Andrew Keys, Co-Founder of ConsenSys: The History of ConsenSys and the Future of Automation

Andrew Keys is the Co-Founder of ConsenSys Capital, and current Managing Partner at DARMA Capital. In this conversation, Andrew and Anthony Pompliano discuss the early days of ConsenSys, the reason why Blockchain technology is ultimately about automation, what Andrew's derivative of the Fat Protocol thesis is, and what it's like to live in Puerto Rico. -----If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworksgroup.io

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

• 0:01Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:13Anthony Pompliano?

  Andrew Keys is the co-founder of ConsenSys Capital and current managing partner at Dharma Capital. In this conversation, we discuss the early days of ConsenSys, the reason why blockchain technology is ultimately about automation, what Andrew's derivative of the FAT protocol thesis is, and what it is like to live in Puerto Rico. I really enjoyed this conversation, and I hope you do as well.

• 0:37Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 1:04Anthony Pompliano?

  Alright guys, bang, bang, bang, bang. That was four bangs, all for Andrew. He's here, he's got some crazy stories, he's been joking around all morning. Thank you so much for coming and doing this.

• 1:15Speaker 02

  Thanks for having me, Pomp.

• 1:16Anthony Pompliano?

  Look, he's got big energy. Dude, you're famous. You've done a great job. What's your background? Pre-ethereum, pre-crypto, pre...

• 1:29Speaker 02

  So I would say that I spent about 13 years at the intersection of finance and technology, basically a recovering investment banker.

• 1:36Anthony Pompliano?

  Were you like a traffic cop at the intersection?

• 1:38Speaker 02

  Something like that, something like that. And you know, to be completely honest with myself, I was treading water. And I think I found myself, interestingly, at Cardozo Law. Aaron Wright, one of the creators of OpenLaw, was hosting the first ever Ethereum meetup. And it was about two weeks before Ethereum was to do their token sale. And Joseph Lubin, Sam Cassett, Christian Lundquist, kind of early technical leads, you know, iconic.

• 2:12Anthony Pompliano?

  Never heard of any of those guys.

• 2:13Speaker 02

  They were all in this room with Aaron, and basically Joe thanked Satoshi for creating a way where Alice could send Bob value, peer-to-peer. But his position was that we needed business logic, you know, and he admitted that it was poorly phrased, smart contracts, but basically if X happens, then Alice sends Bob value else failure. That if then else was really the next generation of the technology. And I kind of fell down that rabbit hole from that day. And I remember thinking about, you know, why do we need banks? Why do we need the bankers, short the bankers?

• 2:56Speaker 02

  And, and, you know, what are we going to do with all these skyscrapers?

• 3:00Anthony Pompliano?

  Wait, can I tell you a story real quick?

• 3:01Speaker 02

  Sure.

• 3:01Anthony Pompliano?

  Um, we're going to have too much fun, so I'm going to interrupt whenever I feel like it. Uh, there was that consensus, there was a banker who, I actually don't know who it is, so I can't even call him out. Uh, but I think it was either from Morgan Stanley or Merrill Lynch, who was on stage and someone asked him about the long Bitcoin, short the bankers mantra. And his response was, that's silly. Which I felt vindicated, I was like, if they think it's silly, that's perfect. All right, keep going. So this business logic.

• 3:28Speaker 02

  So, so, so long story short, um, you know, I, I, I understood decently architecture of, of, of blockchain. Uh, and really when I started thinking about the concept of smart contracts, I thought this could really revolutionize our financial, social, political operating systems. And you could literally have a decentralized worldwide web. So I was literally the odd man out, Joe, computer science from Princeton, Sam, master's computer science from Johns Hopkins, Chris Hume's PhD, and I'll break geometry, and I'm a business guy. So, so, so, so.

• 4:04Anthony Pompliano?

  That business spelled out like B I Z.

• 4:06Speaker 02

  Business. Uh, so, so, so basically I volunteered for free, um, initially to work for consensus. Uh, and.

• 4:14Anthony Pompliano?

  And was consensus like a baked out idea at that time?

• 4:17Speaker 02

  It was, it's still baking. Uh, and, and I mean, basically we were building, uh, tools and software for a protocol that hadn't even launched for an ecosystem that didn't exist. And, and we were really kind of researching and seeing what stuck in the early, early days. And so I, I, I started building out kind of our global business development and marketing strategies from, from kind of early on. And and really, that was the spring of 2015. And and mainnet of Ethereum didn't even launch till July 31 of 2015. So basically, there were about six months where we were kind of getting our acts together. And mainnet launched and

• 5:03Speaker 02

  everyone was still doing researchy things until I would say about September, October, in my opinion. And and and I sent out, uh, literally, I was just cold calling banks and and blue chip service providers. And I sent out an email uh to a Microsoft rep that had blockchain in his LinkedIn. And uh about a month later, uh, we were able to put a permission flavor of Ethereum on uh Azure and to basically create the first ever concept of blockchain as a service, which has now been downloaded to millions of times, which really gave a sandbox for enterprises to learn what this was.

• 5:42Anthony Pompliano?

