2 companies like our Facebook, Google, et cetera,. Companies like this, where the mainstream and coolest company you could work for five years or 10 years ago when you were a developer. That they have a real outflow now of really good and talented people going into Web3 companies. So this is the new hot space, and I think especially tech people acknowledge it, that there’s so much you can build and there’s so much which will be built and they just want to be part of it now, same as the internet rush.

Ray: I couldn’t agree more. You know what I’m seeing, even outflows are happening everywhere, even legacy companies or incumbents who are trying to be cool and launch their Web3 motion ala Meta… Well, let’s face it, they’re really Facebook. All the top players from their Novi team and the Novi wallet team have left. You can actually see it, it’s all over LinkedIn. And I think there’s one business, I’m trying to remember the name of the organization, but if you go on LinkedIn, the entire team are ex Novi within Facebook and they’ve just left. And like, “Holy shit, this takes too much time in a large incumbent. I can just raise money very quickly, let’s just build this ourselves.” So yeah, I think they’re called Mysten Labs, you might want to check them out. They’re more of an infrastructure.

Alex: I’ll definitely check them out.

Ray: The Mysten Labs team are all ex Novi.

Alex: Yeah, mate. It’s always a bit of a risk if you put a couple of really smart and passionate people in a room and you cannot try to use the methodology on them, which you use on classic Web2 products, that they get too excited and just want to build on it and do it themselves. Because I feel like, especially now for a player like Facebook or Google, they have to be limited to a certain point, which probably doesn’t comply with all their really good people.

Ray: Yeah. No, I couldn’t agree more. You’re seeing that shift, it’s all the incumbents. If any of them launch a… I think the only… Well, I won’t call them incumbent because I really like their founder, but actually, Jack Dorsey’s cool, but I disagreed with his Web3 view when he had his little Twitter burst. But generally he’s-

Alex: He’s a cool guy, yeah.

Ray: He’s a cool guy and he’s smart. But it’s companies like… Well now they're called The Block, they're not called Square anymore, but I’ll just call them Square. Square can attract people, I think, because they’re still not that big where they’re not cool. And it’s a founder led business and the founder who a lot of people genuinely believe in and follow. So I actually think the only one who’s going to probably attract good talent is probably going to be Square and maybe one or two others.

Alex: Yeah. I think what Facebook or Meta has a big problem is just, they have a really bad public opinion now. It’s just not the cool company anymore. And it’s not like, “Oh, wow. I’m going to work for Facebook.” It’s like more like, “Oh, wow. Yeah, I have to work for Facebook.” I don’t know. The excitement is just not there anymore. It’s really hard, I feel like the rebranding helped them a bit on my personal some impression on them, but I can imagine it’s really tough for them to keep most talented people nowadays. Because if you’re really talented, you can work everywhere. That’s also just a fact.

Ray: Yeah. I think the rebranding, I think, it’s not going to work. I can already see it’s not working, because you have some people saying, “Yeah, Facebook.” They’re not even it Meta, they’re like, “It’s fucking Facebook, man. Forget that shit. Forget that video they launched.” That video they launched as well, it was too stiff, it was too corporate.

Alex: Yeah.

Ray: People were cutting up clips off that video and just posting on Twitter, LinkedIn and just laughing at it because it didn’t… And if you analyze that video, there was nothing mentioned around interoperability, about being open. If you look at the script of that video, the true things that people give a shit about, they’re kind of-

Alex: Yeah, I think Zuckerberg needs a-

Ray: Never mentioned ownership, never said that word once because they’re not all in. And the hardcore Web3 people can see that and like, “Forget that, it’s bullshit.” What are your thoughts of that video?

Alex: Yeah, you’re right in the video, they didn’t explicitly say that. But I saw a couple of weeks ago, I think I was on LinkedIn, I feel like they’re always the news collect. Zuckerberg did a video about his opinion on NFTs and he definitely said that this is going to be something they will use in the Metaverse. So I think that he acknowledge that he cannot really touch that wave, and has to rather work with it if he doesn’t want to be left out.

Ray: Yeah. That could be a perspective as well. I think we’ll-

Alex: Yeah. I’m not a huge Facebook fan. Actually, I don’t really use the product, so really hard to say. And yeah, we said it before, it’s just not cool anymore, it’s not exciting. It’s old, it feels old.

Ray: Yeah, for sure. So it looks like the NFT space, I think that’s definitely the one application which has had that broad appeal because people understand it very quickly. Hence Open Sea’s revenue and a couple of the big marketplaces. Where do you see the design space evolving to? Are there particular layers of the NFT capability? I know this might be looking out into the future, which made you go, “Holy shit, this is going to be huge.” Because you’re right, it’s tiny at the moment, Alex, 60 billion market cap is nothing. So in terms of design spaces is there any use cases or any brands getting involved with makes you think, “Wow, this is going to be massive”? If so, what does that look like?

Alex: I think it’s still too early. A lot of companies said that they committed to NFTs and building on the Metaverse, but there’s not that much which happened. I think Nike is definitely the forefront from the established brands and that. The most excited around NFTs are actually more in the gaming space because I just see the application, they’re so, so, so obvious, but again, I know that Ubisoft recently announced the NFT project. I don’t know if you heard of it. It actually was also a bit of a joke in the industry. I think it's one of the most disliked videos on YouTube ever, because they’re just trying to get money out of it. It is actually a question if there’s really a established player who builds on top of that, or is it new players building on it? I rather guess it’s the second one.

I think we will see companies like OpenSea just basically just doing the same on the gaming space. I think gaming is, in my opinion, will be the first mainstream adoption of NFTs because it’s just … you have the target group which is used to digital goods and you have a space which is super growing. I feel this just comes hand in hand that okay, gaming is becoming more and more mainstream and the use case is just clear. You tokenize basically items and you make it interoperability, interoperable between the different gaming worlds. Then you have the gamers which already I use digital items and see value in it.

I feel like that’s just really fitting for first mainstream application of it. But in my opinion will be not an Ubisoft who builds the layer for it, it will be some other company which now evolves. Could also be the new company of the former founder of Twitch. I don’t remember his name. It’s like Jack or Jan, but I know they are working on a new gaming platform for NFTs. It’s called Jack or Jan.

Ray: It’s interesting because if you look at the existing players within gaming, the incentive structure really isn’t there really for them financially to kind of really jump in to Web3 immediately, which is weird, because some of the roots of owning dish assets is from gaming. In fact, it’s from gaming, right? It’s linked.

Alex: I mean Ubisoft tried to make the commitment. Are they going to just build the new gaming world based on NFTs and it’s going to be … and you have a timestamp when you got it and you saw which play you used it, but it’s always with Ubisoft also, it’s again a huge branding issue. Ubisoft doesn’t have a good brand and people are not really looking for that. I feel they’re looking more into the operability space that I can use it on different platforms. I think they missed the point of this blockchain NFT combination.

Ray: Do you think it could be Tim Sweeney at Epic who pushes this through?

Alex: That actually…

Ray: Yeah.

Alex: Actually, I think they are in a really good position for that. Especially also how they design the games and how they build the worlds up, it’s always pretty open and they also embrace a lot of items in their games. That definitely could be, could be a potential player to really steer it.

Ray: My guess is someone Tim Sweeney, I mean, he’s been talking about this for a long while and he’s a huge advocate for this. There’s not one metaverse, it’s going to be many universes kind of where you can jump around. I’m guessing his business is larger now so he might just have internal people in his board saying I love your idea, but shit, we’re going to lose revenue for the first three, four years. I think it is going to be interesting.

It might be an Epic who makes a meaningful move, but to your point, it’s probably going to be the native net new companies who’ve got no legacy who go all in and build something meaningful.

Alex: Yeah.

