SotN#29: Erik Voorhees & ShapeShift (SotN29: Erik Voorhees & ShapeShift (DEX Aggregator, Regulation, Deplatforming, and the Bull Market)

🚀 SUBSCRIBE TO NEWSLETTER: http://bankless.substack.com/ ✊ STARTING GUIDE BANKLESS: https://bit.ly/37Q17uI ❤️ JOIN PRIVATE DISCORD: https://bit.ly/2UVI10O 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 👕 BUY BANKLESS TEE: https://merch.banklesshq.com/ ----- GO BANKLESS WITH THESE SPONSOR TOOLS: ⭐️ AAVE - BORROW OR LEND YOUR ASSETS https://bankless.cc/aave 🚀 GEMINI - MOST TRUSTED EXCHANGE AND ONRAMP https://bankless.cc/go-gemini 💳 MONOLITH - GET THE HOLY GRAIL OF BANKLESS VISA CARDS https://bankless.cc/monolith 📈 KWENTA | DEVIRATIVES TRADING WITH INFINITE LIQUIDITY https://bankless.cc/kwent https://bankless.cc/kwenta ------ State of the Nation #29 Erik Voorhees & ShapeShift (DEX Aggregator, Regulation, Deplatforming, and the Bull Market) Erik Voorhees is the CEO of ShapeShift, a company offering exchange and trading infrastructure, but doesn't act like a typical exchange! ShapeShift ( https://shapeshift.com/) used to be a place where one could atomically trade asset-for-asset. You would set up a trade between two different assets like BTC and ETH. ShapeShift would give you a BTC address to receive BTC, and you would give ShapeShift an Ethereum address for them to return ETH to you. ShapeShift never required you to 'deposit' your money, and never held onto users' funds! It was a very popular product during the 2017 Bull Market, yet the company decided to implement KYC requirements, in a move to protect the company from legal liability. It looks like ShapeShift has found a way to remove those KYC requirements without legal risk, and that is by becoming a DEX aggregator! We discuss this pivot with Erik, as well as a few other topics as well: - Crypto regulations in 2021 - "deplatforming" - The new crypto bull cycle. Tune in to this week's State of the Nation! ------ Don't stop at the video! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case

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

• 0:07Ryan Sean Adams?

  Welcome everyone to another episode of State of the Nation. David and I bring this to you on Tuesdays 2 PM Eastern. You can catch it live on YouTube. Then, David, what's this show about?

• 0:20David Hoffman?

  State of the Nation is the weekly show where we grab a headline title, a headline event, a current event in the news cycle, and we grab a guest who can speak about that. And today, that guest is Erik Voorhees. Erik Voorhees is the CEO of Shapeshift, which is a company in the crypto space that has done a number of pivots, which they are just about to do again. They have pivoted into the world of being a DEX aggregator. And while that is a cool topic in of itself, and we definitely go into the details behind that choice with Eric, it also is a reflection of the changing landscape of crypto. The current events of crypto are perhaps incentivizing this sort of decision to leverage decentralized

• 1:03David Hoffman?

  protocols in order to run a company. There is a lot of conversation to be had there, and that's what we get into with Eric in this podcast.

• 1:10Ryan Sean Adams?

  So we get into Shapeshift, we get into DeFi, we get into Protocol Sync Thesis, we get into regulations, we get into this topic of deplatforming, and we finish with something like, I think Eric is uniquely positioned to talk about, and that's like crypto market cycles, because he's been through almost every single one. So he's got some great advice. Near the end, especially for those of you that are looking at the current prices, feeling like that 30% drop, and getting a little worried. So stay tuned for that. Some announcements, too. We've got some things going on in the Bankless Nation community, as we usually do. The first is this. So you may know that we roll out NFT badges for pure, for Bankless members. We sign up, they become full subscribers to

• 1:54Ryan Sean Adams?

  the Bankless newsletter. There's some perks that go along with that. And David, we are actually releasing a new badge design for the 2021 edition. Let me, let me show it here on the screen. But what we're looking for is a slogan for the top of this token badge. So you can see it right now. If you're logged into YouTube, insert slogan here, and we are beginning the process of collecting slogans. I submitted mine, "In crypto, we trust." Maybe that works as a slogan, but we want to hear from the Bankless community what slogan they'd like on the Bankless badge this year.

• 2:29David Hoffman?

  Yeah, the bankless badge is a one of the few tokens out there that is not a money, that is not a digital piece of art, yet it is still a token. It's a pretty unique way to leverage tokens in Ethereum. And this one fits into kind of its own category. It's more of an identity slash, I mean, it's a part of the proof of attendance protocol system and it's just a different way to run a token where it actually identifies members as being part of a cohort. And that is what the bankless badge does for you.

• 3:00Ryan Sean Adams?

  Yeah, we think of it as a subscription token, almost like a passport into the bankless ecosystem. We have big plans for it this year as well. And speaking of big plans and the podcast, everything that's going on, we had Chris Dixon on this week, so catch that podcast if you haven't already. And we did something new. This is for bankless members. Another member, member perk is we also included a special episode. This is a full debrief where you and I give our feedback and our thoughts. It's unscripted. It's kind of raw, like immediately after we stopped recording with the guests, we did this with Chris Dixon, and this is available for full bankless subscribers right now on a premium feed. Anything you'd add about this, David?

• 3:45David Hoffman?

