Nevin Freeman: Reserve – Stable Currency as a Human Right #411

Transcript

hi and welcome to epicenter the podcast where we interview crypto founders builders and thought leaders i'm sebastian cuccio and i'm here with my co-host brian fabian crane today we're speaking with nevin freeman who's the co-founder and ceo of reserve but before we talk to nevin about reserve we'd like to tell you about our sponsors this week proof of stake is transforming crypto and you can be a part of it start participating in networks contribute to network security and earn rewards by staking with course one course one is your staking provider securing billions in assets and over 10 000 customers on 25 networks including solana cosmos and ethereum if you're interested in running your own node well they have managed white label knows as service offerings which leverages corresponds highly available and proven infrastructure

course one also just helped launch lido for solana it's solana's liquid staking solution that allows you to stake and participate in d5 at the same time which is amazing head over to chorus.one to start your staking journey and also paraswap with paraswap you can beat the market price every single block it's super fast highly liquid and they just launched their v5 which has a new contract and new apis it has a more modular infrastructure which is more gas friendly and now supports the free approvals using ethereum's permit messages and they also recently just added support for avalanche polygon and bsc and you can always use paris what we do ledger device right in ledger live let's go to paraswap.io to get started uh nevin thanks for joining us today

yeah thanks for having me um so i'm curious about your background so i was like doing a little bit of research before this and um it was like looking at your linkedin and i saw like a few things that you were doing there but there wasn't like a lot about what you were doing prior to crypto i thought you were working on some like training company or something like that so tell us a little bit about how you um you know what's your what's your journey into crypto and how you got to yeah where you are today at reserve yeah it's a it's a windy road um i originally was focused on environmental issues um like up through college um i wanted to be a transportation engineer um ended up taking a turn out of that because i concluded it wasn't really the most useful thing to work on

um so uh you know i've done a couple of entrepreneurial ventures in the past the one most recently that you're referring to the training company was essentially that um some friends and i uh gathered around the premise that there's these really difficult problems in the world that may be unsolvable so like one that i'm personally concerned about is the long-term effects from artificial intelligence i'm one of those people who thinks that things could spin out of control and go some crazy direction and it's like unclear if humans are equipped to handle that like i just think we might mess it up and so the idea is like well you know why can't we handle the biggest problems in the world fundamentally it's because of a lack of

competent enough humans like competent enough teams to actually figure out what to do about these things and there are a small handful of like highly competent people i i think and then like a whole lot of people who don't manage to be able to put together complex projects and so on so the idea was can we figure out how to manufacture these highly competent people can we do something totally different from school or normal parenting or something can we figure out how the mind works and what causes some people to be highly effective sort of the elon musks of the world and produce like a factory for those kinds of people now project didn't hasn't hasn't reached that conclusion yet it's still still underway in some form but so for many many years before this

that's what i was focused on and you know but still back in 2010 2011 some people in that actual in that community were talking about bitcoin um that's when i first you know bought some bitcoin and um was exposed to cryptocurrency and started thinking about it um and you know i i thought of it as um sort of two things one a way to maybe make money you know i speculated on it back at the time like many people did and number two it was very interesting to me that you could potentially have a currency that didn't that didn't require a functional um sort of global power to back it um to sort of be a reserve currency so it's like huh that's crazy what if you could

have a situation where we had like a global reserve currency that uh even if you know the dominant empire fell apart and a new one took power the currency would keep working throughout that transition because if you look at history you know every few hundred years the dominant global power falls apart and the reserve currency you know recedes and a new currency emerges and there's a lot of chaos and economic destruction i think that happens during those times so that was the like intellectual idea that captured me with bitcoin is like what if you could have continuity on that scale the thing that and that is part of what reserve is hopefully aiming to do in the long term but like now we're much more zoomed into like a much more practical set of currency challenges that when i got into all this i actually wasn't even very

aware of personally so is this something [Music] you know ideas around like monetary policy and currencies is it are these things you were like interested before or was it kind of through crypto that you started yeah i wasn't i wasn't an economist you know i i became a sort of very amateur monetary theorist just thinking about bitcoin thinking about could this work could this become a currency and just trying to argue with friends about whether that could happen but no i didn't have any formal training before before this and so um yeah at the beginning of the project you know we we were sort of humbled by the complexity of trying to understand

monetary theory we you know ended up spending some time with economists who devoted their lives to that um to try to make sure we're not making too many dumb mistakes um but yeah you know we really got into this from an entrepreneurial perspective of like okay there's a problem and there's this new set of technologies and maybe it's possible to solve these problems and then we've kind of learned enough of the theory along the way to um to hopefully be making good decisions and so speaking about the problem can you define like what is the problem that reserve is trying to solve so in the short term like in the in the immediate sense the problem that we're working on solving is basically just the the negative effects that already

exist in countries that have hyperinflation or high inflation and capital controls and so you know we're focused on venezuela and argentina today as like the two countries that have the most of those monetary problems um of the ones we're focused on the so the problem to define it is like if you're in that situation your money loses its value uh very quickly um you know in argentina something like 50 per year in venezuela at times over the past few years it's been five or ten percent per day sometimes so it's like very intense and i mean it's sort of obvious why that's a problem like that's you know obviously going to be like really really a crappy situation for individuals and it's

