Tom Shaughnessy, 51percent Founder: Crypto Research in the Wild West

Tom Shaughnessy is the founder of the institutional crypto research platform 51Percent. In this conversation, Shaughnessy and Anthony Pompliano discuss what equity research is, how information is gathered in crypto, and how institutions are thinking about the space. ----- Join the Off the Chain newsletter. Pomp's daily email analyzes the crypto market for institutional investors. Simply, it’s the best crypto newsletter delivered to your inbox every morning. No frills. No bullsh*t. Just everything you need to know in a 3-minute read. https://offthechain.substack.com/ ----- BlockFi BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. ----- 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?

  Tom Shaughnessy is the founder of the institutional crypto research platform 51%. In this conversation, we cover what equity research is, how information is gathered in crypto, and how institutions are thinking about the space. Tom is one of those rare people who enjoys putting in the work and it shows in his research. I hope you enjoy this conversation as much as I did. Before we get started, I want to talk about one of our sponsors, BlockFi. These guys are doing really interesting work in crypto lending. What they allow you to do is keep your crypto, put it up as collateral, and receive a US dollar loan funded directly to your bank account. They do loans ranging from 2,000 to 10 million dollars, and they're perfect for helping you reach your financial goals of all sizes. You should visit blockfi.com/pomp. Again,

• 0:57Anthony Pompliano?

  that's blockfi.com/pomp. Again, one more time, type it in, blockfi.com/pomp, if you'd like to learn more about putting your crypto to work without having to sell it. Definitely do it. 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.

• 1:35Anthony Pompliano?

  Alright guys, we're here with Tom. I'm super excited about this episode because Tom spends all day researching, learning, and trying to share facts. We know that there's plenty of just nonsense out there in the crypto space, so hopefully we can have a pretty sober conversation about research and kind of how you see the world.

• 1:54Speaker 01

  Yeah, thanks for having me on, Pomp.

• 1:55Anthony Pompliano?

  Absolutely. Alright, so you were doing research before you ever got into crypto, so maybe you start with your background and what you were doing before?

• 2:02Speaker 01

  Yeah, sure. So went to Rutgers Business School, graduated there, and started working at Oppenheimer on their cloud and communications equity research team. I was under a great boss, you know, a lot of modeling, a lot of white papers, and eventually, we wanted to figure out whether or not blockchain and Ethereum in particular would be disruptive to the cloud companies we covered, AWS, Microsoft Azure, etc. So I wrote a 100-page blockchain white paper there. Not easy to publish on the sell side, but you know, I'm glad I did because it made them look like thought leaders and they are. And I fell down the rabbit hole completely and left about two weeks after that was published and opened up a institutional crypto research shop and I research all day.

• 2:41Anthony Pompliano?

  Yeah. What's the name?

• 2:43Speaker 01

  51%.

• 2:44Anthony Pompliano?

  And where'd that name come from?

• 2:45Speaker 01

  51% Attack. And it was, so developers get it and then the point 72 ish people also get it. It's kind of like a name and a number.

• 2:53Anthony Pompliano?

  Got it. That makes a lot of sense. All right. So let's talk about what equity research is in the non crypto world, right? A lot of people probably don't actually know what that is. So maybe just explain, you know, who are the types of people who do this research? Why are they doing it? And who are they selling it to? And what do those people use it for?

• 3:09Speaker 01

  Yeah, sure. So I mean, equity research traditionally is meant for sell side institutions to sell to hedge funds, pension funds, institutions, stuff like that, to be a legitimate source for great information, great calls and actionable content. Doing that in crypto is a little differently because in equity research, there's only three ways you make money. The first one is management access. The second one is models. And the third one, you know, could be events, NDAs, stuff like that, or non-deal roadshows. In crypto, it's a little bit different because management access is free. Everyone has access to these developers. You could tweet them, you can get access to them. But what we don't have is, we don't have sources in crypto where a crypto fund or an institution can go and say, hey, I found this great source

• 3:51Speaker 01

  for models and content and we can actually use this to make decisions on. Because my take is no institution or crypto fund is going to their investment community with a Medium post and saying, hey, you know, I have this great info because they can't call that person up and ask them about their model. So my goal is to basically put out great content, great reports, actionable research that people can actually use to invest on, make calls and get involved.

• 4:13Anthony Pompliano?

  And on the equity side, so non crypto, who are the people who are normally taking the information being, that research that's being created?

• 4:22Speaker 01

  Traditionally, so that would be generally hedge funds, pension funds, you know, some VCs, not really, but mostly hedge funds and banks.

• 4:31Anthony Pompliano?

  So capital allocators are investors?

• 4:33Speaker 01

  Yes.

• 4:33Anthony Pompliano?

  Right? And what are they doing with it? Is this research, sometimes they're using it to learn, they're using it to actually make investments in trade, what's kind of the distribution there?

• 4:43Speaker 01

  It's a great question. So, and they'll use it to learn, they'll use it to get ramped up on ideas. They don't want to spend 10 hours, you know, on Twitter and Medium and Reddit trying to figure out what this new platform or DAP is. They want to read a 10-page report, they want to know everything there is to know, and they want an opinion. And then after the fact, you know, intra-quarter or whatever, then you can publish updates. This is what's going on, here's an actionable call, this token got crushed, you know, maybe now's a good time to enter, stuff like that.

• 5:10Anthony Pompliano?

  And normally, in the non-crypto world, right, so forget about crypto for a second, but in the non-crypto world, what are the types of things that research gets published on? Are we talking specifically companies? Are we talking like industry trends? Are we talking just a complete deep drive, a deep dive on an actual industry?

• 5:27Speaker 01

  Awesome.

• 5:28Anthony Pompliano?

  A whole host of things?

• 5:29Speaker 01

  Awesome question. So it really depends on the analyst you work for.

• 5:32Anthony Pompliano?

  Okay.

