#575 Edan Yago Explains DeFi on Bitcoin

Edan Yago is a neuroscientist and entrepreneur who dropped everything nine years ago to focus on Bitcoin. He is driven by the opportunity to create a new, open economic system that empowers individuals globally. He has been pivotal in establishing the recently-launched Sovryn protocol, a decentralized bitcoin trading and lending platform, one of the first Bitcoin-native DeFi platforms. In this conversation, we discuss bitcoin defi, layer 1 scalability, smart contract platforms, altcoins vs tokens, Rootstock, merge mining, Ethereum, Binance Smart Chain, and bitcoin’s future. ======================= Remote makes it easy for companies of all sizes to employ global teams. We take care of international payroll, benefits, taxes, and local compliance, so you can focus on growing your business. Sign up for Remote today and receive 50% off your first employee for the first three months. Check out remote.com/pomp and enter promo code POMP to get started. ======================= Choice is a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/pomp =======================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Eden Iago is a neuroscientist and entrepreneur who dropped everything nine years ago to focus on Bitcoin. He is driven by the opportunity to create a new, open economic system that empowers individuals globally. He's been pivotal in establishing the recently launched Sovereign Protocol, a decentralized Bitcoin trading and lending platform, and one of the first Bitcoin native DeFi platforms. In this conversation, we discuss Bitcoin DeFi, Layer 1 scalability, smart contract platforms, altcoins versus tokens, root stock, merge mining, Ethereum, Binance Smart Chain, and Bitcoin's future.

• 0:45Anthony Pompliano?

  I really enjoyed this conversation with Eden, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. First up is Remote. Remote allows you to employ people in other countries legally and easily. They take care of international payroll, employee benefits, tax headaches, and all the paperwork for local compliance. Forget about location and hire the best person for every open role using Remote. Remote's platform is easy to use for full-time employees, contractors, and your HR team. Whether you're a major corporation or a small startup, Remote has the tools and resources to help you at a price you can afford. Even better, listeners

• 1:27Anthony Pompliano?

  get a special deal. Sign up for Remote today and receive 50% off your first employee for the first three months. Check out remote.com/pomp and enter promo code Pomp to get started. Again, remote.com/pomp and enter promo code Pomp to get started. Next up is BlockFi. BlockFi provides financial products for crypto investors. Products include a high-yield interest account, a US dollar loan product against your crypto collateral, and no-fee cryptocurrency trading. They also are launching a brand-new Bitcoin Rewards credit card. It's the first in history. It's a regular credit card that when you swipe it, you'll get paid in Bitcoin back rather than cash back or an airline miles. To start earning

• 2:09Anthony Pompliano?

  today, visit blockfi.com/pomp. Sign up for that BlockFi account and get on that credit card waitlist. Blockfi.com/pomp. I'm an investor in the business, I'm a very happy user, and I think you will be too. Go to blockfi.com/pomp. Last but not least are my friends at Choice. Choice is rebuilding the way you approach retirement, which starts with making it simple to include Bitcoin and other cryptocurrencies in your savings. More than 20,000 Bitcoiners, myself included, have already signed up to start investing. Whether we are talking about crypto or stocks, Choice lets you trade real Bitcoin and Amazon in the same place, all without paying a dime in capital gains taxes. And if you want to hold your own keys all the way to the moon, you can do that, too. Either way, Choice is on a mission

• 2:52Anthony Pompliano?

  to give you full control over your retirement savings. So head on over to retirewithchoice.com/pomp. Again, retirewithchoice.com/pomp and sign up for an account today. And one more thing, you know how I feel about this, but if you have a pro that manages your money, don't take any of their BS. Choice has tools for them, too. Take back control today and visit retirewithchoice.com/pomp. Retirewithchoice.com/pomp. All right, let's get into this episode with Edon. I hope that you enjoy it.

• 3:22Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 3:51Anthony Pompliano?

  All right, guys, bang, bang. I've got Yago here with me. Thank you so much for doing this.

• 3:55Speaker 02

  Thank you for having me.

• 3:55Anthony Pompliano?

  You're fresh off the plane. We are ready to rock and roll.

• 3:58Speaker 02

  Hundred percent.

• 3:59Anthony Pompliano?

  All right. Everyone is talking about DeFi on Bitcoin. I tweeted something. Everyone comes with a pitchforks. They think I'm an idiot, which means they think you're an idiot, too. So let's just start with what the hell is DeFi on Bitcoin?

• 4:16Speaker 02

  Well, you know, I mean, I think I am probably you as well are most comfortable in the situation where everyone thinks we're an idiot because that probably means we're on to something.

• 4:24Anthony Pompliano?

  True.

• 4:24Speaker 02

  So, look, you've got this monetary tool, right? This new monetary asset, Bitcoin. It's by far the biggest crypto asset, but it's more than that. I think if you look at the entire expense of any asset in the world, right? Gold, dollars, rubles, doesn't matter what you're looking at. Bitcoin has the highest likelihood of all of them to be the global reserve currency in 10 to 15 years.

• 4:50Anthony Pompliano?

  True.

• 4:51Speaker 02

  So then the question is, all right, what is a world where you have this digital reserve currency Bitcoin look like? And what you want is you want to have a financial system that is as transparent and as incorruptible as the monetary asset itself, right? We don't want to just change money. We want to change the ways we use money. And that's what DeFi for Bitcoin is. And that's why everyone thinks it's a huge deal because if it happens and it's happening, it changes not just money, it changes all of finance and economics.

• 5:23Anthony Pompliano?

  Okay. I want to go back in history for a second. I'm going to get very over generalized uh, version of how we get to where we are today. You correct me or disagree as we go. Bitcoin is created. It's amazing. Everyone loves it. They start to adopt it that knows about it and feels that it has value. At some point along that journey, people say, I want to do things with it. I want to build on top of it. It's hard to do, if not not possible to do at the time. Instead of waiting to figure out how to do that, or waiting for the development of a layer two, some people went and built a new platform, Ethereum, which had composability, smart contracts, all these aspects that

• 6:06Anthony Pompliano?

  uh, deliver value to the Ethereum ecosystem. Since then, there's been more and more smart contract platforms built, but basically there was a new way of thinking about this. Many of those early people thought that they would be able to scale a smart contract platform on a layer one.

• 6:22Anthony Pompliano?

  Fast forward to today, I think most people realize, wait a second, and the general consensus would be, we can't actually scale these on layer one, we're going to have to scale on layer two. There's now a lot of work, Matic, etc., that are going and doing this. So if you look at the two ecosystems, we have Bitcoin, a truly decentralized, digital, open protocol. And you have Ethereum, that's proof of work today, transitioning to proof of stake at the layer one. And then they've got kind of layer two, Bitcoin's got layer two as well. When you look at those two systems, most people believe that all of DeFi is going to get built on Ethereum. Most people have written off that no DeFi is going to be built on Bitcoin. This is like the ultimate market setup, where everyone, in my opinion, I think yours as well,

• 7:05Anthony Pompliano?

  is overvaluing one side of that equation and completely ignoring, not even just undervaluing, just completely ignoring the other side of the equation of DeFi on Bitcoin.

• 7:14Speaker 02

  Right.

• 7:16Anthony Pompliano?

  Does all of that seem to make sense? Is that all pretty accurate, you think?

• 7:19Speaker 02

  Yeah, I think, I think that makes sense. You know, there's this theory that blockchains have network effects. And I don't think they do. I don't think the Bitcoin blockchain has a network effect. I don't think the Ethereum blockchain has a network effect. I don't think any blockchain has a network effect.

• 7:34Anthony Pompliano?

  Why?

• 7:35Speaker 02

  Because who cares? Like, nobody says to themselves, I really want to use the Bitcoin blockchain. Nobody says to themselves, I really want to use, well, very few people say to themselves, I really want to use the Ethereum blockchain, right? What people want is the features that the technology provides. So we have gotten confused because it's true that the Bitcoin blockchain has a network. It has a network, but it isn't the network itself. It's not what's capturing the network value. Where the network value is captured is in the asset. Now, up until now, that wasn't obvious. And the reason it wasn't obvious was because everything was working on layer one.

• 8:16Speaker 02

  And every time someone wanted to launch a new technology, a new app, a new anything, they basically went and created a new layer one for it, right? So Ripple wanted to build, I don't know, for banks, they created their own layer one. Ethereum wanted to create smart contracts, they created their own layer one. Tezos wanted to have a thing where you have governance, they created their own layer one, right? Everyone was going and creating their own layer one.