really bad for the economy overall lots of solutions emerge people try to find ways to to live under those circumstances but you know ultimately the main solution that ends up taking hold usually in in that kind of case is people use cash u.s dollars so they save and cash u.s dollars they usually keep them at home because usually you're you're nervous about putting your money in the banking system if you live in a country that's had that kind of monetary turmoil um you transact in cash um or you get a if you're a wealthy person you get a foreign bank account like a u.s bank account um and you transact with you know other foreigners or wealthy people via bank transfer um and so

really what we're trying to do is make it so that everybody in a country like that in a situation like that can have direct and straightforward access to right now just digital us dollars you know we're not even going beyond the us dollar yet and and just essentially open what what feels to them like a simple us dollar bank account and transact with anyone else in that country and anyone else abroad which is it sounds very simple but that's something that's you know just not readily available under those circumstances so so that's that's really what we're doing today how does it work on the ground so i mean i remember speaking with camila russo um a couple of months ago uh when her book came out and you know she had been in

argentina i believe at some point and was working for bloomberg i think and you know she was describing this situation by which you know she was receiving um uh this argentinian pesos on her bank account and then they would you know convert that they would sell them immediately for us dollars and then one day while you know that the argentinian government decided you couldn't do that anymore and so they effectively made it illegal to uh to exchange your local currency for for foreign currency you know in in working in these jurisdictions is there a risk that the reserve app uh and maybe not the currency itself but like if you're you guys are building an app that's like in app stores and things like that and it has you know visibility

and people are able to download it is there a risk that governments could potentially you know pressure app stores through policy to make it uh you know impossible to download the app in the country and how do you kind of circumvent those things if that's what happened it's possible and we definitely think about that and we are building our technology in such a way where it is meant to be resistant for that exact scenario just in case that happens and we do that by rather than having like a sort of single centralized operation in any one of these places we work with an ever-growing number of independent liquidity providers who who basically make it possible for people to get their money in and out but that

actually does uh does actually help us with robustness for that scenario but what i'll say something a lot of people don't realize in this on this topic is that when governments institute capital controls like argentina did in that example you're talking about the principal thing that they're trying to protect is the us dollar balance uh for the central bank so they're saying we're not going to allow you to buy our dollars our central bank dollars because we need to preserve that dollar balance for whatever reason you know to defend a peg or to you know to pay for imports or whatever there's some reason why their overall monetary situation has made it so that they don't have enough u.s dollars to freely allow people to do that exchange if

parallel exchange markets exist that doesn't necessarily do i mean that doesn't directly influence the central bank dollar balance if you go buy dollars from some third-party broker where you're buying you know dollars that are already abroad that aren't part of the central bank system you're not directly influencing that balance you could be driving you know up the price of the dollar you could you you could you could be doing something that might change the the price of the peso or the price of the dollar in argentina um but that's actually not the principal concern as far as we can understand it that's that's this is my view on the world so because of that that's why you see um like really strict enforcement with banks um and capital controls when it is the central bank dollars that are in

question but things like crypto at least so far in argentina have actually been allowed to exist and there really hasn't been any pushback in any significant way yet and that's my theory as to why is that you know they they're sort of these parallel markets and actually i'll talk about this for one more minute in argentina there's a phenomenon called contadocon liquidacion which is like counted on on liquidation and what that means is um what they're saying is you're counting the dollar exchange rate when you liquidate some asset that you've bought so what happens is you can go and buy bonds on the argentine market you buy like argentine government bonds usually you transfer them to a broker in probably new york you know in the u.s

and you sell those same bonds for u.s dollars so you start with pesos and you end up with dollars but you're going through the bond market instead of through the normal currency exchange system where you're taking the central bank's dollars and that practice of contado con linki has been commonplace in argentina for like i mean i don't know how long but like many many many years and businesses use that all the time when argentina has capital controls in place and it's allowed to exist sometimes there's restrictions and time limits and whatever um but you know the powers that be recognized that there needs to be liquidity for their their their citizens and for um their companies um and so it's not actually true that they're sort of trying to make it completely illegal to get any foreign currencies it's just that

they're limiting the ways that you can do it i think that the problem right or the challenge of of you know people living in this you know inflationary worlds or economies with capital control you know that's a problem that like in crypto people have been speaking about bitcoin solving that you know since uh for a very long time you know of course you you know you talked about the dollar example right where stable coins can kind of take that role and you know we have today right whether it's dye or usdt or usdc disable coins that you know you can use right you can you can get an ethereum wallet and so

what is you know what's reserved what's kind of like different about reserve as a system as a stable coin that you know addresses this problem better than the existing solutions yeah so um reserve as a protocol basically allows the aggregation of crypto assets into baskets to create uh to create a token that's backed by that basket and so today what we have is a very very simple us dollar stable coin that's just backed by true usd usdc and pax which are which are just some stable coins that you know are nicely paid to the dollar

the thing that we've done that's pretty different over the past year or two is um we've focused a lot on making the stablecoin accessible to end consumers in these countries that have these issues and so what does that mean we we spent most of our time building and deploying an android app um that gives you an account that's a lot like sort of a cash app account it's like a simple dollar account and the thing that's special about it is you can easily convert your money from venezuelan boulevards or argentine pesos or colombian pesos in and out of these digital us dollars in you know usually a minute or so and so the difficult challenge there is

providing that liquidity making it so that uh you know so that you can easily convert any amount you want to convert back and forth and so in a country like this it's like yeah a stable coin that's cool in principle but how do i get it you know how do i actually spend it um you know do i need to understand um these you know do i need to go use a cryptocurrency exchange that's kind of more built for speculators and is a little bit confusing so the thing that uh the thing that we've done that i'm super excited about is we've made it so that you know people's parents you know ordinary people ordinary merchants um you know people who don't know anything about cryptocurrency are now comfortable getting their money into a us dollar

