Michael Oved: Building Airswap and Fluidity

Michael Oved is the founder of Airswap and Fluidity. In this conversation, Oved and Anthony Pompliano discuss decentralized exchanges, tokenized securities, and what he’s up to with Airswap and Fluidity.

• 0:02Speaker 00

  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.

• 0:15Speaker 00

  Michael Oved is the founder of AirSwap and Fluidity. In this conversation, we touch on all things decentralized exchanges, tokenized securities, and what he's up to with AirSwap and Fluidity. I really, really enjoyed this conversation, and I hope you do too.

• 0:31Speaker 00

  This podcast is presented by Blockworks Group, the only blockchain event and media production company I trust. If you're an investor, lawyer, accountant, or entrepreneur, and want to attend exclusive events and dinners, visit them at blockworksgroup.io. I promise you won't be disappointed.

• 0:48Speaker 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.

• 1:15Speaker 00

  Before we get into this episode, I want to give a quick shout out to one of our sponsors. Soluna is a blockchain computing company powered by its own renewable energy. The team is planning to build a 900-megawatt facility on top of a 37,000-acre location in one of the best wind sites in the world in southern Morocco. You'll hear more from them later in this episode, but I'd love if you could go check out their website. You can find them at soluna.io.

• 1:39Speaker 00

  All right, guys. I've got Michael here from AirSwap and Fluidity. I'm super excited about this. We've got a bunch to dig through. So thank you very much for coming. Thank you, Pomp. Thank you for having me. Absolutely. All right. So let's start with your background. I think everyone knows the crypto side, but you actually have been in finance and trading all this stuff for quite a while.

• 2:00Speaker 02

  Yeah, so math, Carney Mountain undergrad, and then I joined this small trading company called Virtu Financial, grew like crazy, wrote it out through, you know, their Asia expansion. And I made partner like when I was 25, which is probably the coolest thing that's ever happened to me. Went through a merger, you know, my early twenties. I had the ability to like go to another country and build out a part of their business that, you know, so it's kind of like doing a startup, but within a company, applying a business model to new markets. And in Asia, you know, one of the things I got to do is not only interact with the markets and technical and trading level, but also in a regulatory level. So I became like very familiar with international law, Japanese law, Australian, Singapore, Hong Kong, China.

• 2:44Speaker 02

  And just having like that kind of experience at a really young age, I think, set me up really well for what we're doing now. That company IPO in 2015, I took some time off. I learned about Ethereum in early 2016. In my previous career, it was like the humans losing on Wall Street to computers.

• 3:04Speaker 00

  Yep.

• 3:05Speaker 02

  Right, it's just computers coming in and just like dominating. And when I read about Ethereum, I was just like, this is pretty much going to happen, but to all other sectors of the financial services stack. So I just wanted to be a part of it. And then, you know, started to look at exchanges, started to really study decentralized trading blockchain, how everything kind of fits together. And we released the swap protocol white paper with my co-founder, Don, who's incredibly talented, like, you know, synthesizing ideas and building product. And we released that white paper, went viral, and then we're on the map.

• 3:38Speaker 00

  That's awesome. What do you think the biggest things you learned at Virtu are?

• 3:43Speaker 02

  I would say the best thing I learned there is not anything specific, but more just culture and how to actually behave. And what I mean by that is like, We didn't have the answers. We never, you know, and when you're at the front lines of the financial markets and it's hyper competitive, it's a moving target, you're always trying to like come up with your alpha and figure out your trades. You just have to figure it out. There's no one that's gonna kind of handhold you through something like that. And so just kind of owning, being able to actually jump into a problem and figure it out and, you know, not only from a mathematical perspective, but also from an intuitive perspective. Just having that kind of ownership, I think, at a young age was really incredible. And

• 4:26Speaker 02

  also that company's culture is very strong as far as not prioritizing like ego or anything like that, or politics. We had no politics in that company. It was very flat. We had really good access to, you know, leaders in the company. I eventually was a leader in the company and, you know, still was around all the young guys all the time. So I think that kind of flat, non-hierarchical organization, which you'd probably find at like a bank, if I spent my twenties in a bank, I don't think I would be the same person at all.

• 4:55Speaker 00

  Yeah, it's super fascinating too, how nobody sat down and like, hey, here's rule number one, two, three, four, five of how to act, or whatever. They just immersed you in a culture, right, and kind of an organizational structure, and you just naturally pick that stuff up through experience rather than kind of intentional learning.

• 5:12Speaker 02

  Totally. I think that's, that's how the strongest companies in the world operate. I think that's, and that's gonna be the future. It's like, I mean, even Ray Dalio, he kind of just transcribes his principles and gives you a framework in which you operate and that provides a framework in order to answer some difficult, some easy questions. Because the thesis is that in life, you're gonna be presented with the same questions over and over. And so just having like a very positive framework around very intelligent and down-to-earth people, I think, really allowed that company to basically go from nothing to the biggest trading company in the world in, what, eight years?

• 5:51Speaker 00

  Hmm.

• 5:52Speaker 02

  Which is crazy on Wall Street, if you think about it.

• 5:54Speaker 00

  Yeah, it is pretty wild. What are, what are one or two things that you guys tried that didn't work and you kind of took away a lesson from?

• 6:05Speaker 02

  Yeah, so made a big, I personally, at that company, made a big push for the company to look more at options trading. So the company wasn't like powerhouse in options trading. This is one of the things that I kind of studied in college and I knew, I knew the basics about it and I had a thesis about how we should actually be trading them, implying our system. And my thesis had to do with, we already have the technology, we already have the ability to interact with financial markets in microsecond level. That's the hard part. All we need to figure out is the pricing, right? We need to figure out how to actually price these options and figure out where, how to price the Vol curve and when things move, what we're supposed to do. And so I came in with that thesis

• 6:46Speaker 02

  and I pushed really hard. And I think that we just didn't want to devote the resources to something like that. And I got a little bit of pushback on that kind of plan. And I think that was actually probably the beginning of the end of my career, I refer to, is that little, you know, thing that I pushed for. And I'm a very self-directed person. I kind of want to decide my own fate and I thought we can do it. And it wasn't given the resources. And I think I decided maybe at that point I was going to leave.

