19 - DeFi vs Banks | Hasu

Episode: #19 June 29, 2020 Hasu is a free-thinker. A truth seeker. A rare voice in crypto. He's not afraid to push back on tribal dogma. He breaks rank with Bitcoiners on some topics and Ethereans on others. Yet he still considers himself a member of both tribes and respects the mysticism (and even dogma) of these deeply social systems. In the spirit of Satoshi he's pseudonymous. We don't know his actual identity. But we know who he is from his body of writing that has influenced our thinking on many crypto topics. What does he think about Ethereum? About crypto banks? About DeFi? We covered it all: Hasu's fave writers Body and Spirit of crypto networks Is Hasu an Etherean? Why Bitcoin might not survive How Maker is like a central bank Is EIP1559 bullish for ETH? The best Rick & Morty episode Join us next Monday for a fresh episode! ----- Tools from our sponsors to go bankless: Multis http://www.multis.co/ - bank your business without a bank (1 mon. trial https://multis.co/!) Ramp https://ramp.network/ - the fiat onramp for DeFi (mention Bankless!) Monolith https://monolith.xyz/ - holy grail of bankless Visa cards Aave https://aave.com/ - money lego for lending & borrowing ----- Resources discussed: (Article) A Bankless Nation (Part 1) https://bankless.substack.com/p/a-bankless-nation-part-i (Article) A Bankless Nation (Part 2) https://bankless.substack.com/p/a-bankless-nation-part-ii- (Listen) The above articles read by David https://www.youtube.com/watch?v=Jsc5wOd3LiY&list=PLmkdAgtxf3aj3wqwGIiJY88ZSnqjIIpNw&index=6&t=1242s Hasu Articles: Analysis of EIP-1559 https://insights.deribit.com/market-research/analysis-of-eip-1559/ Why Bitcoin might not survive a Bitcoin Standard https://insights.deribit.com/market-research/why-bitcoin-might-not-survive-a-bitcoin-standard/ The future of money could be discretionary https://insights.deribit.com/market-research/the-future-of-money-could-be-discretionary/ Unpacking Bitcoin’s Social Contract https://uncommoncore.co/unpacking-bitcoins-social-contract/ Evangelizing Bitcoin https://uncommoncore.co/evangelizing-bitcoin/ ----- Episode Actions: Read our favorite Hasu articles (see above) Listen to episode 7 on ETH scarcity http://podcast.banklesshq.com/7-ethers-value-mechanisms for more EIP1559 Give Bankless a 5-star review on iTunes! Also...subscribe to Bankless YouTube https://www.youtube.com/c/bankless to watch State of the Nation https://www.youtube.com/playlist?list=PLmkdAgtxf3ahHup7h1dxjs0SNwCSGdjVb every Tuesday. ----- Subscribe to podcast on iTunes https://podcasts.apple.com/us/podcast/bankless/id1499409058 | Spotify https://open.spotify.com/show/41TNnXSv5ExcQSzEGLlGhy | YouTube https://www.youtube.com/c/bankless | RSS Feed http://podcast.banklesshq.com/ Leave a review on iTunes https://podcasts.apple.com/us/podcast/bankless/id1499409058 Share the episode with someone you know! ----- Don't stop at the podcast! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Watch Bankless shows and tutorials on YouTube https://www.youtube.com/c/bankless Visit official Bankless website http://banklesshq.com/ for resources Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState

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

• 0:13Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front-run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, we have a fantastic show with Hasu. Tell us about it.

• 0:33David Hoffman?

  Hasu is one of the few people that I consider a secular thinker in the crypto space. He's very sober in his thoughts. He thinks clearly, and he's produced a ton of content. The most incredible thing that I think about the content that he produces is that we've seen companies make choices based off of the content that Hsu and the content that comes out of Uncommon Core. So, Hsu, we would call him a person that is the M0 of thought, I would say. There's just a lot of memes, a lot of ideas, a lot of concepts that comes out of what Hsu produces. So, getting Hsu onto the Bankless podcast was an absolute

• 1:17David Hoffman?

  necessity, and he did a great job walking us through how he thinks about the space. We talk a lot about the concept of a blockchain crypto system as kind of like an organism, kind of a cohesion of stakeholders that creates some sort of, that has a body and then also a spirit, right? It has the physical code and the physical people running their nodes, but then it also has like the social contract, right? It has the implied values of that system and how these things interact and the different ways that they cohere together.

• 1:52Ryan Sean Adams?

  You know, it's cool. I think Hsu thinks of himself as a Bitcoiner, but also an Ethereum. So this is kind of a good follow up to our Nick Carter conversation because I think both Nick and he think in, they're both free thinkers, as you said, and many of their ideas intersect and complement one another. But what I love about Hsu is he is not afraid to sort of shake things up. So I think he originally maybe came more from the Bitcoiner community or Bitcoiner side of things, but he's not afraid to break rank and write articles like "Why Bitcoin Might Not Survive a Bitcoin Standard."

• 2:31Ryan Sean Adams?

  That was the title of an article he wrote, and it was about how crypto banks might sort of infiltrate Bitcoin and break up the decentralized social contract and value system of the network. So he's definitely not afraid to go push back on norms and to push back on ideas. And part of the reason I think he can do that is he's actually a pseudo anonymous account. So on Twitter and everywhere he posts, you know, there's no profile shot. We don't actually know who Hasu is. He's got sort of this Rick and Morty with an eye patch avatar everywhere. And that's, that's, you know, what we know of Hasu. To me, he's like from Rick and Morty, and he's dropping all of this wisdom.

• 3:15Ryan Sean Adams?

  But what's so cool is that, you know, the crypto community is very much a merit-based social economy. So it doesn't matter who he is, really. It's, we judge Hasu based on the quality of ideas that he presents and not based on, you know, his reputation or pedigree. Have no idea who he actually is, but know he is a fantastic thinker, just given what he's written and the way he presents himself.

• 3:47David Hoffman?

  Every conversation that I have with Hasu, I always find immensely valuable. And I'm sure you, the listener, will too. We also talk about common topics such as EIP1559 and the issue of the growing world of crypto banks and how that influences this crypto industry and what it will look like into the future. Evergreen topics and coming from a guy who thinks about them a lot. So this is a fantastic interview. Before we get into that interview, let's talk about some bankless things. Both part one and part two of a bankless nation I've written are up and on the bankless website. So you guys should check them out. It's a it's a two different, two different articles.

• 4:28David Hoffman?

  One kind of goes into the past history of nations. One goes into the future history of digital nations. We talk about these concepts in this episode with Hasu. And so I definitely recommend reading those. If you guys don't like to read, but instead you prefer audio content as you are a listener of a podcast, you can go to the bankless YouTube where I read these articles to you. And I also scroll through the article. So you can read it with me, but I read it aloud, read it right into your ears. So it makes it really easy. And then while you're there, you might as well just subscribe to the bankless YouTube.

• 5:01Ryan Sean Adams?

  Yeah, the bankless YouTube is really catching fire these days. We actually just released a new show that we're publishing first on YouTube. It's called State of the Nation, where we talk about topical news items that are most relevant to the bankless nation. And we're releasing that on YouTube every Tuesday. We'll also publish it to this podcast stream as well on Wednesdays. So from here on out, on Mondays, you're going to be getting a typical edition of the bankless podcast. And then on Wednesdays on this podcast stream, you can you can listen to State of the Nation. And you can also catch that a day early if you go to YouTube and subscribe to our channel. So to do that, just go to

• 5:43Ryan Sean Adams?