  Yeah, this is actually a regular thing that you and I would do, Ryan. After we would record a podcast, we would just hop into Discord calls and just start talking about the podcast that we just recorded. And let's not let any good content go to waste. And so we are making this more formalized. We're doing 20 to 30 minute conversations, just with David and Ryan's, just us, our takes after the podcast is finished about, you know, what was so cool about that podcast? What are our thoughts about it? Just kind of giving our summary of how we thought the podcast went. I think that's going to be a really valuable piece of extra content if you are a bankless subscriber.

• 4:18Ryan Sean Adams?

  We will include a Ulink for you in the show notes, of course, today. But David, let's get going on the episode with Eric. And before we do, I've got to ask you the question I ask every week. What is the state of the nation today, my friend?

• 4:31David Hoffman?

  The state of the nation is riding it out. We are riding it out. Let it be known that we are it's 11 days into 2021 and the crypto prices are still higher than the first of the year. So we are still green on the year, yet we have just experienced almost a 40% retrace in Bitcoin, Ether and other DeFi token prices. This is like the first big retrace of the bull market. We're going from $40,000 Bitcoin to $30,000 Bitcoin is not something to ignore. That is a big pullback. The people that I'm talking to in my circles are relieved, I would say. We all, no one, everyone says that, you know, there's nothing, the only thing that you can assure

• 5:14David Hoffman?

  yourself in life are death, taxes and 30% retraces in crypto markets. We thought that maybe we got out of that, that law and people, as the Bitcoin price continued to climb and did not stop climbing, but no, 30% retraces always come. So for the people that are experiencing their first 30% retrace of their first ever crypto cycle, congratulations. We have all been there with you before. This is your first, your first badge of going through a retrace. It's not fun. It's not easy. There is pain involved, but this is how these crypto markets work. And so we are all riding it out together.

• 5:51Ryan Sean Adams?

  Yeah, I think that's great. And I think that fits in with our next guest, Erik Voorhees, who talks about, I mean, he's, he, he, he talked about near the end, riding it out from a price of, of, he bought at $5 Bitcoin. This is Bitcoin at $5, not Ether, got to $32 and then riding all the way down a 95% drop and what that felt like. So we've all been there. If this is your first bull market crypto cycle, hang in there. 30% retrace, 40% retrace, even 50% retrace does not necessarily end the bull cycle that we're in. It doesn't necessarily feel great. It's kind of like you're, you're on that roller coaster and your stomach just drops out. That's, it's kind of that feeling. But Eric's got some wise advice for you at

• 6:35Ryan Sean Adams?

  the end. So with that, David, we should get into our conversation with Erik Voorhees, the CEO of Shape Chef.

• 6:42David Hoffman?

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• 7:27David Hoffman?

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• 7:59David Hoffman?

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• 8:42David Hoffman?

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• 9:18Ryan Sean Adams?

  All right, Bankless Nation. Once again, we want to welcome to the Bankless Show Erik Voorhees, who is the CEO of Shapeshift. He's a Bitcoiner, he's a crypto maximalist, he's a multi crypto cycle veteran. Eric, it's great to have you on Bankless once again. How are you doing, my friend?

• 9:34Speaker 02

  I'm doing very well. So good to be on the show again. Thanks for having me here.

• 9:37Ryan Sean Adams?

  Well, it's timely because there's always a lot going on in crypto and the world. We want to get to that. But first, we want to talk about, this is state of the nation. So on State of the Nation, we talk about like what's gone on recently, particularly in the past week. And something really exciting was launched from Shapeshift, the company that you helped steer and CEO. You just announced, as I understand it, that Shapeshift is becoming a decentralized exchange aggregators. You guys are making this business pivot. Can you tell us about that? And then let's get into sort of what it means and why?

• 10:15Speaker 02

  Yeah. So yeah, I mean, basically what we've done is we have integrated nearly all of the leading DEXs into Shapeshift. So Shapeshift itself is not a DEX, but we've integrated all the leading ones into Shapeshift. So people that are using our mobile app and very soon our web platform can trade on those DEXs directly. The reason that we did this, you know, I think it surprised some people because we've always in some ways been a competitor to these exchanges. We have been a venue for trading also. But clearly, the DEXs have the better model. And I have been so just

• 10:58Speaker 02

  Inspired and impressed by by what they have done, you know, the rise of Uniswap in 2020 was, I think, the most important story in crypto.

• 11:08Speaker 02

  And really, it it provides just a superior model for for trading. Because it brings the the trustlessness, the immutability of of Bitcoin and Ethereum as forms of of payment or as money into a more advanced activity of trading. And so when a when a user is trading with these pools, with these DEXs, there is no, there is no middleman, no one to censor the transaction, no one to block it. And because they're trading with the protocol, there is no KYC required. The the protocol itself would bear the burden of the KYC, and the protocol is obviously not going to comply.

• 11:50Speaker 02

  So, um, yeah, we we made this decision about six months ago and have been working on it for for several months to get it integrated and just launched that last week on Wednesday, the the sixth.

• 12:02David Hoffman?

  Awesome. Well, congratulations, Eric, for getting that out the door. Maybe let's go and dive into some of the the protocols that are beneath Shapeshift's new aggregator. So obviously, there's Uniswap, probably there's Kyber too. What else is there behind the scenes? Like where what the decentralized exchanges does Shapeshift now tap into?