• 7:16Speaker 00

  Absolutely. And so, you know, you go, you figure out about Ethereum, start looking at it. It's interesting to you. How do you go from, oh, this Ethereum thing's interesting to, I want to build AirSwap?

• 7:30Speaker 02

  Yeah, that's, I mean, that was like a year and a half, or maybe a year apart. So that's a, that's a good question. I think that first learning about Ethereum, I learned about it by accident at a music festival from, by meeting Joe Lubin and a bunch of the consensus people. It was in April of 2016. And at the time, I was doing something else and I had to kind of wind it down. But I was living in Los Angeles and I actually made friends with Brock Pierce, who lived in Venice at the time. Brock actually was one of the early people that kind of introduced me to crypto. You know, his, his, his fall from, he had a little bit of a fall from grace, but I still, you know, am loyal to him. He

• 8:08Speaker 02

  Introduced me to some of the things and then I just, I kind of wound down my previous project and started to look at the space a little more aggressively from LA, but I couldn't do it from LA because there wasn't kind of the Ethereum community there. So I reconnected with Consensys, started to hang out with them in New York. And I think a lot of the problem with breaking into the space was that a lot of the people in blockchain that were kind of doing their own projects in 2016 had been around for like two or three years. And they had a name, they had Twitter following. I didn't have any of that. So I was like, I probably need to just, you know, align with the right people. And I saw Consensys as a good opportunity to do that. When we actually started to do the project, when we wrote the white paper, we were never a consensus project. We weren't a consensus

• 8:50Speaker 02

  project until after we released the white paper. And after, you know, maybe even, you know, two months before we did the token sale, we came in with our own capital. Don and I had our own, you know, previous successful careers. We came in with our own capital. We ended up doing it as a JV, not as, you know, their classic spoke structure or whatever you want to call it. And so we were able to just operate outside of Consensys, which I think for us made it a lot better because we didn't really have, you know, 100 different people telling us what they thought about a project every day.

• 9:23Speaker 00

  And so what was the original idea? Was it how we know AirSwap today? Was it something else and it's kind of evolved over time? You know, what goes into, you know, the idea as you guys write in that original white paper?

• 9:37Speaker 02

  Yeah, so I think the, it evolved a ton, to answer your question, in a short way, but in a long way, basically we're reading the message boards and trying to understand what do people want in this space. So it was kind of the first way I was looking at it in 2016. And everyone talked about decentralized exchange. And it was kind of like a hot thing everyone was talking about. And there were a few implementations at the time. And I was looking at them and they were kind of mostly using order book models. And, you know, I had a lot of experience with order books, traded on pretty much every exchange in the world. And I just kind of decided, hey, we have this distributed System, distributed nodes that are processing the transactions.

• 10:20Speaker 02

  Order books are inherently centralized, they exist on one central server. If you try to distribute that, you're going to run into all sorts of problems. And so we designed a model that became the swap protocol. And that is the correct design for decentralized trading, I think will win in the long term. And it basically gets rid of the order book entirely, decentralized. So the way I think of trade is you have five different components of trade. You have peer discovery, price discovery, execution, clearing, and custody.

• 10:55Speaker 00

  Okay.

• 10:56Speaker 02

  You basically go through those five.

• 10:57Speaker 00

  Yep.

• 10:58Speaker 02

  Every time you want to do a trade, you go through that loop. We managed to decentralize four out of the five, so we decentralized everything except for peer discovery. Peer discovery, you find everyone in one central place, and then everything else is done decentralized, it's pass peer to peer. This doesn't end up being subject to front-running, it doesn't end up having race conditions. You don't have to charge market makers for placing orders and cancels, which are all sorts of different things that other designs are running into. And I think will make it difficult for them to scale when they start to get automated traders on their platform. And when things start to really pick up, it's going to be difficult for them to scale. We won't have that problem, we'll be able to always scale because we kind of like designed it correctly from the beginning.

• 11:38Speaker 00

  Got it.

• 11:42Speaker 02

  Yeah.

• 11:43Speaker 00

  And so, as you're thinking through that, why do you think, or why did you guys choose to not decentralize the peer discovery? Is it because you can't, or is there some sort of regulatory reason? Or what was the thought process there? Because you got four out of the five, but what was that last one?

• 12:00Speaker 02

  I think it is, it is possible to decentralize the first one. And I actually don't think it would be super difficult to do so, and we might put it on a roadmap at some point. But I think we were just using the design where you want to put, in Ethereum, you're subject to scalability issues. Where you basically can't just like throw everything on-chain, you want to only put the most important things on-chain. It's similar, similar to Bitcoin. We have kind of off-chain mechanisms in order to communicate. The state to the chain. So we basically designed something where the part that was off-chain was the pure discovery. And then in other designs, you basically have an off-chain order book, which is centralized because that's public. It ends up being subject to all sorts of issues later on.

• 12:45Speaker 02

  So we were just kind of trying to think of what is the best way to do an off-chain-on-chain mechanism that doesn't have these limitations. And that's kind of what we came up with.

• 12:52Speaker 00

  Got it. And so today, the AirSwap product is what? How are people using it?