• 5:32Speaker 01

  So in the past, I worked for a very progressive tech analyst. So we would publish white papers on the 5G, new cloud technologies, you know, anything from NGPON2 to data center technology, we would cover everything. And then within those white papers, we would establish companies and calls that we thought would be applicable and would benefit from these industry trends. So to me, crypto and blockchain is a huge industry trend. We have to figure out the specific companies and plays and platforms that we can actually be involved with to drive value. So that's what I try and do all day long, is to find those companies. And most of my time is spent finding the companies that are not legit. And that's not that easy to do sometimes.

• 6:13Anthony Pompliano?

  Got it. And so let's flip to the crypto world, right? Because I think that there's some parallels, right? So I'm asking about the non-crypto world. But in the crypto world, there's a whole host of nuances and kind of things that don't exist in public markets, for example, right? So you described one of them with access to management. But maybe walk me through, you know, one of the reports that you've already created and just kind of do a high-level overview. And then we can walk through how that actually got created and kind of step by step, you know, what goes into these reports.

• 6:43Speaker 01

  Yeah, sure. So, I mean, one of my favorite reports I've done is on MakerDAO. It's a stablecoin project that's totally decentralized. Andreessen Horowitz bought, I think, 6% of their token supply. So we're seeing institutions get involved already. But one of the things I looked for is, I looked for, you know, what's going to drive the next trend in 2019?

• 7:01Anthony Pompliano?

  Well, before you do that, what is MakerDAO?

• 7:03Speaker 01

  Okay, so MakerDAO is a stablecoin project. There's two different coins. DAI, DAI is the stablecoin pegged to a dollar, hopefully. It's stayed at its peg so far due to numerous stability mechanisms that are built into the platform. And then Maker, MKR, is the governance token. So that's the token that allows people to vote on upgrades to the platform, whether that be, you know, new collateralization ratios for new assets or just changing the protocol overall. So MakerDAO is an interesting project. The reason I targeted it was because I think stablecoins are going to be a huge use case in 2019. And people say, oh, why would I want to invest in a stablecoin that's going to be pegged to a dollar? There's no upside there. There's two upsides. The one upside is potentially in Maker and MakerDAO because that's a platform that's

• 7:48Speaker 01

  growing. And the other growth area is if you have a viable stablecoin, you can drive immense use cases that don't have the problem of Bitcoin's volatility or Ether's volatility because, you know, Pumpkin pays employees in $1,000 today and $1,000 tomorrow. People know what they're getting paid. And the use case for that is in salaries, games, smart contracts, assets, everything can be used with a stablecoin.

• 8:13Anthony Pompliano?

  And so you're one of my favorite people in crypto to talk to just because you go into these projects and you do these super deep dives and you know, most people in the industry probably have some understanding or could describe to you, hey, you know, X project does A, B, and C, right? But you've really spent the time to understand the pros, the cons, talk to people who are working on it, talk to the naysayers, et cetera. Maybe with MakerDAO, let's talk through, you know, what did you do to become educated on that space?

• 8:43Speaker 01

  Yeah, it's a great question. So, I mean, it does take a lot of work. I mean, I'm not on Twitter and I'm not looking at one tweet to make a decision here on what I should, you know, potentially research. It's a lot of work. It's, you know, you have to start with the white paper. You have to make sure that this project makes sense. Does the utility token here or the token actually have a use case? I mean, that's one of the major questions you have to hit on, because if not, why are you even researching it? Second thing is you have to go through everything. Reddit, you have to go through token supply with the ICO. Do the developers or founders own too much? Is the inflation too high? Then you have to go through everything from the governance. Does this token actually allow me to make changes or have a say in the platform? Because 99% of the tokens out there, 99.9%, don't

• 9:28Speaker 01

  have real governance. The only ones I can point to that do are like Tezos, and that's, they still haven't even voted on anything yet. And then after that, you have to go through all of the different aspects of whether the platform itself can actually drive value in the future. So with MakerDAO, I obviously thought that a stablecoin could, but my problem is, I don't want to invest in Tether because it's going to be at a dollar forever, hopefully, and there's transparency issues. I want to invest in something that's going to drive real value in the future and enable new use cases.

• 9:58Anthony Pompliano?

  And so who did you talk to, right? So, once you read the white paper, do you immediately start talking to the individuals who are building the project? Do you talk to maybe other analysts or people that you find on Twitter talking about it? Like, how do you kind of work through that web of people that are in and around the project?

• 10:12Speaker 01

  Awesome question. I reached out directly to Rune Christensen, the founder. I said, Rune, I have 35 questions I need answers to them. You could either help me out with this, or I can make my own assumptions here. And- You know, I reached out to Rich at the MakerDAO Foundation as well. He helped me out and then I'll talk to other people. You know, you could talk to Joe Schmo on Reddit because there's so many people out there with such great info. There's a zillion different ways you can learn in this space, but there's real value in compiling all of those disparate sources into one source that people can go to that has real analysis and boils it all down.

• 10:46Anthony Pompliano?

  And so as you talk to these folks, you know, if you were a reporter, for example, and somebody gave you a statement, you would have to go and validate that statement, right? It's either true or it's not true. So if they say to you, you know, hey, we have 37 employees, a reporter would go and make sure that they have 37 employees, right? How far does a researcher normally go in terms of validating the different statements that they hear? Obviously, from the company, I'm assuming there's much more kind of emphasis on the validity and accuracy versus like that random person on Twitter who says something and maybe you go check it out or maybe you don't.

• 11:23Speaker 01

  It's a great question. And the weird part about it is a lot of these, you know, quote unquote, random people on the internet, Twitter, they have a lot of great info.

• 11:31Anthony Pompliano?

  Of course.

• 11:31Speaker 01

  And, you know, they have a lot of great info. I mean, because they're people that are also doing the work, but it has to be presented in a way that's institutional grade. But as for the platform itself, like on MakerDAO, I went online, I made sure that these collateralized debt positions that MakerDAO backs are live. You know, I made sure that its peg has been somewhat maintained. It's varied a little bit due to some problems earlier on, but those have been addressed. But you have to go through everything because if there's anything that's wrong with it, there's no, you know, overlying body that's going to take care of this for you. It's Wild West.