• 12:21Speaker 02

  Yeah, so Kyber's in there, Bancor's in there, Sushi Swap is in there, Zero X is in there, and probably half a dozen others, but they start to get kind of long tail after that.

• 12:34Speaker 02

  And we will obviously integrate more and more over time. And, you know, particularly in this quarter, the big thing that we'll be announcing is cross-chain DEXs.

• 12:46David Hoffman?

  Very cool. Okay, I was gonna get to that in a second as well.

• 12:48Speaker 02

  Yeah.

• 12:48David Hoffman?

  What about?

• 12:49Speaker 02

  So all the major ones are there.

• 12:51David Hoffman?

  What about other DEX aggregators? Are is Shapeshift an aggregator of other aggregators? Like One Inch? Or are those not included?

• 12:57Speaker 02

  So we actually hooked up Zero X's aggregator as the main way that we're accessing all these venues.

• 13:05Speaker 02

  So we may integrate other aggregators also. And then we also made directly integrate some of these because just for redundancy reasons. So, yeah, right, right now, we've found Zero X to be pretty excellent. I think their their aggregator is called Matcha. It's been fantastic.

• 13:24David Hoffman?

  Well, that is really, really cool. There's definitely a conversation to be had in the Protocol Sync thesis, which I think we will get to a little bit later in this conversation. Maybe we can talk about the differences between, because Dex Aggregators are not new. This is not the first Dex aggregator out into the world. What is the compelling difference between Shapeshift's Dex aggregator versus perhaps an alternative?

• 13:47Speaker 02

  Yeah, so certainly, someone should reasonably ask the question like, should I trade through Shapeshift or should I just go directly to a Dex? Two main reasons why we're better. One is you're going to get the exact same pricing that you would get if you went directly to the Dex. Right? So like, unlike MetaMask, there's no added fee. And two, you actually get Fox tokens on all the trades that you do through Shapeshift. And three, actually, because we're breaking the trades across multiple Dexes, you can get better pricing than if you went to any of the single Dexes themselves. So those are the main reasons. And then there's just the convenience element, which is if you can trade directly from your wallet, that just makes your life a little easier and better.

• 14:28Ryan Sean Adams?

  So what are the Fox tokens, Eric, that you mentioned? Is that sort of a loyalty type of token?

• 14:34Speaker 02

  Yes. Yeah, so we've had the Fox tokens available for around a year. Essentially, what they do is they give people the ability to have straight pass-through pricing. And about two months ago, we also added something called Rainfall. And Rainfall is pretty sweet. Basically, every time someone does a trade through Shapeshift, we pay out USDC to a random other person, a user of Shapeshift, based on the number of Fox tokens that they have.

• 15:02Ryan Sean Adams?

  Oh, wow.

• 15:03Speaker 02

  It's basically like a perpetual lottery, in a sense, but you don't have to pay anything for the tickets. If you have the Fox tokens, then you just randomly get an email that says, hey, you just got $3 or $50. Or, you know, sometimes people win hundreds of dollars from these payments, and they go out hundreds of times a day. So both those reasons, like the the Fox tokens themselves have a value and you also get paid when you hold them.

• 15:28David Hoffman?

  Eric, this is seems to be a return back to shapeshift's roots. Back when, back in 2017, I remember using shapeshift where it was, it was a place where I could just send, it would give me a Bitcoin address and then I would deposit an Ether address and then I would send Bitcoin and shapeshift would send me back Ether immediately, very much like an exchange, but also non-custodial. It was, it was like very much a, an atomic transaction. So in goes BTC and out goes Ether, very easy to use. And that seemed to be perhaps a little bit too soon because we didn't have infrastructure like DEX aggregators. How does it feel to, to kind of go back to what the original business model of shapeshift was set out to achieve?

• 16:09Speaker 02

  Yeah, I mean, in some ways, we're leaving the original business model of shapeshift entirely in order to get back to the original goals of shapeshift, which is to provide a simple way that is safe for people to trade. Shapeshift started in 2014, months after the Mt. Gox catastrophe. And it was really meant to be a way for people to be able to trade safely. So they would not have to leave their funds at an exchange. They wouldn't have to suffer that counterparty risk. And also, we had no accounts whatsoever. So we would protect people's data because we didn't take their data in the first place. And crypto has, has delivered this very amazing way that people can transact online without having

• 16:51Speaker 02

  to know each other or trust each other. And so we didn't want people's information. They didn't want it to give it to us and it endangers someone to, to basically take their information over the internet and store it in a big warehouse all day. So that was the original goal, just make a safer and easier place for people to trade. And in 2018, when we implemented KYC, it was because we had done a substantial amount of legal analysis by that point and felt that the risk of not doing it was too great. And hopefully someday I'll be able to get into more detail about that. But suffice to say, it's been a very dark period for us. And you know, as we saw these DEXs, it's just a

• 17:31Speaker 02

  It's so heartwarming to see the technology like catch back up to what we wanted to do. And we realized some of these DEXs, you know, had massive volumes and were really reliable. And so instead of trying to make like Dex number 15, we would just integrate all the leading ones into Shapeshift and bring that spirit of protecting people back into the product.

• 17:50Ryan Sean Adams?