  YouTube, type in bankless, and it'll pop right up. So we are about to dig into the interview. But before we do, we should take a minute and talk about our sponsors. Maltese gives you the ability to run your business without a bank. That is the dream. It is the first ever bankless bank account for entrepreneurs who want to run their business, both on crypto and traditional currencies like stable coins. So it features a multi-sig wallet. That means you can have team access, not just individual access, which is necessary for a business. So you can implement access control. Rules, you can also earn interest on your crypto using money protocols inside of Multis like Compound, Danave and others. You can streamline payments as well. Multis

• 6:27Ryan Sean Adams?

  has been featured on Bankless. We're huge fans of the product. They're adding Fiat on ramp soon. And as you are listening to this, on June 22, they are launching a completely revamped app. You've got to check it out. If you're starting a business, want to run a business in crypto, check out multis.co and their revamped app. We're going to be doing a video pretty soon and publishing it on the Bankless YouTube channel as well. Alright, so you need to go to multis.co, that's M U L T I S dot co and check it out. When you mention Bankless, they'll put you ahead of the queue, they'll give you better priority and let you sign up quicker.

• 7:05David Hoffman?

  In this episode with Hasu, we talk about the influence of exchanges, crypto exchanges, and how they turn into crypto banks and how that starts to dictate what these chains look like. However, getting value on to these systems doesn't always require a crypto bank and that's where Monolith comes in. Coming soon on Monolith is an op on ramp into your Monolith smart contract wallet directly from your bank account. So you don't need to pass through any sort of crypto exchange, crypto bank to get your value on into Ethereum. Monolith, for those that don't know, is a smart contract wallet that also connects to a crypto Visa card. So you can go to the store,

• 7:45David Hoffman?

  swipe your Visa card as you normally do, and instead of pulling out dollars from your bank account, it pulls out DAI from your smart contract wallet. So this is a way to live a bankless life without having it impact you and your daily livings with with your friends and family. And you don't have to be that weird person that only has crypto money and no real money. So it wraps your Ethereum address in a Visa card and Visa is accepted basically all over the world and you still get to have access to your DAI, earning that interest rate in DeFi at the same time. So check them out at monolith.xyz to get your bankless Visa card today. Alright guys, let's go ahead and get right into the interview with Hasu.

• 8:33Ryan Sean Adams?

  Hey everyone, we are excited to have Hasu with us. Hasu is a crypto researcher. He is also a writer. He's read a ton of stuff you've probably already read. If not, his ideas are likely embedded in your subconscious as they are in mine. Hasu, it is fantastic to have you today. We're really excited about this.

• 8:53Speaker 02

  Yeah, same. I'm really excited to be here, guys.

• 8:55Ryan Sean Adams?

  Okay, so when I was looking at the volume of writing that you've done over the years since, I don't know, 2017, 2018, when you started to really get active in crypto and publishing, I was just overwhelmed. Like, there are a lot of, even your earlier ideas, that I feel like are embedded in my own subconscious. But I want to ask you this question. You know, maybe it's not your most popular article, but what's your favorite article that you've written so far?

• 9:23Speaker 02

  Hmm, well, first of all, first off, that's, what you said is probably the biggest compliment that you could give to, to me.

• 9:34Speaker 02

  I don't know, I just, I just love to write stuff where people say, or that becomes basically part of this, what everyone believes, right? It's, I don't know how to put it, yeah, but, because I'm, I myself, I'm influenced by, by some writers very strongly. And it's just, we talked about this a little bit before the show started, but I feel like it's, it's worth repeating here, but we all have these, these kind of people who influence our own thinking in a very strong way. And for me, for example, he's, he's not the most popular guy, or like, he doesn't tweet very much and so on, but a lot of my thinking, for example, is strongly influenced by reading

• 10:18Speaker 02

  Paul Stortz's blog, truthcoin.org, I believe. So, a lot of times when I write something, that, and I actively wonder, okay, where does this particular thought of mine originate? Then, it's like, there's like a 25% chance or something that I first had the thought while reading his blog or picking up something that he said. Yeah, and a bunch more people like that. So James Presswitz is someone who... Was probably almost at the same level as Paul for me, just in terms of when he says something, then I listen so intently because just historically, there's such a large chance

• 11:01Speaker 02

  that when they say something, then it becomes like it it permanently alters my my thinking.

• 11:11Ryan Sean Adams?

  That's so funny because uh so I'll have to check out Paul. I've read some of James's stuff. I'll have to check out Paul a bit more too, because um I feel like you're probably in that category for me, at least personally. And um Nick Nick Carter, who who we had uh a couple of episodes ago, is probably another one who's in that camp for me too. But like it's it's very cool how the crypto social um like contract or the the social layer, I I guess I should say, sort of works because it very much um it's it's sort of a just a free, open thinking society, um especially among among some of uh s- some crypto thinkers who haven't descended into weird, you know,

• 11:54Ryan Sean Adams?

  maximalist kind of like narrow minded paths uh and each of us kind of build on what another says and sort of take an idea, you know, further. And it really develops this incredibly rich social layer that I haven't personally seen anywhere else. I don't know if it exists anywhere else, but I haven't personally seen it.

• 12:12Speaker 02

  Yeah, and even um even when it comes to maximalism, that's it's so fascinating to observe like i- in every aspect of this um complex or these complex social dynamics that we have in the crypto community. There's always something to analyze um uh and to draw in interesting takeaways from, in my opinion. So um the way that the just the the kind of tribalism works um in crypto. I mean, we've talked about this like so many times before, but the they are very strong parallels to religious movements.

• 12:53Speaker 02

  And when I realized that, it really transcended the debate for me and it made me bullish on a whole other level about cryptocurrency when I realized how religious the movement is. And I'm generally surprised by how how few people get this still or or still see the religious aspects of crypto as a negative.

• 13:18Speaker 02

  Because for me, it's so massive, like even though I don't participate in these kind of religious rituals and the way that I guess others do, but just as an observer, I look at them and I find it incredibly positive for the future. If you have a movement that has ambitious goals and changing how the world works. And then having this kind of religious structure is just, religious fervor is just fantastic.

• 13:50Ryan Sean Adams?

  All right. So I'm glad you bring that up because so David and I were just talking about this yesterday on the first State of the Nation episode that we released and we're talking about whether crypto is more similar to a religion or a nation state. And David, I think you made the comment that, well, you know, to you, Bitcoin feels a bit more on the religion side, whereas maybe Ethereum is a bit more on the nation state, that both sort of blend.

• 14:19Ryan Sean Adams?

  What's your take, Asiel? Religion or nation state? What's crypto like?

• 14:25Speaker 02

  Yeah, I read your article, actually. I thought it was good.

• 14:29Speaker 02

  So the way, I correctly put wrong, but I think the way that you did, or like the main criterion that unified for the nation state was that it provides physical protection for its people, is that correct?

• 14:43David Hoffman?

  Or not even a nation state, but just a nation at large, right? Like, so the whole idea was to expand the model of a nation into the groups of organizational schemes that have come throughout history. And religion would be one of the original schemes of a nation that, one of the core features of it is that it offers protection for its own constituents.

• 15:05Speaker 02

  Yeah, yeah. I kind of buy into the.

• 15:10Speaker 02

  I guess you would, you could say like it's the Sabo, Saboian way of thinking about this or also Harari. It's, they both kind of have a very similar attitude about this, but. So those above the, the, the state or the, the nation state and religions are both social technologies or social institutions that are, that humans invent to increase their ability to cooperate with one another beyond the confines of their small trusted social group. So it's, it's always about scaling the ability to trust one another.

• 15:53Speaker 02

  And as a result, you can, you can cooperate with one another.

• 15:58Speaker 02

  And when the, they both operate in like in slightly different ways. So the, the punishment or like the way that the, I would say this, the state does it is.

• 16:12Speaker 02

  Where you, you would combine it with some kind of legal system. So you impose some rules that are, if the rules are passed, it's beneficial for, for everyone. It's just like a social contract in that sense, right? But like you, you can't kill me, or I can't kill you, but in return, I, I'm sure that you won't kill me. And we enforce these rules by, uh, by, by, by physical punishment in the case of the state. But in, and in the case of religion via some. Yeah, I guess some kind of more arcane threat, right? So it's, it's the punishment in the afterlife or it's the fall from grace. I don't know what to call it.

• 16:57Speaker 02

  But in both, eh, in both, in both, it's, it's also the, the threat of being rejected from your community. But that, that, that aside, so, um, so they are both social technologies, um, aiming to scale our ability to cooperate with one another by removing trust from the equation. And I don't think that there's, I don't think there's a difference between like Bitcoin and Ethereum there.