• 12:05Anthony Pompliano?

  Yeah. What's interesting to me, I think, is in a lot of these projects, right? You're basically asking somebody to say, what are you doing, right? How is it supposed to work? How far are you along in building what you want to build? But then there is an element of like, we don't know about the future, right? So they think that they're going to continue to still build things and it'll kind of go in this rosy picture. We obviously know that everything will change. What's the balance in your mind between, you know, when you're writing research, kind of saying, "Hey, here is what the world looks like today and what's built and what's working and how that looks versus, you know, here's what this could become and then here's also like the really bearish case as well." Like, how do you balance writing those two things?

• 12:50Speaker 01

  It's a, that's a great question. The best way I would word this is you need enough data that you know that the platform today is sound enough to make sure that they can get to that future. So, an example is ZeroX. They're building decentralized liquidity protocol on Ethereum. You could run different decentralized exchanges using it, different relayers build their own platforms. Now, what people don't realize today is the token itself has zero governance functions. You control nothing by buying the token except being able to pay fees. But the point is, we have relayers on ZeroX, I think over 40 of them at this point, that are actually transacting tokens in real time. You can use ZeroX and put it on your website to allow tokens to be exchanged in real time.

• 13:32Speaker 01

  So, I know that the platform and the protocol is working today. So, I'm okay with not having governance features now because I know there's a roadmap. But the point is, I know the ZeroX protocol works now, so I can foresee it and project it on what I think it will become. If there was no relayers on ZeroX, or, you know, it was all a white paper and hope, then I'd be like, "All right, you know, maybe this isn't legit." So, you definitely need enough at stage one, even though we're early on, to validate that it can be successful in the future.

• 13:58Anthony Pompliano?

  Okay. And so, in traditional research, you know, let's say you're covering a company, for example, you're an analyst and you're going to cover Amazon, right? You kind of do your initial research, "Hey, here's what I think about the company." A lot of times you're putting buy, sell, hold type, you know, recommendations on it. And then there are periodic updates, right? It obviously helps that in the public markets, there are these, you know, earnings reports that come out, you know, each quarter. And so, you have a chance to get on calls and ask the management different questions. How does this work in the crypto world? Like, what is the periodic kind of updating of the research where people can say, you know, we wrote something three months ago, six months ago, 12 months ago,

• 14:41Anthony Pompliano?

  and we were right, we were wrong, the project has made a left turn and is doing something else? How do you think about it?

• 14:46Speaker 01

  Well, I definitely don't miss earnings on equity research. That was five AM to midnight, if you're lucky. But, you know, it's a good question. In crypto, it's two things. The first one is vague. The first one is it can be quiet for a project for a while. So you have to make sure you're actively looking for, did they hit this milestone? Are they actually executing? Are their competitors getting traction? You have to look for that. But it's also a lot of random events that pop up. Like, we signed this contract, we have this partnership. Civic announced this new partnership, is this legit? So it's all, it's a lot of reaction in some cases to what's happening in the market, which is you want to be proactive, but there's just so much news flow in crypto and so much interaction that you have to just be out there every day looking for updates and reacting to it.

• 15:30Anthony Pompliano?

  Got it. And let's talk about some of the projects, right? So I haven't really talked too much about different tokens or models on the podcast. And frankly, it's because, you know, I really don't have an opinion, right? But I think that you're the perfect person to run through maybe the top 10 tokens. And we can discuss kind of how you look at them, what you like, what you don't like, what you think is important for people to pay attention to, et cetera, if that works.

• 15:56Speaker 01

  Yeah, no, I mean, to be honest, Bob, you know, we're so early in this space that I try not to be biased on whether or not a project is, you know, legit or not legit.

• 16:06Anthony Pompliano?

  For sure.

• 16:06Speaker 01

  But we'd be remiss by not, we have to make calls and we have to be honest with people about what we think, because we're not helping people by hiding facts from them or our opinions. We have to give them opinions that they could make decisions or not. Because if you look at CoinMarketCap a year ago, I don't know what number it is, but a lot of those coins didn't exist or they're gone by now. So we have to be really, we gotta be opinionated.

• 16:28Anthony Pompliano?

  Well, yeah. And so, you know, look, this is not financial advice, right? This is more of, you know, the merits of the technology, the developers, and frankly, it's your personal opinion and understanding, right? And so this stuff can change tomorrow.

• 16:39Speaker 01

  Of course.

• 16:40Anthony Pompliano?

  A developer, you know, the lead developer of a project could leave and immediately the outlook's completely different.

• 16:44Speaker 01

  I totally agree.

• 16:45Anthony Pompliano?

  So let's start with Bitcoin. What's your take there? Pros, cons? What do you think about it?

• 16:50Speaker 01

  I have nothing wrong with Bitcoin. I think it's great. Do I think it's gonna replace the US dollar in the next five years? Absolutely not. I don't think fiat's going anywhere anytime soon. Does Bitcoin have serious problems it's facing? Absolutely. You know, Jimmy Song can yell all he wants at Twitter. I'd love to talk with him, but, you know, Jimmy, give me 10 applications or companies being built on Bitcoin, you know, other than thoughts or writings about things that will be built on Bitcoin. But do I think Bitcoin solves a zillion problems? Absolutely. It has a great monetary policy. It's fixed. We don't know how much money the Federal Reserve's printing. We know exactly what's going on with Bitcoin. We know the supply schedule. We know who owns it. It's global. For people that are in horrible countries like Venezuela, it solves a zillion problems

• 17:33Speaker 01

  for them. There's nothing wrong with Bitcoin. I think it gets, uh, probably gets too much flack in the space.

• 17:38Anthony Pompliano?

  What is the kind of bearish case, right? So if I asked you, hey, five years from now Bitcoin completely goes away and didn't work, what would be the number one reason why you could see that happening?