  I want to emphasize this point because I think it's something that, you know, somewhat unique that I see in you, Eric, is so people underestimate how hard it is to pivot a business idea, right, to basically to abandon all of the stuff that you've built, all of the infrastructure that you built from like, you know, the 2014 implementation of the vision, right, and make this pivot. You've also been one to sort of, I wouldn't say pivot, but also embrace other chains, other cryptocurrencies and crypto networks that haven't been Bitcoin.

• 18:29Ryan Sean Adams?

  Whereas many of the Bitcoin maximalist tribe have criticized you over the years to do it. But the common thing I see in both of those kind of moves, maybe this goes back to your mental model, is getting back to the vision, as you said, right? So the vision for Shapeshift has always been non-custodial, owning your own asset while doing decentralized exchange, right? The implementation of that has changed through the years, but that's always been the vision, right? Just like the vision for Bitcoin is a self-sovereign money system, right? And the implementation of that can be found in other changes, other chains. Can you talk about that a little bit, Eric? Like, so why is that important as an investor?

• 19:14Ryan Sean Adams?

  Like, why is it important to kind of follow that vision wherever it takes you?

• 19:20Speaker 02

  Yeah, good observation.

• 19:23Speaker 02

  I've been in this industry.

• 19:26Speaker 02

  For one main reason, which is to advance the cause of individual liberty. And so, any tool that does that is something that I'm going to be interested in supporting, learning about advocating. When Bitcoin started, it was really like the only tool that was doing that, and it inspired an entire world of new innovation. And to appreciate Bitcoin, I think, if you really appreciate what Bitcoin stands for, what it is doing for the world, you have to look at some of these other projects and be similarly amazed and inspired and grateful for them to exist.

• 20:08Speaker 02

  So I have, you know, I used to be a Bitcoin maximalist, but that that got washed away as I saw this industry evolving and I realized that like part of the decentralization, which is which is core to the ethos of Bitcoin, is to have multiple projects, multiple chains, multiple teams, people working on things with different assumptions, different perspectives. So that's always been really, really important to me. And yeah, I mean, similarly with with Shapeshift, if I can't, if I can't offer a service that helps people and makes their life better than the alternative,

• 20:44Speaker 02

  then I should not be providing the service. It has no reason to exist. And, you know, it got to the point where I realized that like Shapeshift's model under the under the confines of KYC was just clearly inferior to what the DEXs were offering. And, you know, two to three years ago, when we had made that decision to do KYC, these DEXs were not ready yet. Automated market makers didn't really exist yet, like Uniswap had just just launched like at the Prague DevCon.

• 21:15Ryan Sean Adams?

  There was no liquidity.

• 21:17Speaker 02

  No liquidity. They were not ready to to scale. But that has changed. And so as it changed, my my thinking and my thinking changed and I realized like these are ready. And not only are they ready, but they're vastly superior. And thank God that they're here and I'm gonna latch on to these and help promote them all that I can.

• 21:37Ryan Sean Adams?

  Eric, you mentioned this at the beginning of this interview and I want to go back to it. Maybe you can talk about the calculus behind initially Shapeshift integrating KYC. And now you guys feel comfortable that you are able to remove KYC. Maybe you can talk about the calculus behind that, the removal of KYC. Talk about that decision.

• 21:55Speaker 02

  Yeah, so ultimately, we are a company and we have to follow the laws, right? Not only are we a company, but we're fairly well established. I'm very well known. We have an office, you know, most, many of our employees are known. We're not anonymous at all. We have to follow the laws and even if we hate the laws or think that they're wrong. So when we added KYC, it was because we came to the conclusion that those laws were going to apply to us and that to try to avoid them was going to be too risky and, you know, it was going to put the whole company in danger. And us moving to this model with these DEXs, we are able to change our opinion on KYC because we're changing the way that the business operates.

• 22:41Speaker 02

  We are ending the regulated activity that we had been doing. We are no longer going to be trading with customers. We are no longer going to be a counterparty to the trades. We are no longer going to be an intermediary of any definition at any step in the process. And because we are changing those fundamental facts, the legal analysis is completely different. And we feel comfortable, even though it's not riskless, we feel comfortable with the risk level of integrating these DEXs and letting people connect directly to them.

• 23:10Ryan Sean Adams?

  So this goes to kind of a thesis that Dave and I talk about a lot on Bankless. And it's called the Protocol Sync Thesis. And the basic idea behind it, Eric, is the most credibly neutral, most decentralized money protocols tend to sink to the bottom. Right? And then other more centralized services are built on top of them. So we certainly saw that with Bitcoin as being sort of a, an asset and a network that other centralized institutions, say a Coinbase can build on top of, or even a Mt. Gox can build on top of, right? And now we're seeing the same thing with DeFi protocols. So the interesting thing is, if you can create a smart contract system that is as credibly

• 23:53Ryan Sean Adams?

  neutral and as decentralized as Uniswap, that becomes like a Bitcoin-like thing in that it is, you can't be deplatformed from Uniswap, right? And so other more centralized companies and institutions and groups can then start to build solutions on top of that. And I think it's interesting that like we're seeing the Protocol Sync thesis playing out with with groups like Shapeshift, groups like Coinbase, other exchanges starting to build on top of not just Bitcoin and Ether, but on top of the DeFi protocols themselves. So this to us is an example of the Protocol Sync thesis playing out, and I think we're going to see it continue. But what's super interesting in this case as well is that

• 24:38Ryan Sean Adams?

  you were almost pushed into building on these protocols due to regulators, right? So being a central institution with a profile in meat space, right? That meant that essentially you had to KYC, and if you didn't, then like, you know, you'd end up in a jail somewhere, obviously. So you're going to abide by the rules of the nation state. But it also provides you an outlet to build on top of these DeFi protocols. What are your thoughts on that? Do you think that this is, do you think that this trend is going to continue in crypto? This idea that, hey, at the very bottom of this whole money stack, we're going to have

• 25:22Ryan Sean Adams?

  credibly neutral, decentralized, self-sovereign protocols, and then everything else is going to be built on top of these things?