• 8:40Speaker 02

  But that was a mistake. It was a mistake for two reasons. First of all, what we're seeing now is that layer ones do not scale. You cannot put a huge amount of functionality onto a layer one and expect it to scale. And beyond that, that, coming back to what I was saying earlier, where the network effect is not in the blockchain, it's in the assets. So Bitcoin is a powerful network. It has a powerful network effect because it is the network of people who want to have a store of value. They want to have access to the reserve currency of the future. There are other assets which have powerful network effects. Tether has a powerful network effect. It's the

• 9:21Speaker 02

  leading bridge to the fiat world. And as a result, it has the deepest liquidity. It's on the most exchanges. It has the most pairs. Now, Tether is a perfect example of what the future looks like. Tether started on Bitcoin, on a Bitcoin layer called Omni. It then migrated to Ethereum. Today, the vast majority of Tether is on Tron, right? Tether doesn't care. And in fact, Bitcoin doesn't care either. When you take your Bitcoin and start using Bitcoin on Lightning Network, you're effectively using a secondary network. When you use Bitcoin on a sidechain like Rootstock, you're using it on a secondary chain, right? A totally different network. But

• 10:04Speaker 02

  you maintain the same network effect and the same access to the network effect because it's the asset which is the network.

• 10:10Anthony Pompliano?

  The actual underlying technology. So if we look at the Ethereum ecosystem, because they were smart enough to not name the asset and the network the same thing, right? So in the Ethereum world, you have Ether, the asset, Ethereum, the blockchain itself. The argument you're making is that Ether has the network effect, not Ethereum, the actual blockchain.

• 10:30Speaker 02

  Okay, so it's not entirely true that there's zero network effect. There's some degree of network effect, but it's diminishing over time. So the reason Ethereum has a network effect is because of the composability, right? So I create a financial application, you create a DAP, right? Your financial DAP uses mine, and mine uses like Maker or whatever. And so it's very convenient for us to be on the same chain. Until you get to 2021. And what happens in 2021 is suddenly we realize that there's a huge amount of use of these chains. They cannot scale. And so what starts to happen is people start looking at layer two technologies.

• 11:15Anthony Pompliano?

  And real quick to interrupt you. What Ethereum's going through in 2021 is essentially what Bitcoin went through in 2017, right? Which was so many people were trying to use the layer one, fees skyrocket, you get tons of mempool just being backed up, you can't actually get transactions through in any sort of timely fashion. And therefore, the Bitcoin community said, hey, we really got to invest in scalability layer two. And there's this kind of big thing. Ethereum now was trying to scale layer one. They now have experiences. There's obviously fees skyrocketing and a lot of backup on the actual transactions of the chain, because people are trying to use it, right? But they can't use it because the layer one doesn't scale. And so now they're being forced to go and pursue all sorts

• 11:59Anthony Pompliano?

  of different scaling solutions. Some will work, some won't, whatever, right? But that's where really, they're kind of learning their lesson, because they experienced the pain. Now they go and they try to build layer two.

• 12:07Speaker 02

  Right. So they're both encountering the same problem, because they've both finally, you know, in 2017 Bitcoin reached a degree of scale where it encountered the problem. Now Ethereum has reached a degree of scale where it's encountering a problem, but they're reacting in different ways.

• 12:23Anthony Pompliano?

  Okay, explain.

• 12:24Speaker 02

  All right. So what happened to Bitcoin is Bitcoin went through a civil war. And what it decided to do, and I think this is an extremely temporary thing, but it changed the narrative for a while. What Bitcoin basically decided to do was reject computationally intense use cases, not increase the size of blocks, and make sure that the holy of holies, right? The fact that the chain would remain the same, that it would always be reliable, and that the store of value would always be based on a highly reliable system, would not be touched.

• 12:58Anthony Pompliano?

  High security, high decentralization, not so worried about layer one scalability, or what's the latest innovation, bells and whistles, etc. Just pure security and decentralization was a direct trade off with everything else, but that was an intentional trade off.

• 13:12Speaker 02

  That's right.

• 13:12Anthony Pompliano?

  Okay.

• 13:13Speaker 02

  Ethereum is making a different trade off.

• 13:15Anthony Pompliano?

  Okay.

• 13:15Speaker 02

  They're both also going to end up in a fairly similar place. What Ethereum is doing is Ethereum is fragmenting.

• 13:22Speaker 02

  So you've got Arbitrum, which is a new layer one, launched two days ago. You've got Matic have launched a side chain which doesn't even use Ethereum as its base currency. You've got XDi, which also uses a proof of state consensus mechanism, not Ethereum's consensus mechanism. And then you have all of the other EVM chains like Binance Smart Chain, right? All of them are absorbing huge amounts of users and flow from Ethereum. And what we're seeing is more and more depths are migrating to one or more of these different chains. And so the composability that provided this network effect.

• 14:07Anthony Pompliano?

  It's breaking.

• 14:07Speaker 02

  It's breaking.

• 14:08Anthony Pompliano?

  Which means that it wasn't a true network effect.

• 14:11Speaker 02

  I think it was a temporary network effect, right? You can have a temporary network effect.

• 14:16Anthony Pompliano?

  But you can have dependence without having a true network effect. Right, so you each depend on each other and there is some value or efficiency that is gained from that. But ultimately, a true network effect would be nearly impossible to break if it had actually taken hold.

• 14:32Speaker 02

  Well, I think that's interesting, right? So if you think about like the difference between, say, Facebook and Ethereum, right? Facebook never encountered this problem because it's not like when Facebook reached 10 million users, its servers stopped working. So it has a true network effect. And I think Ethereum did have a true network effect. It's just that that network effect itself could not scale.

• 14:52Anthony Pompliano?

  Okay, interesting.

• 14:53Speaker 02

  Now, that network effect is not going to disappear entirely. I don't think Ethereum is going to disappear. I think Ether, right, ETH is going to continue to have value in the future, right?

• 15:04Anthony Pompliano?

  I agree with that.

• 15:05Speaker 02

  But the trajectory is not what people are anticipating right now. What people should be paying attention to is that there has been a complete change in the trajectory of where Ethereum is going. And that's going to change, it's going to impact everything. It's going to impact how the wallets operate. It's going to impact how users interact. It's going to enter, every explorer is going to now need to be a multi-chain explorer. We are entering a multi-chain world. And that is part of the reason why, going back to the earlier story of what happened to Bitcoin, Bitcoin is waking up and coming back into this game.

• 15:41Anthony Pompliano?

  I want to stay on the Ethereum thread for a second.

• 15:43Speaker 02

  Yeah.

• 15:44Anthony Pompliano?

  I think it's really important for people to understand this.

• 15:47Anthony Pompliano?

  Ethereum has from the beginning pursued a narrative around technological superiority in specific use cases or specific functionality. So smart contracts, composability, all this stuff. What we're now seeing is people have taken what I would consider a pretty revolutionary technological change that Ethereum originally started with. And the evolutionary iterations on that are showing to be more technologically superior. So faster block times, better throughput, lower cost fees, all this stuff. Now, there are trade offs, right? So for example, NFTs on Ethereum, all of a sudden Dapper Labs comes around and says, "Hey, we can't do it here.

• 16:32Anthony Pompliano?

  We need a specific chain built for this." They build Flow, right? You see Matic say, "Well, is it a layer two? Is it a sidechain?" Forget nomenclature for a second. Just, "It doesn't work here. We're going to build somewhat on top of or kind of leveraging some of the Ethereum actual technology, but we're not going to use Ether as that asset, as you described." Right. You then start to see Binance Smart Chain. Trade off, okay, faster block time, way more efficient, much lower fees, two times the transaction volume, right? Almost immediately. And it's very hard to argue that developers aren't moving to go use this stuff, but it's more centralized, right? And so every single one of these decisions is a technical trade off.

• 17:12Anthony Pompliano?

  You're trying to accomplish X, but you're giving up or getting a worse version of Y. Who wins is almost irrelevant to the structural change that you're identifying, which is there is an all out war on the smart contract platform side of who can build the most technologically superior system. Yeah. That is a very different conversation than the Bitcoin system, right? Bitcoin simply just says, "We're going to be the most decentralized. We're going to be the most secure." Period. Yeah. "We're not going to compete on throughput on layer one. We're not going to compete on fees." All that other stuff is the trade off, right? "We're going to give up all that. We're going to say we're not good at that stuff. But we are the most decentralized. We are the most secure."

