#247 Ryan Selkis: Messari - Bringing Transparency and Self-Regulation to the Blockchain Industry

Transcript

[Music] hello and welcome to the epicenter to show which talks about technologies projects and startups driving decentralization and the global auction revolution my name is Brian Pavan crane and I'm here today with Ryan selfish aka the two-bit idiot now probably quite a few of you have heard of Ryan selfish so he was writing this blog called a two-bit idiot back a long time ago around 2014 which was widely read including by myself and he's had since

quite a few interesting roles in the industry he was at a digital currency group he was the first employee there and digital currency group invested in a lots and lots of blocked in startups he was afterwards at coin desk and he was the managing director coin miss and was they arrived over a year and since then he's starting a new company called Masari and we're gonna speak quite a bit about Masari today so thanks so much for joining us today Ryan yeah thanks Brian and and I've been a fan of the podcast for a while I know we've think there's been like two or three points in the past where we've tried to get this on a calendar and it's just falling through for whatever reason so it took about three years but here we are so long overdue absolutely yeah

that's how you know you're like the og like crypto podcaster too because we've had that many messes over that long period of time yeah everybody's got a podcast now but no one has depo Center yeah that's true yeah there has been an influx of competition that's for sure well let's let's go back in time right because I think there's probably an interesting story there so you you started writing about Bitcoin back in I think it was in 2014 or 13 or 13 yeah so tell me I'll tell us how did you first learn about Bitcoin and what was the step that you know cost you to start writing about it sure so you know I got it original back

in 2011 I was convinced that the dollar was going to collapse and and this was around in the US there was this you know over the summer there was this debt sequester and they basically shut the government down there you know haggling over the debt ceiling and and while that was happening I you know I just remember thinking yeah us the screwed the the history of you know reserves is such that you know reserve currencies tend to change hands every so often and it seemed like you know with China kind of rising up in the u.s. just not able to get any was collective [ __ ] together that there was going to be some you know kind of massive disruption to you know our reserve currency status and so naturally I learned about Bitcoin but instead I ended up shorting the US

Treasury ETF and buying gold and I didn't buy any Bitcoin because at that point you would have had to go into a cafe and get someone you know cash and in return for a USB stick and I'm not an engineer right so so that just didn't seem seem right and and I had the thesis right that the way that that I played it was so colossal II bad because the long gold short you know Treasuries was just a horrific trade but if I had purchased Bitcoin it you know would have been been a legendarily good trade so so that's when I first learned about it kind of you know kept loose tabs on it like you know met so many other people just you know being interested when I could see

the wire articles or you know any kind of high profile news but I really started to pay attention when Fred Wilson invested in Queen base and then that so that was in kind of mid 2013 that was right around the same time the Winklevoss twins were you know it on story TF plans it was the run up to 250 from you know kind of low sing a high single digits low double digits kind of early in 2013 and and so over the summer I kind of tracked it but I didn't make the leap until late August early September in terms of buying my first Bitcoin and that was you know kind of a speculative investment just like some of the others because I thought you know

this is cool and you know I want to just in case then I have a little bit and then when the when the Fed shut down Silk Road it was you know kind of an aha moment because I thought okay this isn't just gonna be for you know terrorists and Kitty pornographers and and drugs you could actually see this being for for Global Payments not just black markets and even though you know I'd still argue that black markets with a killer app for a Bitcoin and building up the monetary base and and I got very lucky because that happened to coincide with me defying my offer to business school and shutting down the startup that I was working on so all of a sudden I was supposed to go to either MIT or work on

the startup and have one and I was down the startup and I had like ten months on my hand before I would be able to go the next cycle and the following year so so I basically had to you know look a little bit more carefully at Bitcoin because six weeks later it had rallied about six or seven times from when I purchased it and as someone who was newly unemployed and trying to figure out what to do for ten months I had to make a you know kind of buy sell hold decision first yeah how do I pay for my rent should I should I sell this thing and count my you know count my blessings that it worked out and and I ended up liquidating my 401k buying more Bitcoin and and then using the rest for kind of

rent the next next ten months or so so it was from a small days but I went I went about as all-in as you could probably go and then included you know kind of writing on a daily basis which you know at that point was the easiest way to learn and and really no one was doing it outside of the reddit threads yeah that's pretty aggressive of liquidating you 401k I actually didn't know that because even back then I felt like you were sort of always on the edge and always like kind of unsure a bit critical and a bit like maybe this is all gonna collapse pretty soon well I think I think part of that might have been because well two things one because I think I'm trying I try to be hyper rational and kind of poke holes in all

the arguments and if you know when I started writing it was in that kind of parabolic run-up so I think I actually got a pretty an executive audience because I wasn't just one of the guys posting the the the rollercoaster gift and all the to the moon threads you know on reddit which is you know it was a little bit hot and heavy I think everybody was was high-fiving a little bit too much leading up to you know the end of 2013 then of course it kind of kind of crashed and then you know the other major component is within you know two and a half three months of writing and getting into the industry I'd met most the executives because it was so small and I went to a couple conferences and they kind of enjoyed the blog and and then you know the mal Cox documents fell

into my lap and I ended up publishing them so so I had plenty of reasons to be skeptical and you know I also was kind of one hand this this whistleblower that people respected on the other like kind of in some circles public enemy number one because you know the because the market obviously really cratered after that and it was a big black eye but you know it was it was it was a hell of an opening six months to get into a new industry and then you know have that kind of combination of things happen epic rally you meet everybody in short order because you know this the silly little pseudonym takes off and then ultimately or you're kind of unmasked around I think you know probably still the biggest story to date which is the