• 25:30Speaker 02

  Yeah. So first, I'll say I'm not one of those people that thinks everything in the world will be decentralized. You know, like, there's this meme of like, decentralize everything. Um, not everything will be decentralized. Some things are much more efficient and better when centralized. But a whole hell of a lot of things can be decentralized and work far better in that way. And what crypto is doing is testing all these different models and seeing like, is there a way to do this in a decentralized way that brings greater efficiency?

• 26:00Speaker 02

  And we're finding that some of those are actually happening. And so if you look at like all the, I mean, anyone who who's in the crypto world knows or in the financial world who who has dealt with a lot of these regulations, the burden that it puts on the organization is profound. The amount of money that goes into legal analysis, the amount of money that goes into compliance, the the portion of your staff and the attention of the rest of your staff that goes into these things that is explicitly not serving your customer

• 26:35Speaker 02

  is really depressing and it weighs on the entire organization, it weighs on the customers and it just adds, it adds misery and cloudiness to what what people are trying to just do. So when you can add a decentralized protocol into this and remove all that burden, it's inevitable that that is going to start attracting greater liquidity, more usage. And that's what we're seeing. I mean, Uniswap is doing like more volume than Coinbase on some days. Uniswap's two years old. I think they've raised like $10 million. Coinbase is eight years old and has raised like $600 million. Um, that's a profoundly, that's like, that is a paradigm paradigm change.

• 27:20Speaker 02

  And I think when people start seeing that decentralized trading can go work across chains, like right now, it's all on Ethereum. When it can be done across chains, the entire ecosystem is just going to. Get pulled into that and it's going to be, I think, really, really cool. And that's really the the power of this technology.

• 27:37Ryan Sean Adams?

  So let's talk a little bit about crypto and regulation moving to twenty one, twenty twenty one. So some people think that what's going to happen is just this, Eric, that the the frontline for regulation is just going to change, right? So some people believe that DeFi hasn't yet had its final boss moment, right? Where

• 28:00Speaker 02

  Definitely not.

• 28:00Ryan Sean Adams?

  There is, right? So there's some heavy handed regulation imposed against, say, a Uniswap, for instance, or other DeFi protocols in general. We almost saw hints of that with the proposed rule coming out of of Mnuchin's office, right? Can you talk about?

• 28:18Speaker 02

  Yeah.

• 28:19Ryan Sean Adams?

  Okay, well, let's talk about it. Like, let's talk about the the theme here, right? So final boss is is looking around. What's going to happen with DeFi crypto regulation in twenty twenty one and and beyond? How how do you think that's going to play out?

• 28:35Speaker 02

  Yeah, so our analysis and the analysis of any company that's in the space is based on the state of play, right? What are the laws as they exist and what might be immediately coming? Because no one knows a year or five years out, right? And so laws can change. And so there is no decision. There's no decision you can make that you will know will not be challenged or problematic in the future.

• 29:04Speaker 02

  But what you can do is look at, at least in the US, the most of the financial regulation ties back into something called the Bank Secrecy Act, which came out in nineteen seventy one or seventy two. And the Bank Secrecy Act essentially

• 29:21Speaker 02

  espouses something called an intermediary, like a financial intermediary. If you are that, then the entire body of of financial regulation starts applying to you.

• 29:33Speaker 02

  If you are not that, then it doesn't like that. That is its foundational definition that if you're a fight, an intermediary, then these things start applying. And certainly back then. All parties that were involved in money and payments of any kind had to be intermediaries because everything in fiat has to have an intermediary. It's all, the money is always sitting with a party, right? Unless it's, unless it's cash. Crypto has completely shattered that paradigm. There is no intermediary in the Bitcoin network. There is no intermediary in the Ethereum network. And as these systems get built more complex, we're seeing now higher level order systems that also don't have intermediaries. These decentralized exchanges are a great example of this.

• 30:18Speaker 02

  And so the Bank Secrecy Act does not apply to a decentralized system with no intermediary. Absolutely, I think governments will want to apply it. They will try, perhaps they'll fail, but they might just try to change the law itself. But changing that law itself is actually a huge burden and a huge task. It's a multi-year thing. It's not just, FinCEN can't just come out with guidance and change that rule at that layer. That's a, that is a long-term thing that the government would have to engage in. It would be heavily challenged and it could end up becoming challenged under constitutional grounds, which I don't think anyone at those regulators wants to even expose themselves to. So, um, so that's, that's the battle right now.

• 31:03Speaker 02

  And I think people in, in DeFi need to realize that they have very good arguments right now, but the state of play can change and they need to remain ever vigilant.

• 31:14David Hoffman?