• 17:53Anthony Pompliano?

  These other platforms, chains, side chains, etc., they're all saying, "We're gonna give up on the decentralization." Not, not fully, but we're gonna compromise some of the decentralization or some of the security.

• 18:03Speaker 02

  Well, they don't say that. Some of them would claim that they're not making that trade-off.

• 18:08Anthony Pompliano?

  Okay.

• 18:08Speaker 02

  But I, I disagree. So I, I don't think we've actually seen, this is the incredible thing about Bitcoin, right? It was such a fundamental shift, paradigmatically in technology, we actually haven't seen a true innovation since it, right? We've seen different trade-offs, we've seen different considerations, you know. Ethereum, it doesn't have nodes which anyone can run in the same way that anyone can run a Bitcoin node, right? Proof-of-stake systems do not have the same kind of physical assurances around, you know, decentralization and security that proof-of-work systems have. They have maybe other properties, but we haven't seen

• 18:48Speaker 02

  sort of a zero trade-off improvement, right? Cars have clearly gotten better over the last 50 years, right? Like, they're, in every way. No blockchain has gotten better in every way over the last 10 years.

• 19:05Anthony Pompliano?

  The thing that I think, when I talk about this to people who aren't super deep in the weeds like you or I are, is I simply say, Bitcoiners are pursuing decentralization at Layer 1 over everything else, and the rest of folks are pursuing something else over pure decentralization.

• 19:22Speaker 02

  Yeah.

• 19:23Anthony Pompliano?

  That doesn't mean either one's good or bad. It doesn't mean that one wins and the other loses, or a zero-sum game. It just means that they're fundamentally optimizing for something completely different. What becomes interesting for our conversation today is, if you are going to then get scalability at Layer 2, what happens is, well, what occurs if we both have the same functionality on Layer 2, but I'm tied into a more secure chain, and actually have the same throughput, the same fee schedule, etc. at Layer 2 as you do, then why would I use your Layer 1 tied in if it's less secure, less decentralized, etc. if I can do the exact same thing with the same functionality on top of Bitcoin?

• 20:05Speaker 02

  Right. And I think this goes to the very heart of what many people misunderstand about what's going on with crypto, right? I don't think that it is a new computer technology, right? Bitcoin is a new asset. And it uses technology in order to generate that asset. But it's not competing on features. It's competing to be the best money out there. And so when you have projects that are competing on features, you just need to look at what technology companies look like, right? Every 10 years, you have a different new leader, right? But money doesn't work that way. And if it were to work that way, it would stop being money.

• 20:46Speaker 02

  So that's why it's imperative that Bitcoin not try to compete in features, because that would be misunderstanding what the game is. Then now, so that brings us to where we are now, right? So now we've got this world where you've got a huge amount of features that have been built. Ethereum and the Ethereum community, the Ethereum developers, have funded and built out phenomenal technologies, right? They're not new blockchain technologies. They're phenomenal cryptographic technologies. They're phenomenal decentralized application technologies. But anyone can use them. And that is really one of the incredible gifts of what Ethereum has provided to the world.

• 21:31Speaker 02

  And beyond that, because of the fracturing of Ethereum, not only that, but the entire ecosystem is reconfiguring itself to be a chain agnostic. And then in the middle of that, the very center of gravity of this entire ecosystem is Bitcoin and the Bitcoin chain.

• 21:52Anthony Pompliano?

  Before you go there, is it fair claim to say that the inevitable end game, when you get fracturing of smart contract platforms and you get a multi-chain world, that there is a constant pursuit of the highest throughput, lowest fees, kind of most efficient blockchains? And therefore, it may take years and years and years, but you incrementally continue to get more and more centralization because it brings more efficiency. And so therefore, you end up back with a centralized system?

• 22:19Speaker 02

  I'm very scared that that's a possible trajectory.

• 22:22Anthony Pompliano?

  You're scared that it is possible.

• 22:24Speaker 02

  Yes.

• 22:25Anthony Pompliano?

  Well, like you think it is likely and that is scary to you.

• 22:28Speaker 02

  Very.

• 22:29Anthony Pompliano?

  Yes.

• 22:29Speaker 02

  The whole reason I'm in this is because I want to avoid that outcome.

• 22:33Anthony Pompliano?

  So I agree that that is already writing on the wall with the way this is going. Doesn't mean that we have to go down that path. It could be reversed, it could change, but that is where this ends up as people do it. A perfect example is Ethereum and Binance Smart Chain. If I want faster throughput, if I want faster block times, if I want lower fees, what do I do? I just bring more centralization.

• 22:54Speaker 02

  Hundred percent.

• 22:54Anthony Pompliano?

  At least of more efficiency, right?

• 22:55Speaker 02

  Yeah.

• 22:56Anthony Pompliano?

  With that said, and this is a key piece to it, is it then brings to the forefront, is it more important to have the efficiency on the technological front and to have the throughput and the low fees? Or is it more important to have the decentralization? And this is ultimately when you pit the smart contract platforms versus Bitcoin, right? As just the comparison, this is where you see the difference, right? And so explain now, what has changed in the Bitcoin ecosystem? That is now empowering smart contracts, DeFi on Bitcoin, all the things that a decade ago, everyone thought wasn't possible, now seems to be being built. And so what's changed there?

• 23:35Speaker 02

  It's really interesting that you say a decade ago, right? Because if you think about it, a decade ago, the conversation in Bitcoin was, any technological advance that could benefit Bitcoin will simply be adopted by Bitcoin. And in 2014, a paper was written, uh, which described this thing called sidechains. And sidechains basically was a description of exactly how this was going to happen. What a sidechain is, is it's a chain. And remember I said that the network effect isn't in the chain, it's in the asset. It's a chain which shares the security of Bitcoin, right? And actually, there is an additional network effect, which is proof of work, right?

• 24:15Speaker 02

  So Bitcoin has by far the biggest, by far, by far, the most hashing power, securing.

• 24:21Anthony Pompliano?

  Strongest computer network in the world.

• 24:23Speaker 02

  That is a network effect, right? So if you can piggyback on Bitcoin proof of work and on the Bitcoin asset, but have a separate chain, and she can have its own rules, its own features. Then you can effectively expand the capabilities of Bitcoin to do anything.

• 24:42Anthony Pompliano?

  One of the things that I want to make sure people understand, and it's not super technical, but I think it's an important point, is in a block of transactions, approximately every 10 minutes, there is a certain number of transactions that fit into that block. One of the big debates previously was should we increase the size of the block so more transactions can go in, or should we keep it the same? We kept it the same. But what is important to understand is if you almost think about it as an Excel file, right, just for easy visualization, and each cell on the row or on the column down was a different transaction. Inside of that one single transaction or input into the ledger can actually represent

• 25:22Anthony Pompliano?

  hundreds, thousands, millions of other transactions that are happening on a Layer 2 or on a sidechain.

• 25:28Speaker 02

  That's right.

• 25:29Anthony Pompliano?

  And so even though the block size does not change, what ends up happening is the scalability comes from being able to do all these transactions on a Layer 2 on a sidechain, and then simply writing into a single block one transaction.

• 25:42Speaker 02

  Right.

• 25:43Anthony Pompliano?

  And so what ultimately we're talking about here is you get the security and the decentralization of Bitcoin's Layer 1, but you're able to now exponentially increase the amount of transactions and economic value that gets put into a per-block basis, which ultimately could swallow the entire financial system if we wanted it to, without having to change block sizes or kind of the core structure of that Bitcoin blockchain.

• 26:11Speaker 02

  That's right.

• 26:11Anthony Pompliano?

  Correct?

• 26:12Speaker 02

  Yeah.

• 26:12Anthony Pompliano?

  Okay.

• 26:13Speaker 02

  So we actually already see this happening, and we see this happening on Ethereum with technology which has been developed called rollups. And we see it happening on Bitcoin with a technology that's called Lightning Network.

• 26:25Anthony Pompliano?

  Okay.

• 26:25Speaker 02

  Both of them, yeah.

• 26:26Anthony Pompliano?

  Describe Ethereum rollups.