stable coin and saving it that way and spending it that way and so and a lot of that you know at the beginning we had no idea how to make markets how do you make markets against a currency like the venezuelan boulevard that's constantly going down um so there was a lot of logistical challenges that had to be solved to get to that point again so are you like integrating with some kind of local payment processors or because you know how do people you know how do people exchange now they're argentinian puzzles for uh these digital dollars yeah so the way that it works is like i mentioned we have like a growing set of liquidity providers so if you if you open our app and you say okay i want to deposit some money and get it into

dollars you'll get matched within a few seconds with one of those local liquidity providers and you'll be given bank account information where then you have to leave the reserve app and go make a banking transaction you know in your banking app or on your computer and then come back and put in the reference number for that transaction and then that liquidity provider will get that reference number and they'll reconcile that sometimes with the bot sometimes with a human and so within a few seconds or sometimes a few minutes that transaction will get registered and then you'll have your digital dollar balance in the reserve app and then you can do the same thing in reverse if you want to make a withdrawal you'll get matched with maybe a different liquidity provider that time you know they'll get your dollar balance

and they will either automatically or or with a human they'll make a transaction to disperse those argentine pesos or whatever other currency you decided to withdraw it's a little bit similar to something like local bitcoin essentially i don't know if you've ever used bisques before but yeah you know you basically put up yeah some information in the comment field in your bank transfer and then that person will send you bitcoin or something like that yeah it's similar to that and the main difference is that we instead of allowing anyone instead of making it totally open where anyone can sign up to be a liquidity provider we vet them and we take the responsibility um for those transactions so it makes it so

that the end user doesn't have to like look at a list of offers and look at people's ratings and decide who to trust basically we're playing the role of uh of handling that so you just you know you just make a withdrawal and then you get automatically matched with someone who we've already vetted and decided okay we're willing to to put our reputation on the line and and trust that liquidity provider right so i mean one ques like you mean you you sort of talk about you know you know you said like reserve okay it's created something that like makes it more like comfortable people to use but i mean the reserve right i mean in the reserve right you have like a stable coin the rsv token and i mean that has a

market i mean on anita scott already has a market cap of 10 million so it's like seems like almost nothing or like what is the usage so far yeah um and and this is something that you know we had to decide early on do we want to go focus on crypto speculation or do we want to go and build you know this new service for this new market and so all of our numbers are smaller than what you would see if you if you're part of dfi or yield farming or a crypto speculation exchange but i still find them super super exciting so um so basically in terms of the usage um i wrote down some numbers to share with

you guys um about 290 000 people have downloaded the app and and signed up in some form about a hundred thousand people come back and actually look at the app um on a weekly basis or more frequently um and then about 45 000 people are what we define as like truly active customers they funded their account you know at least twice and they've been active quite recently these numbers are a little out of date but they're about right um and those those numbers have been growing at like something like 50 per month as this service has just started to catch on predominantly in venezuela but also in argentina and colombia

and so you know over the first year the app did about 235 million dollars in total transaction volume and 1.8 million total transactions um to give you a sense of the size and the thing is again you know it's like 235 million dollars it's like well a single crypto exchange maybe does that in a few hours and so it doesn't seem very exciting from that perspective but that the reason it's so exciting to me is like those are ordinary people like living their lives with cryptocurrency um which is something that we really haven't seen um uh outside of this to my knowledge um and it's and so from my perspective even though the numbers are significantly smaller than

crypto speculation numbers um the actual adoption of crypto as money um i think is a very new thing still um and so so that's kind of that kind of shows you where we're at in terms of the the amount you know so there's like you said there's about 10 million rsv on chain you know the app balances for like our ordinary consumers in our app are even less than 10 million dollars um you know that because some of those rsv are used elsewhere in crypto and um and we're holding some of them and so on so so that those total balances are still pretty small but they're starting to grow at a pretty significant pace so you know we'll see what happens over the course of the next year or two but really our bet was you know we

decided we decided okay we're not going to get distracted focusing on on speculation we're going to sort of do whatever it takes to make this accessible to the ordinary person in these countries that are very hard to build in um where we think it's needed the most cool yeah i mean put in that perspective because it does make sense that the numbers would be you know less than what you would expect if you're doing yield farming or this sort of thing um let's talk about the protocol a little bit uh get into some of the more technical aspects so can you describe some of the main components of the reserve protocol and i don't know if this is too early but you know i'm interested in understanding more about the rsv and the rsr token and you know what are the roles and how they

interact with each other we have recently like announced an update to the protocol and so i'll describe the updated version for you guys the way that it works is like i said it's the the purpose is to create these basket-backed currencies and right now we have like a simple dollar backed version so so like i said that's backed with basically usd fiat coins um and in the future the goal is to start to have more and more interesting baskets and eventually to have enough tokenized assets on chain that you can create a currency that is not pegged to the us dollar but is still stable enough

to use as a currency to use this money so the way that rsv and rsr work is that the reserve rights token effectively serves as insurance for the reserve token and so so the way that that works mechanistically in our updated protocol is if there's a stable coin say rsv that stablecoin can generate revenue there's a few different ways that it can generate revenue we can get into that in a minute if you're curious but as a reserve rights holder i can choose to go stake my reserve rights tokens on that particular stable coin and when i say steak i actually do mean steak these days steak often means like you lock up and you just get paid to lock up