  So Eric, we are in the crypto space and we, you know, we produce content and consume content to the point where we understand these things at a very deep level. We understand the, the removal of intermediaries and how these things are protocols and that's what gets us all really excited. I am not so sure that regulators are going to be able to go as deep as, as you or Ryan here or me into the intricacies of these details. Like, are you pessimistic or optimistic about the ability for regulators, regulations to actually understand what they are dealing with? Or, or are you more perhaps pessimistic about like, like, because we saw out of the Mnuchin office, just a regulation that did not really, uh, was obviously not a misunderstanding

• 31:59David Hoffman?

  as to how this technology works. Like, where's your head out with your, your optimism, optimism or pessimism there?

• 32:08Speaker 02

  Well, I mean, we should all be honest that the vast majority of people do not understand this technology deeply. Even people in the industry, it takes a long time. Even myself, who's been in this for 10 years, I feel like I'm constantly learning things and there's so much that I don't know. It is really hard to really understand it and it's changing. So even if you understand it today, it'll be different in six months.

• 32:31Speaker 02

  I think as the, as the regulators realize that the control of money itself is being pulled away from them and put in the hands of the entire population of individuals of the world, they're not going to be happy about that.

• 32:48Speaker 02

  They will, with time, learn about it and try to regulate it more, but they move relatively slowly. Whereas crypto moves at light speed all over the world in, in so many different directions. My hope is that

• 33:05Speaker 02

  as crypto grows fast and as it wrests control of money into the hands of people, there will be a cultural shift where people realize that, oh, actually that works pretty damn well. Society does not fall apart when people have control over their own money. Society does not fall apart when people have financial privacy. And as that cultural realization happens, the desire of regulators to try to pull it back to how it used to be will, will fade with time.

• 33:36Speaker 02

  If it doesn't, then it's going to be a perpetual battle, you know? But over the next 10 or 20 years, I think the, the culture will change and people realize that this stuff is really a virtuous new system that is superior to the old.

• 33:47Ryan Sean Adams?

  This is such a great take. You're right. So I think you're painting the picture, Eric, of, um, this is a race. Right? It's, it's really up to the builders in this ecosystem to create enough wins for the population. And heck, even for, you know, other, other parties like, like on Wall Street or in government, to create enough wins in crypto so that they don't, uh, attempt at some later stage to regulate it into oblivion. And you also made the point that with, with kind of the bank Secrecy Act, right? Actually, it it sounds like from what you're saying, DeFi is relatively well positioned. Because it's very hard for existing regulators to kind of argue that that, you know, DeFi presents intermediaries in the picture, right?

• 34:30Ryan Sean Adams?

  So, well, they could kind of slow things down. These things could be challenged. What it would take is is brand new. I I guess, brand new legislation to completely put a clamp down on what we're doing in this space. So that's pretty bullish. But I want to get back to this idea because this is important. I I I hope listeners hear this. It's up to DeFi and up to crypto to build enough wins for society and people writ large. That regulators can't take self sovereign money and DeFi away from us. It would be too politically untenable and unpopular. And they would lose the ability to compete in the global economic world that is coming.

• 35:12Speaker 02

  Yeah, and and hopefully, at some point, the regulators start to realize that many of their goals will still be met by this technology, like to the extent that they want an honest, transparent financial system. I would hope that the regulators care about that concept. There there has never been a more honest and transparent financial system than what what we are building here. So this doesn't need to be the kind of thing where, you know, crypto people are completely at odds with regulators forever. But certainly, there is, there is in the Venn diagram, an area of tension, right?

• 35:45Ryan Sean Adams?

  There's tons, right, right? So the areas of tension to me, and we've had folks like Rohan Gray on the on the podcast, for instance. The area of tension for for to me, from what we can kind of decipher, comes from maybe two camps, right? One, that's really threatened by the United States's position from a world reserve currency perspective. So preserving the US dollar as the world reserve currency.

• 36:08Speaker 02

  None of them are worried about that yet.

• 36:10Ryan Sean Adams?

  And they're not, right? So people like Rohan Gray are a little bit, right? They're and they're not super worried about that. But the other is the the whole kind of financial surveillance apparatus. Who wants to control? Like, they don't want private cash. If they could ban suitcases full of money and actual physical cash, they would right now. That seems to be another, but like much of government, there's a shared objective between open finance and and us. But in in those two camps, I I worry a little bit, Eric. What's what's your take?

• 36:47Speaker 02

  Yeah, certainly to the extent that that any person or organization wants

• 36:55Speaker 02

  wholesale surveillance and control of money, that that's going away. Right, like crypto has ended that because crypto will win because it's more efficient and people will tend toward the thing that's more efficient with over time because money is involved and people are profit seeking. So like long term, there's no doubt that crypto wins. So, but the those who want that surveillance and that control, how long will they fight it? How stubborn will they be in relinquishing that control? You know, probably pretty probably pretty stubborn. I don't expect that this will be like a friendly. You know, debate over the next 10 years, it's going to be pretty rough and

• 37:39Speaker 02

  this is why, you know, I put a tweet out yesterday trying to kind of get people to remember that what we're building here is going to be very controversial, is actually going to change the world. We're not not just doing this with like a slogan of like, oh, we're changing the world and we have this revolutionary technology. It's actually revolutionary in the best sense of the term because it's changing the world peacefully. But that will that will not please everyone and there is going to be some very hard fought battles. And people should should be very careful. They should be thoughtful. They should spend as much as they need on lawyers to understand the nuances of this issue. If you call your project define, you put the word define your webpage, that does not mean that the laws don't apply.

