Crypto Cappuccino S01E08: Jeff Dorman, Arca

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Dr. Michael Kollo is joined by Jeff Dorman, CFA at Arca, to discuss the investibility of the crypto and blockchain space now and into the future.

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Jeff Dorman, CFA at Arca
11 Random thoughts during a digital assets bear market


Dr. Michael Kollo

Hi everybody. This is Mike Kollo. And today on the episode, we have a very special guest. Jeff Doman, now Jeff and I bumped into each other at the current census conference recently in Austin, Texas. He's a very similar background to me, much more kind of in the investment space. So a lot of our conversations today will really revolve around crypto blockchains and the underlying technology and the investability of this space are now and going forward.

Hope you can join us. Hi everybody. This is Michael Kollo with another episode of Crypto Cappuccino. Today, it is my greatest pleasure to welcome to the podcast Jeff Doman from Arca. Hi Jeff.

Jeff Dorman

Hi, thanks for having me.

Dr. Michael Kollo

Awesome. Fantastic. So, Jeff, uh, I actually saw Jeff. At the recent consensus meetings in Austin, Texas, and I really had to have him on the podcast cause it really felt like Jeff had a very kind of structured mindset when it came to understanding the world of crypto kind of, uh, we spoke a little bit about taxonomy. So we spoke about the drivers and kind of a very capital markets. Type approach to what this space does and, and what it could be doing. So I thought wonderful. Here's another kind of Q fixed company kind of person for me to chat to. So I invited him, but before we kind of jump into that, um, I wanted to, uh, ask you a little bit about your background, Jeff. So please do tell me about how you came to be here in this role currently.

Jeff Dorman

Sure. Yeah. And, um, again, thanks for having me. So, you know, Jeff Doman chief investment officer of ARCA and one of the co-founders, but, uh, but I, you know, I cut my teeth 20 plus years ago. I started as an investment banker at Lehman brothers.

Um, I went on to be a credit trader at Merrill Lynch, trading everything from investment grade bonds down to high yield and distress corporates. After the financial crisis in oh eight, moved to the buy side, I worked for Citadel and a couple smaller hedge funds as well. So, you know, really first 15 years or so of my career was all, uh, just investing on the debt and equity side, understanding how to break down balance sheets and income statements.

Um, ironically I left because I was getting bored in 2013, 2014, because all we were doing was chasing the fed. And I'm like, well, what's the point of learning? All the things that I learned, if all we're doing is waiting to see which way the fed tells us to go. Uh, of course it's ironic because that's all we're doing now in, in digital assets as well.

But we had a good run for five or six years before this happened. Um, but I, I left in 2014 and I went to a FinTech company, um, called harvest exchange and, and that's really. Where I started working with developers every day and started to be a little less myopic and just my debt and equity investing and a little bit more, um, uh, uh, uh, willing to kind of accept how the world was changing.

Right? All the developers I was working with were mining for Bitcoin and Ethereum. They were all using open source code, open source code on GitHub. Um, it started to resonate that there was, um, more happening in finance, um, than just kind of what I had done my whole career. Uh, and then when I moved out to Los Angeles in 2017, uh, I met my co-founder rain Steinberg, who was also the co-founder of wisdom tree.

Um, and, and he, and I saw the world in the same way, which was. Um, blockchain was probably not even really an asset class. It was really more of a technology that was gonna underpin all asset classes and to date, it was being very underutilized. Right? You had your Bitcoin only investors, you had your VCs that were kind of doing largely your spray and prey investing across a lot of new things.

Um, and you had maybe some, some, some quantitative, you know, high frequency trading type strategies. But nobody was applying true kind of debt and equity, fundamental analysis to the space. Um, and it just felt like a huge white space because the whole industry was being built on Bitcoin. But all the value in my opinion was gonna come from the newer iterations of blockchain and all these different issuer types and token types and value accrual mechanisms.

So, you know, we built ARCA with that in mind, was like, how do we get investors? Um, How do we give them products that meet their specifications, everything from risk management to compliance to regulatory, but also give them the ability to have different risk reward characteristics within different pockets of the market.

Right? It wasn't just one homogenous market. It was pockets that have different risks and different rewards and different sectors and different value approvals. And that's what we set out to do at ACA and, and, you know, five years later, we're still here, we've got a multiple product set. Uh, and, and, you know, we've also done a lot on the education front helping to, uh, teach people where we think this market is headed and, and, and, and you know, what the nuances are.

Dr. Michael Kollo

And, and I think that's, that certainly catches my. Attention as well, in terms of what of the conversations, uh, I often have around the space. And it's rare that you can find other people who are kind of having the same narrative as you and I, which really talks about the economic fundamentals of the technology and therefore, where are they gonna be the, um, the drivers of that revenue.