  All right. So hold on, back back up for a second. Consensus at this point, we're talking, let's call it Q3, Q4, 2015, is how many people roughly?

• 5:50Speaker 02

  Twenty at most.

• 5:52Anthony Pompliano?

  Okay, 20 people. Uh, you're one of the 20. How many of them are technical versus not?

• 5:56Speaker 02

  I would say 17.

• 5:59Anthony Pompliano?

  All right. So you and the, you're you're the, I'm not a business, I'm a businessman. And uh

• 6:06Speaker 02

  I got an A minus in computer science in college once, so that was okay.

• 6:09Anthony Pompliano?

  Did you cheat?

• 6:10Speaker 02

  No, I don't. But it was all technically downhill since then.

• 6:14Anthony Pompliano?

  All right, that's fair. Um, did uh, when you're at consensus, are you guys getting paid in Ether dollars?

• 6:23Speaker 02

  Uh, we're getting

• 6:24Anthony Pompliano?

  You get a choice?

• 6:24Speaker 02

  We we we were getting paid in dollars at that point.

• 6:28Anthony Pompliano?

  Okay. And then that changes at some point, right?

• 6:30Speaker 02

  No, it changed $2.

• 6:33Anthony Pompliano?

  Oh, it changed $2. So in the beginning, it was Ether, and then eventually it became dollars.

• 6:36Speaker 02

  In the beginning, I just volunteered. I said, look, let me, let me, let me prove myself.

• 6:40Anthony Pompliano?

  Listen, we we take volunteers here too, if you're interested. Uh, all right. So uh, and what was your purpose of like, you're emailing all these banks and are you just like, hey, man, we're in Brooklyn, what's up?

• 6:52Speaker 02

  Yeah, well, I mean, basically, what we we we wanted to do was demonstrate that we could have the same type of user experience of the legacy applications, but in a decentralized peer-to-peer fashion.

• 7:03Anthony Pompliano?

  Okay.

• 7:04Speaker 02

  And, and really.

• 7:05Anthony Pompliano?

  And you had the foundation for them to build all that stuff on top of.

• 7:08Speaker 02

  Right, right. And, and basically, we announced this thing in the Wall Street Journal. And, and I'll never forget, it was Marley Gray and I with a Microsoft Corporate Communications person saying, "No, it's not drug money. It's, this is, this is the next generation of the database." And then, and basically.

• 7:24Anthony Pompliano?

  We're a computer company.

• 7:25Speaker 02

  Yeah, exactly. And, and, uh, and, and when everything was said and done, uh, the, the, this little bit beep post by Paul Vina, uh, shot Ether over a dollar. So that was the first time.

• 7:38Anthony Pompliano?

  Shout out, Paul.

• 7:38Speaker 02

  Yeah. So, so Paul, Paul was great. And, uh, and we, and we created the term blockchain as a service.

• 7:44Anthony Pompliano?

  Got it.

• 7:44Speaker 02

  And that's when it got crazy.

• 7:46Anthony Pompliano?

  And, and well, hold on.

• 7:46Speaker 02

  From that point.

• 7:47Anthony Pompliano?

  Yeah, but before we get to that, uh, what Ether, Toby Sales at what, like?

• 7:51Speaker 02

  Thirty cents.

• 7:51Anthony Pompliano?

  Twenty cents, yes, something like that. Um, okay, so shoots over a dollar. Everyone's like, wow, this is great. Uh, little did we know, it was gonna go to fourteen hundred. Um, and when you're doing all of this, was Microsoft the first organization to come and build something? Or was it Microsoft the first, like, they were the first true enterprise, but there was other people building on top of it before?

• 8:14Speaker 02

  Yeah, there, there were other, everyone was playing with it. And really, it was so early, there were no developer tools.

• 8:19Anthony Pompliano?

  Mm-hmm.

• 8:20Speaker 02

  So basically, we were just building out that infrastructure. Uh, you know, Truffle's first release was in June of that year.

• 8:27Anthony Pompliano?

  Yep.

• 8:27Speaker 02

  So, so.

• 8:28Anthony Pompliano?

  So it's just hard for people to use the foundation, just because the developer tools weren't even built yet. And the seventeen or so, uh, technical folks at Consensus at that time, they're building those developer tools?

• 8:38Speaker 02

  Yeah.

• 8:38Anthony Pompliano?

  Okay, got it. So they're like, hey, look, we're gonna basically teach people to fish, we're gonna give them fishing poles, we're gonna do all this stuff, and then let them go build all of it.

• 8:46Speaker 02

  Yeah, well, they started saying, "We're gonna build the apps. We're gonna build, you know, decentralized Uber," but then they're like, "How do we even do that without the tools?"

• 8:54Anthony Pompliano?

  Mm-hmm.

• 8:54Speaker 02

  So, you know, they failed fast in, in that regard, and then said, "Well, we gotta take a step back and then really build out the tooling."

• 9:01Anthony Pompliano?

  Yeah.

• 9:01Speaker 02

  Uh, which is now systemic to the entire ecosystem.

• 9:04Anthony Pompliano?

  Got it. And so, uh, you get Microsoft, the, I mean, that's gotta be a wild conversation at first, if I think you're crazy. But you did reach out to somebody who had blockchain in their name.