Ray: I think there’s a great investor called Chris Dixon who's part of a16z.

Alex: Yeah. I follow him. I follow him. Yeah.

Ray: I mean his tweets are just fuck … They’re amazing, right? The way he just wraps things into a mini tweet storm, but he mentioned the term skumorphic where he goes, a lot what’s happening within Web3 are basically Web2 ideas with some Web3 DNA, and that’s okay because the real big hits are going to be the native use cases where it’s … I think there’s one project called … I think it’s called Loot. Have you checked out Loot?

Alex: It rings a bell, but don’t know it.

Ray: It’s great. That is like hardcore native Web3 project where you own… It’s a bit like … it makes things where you can just buy the original story and then people build on top of that story, so it seemed brilliant.

Alex: Oh yeah, yeah. I actually heard of it. Yes.

Ray: Yeah.

Alex: It’s this adventure gear generated somehow.

Ray: Yeah. Role playing game. You can see it’s projects like that, random stuff, which I think might be meaningful in this space. In terms of just wrapping up on the future of Coinpanion, so congrats Alex. Over a hundred million Euro in transaction volume. What do the next two years look like? Obviously you mentioned the NFT product but where do you see Coinpanion in three, four years time?

Alex: I would definitely say we are a European company and we just want to go for … Not just, but our gameplay is we want to be the biggest player in Europe and basically be the BlackRock of digital assets. I always like BlackRock because they did such a huge thing for the financial industry. We just want to do the same for the digital asset industry because we think that’s the asset class of our generation.

Why do I always say digital assets? I think is really important to mention that we are not just a cryptocurrency company, but we are a digital asset company, which means the whole pallet of TFI to currencies and NFTs. And NFTs, again, go so, so, so deep. What will happen in the next couple of years is basically expansion through Europe, expansion of product line, offer new products around NFTs and TFI and basically make this whole space super easy to invest in for the everyday Joe.

Ray: Okay. Makes sense. As a Web3 entrepreneur, what’s been really difficult in building this business. Are there two or three areas which are just fucking hard always in terms of … and Web3 specifically?

Alex: I would say the hardest thing for us is often the regulatory uncertainty, especially on things which are really, really new. I mean there are so many exciting things happening also in the DeFI space which you think, okay, wow, we definitely have to build something on that, this is something people are going to love, but in the end there’s so little regulation around it that they can’t really offer it in a regulatory manner to people in Europe. I feel that’s most of the blocking things.

From the technology perspective, I think especially now … I mean we are not a decentralized company. It’s not that we do … we basically do it custodian, custodial. So we hold the assets for the customer. The idea is really to make it easy so there’s a lot of simplicity in just combining the decentralized nature of many products with decentralized nature. It would be definitely more complicated if you do it completely decentralized. I think the hardest thing for us is really how do you get new stuff to people in a regulated way?

Ray: Yeah. I’m guessing that must keep you awake up at night because it’s changing all the time, right?

Alex: Yeah. The good thing is also the US actually pushing forward with the marketing crypto assets regulation. They are trying to build up a framework for regulating crypto, DeFI. not NFTs, they’re not mentioned there, but at least some parts of it. I feel like now in 2022, we are reading this year where regulation has to come, not just for European players, but for every country. Basically worldwide adoption of it because a lot of the things we see now and a lot of the possibilities, in my opinion, are just blocked out by uncertainty. Is this allowed? How can I actually really implement it? How can I make it also accessible for institutions? Because in the end, we also need always institutions to really drive adoption.

I feel like 2022 will be that year where we get this fundamental layer of certainty, how we can applicate a lot of the use cases on a legal manner, which then is, again, a snowball effect of mass adoption.

Ray: Okay. Makes sense. Yeah. I think there was a hearing before Christmas in the US where I think FDX turned up, the CEO from Circle, I think Coinbase’s chief operating officer turned up. Actually the questions were really good, Alex, weren’t they, from the Senate who attended. It actually impressed me, the quality of the questions, because normally it’s bullshit questions.

Alex: Normally it’s really embarrassing.

Ray: Yeah. Like what the fuck is going on when you listen to those things. But actually fair play to the attendees, there were some really thoughtful questions there.

Alex: Yeah. I feel also there are a lot of people now in really high positions also in the political landscape of the US who have an understanding of digital assets. This is just like this, that the right people with the right mindset are in the Congress helps the adoption in the end. It really seems like that this year is going to be a year where we can finally figure something out which works for both partners, for the regulator and for the providers who are building stuff on top of it.

Ray: Yeah. I’m optimistic. I think we share the same school of thought on that one. But another thing which is interesting Alex, and maybe this is where my age probably will help a little bit, Web2 was Web2, right? It didn’t have too much to build off. Web1 was kind of just web websites and links so Web2 was a big, big journey. Web3, I think, seems a lot more quicker because it’s got Web2 to build off. Also, the way we communicate now through YouTube, Twitter, I mean the information flow now is exponential. It’s changed shitloads even in the last seven, eight years. What that means is you now have got all of these high profile figures, right? Mark Cuban, Kevin O’Leary, even Elon Musk putting BTC on the balance sheet. You got Michael Saylor who it looks he doesn’t even work at MicroStrategy anymore, he’s just doing podcasts.

Alex: He just buys Bitcoins.

Ray: He’s in fucking podcasts all day long. But we are now living in this really connected, ultra-connected world where information flow is instantaneous and it’s global. Now governments and regulators, regulatory bodies are operating in a completely different paradigm. They kind of have to move faster. They kind of have to meet folks in the middle a lot more than the past because there’s so many high-profile people already in this asset class, and a lot of those high-profile people actually sponsor a lot of those politicians and a lot of those parties. It’s all kind of converged in a way which has never converged in history. Does that make sense?

Alex: That’s actually a really good point. Yeah, I can see that.

Ray: That’s why I think there’s this unique context. But don’t get me wrong, I think still there’s going to be huge challenges. Alex, just to wrap up, your top three predictions for the next year or 24 months in terms of just bullish predictions. They might be wrong, but just things that you think yeah, this is going to happen.

Alex: Okay. Yeah. The first one I already mentioned before. I think 2022, we get a general regulation around crypto in most countries. I think definitely in the EU and I can also imagine it in the US, which basically will steer a lot of innovation in the next couple of months then. The second one is I think we see at least 100% growth in VC money in crypto in Web3 and crypto companies. I think the space is especially going on the private company site getting hotter and hotter. I think especially this year is going to be a peak point.

The third one is we will at least see two more major companies going into NFTs, like major companies, top 100 companies in the world.

Ray: Okay. On call, on point two, are you getting so many inbounds from capital allocators? Well we’re looking at Coinpanion, that’s why you’re bullish on the venture space? You’re getting really frothy approaches?

Alex: I mean yes and no. Yeah, we definitely get poached a lot, but I see it more now with really this … I think this is like this self-enforcing effect of NFTs actually getting a mainstream adoption. You got the money. In the last couple of years, you got money last year, people are building products, people are building products, more and more adoption. I know a lot of VCs are really future driven, future focused. I see the point that they really embrace the space more and more when they see okay, I don’t know, Facebook commits to it, even though it’s Facebook. Or I don’t know, Square commits to it. This just gives the … how do you say it … the final check mark from the outside industry. Okay, that’s going to have my massive innovation. In the end, in my personal opinion it’s like there is no such huge innovation anywhere else happening than Web3 currently.

Also not the next couple of years because I think this is going in so many directions and there’s going to be so many tickle points with Web3 with classic industries from internet, but financial industries. I also think it’s going to go into health, medicine, et cetera. Just the space is so overarching that I think they will just go a lot more money into the space.

Ray: And geographical split, where do you get the most bullish approaches from in terms of parts of the world?