• 12:59Speaker 02

  Yeah, so we released the first version of the platform network protocol in April of 2017. That is basically designed for kind of more automated traders to communicate to manual makers. So it's kind of just like a quick checkout. And the way we wanted to do that with the quick checkout is to basically integrate it into dApps, basically have a widget that basically goes into dApps. We went into about 20 different dApps. What we discovered is that, you know, maybe the hard way that people aren't really using dApps. The tokens are mainly for speculative purposes at this point. And so we kind of had to go back to the drawing board and we're like, okay, well, we want to, we need to think about how to design the system, but we also need to compete with something like Binance or Coinbase, right?

• 13:44Speaker 02

  Which is difficult because we can't do USD. We can't do Bitcoin. We have longer transaction times. The UX is just different. You have to have a wallet, knowledge of a wallet. You can't just come in with your bank account and just like buy tokens. So that we were limited by all these things and we kind of decided to take a step back and said, how do we actually go after the problem again? And kind of the full version of the system is basically to allow a more communication style interface. And it's community-generated groups called Spaces. We're rolling that out. We just opened this up two days ago. We're rolling it out over the next few weeks and then eventually we're going to have community-generated Spaces.

• 14:28Speaker 02

  This is kind of something that's at the intersection of something like Discord and The Trading Project.

• 14:33Speaker 00

  Okay. And so if I'm a user, I can come in, I can get funds into the system, right? And then I'm able to trade on this decentralized exchange and then I can also chat or communicate with known or unknown individuals? Or how does that chat part work?

• 14:51Speaker 02

  Yeah, so you actually don't deposit funds into the system ever, so there's no custody or anything like that. You basically just come in with your wallet and you're signing transactions and the executions are occurring peer-to-peer. So that's kind of one of the strengths of a decentralized exchange, decentralized trading network, whatever we're calling it these days. So the thesis there in the chat interface is that there are all these other types of trades that you might want to do. You might not just want to be communicating with a robot and receiving trades, but you might actually want to get a better price. You might want to negotiate. This is kind of how a lot of different buckets of trading fall into this. Something like the OTC markets will fall under this and, you know, a lot

• 15:33Speaker 02

  of people don't know this in crypto because it's, they're used to trading on order books, they're used to trading on Binance, but most of what we trade in the world happens peer-to-peer OTC.

• 15:42Speaker 00

  Yep.

• 15:42Speaker 02

  Both on Wall Street and off Wall Street. Everything, every kind of transaction we do every day is peer-to-peer. And so we're designing for that kind of experience, but putting an interface on top that we think is going to generate social features, accounts, and we also have KYC features as well. So you could, as, you know, let's say for example, as Morgan Creek, if you wanted to come onto the system, you're not going to trade against random people. You're going to want to know, you're going to want to KYC your clients, obviously, for regulatory reasons, and that part has been integrated into the platform.

• 16:10Speaker 00

  Got it. And so you guys also recently released, or started talking about fluidity as well, right? And so you've got AirSwap, you've got AirSwap Spaces, and then it looks like you guys are now also going into the security token space. So how are those related? And kind of talk more about fluidity and what the focus is there?

• 16:31Speaker 02

  Yeah, so we touched on this a little bit earlier, but Fluidity is basically our parent company. We raised our own funds and came into the joint venture of Consensus, of AirSwap with Consensus. So Fluidity is actually our parent company, and we revealed it only about a year after we had formed it. So we formed it in 2017. We revealed it at the Fluidity Summit earlier this year, which we were talking about earlier, where, you know, our friend Uriel was debating with Joe Lubin. So we revealed that.

• 17:02Speaker 02

  The name of the company and also the, our commitment to bringing real world assets onto the blockchain, that is obviously a very hard problem and isn't something that you can just, first of all, you have to find an asset, then you have to, our other thesis is that you need the right framework in order to do this. You need the right standards that the, that the industry is going to subscribe to or else, you know, if you just put, list your house on like a bulletin board, right? No one's gonna, and they don't, no one knows where it is or what, or has any transparency on it. You're not going to receive any liquidity. So we needed to figure out the right asset. We needed to figure out the right framework and then we needed to kind of come out with it. And we actually did that last week and that was probably the most likes I've ever gotten on anything

• 17:47Speaker 02

  I've ever published in my life.

• 17:49Speaker 00

  Well, because what you guys announced was a $30 million piece of real estate in Manhattan, right? That is, is getting tokenized. Why start with real estate? You know, why that piece of property? Just walk us through that thought process.

• 18:05Speaker 02

  Yeah. So we did like three or four months of BizDev. I think we had talked to you guys about a few different things, you know, over, over the months and trying to figure out what we wanted to do. And really it was about, I think, finding the right partners. We met this group Propeller, Todd Lipietta has like 20 years of experience on Wall Street and structured products. And so he can just, he just understands how to look at a deal and see every nooks, nooks and crannies. And he also knows how to design a deal that's actually good for investors. He has his own broker dealer, he has his own fiat capability, he has his own platform. And we knew how to do the blockchain side of it. We knew how to take the interests that we, that they were going to securitize and represent them

• 18:46Speaker 02

  as tokens and then create a secondary market for those, for those tokens on AirSwap, which we can touch on a little bit. So we basically just found this really good partnership and we were looking through and trying to figure out, they have all these capabilities, we have all this capability. What should we focus on? And the thesis is that

• 19:08Speaker 02

  Something, if you look at the broad scheme of what can be tokenized, there can be something that's like a highly liquid public security. Or there's all these tail assets that have not had, if you hold one of them, basically in order to get out of it, you have to, you have to re-paper those transactions. You have to find a lawyer, you have to find a counterparty and that's also very difficult. So it's just the ability to streamline the secondary market process of the illiquid assets. Our thesis is that will be, provide a ton of value. Whereas if you're looking at a publicly traded security like Apple or Facebook, they already have great financial markets for it and they are, they're already doing all those disclosures. There's all this regulatory infrastructures in place. We're not going to be able to compete with that.