and not sell which is kind of in my opinion but here you're actually putting your capital there and saying if there's a default of any one of these underlying collateral tokens you can take my coins away and use that to pay for that default when switching to some other form of collateral so you know if 25 percent of that backing were to go to zero the reserve rights token holders who had staked would actually lose some of their money to cover that for the stable coin holders and in exchange the reserve rights token holders when staking get a share of the revenue that's generated by that stable coin so basically they get a constant stream a constant payment for staking but there's they're taking this risk that if there is a black swan event they'll cover it instead of the stable

coin holders having to cover it so that's the basis sorry but the default event would be for example one of the stable coins one of the underlying stable coins losing its peg for instance okay are there any other types of events that could constitute a default yes so today we're just using vanilla dollar stable coins the next r token as we as we call it in this protocol that we're going to launch uses um essentially like these bearer asset tokens that you get out of d5 protocols out of like lending protocols for instance so you can go you know lock up your usdc and get compound usdc for instance well we can hold that as collateral in the basket and so if you have a basket of

those tokens they will appreciate relative to the dollar and so that's one source of income like i mentioned they can generate income and so in that case there's two layers of possible default you could have a default on the on the compound layer if there's like a liquidity crisis in compound or a smart contract bug you could also have usdc you know could break his peg for some reason you know there could be a you know regulatory shutdown or you know whatever i think that's very unlikely you know i think actually the smart contract risk is probably the greater risk in that case but either of those could be a cause for a default with a token like that yeah sorry i i just wanted to segue on that for a second but maybe yeah let's come back to the components of the

reserve system and and so does so you're saying that the rs are token holders they stake on you know for example right i have some rsr i can say i'm going to stake it on like you know uscc because i think that's i don't know less likely default than usdt or the other way around does that staking then also determine you know like kind of the composition of the basket and you know like how much or like how is that determined it's a good question so so the way this works is you know imagine a world where you have you know let's say 10 different stable coins using this protocol they'll all have

different baskets and the baskets are set by governance when you go in stake that doesn't actually change the basket what you're you're choosing to stake on is one of those stable coins um not one of the underlying collateral tokens within each stable coin so be like okay i want to go steak on you know the stable coin that's backed by these defy tokens because it has you know a lot of revenue right now and so then you're basically insuring that entire basket and if any one of those collateral tokens in that basket were to default then you could be on the line to cover that and so the this basket produces some revenues right so uh like uh you know let's say stable coins can

maybe let's say six percent or something like that per year as an example so does all of those revenues do they all go to the rsr holders or is it also they also go to the holders of the um you know the end holders of the asset yeah they would be divided between the two and that's a parameter that can be set by governance so people you know the way our protocol works is anyone will be able to deploy an r token so there could be different splits you know and you see what the market wants in terms of a preference for more insurance versus more direct yield to the stable coin itself um and so so you can imagine say a 50 50 split where 50 of that appreciation is just

accruing to the stable coin holders themselves but 50 is going to pay for this insurance pool and you know you can see sort of straightforwardly the more you pay towards the insurance pool the higher the yield will be for staking the more insurance you'll have so you can you can sort of have a a lower risk token with lower yield and more insurance or a higher risk token maybe with no insurance with the full yield being passed through and just relying on the stakes for governance my bet is on the on the low insurance token to doing this race we'll see we'll see so is the goal here for um rsv to become

a free-floating it has its own free-floating value so it's no longer pegged to the us dollar but that it has sort of a value that exists in the market yes um it's it well it's i wouldn't say free floating exactly because it will still be pegged to something but not to the us dollar eventually um okay and so and the way that that will work by the way it's not the case that um a stable coin that we have launched already that's backed by us dollars will one day you know switch its backing to to being something else further stable coins can be deployed with the reserve protocol and so then we'll see like a market evolution over time of like which ones do people want the vision for the non-us dollar stable

coin is pretty simple there isn't any like economic magic to it it's it's just um basically creating a basket-backed token where the assets in the basket are a diverse set of things that aren't us dollars you know or it could and that could be gradual could be that you have less and less u.s dollar backing over time in that non-us dollar token now the bottleneck here is just the tokenization of different assets right like right now there's actually still relatively few assets tokenized on on ethereum or on any blockchain for that matter so you could create a basket now that had some tokenized gold and you could have some diversification in which fiat currencies

but if you want tokenized relatively stable things it's not like you have access to like all of the bonds in the world or you know or other government debt or or like commodities that are relatively stable for that matter so basically what our bet is um is and we might do some of this ourselves but we're also betting that the industry as a whole will end up tokenizing more and more stuff over the next decade or two to the point where you really can build a diverse enough basket of assets that it would make sense to hold that asset as a way of storing your value and so in the short term the stability comes from just the stability in those assets themselves in their value to the world

and then in the long term the stability comes from governance right it's not that we think that you could pick a single basket that would stay stable for 100 years it's that we think that you could pick a basket that's stable you know on on the short time frame and then over the course of time evolve that basket through governance so that you know if you have you know fiat currency sort of going like this over the course of 100 years you could have it actually stay pretty much stable over the course of 100 years that's the goal okay interesting are you familiar with this like there's another stablecoin project that i i thought the design was really cool but it uh the i think for regulatory reasons they had to shut down um it was this project in israel called sogar uh

saga i think sagar or yeah i think they changed name at some point but yeah they had they had an interesting design where basically like the currency started as an sdr peg and then as people deposited assets in it less and less sdr would be backing it and more of the assets would be backing it and so it achieved a sort of free floating value it kind of reminds me of this but also feels like it's a little bit different because it's not it's starting as a usd peg uh and then eventually well i mean i guess like eventually it has just more assets in it whereas this just had more eath um so there's like a big broader basket a broader basket of assets i think in uh from an understanding reserve