Alex: US.

Ray: US, yeah. Not surprised. Alex, I really enjoy the exchange today. I think this is going to be super valuable for our audience. Congratulations on your success so far, and hopefully we can catch up for part two and see some of those predictions. Alex, it was awesome connecting, and look forward to seeing you again soon, my friend.

Alex: Yeah. Talk soon. Was great. Have fun.

Ray: Cheers. Bye.

Episode Highlights

• Holding 55% of today’s buying power, Gen Zs and young Millennials are spending more time on ROBLOX and Animal Crossing than Facebook, Netflix, and YouTube combined.
• NFTs and other digital tokens are just the beginning and need to be considered by every business.
• Enara and Ray imagine the future of composable assets, how they could interact with other assets and bring virtual objects to life.
• The more complicated development of “human assets” such as a virtual you, that works while you sleep.
• Want curated insights into innovation across deep tech, IP and more, straight to your inbox? Sign up to the Connected Innovation Intelligence Newsletter.

Episode Highlights

• How players like Filecoin are scaling and creating digital infrastructure worth billions in less than 12 months.
• How media platforms like TikTok entering the NFT space gives power back to the creator.
• Why Financial institutions must adapt to Web3, and the good and bad strategies he’s seeing.
• Jonathan’s perspective on the potential of community led development of Web3 and why it’s crucial.

Episode Transcript

Ray Chohan: Well, Jonathan I’m excited to just have you on today. As I mentioned, I came across Holon actually on Real Vision, which I’m a huge fan of. I think you had one of your team on Real Vision, and just to talk around energy storage, the thesis on Tesla, it just caught my imagination. And your view on storage on how big the market will actually need to be, God, that just took me down, Jonathan, a crazy rabbit hole. I watched that interview twice after that because I was pretty speechless. So no, I just love the ambition at Holon, so then jumped on LinkedIn. Obviously, you’ve been a great builder there and a key leader in the team there, so thank you for coming on.

Ray Chohan: Should we kick off with a little bit just about your back story, Jonathan, how you ended up in Sydney at Holon, just your professional journey? If we could kick off there, if that’s okay?

Jonathan Hooker: Yeah, sure. So look, like most kids in the UK, I left to go to university. I was actually one of only five people in the UK to get on a broadcast engineering course with the BBC. It was a good course, but as I went through education, it probably wasn’t the right style of learning from me. So I bounced around a little bit and I never really got the best of it.

Jonathan Hooker: But a couple of years later, I actually started working for a digital agency in London, and that’s really where I really accelerated my journey because I have such a passion for technology software and just learning, and really learning off as many people as possible. So that’s where I got sent around the world to work on any digital project for a company called Concise out of London. I was literally sent everywhere. I was working for Blackberry, Microsoft, MasterCard, Visa, lots of big Hong Kong banks as well, so that’s really where I realized the world is truly amazing. You just have to go out and grab it basically.

Ray Chohan: It’s interesting because if you look at the founder of Outlier Ventures, which I know you are the Australian ambassador for, so Jamie Burke, his background’s in the marketing/agency world. I find a lot of people in this space, or actually even within the software space, start off in the world of digital marketing on the agency side. It looks like you develop some really powerful core skills there, which are very valuable further in your career. Have you found that looking back now your time at Concise has enabled you to get to where you are today and allow you to frame markets in a certain way?

Jonathan Hooker: Yeah. I think that’s really important. If you look at anybody that comes out of advertising, marketing, or digital agencies that create things for blue chips and banks, when we go into a meeting, we have to deliver and we have to see the problem really quickly. That’s the key with people like Jamie Burke and myself. We go through our career and we have to build the next step with the smallest amount of resources in the quickest time to get to the next round of investment, and I think that’s a key attribute that you get in those industries.

Ray Chohan: That’s interesting because you have to get your arms around a customer swiftly, don’t you? It can be just a one minute; it could be Blackberry or then it could be Black + Decker, or it could be Apple. So you have to quickly just get your arms around the value prop, the vision for project X, and then be savvy enough to present it in a clear and concise way. So I’m guessing that repetition and that muscle must be so valuable when you are deploying capital in opaque, unclear markets?

Jonathan Hooker: Yeah, yeah. Look, it also gives you the ability to understand people really quickly. I mean, that’s a broad sweeping comment and nobody really understands people, but because everybody’s complex. But when you pitch something every month to a new big company and you need to see the problems they’re facing, and sometimes you see the technology is not the problem, it’s getting their management buying it’s really the problem, then you just work smart. Right?

Jonathan Hooker: I’ve set up a few business in my time. Some have failed. Some have succeeded. The ones that have failed have taught me more than the ones that have succeeded, just because you realize how to manage yourself in, and that’s one of the key things. I think everybody underestimates when they’re actually in a new industry or trying to build a big new business is you really got to understand how do you manage yourself, and how do you manage this business to take it to the next step with founders.

Ray Chohan: Brilliant. So then I can see on LinkedIn, you were at TAPevents for a short while, then move across to Sydney, Australia. What was the backstory behind the move? Because it seems like they’re… Well, let’s see, Phonics Hero, you started your own business, so that seems interesting. Is that when you took your first leap as a founder back in 2010 in Sydney?

Jonathan Hooker: Yeah. So TAPevents was actually just… So, what people don’t realize is you get all these software languages that come out over the years, and each software language iterates on the last and can do something quicker than the last.

Jonathan Hooker: So TAPevents, we had a previous team in another company built this bit of software. It took 30 engineers around about two years to build this. It was an electronic events app service. So you turn up an event, you’d get a iPad, and you get all the event material on the iPad. The key thing is after… So in about 2013, there was a software come out at AngularJS and, basically, we replicated the previous company with one engineer in three months.

Jonathan Hooker: So, what I’m trying to get to here is, really, when you pick up new languages, you can actually build really new, smart companies off them that can leverage off that technology. That TAPevents that I set up, I actually sold it to a Hong Kong event company because it was being used by JP Morgan and Berenberg Bank, and that was only after the first eight or nine months. So after I sold that, I actually previously I've set up Phonics Hero and that helps children to read and spell with synthetic phonics. That actually took about four engineers four years to build. It’s actually one of the largest HTML five gaming platforms on earth. It actually got an award by Google, one of the best start ups in… I forget which year it was now. So, we all went out to Silicon valley and met a few people from Google to show what we were doing, which was great.

Jonathan Hooker: From that move, I was in London and after being back from seven years in Honkers and some time in the US, I just had the itch again and I just had to get and start a new life again in Sydney. That’s where I started doing some extra work for Phonics Hero, but that’s really… Just before that trip, I was actually… I’m actually friends with Jamie Burke. In the UK, we were talking about blockchain technology and I started my own angel investment in Sydney. That’s really where my deep dive into blockchain, Web3, and this whole revolution started.

Ray Chohan: Thanks for that context, Jonathan. A big part of Frontier3 is actually trying to engage folks on LinkedIn because I’ve spent quite a lot of time analyzing a lot of the posts. Obviously, crypto Twitter’s huge, right? That universe has got its own velocity, but it’s interesting on LinkedIn where you’ve got tons of Web2 practitioners. Most of the folks on LinkedIn are pretty much Web2.

Ray Chohan: What I still find on LinkedIn is the lack of engagement and awareness around Web3. It’s still insanely early. If I look at a lot of the comments on posts or just the volume of likes on posts, we’re still relatively early for people really getting it on how big actually Web3 will be. So it would be great just to set the stage and get a framing of what brought you into the world of Web3 and blockchain and the framing of it of what it actually will mean moving forward. Because I think there’s some nuance there, which everyone’s slightly explains it in a different way. So we’d love to just hear your view on Web3 and the future.