• 19:53Speaker 00

  Well, it just works, right? The public markets today actually work for a good amount of people. There's some that are boxed out for different reasons. But what you guys are attacking is the markets where they aren't working well, right? Or they could work better. And so if you start there, the bar to clear or compete with is not very high.

• 20:13Speaker 02

  Yeah, exactly.

• 20:15Speaker 00

  Got it. Okay, and so walk us through the actual structure of what you guys are tokenizing, right? So my understanding is that there's a piece of real estate and there's debt, there's equity, there's multiple components to this. How, how did you guys structure it?

• 20:31Speaker 02

  Yeah, so it's, so it's a, basically what we published was a framework called the two token waterfall. And what the two token waterfall is, it's a way to structure real estate or private security transactions such that the thesis is that if you structure it this way, you will be able to find liquidity. And why is that? It's because token A replicates debt, token B replicates equity. If you take both, both of these. And add them together, you basically have the entire value of the asset.

• 21:02Speaker 00

  Mm hmm.

• 21:02Speaker 02

  Okay, you're basically replicating the entire financial stack of a real estate asset. And this can probably apply to 90% of the assets in the world. Once you get into the more complicated structures, you know, CDOs, CLOs, that stuff starts to get a little more complicated. But this, you know, mortgage or a building with, you know, 20 investors, you can, and a bank that has debt, you can basically replicate the entire financial stack of that transaction. So what does that actually mean? It means that when you have a viewpoint on the price of the asset, you can immediately imply token A price and you can immediately imply token B price. So what we're doing is we're providing A plus B equals the entire value of the asset.

• 21:42Speaker 02

  And once we do that, you're giving transparency on the entire value of the, of the, of the asset. And you're providing no arbitrage pricing, which will encourage traders to come, which will encourage liquidity.

• 21:58Speaker 00

  Got it. And so do you think that the two token waterfall works for real estate, but you know, not equity or commodities or currencies? Or do you think that this two token waterfall can pretty much work for any asset that has both equity and debt in the capital stack?

• 22:16Speaker 02

  Yeah, I think it works for anything. It's, it's, it's actually not specific to real estate. We reference real estate in the white paper. It's for alternative investments.

• 22:24Speaker 00

  Mm hmm.

• 22:24Speaker 02

  So it can be something like private equity or real estate or anything else. So, so the idea is for the framework to be broad. It's actually part of a wider securitization framework that we are working on and that we haven't released yet. So there is kind of, our, our goal here is to basically release a framework, get a landmark deal, put the deal, you know, and actually I can't, these, these are not tied together. The, the white paper is not tied to the deal, although it's a framework, you know, for regulatory reasons. We can't have them tied together exactly, but we essentially have this deal. We're putting it through something that is similar to this framework.

• 23:04Speaker 02

  And then, and then we're basically proving the, the thesis that, that there is going to be an active secondary market. And then we can kind of expand out and cover the majority of assets in the world.

• 23:14Speaker 00

  So let's talk about that secondary market, right? Because I think that one of the knocks against security tokens today is, yeah, sure, the technology exists, we can go ahead and we can tokenize things, but you know, where's the liquidity, right? So kind of, you know, what's your rebuttal to that? And where do you think we are? And then kind of where are we going when it comes to that secondary trading or liquidity?

• 23:33Speaker 02

  Yeah, I think particularly AirSwap or non-custodial trading platforms are going to be really well-suited to go after this, to go after the secondary market.

• 23:43Speaker 00

  Why?

• 23:44Speaker 02

  Because in order to take custody of an asset, if you think about it, you have to, you have to basically have trust, right? You have to have someone else that's basically taking over the asset for you, and that's a highly regulated event on Wall Street. Custody is, if you were going to start taking custody of assets, you have to have every single asset approved. As you start to go into the long tail, like we were talking about before, all the thousands of assets, you know, tens of thousands, hundreds of thousands, it starts to get really large regulatory burden on all of the, on every single asset you want to list on your secondary market. And so a peer-to-peer, non-custodial platform will allow this technology to scale.

• 24:27Speaker 02

  Also, going back to the idea of having OTC, more OTC-style market, all these assets are kind of illiquid, and so you're going to want a way to actually communicate with someone. You don't need to post it on an order book and expect it to trade like a publicly traded, high-frequency traded security. It's just not going to happen that way, really. What you want is you want an interface more similar to something like, you know, eBay or Craigslist, where you're basically able to have price discovery found in a different way from an order book. And so I think that AirSwap is going to be very uniquely positioned to go after this market.

• 25:06Speaker 00

  Yeah, it's super interesting to when you think of a global investor base, right? Where, you know, there's a lot of hurdles to jump over for, let's say, an international investor who wants to invest in US-based assets on a US-based exchange, right? And so I think that there's an element of there's problems that we know and there's technology available today to solve those problems. But this space specifically around decentralized exchanges and the intersection with security tokens feels like an area where in the future, we will create products, services, or solve problems that we don't even understand today, right?

• 25:45Speaker 02

  Totally agree, and I think that's one of the power of spaces that we're allowing people to provide is we're allowing them to define their own trading environments. So they can have their own KYC standards, they can have their own onboarding process for, you know, let's say, they only want Japanese traders to be transacting in the security, or they're allowing it to go cross-border between XYZ country. That kind of controlled trading environment, we're allowing people to create on AirSwap. And the thesis is that in order for something like this to actually trade, an order book basically assumes that everyone is identical and everyone is exactly the same, but it's actually not true in real life and mostly for regulatory reasons.

• 26:27Speaker 00

  Yeah, no, it is, it's very analogous to, you know, no one could have imagined Uber, for example, until there was the advent of the smartphone with GPS and touchscreens, all this kind of stuff. When you look out 10, 20, 30 years, what do you think is possible in this like tokenized securities world or digital securities world?