than a single asset yeah my recollection is that saga was taking an approach of i think it's a little bit similar to what rye is doing these days where it was meant to go up in value the more people bought into it it would go up in value but in a relatively predictable way right um yeah which you know a lot a lot of stablecoin projects thought about that it's like well people want to speculate so maybe you can have a bootstrapping mechanism where the early people get in and this thing sort of bootstraps from there i think so far we haven't i mean we'll see what happens with rye you know i think ample fourth was kind of a similar idea it'll be interesting to see if any of those work we thought about things like that and kind of decided you know it's a

little bit too experimental a little bit too much economic magic there but we decided to go something more traditional and safer so there is a ethereum smart contract but like you know you're targeting developing countries right and like cheap transactions as well like so how are you dealing with the you know the high gas costs and yeah where are these yeah transactions taking place yeah the way we do it now they just take place in our database and then you can withdraw the token on ethereum if you want to um most of our users don't do that because they're not really in it for interaction with the broader crypto ecosystem they're just in it for dollar access

and our our plan is to offer a non-custodial setup basically relying on layer two solutions and so currently i think zk sync is still our sort of intellectual choice for what we think makes the most sense but we're sort of watching that space play out to see what actually is working in practice what actually is getting enough uptake in the ecosystem because i think that uptake in the ecosystem is an important question for these layer two solutions so our app today is like fully centralized and at some point i'm not sure exactly what the timeline will end up being for that it'll end up being that you're holding

your own keys but you're holding your own keys on a layer two um not transacting directly on ethereum so regarding your sort of go to market strategy and product focus so we've already talked about the fact that you're focusing on on latin america um and i'm curious you know why why latin america and i guess my the broader question here is like there seems to be a lot of projects in crypto that have emerged in the us and sort of in the west and that have tried to address the latin american market for sort of similar reasons and sort of like visions uh than than the one that that you're putting forth and i wonder where this comes from and

what is the desire to you know bill the product in latin america uh while like the team uh at least the founders and the investors are coming from you know um more developed countries like the us or europe or elsewhere yeah i mean at the very beginning you know we were just looking at the the numbers of where is inflation the worst and venezuela was the worst so we ask ourselves you know could we present a solution to venezuela because the problem is the biggest there um i didn't even know a single person from venezuela when i started this project and now our team is you know i think we only have about 10 people on the team from the us and there's like 150 people

on the project including all of the customer support and operations and so on they're mostly in latin america a lot of them are in venezuela because you know because we decided to focus on on that part of the world and so that's where we've really built the project so in a sense the project is more latin american um than than uh american at this at this stage but yeah i mean in terms of why we decided to focus there it's like i just felt that cryptocurrency as money wasn't really an urgent thing in the us i think in the long term there are benefits and we do think about the us and what we can offer in the us over time but we just felt it made sense to start by saying could we serve people in places that needed it the most

and so we did look at we looked at angola early on spent a little bit of time there and you know thought about a few other different places turkey etc and we decided to focus on venezuela yeah a just the problem was the biggest and b you know it's like a little bit more culturally accessible you know enough people in the us speak spanish time zones are more similar so there were some practical things that i think made it easier for us to start trying things out there and once we started trying things out we just kept on feeling more and more compelled you know from from our from the day that we did our very first experiment it's just been a sort of series of us feeling more and more like okay we really need to do this okay and i notice on your website that

there's a whole section about activism you know can you describe sort of what the goal is here and why do you feel that you're you know you encourage uh activism as a company yeah yeah i mean we have a particular um we have a particular campaign that we're working on right now and i didn't realize that we were gonna end up doing this so it's kind of interesting we've realized over the course of focusing on this problem that you know there's a challenge where governments and the international community there's different reasons why they don't necessarily recognize hyperinflation and access to stable currency is like a big problem if you're

if you're dealing with it in your own country you you know you have the conflict of interest of thinking about like your control over monetary policy versus the well-being of individuals or the way that the economy works locally and if you're in another country that doesn't have currency problems it's just very easy to forget that they exist or to care about them and so because of that i think that it makes for a somewhat hostile environment for cryptocurrency and other technologies and projects that are trying to address this issue it's it's not it's not really regarded by the international community as like uh you know one of the you know one of

the 30 or 40 things that we need to fix in the world so you don't really start off with political support if you're doing something in this area and we realized okay is there some way that we could help the international community understand the problem in like a simple way and we realized that there is actually a framework that the un and and the sort of global community has for how we come to consensus about which things are a big deal like this and that's the framework of thinking about things as human rights it's like what is a human right a human right is it's it's just something that enough people have decided they agree that a this is really damn important for people you know if they're going to live

a good life and b it's within reach for us to it's within our means as humans to provide this to everybody you know so if it's really important and we obviously can easily provide it to everybody then we should consider that to be a right that's something we should sort of you know allow people access to even if they're you know not being cooperative with society even if you don't like them they should have it anyway and so when thinking about it that way it's like huh you know i think about a decade ago that the un officially ratified access to clean water as a human right as an example you know and there's been this progression over time of what we consider a human right right now there's kind of a debate about should access to electricity and internet be considered a human right