• 17:50Speaker 01

  It's a good question. You know, one of the things I think about with Bitcoin is, and people, sometimes even myself, when I first started in crypto, I kind of argue Bitcoin has to change. It has to grow. As a currency or a store of value, I don't think it has to change. I think the point is that it doesn't change. Like, it's hard to change. That's the point. We don't want it to be easy to change. We want this to be as stable and as rock solid as we can. So for people that argue between Bitcoin, Ethereum, or others, they have to separate in their mind what they're talking about. Bitcoin is supposed to be hard to change. Let's keep it the same. Let it be a store of value. And then build up the stack, layer two. But people really have to segregate those things. You know, what, to answer your question, what do I think could kill Bitcoin? Bitcoin can kill itself.

• 18:34Anthony Pompliano?

  Oh, interesting. Why would you say that? Like, what does that mean?

• 18:37Speaker 01

  I don't think anything is gonna replace Bitcoin as a store of it. I don't think Bitcoin Cash is gonna kill Bitcoin or Litecoin. You know, Charlie Lee sold all of his holdings. That's a terrible sign for a company or a protocol. But the only thing that's gonna kill Bitcoin is itself. And what I mean by that is it's gonna be either the developers leave, the story changes, or people go to a new version of Bitcoin. So what I mean Bitcoin kills itself. I mean, people will go to a fork, if anything. But I don't think fiat currency is gonna kill Bitcoin.

• 19:06Anthony Pompliano?

  All right, before we continue with this conversation, I want to mention our sponsor again, BlockFi. Remember, they do crypto lending. So you posted your crypto as collateral, they give you a US dollar loan, and you can use the US dollars to do whatever you want. You should visit blockfi.com/pomp and then tweet at me that you went. If you tweet at me after you went to blockfi.com/pomp, maybe I'll throw you a like, a smiley face, or the fire emoji. The fire emoji is the best. Remember, go to blockfi.com/pomp and I'll see you on Twitter. You know, I think a lot about with Bitcoin specifically. Everyone wants to pit fiat currency versus this decentralized digital currency, right?

• 19:43Anthony Pompliano?

  And I think less about like 1v1, and I think more about coexistence and allowing people to have two options. And you individually can choose which one you think is more appropriate for your specific use cases, your specific needs. And that doesn't mean that one's better than the other. It just means that it fits your solution.

• 20:06Speaker 01

  Yeah, no, I totally, I mean, think about the world in which Bitcoin replaces fiat money. I mean, that means that, you know, the government has no control over us. Like, that's all sounds great and everything, but who's paying your cops and firefighters? You know, who's paying to get the garbage off your streets and pay the public works people? Are you just gonna donate to them? You know, people don't think about that dystopian. If the world ends tomorrow and Bitcoin wins, we're all dead anyway.

• 20:29Anthony Pompliano?

  I love it. All right, let's talk about Ethereum because I know that you are, you're quite bullish on it. So walk us through pros, cons, and kind of what your view is.

• 20:38Speaker 01

  Yeah, Ethereum is an awesome platform, in my opinion. I was akin to it, or I was drawn to it because I used to cover AWS in part and Microsoft Azure, so platforms you can build on. And one of the things that I loved about Ethereum was Vitalik. You know, the guy was just such a forward thinker. He put out great research and, you know, the other thing I really liked about him was he was very receptive to the problems. He wasn't like Dan Larimer at EOS just calling people out. You know, he was like, submit research to me, I'll review it, and I'll send you back 20 pages of comments. So, not myself, but other people that have worked with him. So that's why I loved the founder's focus, you know, of course with other people.

• 21:18Speaker 01

  But what I love about Ethereum is I love that we're actually seeing applications being built on it, and we're actually seeing use cases, you know, whether that be MakerDAO with the stablecoin being built on it, whether that be Xerrex with relayers being built on it for decentralized exchanges. We're just seeing, in my opinion, the most vibrant and strongest developer community that we have in the space. I published a report on Serenity, Ethereum's upgrade that's coming out. The first part of that is going to be a hard fork in mid-January. But Serenity is a new upgrade that has a multi-year timeline. People are saying 2020. To be honest, I don't think it's going to happen within two years. What does? Especially with developers, but that's going to bring new changes to the platform where we're going to have sharding,

• 22:02Speaker 01

  which is instead of one blockchain, you have 1,024 blockchains, all under a beacon chain or above a beacon chain, however you look at it. But that's going to enable a ton of new use cases. Because what people don't understand is Layer 1, I don't think Layer 1 should be scale, like the base blockchain protocol Ethereum. That should be decentralized, have tens of thousands of nodes, be hard to change. But when you move up the stack to Layer 2, you should have things like Plasma and real scale that people can build on. So decentralized Layer 1, scale Layer 2, and I think that's where we get all the great use cases out of. And with Ethereum, I think we get that through Serenity.

• 22:41Anthony Pompliano?

  What's your biggest concern as to why Ethereum could completely disappear?

• 22:46Speaker 01

  I have a thousand concerns. My job is to look at all the concerns, right? But the biggest concern is not in my mind competitors. It's can the developers actually execute? And I don't know if people, you know, like Ethereum surrounding update. This isn't like a tweak to the code or like, you know, change, you know, control fine. Change this word to that word. They're rebuilding the entire foundation of the protocol. They have to make sure that this works because if it doesn't work, you know, your base layer, I don't, people kind of overlook this a bit. All the applications built on top of a platform are all subject to the base layer's governance. If something happens to Ethereum's base layer, everything built on top of it is affected. Not only the ether in your Coinbase wallet, but MakerDive, ZeroX.

• 23:30Speaker 01

  All the applications can get messed up. So my biggest concern is whether or not they can make this huge transition. I'm confident they can because they have the smartest developers in the room, in my opinion. But we're gonna have to see.

• 23:45Anthony Pompliano?

  XRP.