• 26:51Speaker 02

  I can't look out 10, 20, 30 years, that's a long time. I mean, I think that the way I look at this technology is, you know, the internet had an incredible effect on humanity in terms of business, in terms of education, allowing people to just communicate anywhere in the world and decide how to communicate, right? You decide how you want to consume information. Everything that we do with money and value is top-down, it's from the government down, we don't have, and the banks down, we don't kind of have a choice. But this is allowing for peer-to-peer value transfer, I mean, obviously subject to compliance.

• 27:29Speaker 02

  I think that that kind of society is going to be how that that that kind of technology is going to have a much broader effect on society. Because money is so core to our existence and the ability to kind of participate in capital markets and have, you know, freedom to participate in what you decide to participate in. I think that's going to have really profound impact impacts on society, but I don't think it's going to be like the internet where we have, it's going to be visual, right? It's it's going to be, it's just going to going to change us in a in a unreal way. Like, we're not going to be able to quantify. I think blockchain is something that, you know, eventually the UX is going to be abstracted away from everyone.

• 28:11Speaker 02

  We're not going to be able to actually realize that everything that we're doing is kind of integrated. It's actually one of the things I love about the Ethereum community is that all the projects kind of, you know, interoperate. They figure out how to get their smart contracts to match together. So you have someone working on derivatives, you have someone working on compliance, all these different smart contracts can basically interact with each other.

• 28:34Speaker 00

  Yeah, and I guess part of this is recreating elements of Wall Street securities markets, you know, etc. that we know. And then there's the imaginative part, right? Where can people figure out how to use this technology and apply it and also follow the rules? What do you think today in the securities, like digital securities market, is the main issues holding this back from going, you know, I don't know, tens of millions, maybe hundreds of millions of market cap to billions and hundreds of billions?

• 29:07Speaker 02

  I think we just need standards. We need a framework that basically, first of all, the institutions are going to buy into and also the the general framework, the general investor is going to actually buy into. So I think we just need the right frameworks. We need to, we need like kind of the shelling point of.

• 29:29Speaker 02

  Tokenization to happen, and I think that'll probably happen over the next six months. To me, if I look at this technology, I think that the next five years are going to be finance. I think the five years are going to get, finance is going to really get affected by this, by this technology. The next five years after that is going to be accounting, because basically, once you have all, every asset on a blockchain, there's essentially nothing to account for. And so you, the entire accounting industry kind of turns into GUI, right? Where you're just running a scrape and everything is correct. You know, the next five years, and you know, this, this part probably happens in parallel, but I think the legal industry, the compliance industry is going to change dramatically.

• 30:12Speaker 02

  I think automating compliance is going to have tremendous of excellence in society, because the way that laws are written currently, it's, again, it's top-down. It's the government says, this is the way you need to do things, and people need to follow that. But, and there is this like, kind of, kind of, you know, level of trust that happens, where the, the government maybe trusts you, or doesn't trust you, depending on who you are, to behave a certain way. But if, if all of that is enforced into smart contracts, and all of us are engaging in a society where we know that we're all following the rules, I think that allows us to do a lot more things, allows us to basically transact in all these different ways. And so I think automated compliance, I think automated compliance is something that people

• 30:56Speaker 02

  are not talking about enough yet, but I think they will very soon.

• 30:59Speaker 00

  Yeah, I mean, look, we, we've gone as far as to say, wouldn't surprise us if the SEC mandated it, right? In terms of it actually makes their job easier, they're going to be proactive rather than reactive. Part of it then becomes who is trusted to write that code, right? Is it a decentralized team? Is it the government themselves, or regulatory body? I think there's a kind of, a lot of questions in the execution, the nuances there. But I generally believe this technology can solve a lot of the fundamental issues that we see in the existing markets, and would be quite powerful.

• 31:34Speaker 02

  Yeah, I totally agree. I mean, something like, the accredited investor checks, you know, can be enforced at the, at the blockchain level, right? You can have a mechanism that basically... Looks at, you know, either if it's some, initially it'll be some central party that basically puts it onto the, puts your, your credit investor check onto the blockchain. But eventually it can just like scrape your, um, your earnings or something like that. You know, and I think their credit investor checks will change a lot over the next two years. That's another topic maybe worth going into. Um, but I totally agree. I think, uh, I think eventually this stuff will be mandated, coding laws into smart contracts will be mandated.

• 32:19Speaker 02

  I don't know who's going to do that.

• 32:20Speaker 00

  Absolutely. What do you think it takes to get, um, more retail focused investors to switch from investing in public markets and kind of traditional stocks to tokenized securities, digital securities? Is it just user experience and interfaces? Um, or do you think there's some sort of like inflection point that's event driven by, you know, something in the market?

• 32:40Speaker 02

  Well, I, I think it goes back to kind of what, what you were saying before is that we really don't know what this technology is going to look like in three, four, five years. You know, like peer to peer economy. We don't really know. We didn't really, we couldn't really predict Airbnb, but now Airbnb seems super obvious. Um, so we don't really know what kind of investments people are going to be able to invest in or want to invest in. So it's kind of two sides of it. We don't, we don't know what the supply side is going to be and we don't know what the demand side is going to be. Um, we have some ideas and some product ideas around that, but that's kind of our, um, maybe our edge right now. Just thinking about that a lot. So I don't know if I'm able to say.

• 33:20Speaker 00

  Absolutely. Um, okay. And so what has been the response from kind of the, the global audience, right? Where, where do you see the most interest in, uh, whether it's the, uh, the real estate you guys are doing now, or just kind of this move into the more uh, kind of security based assets? Um, is, can you tell the difference between US versus other regions of the world? Um, yeah. How do you just think about geography?