Jonathan Hooker: Yeah, sure. So let me explain it for my experience. I built a company, Phonics Hero, and that website or gaming platform has the ability to teach every child in the world to read and spell for a very small amount of money, like just the computation and the device that they need to learn on.

Jonathan Hooker: It dumbfounded me that why, why is it so cheap to teach kids to read and spell, but not everybody has the access? The world is an unfair place and I just have a passion to try and make the world a little bit fairer, and that plays into Web3. Because now, in Web3, we have all these decentralized networks where anybody can join at time; anybody can derive value from that network; and if you are a good actor, you will be repaid for it on chain in a trustless way. I think that is really a revolution and that’s why I’m here in Web3.

Ray Chohan: It’s fundamentally the underlying values of Web3 where it’s inclusive. And regardless if you are sitting here in London or Sydney, or a kid in a certain part of Africa, you can participate if you add value and you’re a good actor. It’s that leveling the play of playing field, which really resonates with your values I’m guessing.

Jonathan Hooker: Absolutely, absolutely. At Holon, we run a hackathon this year and one of the guys was from Cameroon. We had lots of people from RMOT in Melbourne. We have some people basically from Hong Kong, all over APAC and Oceania basically. One of the guys from Cameroon won about 5,000 USD at Filecoin. That’s because he rolled up his sleeve, he learned some technology, and he had a go. That, I think is really the ethos of what we’re in. It’s everybody can take part on this. It’s a fair playing field and that’s really what we’re investing in is this new breed of technology where everybody can be part of it.

Ray Chohan: I couldn’t agree with you more. I think that’s the underlying tech creates that perfect environment, doesn’t it, where everyone can participate. It doesn’t doesn’t matter what color, race, creed you are, if you add value, you add value, right? And so, it’s that bias is really removed from this new world.

Ray Chohan: If you dig it into it further, you’re going to have people who have their own pseudo digital identity, so they can be anyone. As long as they’re adding value, they get treated accordingly. So I couldn’t agree with you more on that front. So this segues into Holon. It will be great to get the backstory of Holon and what drew you to the organization, and the history of Holon, and the underlying investment thesis for the organization.

Jonathan Hooker: Yeah, sure. Look, the company started in 2017. It was originally an asset manager. So we have the Photon Fund, which invests in really digital stocks that are innovating the world. But Heath Behncke, the founder, and Luke Behncke… they’re twin brothers… had a vision to build an asset manager that could be really anything. You really want to think of us as an investment firm that invests in the bleeding edge and the innovative digital stocks that are changing the world.

Jonathan Hooker: So, the business has three arms. We have an asset manager, as I’ve said. We’re launching some digital asset funds next year as well. We've also got a Holon Wholesale Filecoin Fund, which is already launched. We have a VC arm, so we’ve got two investments, which we’re super excited about. I can’t mention them here, but we’ll probably announce them next year. We have an innovation arm, which is the area that I run.

Jonathan Hooker: On our side of the business, we’ve launched some Filecoin storage provider infrastructure. We want to be one of the largest storage providers in APAC over the next couple of years, so we’ve got the Filecoin project we’re running. And then, next year, we’re actually going to do some infrastructure for Ethereum validator notes, which will generate yield for investors and pension funds, and then we’re going to look at doing something within the Bitcoin space as well.

Jonathan Hooker: So yes, 2022 is going to be really interesting. But on my side, it’s really where we play with these new decentralized networks. The key thing is, Ray, as long as we keep the values of why we’re in this space and we always look for the unique value proposition, then I think that’s the key importance as we go forward in this space because it really is emerging. There’s lots of noise and it’s very important to filter the noise for valuable information.

Ray Chohan: You guys have a similar set up to… In terms of on the equity side, is it fair to say you’re similar to ARK Invest based in the US in terms of doubling down and having an exclusive focus on frontier tech businesses, innovation-led organization? Is that the asset management side very akin to an ARK in terms of view of the world?

Jonathan Hooker: Yeah, definitely. Any stock that’s going to go on an exponential tear for the next 20 to 40 years. We really think of things over a 20-year period, 10 to 20 years. There’s no point in… In the crypto space, everybody has a short attention span: what’s happening next week, next month, or in the next couple of months. But we really do take a long term view of all our stocks on the asset management side. You can really think of us as an Ark plus a Grayscale plus a Bison Trails – that was bought by Coinbase a couple of years back. Because ultimately, we’re going to see massive disruption in every industry that Web3 starts to disrupt.

Ray Chohan: Brilliant. So to your side of the business where you’ve got the Google X/pure innovation side, why did you guys select the Filecoin protocol and just the data storage part of Web3? Was there a background story to that? Does that tie into other parts of the organization or the wider vision for Holon?

Jonathan Hooker: Yeah. It’s interesting, that. I think the three and most important conversations going on today is governments are debasing money, so where do you put your money? Banks are ripe for disruption, so Ethereum is going to be the new business logic platform for the world. And as users, our data is being taken from us and we have no rights over that data, so that area is ripe for disruption.

Jonathan Hooker: Juan Benet, in 2014, raised capital with A16 and the Winklevoss twins to build out IPFS and Filecoin. Ultimately, at the moment, if you look at the way the internet is structured, every time you get a bit of content, you go back to one server, you pick it up, you go back to the server, you pick it up. It’s a really inefficient system of which is called location-based addressing, which is HTTP. Now, Juan created a thing called CID content-based addressing. What it allows you to do is it allows you to have any piece of data on the internet, which makes that piece of data immutable, so you know that piece of data is exactly that piece of data, and you can pick that data off from the nearest source.

Jonathan Hooker: So if you looked at that bit of content on your laptop and I was in the same room as you, I could get the contact from your laptop instead of going back to a server that might be 1,000 miles away. So IPFS, the underlying technology for Filecoin, is just more efficient way to run the internet. So, if we take that as a value proposition, this technology is a better way to run the internet and it’s a safer and mu more secure way, then how do we take that technology and incentivize people around the world to create infrastructure for that technology, so we can build this new architecture to the internet? Really, that’s what Filecoin is.

Jonathan Hooker: Filecoin is an incentive layer, Filecoin, over this IPFS technology. Filecoin is 6,500 times larger than its nearest competitor. It’s the big gorilla in the room and people don’t really know what it is. They don’t really understand it, but whenever I look at the top 100 I just… Every time I look at Filecoin, I just get absolutely blown away. It's just they've gone from no infrastructure to 14 exabytes, which is around 2.5 billion USD of infrastructure in 12 months. They went from no storage providers to 3,500 in 12 months. They have thousands of developers. They have hundreds of projects on the ecosystem. The capital is just flooding in because institutional investors like Holon see the opportunity and think, “Right, let not in, we don’t invest in wishy-washy hyped Web3 projects. We invest in big ideas that have big value propositions that have the people behind it that can execute.”

Jonathan Hooker: If you just do a bit of research, ConsenSys are also building technology for Filecoin so they can integrate Filecoin and Ethereum with one click. The Ethereum EVM will connect straight to Filecoin, so you’ll be writing your contracts on Ethereum and storing the data on the Filecoin network. So yeah, we’re pretty bullish in the Filecoin.

Ray Chohan: Yeah. I can definitely see it. I observed Filecoin from a distance back in 2017 because I think they also… I kick myself for this slightly because the underlier I remember, well partly reading the White Paper and also they’d done a coin list offering back in the day, didn’t they, if memory serves me correctly. So I have, from a distance, been observing the project.