some people think yes some people think no and so we decided to take that framing and and come out and try to convince the world that access to stable currency not necessarily the us dollar but stable currency generally should be considered a human right like technologically it's totally within our means as humans to provide that to everybody these days and it's obviously very important for living a good and dignified life and so so that's our campaign is basically trying to get people to recognize that access to stable currency should be considered a human right and one day um we might actually you know uh be able to convince the un to ratify that and and really make it um really make it clear for the entire world but in the

intervening time just building momentum around that idea is something we believe can be politically useful not just for our project but for the whole part of cryptocurrency that's focused on providing stable coins to people and and and making crypto useful as money do you fear that there may be instances in like like there may be places in the future that fallen under you know uh more authoritarian governments might see uh reserve or apps like reserve as a sort of threat especially if there's like this kind of activism component have you ever thought about this and like how what's your sort of contingency plan in that case sure i mean we think about that what to say about this i mean like

nobody likes hyperinflation even if you're the government even if you're the central bank in a country where it's happening nobody wants it to happen um and so um you know and and i think and even though there can be you know political interests that sometimes run at odds to the interest of the individual or the functioning of the economy governments are still made of humans you know and a lot of those humans do care about people they want people to live good lives so i think what we've found at least so far um is that there there hasn't been push back on this idea um that you know if you talk to any individual person about it they

get it and there can still be a systemic fight over you know what is the right way to organize our monetary policy um but my my belief based on our experience and watching you know things that have happened in the countries that we deal in is that the thing that really causes a conflict is if you come out and insult the existing regime and talk about how bad they are and um you know and that sort of thing and we're not in it to pick a fight over that sort of thing we're in it to provide a particular service to people um to improve their lives and i think that um by by not making you know particularly political statements by not

making you know statements about you know whether any particular governing body is good or bad um so far we've avoided really any sort of conflict in in that way and that's our intention you know we're not here to we're not going to try to campaign for against any given candidate or anything like that we're just here to provide this technological solution but time will tell you know your concerns are like reasonable concerns we think about this too so we'll see what happens yeah i mean you were talking about hyperinflation there and it kind of reminded me i saw something on your website uh in your docs where it says like that the goal of reserve i'm paraphrasing here is to eradicate hyperinflation and i mean in my mind like i see the

problem is hyperinflation as being like an externality it's like something that you you know that is not controlled in any way by reserve is like it happens in another in another system because it's the consequence of bad monetary policy and like you know not having sufficient economic growth um do you think that's like a well-placed goal or should the goal be to like you know provide stable currencies to like you know millions of individuals or something like it just seems like that's a goal that the reserve product like can't address if company if countries keep making bad monetary policy decisions so as long as we have countries making bad monetary policy decisions you can't really address it it's a very good point the way i think about it is that in the short term the service that we offer doesn't eliminate

hyperinflation it just helps people cope with it but there is a long-term vision and you know we'll see if we can achieve this because it's very difficult but the long-term vision is that if you have a stable currency that is not attached to any fiat money like we've talked about on this call so far if you have something that's backed by a basket of assets and if that's what starts getting substituted in countries that have monetary issues so today like i said the default is cash us dollars right that's what everyone ends up dealing in when you have a country that has issues like this what if in the future the alternative was a stable cryptocurrency um you know it could be many or it could

be one let's say there's one stable cryptocurrency whether it's reserve or otherwise and that starts to get adopted by one two three ten a growing number of countries such that when countries have monetary policy issues you have a currency substitution to that uh to that stable cryptocurrency well if that stable cryptocurrency is actually designed well enough such that it is you know not under the control of any particular government or central bank then you could actually have an ongoing situation over the course of you know the next hundred years where you have fewer repeats of of hyperinflation of monetary policy issues because you've actually started to transition a significant share of the global currency

usage to something that actually has a significantly lower probability of being affected by any country's fiscal policy and actually going into hyperinflation so i realize that's you know it's like maybe hard to believe that that could actually happen sometimes it's hard for me to believe that that it's even possible but that's what we're trying to do ultimately so so that when we say that we actually want to eliminate hyperinflation or at least reduce its frequency that's the long-term way that we think about the project one thing that i would love to dive in a little bit so you know you it feels like we have a system here that's a bit

in between right like you have smart contracts on ethereum you have like the rsr token that has you know some governance right and you know but at the same time you know you have like an a centralized app you have like customer support uh there's these kind of payment gate you know like having this kind of um sort of function to facilitate right going in and out of the system like how do you see that evolve in the future in like what parts will be kind of like on chain and maybe dao and what's the role of maybe like you the company yeah i mean

i think um for the vision i just described of that long-term stable cryptocurrency that is sort of out of anyone in particular's control i think that that has to be unchained um and it has to be governed in a decentralized way and i think we have a lot of work to do and that the space generally has a lot of work to do figuring out how decentralized governance really can work for a situation like that i think the current decentralized governance protocols aren't sufficient um so yeah the currency itself needs to be unchained for that reason i think that the end end user software to access you know cryptocurrencies will continue to

be run by companies um and it's not really important to me that people use you know our cryptocurrency or other cryptocurrencies through our app they could use them through other apps that's fine the reason why we decided to build our own app um and and uh and run it with that centralized database is you know very practical it's just there isn't actually good infrastructure these days for using cryptocurrencies as normal money instead of using it to speculate um and so we decided we had to build that and um you know why do we have the transactions in our own database well for the reason you said because ethereum transactions are too expensive um so