• 17:29Speaker 02

  To me, they, I think even in the future, I think it's already happening, but the just this distinction between religion and a nation state, even in the in the physical world is just going to disappear. So

• 17:44Speaker 02

  the state can be a religion and the religion can be a state. And then there are other movements that have sort of the attributes of both a little bit. So I just think that the soul, the soul distinction between them is going to disappear. And Bitcoin and Ethereum definitely have attributes of both.

• 18:05David Hoffman?

  I want to bring it back to the original question. So the

• 18:10David Hoffman?

  Bitcoin to me is more of a religious nation, although it is also like a nation state. But Ethereum to me is also closer to a nation state, but it is also a has its religious components. Do you recognize that distinction?

• 18:27Speaker 02

  I guess, I guess not really.

• 18:30Speaker 02

  So, I mean,

• 18:33Speaker 02

  when you would say it's more like a religion, that that would imply to me that the properties are very strongly reliant on social norms, because that's what religion mostly does. It creates, or the rules in a religious movement are upheld via the the strong enforcement of social norms and values. And that's how you get these scalability benefits.

• 19:01Speaker 02

  But Bitcoin is just as much a technical protocol where rules are enforced by a network of computers that reject each other's messages if they don't follow a certain, well, if they don't follow the correct protocol.

• 19:17Speaker 02

  So it's just as strict as an enforcement there. And in some ways, the enforcement in Bitcoin is arguably even stricter, right? Because in Bitcoin, the the Bitcoin community is more more strongly believes in this this notion that everyone should be able to validate the block. Chain and we should reject the idea of weak subjectivity. So there should be no subjectivity at all. And what is the heaviest chain? Whereas in in Ethereum, the Ethereum community believes that, hey, it's okay. We can use checkpointing for validation and it is okay if there's,

• 19:57Speaker 02

  if an attacker takes over a proof of state network, then we can just fork them out on the social layer. Uh, so I feel like the the enforcement is more strict and more physical is the Bitcoin. So in that sense, uh, in that sense, it it might be like Ethereum might even have some some of these more religious aspects or more social aspects. If you create religion with social enforcement.

• 20:27Ryan Sean Adams?

  That's that's really interesting that you say that, Haseed. You know, one one take on this and maybe part of the reason why David feels like Bitcoin has a bit more religious aspects to it and fervor about it is just, it does feel like there is a richness in Bitcoin that, oh, in the social layer, in sort of these enforced norms that isn't yet present in Ethereum, though Ethereum is kind of is kind of getting there, right? There there are some very clear things in Bitcoin that you have to sort of subscribe to to be, you know, part to be a Bitcoiner, right? And there there's even, you call the maximalists or you've written articles about an intolerant minority,

• 21:08Ryan Sean Adams?

  people who who go around and they they they enforce these norms, you know, through sort of purity tests. Um, so and so is not a real Bitcoiner. If if he was, he he wouldn't say X, Y, Z, right?

• 21:20Speaker 02

  No.

• 21:20Ryan Sean Adams?

  Um, but but possibly that's just because Bitcoin has been around for twice as long. Um, you know, so it's had, you know, 10 years ish and in Ethereum it's had five and it's still kind of working itself out. So I think that maybe a closer comparison would be to check out Bitcoin in in 2015 versus Ethereum today, where it's just starting to establish its norms. But it on the topic of kind of uh, these the social coordination systems as a religion, right? I find it very interesting that when people talk about their religious affiliation, they might say I'm a Christian or I'm a Muslim or I'm a Hindu, right? They put a name to it. We do the same in crypto. I'm a Bitcoiner. I'm an Ethereum.

• 22:04Ryan Sean Adams?

  And I guess my question to you is the same question I asked as Nick. Are you a Bitcoiner? And are you an Ethereum? Hasid, do you identify with that?

• 22:14Speaker 02

  Yeah, sure. I would say I'm both. For me, I would say mostly, I heard Nick's interview and I was nodding along when he said, so I think he asked you for a definition of what it means to be a Bitcoiner and Ethereum first.

• 22:30David Hoffman?

  It's the most Nick harder thing to do.

• 22:34Speaker 02

  And it's very, it's, it's, I also agree with what he said that it's, it's easier to define what a Bitcoiner is because

• 22:46Speaker 02

  like the, the, the, the values of what that means are much more defined. But I also agree with what you said earlier that the values of what it means to be an Ethereum are also becoming more strongly defined over time. And it's mostly, this, it's mostly a process of removal. So you start with a community that has a lot of different beliefs. But those beliefs are not held very strongly and then eventually it converges. It converges on, on the much smaller set of much stronger held beliefs.

• 23:25Speaker 02

  At least that's what it seems like to me. And then people who were like, had some of these fringe views.

• 23:33Speaker 02

  They find themselves pushed out eventually. So yeah, any kind of movement, I think, tends towards the, the more extreme versions of what it previously believed over time.

• 23:47Ryan Sean Adams?

  Do you think those extreme, like, people, those extreme versions, the maximalists, are useful for these proto-religions?

• 23:56Speaker 02

  Oh, yeah, I mean, this goes back to what we talked about a few minutes ago with just the kind of religious fervor, how I think, how valuable I think it is. And one example would be, one example would be in terms of what I, my, my, my,

• 24:17Speaker 02

  the article that I wrote before, the one on EIP1559 about custodial banking. So this is, in my opinion, a great example of how it's not enough that you have a protocol, a technical protocol that can enforce a particular set of rules automatically. Because the, the number of rules that you can enforce with a blockchain is actually quite limited. And it's not nearly enough to build a system that can become a global form of money that is very valuable and exists in a very adversarial environment.

• 24:59Speaker 02

  You need to pair this with, with social norms as well. I look at gold. Gold is, gold is a physical element and you can't alter the shape of the physical element. But everything that is built on this base layer of gold as settlement asset is entirely shaped and molded by humans. And it's extremely valuable in the sense. So the same is true for Bitcoin. You can, you can have, you can have a very robust base layer, but if people are not using the base layer, but using any kind of system that is built on top of it, then... That's not something that, that's A, not something that the base layer can control,

• 25:44Speaker 02

  and B, it can, it can push the entire system in a state where the rules of the base layer, they don't even matter anymore. So if everyone's, everyone's transacting only on, on higher layers, then whoever controls these higher layers, they control the entire rules of the system. So that, that shows to me why this, the social norms are so, so important as well, if you want to build a system like that.

• 26:15David Hoffman?

  So, Hauzu, in my article, the, the nation article, I made some sort of claim that the protocol of these systems are their DNA, right? And as these systems grow, if you take, if you take the lens that these systems are organisms, as these systems grow, the DNA of the protocol, the, the specific details of how their specific code works, defines what they look like at maturity, you know, as DNA does, like as an organism grows up, it determines the shape and structure of said organism. And I think what you just said, and, and something I think we want to get into in this episode is, the, the DNA of a particular protocol, if it doesn't

• 26:59David Hoffman?

  retain its, the sovereignty over its own soul, right? If it doesn't control what it looks like at maturity, then there are layers on top of the protocol that can perhaps capture and control the soul of the system and redefine what it means to use, use this system itself. And to make this in more concrete terms, so I'm not speaking in generalities, this is the conversation of, of crypto banks, right? Where the cryptocurrencies have a soul, a, a structure of belief systems and values that are instantiated in the code, in the DNA. But if everyone is

• 27:40David Hoffman?

  using these crypto systems via a proxy, like a crypto bank, that may or may not thwart or corrupt the soul, the spirit of the, the spirit of the system. And so I kind of want to get your take on, on A, that perspective, but then also lead into the conversation of what the future of crypto banks are and how they are going to impact the spirit of these systems.

• 28:05Speaker 02

  So I think it's, I agree with the take that

• 28:10Speaker 02

  the code of these protocols is the DNA.