mal Cox back yeah I have vague memories of that actually now that you mention it but says oh wow why did he choose to write under pseudonym so the pseudonym was actually one of the best ideas that so my so my eye you know financed friends had because I started writing the blog really was just kind of like a daily email you know sent to I sent an email around to some of my friends at this firm called summit partners where I started my career and I said you guys should check out coinbase I think it's going to be you know just a really hot company and they were like in the middle of this industry they're kind of the only trusted brand and you know they solve a lot of that you know kind of onboarding pain points and I basically done a back of the napkin on you know

what coin base could be worth and how much money they were making and at the time during the run out they were probably making you know a couple million dollars a month right so you know at least 2025 million dollar run rate and I know it was close because I posted this under the pseudonym and and Brian Armstrong actually messaged me and he's he's like how do you know so much who are you so but it was basically just like backing into their fees and at that point they were posting like volumes and and all that so it was you know it's actually pretty straightforward you just had to do kind of like all the digging and that they're you know kind of company blog at that point but one of my you know that that email kind of quickly got forwarded in all of a sudden I had

like 20 people on this email thread and I said hey you know by at that point was kind of replying to the email daily with updates and then one of them said you know you know you like writing about this you should start a blog but by the way this is probably gonna end in tears and you don't want like a black mark next to your reputation for whatever job you get next you don't want to be like the Bitcoin guy that was in bed with all the you know the kitty pornographers and terrorists and drug dealers so you should you should create a pseudonym if you're gonna post any of this stuff online so I did and and you know and it's stuck and then you know naturally the pseudonym lasted for about five weeks I think and then and that it was all over but it's funny how things work

out yeah and you know it's funny Brian at like I thought about this in terms of fortunate accidents I think the only reason that I was able to get any traction with the writing was because I had the pseudonym because I feel like you know you always try to like put on airs for people and it's very very hard to kind of write right in an authentic voice if you're trying it to impress people and you're trying to basically show how smart you are and you're you know and you're kind of calculating I was just shooting from the hip and having fun with it and and you know I think forget who says that it's like I think maybe like an Oscar Wilde quote you know give a man a mask and he'll

tell you the truth and that's kind of what happened right and then it just stuck and you know people liked it so you know double down you know yeah yeah no absolutely I think that is one of the qualities of your writing there's sort of you know frankness directness and yeah I totally see that the association with the pseudonym so now back then the first thing you did in an industry I mean besides is writing I think the first proper chart was to join the digital currency group like what was the digital currency group that back then and what was your what was the kind of evolution it went through while you were there so I was I was kind of a skunkworks employee berry Silver's old

company was called second market and and DCG was envisioned as a combination between second markets digital currency related businesses which were its trading desk as Broker Dealer and then the sponsor of the Bitcoin investment trust which later became grayscale and then the broker dealer became Genesis but the legacy second market business ended up getting spun out and sold in Nasdaq in 2015 so you have these digital currency focused businesses that were kind of pivoting from the existing second market business and and then Barry's kind of personal investment portfolio which got merged into one and that became digital currency group I say

skunkworks employee because I was working only on digital currency things but technically DCG didn't exist until nine months after I joined so you know I come in with the you know generally the pitch that you know I can I can help during this transition you know I've got the investing background so I can take a lot of the blocking tackling off your plate for seed investing help with the fund raise the core team and and you know ultimately we could go one of the few different ways you know after we do these kind of first few things but one of the things that I'd like to do is kind of start a company under the DCG umbrella and so that kind of played out you know to a tee we you know we recruited meltem the mirrors man I think

many people will know in the industry as well who's now coin shares she joined in May she actually ironically would have been one of my classmates at MIT and was connected through a mutual friends that that I had known kind of dating back to 2013 and then we you know we recruited a couple other people to the the core team closed the rounds and then that fall we met with Jeremy Bonnie who's the old quintet CEO and and and you know started discussing the acquisition but yeah I mean the first the first year show TCG was but it was essentially forming the company keeping the lights on and and kind of positioning it for you know that the next step go on and Dan of course he took over at and you ran coin disk for

for quite some time now the issue of coin Elauf journalism and in the cryptocurrency space seems to be an interesting run right there's so much money in this industry and and people have often been very critical of publications like coin desk at the same time also very critical of public of any kind of mainstream coverage because often you know it would be flawed or misinformed like what wise journalism's and cryptocurrency Rises such a difficult thing to have those two work together well I mean first of all everybody's kind of making it up as they go along information moves in incredibly fast ideas change projects pivot personnel changes you you get ten

experts in the room debating you know BFT consensus systems and nine are gonna [ __ ] on one and then they're gonna go round robin and like they're basically all gonna you know poke holes and the others arguments and you know we see this playing out in real time you know online right like folks from aetherium criticizing years who are criticizing affinity and it's just you know this this big loud and incredibly difficult to decipher ecosystem where if you look at this probabilistically most of the critics are going to be right but you know if you look at this more like an

angel or seed investor there there are some projects that are truly going to figure out the equation and and ultimately scale and to just massively important protocols and businesses and you really don't know until you know many many years down the line so reporting on anything related to crypto is is always tough because you know not only do you have this you know extremely fast-moving environment where you know a lot of people disagree but it's very very deeply technical subject matter and you know quite frankly there aren't many computer scientists they're journalists right because you know for one thing the the economics just don't work right i mean you know solidity developers are

getting paid what half a million dollars a year or you know more than that right now just given the the immense shortage and and you know kind of the ico boom and you know journalists like that's just you I don't know if like the editor-in-chief of like the New York Times makes that much money right you know maybe like there's a few people and and and journalism that make that kind of money but um so there's just I think a gap in terms of like what the market value is for that expertise and kind of where it's deployed and and you know the the other side is like you you basically can do no right because if you try to basically say here's what this group is