some people ask us though like okay well so does that mean that you actually could just do this project you're doing right now without any cryptocurrency like is there a reason why this couldn't have just been done with like paypal or something and there is actually a reason um and i didn't i didn't see this in advance but it's now very clear to me we talk a lot about how with cryptocurrencies any individual can hold them and you can't sort of discriminate against individuals in allowing who has an account for like ethereum but it turns out that that same phenomenon exists and is relevant on the business level where any business can hold cryptocurrencies in particular in our case we're a business where money services business

in the us and we have customers in some countries that banks in the us are very scared of for example venezuela well if we were dependent on banks to hold those us dollars on behalf of our customers that would be a very tenuous business it could be that our business could just be shut down and all of our customers would lose their accounts overnight because of the fact that we're holding those dollar balances in stable coins we actually are in control of our own destiny there we have to comply with u.s regulations but actually as a financial technology company in the united states the the barriers are mainly what can you get banks to go along with like if you just actually read the laws

and follow the laws there's a lot you can do that banks wouldn't let you do if you were dependent on their permission so the fact that we're using stable coins in the background even though people aren't currently holding them on chain themselves actually permits us to make a guarantee to our users in a country like venezuela that your us dollar balance isn't going to go away because we're going to continue to to provide that custody for you so there's actually an important way in which the it's it's an obscure like it's an obscure way but there's a way in which it is actually preventing the the american financial system from sort of censoring our ability to offer that service to people in venezuela but yeah so i guess to get back to your question like we intend to continue offering this app um we intend you know

to run this company in a way that you know is at least break even if not profitable so we can continue to scale that service around the world but we also totally welcome you know usage of the reserve currency uh or currencies in you know in other applications as well we're not really attached to it being just in ours one question we wanted to ask as well so i think peter thiel is like an investor uh if that's right in your project and of course i remember reading about you know paypal early on and i think there was like some kind of idea uh a bit similar of creating some kind of like global currency or something like can you talk

a little bit about that connection and influence yeah um yeah it is true so um peter thiel um back at the beginning of paypal you know talked to the team multiple times about how if they really got paypal off the ground it could be used to offer an alternative to people actually specifically in argentina was one of the examples they talked about and actually at that moment in 2001 when paypal was picking up was when argentina went through a major currency situation where they ended up basically taking everybody's dollar balances in the bank and cutting the value by one quarter and converting them to pesos which is like a terrible terrible

situation and the paypal team at the time actually thought about should we go try to provide this service to people like right now um and they decided not to they decided no we have to stay focused uh on building our business and like serving our ebay customers which is what paypal was focused on at the time and then they ended up selling the business and you know when you sell a business to somebody else obviously that initial vision it's like very hard for that to be carried through um and so um so it didn't end up being carried through but when we pitched peter thiel and some other people who were early at paypal about this project you know it was very they were the easiest pitches we did because they understood immediately like oh

you're trying to do that okay that's cool um and so you know it didn't take a whole lot of convincing for them to sign on um and you know i think that they're you know obviously they they have complicated lives doing all sorts of other things it's not like they're focused on the reserve project as like their main thing but i think that they're interested in the possibility of that playing out and actually sort of seeing that through and that's part of why um they were they were game to jump on board that's really cool yeah i think you've got a couple of uh former paypal people uh uh in your investors but not elon elon didn't get it not elon not elon musk could also be yeah yeah maybe you had dosed your reserves uh

yeah we have to give him the opportunity to make a very funny meme statement on twitter somehow if that aligns then yeah yeah so um we we rushed on it a little bit i think earlier on but um what's the business model here and i guess we didn't really talk about like yes there's a there's a smart contract but you know reserve is a company i think that's like registered in the u.s so what's what's the business model and how does the company make money so there's a model for the protocol and there's a model for the app um and so for the protocol um there's basically three available sources of revenue um one is transaction fees although honestly i think that the stable coins are probably never

going to charge transaction fees i just don't think that that's going to end up being the main business model for stable coins the second is a little bit a little bit less commonly thought about which is if you get to the point where one of these baskets has you know billions of assets in it um if the underlying stablecoin issuers make money from having a larger volume of their stable coins they will actually start to compete and pay fees to have a larger share of that basket and we actually see that happening elsewhere we haven't seen that exist in a protocol layer yet but that does happen like on exchanges and with market makers where stablecoin issuers pay fees in that way and then the third is probably the easiest to think about which is just like we talked about before those underlying assets can

generate yield they can effectively be sort of lent out or you know provide liquidity or something and so that yield generation is the third revenue mechanism and so then those those three revenue sources you know and they can be configured via governance which ones your which ones you're charging um can be directed to like we said before the rsr stakers and so the sort of economics of the protocol that that's how they work so as an rsr holder you don't receive any money passively but if you go choose to stake your rsr in any particular stablecoin and take that financial risk then you can earn income from doing that so that's the business model for rsr and for the protocol

and then for the app it's pretty simple it's just that when people convert their money in and out of the stablecoin sometimes we do those transactions and we charge a spread on those we do like us dollar transactions in and out of the stablecoin um and then it's also the case that uh we can take a part of the spread um when people are transacting in and out of foreign currencies and so you know our the payment processors those liquidity providers they're making most of the money on that spread because they're providing most of that service but because we're making the marketplace um we can charge you know a portion of that and that can allow us to write the software and and run the business i mean one one thing that's kind of interesting and a little bit crazy about

this world right is that let's say now you have like usdc or some other thing usdt and they are holding actually you know some dollars or commercial paper or some kind of thing right that like people paid to them and and they're using that and now uh then you have let's say usdc or something and then that gets put into compound and like lent out right and then and then like you take that and you put it into reserve and now you're getting this rsv token and now people again are probably gonna put that into some sort of like so it's crazy you know that you have like the same dollar in this case like let's say three times or you know maybe there's a