• 28:16Speaker 02

  But I would say it's part of the DNA. Because part of the DNA also rests in the social contract. And the social contract is not the same as the the protocol itself. So they

• 28:33Speaker 02

  the the social contract is, to me, is really the layer zero of any of these systems. And then on top of the the social contract sits the protocol. And the protocol is expressed by code. But the protocol can only enforce part of the social contract. So it can, for example, enforce that I'm not allowed to print money from thin air. I can only spend a coin that I have, that someone, that either I have mined or that that someone has sent to me with a valid signature.

• 29:11Speaker 02

  But then there are things that are not possible to enforce with the protocol. And those are also important parts of the DNA. So for example, the fact that we should use or we should validate our our own transactions or that we should use when possible.

• 29:31Speaker 02

  Don't use intermediated forms of payment and custody for our keys. So we should hold our own keys. So those are not, like, how would you enforce those things by the protocol? You can't.

• 29:43Speaker 02

  This this has to be all done through social norms that are also built on top of the social contract. And that's where I think the whether the, I guess, whether more strongly minded and vocal people in in both communities are very important because they do the same as the protocol does. They socially enforce

• 30:12Speaker 02

  particular rules that are important for the long term survival of the protocol. Does that make sense?

• 30:18Ryan Sean Adams?

  I mean, I I think of these people as like they're like priests, right? Almost in kind of a religious context. They're like the the core devs of the the meme layer of the social layer. And they are important. And the weird thing about it is sometimes I see Bitcoin maximalists on that side of things. I think, geez, this is bizarre. Like, you guys are not responding to like logic and reason. And yet, at the same time, it kind of makes me bullish on Bitcoin, right? It's this weird dichotomy because that level of religious fervor implies that there is a strong social contract around some of these things. And ultimately, it's that social contract that secures the Bitcoin network.

• 31:03Ryan Sean Adams?

  And that's also why I see like I get bullish when things like, you know, the the parody multi-sig hack. There was an EIP to release funds there, right? But that never went through. That was sort of shot down by the Ethereum social contract. That, to me, is is bullish for Ethereum maintaining its minimum necessary issuance policy. We're not going to, you know, do another DAO and intervene in the protocol at all. And that's also why I don't really get worried about the move from ETH 1 to ETH 2. Because the same social contract, like from Ethereum's inception, is going to be preserved. You're moving the spirit, but you know, you're you're moving to a new body, but the spirit is the same, right?

• 31:48Ryan Sean Adams?

  So I'm not as concerned as as some people are for like, what if? What if the ETH 2 technology doesn't work out of the gate? Well, it's fine. We still have this the social contract, which hasn't been disrupted. We'll we'll fire it up again and we'll keep moving on the social contract. I don't know what your take is on that, but that's where what I was thinking as you were saying that, Haseen.

• 32:08Speaker 02

  Yeah, I actually have an important thought on this, I think. So it's it's true that.

• 32:17Speaker 02

  That the social contract, I mean, you can move, you can, you can retain your soul if you will and move to a different body. And that's all good. But I think if you like the Ethereum community made one mistake with the transition from ETH one to ETH two, and that is increasing or like introducing double issuance there. Um, because it creates, so the way it works is when Ethereum two launches, it has its own, um, it's its own issuance and there are two tokens, um, until the two systems eventually merge. But it's, it's unclear how long that's going to take and could well be, could well take five years or longer.

• 32:59Speaker 02

  And what this does is it creates an incentive for Ethereum one to, to stay as its own network and split off from Ethereum two. Because the moment that Ethereum one and two merge there is this supply shock. Um, where all the coins that have accumulated in Ethereum two suddenly become merged with the coins that are in Ethereum one. And I, I, I see this as a very big oversight and I was very surprised to hear this. Because you, you create these disincentives in the community. Um, against merging the two together. And I think, I think there will be,

• 33:41Speaker 02

  I think this will come a, become a bigger issue when it's actually time to merge those. And the issue gets larger, the longer the, the merging takes.

• 33:50Ryan Sean Adams?

  Yeah. So one question, I, I've, I've been thinking, I've seen a debate in the Ethereum community on this is so, uh, so you're right. So ETH, when ETH one, uh, when ETH two fires up, there's going to be additional issuance, right? So there's ETH one issuance plus ETH two issuance. And it's going to increase the total issuance of Ether on an annual basis by, you know, maybe half a percent, maybe a percent or so. Uh, and some have advocated that, well, we should, um, decrease the block reward on ETH one to compensate for the additional issuance in ETH two. So there's not like. Additional net issuance. But the other counter to that is any, you know, you only get a few rubs of the genie bottle,

• 34:35Ryan Sean Adams?

  right? And any change that you make to the issuance policy, it's human intervention, quote unquote. So it's hurting the credible neutrality of Ethereum by changing issuance. What side do you fall on with that? Do you think that in the transition to ETH2, do you think that ETH1 should reduce its issuance to compensate? Or do you think that the net impact on the credible neutrality of the issuance of Ethereum would be impacted from that? And that would be a net negative?

• 35:06Speaker 02

  I'm not even sure that you could prevent this bad outcome by lowering the issuance of ETH1, because in either case, you still have the supply shock when you eventually merge the two together. So I think it's more a result of having this launch in stages. But at the same time, I'm not really sure how you would do it better. Can you do it in a way where the two systems are? I mean, I mean, I think, I guess you could, you could solve the problem by making it possible to transact in both ways, right? So you have a bidirectional transfer between ETH1 and ETH2.

• 35:48Speaker 02

  And the way that I see it, then there is no zero to one supply shock. There's only, well, any kind of coin that is created on ETH2 can immediately affect the coin supply on ETH1. So it's more like, it's more like boiling a frog very slowly compared to throwing it into hot water, at which point it's just going to jump out again.

• 36:22Speaker 02

  I think that that is probably how I would have done it. So I don't see the question of should we lower issuance of ETH1 or should we not lower it? I don't see that as central.

• 36:34Ryan Sean Adams?

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• 37:19Ryan Sean Adams?

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• 37:45David Hoffman?

  Aave is a DeFi protocol that you just have to check out. It is a borrowing and lending protocol on Ethereum, but with a few more tricks and tools than what you may be used to. So you can put assets inside of it and supply assets and then get your interest rate based off those assets. And then you can also borrow those assets. But the cool thing is you can borrow assets at a fixed interest rate, which is a really important money Lego in order to expand what the Ethereum nation can really offer the world around it. Having a fixed interest rate where you can borrow assets and not have that interest rate change under your feet is going to be a crucial feature for enabling more tools coming out of the Ethereum economy. In addition to that, there's also A tokens,

• 38:30David Hoffman?

  which are tokens that represent the underlying collateral, but has that interest rate baked into it. Aave is climbing the leaderboards of the value locked in DeFi, about to cross 100 million. Lock they currently at 98.3 million so they are just absolutely crushing it developers you can check out their flash loan protocol which can really help the UX of your application A flash loan is when you borrow assets from the protocol without any collateral so long as you pay back that those assets in the same transaction and this can help your users Move their positions of their move their debt positions either a compound debt position or a maker dial vault position

• 39:14David Hoffman?

  It allows you to swap out collateral instantaneously in one transaction which really allows for a lot more Which really is going to be a blessing for your users and their UX go to ave.com and you can deposit crypto to start earning or borrowing today any ethereum wallet works so check them out I want to circle back around and finish a thought that we were talking about a second ago Hozu you said that the DNA of a protocol isn't completely Instantiated in the code itself but is also part of the social contract the social contract of a system also has the DNA of the protocol But I think a case can be made where that's actually a weakness right because the whole

• 39:58David Hoffman?

  Point of the system is to relegate to code as much as possible and so if there is a social contract in Bitcoin of you know run your own node hold your own keys You know do all these things it the reason why those Our rallying cries in Bitcoin is because the Bitcoin protocol is not Comprehensive enough or strong enough to build that into the base layer right and so as a result The I see the social contract as compensation for the weaknesses of the code and so we have to actually rely on You know crypto banks to do our services for us and would the

• 40:40David Hoffman?