Ray Chohan: But when I first saw Filecoin, and I know our audience will knee-jerk to this proxy immediately, don’t they go after… Obviously, you’ve got organizations like Dropbox, who’ve done a hell of a job in the Web2 world and, obviously, you’ve got the big three or four who have their own storage capabilities, and they’re huge and have huge balance sheets. So, is that potentially a risk for Filecoin fundamentally where you’ve got other Web2 players who could go down a Web3 route? Or is there a challenge of gaining market share?

Ray Chohan: Because when I first saw Filecoin, the concept made sense, but I knee-jerked and just fell back to Dropbox, or the other big three or four. I don’t know if you get that question often as a knee-jerk, just a rebuttal to Filecoin? So it’ll be great for the audience, as a seven year old would understand it, like what is the fundamental difference of the two schools of thought and why do you think Filecoin’s going to win?

Jonathan Hooker: We always get that question like, “What is Amazon going to do about this thing called Filecoin and how they’re going to compete?”

Jonathan Hooker: The key thing… Let’s go back to how it works. We take a lot of green energy. We then run some hardware in a data center. We make something called verifiable data storage. Verifiable data storage allows you to know that it’s there, know that nobody’s moved and nobody’s touched it, nobody’s looked at it and you control and own that data. That’s really important if you think about a Web3 Dropbox.

Jonathan Hooker: Now we are allowing you, Ray, to store your family data in this piece of software and you can cryptographically know that nobody’s touched it and you can decide how redundant it is. You can decide, “Okay, I want to keep my data in the UK and I want to keep it in the Netherlands and Germany, and I also want to have… if something happens to me, I want to hand all this data over to my partner.” The key thing is we are empowering you for this Web3 revolution. We’re giving you more power.

Jonathan Hooker: Now, how is Amazon going to partake in this Web3 data storage system? Now, I think, actually, they start using Filecoin for different parts of their technology stack, and I think that’s where any business starts using it. If you think about credit card details, you actually want to own and control those credit card details, but you want to give people access to them when they need it, and then take them away when you don’t want them to have it. I think of it as the next iteration of how the internet works. It’s really not a competition between old and new. You’re still going to need location-based addressing, you’re still going to need Amazon services. It just so happens that parts of the technology stack will migrate to Web3.

Ray Chohan: So what prevents someone like an AWS building their version of a Filecoin and their version of a decentralized offering, which has similar capabilities?

Jonathan Hooker: Well, Ray, it’s not really decentralized if it’s one player building it. We all know that and there’s a big argument, how decentralized is to decentralized technology, right?

Ray Chohan: Yeah.

Jonathan Hooker: You can have EOS, which only has 21 validator nodes that I’d probably just call a jumped up computer. And then you’ve got Ethereum, which is moving to proof of proof-of-stake, which will have hundreds of thousands of validators, or you can have the Bitcoin network, which is the most decentralized network where everybody’s running their mining machines all over the world.

Jonathan Hooker: So, Amazon can do whatever they want but if, at that time, Filecoin has 50,000 storage providers distributed all over the world, you just can use Filecoin because it just makes sense because you get optionality. You really want to think of Amazon as they’re in the data center game. They build data centers and data storage to them is a CapEx problem. But in Web3, Filecoin, it’s an innovation problem.

Jonathan Hooker: So you think of it like this. They build a data center; there’s a thousand racks in that data center. They spend a few billion on it and suddenly they’ve got to sell all that storage because they’ve already built it. However, if you think about distributed models like Filecoin, you can put a data center on the end of every street. So mom and pop can go buy a petabyte of data storage, put a computer next to it to deliver data out, and suddenly that little node is delivering Netflix for its local community. What’s happening there is we’re seeing micro data centers pop up, which is far more efficient for the delivering technology, but also scaling.

Ray Chohan: This is interesting, so this links to… There's a great project called Helium, which is more on the connectivity around 5G. So is Filecoin a close relative to Helium in terms of its concept where everyone be it a mom and pop shop, just a regular resident is part of the network and fundamentally is participating in storage or connectivity? Is it similar to Helium in that way?

Jonathan Hooker: Yeah, absolutely. So the way we’ve set up our storage at Holon is we have these three… Sorry. We have these four petabyte clusters and then we have a blade that’s connected to it. At the moment, in Sydney, we’re scaling our system to about 400 petabytes by the end of next year, that’s a lot of data storage. One petabyte equals 11,000 4K movies, so it’s a lot of data storage.

Jonathan Hooker: So you can think of the market will fracture into institutional players that get to exabyte scale. Then, you’re going to have providers that will get to 50 petabytes, and it will get smaller and smaller until you have 10 or 20 terabytes that will be on the corner of each street, which will be delivering data to the local community. Because it’s all built on blockchain technology, everything is verifiable and all the actors can be verified, so the distribution of rewards or capital you is done in a very fair way.

Ray Chohan: So, if I look at Filecoin, does it converge then with this whole thing around… Well, we’re going to get there soon. I mean, well, we’re already partially there. We’ve got all these devices on the edge, be it in our homes, one day… fingers crossed… autonomous vehicles at scale. So does Filecoin perfectly converge with the fact that we are going to need very much localized compute… Is that a big part of the long-=term bet at Holon on being so bullish on Filecoin?

Jonathan Hooker: Yeah, absolutely. We just think like with autonomous cars, but if you think about it really, metaverse, and gaming in the metaverse going from TVs to 16K visuals, you’re going to see a massive computation draw and a data storage need for NFTs and verifiable gaming assets.

Jonathan Hooker: Every time I look at this, I just think it just gets bigger and bigger because I think that’s just ultimately where the world moves to. I just think it’s really interesting when TikTok announced they were going to start doing NFTs. Because really, what they said there was, “Okay, you’re an artist and we’re going to allow you to own and control that thing, and we’re going to allow you to have micropayments around that content creation.” And really, if TikTok does it, YouTube has to do it.

Jonathan Hooker: So now, suddenly, they we’re going to have 8 million… At YouTube, they’ve got 800 million videos and they’re all going to turn into NFTs and you’re going to be able to own and control that data, and you’re going to be able to make micropayments out of all those videos if they draw a big crowd. I just think all these things will need edge computing, big data centers, verifiable data, verifiable data storage will really be at its core for all these assets.

Ray Chohan: So you see folks… Like, obviously, I know TikTok made a move in that space, but you even see entrenched players like YouTube making that shift where they start giving true ownership to the creators. Do you see them? Because their business model is that classic Web2 model where they’re very much strong on their take rate and the creators get peanuts, right?So do you see some of those traditional incumbents being forced to change and deploy a different model?

Jonathan Hooker: Well, let me ask you, if I could offer you a platform, Ray, where you got 80% of the revenue and you could see everybody that used your platform, your content, and it was trustless, transparent, and it had people using it, would you use it?

Ray Chohan: Of course, I’d jump across immediately, but I get it. It’s just… Oh God. I’m asking the questions that actually people will probably ask me around the dinner table at Christmas really. I think it’s just our minds, how we adapt to change.

Ray Chohan: I definitely see that future, but I see them being dragged, kicking and screaming, if that makes sense? They’ll only make that move if they see another emergent player in Web3 really gaining market share. So, for example, you have got Audius who are basically the Web3 version of Spotify. I think there’s a Web3 version of YouTube as well that the name slips my mind. But are any of those players gaining meaningful traction, which will force board level folks at some of those big organizations to really make the change soon, or is this five/six years out?

Jonathan Hooker: Look, I think any of this stuff is all going to be five/six years out, if not more. But ultimately, we’re going to have… Some companies are going to be a Nokia. One day they’re going to be here and then one day they’re going to be gone, and other companies will adapt quickly.