• 26:28Speaker 02

  All right, so what happens in a rollup is, and there's a number of ways of constructing a rollup, but so I'll just talk about this on a high-level conception. Basically, what happens in a rollup is you have the base chain, L1, Layer 1, and you know you can't stuff everything into it. And so what you do is you take the computation for transactions, and you move them to a separate chain. And now you do all of you and and and you you can basically treat this chain very badly, right? You can have it be pretty centralized. You can have it be high throughput. You can give up most of the assurances that you would want, and you don't care. And the reason you don't care is because you have this high throughput on the on the layer two on the roll up.

• 27:12Speaker 02

  But for it to be approved, right, for any transaction to be approved, that it needs to be aggregated with a whole bunch of other transactions and then introduced as a confirmed transaction on layer one. And that means that the security is coming from layer one, but the scalability is coming from layer two, right? So you separate those two things. And so you get the same L one security, but you get also L two scalability. So Bitcoin basically does something, the exact same thing with Lightning Network, right? And uses a different way of of approaching this. But basically, both of them are attempting to

• 27:54Speaker 02

  do the same thing. And now we have Bitcoin sidechain technology, which is allowing you to basically combine the best of both worlds. So you can take smart contracts, you can take scalability, and you can take Bitcoin security and put them all together into the tastiest, you know, decentralized pie you could possibly make.

• 28:18Anthony Pompliano?

  Explain the Sovereign platform and kind of how it technically works, where the security comes from, how does the scalability, where the transactions come from, etc.

• 28:28Speaker 02

  Right. So Bitcoin is built on a Bitcoin side, sorry, Sovereign is built on a Bitcoin sidechain technology called Rootstock. And what Rootstock does is it merge mines a chain so that, you know, Bitcoin miners, they basically discover a new block on average every 10 minutes. But to do that, they create huge numbers of hashes which don't discover a block.

• 28:59Speaker 02

  So what you do with merge mining is you say, all right, we're going to allow you in that process to discover blocks on this chain as well with some of the hashes that weren't discovering Bitcoin blocks. So you're doing the same thing, you're getting the same security, you don't need to bootstrap on entirely new proof of work system. You just basically piggyback on that security that Bitcoin already has. So you have a sidechain, you can move your Bitcoin to the sidechain because it's the base asset on that sidechain. And, and that is what the root stock technology does, right? Rootstock does an additional thing. Rootstock also is EVM compatible. So what's EVM compatible?

• 29:38Speaker 02

  It's the same technology that Ethereum uses for generating smart contracts also works on rootstock, right? So if you think about what rootstock provides, it's all the functionality of Ethereum,

• 29:56Speaker 02

  merged with Bitcoin as the base asset, so you don't need a new token, and the security of Bitcoin.

• 30:05Anthony Pompliano?

  When you use rootstock, you said Bitcoin is the core asset, or kind of the

• 30:12Speaker 02

  The native asset.

• 30:13Anthony Pompliano?

  The native asset to rootstock, but you get the functionality of Ethereum.

• 30:17Speaker 02

  Right.

• 30:18Anthony Pompliano?

  On a very simplistic way, to use Ethereum, you need Ether to pay gas fees, etc. Do you also use Ether in this sidechain?

• 30:27Speaker 02

  No, so you use Bitcoin to pay gas fees, right? So when you are interacting with a smart contract, you need to pay for that interaction. Basically, it's a transaction fee, and you pay this in Bitcoin. And so there's a parsimony here, right? Because the vast majority of crypto asset value is in Bitcoin. It's inconvenient to have to have a new asset every time you want to transact.

• 30:56Speaker 02

  And so when you're making transactions with Bitcoin, one of the things that Sovereign and Rootstock provides is the ability to just pay the gas fees in Bitcoin itself. And what's cool about it is that where does that Bitcoin go? It goes to the Bitcoin miners, so it actually expands not just the capabilities of Bitcoin, but the security assurances of Bitcoin as well.

• 31:14Anthony Pompliano?

  When somebody uses the sovereign platform, what can they do?

• 31:19Speaker 02

  So sovereign, sovereign started out as like a, an idea just about a year ago, and has drawn so much attention and so many developers have started working on it, that in the last year, it has become by far the most feature-rich DeFi platform anywhere in the world. It's got Bitcoin-backed stablecoins, so you can now create dollars without, you can basically compete with the Fed, right? You've got Bitcoin, you can issue dollars, which are not issued by the Fed, and are more secure than dollars in a bank, right? It's got lending and borrowing, so you can lend your Bitcoin and earn yield in it.

• 32:02Speaker 02

  And some new features are going to be coming out that I know some people are working on, which is probably going to make it the number one place to earn yield in Bitcoin anywhere in the world. You can also borrow Bitcoin, so you can go long Bitcoin. And one of the ways that you can do this is with another feature, which is margin trading. So you can take long or short positions. You can also spot trade, so you can trade between USD, stablecoins, Bitcoin, Ethereum and Bitcoin. And that's where it is now.

• 32:31Anthony Pompliano?

  So that's decentralized lending, decentralized borrowing, decentralized exchange, right? All the, in the, if we compare it to the smart contract platforms, each one of those exists, right? And some of them, take like Uniswap is actually very, very popular.

• 32:48Speaker 02

  Right.

• 32:49Anthony Pompliano?

  But it is, Uniswap is a decentralized exchange. It doesn't have decentralized borrowing, lending, all that other stuff, right? There's another, you know, decentralized application or decentralized financial application that has decentralized lending, decentralized borrowing, right? All the way through. So when you look at the ecosystem in general, there is all of this functionality. You just have to swap in and out of either different assets or go to different platforms, all that kind of stuff.

• 33:15Speaker 02

  That's right.

• 33:16Anthony Pompliano?

  Here-

• 33:16Speaker 02

  And that made sense in a world of composability, right?

• 33:19Anthony Pompliano?

  Yes.

• 33:19Speaker 02

  Yeah.

• 33:20Anthony Pompliano?

  Here, you have a single platform that uses the same base asset, where all of it is on that one platform, decentralized exchanges, lending, borrowing, etc.

• 33:31Speaker 02

  Right.

• 33:33Anthony Pompliano?

  When you think about this-

• 33:37Anthony Pompliano?

  If you continue to be successful, what would the argument be for people to use the other platforms? Would they be more efficient, lower cost, more decentralized? Or actually, would everyone just stay and use the most secure chain with the base asset, the largest base asset? And then just do all the decentralized lending, you know, borrowing, exchanging, et cetera, all on that one platform?

• 34:04Speaker 02

  The reason I got excited about Sovereign is because I think that there's a very strong chance

• 34:11Speaker 02

  that it is basically the financial protocol of the future, like the financial operating system of the future.

• 34:19Speaker 02

  I don't know that we need more than one reserve currency. I don't know that we need more than one financial operating system. But what I do know is that if we were to have both of these things, there's a lot, it makes a lot of sense that they would be linked together, right? So, you know, I, I, when I was first introduced to Sovereign, I was excited because I want to earn yield on my Bitcoin. I never want to use centralized exchanges. But what's become more apparent to me over time as the project has grown and sort of as a result, sort of it's become more clear how big of a thing this is, is that everything could be replaced.

• 35:05Speaker 02

  The banks could be replaced, the hedge funds could be replaced, the, the, the payments companies could be replaced by what is effectively a open, transparent and incorruptible financial operating system, which is as borderless and as uncensorable as, as crypto will allow.

• 35:26Speaker 02

  And that

• 35:29Speaker 02

  It we I don't think sovereign itself is going to be everything, right? Um, already we're seeing protocols that are building around the sovereign ecosystem. But sovereign as a platform, you can, the reason I say OS is think about like your, your, your Mac, right? Your Mac provides you with the basic functions of an operating system, right? You can boot up the computer, you can, um, you know, install software. But in addition to that, it also offers you some of the basic key applications. It gives you a browser, it gives you a word processor, right? But a lot of people build for that ecosystem and, and, um, and I think it makes sense for sort of like the application layer.

• 36:11Speaker 02

  But going to be the same thing, you have the basic financial primitives, things like borrowing, lending, and core derivatives that are provided by the core sovereign protocol. And then a huge amount of innovation that you can think of like, um, specific verticals, which are provided by other, um, applications.

• 36:32Anthony Pompliano?

  When you think through the comparisons here between the various systems, I've always used the framework of Bitcoin is a decentralized digital currency. Almost all of the infrastructure around Bitcoin has been centralized up until recently, right?

• 36:49Speaker 02

  That's right.

• 36:50Anthony Pompliano?