• 9:13Speaker 02

  Yeah.

• 9:13Anthony Pompliano?

  What, what were they, what was blockchain before Ether?

• 9:16Speaker 02

  So I think they were putting, they were putting kind of the, the taglines in their LinkedIn to hope the algorithms would, would connect us, and it did.

• 9:23Anthony Pompliano?

  Oh, interesting. So they were actually looking into it and they were, they were trying to figure out.

• 9:27Speaker 02

  What's that?

• 9:28Anthony Pompliano?

  Yeah, who, who was doing it? That's super interesting. Um, all right. So after Microsoft, what are the next couple that, that dominoes that fall?

• 9:37Speaker 02

  So then basically, we then had to start demonstrating that this software had utility. And, uh, James, um, actually created a total return swap where basically we used blockchain from AML KYC onboarding to real-time collateral rebalancing to triple entry accounting. So basically we created a 10-minute demonstration and then showed this to every financial institution.

• 10:06Anthony Pompliano?

  Who's James?

• 10:07Speaker 02

  James Lozis, who ran capital markets at Consensus.

• 10:10Anthony Pompliano?

  Got it.

• 10:10Speaker 02

  So he was probably one of the other non-techies in the early days.

• 10:14Anthony Pompliano?

  Just for those sitting at home, James is sitting in the room. So I was a jab at Andrew. Um, so when you build that, you're basically building a demo, right? To show people this is, this is kind of a finished product, if you will, right? It's a prototype, but this is what it can do.

• 10:30Speaker 02

  This is what it can do. This is the art of the possible.

• 10:31Anthony Pompliano?

  Got it. And so when you do that, you then take that demo and you go and you show more organizations. What is the response to that initial prototype?

• 10:39Speaker 02

  It was, it was very strong. Uh, basically they were just understanding, you know, we're still going to be needed for liquidity and will probably still be needed for advice. But things like audit are going to become automated. You know, the notion of triple entry accounting that, or double entry accounting that was created by a monk in the 1600s, that if I give you a dollar, yeah, I mean, the fact that this is not automated already, uh, is completely wild. And then we started actually going, we started financial institutions, then we started doing other verticals. We built a supply chain for BHP Bilaton, which was one of the largest natural resource miners in the world. Um, so tracking the provenance of the assets, um, that they dug up in the ground to see if there was oil,

• 11:23Speaker 02

  uh, which was kind of our first big supply chain use case. Uh, and, and really just starting to attack, where does this make sense? Not blockchainize all the things.

• 11:35Anthony Pompliano?

  Yeah. So you, you said the term automate and I get a lot of flack for this, but, uh, I want your opinion, which is. All we're talking about here is automation, right? So everyone always asks me like, what's the secret to raising money from institutions? What's the secret to what convinces people who could care less about the anarchist view of the world to be interested in this stuff? And what I, the way that I talk about it is, we need three things for automation to occur. We need digitally native assets, right? The machines don't want the legacy assets that are analog or electronic. In order to have those digitally native assets that are computer files, we need to have some form of accounting that makes sure that you're not duplicating it, right? So digitally native accounting, which is triple entry accounting or blockchain.

• 12:20Anthony Pompliano?

  And we need digitally native contracts so that the machines are actually governed by something that can stand up in a court of law that says that was a legal transaction, this is enforceable, et cetera. So digitally native assets, accounting, contracts, and that just gets us to automation, right? What you're talking about is automating auditing or supply chains, et cetera. That's not that controversial, right? I think most of the people in the legacy financial world know automation is coming. They may think that automation is coming like the supply, you know, the, um, uh, the car line where the car gets manufactured is going to get automated by robots, right? Or like the Amazon warehouse, we're going to take the humans out, we're going to put

• 13:04Anthony Pompliano?

  robots, right? They forget stock trading's been automated, right? Like, like you can call it high frequency, you can put whatever tag on you want, it's automation, right? That's essentially what you're talking about here with this world computer, right? And Ethereum as a protocol is you're using that as the groundwork to just build automated systems that really, when you look at it from a theory perspective, are not complex, right? I mean, the if then else statement is like stood the test of time.

• 13:32Speaker 02

  Exactly.

• 13:32Anthony Pompliano?

  Um, is that crazy? Or is that spot on in terms of what?

• 13:38Speaker 02

  I think that's spot on, but I think I would just add one more aspect to that.

• 13:42Anthony Pompliano?

  Which means it wasn't spot on, but go ahead.

• 13:44Speaker 02

  Uh, is, is, is the, the, the missing piece to that would be the notion of self-sovereign digital identity, which is, which is really the cornerstone of all of this. So right now you log into Facebook, Twitter, Amazon, eBay, Uber at all, and, and I would generally say that they all have similarities in that they provide identity, reputation, you know, the five stars at the end of your Uber or your eBay rating or Airbnb rating, a payment rail. And and then they provide their niche service, but they they basically sit between us. But in the future, you're going to log into the Pomp browser. You're not going to necessarily log into Google or Firefox or Safari. Um, and that Pomp browser is going to have your identity. It's going to have your reputation.