Jonathan Hooker: That’s really interesting. You look at MasterCard, which is on our Photon portfolio and they were doing nothing in Web3. They were just sitting there quietly and their whole business is payments. You just look at Circle or any blockchain technology in… Send money, near free, and it just makes sense to you that blockchain is that payments is going to be the first one it takes down. And then MasterCard started integrating Circle, will start doing Circle payments from any business to business. They’re empowering more crypto cards. They’re going to do payments in Bitcoin as rewards. So, anywhere in our portfolio, Photon, we just look for the most innovative businesses on earth.

Jonathan Hooker: So the key thing here is they’re either going to innovate or they’re going to die, and that’s what you have to look for. People at MasterCard are really going to smash it because not only are they a great business in Web2, but they’re going to be a great business in Web3 as well.

Ray Chohan: Yeah, I couldn’t agree more. There’s a couple of what you might call as incumbents or traditional names actually making some meaningful investments in Web3. Some of them actually surprised me to be fair really, but that’s great to see. I mean, inflation’s a vector, right?

Jonathan Hooker: Yeah.

Ray Chohan: It means different things to different folks. I think like when you look at the CPI print, which is complete nonsense, it’s just this concocted basket, which actually makes no sense. But sadly, 98% of the people still believe in the CPI print or actually have no clue that they’re paying an invisible tax. I mean, just that problem alone, I think the vast majority of the world don’t really get it. Obviously, people in the Web3 world and capital allocators, we get it, but this is another part of Web3, which I think is the purity of Web3 where it is trying to create some form of accessible defense to a monetary system, which is failing everyone.

Jonathan Hooker: Yeah. It’s interesting. If you look at crypto Twitter or… Australia is one of the most digitally switched on countries in the world, mainly because we’re miles away from anywhere. In some parts of the country, if you want to go to your local shop, it might take you four hours. Right?

Jonathan Hooker: It was really interesting like from my education business, I knew that a lot of education in Australia happens online, so I think the conversation in Australia is actually more advanced than people think. We’ve got some really great senators now that are pushing Web3 digital asset innovation to be… They’re pushing new regulations. So new digital custody laws and how we embrace this next wave of the internet.

Jonathan Hooker: I just see America, if you look at The Pomp, what he’s been doing over the last couple of years, I just see the millennials get it and I think the people under this get it as well. I just think there’s a big part in the boomers where they’re still struggling to understand what’s really happening.

Ray Chohan: I couldn’t agree. Pomp, for me, what he’s done is changed a big part of my life to be fair with you. I thinks like Pomp, there’s two chaps at Bankless, just all the other… So that’s why I want the part of this pod to be just if it just educates three or four people, that’s great. That can spread itself, but I still think… You mentioned the boomers. I actually think some boomers know, but they don’t care.

Jonathan Hooker: No. There’s three houses already.

Ray Chohan: Yeah. They’re on the good side of the train, which I think is a fucking selfish way to think. Excuse my French. I think it’s just, I’m guessing they’re going to have children as well, or rather younger nieces and nephews, but there are boomers and actually even traditional capital allocators who have a different narrative and they know it’s a false narrative, but they’re probably at an actual… or quite like they’re at a biological age where they don’t really care. They’re actually going like, “I’m at that part of my life where I spend, earn and grow the most is done. I’m now just trying to preserve and stay steady Eddie. Why am I going to subscribe to this new school of thought? It eats away at what I’ve believed in.”

Ray Chohan: So I’m finding this kind of cold war going on. You see it all over YouTube and I’m very much on supporting of the Web3 folks because I think the old world only helps a few, and the rest just get marginalized and don’t participate. So, I couldn’t agree with you more. And yet, folks like Pomp, they’re modern day heroes in a way. They spend most of their time educating layman folks around inflation, how to protect your wealth, about Web3. So I couldn’t agree with you more on that front.

Jonathan Hooker: Have you seen the video between Michael Saylor and Ross Stevens?

Ray Chohan: Yeah. I’ve seen Saylor verse… Oh, there’s a goldbug. What’s his name?

Jonathan Hooker: Peter Schiff.

Ray Chohan: Yeah, Peter Schiff. That's just more of a fun one, but I actually think I’ve seen that video. I know what you’re talking about. Is it with Robert Breedlove or is it on another…

Jonathan Hooker: Robert Steven… Let me… Ross Stevens. Ross Stevens from Stone Ridge.

Ray Chohan: We’ll add it to the show notes.

Jonathan Hooker: Yeah, absolutely. That video is I think one of the first moments where Ross Stevens is just truly amazing, but it’s the first time I’ve seen a conversation where two people where they really lead the conversation from the start to the finish where you can go, “Look, there’s this thing called fear of money. It’s been around for a while. These are all the things that have happened to it and let’s just step back and look at what’s happening to our money.” I think that conversation between them and Michael Saylor and Ross Stevens is where I send every person for the first video. If they get it and they watch that video and go, “Wow!” Then I start giving them more information. I think that’s one of the best videos that we’ve had today.

Ray Chohan: How are you finding it? Because I sometimes try sending my sister stuff, loved ones, friends. Do you do that as well just for fun on a weekend, like ping someone on WhatsApp a video like, “Hey, you might just want to check this out. This is happening in the world”? How are you finding that education phase? Do you find people go, “Wow!” Or do they just ignore it and then click on watching football? How are you finding just trying to help?

Jonathan Hooker: Yeah, look-

Ray Chohan: I don’t always get the response I want. It drives me mad. So how are you finding it?

Jonathan Hooker: Look, I went through a phase of like, “Oh, there’s this thing. I want to help the world. I want to tell as many people.” But not everybody listens; not everybody wants to listen and nobody cares, but that’s their journey. I think my mode now is if somebody asks, I send them to Ross Stevens and Mike Saylor. And then, I always ask them, “I want to know… Watch the video. Watch it twice and then I want you to come back and ask me anything you didn’t know.” If they come back with a whole load of questions, then I go, “Right, okay. I’ve got another Web3 person that’s going to join the revolution.” If they don’t come back, then there you go, then they’re not really going to learn and there you go.

Jonathan Hooker: But yeah, it is frustrating. I think everybody has their moment when they’re really going to get into this, and I think it’s probably when somebody goes, “Right, I need to buy our house. How do I make enough money for a deposit, so now I have to actually take investing seriously.” So then they better pull up their socks and start learning about Web3 or they’re never going to be able to make it.

Ray Chohan: Yeah. I mean, basic things like that are basically out of reach at the moment for the current generation: folks in their early twenties or starting their career. So they’re either relying on helpful and kind boomer parents, which isn’t really that fulfilling. Let’s face it. It’s just a hand me down, which it is what it is, but then there are…

Ray Chohan: Actually, I’m seeing… and you’re seeing it on LinkedIn now, and then also you see it all over Twitter, of this new generation who are the trailblazers who are on board, and they’re only looking to work for Web3 companies or spend time in Web3. That number’s only growing every quarter I’m finding. I see it exponentially growing in the next couple of years for sure. But obviously, we spun off a little bit everywhere, but back to scarce assets, Jonathan.

Jonathan Hooker: Yeah.

Ray Chohan: So, just to educate our audience to get their arms around digital scarcity and, obviously, then dovetailing that into Holon.

Jonathan Hooker: Yeah, sure. Look, anything we do we are just looking to hoard as much scarce assets as possible, like Bitcoin, Ethereum. Ethereum with EIP 159, watching that burning Ethereum every time it’s used, it is super important. So, we just see digital tech stocks like MasterCard, Visa, Alibaba, they’re just scarce assets of some innovative company that is really going to grow exponentially.

Jonathan Hooker: So yeah, really for us it’s anything on our Photon stock, any digital asset that really we look at them as like Bitcoin, Ethereum, and Filecoin. There are lots of others, but we don’t have big enough team to dissect everything. There’s a few other things in our VC portfolio, as I said before, that we just think that are businesses that will be able to go on an exponential tier for the next 20 years. Our asset management side could probably answer that question a little bit more clearer than I can, but that… I’m more of an engineer on our side, so yeah.