saying is true and you know if if these three things end up being true then yes this project could get legs and you basically just report on on what the project's lead want you to know then you're accused of being a shill and if you take the other side and you basically just get a bunch of like criticisms for that same that same project well then you're just accused of spreading like Fudd and and and and you know being malicious and trying to like denigrate the entrepreneurs in the industry and the funniest part is you know coin desk is a great example because I think they do a great job you know kind of balancing or you know at least that you know they work their asses off to get it done Peter is on the rest the team but many times those same

arguments will come on the same article right so you'll get people that are like I can't believe you're shilling ether I can't believe you're crapping on you know sharding and Caspar and like well is that like in the same exact article right sue and I generally found that the Articles that I post like that are some of the best ones right because it means that you've kind of accurately like given given both sides of the of the argument so that's that's I think one of the major things that is problematic and and and frankly it's one of the reasons that I think some curation markets are so interesting and and and and just other curation tools are so interesting I really like I think what token Daly is doing obviously you know what we're

doing at Masari with our home page and that kind of new summaries and and and kind of condensed research summaries I think is very valuable and I think we're gonna see a lot more like that to help people you know kind of filter through the noise so Vinnie comes to Masari I think you know this sort of a backdrop term asari which is that you know these big problems that you see in the engineering kind of failings that you see in the end you see like what is what are the things that bother you the most or disturb you the most about like what's going on in the crypto space today uh well we claim that it's decentralized and equitable and and it's all about the technology and that's all [ __ ] just cover it cover it's just

not true most of these tokens that are being sold or being you know held by the same syndicate of investors who get them you know early access to all the deals because it's you know probably not decentralized they're getting massive discounts so you know by the time the retail investors actually have an opportunity to purchase these very often they're buying it you know 10 or 20 or 50 X multiple of you know with the with the insider you're paying and these things are trading publicly with massive information asymmetries where you know the investors even when they are liquid right even when they're trading on

exchanges like the insiders of the projects the investors that you know it's gotten early they just have a different level of access to information than anyone else that's you know buying through by nan store or vit FedEx or you know you know Baker Gemini so maybe not the latter just yet because they're not really touching tokens but you know I think you get the point so what we're really trying to do it sorry is level the playing field and just uh sure in some sanity around disclosures and kind of common sense aggregation of kind of key information and and where we're starting is is super rudimentary array like supply curves out of your

tokens vest over time and do you disclose when you make a sale outside of the initial ICL who are the verified personnel on a team who generally speak on behalf of the project what communication channels do you use and and I think it's things like that where you want to know if you know Project Lead Bob Smith right just ends up making a material change to the the token issue in schedule as you know as part of their proposed upgrade to the network protocol and and you want to be able to like see how that trickles down to other investors right this new inflation or this you know this kind of arbitrary change to the schedule and you want to know like on par with all of the

insiders at the project that issued the token you want to know you know at the same time as the investors are back to early and there is no expectation that that happens right now with in crypto so you've got this really weird like you know these things your quasi private quasi public and it what it what's going to happen is it's going to create a real mess once people start losing a serious amount of money and that's happens a little bit this year but I don't think we've seen the worst of it yet and it hasn't been quite big enough so I think I actually worry about the next leg up right if you know a Bitcoin ETF gets approved and you know institutional custody gets solved we're gonna see another mega rally in Bitcoin and whatever have whatever you know Bitcoin rallies it brings up all of the rest the

tokens with it regardless of kind of quality it just it you know you've got you know the quote-unquote [ __ ] coin rally and and when that one bursts it's going to be an order of magnitude larger than kind of the last six months that back and that's when it actually creates some real pain for really large community of back holders large enough where governments get involved regulators get involved in a serious crackdown so we come at this from like let's protect you know retail investors let's aggregate information on these projects and just solve like the practical issue of you know where's a a single source of truth for information on you know the universe of tokens and then ultimately you know I'm pretty

negative on a lot of what's been going on but I'm very long-term bullish on attack in the industry and and you know kind of the the good guys that are actually working on building the infrastructure here so it really does matter to us that we you know help fix some of the macro problems because I care about where this industry is gonna be in ten years and you know if we [ __ ] it up now it's gonna set us back for quite a long time so there's there's like a self-regulatory like let's let's clean up our own house type of angle to what we're what we're building at Masari yeah i think you you point out some definitely some massive issues now i'm curious if we can get into like a little bit more detail here when you when you

kind of talk about like let's say this bubble bursting people getting hurt like how what do you think are some examples of ways that the current information asymmetry could be like abused and misused that then leads to these like massive pain among let's say retail investors well it doesn't even have to be nefarious right so a perfect example is is civic and and and and i think the way that Vinnie and his team structured their token sale I think it was aboveboard I think they you know tried to do things the right way I think you know everybody got access to the same price they had this auction structure so they did a lot of things really right and this was last July but but you know a couple weeks ago he emails me and says

hey we we we just had the first anniversary of our token distribution and that means a hundred and ten million CBC tokens have vested and are now liquid but we're not planning to sell them like we're we're gonna keep them on our balance sheet and we've just posted this blog post about you know when we'll sell and and and how we're going to commit to you know disclosing any any secondary sales of this kind of liquid supply it's on our bow now and this happened invested on a Friday and we had this conversation on Tuesday the following week and this is a guy that that is like we're not selling this right we're not gonna dump this on the market even though it's liquid but

but that information was public just know knew about it and if you kind of back into the the amount of money that actually equated to you're talking about like twenty five thirty million dollars worth of tokens or we're just unlocked overnight according to the smart contract and that's you know multiples of the daily volume traded in CBC tokens so you can imagine you know other teams that might say something like oh well this was in the smart contract so we said it was going to vest over this time period and then you wonder why you know the token X has has crashed 50 percent it's because the team just bested and liquidated their holdings of like a vested you know percentage of tokens so that's kind of like an obvious area and