• 23:46Speaker 01

  Oof, God, I'm gonna have the XRP army on me if we go too far into this. I wrote a deep dive on Ripple and XRP. And I also had one of their, a guy I'm really fond of, Weistwind, Weistwind, on my podcast too, and he's developing a tip bot, which I thought was awesome. It could tip people in real time on Twitter using XRP. But am I investing in XRP? No, no way.

• 24:12Anthony Pompliano?

  Why?

• 24:13Speaker 01

  Because it's run, because I have a fundamental problem with XRP. It's owned by retail customers who have no use case for the currency. XRP is supposed to be used by banks, multinationals for remittances, global transfers and payments. There's no use case for retail investors to own XRP. So I don't understand the bull case for them. There's also numerous problems with it, like the first 30,000 blocks of the chain are missing. Ripple makes all of their money selling the currency. Ripple controls 60% of the nodes and they control the unverified list or the verified list that decides who is a node. There's just too many problems with it in my mind. I'm not saying Ripple or XRP is bad. They actually have a use case.

• 24:55Speaker 01

  People forget, like global money and payments and transfers, that's a use case. But are there better alternatives out there that are truly crypto? Yes.

• 25:05Anthony Pompliano?

  So your take, if I'm hearing this correctly, is that Ripple, meaning the company that has technology that is trying to sell it to banks, is positive and is real technology that could go compete with Swift at some point in the future, et cetera. It sounds like the issue is really around XRP, the currency that is used within that for all the reasons you just described.

• 25:27Speaker 01

  Long Ripple, short XRP.

• 25:29Anthony Pompliano?

  Got it. Okay. I think that's fair, right? I think there's quite a few people who would agree with that.

• 25:33Speaker 01

  Look, you know what? There's a lot of people that will disagree with me on that, and that's fine.

• 25:37Anthony Pompliano?

  Of course.

• 25:37Speaker 01

  But my job is to have an opinion and to share that because if I'd be remiss if five years go by and I didn't share my real opinion.

• 25:45Anthony Pompliano?

  Well, and I think that part of research, especially given what you're doing, is to say, here is my opinion, and here is the work I did, and here is why I believe what I believe.

• 25:56Speaker 01

  Agreed.

• 25:57Anthony Pompliano?

  Right? And so somebody could say, hey, I disagree with your opinion, but I understand how you arrived at that opinion, right? And that's still a win for you.

• 26:04Speaker 01

  Now, that's a great point. And in the institutional world, that's how it works. You sit down from an investment committee or investment manager, and they say, hey, you know what, Tom? I love your report on Ripple or XRP or Ethereum, but hey, I disagree on these points, but I get directionally where you're going. On crypto Twitter, everybody is binary. I love this, I hate that. And in my mind, that's not how the investment world works. You hate something to a degree, you like something to a degree. If things change that stake, then you can move on it. But you have to keep that gray area down. I love Ethereum, but if I see the developers flailing, like when I saw the 1.x come out with these private meetings, that was a concern to me because it's supposed to be transparent and open. The developers came out and they addressed it, whatever, which was great.

• 26:48Speaker 01

  But you have to be critical on every event, but you have to have a gray area on how, the degree to which you like things or hate them.

• 26:57Anthony Pompliano?

  Got it. Tether.

• 26:59Speaker 01

  Tether wouldn't touch it.

• 27:00Anthony Pompliano?

  Why?

• 27:01Speaker 01

  Because you will always have the transparency issue. You will always have a problem of, does Tether have X amount of US dollars in their bank or not? That will never be transparently solved, in my opinion, ever. We're always gonna have to wait for a quarterly statement. And if, what if they don't share it? You know, when you go on MakerDAO, you can see the smart contracts and you can see the the amount of money or the amount of Ether locked up in real time. You know, there's like 2% of all Ether locked in MakerDAO right now, smart contracts backing Dye's stablecoin. It's transparent, it works, and people know exactly how much is out there.

• 27:32Anthony Pompliano?

  Mm-hmm. Got it. And then you recently published a report on privacy coins.

• 27:36Speaker 01

  Yep.

• 27:37Anthony Pompliano?

  What, uh, what was kind of your, your take there?

• 27:40Speaker 01

  Oh, God, highly technical.

• 27:41Anthony Pompliano?

  Cause you covered four of them, if I remember correctly, right?

• 27:44Speaker 01

  Yeah. Privacy coins is, is a, uh, is a tough area to get your head around. And the first, the, the first understanding is, why do we even need privacy coins? Right? And people, I think, forget that Bitcoin is totally transparent. You know, I, you give me your wallet pump, I'm gonna go on an explorer and track all your payments back to everywhere, you know? With privacy coins, the goal is to hide that, obfuscate it, hide what you own so people can't track you, so you can, you know, if you wanna donate to a political party, why should anybody have to know that I donated to it? Things like that. There's a, there's a lot of use cases for privacy coins, but it's a highly complex field and it's dominated by two coins, Monero and Zcash. Both go about it differently.

• 28:26Speaker 01

  Monero goes about it with three main items, you know, shielded transactions, rig signatures, at, you know, technical items that kind of, uh, how do I describe this? There's like 11 people in the room and one of them did a transaction, but you don't know who it is. Zcash is, uh, the next generation of privacy coins, in my opinion. They use ZK Snarks, which is a highly complex field where you don't actually have to reveal any data, but you can verify what actually happened. Now, each has its problems, of course. Monero is obviously, you know, less technically secure, I think, but the point is, their entire base of transactions is private on the network. Zcash has, uh, visible transactions and shielded transactions, and the shielded transactions

• 29:11Speaker 01

  only make up around 15% of transactions currently. So the base is smaller today, but the point is, we're not investing for today, we're investing for tomorrow. We want the most secure coin, and that's Zcash, in my opinion, or Monero.

• 29:22Anthony Pompliano?