And who's gonna capture that revenue drivers going forward as well. So how does that cascade from, as you say, the blockchain technology, which is the pure technology element of it, like same way that. Was seen, seen as 2012, all the way trickling into, uh, companies and, uh, ultimately to digital assets as well.

And then just on this idea of tapestry. So, uh, maybe tell me a little bit about how you see that. So I think for a lot of people included people listening to this podcast, Bitcoin probably dominates this theme. So if, if there was a kind of a word. Paneled and Bitcoin would be the middle and there'd be lots of small words around the edges.

And they're all probably used to seeing regular updates on Bloomberg on what the price of Bitcoin is and how terrible that it's at 19,000 or 21,000 or whatever particular is that particular week. But I mean, the ecosystem underneath that feels like a much richer. And as you say, much more fundamentally based ecosystem.

So how, how do you see that ecosystem

Jeff Dorman

Yeah. I mean, honestly, I don't, I don't think Bitcoin has anything to do at all with any of the other digital assets. I think it's totally different and separate, and that's not neither good nor bad. It's just a fact. It is. Um, it it's, it's naive honestly, to think that Bitcoin is the market.

Um, Bitcoin was the first application of blockchain. That's great. Right? The S and P 500 was the first index ever put into an ETF, but that doesn't mean that every single other ETF that has come about is now wrong or an alt ETF, because it wasn't the first one. Right? The, the, you know, I, I think Bitcoin is.

Every single person who's come into digital assets has come in through Bitcoin at least to date. Right? That was the first thing they heard about. That was the first thing they, they, they learned about as a result, the media coverage and the business is built around. Bitcoin is so large that in my opinion, it has swayed basic common sense, right?

That, yes, Bitcoin is a form of money. It is a form of currency. It may or may not one day be a store of value or a medium of exchange. To, to insinuate that that is the only use case of blockchain technology is, is, is crazy. It just doesn't make any sense. And, but there's been so much money and time and energy put towards developing the Bitcoin story that it has created these, these cults of, well, I only care about Bitcoin or I only care about Ethereum or I only care about Solana and into some degree it's necessary, right?

Because you need to kind of build that tribalism to build that kind of interest in it. But it has become so damaging. I think not, not just from a, just from a misrepresentation standpoint, like once the, the, the ETF is the best way I can, I can describe it, right? The, the ETF is a rapper. It's a package, right?

You can put anything you want inside of that rapper. You can put bonds inside of that rapper. You can put equities, you can put sectors, you can put commodities, you can put pretty much anything that you want inside of that ETF wrapper, package it and sell it to somebody who wants exposure. To me, that's all blockchain is blockchain is a rapper, right?

The first thing that we put inside that rapper was a cryptocurrency called Bitcoin. But now we have smart contract protocols like Ethereum and, and Solana and Cardo and, and, you know, avalanche and Phantom. We also have applications, right? We have, uh, uh, you know, no different than if, if Ethereum is the apple app store, then all of the apps built inside of it is what we're seeing in blockchain right now.

Right? Your, your defi apps, your gaming apps, your NFT apps. Web three apps. Um, you know, we, we have applications of blockchain that haven't even happened yet that are just inevitable, right? Like, you know, I really truly believe that every single company will have a token in their capital structure. One day from Netflix to Disney, to Starbucks.

I think every municipality will issue a token. I think every, uh, university will issue a token. Um, And to try to boil all this back down to, is it Bitcoin or something else? Just, I think in 20 years is gonna be just such a crazy, weird reaction to the way this market developed. I mean, I have nothing against Bitcoin.

I love it. I think it's great. I think it, it, it, it probably makes sense in small size, in most people's portfolios, but it, it, to me, it just has absolutely nothing to do with the rest of the market in the same way that, you know, gold has nothing to do with what happens to a, you know, high yield bond issuer.

Dr. Michael Kollo

And I think, I think that this is one of the core things that I find really interesting about the space is I think the way that an industry first develops from embryotic stages in terms of who's the first person who picks up that technology and what is it for ends up being quite representative with the way people think about it.

So in this case, Very early on blockchain technology became a store of, you know, of value. So in that kind of currency sense, alternative to that, to peer tope kind of payment transaction, as a result of that, it became a traded asset as a result of that, the whole capital structure, the whole trading behavior started to emerge and, and this whole blockchain technology, as you say, which is kind of.

In my analogy in the previous podcast was like uranium. So if you put uranium into a certain system, it comes out as a bomb. If you put into certain other system, it comes out as a power plant or it comes out of something else. And I think with Bitcoin, it certainly took a very particular avenue in terms of storage of value and ultimately a resistance to.

The fed, as you mentioned, or the resistance to banking resistance to the status quo, the, the, the centralized power. Um, but I think, uh, broader speaking, as you say, blockchain has so many more applications and we'll see so much more digitization of asset classes. And this is where I think, I think you and I definitely are on the same page when it comes to let's go explore that in terms of, of investing.