• 14:29Speaker 02

  It'll have your canonical persona. Then you'll have your work persona, your dark persona, your gamer persona, et cetera. And from that place, you're going to have the same type of user experience that you do with legacy FAANG apps. But they're going to be peer to peer. Uh, and uh, you're going to see instead of Uber taking thirty five percent, those margins are going to get extremely condensed. And what you'll also see is you're going to see this kind of micro transactional world.

• 15:00Anthony Pompliano?

  Like streaming payments.

• 15:02Speaker 02

  You know, A I G could ensure that specific ride. Where the GPS algorithm takes you from place A to place B with, uh, you know, a certain amount of money that's escrowed via smart contract. And and I think that in addition to all of the automation, the notion of each of us having our own self sovereign identity. Uh, where we can granularly uh, give out information like our blood type or or our medical records from that. Uh, and and and go in a peer to peer fashion, I think is the really important. And machines will have that too, and businesses will have that. And and so I think that.

• 15:38Anthony Pompliano?

  And and so in this world, uh, so there's a couple of things here. One, let's talk about the identity piece. Uh, I think we're moving towards the world you're talking about, right? I agree that that's where we're going. Uh, Apple just announced that they're now going to let you sign in with Apple, but Apple will um, put incredibly high friction. And in some cases, actually restraints on developers being able to access the data unless you permission it, right? So take Facebook login when I go to Facebook, uh, or I use Facebook's login system. Um, Facebook gets all of that data and then also the developer on the other end gets all of my Facebook data, right? Like it it's like I I talk about it like it's like the Panama Canal, just the things wide open and you can just take a jet ski right through, right? Just go wherever you want.

• 16:21Anthony Pompliano?

  Instead, what Apple is trying to do is exactly how the Panama Canal works, right? It's kind of, hey, we can compartmentalize this here. And so, okay, you want to sign in to use that music service? Sign in with Apple and then that music service has to ask you specifically for can I use your data? Here's how I'm going to use your data and here's the exact pieces of the data that I'm going to use. You can say yes or no. What they also will do is allow you to create, it's not a false identity. It's more like a pseudonymous identity. So they'll say, look, you don't have to give this developer your email address. What you can do is you can basically give them a one-time use email address that then will be forwarded to you on the backend. Right? So that you're still receiving the information, but the developer never gets your email address.

• 17:06Speaker 02

  So, so those, those.

• 17:07Anthony Pompliano?

  Directionally, where you think.

• 17:09Speaker 02

  I, I completely agree. And, and like with that, I use like the term of badging. So the, the analogy I always give, if, if you have a 21-year-old daughter and she goes to a bar, she just has to prove that she's 21 years old. She doesn't have to give the bar, the bouncer, the, the address when she's giving the driver's license. So you're going to have this ability where.

• 17:31Anthony Pompliano?

  She didn't even have to actually show her birthday.

• 17:33Speaker 02

  She shouldn't even show her birthday. She should have a proof that she is indeed over 21 years old, but not show her birthday, not show her name, not show her address. And we're going to get, be able to kind of granularly authenticate and digitize those proofs.

• 17:47Anthony Pompliano?

  Got it. All right, so we're heading towards this world. We get the identity piece figured out. There's this automation that occurs. Your background is at the intersection of technology and finance. I think a lot of people see early signs of automation using blockchains and this triple entry accounting and like supply chain or, you know, and they see the Walmart and like all these things happening.

• 18:15Anthony Pompliano?

  Automation's coming to finance, right? And it's going to come fast and furious in a way that I think a lot of people that are like, oh, the blue collar workers get automated away first. Like eh, the white collar workers have already been automated away in some cases.

• 18:28Speaker 02

  Sure. Auditors and.

• 18:30Anthony Pompliano?

  Yeah, I mean, just all this. And just again, just go back to the stock market floor, right? Like, there's actually been more automation, probably at the New York Stock Exchange than there has been in most warehouses in America, right? Is how I would think about it. That's actually a great tweet. When we get done, I'm going to tweet that.

• 18:46Anthony Pompliano?

  But the way that I think about this is there's two types of automation. So there's what I'll call the actual

• 18:55Anthony Pompliano?

  which is the and all the stuff that we know is coming. And then there's like execution administration, like all the and operational type stuff.

• 19:06Anthony Pompliano?

  Let's just put on the sidelines, the execution administration, operation stuff. You now are getting really interested in the quant side of of how do you take that intersection of technology and these digital assets? What are you doing now?

• 19:21Speaker 02

  Okay. So.

• 19:23Anthony Pompliano?

  You see that how I set you up there?

• 19:24Speaker 02

  Absolutely, absolutely. So I have joined a digital asset risk management advisors, Dharma Capital as managing partner. And we believe.

• 19:34Anthony Pompliano?

  They let you be the partner?

• 19:35Speaker 02

  Yeah, absolutely.

• 19:36Anthony Pompliano?

  Yeah, okay, we'll talk to those guys.