• 33:46Speaker 02

  Yeah, I mean, everyone wants to invest in New York real estate, right? So we've had a tremendous amount of outreach from different people, people reaching out to us from around the world. One of the things we're kind of exploring right now is a crowdfunding platform, partnering with a crowdfunding platform in Singapore and maybe doing a portion of it there because in Singapore they can onboard Chinese, they can onboard European. So I think making these global products will allow them to proliferate further. If you think about what's required for an international investor to invest in Manhattan property at this day and age, other than doing it through a REIT or something like

• 34:28Speaker 02

  that, it's actually pretty hard to actually buy a property. But fractionalizing and allowing anyone, well, anyone subject to compliance to be able to purchase, I think you'll draw a lot of international interest into this market.

• 34:43Speaker 00

  Absolutely. And part of me thinks, you know, Wall Street's gonna be asleep at the wheel and they're not gonna see this stuff coming and there's gonna be a whole disruption. And then part of me sees that they've got blockchain teams and, you know, capital markets teams and all stuff and they appear to be paying attention. Where do you think the kind of disruption occurs, if any, right? Do you think that this is, you know, people sleep at the wheel no matter if they know to pay attention or not? Or do you think that they're generally on top of it and there will be kind of coexistence between the legacy system and this new system?

• 35:19Speaker 02

  Yeah, so I've thought about this a lot because the way I think about it is whether blockchain is gonna be transformative from the top down or from the bottoms up. The top down meaning, you know, the banks, the governments decide, hey, we're gonna put everything on a blockchain and everything's gonna be great. Or if it's bottoms up, where basically people are building this technology, they're layering on top, they're trying all these new things, and eventually it starts to pierce into the, there's some inflection point and eventually that just pierces into what the banks are doing.

• 35:53Speaker 02

  I don't know what the answer is. I think it's going to be, I think it's possible that there is an event that really causes this technology to proliferate. But I think like ultimately, the banks are getting wagged by the compliance departments. And so they, you know, you've seen so many different ways that they've been trying to get into crypto, trying to get into blockchain technology. We have conversations with, you know, a few different banks. It's been kind of, sometimes kind of frustrating where they, they're just always just thinking about the, you know, they just can't take any risk, right? And this is the same reason why, you know, Virtu is so successful is because they were able to move quickly and they're able to take risks and they're able to build these

• 36:38Speaker 02

  platforms that banks weren't able to compete with. So I think that, I think the bottoms up approach is more promising. But I also think that in order for this technology to really take off, especially on the tokenized securities part, it's going to need institutional adoption.

• 36:54Speaker 00

  Absolutely. Well, it just brings a level of legitimacy, right? And kind of sophistication. If that makes sense. All right. So let's do some rapid fire questions here. I'm going to change it up just a little bit, given kind of what you're focused on. On the tokenized security side, what do you think the assets that need to get tokenized that you haven't heard of yet? Which ones would be the most intriguing to you? Such a good question that you're speechless.

• 37:27Speaker 02

  You know, one of, one of the interesting things that we were talking about yesterday is different levels of the entertainment stack, which I personally am very averse to the entertainment industry because I'm from LA. But I think that there are different elements that have tons of middlemen just involved in taking a piece of the pie, right? Where the artist eventually isn't seeing anything. So being able to tokenize and represent that and value and, you know, maybe royalties or something like that. I think there's, there's a lot of promising things there, you know, again. There are so many middlemen in that industry that you would need it to, you need that to come from the top down, I think. You would need the, the labels to, to, you know, invest in your project in order to get that off the ground.

• 38:12Speaker 00

  Absolutely. Uh, maybe enlist Kanye for that one. He seems to be, uh, all over the, uh, the tech and, uh, music scene right now.

• 38:20Speaker 02

  He's your boy.

• 38:22Speaker 00

  We'll, we'll see, we'll see. He's, uh, he's going crazy on the internet lately.

• 38:26Speaker 02

  Let's know.

• 38:27Speaker 00

  All right. So, uh, other than air swap and fluidity, what do you think is the most important company in crypto today?

• 38:44Speaker 02

  I think that the most important problem in crypto is scalability.

• 38:47Speaker 00

  Mm-hmm.

• 38:48Speaker 02

  And you're seeing all of these

• 38:52Speaker 02

  new platforms that are coming out with all these unique ways, um, to solve scalability problem like infinity.

• 38:59Speaker 02

  And you're going to see Cosmos, Tendermint coming out later. I think like the, the hard spoon later this year, having Etherment, having a second version of Ethereum that has a different consensus mechanism. I think these are all going to be super interesting. I think Ethereum needs to figure out how to scale, uh, because a lot of competition's coming.

• 39:19Speaker 00

  Absolutely. Well, that competition might be good, right?

• 39:22Speaker 02

  Definitely. I think it's, it's, I think even the, you know, the price going down and there being all this competition coming to market, I think has caused the community to kind of rally around, hey, you know, we actually have to, have to get this stuff done.

• 39:33Speaker 00

  Absolutely. Um, okay. What, uh, what's your one most controversial thought in crypto? If you, uh, the, the one thought you have that a high majority of other people would, uh, would disagree with?

• 39:58Speaker 02

  I just don't want to offend too many people with my answers.

• 40:02Speaker 00

  Whatever one you just thought of that you don't want to say, say it. Nobody listens to this anyways.

• 40:17Speaker 02

  You know, I think the one thing that I've never kind of understood is how much infighting there is in this community, like, you know, with what happened with Bitcoin in 2017 or 16, I can't remember now.

• 40:31Speaker 00

  Seventeen.

• 40:32Speaker 02

  Seventeen.

• 40:35Speaker 02

  You know, people's careers basically are defined by what chain they support and, you know, so it's kind of like these technological upgrades and the self-organizing community. I think people just need to be a little more

• 40:50Speaker 02

  patient and supportive, but, you know, I guess that's not as fun on Twitter.