There was a really interesting sentence that was said also at the conference by another asset owner. Um, who basically said we're excited because this will give us access to all of the world to invest in. I mean, is that kind of how you see what you just described as well? It's about the tokenization or the digitalization of asset classes.

Jeff Dorman

Yeah. I mean, I, I mean the, the best way to, to boil that down is, is, you know, think about. Think about what the internet did for communication, right. It turned to communication, which used to be very, you know, in person, all of a sudden it, it became global, it became boundaryless, it became frictionless. Um, it became rather costless, right?

You can send a 300 page document, you know, in seconds to, you know, from the us to Asia. Right. You can do a video call across the world with 60 people in it. Right. You know, all forms of communication were completely. Broken down and, and changed because of the internet. And if you believe that blockchain does the exact same thing, but for asset transfer, well then obviously the first form of asset transfer should be money itself, right?

It should be okay. Well, you know, the first thing we need to do is figure out how to transfer money, right? It, it, it's crazy that it's so hard to, you know, transfer money from one place to another, even within a bank, it takes, you know, sometimes days let alone outside of, you know, from different banks or different countries.

So that makes sense that, okay, well, if we have this ability to transfer assets globally, Boundaryless costless frictionless through blockchain. Okay. Well, money is the first thing that we need to do it with. That makes sense. But think about all the other assets that are not money, right? The equity in your home is an asset.

Your jewelry is an asset. Your, uh, uh, uh, car is an asset. Your data is an asset. Your healthcare records is an asset. There are all these different assets that you can basically say, well, with blockchain technology, I can now transfer this across the world. Frictionless boundaryless, globally costless. And to think that that is going to stop at just money, just doesn't make any sense.

Right. And it, it's not going to right. Every single form of an asset is eventually gonna find its way on chain. Now it's gonna be hard to do. It's not like this is gonna happen overnight. Right. You know, even if I could come up with a tokenized representation of my, you know, wife's diamond ring, for example, Well, that doesn't necessarily solve the problem because who's custodying that ring.

And what happens if my wife loses the ring and you know, so it's not like these are easy problems to solve, but you're going to have an on chain representation of just about everything. Right. I, I, you know, I see a world one day where, you know, I'll give you an example, right? If I go to two different hospital networks in, in the same week, right.

You know, maybe I go, you know, on the, go to the first hospital network because I'm having, you know, some issues with my heart and I go and get a, you know, an EKG and get some sort of a checkup for my heart. And then the very next day, you know, I break my foot and I go to another hospital for that. Well, they have two completely different profiles of who Jeff Doman is.

Right? One thinks, okay, normal, healthy, 42 year old male who has a broken foot. The other hospital system says this guy is, you know, has a heart attack. We gotta, you know, figure out what's going on. We gotta identify, you know, a alert the insurance companies. But the reality is I'm the same person, but these two hospital networks have totally different ideas of who I am, because there's no continuity between that data.

But what if I owned my own healthcare records and I said, you know what, I'm gonna own my data, my healthcare on a blockchain. I'm going to distribute it to doctors as I see fit. If there's an emergency situation, there's the ability for me to release that to anyone. Well, that's an asset, right? That is a valuable asset.

That's a valuable asset for insurance companies. That's a valuable asset for myself and my family. That's a valuable asset for, um, uh, uh, the hospital networks and the doctors. That is the kind of thing that will be on chain one day and that you will be transferring this around the world seamlessly and globally in the same way that we do an email or a video call right now.

So when you start to think of it that way, you know, I just talked for what, five minutes. I hope nobody was even thinking about Bitcoin. When I was talking about that, it makes no sense. Bitcoin has nothing to do with that, right. Bitcoin is happens to be another form of an asset. So again, it's not about whether or not Bitcoin is great or not.

It's just that this technology. Is going to go so far beyond what it was originally built on that they're just not even related anymore. Um, the only part of it that is related is that they are all represented as on chain assets. And the reason they're all lumped together right now is because the digital asset world is so separated right now from the bank and brokerage world that everything that's a digital asset is lumped together in the same place.

But one day everything's gonna be represented as a digital asset. And you're just not even gonna think about. You know, a Bitcoin versus a gaming asset versus a healthcare record?

Dr. Michael Kollo

No, I, I, I completely agree. And I think, and what you just described is, is even, even then probably just a first iteration, which is building rails, as you said, building rails across the world that can tokenized, uh, assets or liabilities for that matter and, and trade that, or, or make it, uh, distributed, uh, around the world.

Uh, for me, the, the next iteration of that is when you start to have autonomy, Behind that. I mean, my, my background is certainly more in quantitative algorithms and, and AI and those kinds of things, and this idea of autonomous assets or assets acting again, what we call today, smart contracts. I hate that term because it's a bit self grandizing.