• 19:37Speaker 02

  And and and

• 19:41Speaker 02

  we believe we're in the equivalent of 1994 if dial up started in 1996. And there is a essentially a new asset class of what we'd call crypto commodities. And and you could derive a little bit of this from the fat protocols thesis. And we believe that this next generation of the web is going to have a stack composed of smart contract fuel, file, storage, computation, messaging. You could you put Bitcoin in there as a storage of value protocol? And we're interested in those protocols that are going to serve every application.

• 20:17Anthony Pompliano?

  All right, timeout, hold on. Because people at home aren't nearly as fast as I am, obviously.

• 20:25Anthony Pompliano?

  The FAT protocol thesis is an idea that in the internet age, um, kind of the web, TCP IP, which is the protocol, there was very little value accrual there, but all the applications, right?

• 20:41Speaker 02

  Yeah, FAANG at all, yeah.

• 20:43Anthony Pompliano?

  That is where all the value accrued. The, the application is built on top of the protocol. The FAT protocol thesis makes the argument that it is inverted in this new world, where all of the value accrues to the protocol and the applications don't have as much value accrual. You essentially are taking that FAT protocol thesis with a spin and you are saying what?

• 21:06Speaker 02

  We're saying that we also need to understand and do fundamental research on those FAT protocols and then put a alpha generation overlay on top of it.

• 21:18Anthony Pompliano?

  Okay, so you're saying that the FAT protocol, let's take Ethereum as an example. Ethereum itself is a protocol, but you cannot own Ethereum, right? It's a decentralized network. Nobody owns Ethereum. You can own Ether, which is related, gets confused a lot for the network, but you can't actually own the network. And so what you're making the argument is it's not the protocol itself that has the value accrual. It is the commodity that is associated with the protocol is where the value accrues. So Ether as the gas is value?

• 21:57Speaker 02

  Exactly.

• 21:58Anthony Pompliano?

  Okay. What other examples are there other than Ether and Ethereum?

• 22:02Speaker 02

  So I think a, a one that will be coming soon is the interplanetary file system is the decentralized file storage protocol that we can't own, but we can own Filecoin, which, uh, represents a token of bandwidth. And, and so basically we, we, that would be another one that would fit into that web three.

• 22:24Anthony Pompliano?

  So the, the IPFS, interplanetary file system, which sounds like we're going to space, but we're not, is a network.

• 22:33Speaker 02

  Yep.

• 22:34Anthony Pompliano?

  For storage, right? Basically it's decentralized storage, right? There is a token that is used as bandwidth.

• 22:44Anthony Pompliano?

  That can be used as a utility, you can buy it, you can do all these different things with it. The value doesn't necessarily accrue to IPFS, it accrues to Filecoin, right? And so the thought process here is the FAT protocol thesis is directionally correct in that it is not just the applications built on top that will accrue value. It is actually the protocol, but it's not the protocol itself. It is the commodity associated with the protocol.

• 23:08Speaker 02

  Protocol, exactly. And then, and then we add what we call quantitative systematic alpha generation, which is.

• 23:17Anthony Pompliano?

  All right, hold on, what does that mean?

• 23:18Speaker 02

  Basically, we have.

• 23:20Anthony Pompliano?

  Let's go word by word.

• 23:21Speaker 02

  Yeah, quantitative. So we have a risk management overlay where we quantify the risk states and the risk regimes of the assets. And so basically if something overheats, we go risk off and we'll sell it and then we'll buy it back.

• 23:37Anthony Pompliano?

  So you're just using data and software to look at the trading of these liquid assets. So take Filecoin, Ether, whatever it is, and you say, oh, Ethereum is overbought. There is a mathematical probability that it is going to drop in price, therefore we should sell.

• 23:54Speaker 02

  Correct.

• 23:55Anthony Pompliano?

  Right, so just traditional quant based analysis of a liquid market or asset. That's what you're doing, so quantitative.

• 24:02Speaker 02

  Systematic and systematic really is that, is that exactly what you just explained? Where if we're in a risk regime, there's no emotion there. We are selling it based on the risk state. Unless there's some gleaming fundamental that we understand that would, that would take us out of that position.

• 24:20Anthony Pompliano?

  So the systematic is the Ivy League word? In my world, that's just rules based.

• 24:26Speaker 02

  Perfect.

• 24:27Anthony Pompliano?

  Yeah, I represent the, the people who sit at home on their couch and just drink beer. And so we use rules based, but quantitative, smart people analysis, systematic, rules based, right? So alpha generation.

• 24:39Speaker 02

  Yep, so basically we are, we want to outperform hodling. And, and I think that hodling is a great thought, but there are smarter people that are buying your troughs and, and or, and selling your, your, your apexes there. And, and basically we believe that we can, using quantitative systematic approach, pick those markets.

• 25:04Anthony Pompliano?

  Okay, so. Let's use an example. Let's take Bitcoin over the last seven, eight months. So Bitcoin bottoms in December of 2018, around 3150, 3200, somewhere in there, depending who you ask. You would be able to use the quantitative systematic models. Says, hey, it's pretty oversold.

• 25:27Speaker 02

  Risk on, yeah.

• 25:28Anthony Pompliano?

  We probably should have long exposure here. So you buy.

• 25:31Speaker 02

  Yep.