and and some of this is public information right so you know that's why I think we're starting very like remedial with the disclosures and then we can kind of get more assertive over time according to you know kind of community governance standards I don't think we want to reinvent the sec because you know that I don't think that system necessarily works for crypto anyway but there are you know kind of low-friction ways to to at least clean up some of the like very egregious type of activity and and and major information symmetries so I think that's number one and then you know number two which is a lot trickier is how do you understand the investor incentives right so I want to know if if a project that is raising money at a six billion dollar

valuation I want to know what the what the existing stakeholders have at risk and and over what time period that bests because if someone invests at a you know a five million dollar valuation and then the project turns around uses their name to advertise that they're raising money at a thousand times that let's that's a pretty big problem because the implication is and recent and Union Square of invested in this for it's a good high-quality project that you have access to lucky you and and in reality yes they had access to this deal at a penny on the dollar and you have access to a very very different

deal but by the way the team has made no material progress in the five months between those two events so I think it's important there where you know you at least understand you know what's at risk for the for the you know kind of earliest stage investors and I'm not suggesting that information is just going to clean this up it's not but it'll it'll certainly mitigate some of the damage if you have this all this information in one place and and and very importantly you know you can build a network around it so you know our whole angle is we're not going to gather all this data and then resell it someone has to create the kind of common library that the Bloomberg's the Moody's the SPS you know all the other data services and

financial services come kind of build on top of and and reference as a single source of information so this is situation which is you know I totally agree if the examples right is it's a really tricky situation and has potentially really bad outcomes is this like what's the cause of this is it primarily driven by you know lack of regulation and liquidity of all of these assets or do you think there are some other key drivers to this problem well there are jurisdictional challenges - right - so one you know you get a lot of projects that if there's a huge crackdown in the in the US or a certain state or whatever now they're gonna move overseas and you know the other issue is

there are there haven't really been any precedents and so there's a practical issue where you know the SEC which might be the most aggressive enforcer you know coming after unregistered securities offerings and with respect to tokens taking a close look at enforcement actions they're being very very careful and just practically speaking they can't they can't play this game a whack-a-mole and try to go out for every project because they just they don't have the resources and when they do finally make a case against someone they want it to be a slam-dunk so I I think it's very unlikely that they go after something like XRP and ripple because you know ripple can for can afford you know a hundred million

dollars of legal fees no problem and you know they've got the former SEC Commissioner on their on their legal staff right so you kind of think about like all these deep pocketed projects that are playing this you know regulatory shell game of sorts and it becomes difficult to enforce on the flip side I think it becomes very easy for the projects that are at least trying to do things the right way to signal you know our intentions are good right the market is frothy our intentions are good here's how we're trying to structure things for the long-term and what that will ultimately help on the other side is you know if we're just basically if we're going after super remedial basic information in its disclosures and a project says no well then that's that's kind of a pretty significant red flag

that if I were a regulator I would want to look at because they're going to go after like the truly fraudulent you know worst actors right now get the easy wins and then kind of build up over time so you know I you some self regulatory mechanism as ultimately much more effective than anything that we're going to see from on high yeah absolutely I mean we did doing a podcast a while ago if someone who used to be an SEC at the SEC a prosecutor and I was very illuminating to in this regard and kind of made it very obvious that the SEC would be completely incapable of going of really making a big dent in this at least at least for a

long time now let's speak a bit about the this TCR idea so TCR of course stands for token created registry which has come up you know quite frequently in the last year I don't and the idea of a 180 a year of Masari is that basically create this registry right of good projects or projects that that comply with certain reporting standards and that then you know I as a consumer investor I can say okay I I I can look at that list and I can know that there are certain quality standards are met by that project and I have certain information that can rely on talked a little bit about TCR why is that the

right design for this yep so it goes back to the coordination challenge amongst regulators and kind of industry if you look at yourself regulatory efforts and and the existing financial system like FINRA is the great example that that regulates financial services and like all the broker dealers and you know does licensing for you know both broker dealers and then you know securities professionals so you know FINRA basically exists at the mandate of the SEC and you know it's an eighty-year-old organization basically it's self regulatory body regulates broker dealers and kind of licensed securities professionals but it doesn't exist

without kind of the ICC's mandate within crypto there is no SEC because you would need some global regulatory body that would set standards and and you know have some type of enforcement teeth that could penalize you know fraudulent actors or folks that are out of compliance with standards so the question becomes how do you bootstrap any sort of self regulatory mechanism without a central regulator and what we've proposed is that you might be able to do this with a token career registry now the TCR is is you know pretty interesting because you could economically and since exchanges funds underwriters other kind of financially

motivated you know strategic actors to actually buy stake in a system that votes on the eligible participants in that system and and and ultimately curates a list of projects that abide by certain standards and then ultimately helps to evolve those standards over time and make any adjustments that are necessary so at the end of the day if you you know even if you have a 1% stake in the registry you know you could either vote directly on projects or delegate to a proxy who should ultimately be on that list and and the way that I like to think about it is I used a university example all the time if you have a Board of Trustees their

primary motivation for for the university is to and preserve the integrity of the university or you know even increases profile boost its profile at the end of the day what they're really trying to do is continue to boost the credibility and and and the value of the Diploma that you get the credential you get from graduating so you've got the Board of Trustees that are managing the university at the high level and then you've got applicants that really really want to get into the university just so that they have that credential long term and and you know that's really what they're paying for is the piece of paper at the end of the four years and the social signal that they've met certain standards and now they're an employable professional the issue is the with with current TCR is everybody's