• 38:20Speaker 02

  You have to understand the facts of how you actually operate and what the actual laws are in various jurisdictions. That's a complicated thing. And so people just need to take this stuff seriously and they need to realize that like this will be one, but it'll be one in 10 or 20 or 30 years. And in the meantime, we have a long, hard road ahead of us trying to convince the world to change.

• 38:42David Hoffman?

  Hey guys, don't go anywhere. We bring up the conversation of deplatforming with Eric. We just watched Donald Trump get deplatformed from a bunch of different social media platforms. We talk about how is the topic of Web3 and decentralization relevant to that conversation? And then we pick Eric's brain about crypto cycles. We seem to be going into a fourth crypto cycle, yet Eric is one of the few people that has experienced all four of them. And so we want to get some advice and some perspective as to how he is perceiving our entrance into this fourth crypto cycle. Don't go anywhere, we just have to take a moment to talk about some of these fantastic sponsors that make this show possible. If you want to live a bankless life, you need to get a Monolith DeFi Visa Card.

• 39:27David Hoffman?

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• 40:11David Hoffman?

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• 40:56David Hoffman?

  from the protocol if you have deposited collateral. Here you can see me getting a 200 USDC loan against my portfolio of a number of different DeFi tokens and ETH. I'll choose a variable interest rate because it's a lower rate than the stable interest rate option, but I could choose the stable interest rate option if I wanted to lock that interest rate in permanently. One of Aave's V2 features is the ability to swap collateral without having to withdraw your assets, trade them on Uniswap and then deposit them back into Aave. Aave does all of this for you, all in one seamless transaction. So you don't have to repay loans in order to change the collateral you have backing them. Check out the power of Aave at Aave.com. That's A-A-V-E dot com. So we've been talking about money and the laws and regulations

• 41:41David Hoffman?

  around money and people that act as intermediaries and money transmitters and all of those types of regulations. However, something recently has just happened that is also adjacent to the realm of DeFi and maybe more accurately Web 3. Last week, we saw a coordinated deplatforming of the President of the United States from Facebook, Twitter, Instagram, even Reddit, the subreddit got banned, and even Pinterest decided to ban Donald Trump for whatever reason.

• 42:11Speaker 02

  I hadn't heard that.

• 42:13David Hoffman?

  Yeah, no, yeah. I did too. Eric, what was your reaction to that decision? And what does that tell you about the state of the world that we're in right now?

• 42:23Speaker 02

  Yeah, it's pretty momentous. It's a controversial topic. I think the shallow analysis is if you like Trump, you're mad about the deplatforming and if you don't like Trump, you're glad about it. That like, that's a valueless analysis. I think a better approach here is to assess like,

• 42:45Speaker 02

  Should companies be doing this? Yes or no? Like, is it ethical or legal? That's a fair debate. I think people can do whatever they want with their own private property. So I think if Twitter wants to deplatform Trump, that's up to them.

• 42:59Speaker 02

  But it's also, it's gonna have consequences and those consequences are gonna be people starting to realize that, oh, decentralization is actually useful in other things, not just money. People in crypto have known that for a while, but people are gonna realize like there are these large scale systems that the world uses, Twitter being one. And it is kind of a shame if it is only a centralized company that is that large and can censor people like that. So there is, there is serious value in a decentralized social media system. There is serious value in decentralized communication. There is serious value in decentralized money.

• 43:40Speaker 02

  And I think the events of this last week are going to awaken a lot of people to, to the fact that like, maybe these decentralized folks have a, have a point.

• 43:50Ryan Sean Adams?

  So you think, Eric, high level, this is going to act as an accelerant towards decentralized platforms, decentralized solutions?

• 44:00Speaker 02

  Yeah, an accelerant. It's not gonna turn overnight, you know? The network effects that these companies have are really profound. But it's definitely gonna make people start considering alternatives, building alternatives and being more open to alternatives.

• 44:15David Hoffman?

  So there's a, there's a deep debate here about whether like Twitter, Facebook, these are all private companies. Private companies get to do what they want. At the same time, the differing opinion is, is some of these public or private companies are providing infrastructure that almost people can't live without. And especially for communication from the President of the United States to the rest of the people, that's important to have that channel of communication open, which it seems to be that private companies shut down. So people are using these things as closer to something like public utilities, which offers friction because there are still private companies. And I think what you were saying there is, well, there's that debate. And that debate could go on really, really, really long. But I think you're, what you're saying is, well, we could just skip over that debate and just admit that decentralized

• 45:00David Hoffman?

  social media platforms or decentralized protocols that offer that same niche is actually the more viable thing to pay, to put your attention towards.

• 45:08Speaker 02

  Totally, totally. And, and for those who are advocating that the government should come in and mandate that private companies give, amplify communication of certain groups and minimize communication of other groups, that's a super dangerous realm to go down. Right? So whatever, whatever you think of Jack Dorsey's decision making, I would much rather have Jack Dorsey deciding for Twitter than a bunch of politicians deciding for Twitter. That's for damn sure. And I think a better way to solve the issue of censorship on these high scale platforms is decentralized systems. That's, that's the better one where people can't censor it.

• 45:50Ryan Sean Adams?