  Got it. And so as part of this, right? You know, what you just described is a quick summary of a lot of work that you did in terms of the technical understanding of what people are building. How do you wrap your head around it? Right? Because the way I think of crypto, and I'm fascinated by people who are doing research and really looking at this stuff, who are not technical. These are highly complex, you know, theories and software that's being written. Is your approach to read first and then go talk to the people building it and ask all your questions? Or like, how should people who are sitting at home saying, you know what, I've seen Monero, right? I hear people talking about it. I want to go learn about the technology. What's like the way for them to attack that learning?

• 30:05Speaker 01

  That's a, that's a great question. And in my mind, the majority of people, you know, whether it be public equity or stocks, or whether, you know, with Jim Cramer, say, or whether it be crypto, are always going to look for a, you know, pun intended here, trusted source of where they're going for that information. And I'm not a coder. I'm not a Dev developer. So when I looked at Monero and Zcash, I said, you know what, do we have any examples of this stuff actually being messed with? You know, and with Monero, we did, you know, we had a report where 200,000 transactions became visible. They addressed the problem. Did that percent drop from, you know, 80% transactions to 50? I don't know. But the point is, we have to look for tangible real world, real world data on these systems falling apart. Zcash has, you know, several items that are also wrong with it.

• 30:50Speaker 01

  Like, they had a trusted setup at the, at the start of their currency, where six people were involved. And if this, if these six people kept part of their, you know, sure, they can print Zcash at will. So we have to be real cognizant of the real world problems that we're seeing. Because I don't think ever, the majority of people are ever going to look at the code of these things. You know, how many people look at the white paper? And then how many people look at the GitHub? Like, it's got to be way down at least a few steps. Yeah.

• 31:18Anthony Pompliano?

  What um, is there a piece of technology that you think is really promising or important that maybe, you know, most of the people listening to this won't be aware of or won't actually understand the importance of?

• 31:29Speaker 01

  In crypto? I mean, to be honest, I still feel like a lot of retail people aren't looking at Ethereum. You know, everybody's stuck on Bitcoin and that's great. That's awesome. You know, Bitcoin is, you can't knock it, but we have to look at where's this technology taking us and where are we going? And we have to invest in the platforms that are going to be building the next generation of that. You know, can we be wrong on Ethereum? Maybe, but will you gain a ton of insight and knowledge on decentralized platforms and crypto by understanding Ethereum? Absolutely. Without a doubt.

• 31:59Anthony Pompliano?

  Got it. And so I guess, you know, as you look out over the next five, 10 years, right? What's your take in terms of the things people should be paying attention to? What are those themes that, you know, again, maybe that they're not making investments based off of, but just as somebody who's interested in crypto, you know, these are the important kind of trends to follow?

• 32:22Speaker 01

  Yeah, it's a great question. The first one is probably stable coins in 2019. I think that stable coins will enable a new generation of interaction between people because a stable currency solves volatility issues. So is a stable coin sexy? No, but is the applications that can be built on it sexy? Absolutely. You know? The other thing would be security token is going to be a huge topic in 2019, 2020. Can we securitize a building? Absolutely. Is that fun and exciting? Absolutely not. But can pomp own 1% of that building across the street by buying a token on Coinbase? That's fun. That's interesting. And then you have the derivatives markets built on top of that. So I think people have to understand that the base layer that everyone's focused on

• 33:04Speaker 01

  building now, these base layers, they're not fun and exciting. Sometimes they're really boring, but we need them to enable the fun use cases, whether that be decentralized Facebook or whether that be dividing up the Yankees into $5,000 token slots. All of that stuff is enabled by perfecting the infrastructure layer. And the stuff built on top of it, nobody's going to be able to predict when that comes. But it's impossible without the stuff we're doing today.

• 33:30Anthony Pompliano?

  I see. What about people that you end up seeing on Twitter, Reddit, etc., like information sources that you think are maybe not as well-known as, let's say, the mainstream media-type stuff?

• 33:45Speaker 01

  Yeah, it's a great question. There's a zillion. Like, I'm on Medium every day, and I rarely ever see the same author because there's so many people publishing so much data.

• 33:55Anthony Pompliano?

  I'm surprising you with these questions because I want to know what, off the top of your head, when I ask you best sources, you're like, here's the two or three that stick out in your mind. Those are the really good ones.

• 34:04Speaker 01

  Yeah, well, I mean, I love your daily newsletter.

• 34:06Anthony Pompliano?

  Oh, my God. What a non-answer.

• 34:12Speaker 01

  No, there's a lot of sources. But to be honest, I try not to look at opinionated sources until I have my own problems with an idea or a platform. I'm not looking at anybody's Medium post, anybody's thought topic, or thesis, or Reddit post until I understand the dynamics of the token. Because I don't know whether I'm spending an hour reading something, and the guy might be wrong on his first sentence, or I might not agree with it. So you have to start with the foundation, then go to opinion people, then get your fun stuff, exciting stuff about what you think could happen.

• 34:46Anthony Pompliano?

  It's funny, because we spend a bunch of time, as many people know, listening, that you're talking to these institutional investors. And a lot of them always say to me, hey, you know, look, this is interesting to me. I'd love to learn more about it. Send me all the information that you have, and then can you recommend a couple of sources of information where I can learn more? And the first time somebody ever asked me that, I jokingly was, I told one of my partners afterwards, I said, what am I supposed to do? Be like, go follow Whale Panda and bully ESQ on Twitter? And I think highly of both of them, but just the institutional investors are like, wait, who is that?

• 35:24Speaker 01

  Yeah, no, you're totally right. But one of our goals here is, we don't, the idea is, do we meet Wall Street in the middle, or do they meet us? So they have to meet us in a point. They have to get Twitter. They have to get Reddit. They have to start looking at these sources. To them, it's just another data source, but it's alien to them because they've never used it before. This isn't Edgar and SEC filings and Yahoo Finance. This is Twitter, Reddit, and Medium. You've got to get on that.

• 35:49Anthony Pompliano?

  That's a really interesting idea. If there was like an Edgar meets Twitter, right? And you basically had the validators of the system being all of the pseudonymous accounts on like the crypto OGs.

• 36:05Speaker 01

  Hopefully, we gotta get there.