• 40:55Speaker 00

  Yeah, it's definitely not as much fun and there's so much anonymity or pseudonymity that goes on, right, that the real identity is kind of lost. It's actually one of the things, I don't think I ever really talked about this, Facebook figured out early on, right, was real identity actually increased the quality of the content. And so, you know, in crypto, I don't think that everyone should have to use their real identity. I actually think there's a lot of protections that can be provided by anonymity, pseudonymity, etc. But it is interesting to see, you know, the MySpaces of the world had all sorts of pseudonymity, anonymity. Facebook said, no, you have to use your real identity, higher quality content, and ultimately ended up being the winner.

• 41:38Speaker 00

  I do wonder what that impact would be on crypto if everyone had to use their real identity.

• 41:42Speaker 02

  We have a lot of ideas around that, definitely, for kind of the user-generated communities. I think identity is a huge part of blockchain that hasn't been explored. Totally agree. I think that people have identity solutions, but they don't know how to use them. And so something like requiring legitimacy on a platform that people actually use, I think would provide a lot of value.

• 42:04Speaker 00

  Yeah, it'd be super interesting to explore. All right, you got a magic wand, you can wave it one time and change one regulation or improve one regulation. What would it be?

• 42:18Speaker 02

  I think the simplest one is the accredited investor rules. I think they're kind of stupid and outdated. If you think about it, when I was 22 years old, I took my Series 7. I became licensed by FINRA to sell securities to the public. But I wasn't an accredited investor, so I couldn't buy them.

• 42:38Speaker 00

  It's pretty crazy.

• 42:39Speaker 02

  It's got to change.

• 42:40Speaker 00

  Yeah. What do you think the right framework would be?

• 42:45Speaker 02

  I think it's a combination of either capital or some sort of education. You know, if you know what you're doing, you should be able to participate in, you know, a startup company that you believe in.

• 42:59Speaker 00

  Yeah, I'm a big fan that I think the education one would be harder to implement, obviously. But I do think that it would be quite powerful and actually you might get a more efficient, more safe market if you just have more people educated.

• 43:15Speaker 02

  Totally agree.

• 43:15Speaker 00

  Right. Alright, so the one non-crypto question, we have to admit that aliens exist. Do you think that there are animal aliens? Are there, do they have pets? Or do you think that they're just human-like aliens?

• 43:32Speaker 02

  I mean, definitely, definitely.

• 43:34Speaker 00

  Why?

• 43:35Speaker 02

  Species on those planets. I don't know why, probably.

• 43:41Speaker 00

  So you're an alien believer, though?

• 43:43Speaker 02

  Oh, yeah, for sure.

• 43:44Speaker 00

  Yeah, same.

• 43:45Speaker 02

  Yeah, I don't have any doubt. I mean, have you watched Cosmos?

• 43:51Speaker 00

  I have not.

• 43:52Speaker 02

  You gotta watch Cosmos. It's great. But basically, it's at the end of it, they zoom out from Earth and they zoom out from the solar system and then zoom out from the galaxy and they say, "You're just a speck of dust."

• 44:02Speaker 00

  Yep.

• 44:03Speaker 02

  Right? And puts everything into perspective. The amount of time that this planet has been around is not very long compared to the galaxy. Just probabilistically, I mean, there's definitely oceanic planets. Probabilistically, those planets have been around long enough. You know, whether life came from some meteor that hit the Earth, we don't really know how it originates, but probabilistically, that has likely happened on another planet as well.

• 44:31Speaker 00

  Well, do you think they know about us and just can't get to us?

• 44:36Speaker 00

  Or they don't even know about us?

• 44:39Speaker 02

  I think multiple species know about us.

• 44:42Speaker 00

  Multiple non-Earth species?

• 44:44Speaker 02

  Yeah.

• 44:45Speaker 00

  Yeah. And why do you think they haven't come here? Or do you think they have?

• 44:52Speaker 02

  I don't know.

• 44:53Speaker 00

  Yeah. I don't know if I'm convinced that they know about us. Like, if we knew about them, you think we'd go?

• 45:02Speaker 02

  We would try to, but it would require going, you know, bending the space-time continuum. So we'd have to go faster than the speed of light. They discovered an oceanic planet, you know, four light-years away. So if we could go at the speed of light, we can get there in four years. If we knew that there was life there, yeah, we'd probably send them. We'd probably figure out how to get there. You know, maybe not in our lifetime. Or maybe actually in our lifetime, age won't be an issue, which I'm optimistic about.

• 45:32Speaker 02

  The rate at which technology is going. But I think that, yeah, if we knew, if we knew there was a planet with life four light-years away, we would figure out how to get there for sure.

• 45:42Speaker 00

  It's like curiosity killed the cat. Like, we couldn't resist, right? We gotta go. Would you go?

• 45:49Speaker 02

  Yeah.

• 45:49Speaker 00

  You'd be one of the first?

• 45:52Speaker 02

  I wouldn't be one of the first. You know, and they're also talking about people going to Mars, and they pick the first group of people that are going to Mars. And the expectation is that when you go to Mars, you're just gonna die on Mars. Right? So you just have to be comfortable with that. And I was thinking about it, and I was like, what would it feel like to die on Mars? Right? Like, you're on an alien planet. You haven't eaten, like, regular food in five years, let's say. You don't have any of your friends. You don't have any, you know, podcasts, nothing.

• 46:27Speaker 02

  You're just miserable until you die, right? And then you die, like, completely alone. I don't want, I don't want that. I don't want to be the first. Maybe when we figure out how to change the atmosphere, I'll check that out.

• 46:39Speaker 00

  Yeah. I don't think any humans listen to this, but the aliens definitely listen to this podcast. It's the only people listening. All right, so I end each podcast. I let the guests ask me one question. What one question would you like to ask?

• 47:06Speaker 00

  You're thinking so hard about this, it's scaring me.

• 47:08Speaker 02

  I just have a few different ones, I'm just trying to think.