  This is, this also, this, everything that happened last week kind of reminded me if, if such an attack could happen, if such an attack happened on crypto, where would we be? So for instance, if apps, crypto related apps start to be deplatformed from the App Store or Google Play, that's one level. And then also we saw things with, with Parler, for instance, where Parler, where AWS actually, Amazon said, we're no longer hosting you. So Amazon does it, Google Cloud does it, then you're out of all of the cloud providers and you literally can't get hosting. You spin up your own data center, right?

• 46:26Ryan Sean Adams?

  So what, what could be interesting is if we ever get into that final boss-esque type battle, we haven't stacked up enough wins, Eric, to kind of like push sentiment towards crypto adoption, crypto favorable protection or legislation at some level, crypto could be under such an attack. And then what would we do? I feel like we should be ready as an industry for these things. They could come.

• 46:52Speaker 02

  Yeah. I mean, people have become so used to hosting on the cloud that they don't realize that like the internet got started and became huge before the cloud ever existed. You know, like you can host a server on your computer in your basement and a lot of people run crypto nodes like at home on their basement. You know, I, I run them myself. Many others do too. So certainly if there's a coordinated assault on crypto infrastructure at these clouds, that would be pretty bad, you know, maybe devastating, but it still doesn't kill it for sure. If you, the, the topography of these networks just changes as part of their, their resilience.

• 47:32David Hoffman?

  So Eric, our last transition of the conversation is to the conversation of the bull market. You are a crypto cycle veteran, so I'm hoping to get a glean from you is how does this cycle that we, you know, this bull market that we think that we're going into, you know, Bitcoin is at, well, it was at double all time high prices. Ether is tickling its previous all time high prices. How does this cycle feel different to you? And then also we'll get into how it also feels the same.

• 47:59Speaker 02

  Yeah, it doesn't really feel that different to me. It's a, each bubble gets bigger than the last. Each bubble brings in a new cohorts of people. There's always the skepticism as it rises the entire time, you know, all through the 2017 bubble. People are skeptical. They're like, is this the top? Is this the top? Is this, you know, is this too high? You know, I, when Bitcoin hit $2,500, you kind of early that year, you know, I sold a little bit of my Bitcoin because I was like, maybe this is the top, you know, the $2,500. It went almost 10x higher than that. And I knew it would do that long term, but there's always like this. There's always uncertainty and so you have to just like, let that be.

• 48:45Speaker 02

  What is most important is people's long-term thesis on this stuff. Do you, do you think that this technology is actually taking over the world and that Bitcoin is going to be a major store of value, form of money for the entire planet? Or, or not? If you do, then any of these multi-year cycles are kind of meaningless. And just focus on that, on that long term. Now, if you're like trying to day trade, it's a whole, a whole different story. But that's a, that's a dangerous hobby.

• 49:14David Hoffman?

  So what would you say to someone? Maybe this is their, their first cycle, Eric, right? So we have a lot of listeners getting into bankers for the first time. This is the first cycle they've been through. And hey, Eric, man, like, you know, Bitcoin just did a 2x all time high. And now we're feeling some pain. This is today as we record this of like a 20% drop, maybe 30% drop, maybe it gets as high as, yeah, 30 plus at the moment, maybe this gets as high as 40%. People are freaking out. What, what's your advice to them?

• 49:45Speaker 02

  Yeah, on some level, it's cute.

• 49:50Speaker 02

  So la- last time I checked Bitcoin price, it was like thirty thousand, thirty one thousand.

• 49:56Speaker 02

  You know, down twenty five percent from just a couple of days ago. It's it's higher than it was like two and a half weeks ago, right? So we we've fallen down and my friends and I were all talking and one of the friends was saying how he's gonna buy some more if it stays at these cheap prices. Cheap, meaning like thirty thousand dollar Bitcoin. Two weeks ago, we were all celebrating and drinking champagne because we hit thirty thousand dollars. It's all it's all relative. I guess what I would say is, in my first bubble, Bitcoin was five dollars when I first got some. It went up to thirty one dollars.

• 50:32Speaker 02

  And then it declined, that bubble popped and it declined down to two dollars. So like ninety five percent drop over six months. Just like the most miserable, disgusting decay of of the whole system. And there was, it had no adoption anywhere. It was this like niche little thing that everyone made fun of. And everyone had every reason to think that it was done and dead. And and many people wrote that it was. So some of us have handled like ninety five percent declines because we care about what it's doing. We care about why this is here. We care about what Bitcoin and Ethereum and these other crypto projects are doing for the world.

• 51:13Speaker 02

  And so the price is obviously relevant and important, but it's not the main the main thing. And you you can't beat yourself up over the the price movements. You can't stress about.

• 51:23Ryan Sean Adams?

  Erik Voorhees, thank you so much for being with us on the Bankless Podcast. You are a multi-cycle veteran. We really appreciate your advice. It comes very timely, sir. So thanks for being with us.

• 51:36Speaker 02

  Appreciate it, Ryan. Thanks for having me on the show.

• 51:38Ryan Sean Adams?

  And Eric, where can we find more about what you're doing and more about Shapeshift?

• 51:43Speaker 02

  Yeah, I would encourage everyone to download the Shapeshift app, iPhone and Android, or check me out on Twitter, @EricGoreez.

• 51:53Ryan Sean Adams?

  Awesome. Those are the action items, guys. Thanks for joining us for State of the Nation. Take care. Guys, of course, our conversation today with Eric was not financial advice. ETH is risky, so is DeFi, so is Bitcoin. You could lose what you put in, but this is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.