  Centralized exchanges, lending, all this kind of stuff. That's about 50% of the way there, right? Decentralized digital money, good, centralized exchanges and, and infrastructure. That's not exactly the promise of a fully decentralized system, but one, best we had. Two, allow people to do what they needed to do, but they, there was counterparty risk. In the Ethereum ecosystem and other smart contract platforms, the assets are not decentralized, but the infrastructure is decentralized, right? And when you especially look at things like sound money and all this stuff, right? You get into like a very weird world where it's obviously different than Bitcoin, but the infrastructure is decentralized.

• 37:32Anthony Pompliano?

  And I've always thought that if you take the decentralized digital money of Bitcoin and you take the decentralized infrastructure that is on these other smart contract platforms, you put them together, you vertically integrate them.

• 37:42Speaker 02

  Yeah.

• 37:43Anthony Pompliano?

  Winner, like that is the home run winner. What people have debated for a while now is, does that mean you take Bitcoin and you bring it into the smart contract ecosystems? So wrapped Bitcoin and other things like it, right? And there's to varying degrees of success, people have tried to do this. Or does that mean you bring the decentralized infrastructure to Bitcoin?

• 38:04Speaker 02

  Right.

• 38:05Anthony Pompliano?

  Historically, up until, you know, I don't know, last two years or so, people just thought you couldn't build the decentralized infrastructure on top of Bitcoin.

• 38:11Speaker 02

  That's right.

• 38:12Anthony Pompliano?

  But now with root stock and a couple of other variations of side chains or second layers, it's possible, but it's not only possible, it's actually happening. And people are starting to go and do this.

• 38:23Speaker 02

  Yeah.

• 38:23Anthony Pompliano?

  And there's hundreds of millions of dollars, if not billions of dollars of total value locked in these systems.

• 38:29Speaker 02

  Yeah.

• 38:30Anthony Pompliano?

  And so the question then becomes, if the entire premise for the smart contract platforms was to get off of the Bitcoin layer one, because you needed composability, smart contract functionality, and you needed higher throughput and lower fees. But now you have smart contract functionality, composability, higher throughput, and lower fees on the Bitcoin system.

• 38:54Anthony Pompliano?

  What happens to the rest of the systems? Or is it, they still coexist and they still have some value, but ultimately the majority of the value accrues to the base asset or the native asset? Uh, or kind of native reserve currency of the internet is Bitcoin and the vertically integrated decentralized infrastructure? Or is it actually, no, it's all just interoperable? And so I'm going to go from Bitcoin to Ether to name your next asset. I'm going to use all sorts of different decentralized infrastructure and it's like a full multi-chain world where I actually don't care what the layer one is because I'm just seeking highest yield, most throughput, lowest fees.

• 39:31Speaker 02

  Look, I, there's,

• 39:36Speaker 02

  there's so many people who have so many tokens that they really love, that I don't want to break their hearts. But the fact of the matter is that the reason people call these things altcoins or shitcoins is because for the most part, look, Satoshi invented Bitcoin.

• 39:58Speaker 02

  He hasn't touched one of his Bitcoin, but he created new, better money.

• 40:06Speaker 02

  And then other people looked at this and they were like, wait, I can just make money?

• 40:12Speaker 02

  I want to do that. Like, I don't want to have a nine to five job. I just want to go fork Bitcoin and then say I have a new coin. And then I go to a conference and I say, hey, did you hear about my new money? Oh, you've got a new money too. Well, why don't we exchange some of your money for my money? And then, you know, like just skip the middle man of work and go straight to making the money, right? But they needed to be able to justify that somehow. So to justify it, they needed to say, well, look, there's all of these things that Bitcoin can't do. And we're going to make a coin that can do these things that Bitcoin can't do. And so they went and they created XRP and Litecoin and, you know, a whole coin market capitalist of 2,000 different coins.

• 40:56Speaker 02

  And yeah, I think probably most of them are totally useless. Now, some of them will continue to retain value because they will find use. For example, I think Ethereum is never going to go away. I think it has.

• 41:07Anthony Pompliano?

  I agree with that.

• 41:08Speaker 02

  It has created a huge amount of value and it is the king of utility coins, right?

• 41:18Speaker 02

  But I don't, but like I was saying, I think the trajectory that people are expecting is not the trajectory they're going to get. A lot of other things are pretty much going to disappear, like Shibou Inu. You know, no one's going to be talking about it in a year, right? And some of them will just take longer.

• 41:37Anthony Pompliano?

  And most of them aren't going to go to zero, in my opinion. I don't know about your opinion.

• 41:39Speaker 02

  I mean, they're all going to remain somewhere, some kind of weird collectible from a very, very strange time when the world went insane because everyone thought they could make their own currency.

• 41:50Speaker 02

  And other people were willing to buy it, right? But at the end of the day, we do have network effects. Money is the mother of all network effects that has ever existed. Finance and liquidity are massive network effects. And they have a center of gravity. And that center of gravity right now, and probably, and this is why I say the most likely asset of all the assets you look at in the world of today, is probably Bitcoin.

• 42:17Anthony Pompliano?

  Oh, it's inevitable at this point.

• 42:19Speaker 02

  I don't think it's inevitable. I don't think anything's inevitable. I don't think we get to be that complacent.

• 42:27Anthony Pompliano?

  I agree in the sense of nothing is actually guaranteed. But I think that from barring some external catastrophic event, the trajectory of the asset in comparison to all of the legacy currencies that also have a potential to rise to global reserve status. It's, I mean, it's like not even in the same realm of possibility.

• 42:53Speaker 02

  So I have a very contrarian view in sort of Bitcoin land around this.

• 42:57Anthony Pompliano?

  Okay.

• 42:58Speaker 02

  My contrarian view is that we're not nearly at that level of certainty.

• 43:02Anthony Pompliano?

  Okay, why?

• 43:06Speaker 02

  Look at the internet, all right? The internet was going to be freedom for everyone. It was going to be free information for everyone. It was going to mean that no, on the internet, nobody knows you're a dog, right? And for its first years, it was this ideal place. That you could go, you could have civil conversations with anyone, you could be, you know, it was totally up to everyone. It was choose your own adventure for the entire world. And what it ended up, and what ended up happening was it ended up centralizing around the fangs, right? Google, Facebook, et cetera. And that's because the incentive structure wasn't right and because people got greedy.

• 43:46Speaker 02

  Ethereum, I think, has, can be extremely successful. And I don't think that we should discount like an option of the flipping happening. And the reason is that Ethereum, one of the things it's about to do is move to proof of stake. Now, in a proof of stake system,

• 44:06Speaker 02

  It's like the the the short term seems so great, right? You just you've got this coin and and you you you you you lock it up and you get more coins, right? Imagine you could take Bitcoin and lock it up and just get more Bitcoin, right? So people look at like Bitcoin as a oh, it's very it's like Puritan and it's solid and it's conservative and it, you know. But Ethereum, I can get more Ethereum, right? And so on a retail level, you could see people shifting to Ethereum. And on an institutional level, you could see people looking at this and saying, this is something I can manipulate. And therefore, I'm going to encourage it. Because I can end up like, you know, a baron of proof of stake.

• 44:51Speaker 02

  And so I don't.

• 44:52Anthony Pompliano?

  Won't the exchanges be the barons of proof of stake?

• 44:54Speaker 02

  Exactly. What makes more sense for Binance and for, you know, Coinbase and Kraken, who have who are going to become like Coinbase is a publicly traded company now, right? And it's going to have the pressures of a publicly traded company, right? And they they they they can make a lot of money by getting a lot of people to give them their Ethereum and stake. And then they can tell people, listen, if you convert your Bitcoin to Ethereum, you can make even more money because Coinbase can make even more money that way, right? So I don't think there's an inevitability here. I think it's really, really up to us. That's why I think the work that you're doing is so important. It's why the work that I do is important to me and why I think everyone who is in this space needs to be paying attention.

• 45:36Speaker 02

  Because there is nothing inevitable in my mind about how this I think I think it's the most likely.

• 45:43Speaker 02

  But we have to be extremely careful. And I also think that's why DeFi for Bitcoin is so important, because even if Bitcoin wins as the monetary asset, you could still see all of the financial rails totally co-opted, more regulation, the large organization. I mean, Kraken's becoming a bank, right? And they're like one of the most pro Bitcoin exchanges out there, but you can't trust anyone. That's the whole point of all of this, right? Don't trust.

• 46:09Speaker 02

  So, um, yeah, I know that was a bit of a tangent, but

• 46:13Anthony Pompliano?