• 36:06Anthony Pompliano?

  That would, that would get out of control real fast.

• 36:08Speaker 01

  Oh, yeah. We'd have a lot of fighting like those crypto cruises people go on.

• 36:13Anthony Pompliano?

  Exactly. All right. So let's do a round of rapid fire questions before we wrap up here. If you had to get, if you had to say what the most important company in crypto was, what would you say?

• 36:27Speaker 01

  Consensus.

• 36:28Anthony Pompliano?

  Ooh, why?

• 36:29Speaker 01

  Hands down, hands down.

• 36:30Anthony Pompliano?

  Really?

• 36:31Speaker 01

  Smartest guys in every room.

• 36:34Anthony Pompliano?

  You, you think that consensus is the most important company in crypto?

• 36:37Speaker 01

  Most important, hands down. 1,200 of the, well, after layoffs, minus 13%.

• 36:42Anthony Pompliano?

  Yeah.

• 36:43Speaker 01

  A thousand of the smartest people building 50 spokes that people don't even understand how valuable they are. They're building all the backend infrastructure. They're building all the new use cases. They're building.

• 36:53Anthony Pompliano?

  For Ethereum.

• 36:53Speaker 01

  For Ethereum. Well, to be honest, people think consensus is Ethereum focused. I don't think they're going to be Ethereum focused forever.

• 36:58Anthony Pompliano?

  Okay, that's interesting. Why?

• 37:00Speaker 01

  Because in my mind, they're systems integrator. They're going to build on whatever platform makes sense. Today, that's Ethereum. Tomorrow, it might be Ethereum X. I don't know. But I think that.

• 37:08Anthony Pompliano?

  Would they ever build on Bitcoin?

• 37:10Speaker 01

  God.

• 37:12Anthony Pompliano?

  That would be a super unforeseen development in the crypto world if consensus ended up building on Bitcoin.

• 37:18Speaker 01

  Well, all I would say is if you have 50 companies and they've all decided to, and a thousand people, over a thousand people, and they haven't built on Bitcoin yet, why would they start tomorrow? They obviously have a reason to not build on Bitcoin.

• 37:30Anthony Pompliano?

  They have a belief for whatever it is. Yeah, I'd agree with that.

• 37:33Speaker 01

  But I mean, beliefs are fine, but these are engineers that are deciding where and where they cannot build, and they've decided not to. I mean, you have Blockstream to build on Bitcoin.

• 37:43Anthony Pompliano?

  Of course. If you could wave a magic wand and change any one regulation or improve it, what would it be?

• 37:48Speaker 01

  I'd probably have the SEC put out actual regulation and real guidance instead of being vague and having everybody question their every move. Regulation is not bad for the space. It's great. People want to know how they can build, but they don't know because it's Hinman's comments and then Hester Pearce's comments and then questions and are we regulating this or that? We need a real regulation that sets the goalpost.

• 38:09Anthony Pompliano?

  I love how every time one of the commissioners talks at like a conference, they all caveat it with, this is my personal opinion. This does not represent the SEC or any of the other commissioners, right? And it's smart on their part, right? Like they've, you know, if you asked me, would I rather them do and proceed the way that they have versus maybe how other jurisdictions like, you know, China or whatever have, I would much actually rather the way that American regulators have handled this, right? They haven't been overly heavy-handed. They've really put in time to try to learn, right? And they say, look, there's a bunch of stuff we don't know. We're trying to figure it out and we want to kind of stay true to our mission of protecting investors, providing fair and safe markets, etc. There's all kinds of complaints people have in there of how that's being applied,

• 38:52Anthony Pompliano?

  whatever. But I do think, you know, it's interesting to see the, I guess you can call it dissent between the commissioners and how they look at technology, you know, this technology specifically. But they've done a pretty good job, I think, right? I think most people would agree with that.

• 39:05Speaker 01

  They've done a great job, but there's two things here. I mean, one is there's a lot of investors and consumers over there that have been, you know, screwed over by horrible, pompish ICOs, right? And stuff like that. But on the other hand of this, I don't think the SEC will ever cede crypto or blockchain to another country. We're not giving up the fight on 5G to China, right? Why would we give up the fight on crypto to another country? If the SEC, in my opinion, knows that if they're heavy-handed or they don't provide real, you know, regulation, it'll go to another country. They don't want that to happen.

• 39:35Anthony Pompliano?

  Jurisdiction shopping, yep. What's the most important book you've ever read?

• 39:38Speaker 01

  I love Full by Randomness.

• 39:40Anthony Pompliano?

  Oh, what's that?

• 39:41Speaker 01

  Favorite book ever. Nassim Taleb basically argues against, or Nassim Taleb? I don't know how to pronounce his name. He's on Twitter. He's an awesome guy. It's just all about chance and all about randomness. You know, it argues that your neighbor that's a millionaire, might not be a millionaire because he's smart, but maybe because he was lucky. So his whole thesis is, you know, get an industry that's resistant to change. So we're probably in the wrong one.

• 40:08Anthony Pompliano?

  I usually when I ask the regulation question, people talk about all kinds of things, but one that's popular is the accreditation laws.

• 40:14Speaker 01

  Yeah.

• 40:14Anthony Pompliano?

  Right. And I always say, you know, I know, I know a lot of dumb, rich people. So perfect example, just got lucky. Or, or somebody they're related to was smart.

• 40:24Speaker 01

  Everyone's got a rich uncle.

• 40:25Anthony Pompliano?

  Exactly. Very cool. All right. So I usually ask one non crypto question. Everyone knows about the aliens. We've got to just admit that aliens are real. But I'm going to ask you a little variation. So normally I would ask, you know, do you think there's alien pets or animals? But instead, because you're a researcher and you spend a lot of time focused on how to learn about things, what would be your approach to find out as much information as you could about whether aliens are real or not?

• 40:53Speaker 01

  It's a great question.

• 40:54Anthony Pompliano?

  What's the process for people to go learn about aliens?