assuming that the the token holders are going to vote directly on the applicants and that's like saying that the Board of Trustees at a university are going to review every single applicants college essay and we know that doesn't happen in reality what happens instead is they actually delegate to an admissions counselor right a group of specialists that are going to validate the integrity of all of the applicants and ultimately curate the lists of students who get admitted so I think a good TCR and the way that we've envisioned ours is one where you get a bunch of strategically aligned token holders at the kind of governance level you have all the projects at the base layer that are you know interested in applying so that they can you know have this credential the social signal that

they're at least trying to do things the right way and then ultimately a fee market emerges where there are in you know healthily incentivized auditors or validators that will review all these applications and kind of sign off on different projects and ensure that they are actually in compliance with the standards that they say they are because they'll learn all the network fees and they'll learn all the application fees that are coming from this pool of applicants so you know that I think is a really interesting mechanism that is much much harder to to game than kind of current ecr's that have been out in the wild which you know where you have kind of quorum issues you have free-rider issues you know folks that you know basically you know continue to just own

the tokens but do nothing with them except for speculate that the future value the network's going to go up so I think the way that we're thinking about this is you know how do you how do you truly incentivize work and validation of good projects and ensure that you don't just distribute a token that might govern a list like this to you know non strategic investors and that would include retail folks the reason that we like this so much is you know it we could build a lot of what we want to build a Masari without the TCR but the issue that we would get with our you know database of projects in particular is you'd have a staleness and data completeness problem right so think about crunch base or you

know angel is basically like any private company markets you know information repository the information there is often inaccurate or incomplete just because private companies don't necessarily have much reason to disclose all this information and and there is no real penalty for you know a 3-month lag and updating your crunch base profile and the reason for that is pretty simple like these these shares don't change hands right they don't trade and if they do if there is some type of secondary CL is usually amongst other you know credited investors and other venture funds you know folks that are going to do their own diligence and actually invest in one slug not on a day-to-day kind of trading basis so your CrunchBase works for private markets even though

it's it's not perfect because you know people do their diligence and and these are kind of like blocked sales of shares in crypto with these assets trading 24/7 you've got kind of the worst elements of crunch base right now which is data and completeness and and you know really no expectation that it's going to get updated and then you know kind of public market liquidity so the TCR is really designed to help bring some type of teeth to disclosures around you know when whenever there's a material change to your project right so like how do we ultimately get you know teams to to you know update these profiles in a timely manner so that the information doesn't just trickle first to like the venture capitalists or the you know the insiders

the companies themselves great I would love to challenge you a little bit on that analogy used so you use the example of a university right and you have these trustees and then they want to kind of protect that the value of being on that list of like university graduate right but then when you look when you talked about Masari and this token create a registry there you talk about okay having strategic people and I think you mentioned changes and then white paper mentis crypto funds and stuff like that that holds some of those tokens of course if he if he sort of translate that to the university example right that would be like a trustee who also has some sort of stake potentially right in in the you know future revenue

potential off a particular actual you know university applicant the university remember who wants to get a degree right so they obviously have to is you know or if he then I'll translate that to the crypto world where let's say token fund they have invested in a particularly project it may not be completely legit or it may be a completely project but they do want that on on that whitelist so how do you think that it's gonna play out if if there are all of those other economic interests that are may not be apparent and maybe hard to monitor yeah well I actually think that's a good thing right so so with with the caveat that's you

want to make sure that the initial token supply is well distributed because if you just raised money from a couple of investors then you know of course they're they're basically going to talk to their own book and say and vote in their own projects right but if it's a widely distributed group of initial backers and voters and and you know interested parties in the TCR you're gonna have a lot of disagreements and I would imagine that you know there is some equilibrium where the the group kind of agrees okay even if I did invest in this project they are doing things the right way we have respect for the team and yes they certainly meet these standards and on the other hand if there was a really shady portfolio company at one of the token holders they would just

be overruled by the other you know 15 20 different funds or exchanges that were voting so I think that kind of works itself out naturally the the caveat to that is how do you mitigate the risk of those tokens ever being sent like held centrally right and and and and how do you you know prevent people from accumulating outsize positions in the registry and ultimately you know a large degree of influence over who actually gets onto the list and and there's I think a couple ways to do this one you kind of control the initial distribution and you ensure that there's kind of vesting schedules and and these are relatively illiquid to start to I think it's important for whoever the initial

incubator or the registry is to be able to add partners and continue to unwind the Treasury over time and we've kind of proposed selling you know X percent at time zero and then unwinding the other you know like remaining tokens supply that we hold on our balance sheet over like some defined period of time like three years four years whatever but actually selling it in a structured way not just having invest and having it be uncertain but actually saying every six months we're gonna do this auction so there is this predictable liquidity in the system and these are the only eligible buyers today I think that's another way to do it and then the last way is to incorporate identity and reputation into the system in some way

and I don't know exactly what that look like yet but but I think for certain TCR zits it's definitely easier than others to basically know not necessarily the votes of everybody that's casting them but to know what the voting power is of all of the participants right so imagine knowing who has 100% if you're if you're gonna split the pie chart of Bitcoin mining capacity it'd be really helpful to know like what percentage bit main versus bitfury versus you know any of the other major miners have at any given point in time and with a reputation system and a TCR and kind of the state

based voting you might be able to track that over time so you can you can basically guarantee at least on chain there is this distribution of voting now that wouldn't present prevent you know bribery attacks or kind of you know off chain collusion or anything like that but if there were collusion you would know who the parties were that were were you know colluding right and and and at least you know now there's some reputational stake if if the quality of the registry declines over time so I think in our system in particular this isn't true for all TC RS but we've thought you know very carefully about the specific risks in our system and kind of the trade offs and and so while I think TC RS are exciting I tend to