Ray Chohan: It’s interesting, you guys are very bullish on ETH, which… I mean, I love that team and I think they’ve got the network effect. They’ve got the developer community. But obviously, you hear the constant complaints around gas fees, cost, scalability, speed. You see the folks at Solana. I'm hearing cool things about Solana. What keeps the team there bullish on Ethereum as a platform? What’s your long-term view as that being one of the Layer 1s, which remains and wins long term?

Jonathan Hooker: This all boils down to one metric. There are far more developers on Ethereum than any other chain. You need people to build amazing things and if there’s nobody building it, it’s not going to go anywhere.

Jonathan Hooker: Something could be faster, quicker, cheaper from like Betamax. You can see these things that are just better, but doesn’t mean that they win. You just look at the network of effect of Ethereum and you just go, “Nothing’s going to touch it.” Now, there might be other things that come along and that do unique things, but you just… The same as Filecoin, when something grows to 6,500 times bigger than its competitor and it has over 1,000 engineers building on it, it just doesn’t… It’s just a nice idea and you saw this from EOS. It was quicker. It was cheaper. It was faster. It was all the hype. It raised the more amount of money: $4 billion. But what does it do today? Nothing.

Ray Chohan: Yeah. I mean, there’s also views of a multi-chain world where you might have ETH own X part of the market or do certain jobs really well. And then you might have Solana own other segments of the market like say high frequency trading or more VFS world. So, do you see a world where there isn’t just one winner; it’s a multi-chain world?

Jonathan Hooker: Yeah, absolutely. When I talk about Ethereum, like if I was going to put my assets into Ethereum, I’d just invest in Ethereum. Now I do believe that there will be… Ethereum’s going to be the base layer and there’ll be lots of other things that will build on top of it, but everything will resolve to Ethereum. But yeah, as an investor, I just might as well own the biggest network effect protocol there is. Because ultimately, it really is hard to go, “Where do these industries land on Layer 2?” Those things are still undecided. So risk versus reward, Ethereum’s a pretty safe bet.

Ray Chohan: Yeah. I couldn’t agree on the developer community side. I love the team at Polygon. Obviously, they’re an L2 for ETH who are really dedicated to Ethereum who already have great proof points, good velocity, and loads is getting billed on that L2 now, isn’t it? So you’re actually going to see, obviously, the team at Optimism. So all these L2s, which are there for Ethereum. I really see next year being a big year for the L2s. It seems like it’s trending that way. What are your thoughts on that front?

Jonathan Hooker: Look, I don’t think it’s going to… I think everything’s going to take number of years, whether it’s next year or year after. We don’t really look at it. We just see this as a 10-year bet and I think lots of things are going to come out and they’re going to go away. I think we need more regulation around all of this for it really to go from the 2 trillion mark to the 20 trillion to the 100 trillion. I think as soon as we get regulation in Australia, the US, I think that’s where we see serious amounts of capital come in from pension funds. When that money comes in, then I really think things get supercharged to really… companies really get the capital they need to execute on those big, big ideas.

Ray Chohan: Yeah, agree more. I think the pension funds, that domino has to fall because their current classic 60/40 model on an allocation, it’s mathematically prove it doesn’t work. When that domino falls and I think… Well, there’s rumors that there’s things really going to be happening next year on that front in terms of dipping-your-toe-into-the-water, type allocation, which will be meaningful. So do you think… I mean, this is all guesstimation, right? No-one really knows. But do you think some of the big pension fund players will start making a small allocation next year?

Jonathan Hooker: Absolutely. In Australia, we’ve got a mandatory pension scheme called a super, so we got a really large pension industry. At the end of the day, they’re just being left behind, which is actually there’s been some regulatory oversight here because some of them are really underperforming.

Jonathan Hooker: I just look at my personal portfolio and I’ve beat my super by 580%. I look at my super and I just go… I don’t even care. I don’t even know the website because it’s like they don’t really know what they’re doing. They don’t understand innovation. They don’t want to take part in digital assets or Web3, so I don’t open the website. I don’t care about it, but there’s a point in time where they’re going to have to because there’s going to be more of people like me go, “Where’s the extra 100% you’re going to make?” I think as soon as regulation comes in, the regulation to custody digital assets for pension funds, then I think that’s when they get involved, especially for Australia,.

Jonathan Hooker: If you think about all the custody services, we have none in Australia. Everybody uses the US ones and half those US ones are not even… are custodied with companies that haven’t got correct digital asset laws. The only place which does have digital asset laws is Wyoming and they’re still waiting for their speedy banks to come out the gate with Avanti and Kraken because they’re being held back by a few things out there.

Jonathan Hooker: So as soon as you can legally hold digital assets, which is ruled by the governing regulation, then I think that’s when pension funds come in. And ultimately, when they come in it’s like a rounding error for them is a billion dollars. So, that’s where they just start dropping big about some money. When they do, they drop it not only into funds which are one asset only, but they drop it into infrastructure funds, blockchain nodes, green mining, green verifiable storage, and they drop it into VC arms as well. That’s where teams go from 5 to 50 and teams go from 50 to 500. And then, really that’s really where Web3 comes in, I think.

Ray Chohan: Yeah. I think it’s definitely… I’m already hearing signals even up… We've had someone on our pod, he operates within DACH and in specifically the German market and there’s already mandates, which are pretty much nearly finalized. Some of the regulatory hurdles have already been… in certain parts of Germany been sorted out, so they feel bullish on next year on some form of allocations dropping and things changing there. It seems like Australia’s already ahead of the ball from a regulatory standpoint. It seems like you guys there are ahead of the curve compared to other parts of the world.

Jonathan Hooker: Yeah. I’d probably say, look, the place where they’re in the front of the pack is Wyoming at this moment in time. When those speedy banks get over the line and they’ve got banking regulation, which was rewritten by Caitlyn Long for digital asset custody, then I think as a pension fund, you can go, “Look, yeah cool, here’s a billion dollars. Hold our assets and we know that you’re not going to do anything nefarious with those assets. If something happens to you, we get those assets back on a bailment structure. So we give them to you to hold, but we always own them,” which is the key. You give some kind of money to a bank now, you lose the rights over those assets, so that’s the key thing that needs to happen.

Jonathan Hooker: Ultimately, we’ve got some amazing senators in Australia that are pushing for this digital asset custody, which needs to be held on shore. Because you really want to think of digital asset custody as a security risk, i.e. if we had the pension funds and, ultimately, if we had a trillion dollars offshore and something happened with that custody provider offshore, what’s the Australian government going to do about it when five million citizens suddenly have their savings wiped out? Well, there’s not much they can do. So ultimately, digital asset custody needs to go onto every shore of every country so they can have oversight on it.

Jonathan Hooker: Because you think about it, like me and you, we have Bitcoin wallets and we have Ethereum wallets, right? We have self-sovereigness over those wallets, but 80% of the country doesn’t want to hold a Bitcoin wallet and a Ethereum wallet. It’s far too hard, right? Who cares about private key? Who cares about where you store it and what happens if you lose your phone and suddenly you can’t get the QR code to log back into that wallet? It’s a pain, especially when I speak to my mom and dad. They’re not going to do that.

Jonathan Hooker: So, we need to get to a point where the other 80% in the country can just hold digital assets, but in a really secure way on shore. And then, once we do that, the regulations there, once they’re doing that, then we’re moving into a world where the financial industry consolidates. Because you don’t need 30,000 banks in the world. When everybody owns a digital wallet, you’re not really storing your wealth with a bank. You allow JP Morgan into Australia and you go, “You can run this financial DAP over the wallets and now you can provide lending to all our citizens as long as you are licensed.”