• 25:31Anthony Pompliano?

  It runs up to $5,000 a Bitcoin.

• 25:34Speaker 02

  Correct.

• 25:34Anthony Pompliano?

  At that point, the model says, whoa, looks like it's overbought. There's gonna be a drawback. Sell. Drops back down to about 4,000. You buy again. It runs up to 8,000, right? And so all of those kind of daily or, you know, few days volatility, you're essentially trying to buy and sell dips and boom in kind of the near term.

• 26:00Anthony Pompliano?

  What that would do from a performance standpoint, as far as I understand it, is if I bought Bitcoin at $3,200 and you bought Bitcoin at $3,200, your model should, by the time we get to $8,000, I'm up just the appreciation from 3,200 to 8,000. You're actually up that appreciation plus more, that alpha.

• 26:20Speaker 02

  Few more Bitcoins.

• 26:22Anthony Pompliano?

  Because of the ability to buy and sell based on price movements.

• 26:25Speaker 02

  Exactly.

• 26:26Anthony Pompliano?

  Got it. Why isn't anyone else doing this?

• 26:29Speaker 02

  I'm not sure, but, but we're taking a very rigorous fundamental research approach on what those protocols are. And then, once we do that, we hand that over to our quants and we generate alpha.

• 26:42Anthony Pompliano?

  Got it. You could be doing pretty much anything you want in the world. Why, why do this?

• 26:47Speaker 02

  Because I think we're in the early days of the next generation of the internet, and this is a once in a lifetime opportunity. And I love it. I love the people. I love, I love the notion of a decentralized worldwide web. I think that intermediaries have interposed themselves in society and extract too much rent. And this is going to change everything.

• 27:12Anthony Pompliano?

  So. You're doing all this from Puerto Rico. What's going on in Puerto Rico?

• 27:16Speaker 02

  So Puerto Rico is the most tax-efficient jurisdiction for a US individual and US corporation. My aha moment to Puerto Rico was when I learned that every Microsoft Office license, and you think about how many licenses of Office in every business, in every home, in every hospital, are generated, they have the source code to Microsoft Word, Microsoft Excel, Access, etc. Sitting in San Juan, and they sell that license from there because of tax-efficient jurisdiction.

• 27:54Speaker 02

  And we domicile, our fund there to also take advantage of tax efficiency.

• 28:03Anthony Pompliano?

  Got it. And then you think this is the future jurisdiction of businesses?

• 28:09Speaker 02

  Absolutely.

• 28:10Anthony Pompliano?

  Why?

• 28:10Speaker 02

  Because they have the ability to create tax incentives for startups, unlike anywhere in America. And as California and New York taxes continue to increase, and the SALT tax where you can't deduct local and state taxes from your federal, continue to exacerbate the tax inefficiency in the mainland, we are seeing a tremendous flocking. It's absolutely booming there.

• 28:44Anthony Pompliano?

  What's it like living there? Like, I've been to Puerto Rico now, I think, twice. And I went to like the old San Juan area.

• 28:52Speaker 02

  Yeah.

• 28:52Anthony Pompliano?

  I think most people, when they think of Puerto Rico, they think of San Juan, old San Juan. My understanding is that a lot of people aren't spending time there. They're actually going to other areas on the island?

• 29:02Speaker 02

  It's a paradise.

• 29:04Anthony Pompliano?

  Paradise?

• 29:05Speaker 02

  Absolutely.

• 29:06Anthony Pompliano?

  Alright.

• 29:06Speaker 02

  It's a beautiful Caribbean island. And I spend my time in a place called Dorado. And they've just broken ground on a Johns Hopkins University Medical Center there. They have great school systems. And really intelligent people that have built large businesses and are still building large businesses are domiciling there. And with the future of work, where we can work remotely, why not work from a beautiful beach? And really, I come back up here to New York. I keep a small place in Manhattan. And we go back and forth.

• 29:42Anthony Pompliano?

  The beaches, are they actually nice?

• 29:44Speaker 02

  Spectacular.

• 29:45Anthony Pompliano?

  Just checking. Alright, you've been around for a long time. You have seen the evolution of what is now the second largest crypto asset in space. From the early days to tens of billions of dollars in market cap. What's next in terms of like, where do we go? What do you, kind of, we look at like the macro?

• 30:04Speaker 02

  So, we're going from proof of concept into production. And really what we're seeing is the validation of scalability and privacy. So, over the last month, or I'd say month and a half, we've seen two major occurrences. One was Societe Generale issuing a bond on the public Ethereum mainnet. That's a financial institution with all their regulatory compliance issuing a security on public Ethereum.

• 30:36Anthony Pompliano?

  Big deal.

• 30:37Speaker 02

  Big deal.

• 30:38Anthony Pompliano?

  Yep.