agree that they are yeah you know in general they're not one-size-fits-all right and they are a useful mechanism but but the kind of mechanism design is going to depend on the use case let's say there's a particular project and the expectation is that project would you know let's say they do the token sale and then they say okay we're gonna have this much for a software development this much from marketing and then we're also gonna have you know this amount which is gonna be used in the budget to pay for this application fee because presumably for these tokens to be actually worth something those application fees have to be very high or how do you how is the value of those

registry tokens gonna be driven yeah I think you know we we've started out with a twenty-five thousand dollar application fee and and I think it's it's high enough where people are you know demonstrating that they actually are taking this seriously and and and that it's not a negligible amount that they can just kind of throw away it's low enough where people are probably willing to pay it and and and it doesn't take a massively long sales cycle to kind of convince people to merit to this but it's also high enough to ward off frivolous challenges to a given candidates registry status so you know

if you only had five hundred dollars at stake you might get you know you know dozens of trolls that are just trying to you know poke holes and you know oh you know the you know Vinnie tweeted this thing and or you know the the Gollum guy is treated tweeted this thing and so that means that they're out of compliance with you know the disclosures framework that they committed to you and they should be booted it you know so it kind of prevents it's like a spam prevention feature right so instead of like a fee market or you know gas market ours is you know a little bit chunkier in the sense that it takes you know five figures of value maybe more over time to actually challenge these these these

applicants so it'd have to be something pretty material that they that they you know Welch done yeah I mean I'm still struggling a little bit because you know let's say there is a thousand projects that per year that actually kind of applying goes through this process pay this fee which is a lot right like a thousand projects is probably not a thousand you know legitimate token projects today you know I think that probably significantly less or fewer yeah right but if you if you think about tokenized securities right and and and you know what what that market might look like over time you know the end game for us you know Edgar's an inferior system right so if you were able to automate accounting and disclosures via smart contracts long term for all types of

securities and all types of you know new types of programmatic asset smart assets then that becomes a very very large market and the whole concept of doing like a 10 K or 10 Q becomes laughably obsolete because informations available and you know basically real-time yeah I mean I guess where I was sort of leading to was that sure right like the market can grow enormous a security tokens and then also the dis kind of volume can grow enormously but if you if you think of the security of this registry as this central self regulatory body in it and if you see that as being kind of protected through game theory and through the value of this token then it seems like it's a sort of disproportionate knowing that the value

of this token or the volume that's coming in in transaction fees is gonna be very low compared to you know the massive massive potential benefit that could be had in gaming this system you know if it actually gets that standing well you know I don't think that the $25,000 is static either right so so it's your point if this becomes a critical piece of market infrastructure the token holders could ultimately vote on raising the fees or they could vote on on you know adding an annual assessment to projects that you know want to continue to be on the registry so it becomes recurring they could you know ultimately add other types of

credentials that they'd like to see right so you know FINRA has you know they you know charge fees to the broker dealers themselves annually but then they also do all the credentialing for the brokers right so do you very verify personnel that are in you know certain certain roles or certain you know positions within the industry so I think you know there are many ways to kind of get there but it you know the back of the envelope math is you know if if long-term you gets you know there's there's two thousand projects paying twenty five thousand dollars a year that's fifty million in network revenue that's a lot right and and that's a hell of a lot more than just about any other you know

crypto economic system right now and if you kind of use traditional valuation metrics I don't think that this is a security because the the token holders would be the ones doing the actual work in exchange for earning those those network fees but you can still look at it like a an income-producing asset and and that kind of right-to-work token you know I don't know like what the multiple is but you assume that's pretty high margin revenue that could be you know multiple a twenty on that that gets you to like a a billion dollar network value for a token that isn't just backed by error right it's like actually backed by real you know economics or flint through the system so so that's what I think

gets us like super super excited is you know in a world where you know this replaces traditional reporting frameworks and you can actually bootstrap the network and develop critical mass and and and get to kind of the the critical part of the s-curve you need to get before it really takes off then yeah it would be very valuable as a public good number one but also very valuable financially because you know the the the system was well designed and again census were aligned does it start as a billion dollar network token of course not right and and so that's why you know when you know as we build this out and we think about like who the next partners are gonna be it's going to be

you know significantly lower than that but you know the the flip side and I always add this as a caveat because I've been I think very outspoken on on ICS in general none of our natural users are individuals right they're they're all institutions whether you're talking about the or applying or the entities that are facilitating resale or you know kind of this whole economic boom they're all almost by definition or credited investors based on their size so we actually don't need to worry abouts a lot of the like pump-and-dump type of schemes I think because I have no interest in you know letting this trade publicly anytime soon and we would only

roll that out like very carefully over over a multi-year period it would be an extremely exciting public good then and I hope I hope it will exist so I'm keeping my fingers crossed for you so I would also love to understand a little bit how this token created registry which my understanding is kind of the central idea of misari fits in with some of the other things that you've worked on so I mean there are these you know reports on projects created by the community and of course that that very much fits into I think with this reporting but then there's also Masari that IO which you've recently sort of touted as the you know front page for crypto and you said that it was going to be a coin desk

competitor and then you also acquired on chain effects which is something a bit similar to a coin market cap though I'm sure you think superior so how does that fit together well I don't think we want to build an editorial desk number one so so not quite a coin desk competitor but former coin desk Managing Director competes with coin desk is always a sexier title then then another you know another blog pops up but you know I do think that we're doing on the curation side is is is super important and interesting just to help people you know kind of filter through the noise and and the way that I always look at content is