• 40:56Speaker 01

  Well, I mean, there's just so much information out there. I feel like it would be worthless to go online and read all conspiracy theories. I would probably find.

• 41:04Anthony Pompliano?

  Should we just go to space and see what's up?

• 41:06Speaker 01

  I mean, we have to talk to Musk or, or, you know, the Amazon, Jeff Bezos and go on one of their rockets. But what I would do is I would try and find any astronauts on the moon and I would find them in a closed room and I would ask them face to face, do aliens exist?

• 41:19Anthony Pompliano?

  And you think that they would have an opinion, just given that they spent so much more time thinking about space and galaxies?

• 41:25Speaker 01

  Absolutely. My uncle, my great uncle was a NASA engineer. He helped put Apollo on the moon. And, you know, he always told me his conversations with the astronauts are conversations that they would never share with the media.

• 41:35Anthony Pompliano?

  It's crazy.

• 41:36Speaker 01

  Insane.

• 41:37Anthony Pompliano?

  It is, spaces is something that has just fascinated me because it doesn't matter what we actually do there. Right? There are going to be so many people that never believe it's true.

• 41:47Speaker 01

  Yep. No, no, I spend way too much time thinking about time and space and galaxies and the multiverse. And, you know, there's a thousand different universes where me and you are sitting on different sides of the table right now.

• 41:57Anthony Pompliano?

  Like it, it's wild to think about how small the earth is in the grand scheme of the world and then how small we are on the earth. It's just like, ah, man, what is going on here?

• 42:10Speaker 01

  Making me feel worthless right now, Pop.

• 42:13Anthony Pompliano?

  That's, that's the whole point of the podcast, actually.

• 42:16Anthony Pompliano?

  All right. So I end each one with letting the guest ask me a question. What, what one question do you have for me?

• 42:22Speaker 01

  What do you want to see in a year from now with Bitcoin?

• 42:27Anthony Pompliano?

  People come on now and they're like, ready. I don't like this as much.

• 42:31Anthony Pompliano?

  What do I want to see one year from now with Bitcoin? Honestly, I think that what I call the Bitcoin fundamentals just continuing to grow, right? And so it's less about like some big qualitative dream or utopia of like, hey, everyone's using it, whatever. I think if you take today's point in time, right? So we're recording this in December of 2018 and we look at December of 2019. Hash rate continues to grow, number of walls continues to grow, number of transactions continue to grow. Overall transaction volume continues to grow, right? You know, lightning continues to grow in terms of all of its data points. To me, I've come to peace with Bitcoin specifically is a very long-term project.

• 43:16Anthony Pompliano?

  That the beauty of it comes from the slow, methodical nature, right?

• 43:23Speaker 01

  Totally agree.

• 43:24Anthony Pompliano?

  There's plenty of people who have higher time preferences, et cetera, right? But I've pretty much just said to myself, you know, this is the one project where moving fast and breaking things, right? That, you know, is a really bad thing, right? And two, the design is in such a way that if we get this right, it could be, it could be the most powerful computing power, the computing platform in the world. Now, there's a whole bunch of things that could go wrong between now and then, right? Some of the things you mentioned, you know, just simple, a software bug, right? It's a great, you know, great example. It could just all go away. But I do think just time and those fundamentals continue to grow are, you know, kind of the most important thing in my opinion.

• 44:07Speaker 01

  So what's your eyes the next, the next bull run? You gotta have an idea on this. Come on.

• 44:12Anthony Pompliano?

  Yeah, I mean, so here's what I will say. The next bull run is bigger than the last one, right? In my opinion, right? So just my personal opinion, the last one will look small compared to the next one, right? Cause it's just more people are aware of it. There's more capital actually at stake, you know, flowing in, more institutions, you know, more infrastructure in place, all that kind of stuff.

• 44:35Anthony Pompliano?

  What kicks it off? It's probably not one thing. It's a whole host of things that kind of chip away at first kind of bottoming out of this bear market and eventually slowly recovering. And maybe there's a couple of kind of inflection points. Some of the things in there, probably at the top of the list is the halving, I think, is just a systematic kind of catalyst that's built in. There's definitely things around, regulation could help, right? Kind of retail products like an ETF could help. And then I think that there's just specific infrastructure that's built that gives certain people access or ease of use, etc. And then layer two, layer three technologies that kind of fall in that

• 45:18Anthony Pompliano?

  bucket as well. All of those things move us closer to more adoption, right? And if you have more adoption or more demand with a fixed supply asset, price moves, right? It's just supply and demand economics. So I think that's where I kind of come out on it.

• 45:32Speaker 01

  That's awesome.

• 45:32Anthony Pompliano?

  What, um, so I'm a huge fan of the research, obviously. Where can people go sign up to get it?

• 45:38Speaker 01

  Appreciate that. It's 51pct.io. So it's a 51%

• 45:42Anthony Pompliano?

  51pct.io.

• 45:44Speaker 01

  Yep, little abbreviation, easy.

• 45:45Anthony Pompliano?

  Or can we say that because you are one of a few researchers in the space right now, and in my opinion, probably the best, that you have 51% control of the research market?

• 45:57Speaker 01

  Yeah, I have to, I have to say, production and editorial is centralized.

• 46:01Anthony Pompliano?

  I love it, man. All right. So people go, go check out the research. I'm a huge fan. And thank you so much for coming.

• 46:09Speaker 01

  Thanks for having me on, Pop. It's awesome.

• 46:11Anthony Pompliano?

  Yeah, we'll do it again. All right. You reached the end of the podcast. Congratulations. I appreciate you listening all the way to the end. You deserve a trophy. But before I hand out the virtual trophies, remember to go visit blockFi.com/pomp. They're the crypto lending leader in the US. They do it in 45 states, interest rates as low as 8%. And you can use the US dollar funded directly to your bank account to do whatever you want. You should definitely go visit blockFi.com/pomp. You know you want to do it, so just do it. BlockFi.com/pomp.

• 46:45Anthony Pompliano?

  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.