• 30:38Speaker 02

  Second, we've seen Ernst & Young, one of the largest big fours, issue Nightfall, which is a zero-knowledge proof layer that resides on top of Ethereum to instill confidentiality and privacy of transactions. The enterprise space is just warming up to public permissionless blockchains. And the analogy I always give is, there were intranets in the early 90s while internet was growing up. And we're starting to see that chasm cross. Really, there's privacy that needs to be improved. So, things like what Zuko is doing with Zcash,

• 31:19Speaker 02

  what we've seen ING, JP Morgan, and now Ernst & Young doing for public Ethereum. There's scalability, so improving our transactional throughput with things like proof of stake, shartings, and then layer two, like state channels and plasma. And as all of those get validated, we're just going to see more transactions go on to the public Ethereum mainnet. And I think that that's really an interesting time because we're seeing it happen before our eyes.

• 31:51Anthony Pompliano?

  Can Ethereum last?

• 31:53Speaker 02

  Absolutely.

• 31:53Anthony Pompliano?

  What I mean by that is, institutional investors ask me all the time, "What about this competitor? What about this smart contract platform? What about this one?" Right? Ethereum was or is the biggest, right? We'll put it that way. People will debate me on what is the first.

• 32:11Anthony Pompliano?

  What gives you the confidence that it'll

• 32:13Speaker 02

  So

• 32:14Anthony Pompliano?

  Kind of persist?

• 32:15Speaker 02

  So I think one is the the engineering base. There are more engineers working on this to to improve it and it's growing faster than than anything else in in the ecosystem. Second are standards. So from the kind of a technology historic perspective, Java became J two E E, Java two Enterprise Edition, when there were clean web APIs and clean database APIs. And that's when it became the most used software language in the world. And similarly, we're seeing tremendous amounts of standards being built around Ethereum. The token standard, the identity standard, these reputation standards, the E E A protocol standard.

• 32:57Speaker 02

  And so what that means is that a developer in Mumbai, Paris, New York, or San Francisco would have clean standards to use. So you don't have to recreate the wheel. So basically that accelerates momentum. So if we have these standards that are being created, we're seeing enterprise using public permissionless. We're seeing the developer growth is astounding. Look, go to truffle downloads and you can see it's it's a vertical on just how many downloads there are. And then the last thing is the conversion of the virtual machine, the Ethereum virtual machine to WebAssembly, which will basically open up the ability to build on Ethereum

• 33:38Speaker 02

  to all sorts of developers that use anything from C++ to Java, etc., rather than just having to use something like Solidity.

• 33:46Anthony Pompliano?

  Got it. What um, what's your biggest fear? Like, let's say that 10 years from now Ethereum doesn't work. It failed. What's the what's the most likely reason?

• 33:54Speaker 02

  So so obviously, I grew up and I believe tremendously in Ethereum, but but I don't think Ethereum. Is going to be the only thing. Again, we are looking at this stack. And there are, there are going to be niche use cases. I think that Definity is interesting. I think the parachain concepts of Polkadot and Cosmos are interesting. And I think that you're going to see them somewhat interact with each other. But, but, but again, that's essentially the smart contract layer in the stack and we need file storage. We need encrypted messaging. We need mesh networks. So really understanding that kind of how they all interact and then how do they interact with the other buzzwords? How does, how do we interact with AI? How do we interact with machine learning?

• 34:38Speaker 02

  So, so basically, I don't really have fear about the industry. I mean, I think anyone who just lived through the 90% drawdown, we're all a bit stronger now. And so I'm just excited.

• 34:54Anthony Pompliano?

  Awesome. Before I finish up, rapid fire, most important company in crypto?

• 34:59Speaker 02

  Consensus.

• 35:00Anthony Pompliano?

  Why?

• 35:00Speaker 02

  Because

• 35:01Anthony Pompliano?

  No, but you can't say consensus.

• 35:02Speaker 02

  Well, I, I, no, absolutely.

• 35:04Anthony Pompliano?

  Why?

• 35:05Speaker 02

  Because they built, or we, built all the tooling, all of the education, drove the majority of the Enterprise Ethereum Alliance, which is now the largest open source blockchain initiative on earth. And really that was 1.0 and now consensus is going into hyper focus into product and they're going to bring that same beast of building out an ecosystem into monetizing it.

• 35:36Anthony Pompliano?

  You're, you're, I'm going to put you on the spot as spokesman for consensus right now, unofficial spokesman. What do you say to all the people who say consensus is screwed and it's over and it's just mass chaos? And all the, all the negative things that you'd read on the internet?

• 35:51Speaker 02

  I'd say it's just getting started and, and I think that without consensus, the ecosystem would have been a third of the size that it is now. And now it's just focusing very heavily on delivering product. And if, if I was able to talk about the things that are under NDA, it would just be a completely different conversation. But there's so much great stuff going on with consensus.

• 36:16Anthony Pompliano?

  I just tell them, go, go talk to the people who are there. Right? All right. What, uh, what's the one regulation you would change or improve if you could?

• 36:23Speaker 02

  It's the one regulation I could change or improve. So I, I, I would reiterate the understanding of the ontology of tokens. So not all tokens are securities. And I think Pat Baraducci from the Brooklyn Project did a great job of defining what a consumer utility is versus what a security is, what a commodity is, and really clarifying the notion of digital assets not being very pigeonholed and, and, and really defining which bucket they go in based on their characteristics. Because I think right now, the SEC is saying, you know, something is just an unregistered security, and we have to really kind of create

• 37:07Speaker 02

  those fact patterns and those ontologies.