and it's it's an engagement mechanism right it's marketing so I don't think that there's much that's that's interesting for us to do on the kind of content curation side other than continue to drive eyeballs and engagement with Masari as a brand to drive people into our community to help you know solve some of these communal research problems and then ultimately to get projects on board with the idea that we should be kind of the initial maintainer and curator of this information with respect to their disclosures because a very natural question for projects you know now fortunately I've been around for a while so a lot of these guys know me which I think gives us a good head start but a natural question is you know why are we

gonna make all of our disclosures with you when no one visits your site right like I want I want to make sure that if we update this information it kind of percolates out to you know a hundred different data services and so you know it's it's about kind of brand community engagement and also just you know audience development and making sure that we have that essentially every single data partner within the industry that might want to build on top of that disclosures library and actually pull that information as a single source of truth is a base layer that we're very visible because what we're trying to do is kind of build the low like the base data layer for crypto and so to your point about on chain FX you know you've got kind of curated and analysis and and

and news that you can categorize by sector by asset and then you have all of the quantitative information about these about these projects and all of the kind of like on blockchain information and that gives us two really important touch points one is with all the exchanges and all the real ayres is decentralized exchange gets you know more important and to you know in order for us to make the the TCR reporting seamless we actually have to build quite a bit of von black chain infrastructure or where you know we're actually spinning up network nodes and like aetherium is a great example right we need like a really strong if they're in infrastructure so that we can seamlessly pull all this information from the RFC 20 assets and ultimately we you know as we as we build our library or others

build on top of our library it's trivial to add kind of snippets of code to to a tokens you know wallet address and and you know automatically disclose that information into our database you know via some type of hash so all of the like quantitative you more rigorous stuff that we're doing related to block chains is is kind of and all of the work that we're doing on curation is you know kind of a method to the madness to ultimately get us to the end goal of this disclosure disclosures library and and I've written about it as well right it's part of a flywheel so do I want to build a media site no I already did that once I loved the coin to ask people I hope they do very well I'm not building

another media business do do we want to build a community of course the community is not going to be a social network it's you know a place to learn it's a place for us to bootstrap and kind of coalesce people around a common mission and will certainly add tooling there but but you know really the more important thing is this last piece of the puzzle which is how do we build a data layer for crypto and then data services on top of that that make this asset class easier to understand it but it's a great question it does it does look I you know and I've gotten this you know from you know even some of our investors they've basically said oh like I think there's a little bit of brand confusion right now in terms of what you guys are doing and and and part of me is

you know you always you always don't want there to be you know confusion about your brand or you know particularly about any misalignment issues but but there's another part of me which is like okay that's fine like you know let's let's get all the pieces in place and then when we're like really ready to hit the go-go switch you know we'll kind of like unveil everything and it will all be beautiful and it will make sense so yeah that's always a delicate balance but you're asking the right questions and and and you know hopefully that help doesn't answer yeah no absolutely now I would be curious to hear a bit about you know what's the timeline here so what would what do you think is gonna happen in the next you know 12 months next you know 24 months yes so you know we're we're

actively working with a number of you know high-profile projects now on getting them on board as the kind of initial registry participants and you know nature of the beast and doing any decentralized network launches it's got to start centralized so we are you know certainly starting is the central maintainer and an arbiter of who's going to get onto the list but we're trying to make it as open access as possible so you know I obviously you know know some of the older projects just you know by virtue of how much smaller the industry was five years ago than it is today we won relationships with you know every single project that's launched private and public and we want to be able to start you know assessing you know whether they're interested in joining

and and you know kind of who's going to be part of the initial list so a lot of it is kind of political in BD driven right now and then our engineering team on the backend is building the the user flows the application infrastructure and then and then ultimately the the the blockchain mechanics themselves that can make all this you know kind of kind of work together great and now community you mentioned community and I think right now even these reports right our community curated community created so people who want to like food who are you looking for and how can they get involved so another thing that I found is is pretty difficult you know I've seen other research communities where

you go to their telegram group and their telegram group has 40,000 people and it's just like when moon when ICO when airdrop you know like it's just a bunch of like [ __ ] and and completely counterproductive so our community is actually pretty exclusive and restricted and it's it's still just kind of volunteer contributors it is basically hobbyists and and and you know folks that are doing this research in their spare time anyway and they you know want to join to actually learn about you know the fundamentals and kind of inner workings of these networks not to like pump and dump and kind of talk to their own book so it's of analysts a lot of kind of young computer science grads a lot of investors you know academics but there's

about 150 folks in the community right now and we're probably going to get that up to 500 by the end of this year without kind of sacrificing the quality of the conversation so it's it's you know we do actually have a high bar you know we we you know certain folks that we already know or that have a certain standing in the industry that have kind of proven their bona fides as a as an investor or an analyst or what have you you know we kind of invite just based on knowing their credentials but then you know we also try to keep it open access where someone's an up-and-comer they can actually submit an application you know token pitch give us a writing sample and and and you know we can kind of go from there you know the goal is to make this open and accessible to anybody on the

contributor side of things but until we've actually built all that like Wikipedia like permissioning and infrastructure we have to centrally manage it and then it's just a bandwidth issue so we have an open application that anybody can check out if they'd like to join the community okay well we'll definitely put that in the show notes and in this the idea down the line also that maybe people who do that work and get some token distribution from this creation token or is there some incentive model around that downline as well nothing for the foreseeable future I would love to find a really smart way to do that I don't think anyone's