  Social contract is like the force against this, reminding people about why we are here, reminding people about what our values should be. But I think it would be me more scalable and more sustainable if we didn't actually have to rely on the social contract and the values of these systems were completely part of the DNA of the protocol. And so, I see any, and the metaphor we use, Ryan uses as a priest, right, like a priest of the system, as somebody that people go to for insight and leadership. But we saw in the heyday of the church that the priests just claimed that they were the messengers of God, when really, they were just

• 41:22David Hoffman?

  some dudes who were capturing like the audience of their local region and then extorting them for their whatever, you know, their Sunday donations, right? And priests would like lie and say like, only I can speak to God. That's why you guys have to listen to me. And I can kind of see that similar role of Bitcoin banks, right, where they say, you don't have to actually speak to the Bitcoin blockchain, you can just speak to me, when instead, it's a capturing and coercive system. And I see that as a weakness of the Bitcoin blockchain. And so, Ethereum tries and fixes these problems with things like smart contract wallets, or sharding,

• 42:04David Hoffman?

  and all these things that allow for maximal decentralization. It's taking away the role of religion and trust, and just having to have these priests leaders remind ourselves what the values of the system are, because the values of the system are more closely baked in on Ethereum. How do you feel about that take?

• 42:29Speaker 02

  I think we're conflating two issues there. So the first is, in my opinion, the social contract is always central. And the protocol can't take the role of the social contract, because...

• 42:46Speaker 02

  The social, I mean, if there's no social contract, for example, against, or that says what the protocol should do, then just, it would be trivial to just change the protocol and thereby change the social contract, but that's not how it works. So there needs to be, there must be a community of people who strongly believe in the same values and the same things that the protocol should do. And that's, that's the whole way that we uphold, basically, the values of the protocol. That's why we all converge on the same rules, because we all believe in the same things that the protocol should do. So that's why I think the protocol is always, is always an implementation of the social contract.

• 43:32Speaker 02

  That brings us to the second part. So if you have a social contract and you have a protocol to implement it, then the question is, how well can the protocol implement the social contract? And the better it can implement it, the more, the more robust it probably is. Because, let's say you have this, you have a social contract and it has two rules and you can enforce only one of those with the protocol and the other you have to enforce via social norms. Social norms are much more malleable than the protocol. That's why we invented these protocols in the first place, because otherwise we could just do it via traditional institutions.

• 44:18Speaker 02

  And so the question really is, how well can the, how well can the protocol implement the, the social contract in a way that is not malleable? And that's where, that's where I see the big strength of Ethereum, because if the protocol is more expressive, then the wish or the, the optimistic goal would be that we can automate or enforce more of the rules of the social contract via these kind of automated means of the protocol and we don't have to enforce them as much socially.

• 44:59Speaker 02

  So yeah, that's, that's, I think that mirrors exactly what you said about Bitcoin, Bitcoin banks, or Bitcoin being on a path to scale via custodial banks to a much larger degree, maybe than Ethereum, although that's totally up in the erst. But I definitely see the advantage of having non-custodial smart contracts take the roles of custodial banks. So yeah, that, that is definitely, or that pretty much summarizes why, or what I like so much about Ethereum in relation to Bitcoin.

• 45:38Ryan Sean Adams?

  Can I just say, Hossi, so that is the entire thesis for the bankless podcast. Like, that's, that's why we are on this quest to go bankless because, you know, we believe, and I think that, that, you know, members of the crypto community believe, some of them anyway, that the social contract of Bitcoin is peer-to-peer, right? You know, a peer-to-peer cash system was the title of the Bitcoin white paper, right? And like peer-to-peer means bankless, right? It's, it's not trusting a central intermediary. So David's point of like, one of the problems with Bitcoin is that

• 46:23Ryan Sean Adams?

  it requires that the members in Bitcoin kind of observe this social norm. So like, once a year, we all like withdraw all of our private keys from the exchanges to make sure that they have them, right? That's an example of that being preserved in a more flimsy way. And the Ethereum approach is basically like, don't have crypto banks at all. Have transparent, open money protocols, DeFi protocols essentially, where you can always see the balance of your crypto. So their balance sheets are completely transparent to you. And you maintain custody of your funds so you can withdraw at any time as well. So you don't have to get into these fractional reserve areas. And I think you do believe that because you wrote this fantastic article,

• 47:08Ryan Sean Adams?

  you know, why Bitcoin might not survive a Bitcoin standard. I, I wonder if that raised some eyebrows in the, in part, part of the Bitcoin or community. But can you talk about that a bit more? We want to spend some time on that. So. Why is it bad if Bitcoin custodial banks essentially start to become the main way that users interact with Bitcoin the asset and even with Bitcoin the network? Yeah, I feel like, so I feel like, Hossi, like, you know, there's some Bitcoiners who think it's great, right? Nick Carter might be among them. That like custodial crypto banks doing the majority of transactions on Bitcoin.

• 47:54Ryan Sean Adams?

  That's a future that is appealing. What do you think about that? Is there a problem with that vision?

• 48:01Speaker 02

  I mean, so Nick is a realist and a pragmatist, and I would count myself into that field as well. So there's not really a way around

• 48:14Speaker 02

  the emergence of Bitcoin banks or just banks in general that hold Bitcoin and offer financial services for Bitcoin users. But the big risk, in my opinion, is that

• 48:28Speaker 02

  that eventually everything just happens. Everything happens on these custodial banking layers. And then you lose this, then you lose all the advantages that made Bitcoin special in the first place. So Bitcoin can enforce a different social contract than

• 48:46Speaker 02

  a non Bitcoin system could because the rules are enforced by the protocol. But when the users don't use the protocol anymore, then the system is vulnerable to the in the exact same way that the traditional financial system is. Because then you still use a protocol, but it's a different protocol. It's a protocol that is subject to the laws and regulations of wherever it operates.

• 49:17Speaker 02

  Some people argue against that, that as long as you can withdraw to the base layer still, and basically, like, let's say, one country shuts down all their Bitcoin banks, and then everyone would panic, and they would withdraw their money to hold their own keys and continue to operate on the base layer. But this is not possible, because once Bitcoin has grown to a size where, let's say, I don't know, fifteen, even just fifty to hundred million people use Bitcoin via banks, if those people all wanted to withdraw their coins to the base layer,

• 49:55Speaker 02

  then it's already not possible, because it's just the capacity of the system doesn't allow for it. So you lose this optionality, you have this optionality decay of freedom, pretty much where the users become locked into the higher systems, because there are now too many users to withdraw to the lower level.

• 50:26Speaker 02

  I see that as a big, big problem, and it doesn't just exist when the fees are too high. Like I said, there are too many users, and they can't all withdraw to the base layer. But you also have the opposite way. So the fees are maybe too low on the base layer, and the system is just, the base layer is very insecure. Then one way to, one way to, one way to still transfer money and hold funds safely is just by holding the same amount of BTC on a bank ledger. So the bank ledger would then effectively replace the Bitcoin, the ledger of the Bitcoin base layer.

• 51:02David Hoffman?

  So in my mind, and maybe this is my Ethereum religiousness coming out, but the logical conclusion is what the Ethereum blockchain is trying to achieve, where an expressive base layer allows for individual banking services and for individuals to truly be their own bank. Am I right in concluding that that is the next logical step, or am I missing something?

• 51:31Speaker 02

  No, I mean, that's, that's why I like Ethereum. I think it's, I like the, the other approach of doing it.

• 51:42Speaker 02

  Or taking a bit more risks with the base layer, but at the for the potential benefit of having more trustless additional layers, because it's already clear that the base layer itself is not going to cut it for any kind of larger scale adoption we have today. So we know that, like we, I think we have to take a holistic view. Let's just imagine so Bitcoin and Ethereum both have a hundred million active users. So how, how does the system look at that, at that size? And if in Bitcoin, the base layer plays only a very small role in serving

• 52:23Speaker 02

  these users, then what does it really, like what does having this very strict and very robust base layer even give you? It does not automatically mean that the, that the whole stack is robust.