Jonathan Hooker: So you’re going to see all these amazing financial applications, but you’re not going to see 30,000 banks. You’re going to see 20 lending providers, which will become applications over digital wallets.

Ray Chohan: Wow! That’s going to unlock so many builders on top of those platforms then, so more services for the end customer.

Jonathan Hooker: Yeah, absolutely. As we’re talking Web3, we have money Legos in decentralized finance. You’ve got the wallet at the bottom, and then you have all these lending, borrowing, all these money verbs applications which sit over the top. Now that’s going to happen exactly the same for the other 80%. It just won’t be as self-sovereign because nobody really cares about owning and controlling their own application because it’s far too hard.

Jonathan Hooker: When I look at this and when I started out, there was… You have all these mobile phone providers, but really now, today, we just have iOS and Android, and then everybody makes the hardware. I think we’re going to see the same consolidation in the bank and it industry. You’ll have all these base layer of wallets, but you’re only going to have five mortgage providers in the whole world, or you’re going to have all these lending companies that will specialize in lending for boats, or you’re only going to have five in the world. You’re just going to see mass consolidation.

Jonathan Hooker: I think that’s really interest thing like in a Australian perspective because we have great regulation here and we do export Australian businesses really well like banking, and education, and all these kind of things. So I think if Australia really gets itself into a position where we can build these financial applications, which sit over regulated financial applications, which sit over digital wallets, I think we’ll see good take up at the Asia Pacific region, and the rest of the world.

Ray Chohan: Yeah. I mean, you’ve had a great story this year. I think Square acquired a business. It's called Afterpay, which I know that’s one of the darlings there, wasn’t it? There was just so many folks back in the UK who had no clue who Afterpay were, to be fair with you, but they were massive. I think often the Square deal, I think a lot of people saw the great work done there.

Ray Chohan: I think it was interesting that news story then opened up other questions, I noticed, regarding Web3 and in particular DeFi’s randomly, for some reason. That’s what I noticed from a lot of people within my network and I was like, “That’s interesting. After looking at the Afterpay story, what made you curious about DeFi or just FinTech as a whole?” It was interesting how that story just activated a different school of thought in some very traditional minds.

Jonathan Hooker: Yeah. So in DeFi, Australia has had some great successes. Kain Warwick that created Synthetix, that come out of Sydney. Right?

Ray Chohan: Oh, wow!

Jonathan Hooker: That’s an absolute monster. So I think we’re doing really well in the DeFi space – Australia. We can do that in the decentralized world and we can also do that in the regulated Web3 digital asset world. I really think of it as Web 2.5, Web two-and-a-half. You get all these benefits of blockchain technology, efficiencies, transparency, all those things, but it’s just slightly more regulated because not everybody wants to be in the crazy decentralized world where you can lose value very quick.

Ray Chohan: So Jonathan, this has been great to get an overview of Holon and, obviously, in particular, you are part of the organization. What’s next for the innovation arm? Because it seems like you guys are on… absolutely crushing it what you’re doing with Filecoin, but what’s the plans next year and the year beyond?

Jonathan Hooker: So at the moment, we’re scaling our Filecoin operations and we’ve got some really great partnerships coming out in Q1 next year. We’ve got a large partnership with a hardware provider that will really change the game for us, which will allow us to scale from petabytes to exabytes. So we’ll do that in next year, but we’re also going to launch Ethereum validator nodes system, so pension funds can make 6 to 10% yield off those validator nodes. And really, anything that we see as innovative and need for the underlying infrastructure of this change.

Jonathan Hooker: So look, we’re trying to keep focus in what we do. We don’t want to try and do too many things. Our engineering department is quite small. I think there’s five or six of us now, but we’ve got to scale that team next year. So the engineering team, probably at the end of next year, is going to be 15 staff. So we just keep untapping the potential of Web3 and Web3 infrastructure is the key, I think, for us.

Ray Chohan: Brilliant. What you described regarding Filecoin where organizations, people have that self-sovereignty and control over their data, that’s going to be huge in the classic enterprise space. So one of the bug bears, I’m sure you’re aware of this, in Web2 and enterprise software in our world is our customers, especially our larger ones, being really concerned, and there’s this big back and forth. We always get the deal over the line, but lots of questions around where’s that data stored, is it secure. Those classic boring questions you get in Web2. With this new model, that friction’s completely removed because the customer, the enterprise customer has complete control. So, it’ll also speed up our traditional Web2 enterprise software world with this model.

Jonathan Hooker: Yeah, it’s interesting. The last six months I’ve heard this numerous times, which is like, “Just sell me something that runs on green energy and allow it not to touch anywhere Amazon service.” Nobody wants to keep feeding the beast of Amazon, especially when you look at big companies out here.

Jonathan Hooker: We’ve got a big food chain called Woolworths. They compete with Amazon in one industry, but are giving them revenue in another industry and they hate it. You also look at people like LVMH and they mandate some of their suppliers to not use Amazon storage. So, it’s a problem. Nobody’s fixed it yet. But I tell you what, at the moment Filecoin is the infrastructure, the railroad, but over the next couple of years, the middleware is going to be built: all the SDKs and APIs. And the couple of years after that, we’ve got all the software, the easy things that look like Dropbox that are built over the top, and then suddenly, whole industries move quickly because it’s a problem now.

Ray Chohan: The fun part of our pod is the prediction part. So what’s your forecast for 2028-2030 in terms of the lay of the land? Where are we going to be in the maturity curve?

Jonathan Hooker: What, for Web3?

Ray Chohan: Yep, for Web3, Filecoin, just the areas that Holon focus on. What are some of your predictions over the next five/six years?

Jonathan Hooker: I think it takes us another couple of years to get regulation right, so that takes us to 2024. I think, after that, that’s when the big money comes in and that this really actually happens. Ultimately, we’re going to see much more value creation due to protocols deriving value from utility and from usage as well. So, I just see the whole Web3 industry being institutionalized after the 2025.

Ray Chohan: Wow.

Jonathan Hooker: Ultimately, I just see two parallel systems: the decentralized financial system and the regulated financial system built on the same technology. It’s just one you own your wallet and the other one you don’t. I just see there’s going to be a big play. There’s going to be this big tension between that industry and the regulated one because, let’s be honest, if you look at some countries, they’re not going to use the regulated industry. They’ll use the decentralized one. So I think that’s going to be a really interesting thematic of how those play out with each other.

Ray Chohan: Brilliant. [inaudible 01:02:48] a close neighbor also in New Zealand. What does Web3 look like in New Zealand? Because I know there’s some good techtrons there, a good university out there as well. So what’s it like in New Zealand? Is it similar to Australia?

Jonathan Hooker: We’ve been locked down in COVID for a year. Nobody knows anything at the moment. I’ll be honest. I don’t know. We’ve just been focusing on what’s happening in Sydney and around this country. But it’s been a funny time with COVID and we’ve only just been let out after our second stint inside, so it’s nice to be back out and start seeing people. So I’ll definitely have to go over to New Zealand and see what they’re doing next year sometime.

Ray Chohan: Brilliant. Well, Jonathan, it’s been great having you on Frontier3 today and, hopefully, we can do part two in the summer and get a lay of the land by hopefully see what’s happening in the next six/seven months. Because this space is moving exponentially quick, so hopefully we can do part two in the future.

Jonathan Hooker: Sounds good, Ray. Well look, when we hit 100 petabytes on chain for Filecoin, let’s have a chat next because I can tell you what we’re planning after that.

Ray Chohan: Awesome. Thank you, Jonathan.

Jonathan Hooker: Have a lovely day, Ray. Thank you, bye.

Ray Chohan: Cheers. Thanks.