figured it out yet it's not our core focus so you know we we kind of take the approach that we're rolling this together anything that's contributed by the analysts will never be resold by us it will always be open and free to the extent that changes in the future we would only change it if if we could actually you know financial you know share the financial spoils with with the folks that were kind of early in the community so I'd say like hard no for the indefinite future and I don't want to like mix the message or you know have because this is always the thing right like oh there's like a little bit of like you know wink and nod it's like oh we're not going to help you we're not going to pay you but wink wink

there may be this light at the end of the tunnel this like magical airdrop or this you know this token it's like a monetary incentive and I am I am very very reluctant to get anywhere near that it's you know let's let's just start with the assumption that no one is ever getting paid anything and this is like if you if you're interested in joining a community of you know kind of like-minded people and then you know welcome let's let's like build some cool [ __ ] together and and help solve some of these information problems but but if not and you know you need to be paid for your work totally understand you know come check in with us when we're in a position and do that okay I guess there's one last question that we must cover I realized especially since we're talking about you know disclosures and

you know in financial interests in all so what is the business model of Masari i mean presumably you guys will keep some of those tokens but is there is that the case and and is there something else as well yes so you know we should be one of the initial validators of who gets onto the registry but we have ideas for how to basically force competition and ensure that there are other validation services that emerge and basically compete away that side of the business from us I hope that we'll always have some share of it but I don't think we want to be a hundred percent because that defeats the whole purpose and if we assume that that market materializes over time and becomes you know tens of millions of dollars per

year then you know that's a pretty you know healthy healthy revenue line for us we are going online the tokens over a multi or defined period but how exactly that splits is something that we're we're kind of you know stress testing and and you know peer reviewing right now but of course there will be you know some reward element that accrues to us for launching and incubating the network but there is kind of a defined exit strategy so so you know we would have to liquidate over a certain course of time and then finally you know we I think we've always wanted to build a data business and this is just I think the first kind of critical missing piece of

infrastructure if we can bootstrap this public Commons there are 50 different value-added service we could build on top of that that are you know completely different business lines we're all kind of in the data service business right so whether you're talking about on blockchain analytics whether you're talking about better trading tools or you know kind of business intelligence tools for for you know professional investors whether you're talking about reporting tools or kind of treasury management for the projects themselves or if you start to kind of vertical eyes and look at some of the most exciting networks and say oh we can make a really interesting solution here or even get into you know investment services you know in a sub

market right so you know one could be you know if augur takes off and we have you know a massive an advantage on a data processing side in terms of like which augur prediction markets we should make you know maybe we decide to become a market maker and one of those sub markets or you know decide to you know start you know staking pools for you know a variety of other you know that's who can you know based markets so there's a lot of different directions a week ago many you know almost all of them make money so let's let's solve like the here-and-now problem and and you know over time you know we want to we want to do this the right way so right although I guess that that is is gonna be an interesting you know also

potential conflict of interest error right because people often criticize this foundation structure at the ATM used to do the fundraise but personally I actually think it's a good structure because it does have this you know funds raced through a token sale or have like it's designated purpose like there's like actual checks and balances that they're used for that you can't like build a poor profit business like with the same team and the same like here you do have much more of a blurry boundary I guess how do you how are you planning to like managed I was the tricky situations that can arise so let's say somebody wants to build a business on like a validation business but you guys who

were running the protocol also building one this yes so so here's maybe the easiest way to think about it right and we've thought about what the default should be but I think here can be a pretty easy and fair way to do it right on the one hand we have all these tokens that we're gonna unwind over time and I would say any tokens that we have that we don't distribute are non-voting so we should never be able to vote our own tokens and provide validation work right so yes we could sell them we can distribute them strategically over a period of time we're not actually going to be able to vote them so then the only voters in the system are the ones that have actually you know acquired tokens from us and the the tricky part is not all of them are going to necessarily

want to do the validation work so we should also be the default validator at first so we have a hundred percent market share on validation from on day one right and that's a problem but one way that you might be able to solve it and kind of compete away our business immediately is to tell the to tell the token holders hey you you must vote if you don't vote you'll lose your stake but by the way you can also delegate your vote to someone and you can delegate to a some kind of third-party validation service of which were the first but if you don't vote and you delegate to us we're going to take a hundred percent of the network fees like 100 percent of the rape you basically get no dividends and

you essentially just own the token and if it appreciates in value then then you know that's that's where your your economic come in what that I hope would do is the fee market materializes is give other validation services and opening to say hey we're going to come in in exchange for your voting power we're gonna provide the same quality of service but we're gonna rebate back to you 50% of the fees that we make so any rational token holder would say well Masari is great but to prevent them double dipping and to ensure that we have kind of a nice distributed validation framework and so that we can actually earn better fees we are we're

going to delegate to these other guys so Masari you've just lost our vote sorry and III think you know what would happen in a scenario like that is you dolt amad you know three or four you know kind of a handful of entities that would compete for that business and you'd have some market equilibrium for what the feast sharing structure should be and then ultimately you know kind of go from there so and and and there are things you can do around like liquid democracy where you know maybe even the validators kind of share applications it's not quite so concentrated but you know it's one of the first things that we're thinking about decentralizing and and mitigating this conflicts and I think we've got some some good ideas how they work in the wild we got we got a stress test first yeah that will certainly be

interesting to see well Ryan thanks so much for coming on was a pleasure talking to you thank you very much have a good one and thanks so much for listening for once again tuning in so we of course gonna have links in the show notes to masari's website on chain effects some of the blockers written about it as well as the place where you can make an application if you want to have become a contributor community member and help them help to make these reports much more plentiful and you know well-documented so you check out for that and you know thanks so much for joining us we've put out new episodes of epicenter every week and you can of course get them on all yours or iTunes SoundCloud or any podcast application or on video on youtube.com slash episode of

VidCon so yeah we look forward to seeing again next week [Music] [Music]