• 52:39Speaker 02

  So I think it's, it's, it's a good approach to take. Or it's possible to take some trade-offs with the robustness of the base layer and allow for more

• 52:50Speaker 02

  expressiveness, for example, just to buy you the ability to extend more of that trust to, to higher layers.

• 53:01David Hoffman?

  So what do crypto banks look like when they're, you know, hundreds and hundreds of thousands of users of these systems, right? And, and a lot of these users are using these systems through crypto banks, like do it, what, what, what, there, because there's a there's a lot of political significance to large crypto banks, right? Like if Coinbase and Gemini go from just being an exchange to being a financial services in, you know, institution, they, they are domicile in physical nations. They have a ton of data. Is it fair to, to say that these crypto banks at maturity, when they have, you know, millions of users, that they start to kind of look like the web two gargantuan, but in the, in the crypto web three world?

• 53:47David Hoffman?

  And then what, if that is true, like what, what's the relationship that these systems are going to have with nation states? Like, how is a nation state going to perceive these, these, you know, new financial institutions?

• 53:58Speaker 02

  I think they look exactly like the banks we have today. So we would just rebuild the existing financial system. So I don't think it matters very much that what the what the base layers do at that point. So you have the banks that work like banks do today and and then they settle amongst each other maybe once a day or something.

• 54:22Ryan Sean Adams?

  So I mean, that that seems to be what the end state of the Bitcoin vision is. Even Safedine in his book, The Bitcoin Standard, talks about the settlement layer Bitcoin being used by, you know, maybe a thousand banks. And maybe maybe that's maybe that's generous. I guess my question is, is that a better world? Like, is was that the point of the the white paper in 2009? To create a new banking system that's based on, you know, a asset with 21 million in scarcity?

• 54:54Speaker 02

  We don't know where we are going yet. And it's, I don't like, people read so much into Bitcoin and the Bitcoin white paper. And Satoshi never promised that Bitcoin would be a system that could be used by billions of people and could do all the things that kind of that can fulfill all these promises that the Bitcoin community invented on top of them eventually. So I'm not so sure that it is realistic within like the next 50 years that we can fulfill even 20% of these promises.

• 55:34Speaker 02

  You know, Bitcoin and Ethereum by extension, they they might do a lot of good for the world, but I mean, they they might not, they might not be everything that is that is promised, right? It's not, it's not like they could support billions of users, probably either, neither of them could.

• 55:56David Hoffman?

  So the DeFi version of a crypto bank is more or less MakerDAO, right? Where it is a crypto bank, but it is a protocol, is a crypto bank protocol. And like the governance over these systems is defined by an asset that's tradable on the free market. And it largely offers a lot of the same services that we would expect a crypto bank to to offer, right? So credit and then savings and then, you know, using many different types of collateral. And I expect there just to be even more financial services based on top of MakerDAO into the future. And you wrote this fantastic article, which I hope everyone who is listening to this will read or has read, called "The Future of Money Could Be Discretionary."

• 56:41David Hoffman?

  And so when we talk about how, you know, crypto banks, real crypto banks, you know, physical crypto banks are kind of just, you know, the same boss or new boss, same as the old boss. Do you see like MakerDAO and protocols like MakerDAO as the viable solution for these, for actually bringing in a world that we are kind of hoping to imagine that is, you know, new and sci-fi and perhaps more fair and equitable?

• 57:09Speaker 02

  I wouldn't read too much yet into Maker. I think it serves one aspect, right? Which is fully collateralized loans. But it does not yet serve, or it does not serve custody. And it does not, does not serve payments. So these would be, I would see, I would see those as the three big main things that banks do. So banks give credit or create credit or monetize debt. And they do payments and they do custody. And only one of them is currently served by Maker. But Maker is the super interesting project, in my opinion.

• 57:56David Hoffman?

  So your article, "The Future of Money Could Be Discretionary", it illustrates that discretion, discretionariness is also subjectivity, right? And part of, in my opinion, part of the DNA of all these systems, Bitcoin and Ethereum, they're supposed to do their best to remove subjectivity out of the protocol, right? And the Zabo idea is that any amount of subjectivity is a weakness when it comes to scaling these systems out to their maximal degree.

• 58:31David Hoffman?

  At the same time, MakerDAO is a protocol. And when you submit collateral, there is no credit scoring. There is no utility bills. There is no government ID. So to some degree, subjectivity has been removed. But to what degree do you think that the subjective governance over the parameters of MakerDAO is a hindrance on its ability to scale?

• 58:53Speaker 02

  Yeah, that's a very good question. So I think for a system like Maker, it's a tight walk. Because, of course, the system is more valuable to borrowers, the more types of collateral you can use, for example. So including real type of collateral that is like, let's say, USDC, where there's really an issuer that sits in a regulated environment.

• 59:26Speaker 02

  Whereas for the holders, it could be better that if the type of collateral is more just. So you can have these two streams going up against each other. But of course, they would also like liquidity. So you kind of need to balance these different interests against each other.

• 59:49Speaker 02

  But I'd also like, looking back at that article, I...

• 59:54Speaker 02

  I kind of mixed up two issues that could have been maybe two articles.

• 1:00:00Speaker 02

  Because it mixes up basically discretionary or like a flexible money supply. And a system that that is controlled by, well, basically by humans and not by algorithms. And I think it made a very strong point that you can have systems with a flexible money supply.

• 1:00:27Speaker 02

  Like Maker, so it is that it is possible to to target the price stable money, for example.

• 1:00:35Speaker 02

  Because I feel like that's not really something that the crypto community at large believes in. So they think like price targeting is always a scam or something. Or it's always something that requires. I'm not really sure what they think, but in general, just the benefit of price stability is.

• 1:01:00Speaker 02

  Doesn't get a lot of credit, whereas I think.

• 1:01:04Speaker 02

  Wouldn't you say they think it's like fragile?

• 1:01:06David Hoffman?

  Well, also the target of the price itself requires some sort of subjective opinion as to what that target actually is, right? Like, so the CPI for the Federal Reserve is a human generated metric that we have decided is valuable at targeting.

• 1:01:23Speaker 02

  That's a great point. Yeah, exactly. So I think they they don't, they look at the entire stack of what it takes to make a flexible money. Or price targeting money and they think it can be abused in too many ways.

• 1:01:41Speaker 02

  And that might be true.

• 1:01:44Speaker 02

  But the more we learn about automating.

• 1:01:48Speaker 02

  The kind of steps that it takes to keep a money price stable. I think the more interesting these ideas become.

• 1:01:57Speaker 02

  And that's, that's why I gave the, um, basically, that's why I showed how you can keep the money price stable entirely by implementing positive and negative interest rates. So, um, that, that part of the article was, was actually picked up by JP Koenig, who was a finance blogger, uh, someone that I, I love to read. And he, he turned this into a smaller article about how central banks should, um, or like how people should not be afraid of negative interest rates. Um, because they're not necessarily something like unnatural or anything.

• 1:02:37Speaker 02

  Because if you look at, if you look at derivatives exchanges today, like Deribit or Bitmex or FTX, the only way that their, um, perpetual swap contracts track the spot price is via these continuous funding payments. So you always have one side of the market paying the other, and that encourages more people to go long or to go short. And that is the exact same thing that happens if you have a money that you want to make price stable. So you also set a target and then you just continually rebalance the supply, like the demand to go long. Uh, those are the, the holders of the money, right? So the holders of die, for example, and the demand to go short.

• 1:03:22Speaker 02

  Those are the, the borrowers, the people who draw die against collateral. So they are the short side. And just by implementing this, you can create a price stability without any discretion. So that's, so that's, that was basically the, the first part that could have been abstracted out of the article. But it also looks at what maker can maybe learn from, well, I guess both what central banks can learn from, from maker, but also what maker can learn from existing monetary policy options of central banks.

• 1:03:59Speaker 02

  And if you just look at, yeah. Oh, okay, so if you just look at what Oh, go ahead. has already done in the past and we find that they use the exact same options that central banks are also using. So they can use open market operations, so they can, they can print.