  When you talked earlier, you said there is altcoins, shitcoins, etc. I think a lot of people struggle to understand the difference between what I think you would categorize as Bitcoin, altcoins, and then tokens, right?

• 46:30Speaker 02

  Yeah.

• 46:30Anthony Pompliano?

  You guys have SOV, which is a token. Explain maybe first what SOV's role or responsibility is within the sovereign system? And then describe the difference between a token, an altcoin, and Bitcoin in your opinion.

• 46:45Speaker 02

  Maybe I'll do that in the reverse order.

• 46:47Anthony Pompliano?

  Okay.

• 46:47Speaker 02

  So I think pretty much every single Bitcoiner knows that Tether, even though it's money, right? Is not competing with Bitcoin. And why do they know that? Because they, because Tether isn't trying to be sound money, right? Uh, it has no argument that it's sound money. It's literally like a, a, a, a somewhat risky version of the dollar, right? But it has extreme utility. It can be used for various things. Um, so that's the difference between a coin, as I see it, right?

• 47:23Speaker 02

  Bitcoin is a coin, which is effectively trying to be a reserve currency, a store of value as well as a, um, a, uh, uh, medium of exchange, right? And a medium of account, right? You get all three of those, you got the holy trinity. Tether is not trying to do that. Now, that's the difference between a coin and a token.

• 47:47Speaker 02

  Now, you can have other types of tokens. There's NFTs, non-fungible tokens. Non-fungible tokens are clearly not trying to be money. Now, maybe they are useful, maybe they aren't, but you know, they're definitely not trying to be a competitor to Bitcoin.

• 47:59Anthony Pompliano?

  So Bitcoin is a cryptocurrency, meaning it's decentralized, it's sound money, has very specific properties to it. And as of right now, it is the leading cryptocurrency.

• 48:11Speaker 02

  That's right.

• 48:11Anthony Pompliano?

  And you're making a difference between a cryptocurrency having to be decentralized and having to be sound money, Tether. While acting as a currency, it's more of like this like digital currency almost to some degree where it is simply used for store value medium of exchange, but it's not decentralized, it's not sound money.

• 48:30Speaker 02

  Right.

• 48:31Anthony Pompliano?

  And therefore, it's a trying to go for something else, it's a trade off.

• 48:34Speaker 02

  Right, but DAI, for example, which is a different stablecoin, I think actually is pretty decentralized. But it's also a token, right? And in fact, there is a system with two tokens, one which is DAI, which is like the stablecoin, and one which is MKR, which is kind of like a futuristic version of equity, of shares, right? Because the Maker Dow system earns fees and it pays those fees out, effectively indirectly, but it pays those fees out to the MKR holders, right? Now, if you think about a world, right, which goes through hyper Bitcoinization, right?

• 49:16Speaker 02

  Bitcoin is the central monetary asset, but you have like this entire decentralized financial system that's built around it. You're going to want tokens to represent all of the different financial assets, commodities like gold, equities, futuristic equities like MKR, the ability to buy and sell property, everything, right? And we're going to discover all kinds of new ways of interacting and constructing these things, because not only do we have programmable money, we have programmable finance. So this brings me to SOV, right? So what is SOV? SOV is the risk and coordination token of sovereign.

• 49:58Speaker 02

  It's kind of like a, you know, if, if, if a monkey is equity, and then, then a human being would be, you know, whatever comes after equity, right? So it's kind of like the human being, it's the next level, I think, where equity could go if it becomes programmatic. So it's not equity, but it, it, it provides some of the functions and many functions that equity doesn't provide for the sovereign protocol.

• 50:30Speaker 02

  So the sovereign protocol needs to be able to evolve rapidly, much more rapidly than Bitcoin. Why? Because it's not trying to be money, never changing like a law of nature. It's trying to be finance, which is highly dynamic and introduces all kinds of risks. So those risks need to be managed, features need to be developed. And so you need an ability to coordinate around how to evolve the system. That's one way that SOV is used and that and it does that by creating incentives for people to think very, very long term. So basically what you do is you take your SOV, you lock it up and you earn all of the fees that the that the protocol generates with the exception of the fees that go to the Bitcoin miners.

• 51:16Speaker 02

  They and they get distributed on the basis of how long you you've locked up, right? So the longer you're locking up, the more you you will earn.

• 51:25Anthony Pompliano?

  So I and a whole bunch of folks that I brought together along with folks who had approached you. We built the syndicate, we bought nine million dollars and change of these SOV tokens. And what we are doing is we basically come into the system and we say, in exchange for the capital that we've given to the project, we're going to leave these tokens here. And essentially we get, if let's say I own 1% of the tokens, which I don't, but let's just say I did. I would get 1% of all the fees. You make a hundred dollars in fees. I get 1% of the hundred dollars in a generalized manner and that continues to happen.

• 52:00Speaker 02

  No.

• 52:01Anthony Pompliano?

  Okay.

• 52:02Speaker 02

  Because because this is one of the cool ways in which it's so much better than equity because it's programmable, right? So first of all, just by passively, if you just passively hold a Tesla share or, you know, let's talk about a company that provides a dividend, Walmart, right? You just passively hold a Walmart share, you get money, right? If you just passively hold SOV, you don't. You need to actively participate in the system. Right? So it's sort of like an access pass into participating and having influence over the system. And then you signal to the system, I'm going to think about the system long term.

• 52:45Speaker 02

  By locking yourself up for a longer period of time and you and then you you you get a better, a greater earn out, right? And and this is just one aspect of of what you do with SOV, but it helps demonstrate how this is different. And I think very, very exciting because what it actually means is that we now have these financial asset classes, which are not cryptocurrencies. But they are also global, they're also borderless, and most importantly, they're not protected or they don't rely on a court system of a particular country of Delaware or London. They rely for their security on Bitcoin miners.

• 53:25Speaker 02

  And cryptographic property assurances are so much better than legal property assurances. There's another key difference between SOV and sort of like an altcoin. You never need to use it as a user to use sovereign. So you can go into sovereign, be totally unaware of SOV. So long as you have Bitcoin, you can pay transaction fees, you know, lend, earn yield, do everything you want. In the same way that you can drive a Tesla car, right? Without ever knowing about Tesla, or you can rent a house without ever knowing about mortgages, right?

• 54:00Speaker 02

  These are two totally different things. And I think the recognition, the realization that you don't need to build everything on layer one also frees you up to say, all right, not everything needs to be a coin.

• 54:15Anthony Pompliano?

  When somebody does this and they're holding those SOV tokens and they've locked them up, right? And they're earning a percentage of the fees.

• 54:25Anthony Pompliano?

  What is the incentive for them from a participation standpoint, right? Is it voting on new features? Is it looking at proposals? Describe when you talk about active participation. What exactly does that mean?

• 54:43Speaker 02

  Yeah, so the bitocracy, which is what the sovereign governance system is called, is not fully developed and is continuing to evolve. It has a very, very high level of participation. There's over four and a half thousand people who have locked up SOV. And there's over 60% participation in almost every single vote, of which there are several a month. Right?

• 55:10Anthony Pompliano?

  I saw this firsthand, so just pause for a second. When I wanted to make the investment, I wrote up with help from others, a investment proposal. It's pretty lengthy, couple, you know, pages.

• 55:25Speaker 02

  Yeah.

• 55:26Anthony Pompliano?

  I then put it forward into this bitocracy system. How many people on the Discord? 20,000 people or something? Whatever the number is, some big number. They all have a lot of opinions, as they should. They care about the system. There's tons of feedback flying around, questions, all this kind of stuff. At one point, we scheduled a call. I'd never done a phone call on Discord before. Mass chaos. It was like 900 people, I think, on a Saturday morning got on this call and I'm on the call and they're asking questions, everything from super sophisticated to frankly, just, hey, you know, thanks so much for your interest and, you know, it's gonna be cool to work together. And then it went to a vote and it passed with, I don't know, 99% or whatever the percentage

• 56:09Anthony Pompliano?

  of approval was. And only then was there actually an investment made.

• 56:16Speaker 02

  Right.

• 56:17Anthony Pompliano?

  That is 180 degree difference than me calling up a founder saying, hey, I like your business, I want to invest. What are the terms? Okay, I'm in. Let me sign and wire.

• 56:24Speaker 02

  Right.

• 56:25Anthony Pompliano?

  And only the CEO or the CEO and the board having the decision over the entire company.