fourth and fifth or sixth time uh that it's basically being used and earning some uh some yield is is there some limit to this do you think there are any sort of python risks or like how do you view this it's a good question it's something that i've thought about too i haven't i've articulated this before so this might be a little jumbly but if you have the version where um you you offer the dollar and you keep all of the revenue yourself so it says just a dollar people are going to be more excited to then re-borrow that dollar because you'd rather borrow a dollar than borrowing something that's like a dollar plus yield baked into it right because let's

say i borrow something that is like the this new stable coin we're going to release where it's like okay i get this thing and it's appreciating it whatever four percent per year or something um now when i pay back that loan a year from now i have to give back four percent more value in dollar terms versus if i had borrowed a normal dollar then i have to give back you know then i don't have to give back that four percent more like if they were at the same interest rate so the thing is actually there won't be i think nearly as much demand to borrow are appreciating stablecoin as there would be to borrow say usdc so i think that that doesn't continue forever if you allow that yield to be baked into the value of the coin but like you know with usdc the thing

they're putting out there is just a dollar and they're keeping everything that they make and so there is plenty of demand to borrow that and so if if we were to create a stable coin where none of the yield went to the stable coin it all went to the stakers for example such that it was just worth a dollar i think there would actually be more borrowing demand and you could potentially get more re-layering of the type that you're talking about and i do feel like at some point you know that that starts to get dicey in terms of you know the possible liquidity issue um you know if uh if too many people want to recall those loans all at the same time interesting um before we wrap up here i just want to ask you like you know what does success look like for reserve and

how would you measure success in the case of this project in the short term the way i think about it is you know we want to make we want to make you know basically digital us dollars accessible to anyone in any country of the world that's having currency issues so like i said we're you know just in the tens of thousands of people hundreds of thousands um using the service right now but we want to make it so that you know in venezuela and argentina you know like 10 million or so people or more in each country are actually using this for their living their everyday lives and and businesses as well

um and uh we didn't talk a whole lot about this on this call which i'm surprised you actually weren't more curious to know about like the way people are using it and all that um but like we are starting to see that happen like there's about like 5 000 merchants that now just accept payment directly in in these dollar stable coins um in these countries just in our ecosystem i'm sure that many are accepting in others as well so yeah success in on that part of the project looks like basically getting to full penetration in the economy where you can pay anywhere you know you get paid this way with your job and everyone can just live their life in stable digital currency and not have to

be subject to the anxiety and sort of harshness of of dealing with your currency devaluing all the time yeah i mean i i i'm just i think it's a good point and maybe you can spend like a minute or two or like a few minutes on this so i'm curious like with this merchant adoption like how is that happening is that for example focus on like e-commerce or specific local areas or like what are some of the yeah what does the usage look like yeah so one initial use case that was surprising to us the very first thing that caught on was was actually people wanting to get their money from some external dollar source into venezuelan boulevards which it's like

what the whole point was to help people get their money out of venezuelan boulevards why are we helping people get their money into bolvars well the answer is they had already found one solution to cope with the situation which is earning money via working on the internet and getting paid via paypal and so they get these dollars in paypal but then there's no way to spend those locally and there's no way to convert your paypal money into venezuelan boulevards so they would hold their money in paypal and then at the last second they would convert it into reserve dollars and then convert it from reserve dollars like bit by bit into venezuelan boulevards to go make local transactions because if you convert and then go buy then you don't have to worry about the currency volatility because you spend it immediately so we actually started off

helping people provide a bridge back into boulevard which is kind of crazy but then once we started to build out a community using it that way people started to come to trust the service a little bit more and then they started going the other direction and using it as a method of savings so i would say that's probably the dominant method right now where like you get paid in a volatile currency like argentina pesos or venezuelan boulevards and you convert your money at the end of the week or the or or you know sometimes actually people in venezuela convert their money they get paid multiple times a week and they convert their money as soon as they get paid like within hours and so they're building up their savings account and then when they want to spend they can make a withdrawal and convert back to boulevards and then swipe their

card at like a grocery store or something because you know a lot of stores don't yet accept reserve directly and then the thing that's emerging now like i was just referring to is people are starting to just be able to spend it directly at local stores because people are starting to to accept it there and we haven't even built like a point of sale service or anything people are just using the app manually you know so merchants print out a qr code or something and put it on their desk or they just hold up the app with the qr code and people are just doing transactions that way because you know in venezuela in particular just transacting is is often very difficult and so people become very comfortable doing all sorts of shenanigans to just buy something at a local store it's like it's actually a

common place for for stores to sometimes have you know like a bunch of computers where you can go log into your bank account and just make a bank transfer um to pay like there's all sorts of different things that people are willing to do so we're starting to see just organic adoption of of people using it directly to to buy things and then the the last thing is we're starting to see interest in using it for payroll um so so companies locally are starting to pay their employees directly with reserve and then we've also started to see some interest in international companies that employ people in these places they'll like make a single bank transfer to like top up their balance and then we we have like a beta product where they can send us like a spreadsheet and we'll like disperse all the payments to um to

people directly in in reserve dollars um so we're starting to see like you know people using it in in the ways that we had imagined that's very cool um it's great to see that people are people using it and the way it's intended and it's hopefully helping people's lives um nevin thanks so much for joining us on the podcast today yep thanks for having me good to talk to you guys thanks so much