• 47:12Speaker 00

  We'll break the rules, you can ask too.

• 47:19Speaker 02

  You know, where...

• 47:28Speaker 02

  Yeah, I guess where do you see this going in two years?

• 47:33Speaker 00

  Two years? So, I think a lot about the Bill Gates quote of, you know, we overestimate two years, underestimate in 10.

• 47:42Speaker 00

  And on the digital security side, I completely agree, we're going to get to a, you know, global marketplace with, you know, kind of compliance and law written into code, all the assets will be digitized, etc. I'm actually pretty bearish on how far we're going to get in two years. As we've just looked at it more and more, I think, part of the problem is

• 48:06Speaker 00

  the user experience of the key, like, or the core components, isn't there yet. So, one of the, you know, one of the easy examples there is just

• 48:15Speaker 00

  when I just want to send you Bitcoin, it's actually pretty hard, right? And, and the running joke is like, you know, everyone's scared when they send it that it may disappear, right? Because like, I've got to make sure I get your address perfectly right, and just, that user experience sucks, right? And, and so, we're all the wackos that are using this stuff early, and, and it's fun, and it's cool, and, and we think we're really smart, but there's no way that mass adoption's happening when I've got to send, you know, Bitcoin to this random string of letters and numbers, right? And so, like, that's a really clear example of we got to fix that problem before mass adoption happens. And so, if we got to do simple stuff like that, the odds that we're going to get to like, buying and selling digital securities in 24 months,

• 49:00Speaker 00

  on a global basis with code written into law and like, you know, full harmony of jurisdictions and all that kind of stuff, just, I think there will be, you know, examples or kind of early assets that accomplish that. We're not going to have like a highly liquid marketplace, in my opinion, right? So, so I think that, you know, that, that's one thing. Now, I don't think that it takes 10 years, right? So, it's like actually somewhere in between there. And, and so if you looked at it and said... Take, you know, I don't know, $70 trillion of assets, right, that are kind of tradable, I think, in the US. And maybe I have that number wrong, I'm not sure, but if that's true, like 50% of the assets are tokenized or digitized, right, in the next 10 years?

• 49:42Speaker 00

  I could see that, right? And just kind of coexistence and, and there's kind of the slow disruption of the existing system. Like, that wouldn't surprise me.

• 49:50Speaker 02

  Yeah, I actually totally agree with that. I think, I think security is, going through any sort of kind of inflection point, I think is probably at least two years away. One of the things I like to think about and that I'm hopeful of is that someone like Apple comes out with, you know, hardware's wallet solution that's basically integrated into your device. So everyone in the world basically can sign and send transactions.

• 50:17Speaker 00

  There's like three companies that it would be powerful for. It'd be like an Apple, a Facebook, and like maybe like one, like an Amazon, like a massive retailer, right? Like one of those three companies, a hardware provider, some sort of like social network identity provider, right, and a retailer. If one of them did it, I actually think it would force the hand of everybody else, right? Because they don't want, I don't know if Facebook would want all of their users using Amazon's wallet, right? So now all of a sudden, you push the pace of innovation across the spectrum and everyone has to create one. And then somebody will come around and they'll bundle them all together and say, you know, hey, here's one wallet that interfaces or is, you know, interoperable with all these other wallets and, and we'll kind of enter this whole cycle. But, but I think that that

• 51:02Speaker 00

  first one's really important.

• 51:04Speaker 02

  Yeah, and I think Facebook's interesting because they have a blockchain team. From what I heard, it's, they're, they're struggling to find talent because, you know, a lot of the young blockchain developers, maybe the ethos is a little bit at odds with, with Facebook. And also, you know, I think a lot of the young, talented people won't necessarily join Facebook at this point. So I think Facebook probably will go into acquisitions free at some point to get into blockchain in a serious way.

• 51:28Speaker 00

  Yeah, I mean, I don't know for sure about the engineer talent, right? Like, that wouldn't surprise me. I mean, that's a narrative that generally makes sense. The one thing that's interesting to me about Facebook is they've got some of their top talent leading the team, right? So they went and David Marcus, Kevin Weal, etc., Morgan Bellar. They really have been thoughtful about, you know, if we're going to put resources here, let's make sure we put some of our best people. And so I'm interested to see, you know, what they come out with. But whatever they launch, they'll immediately be the largest crypto company. They've got 2 billion users, and so if all of a sudden they give everyone a digital wallet, right, or something like that, they just have more users. And so I think that, you know, that's a pretty interesting world of possibilities.

• 52:12Speaker 00

  And so I'm cheering for them to do something that, you know, kind of positively impacts the world and drastically increases the adoption of crypto. Me, too. Absolutely. All right, man, this has been super fun. Thank you so much for coming. We'll have to do this again. Thank you. I love that. Hey, guys. Thanks for listening. We're back with the CEO of Soluna, John Bellzir. John, what are you most excited about right now?

• 52:34Speaker 03

  What excites me the most is that we're really in the midst of a revolution. Satoshi Nakamoto's paper that came out eight years ago really launched a revolution globally. And the blockchain is definitely here to stay. Today's blockchains are predominantly seen as the core technology for cryptocurrencies, among other things. But in the future, blockchains will do more. They'll be the foundation for entire new ecosystems. They will revolutionize a host of different industries around the world. And taken as a whole, these new distributed applications will form a new kind of internet, one where protocols replace companies and algorithms choose the best computing backend and solutions that they can find. This new ecosystem, this new internet, if you will, will need dedicated infrastructure to power it.

• 53:19Speaker 03

  And what excites me is that Soluna aims to be the key part of this infrastructure. We have the opportunity to build the next great infrastructure company to power this revolution. Thank you for taking the time. If you'd like to learn more about Soluna, please visit soluna.io.

• 53:35Speaker 00

  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. 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.