• 56:30Speaker 02

  That kind of feels like the future. Think about it from the perspective of a sovereign user, right? You don't want to be involved in any of this, but you want to use sovereign. But you know that there's four and a half thousand extremely rapidly active people who are examining everything all the time, debating it. You know, like, like the craziest, like, it's governance by, you know, a deeply incentivized Reddit subreddit. Like, the kind of people on Wall Street beds who discover like this, these crazy investments that no one else would find. This is what the sovereign community is, except that it knows how to weight people towards not being extremely short-term minded, but being long-term minded.

• 57:10Speaker 02

  It's a huge innovation in social scalability, right? Like, the ability to have so many people who basically have your back, I think is phenomenal. And you don't need to know any of them, they don't know each other either. So, to me, that is, you know, when people, you know, I was earlier talking about Bitcoin as being a monetary revolution. But money itself is a, is a social scalability consensus tool, right? Like, there are other very, very big social consensus tools that have been invented over the course of history. Religion, for example, right? Like, the Catholic faith has over a billion adherents, right?

• 57:53Speaker 02

  But money has over seven billion adherents. There's basically no one who isn't an adherent of money. It's the most powerful social network that's ever invented, that was ever invented. And now, using the tools that were invented to create that degree of scalability for a new type of digital money, we're also able to start creating new ways of thinking about what is, like, do we even need corporations anymore? Right? I don't think we do. The reason the corporation was invented was because there needed to be a way of providing monetary incentives for a large number of people to come together around a project, like, you know, farming in Louisiana or building a bridge, right?

• 58:37Speaker 02

  But now we have DAOs. And I think, as Bitcoiners, one of the things that I don't like about a lot of sort of Twitter Bitcoin is that there's a very strong streak of, of... Almost self-imposed ignorance. They're not interested in anything that's happening outside of the Bitcoin ecosystem. And I get why, right? Like shitcoins are fucking annoying. I don't know if I'm allowed to say that, but, but, um, but there is a lot of well-meaning people, very, very intelligent developers who are building really, really cool stuff. And one of the reasons it's happening outside of Bitcoin is because there are tokens which aren't currencies, but are being used to incentivize all kinds of other activities.

• 59:22Speaker 02

  And so one of the things that Sovereign has done, which I think is really cool, is it said, look, let's think about this from first principles. We want to use Bitcoin security. We expect the financial world to be built around the reserve asset, which is going to be Bitcoin. And we also want to be able to incentivize the growth of a community and fund the development. So among other things, that's also a good reason to have a token. And as a result, um, Sovereign is growing at a phenomenal pace, right? Just in terms of the amount of developer, like.

• 59:53Anthony Pompliano?

  Ross, I was gonna ask you, explain some of the numbers behind the growth so far.

• 59:57Speaker 02

  I mean, there's about as many core developers in Sovereign as there are on Bitcoin core right now already. There's, um, over a billion dollars in value that is being managed by the Sovereign system. There's, um, four and a half thousand people who are actively participating in this new sort of decentralized governance system. There's the most feature-rich DeFi platform anywhere in the world. And all of this has happened over the course of the last year, right? Something really phenomenal is happening. It's, I haven't seen this level of excitement. I've only seen this level of excitement twice before. When Bitcoin was launched, right?

• 1:00:42Speaker 02

  Or at least when I started to become aware of Bitcoin, which was when like the first early adopters started becoming aware, and when Ethereum was launched.

• 1:00:50Speaker 02

  And yeah, I, I, I, I think the crazy thing about sovereign, right? Like the SOE token, for example, isn't traded anywhere yet. It's not traded on exchanges. It's not traded on Uniswap. It's, um, you know, it trades purely on the sovereign protocol. It has days where it exceeds $15 million in transactional volume. Right? That's crazy. And it's about to go on to Uniswap. It's about to go on to all of these exchanges. You know, I, the, what is about to happen? I think it's going to be, um, it's going to be probably the biggest story in, in the coming years of, of crypto.

• 1:01:34Anthony Pompliano?

  I'm betting on it.

• 1:01:37Anthony Pompliano?

  I continue to say it. The most mispriced opportunity in all of the crypto industry is DeFi on Bitcoin.

• 1:01:44Speaker 02

  Yeah, I agree.

• 1:01:45Anthony Pompliano?

  Doesn't mean that it's winner take all, doesn't mean it's a zero sum game. It just means that if you put DeFi on Bitcoin compared to, let's say, DeFi and other smart contract platforms. The smart contract platform, DeFi, is likely overvalued. And the DeFi on Bitcoin is likely undervalued. And it's merely because people wrote it off. And here is one of the last things I'm going to leave you with, and I got three questions. You're going to ask me one to finish up.

• 1:02:13Anthony Pompliano?

  In 1999 and 2000, every single idea that ended up being successful on the internet was tried. Streaming music, file sharing, food delivery, subscription businesses, all of it. Put a dot com on the end, raise tons of money, launch your product, cross your fingers and hope you can IPO, take the cash and run before people realized it wasn't ready yet.

• 1:02:43Speaker 02

  Right.

• 1:02:44Anthony Pompliano?

  The ecosystem, the technology, the user experience, the customer adoption, the psychological understanding of what was happening, the smartphones, right? All of this stuff was not in a place where those ideas, time had come.

• 1:03:04Anthony Pompliano?

  Fast forward 10 to 15 years to 2010 to 2015. Food sharing, or I'm sorry, uh, uh, ride sharing, food delivery, streaming music, file sharing, all that stuff. Now is here. Sometimes the ideas take a decade to actually hit because you need adoption, user experience. You need psychological understanding, you need developers, infrastructure, all that stuff.

• 1:03:39Anthony Pompliano?

  My bet with Sovereign is that just like if you had taken the ideas from 1999 and 2000 and continued to reinvest in them over and over and over again for the next 15 years. You eventually invested in the most valuable companies in the world. That if you go back and you look at 2009, 10, 11, and 12, you look at all those ideas and you invest in them now. Most of them are being, we're, we're targeting at being built on top of Bitcoin. And we start looking at them now. They're going to be some of the most valuable products, companies, projects, et cetera, moving forward. Sovereign is building a fully decentralized, vertically integrated financial system, financial platform.

• 1:04:22Anthony Pompliano?

  With what I believe and I think you believe is going to be the next global reserve currency. If it is the next global reserve currency and Sovereign continues to build great technology. That has great user experience and does all the things that you need for product market fit, et cetera.

• 1:04:38Anthony Pompliano?

  It is likely that we will continue to see more and more migration of users. Some from other smart contract platforms, some from Bitcoin who just now realized they can use their Bitcoin. And some who literally come to use those products and then happen to buy Bitcoin to use within the system.

• 1:04:55Anthony Pompliano?

  But if that occurs, my guess is 12 to 24 months from now, we're talking about Sovereign as one of the largest DeFi platforms in the world.

• 1:05:04Speaker 02

  I think that's likely.

• 1:05:06Anthony Pompliano?

  I think it's very likely. Today with a billion dollars plus managed by the system, top 25 DeFi product?

• 1:05:15Speaker 02

  Yeah, I've been, it's um.

• 1:05:17Anthony Pompliano?

  Somewhere in there.

• 1:05:18Speaker 02

  I mean, it really depends how you, how you measure it, but um, like, I actually don't think that sort of TVL is the right measure. Um, I think you probably rather want to be looking at transactional activity.

• 1:05:32Anthony Pompliano?

  Okay.

• 1:05:33Speaker 02

  But, you know, yes, it's definitely already, you know, in the top 10s and growing probably more rapidly than almost any other one. Um, but also, not only is it growing faster, I don't think it has the same glass ceiling that the others do, right? I think it, I don't think that there's that limit. First of all, the Bitcoin, the pool of liquidity it accesses with Bitcoin is vastly greater. But beyond that, like, you know,

• 1:06:01Speaker 02

  Sovereign has for the last year or so, mostly been building out basic infrastructure. And users who are using Sovereign now have started to notice a change, that things are starting to come much, much, much more quickly. And the reason is a lot of that basic infrastructure has been built. And so now what's getting built out are the features, which is why it rapidly went from just another protocol to the most feature-rich protocol in DeFi. And so, you know, all right, but now what comes next is what's crazy. Because what comes next is things that nobody has. There's a team, there's at least one team that I'm involved with, with which is working on providing a new way of providing global mortgages.