• 37:09Anthony Pompliano?

  Yeah, just more clarity.

• 37:10Speaker 02

  Yeah.

• 37:10Anthony Pompliano?

  Got it. What, uh, what's the most controversial thought in crypto? If you don't say something controversial, I'm gonna call you out.

• 37:17Speaker 02

  So, so I would argue that Joe Lubin has better understanding of computer science and blockchain than any of the other CEOs in the space combined. So you can take Barry, you can take Nova, you can take Blythe, none of them have a computer science background, and Joe's looking at this from the rudder, throw that in there. He has more understanding of the space in his pinky than all of them combined.

• 37:48Anthony Pompliano?

  What, okay, so that's CEOs. If you compare him to Bitcoin core developers, Vitalik, et cetera, who's got more understanding?

• 38:01Speaker 02

  So, so that's a, that's a good one. So, so Joe's not hands-on in building software these days. Um, he's got a big business to run, but, uh,

• 38:11Anthony Pompliano?

  So he's got a couple hundred employees, no big deal.

• 38:13Speaker 02

  Thousand, yeah. Um, so, so what I would say is that he understands it technically, but, uh, he's not developing the software. And and and I wish that that there was more harmony in the Bitcoin community with respect to Ethereum. You know, we all grew up on Bitcoin and we thank Satoshi and you know, it's kind of sitting on giant shoulders.

• 38:38Anthony Pompliano?

  Yeah, that is fair. Most important book you've ever read?

• 38:42Speaker 02

  The Creature from Jekyll Island, the history of the Federal Reserve.

• 38:45Anthony Pompliano?

  Why?

• 38:46Speaker 02

  It was a great foreshadowing of kind of what is money? And when you start thinking about this and kind of how we all believe in what money is, it was it was it was a good one.

• 38:56Anthony Pompliano?

  All right, aliens, real or not?

• 39:01Speaker 02

  Real for the fun of it.

• 39:03Anthony Pompliano?

  No, come on, what do you actually believe?

• 39:05Speaker 02

  There's gotta be something out there. I mean, it we're not just hanging out on this little blue dot in a vacuum. There there are people out there.

• 39:14Anthony Pompliano?

  You think there's like human-like aliens? You're not even like, oh, sentient life, you're just like, no, like two legs, two arms, drinking a beer, drinking a beer somewhere?

• 39:25Speaker 02

  Something like that, yeah.

• 39:26Anthony Pompliano?

  All right, are we gonna find them before you and I die?

• 39:28Speaker 02

  I hope so.

• 39:29Anthony Pompliano?

  No, but what do you think?

• 39:30Speaker 02

  I hope so.

• 39:32Anthony Pompliano?

  All right, after we get done building out money for machines, then in automation, we will we'll go look for aliens together.

• 39:40Speaker 02

  Done.

• 39:41Anthony Pompliano?

  You get one question to ask me, only one though, because you're gonna try to break the rules. What question do you have for me?

• 39:47Speaker 02

  When are you gonna start buying Ether?

• 39:50Anthony Pompliano?

  Oh, man.

• 39:54Anthony Pompliano?

  What I will say is I do not own any Ether today. The part that has got me much more interested in Ethereum, Ether, etc., is this DeFi stuff. And again, I think your description of Ethereum's potential

• 40:17Anthony Pompliano?

  Is more in line with what gets me excited around just like automation, right? And this idea that um there's a lot that can be built on top of it. And uh I don't disagree with your derivation of the FAT protocol thesis. Uh but I do wonder some of the uh like the crypto economics, right? So this whole idea like if you need to use something, price appreciation, etc. But I think that there's just value, right? Um for me, it's less about like what? How high can all of this go? And where's the best returns? And it's more about what is the one trade that? And trade, I look at it from like an investment, a long-term theory, whatever you want to call

• 40:58Anthony Pompliano?

  that I have the highest conviction in that would have enough upside potential for me to be excited. And it's like Bitcoin hands down so far away from everything else that it's like a no-brainer. Uh what I will say is I'm spending more time looking at Ethereum and the DeFi space. Uh if I buy Ether, I will let you take credit for asking me this question and being the reason why I buy Ether, but not yet. Can I gift you one? No. No, because I don't want you running around saying I gave him the first one. All right. But I will, but but I will. Well, here, so here, here is the one thing that I will say uh is when I first started mining, I did mine Ether. Cool.

• 41:41Anthony Pompliano?

  So the GPUs were the first thing that we got, not ASICs. Very cool. So fair enough. Um, all right, now, uh, now I'm gonna have to be thrown to the wolves as Twitter and the trolls. Pop buy Ether. So you guys can thank Andrew for that. Um, all right, man, listen, this is a ton of fun. Uh, we'll have to do this again, and uh maybe I'll come down to uh Puerto Rico and uh you could show me around and we'll go to the Microsoft office and uh bang on the door a little bit. Cheers. Hey, everyone, Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the Apple, Spotify and other podcast charts, please do us a favor and rate, review and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars.

• 42:23Anthony Pompliano?

  Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.