• 1:04:17Speaker 02

  They, they can, they can print Maker, for example, and buy back die from the market to burn it. So that's one thing that they can do. Or they can, they can print die and then they can buy ether to back the die. So they, those would be one way to remove die from the market and one way to push die onto the market. So those are, those are two options. And I think, like, I'm not 100% sure, but I believe those are also two things that Maker has done in the past when it was under less scrutiny than it is today and nowadays. I think they, they really don't want to be labeled a bank, so I, I guess they stay away from that for now.

• 1:04:58Speaker 02

  But the other is a very underrated option. So what Maker does is it, it allows more types of collateral. And it, it changes basically the, the worthiness of this collateral as well. So it can say how, how much money can be borrowed against this form of collateral based on its implied volatility usually. And that, that is one option that, that is super key to the central banking system or to the banking system that we have today, but that most people never talk about is the collateral policy of central banks. So the central banks also control the amount of credit in the economy very strongly

• 1:05:42Speaker 02

  by allowing and disallowing different forms of collateral that banks can accept to give credit.

• 1:05:51Ryan Sean Adams?

  So, so Hasu, what's interesting to me about that article in particular is you talked about this convergence between, you know, stablecoin and DeFi and central banking, right? You said, "Within the next five years, we'll see a major central bank hire a stablecoin designer and a stablecoin system hire a famous central bank economist," right? So there's this convergence. And it does feel to me, like even given what you said, there's sort of a fork in the road for maker. It can either go in the direction of removing some subjectivity, right? And going in the direction of something that's more algorithmic in terms of stabilizing price. But there's some trade-offs there.

• 1:06:31Ryan Sean Adams?

  Maybe usability is a trade-off because you have to get into, you know, negative, negative interest rates for, for the money. And people aren't used to that. They might not like that. There's usability trade-off. And then on the other, the other fork and like side of the fork is they could become a bit more central bank-like and start, and the inevitable conclusion of that is, you know, play that out and you're doing open market operations like the Fed, basically. So, I mean, do you see it as a fork in the road for these DeFi protocols? They either become like a bit more protocol-like through their governance process? Or they become a bit more like a, like a traditional?

• 1:07:09Speaker 02

  I'm not sure if I'd see it as a fork in the road. I, it's, so the one reason why makers, I think, is super attractive to central bankers and to economists is, is the reason that crypto is such an amazing microcosm for monetary experiments and just monetary policy options. So if you're, if you work at a central bank today and like you have learned,

• 1:07:42Speaker 02

  you have, you have learned all these different ways that you can potentially manipulate basically monetary policy to get one outcome or the other in terms of achieving, achieving your mandate, then these are all conjecture, really. Like, we, we don't have a ton of ways to test these, but... Like if if if I was working there, then it would be super fascinating to me to go into a space where I can actually implement and test these things in a free market environment where people like willingly adopt a coin and then you have competition of the best ways to manage that currency.

• 1:08:26Speaker 02

  I I I just think that that's probably the most, one of the most fun things that you can do. But at the same time, central bankers are very aware of the kind of negative influence, you could say, that a lack of political independence from governments creates. So there is a branch in monetary economics that is called algorithmic central banking. So that that is not something that crypto invented.

• 1:09:04Speaker 02

  Because, I mean, central bankers would also like to make less, like some of these rules, they would like to invent rules.

• 1:09:14Speaker 02

  Sort of like automatic trigger. So when when that happens to certain key parameters in the economy, then we do this policy. And then when the policy has such an effect, it stops, so on. So these are just algorithms. And the problem, the problem for some central banks is that they can't credibly commit to these algorithms because they always, they their hands are sort of tied to the, they are tied and depend on the political moods of whoever's in charge in the country and and also, you know, the what the actual people think about their policy. So.

• 1:09:58Speaker 02

  I see crypto as like a really interesting way to experiment with commitment devices. So a commitment device is just you, you commit to a something that allows you to commit to a certain algorithm or certain policy and then stick with it. And then you can credibly say, I can't change this, my hands are tied. So a smart contract without an admin key would be one way to do this. That's why I don't necessarily see it as a fork in the road, but I see it as more of a convergence. So the two, the two will become one where I think crypto will attract a lot of central bankers.

• 1:10:44Speaker 02

  Because of the experiments that can be run here and just because of how well their knowledge applies. But then what crypto does for central banking is like popularizing commitment devices and removing the ability for governments and the tyranny of the masses to, to influence central bank policy.

• 1:11:08David Hoffman?

  Hozu, getting your perspective on Bankless has been super valuable. And before we let you go, we need to talk about, of course, EIP 1559. And if I could challenge you in a, in a, in a way, can I get you to in a concise way, in the most concise way as possible, wrap up and summarize the significance and impact of EIP 1559 upon the Ethereum nation? Like what, if you had to boil it down in its most simplistic form, how does it materially impact the Ethereum nation?

• 1:11:44Speaker 02

  Well, it's very hard to be concise about this because of how central this kind of, this changes to Ethereum. It touches on so many different things and that's just, that's just the nature of. How central the block size, the block space, sorry, market is for any blockchain.

• 1:12:05Speaker 02

  EP1559 is just a small handful of lines of code.

• 1:12:12Speaker 02

  But its implications would be pretty big. So for me personally, I mean, everyone sees a different thing in it. But I see four, I see four benefits of the proposal. So the first is it implements or it creates a better UX for users when interacting with the block space market. So the way that it works right now is everyone submits a transaction together with a bit for inclusion. And that bit is the transaction fee. But the problem is you don't know, you don't know how much is actually needed to get into a block. So because miners just include everyone's transactions.

• 1:12:56Speaker 02

  Basically, they just perpetually fill blocks with transactions and then hash them to, to search for the golden dones. But you don't know how much others are going to bid. So you always, like, if you want to get in urgently, you're probably going to bid more than the people already bid. And then others see that and bid even higher. And it's just like this, these kind of models are called first price options. And they are, they are quite inefficient in terms of translating, like the actual, the actual preference of users to get into a block. And to pay and paying like a reasonable amount of money.

• 1:13:41Speaker 02

  And the way that EP1559 changes this is it implements a fixed price sale. So a fixed price sale is when you go to Amazon and you see an item.

• 1:13:54Speaker 02

  And that has a certain price and you can just decide to buy it or not. And that's what 1559 would do also. So you could, you would just decide on the spot if like a transaction would have a certain price. And you can just decide on the spot if you want to get in or not. And the way that it, the way that it does this is by implementing a new type of fee. So instead of one fee, there would be two types of fees. And the first is called base fee.

• 1:14:28Speaker 02

  And the second is called the tip. The base fee is set by the protocol and is burned. So it does not go to miners. And the second is the tip. Tip goes to miners.

• 1:14:41Speaker 02

  And in the next step, we have two, we don't have the single rigid block size cap anymore, but we actually have two block size caps. So we have the, we have the target block size, which is 10 million gas. And then we have the new maximum block size, which is twice that amount. So it's 20 million gas.

• 1:15:03Speaker 02

  And blocks are no longer, blocks no longer have to be 10 million. They can also exceed the, the previous maximum. So they can be higher than 10 million for a period of time. So it can be, if miners want, they can mine up to 20 million

• 1:15:24Speaker 02

  gas worth of blocks, no, blocks, blocks of gas, sorry. But it's only possible for a short period of time. Because if you look back to what we talked about with Maker and how you govern stability or how you can basically price target a money and how this is very similar to derivatives exchanges and the way that they get price stability of perpetual swap against a spot, the spot price of an asset. They do this with these kind of continuous funding payments and

• 1:16:03Speaker 02

  EIP1559 is actually not that different from that because you also have a target. So you have a block size, an average block size that you want to target, which is 10 million gas. And then you have this, you have this payment for transaction actors, which is the base fee, which the protocol can control. And the higher, like the larger the blocks are, the higher the base fee goes. And that eventually creates a downward pressure on the size of the blocks. So if you mine one block, then that's, that's, that's, let's say 20 million gas, then the base fee would increase. If you mine another, it would increase further and so on. So it always increase relative to what it was before.