• 1:06:44Speaker 02

  All right. Um, there's a team working on, on, on crypto pensions, which could be provided to people who have, who, who would like to have like more, more highly assured pensions, right? So right now your pension is assured by the government, which we already said, like, legal assurances are not as good as cryptographic assurances. So there, there's work around that. Soon, there's a team which is almost done working on a way for you to get zero interest loans on your Bitcoin. This is gonna be huge, right? Like, you've got Bitcoin. You can go to BlockFi today, and you can pay in, you know, some kind of interest rate, take on the counterparty risk of BlockFi, and pay, you know, some fairly expensive rate

• 1:07:27Speaker 02

  in order to borrow against your Bitcoin, so that you don't have to sell your Bitcoin. Sovereign is going to have zero interest, zero counterparty risk liquidity for you on your Bitcoin. There's margin trading with Bitcoin against, like, for example, Ethereum, which is about to come. There's a team working on perpetual swaps, the most popular protocol in DeFi, and they are working with people from the, working with the people who invented it, from Bitmex on this stuff. Like, the amount of stuff that is about to come to Sovereign? Like, I don't know if it's gonna be, I think you're just gonna start over the next few weeks already seeing some of this stuff, but like, the pipeline of stuff that people are building for Sovereign just doesn't end. It's, it's, I think it's, I think no one

• 1:08:12Speaker 02

  is ready for what's, for what Sovereign is building.

• 1:08:14Anthony Pompliano?

  I am.

• 1:08:17Anthony Pompliano?

  All right, three questions, and we're gonna finish up.

• 1:08:18Speaker 02

  Sure.

• 1:08:19Anthony Pompliano?

  First, most important book you've ever read?

• 1:08:22Speaker 02

  All right, well, given the conversation we're having today, I'm gonna suggest The Sovereign Individual.

• 1:08:28Anthony Pompliano?

  That's a layup. All right. Second question, sleep schedule. Our friends at Eight Sleep, I've got a thermo-regulated bed, I turn it super cold, I sleep like a baby, used to sleep five or six hours, now I sleep seven or eight. Absolute game changer. What is your sleep schedule today, and how's that changed over the years?

• 1:08:44Speaker 02

  All fucked up. I, now that I'm on America time, what I tend to do is wake up at around 3:30 a.m. or 4:00 a.m., work for a few hours, then go back to sleep, so that I can be in touch with people from, like, Asia and Europe, and then do some more work, and then sort of try and leave evenings open. This is working okay, but I wouldn't say it's a lifestyle that is highly sustainable. Yeah, sleep's a challenge, but then again, it always is in a bull market.

• 1:09:18Anthony Pompliano?

  Gotta get you an eight sleep. Come on, let's go. Get you an eight sleep. All right, third question, aliens, believer or non-believer?

• 1:09:23Speaker 02

  I think there's, huh. All right, let's talk about alien intelligences for just a moment. I think they're here and we made them. And what do I mean by this? I actually think that you can think of government as an alien intelligence. You can think of corporations as an alien intelligence. You can think about the financial system as an alien intelligence. What do I mean by that? Every single bee has a brain, right? But it, the hive makes collective decisions which often are not even to the good of the particular bee. They are detrimental to the specific bees, right? Human beings have created these ways of working. Like, let's take about a government for a second.

• 1:10:09Speaker 02

  A government has desires. It has motivations. It has intentions, right? And it has an intelligence. But that is not the intelligence of any one of the single human beings that is in the system, right? Trump was not deciding what the United States would be doing. And Biden isn't deciding right now. It's something else. It's an alien intelligence. And I don't think it's a particularly friendly one. So do aliens come from outer space? Maybe. But I think the bigger thing that we're not paying attention to is that we, in our collective action, do create alien intelligence.

• 1:10:50Speaker 02

  And very often, this alien intelligence is hostile to us. Which is why, coming back to our conversation, why having better ways of decentralized coordination, where anyone can also opt out, is so important.

• 1:11:07Anthony Pompliano?

  Decentralization is obviously a better system. All right, you can ask me one question. What do you got for me?

• 1:11:18Speaker 02

  What for you has been the?

• 1:11:23Speaker 02

  Yeah, I, I think I, I'm really interested. What got you so into this?

• 1:11:28Anthony Pompliano?

  Into Bitcoin?

• 1:11:29Speaker 02

  Yeah.

• 1:11:30Anthony Pompliano?

  Freedom.

• 1:11:31Speaker 02

  But like, wh- where did that come from? Like?

• 1:11:33Anthony Pompliano?

  My whole life. Uh, I mean, I was in the army, right?

• 1:11:36Speaker 02

  Yeah, which is exactly, no, I mean, like, my point is, like, people, like, I was also in the military, right? Typically, the people who are most interested in individual freedom don't end up in the military. It's not a great place for individual freedom, right?

• 1:11:47Anthony Pompliano?

  Yes, but at the same time, I think that they believe in the ability to liberate. And they believe in some semblance of ethics, principles, uh, and collective freedom that drives individual freedom. So you can't have individual freedom if you don't have collective freedom, right?

• 1:12:11Anthony Pompliano?

  If you're in a communist country, I don't care what you say, you don't have individual freedom.

• 1:12:13Speaker 02

  Mm-hmm.

• 1:12:14Anthony Pompliano?

  You have to have democracy, you have to have capitalism, you have to have these kind of core principles in order to then empower that individual freedom.

• 1:12:23Anthony Pompliano?

  I have a very unique, um, perspective on the world because military deployments, I've traveled a lot, I understand economics, went to school for it. Uh, I've been at a number of technology companies, I've built companies, done a bunch of investing, like, I've done a lot of weird, uncorrelated, non-connected things in my life. The single most important issue that we all face is that fifty-plus percent of the citizenry across the world is being systematically put into poverty.

• 1:12:59Speaker 02

  Yeah.

• 1:12:59Anthony Pompliano?

  Full stop.

• 1:13:00Speaker 02

  Yeah.

• 1:13:00Anthony Pompliano?

  That is what is happening. And the absolute biggest scam is the monetary manipulation that goes on, that drives the bottom fifty percent of people into poverty because they don't understand that the dollar is being devalued, or their local currency is being devalued. You will not educate them all. It is nearly impossible. They don't care, they want to go to the movies, they want to go fucking eat, they want to go hang out with their friends, whatever. I don't want to hear it. I got twenty bucks in my pocket, I'm good. Don't talk to me about this economic stuff. The only way you can solve that problem is through technology in a peaceful protest

• 1:13:40Anthony Pompliano?

  of the system and to get that asset into the hands of as many people as you possibly can because it is the only salvation that they have because they will not change their behavior.

• 1:13:51Speaker 02

  I so agree with you. Like, we've tried to solve human misery and collective action problems using the liberal arts way for the last 3,000 years and had made no progress. The only thing that has ever provided real human progress is technology.

• 1:14:08Anthony Pompliano?

  I said this before, people get very upset when I say it, but I stand by it. The adoption of Bitcoin will bring more positive impact to the world than all philanthropic efforts combined.

• 1:14:22Speaker 02

  I 100% agree.

• 1:14:23Anthony Pompliano?

  For exactly the same reason. Because it will solve the one major problem.

• 1:14:26Speaker 02

  Yeah.

• 1:14:27Anthony Pompliano?

  Which is the devaluing of the fiat currency puts billions of people further and further into poverty, misery, precarious positions. When you fix the money, you fix the world.

• 1:14:41Speaker 02

  Look, we've had technologies that have improved all kinds of things, and finally, we have a technology of freedom. That is, that is why I think we're living in the most optimistic time ever.

• 1:14:51Anthony Pompliano?

  That's what I think too. Where can we send people to find you on the internet?

• 1:14:55Speaker 02

  Um, yeah, Twitter, probably, uh, at Idan Iago.

• 1:14:59Anthony Pompliano?

  All right. And what about Sovereign?

• 1:15:01Speaker 02

  Sovereign, either the Sovereign, so I've built out with some other people a website for Sovereign, which is Sovereign, S-O-V-R-Y-N dot app.

• 1:15:09Anthony Pompliano?

  S-O-V-R-Y-N dot app.

• 1:15:12Speaker 02

  That's right. Or on Twitter, Sovereign BTC, because that's the way you want your BTC to be.

• 1:15:17Anthony Pompliano?

  All right, man, listen, thank you so much for doing this. We'll definitely have to do it again in the future.

• 1:15:21Speaker 02

  All right, man. Stay Sovereign.