• 1:16:48Speaker 02

  And, and, and so the base fee would just continue to go up. And then eventually, when there are no more transactions that are willing to pay the price, then maybe we can mine smaller blocks again. And when you mine blocks below 10 million gas, that's when the block size, the block size, that's when the base fee starts to go down, starts to normalize.

• 1:17:12Speaker 02

  And the fact that we always target 10 million gas, but there's 20 million of capacity, that is what ensures the, the fixed price sale. Because there is always extra capacity available. It's just that it is the base fee that governs how frequently, is the, how frequently the excess capacity is used, if that makes sense. So because there's always extra capacity, you can always be sure that you get in at the fixed price if you want to.

• 1:17:48Ryan Sean Adams?

  I mean, Hasu, that, that's like a very thorough explanation of EIP1559. And I, I don't know that I've, I've heard such a thorough explanation, right? So it's clear that you have dug deeply into it. One of the implications, I think, in, in your article, at least one of my takeaways, was the burning of the part of Ether in these transactions actually makes the Ethereum to monetary policy of minimum necessary issuance more palatable, more viable. You know, that, that was a huge takeaway for me. I, I guess now that you

• 1:18:27Ryan Sean Adams?

  dove into this so deeply, what's your takeaway on the implications for investors? Like, did it make you more or less bullish on ETH the asset?

• 1:18:38Speaker 02

  Oh, I mean, I see 1559 as super positive for Ethereum. I am super in favor of it being implemented after I reviewed it. So I think it's very hard to disentangle the how well the the different benefits. We only touched on one of them, right? So we touched on the better UX for transactors. But there's also, we briefly touched on the other one. So we now target an average block size rather than a fixed block size. And that allows more flexibility in the block size, but without creating an additional burden for people who want to validate, which is very important.

• 1:19:22Speaker 02

  But then there's also the benefit of better security and preventing economic abstraction. And it's it's very hard to say how much each of those will impact the the price of Ether or just the market sentiment. Just looking at, I guess, looking at how the Ethereum community talks about the proposal. So very few people talk about the fixed price sale, which is probably my favorite part. And very, like, a lot of people talk about the security, well, not even about the security aspect. I guess there's also this, so what for me is like, is a security benefit.

• 1:20:05Speaker 02

  Most people just see as, OK, the monetary policy of Ether is going to improve. Because you now have this, because the base fee is burned, and it's the base fee is 99% or something of all the fees that are going to be paid. Because the base fee is burned, that's created deflationary pressure on the Ether coin supply. And that's, I guess, that is the main benefit that

• 1:20:36Speaker 02

  that I read when I read about like other articles on EIP 1559. But I think that it's really the synthesis of all these benefits that that is very, very beneficial.

• 1:20:51Ryan Sean Adams?

  It was awesome to get you to take a look at EIP 1559. Thank you for doing it. Thank you for all of your work in the space, Hasu. You've written a fantastic body of knowledge. I think both David and I consider you one of the free thinkers that kind of bridges multiple communities and honestly talks common sense and rationality to each of them and is not afraid to push back on the religious conjecture. You know, another piece I'll just mention was a piece you wrote, we'll include in the show notes, about your future projections of Bitcoins' security. That was, I think you wrote that with James Presswitz,

• 1:21:33Ryan Sean Adams?

  and that was another instrumental article for me in understanding Bitcoin into the future and transaction security once issuance runs out. So guys, we will include many of Hasu's articles in the show notes, so you have access to that at the ready. Hasu, I've got to ask you one last question before we go. So you have chosen an anonymous, pseudonymous identity online, and it is this Morty with an eye patch from Rick and Morty. So I have assumed all of this time that you are a Rick and Morty fan. Are you indeed, sir, a Rick and Morty fan?

• 1:22:13David Hoffman?

  And why'd you pick the Morty with the eye patch?

• 1:22:15Speaker 02

  I guess he's my favorite character from the show. My favorite episode is the Rick Lantus mix-up, which is, I think it's season three. Agreed.

• 1:22:30Speaker 02

  Just the way that it has these different layers and different storylines that all pay off in the end in a really nice way.

• 1:22:41Speaker 02

  Yeah, that's I think that's one of the best episodes in TV period, right? And of course, it prominently features even Morty.

• 1:22:51Ryan Sean Adams?

  You've got me hungry for some Rick and Morty. I think I might do some binge tonight. I actually have to get caught up on season four. I've got like two more episodes left. And yeah, it's a great show. Does it feels like it does keep getting better, but I'm waiting for their like it's it's always, you know, sci fi something, right? When are they going to do the sci fi crypto? Have they touched on anything with respect to like money in some of these sci fi civilizations? I don't think I've seen that yet.

• 1:23:17Speaker 02

  They did once they they had one episode where the empire invaded Earth. And I I'm not sure what what happened exactly, but someone, I think Rick hacked into their computer. Yeah, it was every one of them.

• 1:23:33David Hoffman?

  Rick made the the money of the system worth one of something to worth zero of something. And then everyone's everyone started blowing blowing like shooting themselves.

• 1:23:46Ryan Sean Adams?

  Rick was fed.

• 1:23:49Speaker 02

  That was definitely the exact at fiat money. I at least I read it that way.

• 1:23:54Ryan Sean Adams?

  Yeah, I recall that now, now that you guys are mentioning it. I I worry that they'll do an episode on like crypto and, you know, Rick will find some way to like beat the Bitcoin blockchain and destroy mutability. We'll send the wrong message.

• 1:24:09Speaker 02

  But on the one hand, I on the one hand, it's always nice when shows include references to Bitcoin.

• 1:24:14David Hoffman?

  They never really.

• 1:24:14Speaker 02

  But at the same time, yeah, it's never really satisfying when it actually happens.

• 1:24:20Ryan Sean Adams?

  Not yet.

• 1:24:20Speaker 02

  It always makes the show like if you like the show previously, it just makes it look.

• 1:24:25Ryan Sean Adams?

  Oh, yeah, absolutely. Well, Hasu, this has been fantastic. We we appreciate you being here. Thanks. Thanks for everything you do.

• 1:24:33Speaker 02

  Oh, thanks for having me, guys.

• 1:24:35Ryan Sean Adams?

  All right, guys, this has been Hasu. I hope you enjoyed this episode. Some action items, I think, guys, a real big action item is to check out some of Hasu's body of work. We will include some of our favorite articles in the action items, so that's number one. Number two is go check out the episode that we did on Ether scarcity. That talks about 1559, why we're also bullish on this change in Ether's monetary policy. And that's really what it is. We'll include that as the second action item. And third, David, I haven't checked in the last week or two. How are we doing on the five star reviews, sir?

• 1:25:13David Hoffman?

  Hey, we're doing pretty good, but we still want to do better. We, I think we have 60 or so five star reviews. So if you guys could push that up into the 70s and 80s, we are still not showing up when you type in crypto or Bitcoin or Ethereum into the iTunes podcast search. And so those five star reviews are how we get there. So thank you for those that have given us those five star reviews. And if you are yet to do so, please do that. It really, really helps us reach more ears, reach a bigger bankless audience.

• 1:25:46Ryan Sean Adams?

  Cool. And last announcement is actually, David, you and I started a video podcast. Well, a video cast that we're publishing on YouTube. We're also publishing on this stream as well. Can you, can you tell folks about that?

• 1:25:58David Hoffman?

  Yeah, we are doing the state of the nation every Tuesday. So you guys can actually look at the charts, look at the data, look at the tweets that we are talking about. So if you guys are into video content, if you guys are on YouTube, you can find the state of the nation on the bankless YouTube. And then it will also be released as a podcast version on the stream as well, because why not? But really, the substance is the video that is on YouTube.

• 1:26:26Ryan Sean Adams?

  All right, guys, that's it from us. Risk and disclaimers. Crypto is risky, folks. DeFi is risky. We talked about EIP 1559. That could cause some risks to you. You could lose what you put in. This is crypto. We are headed west, though. This is the frontier. It's not for everyone, but we are glad you are with us on the bankless journey. Thanks a lot.