It's like, you know, it's calling me like a calling you a smart person or calling me smart person, having never met each other or something. But I think, um, The idea of smart contracts, where they attach themselves to these digital assets and have a degree of autonomy and therefore control attached to them as well.

I think is something that we've never really seen before. So far. We've always thought about assets as very passive and USTA moves them around an organization, individual. We view an action and then the action moves that asset around. As soon as you start to imbue these assets with autonomy in terms of even a rules based autonomy.

I think, I think that creates a whole other sort of set of systems and, and, and transaction capabilities that we don't have today. Um, which be super exciting. Um, but I wanna take you back a little bit, um, not to Bitcoin because, uh, We shouldn't continue to, to circle the plug and so to speak. But I think this is a, a really interesting point you made, which is, um, about all these assets being available to trade.

I guess one of my challenges here to the current status quo is that trading or when an asset is traded itself, as we know from capital markets experience, that itself changes the nature of the asset. So the form of trading changes it. If it's speculative trading, if it's, uh, if it's risk aversion trading, If it's correlated trading, if it's whatever, then that basically changes the behavior of that asset.

And invariably changes the behavior of the agents that issued that asset from companies, institutions, and so on. And so I feel like one of the conundrums we have in modern finance, or when I say modern, I mean, 30 years of kind of 40 years of finance is that we don't really have a capital market that behaved very well and slow and behold, we had the fed coming in, uh, all around the world and essentially creating a manage.

Marketplace, which is probably where we are today, where every time the things crash, we turn to the government to solve it. Or every time things are going, we, we wonder when the government's going to, you know, cut cheap money. And that feels like it's at the moment we are, we are not really fully relying upon these, uh, price setting mechanisms, uh, you know, to run our economies.

You might disagree with that, but I suppose what. Is a success of blockchain and all the assets that can be pushed around on it, predicated on a, on a well functioning marketplace that prices things well, or, um, do we think we can actually do it without that?

Jeff Dorman

You know, I think it's, um, I think regardless of my answer in 25 years, we're gonna be discussing and debating it because we, right now we really have kind of a dual system, right?

You have, on the one hand, you have this bank and brokerage system, which is 100% run by the government and the fed and, and you know, the ability to basically decide how markets are gonna behave. On the other hand, you have this digital asset world, which is total wild, wild west right now. And you have, you know, it's all privately funded and you have no real rules.

There's no reg FD and it's it's, um, you know, I, I think it's inevitable that you are going to have regulation and you are gonna have those rules. So it's not like this is gonna last forever, regardless of whether or not it should. But I think right now, at least you can actually monitor that duality and say, well, which is better.

Right. You know, do you want to. Uh, an equity market, uh, or a bond market where, you know, it's heavily manipulated and the losses can never be that big. But at the same time, you, you create moral hazard and you create, you know, a lot of, uh, uh, excess fluff that eventually gets burned out. Or do you want to have a system like digital assets where.

It just crashes and rebuilds and crashes and rebuilds, and the gains and losses are much bigger. Um, but at least it's sort of wiping out the, the bad actors and wiping out the, um, you know, the fluff and, and always kind of rebuilding with stronger, uh, uh, uh, companies and people on the other side of it.

And I don't know what the right answer is, right. I mean, obviously for anyone who's lost 80 or 90% of their net worth in the markets, in the digital asset market in the last six months, you're probably gonna be like, I could have used some protection. This doesn't feel good. Um, but you know, for those who have a 30 or 40 year time horizon, they might say, you know what, this is what I wanna see.

You know, I wanna see, uh, a private companies bailing out private companies rather than governments stepping in. You know, I wanna see. Um, you know, a, a forest that is allowed to have a section of it burned without immediately, you know, putting out all the fires. And as a result that one day there's a huge fire and none of the, you know, forest is prepared for.

So, um, I guess I don't think speculative trading is a bad thing. I think speculative trading drives interest and interest drives innovation and innovation generally drives better processes. Um, but because it is traded, it gets caught up in the regulation and that's the problem, right. You know, if, if, if, even if you do.

Believe, and to some extent I'm one of these people, but even if you do believe that a market is supposed to be kind of self-regulated and, and, and, and, and not within the crosshairs of the government, as soon as you go into that speculative trading world, you're, you, you know, regulation is inevitable and I, I don't really know how you can avoid that, but there's areas of trading where it's not speculative, and it makes all the sense in the world, like for.

Let's say that you and I are right. And one day just about every asset is tokenized, including your airline miles. And let's say that I live in Atlanta, you know, Georgia, and I've been flying Delta my whole life. And all of a sudden I get relocated to Houston. Well, now my Delta miles are gonna be pretty worthless because I'm never gonna fly Delta again, outta Houston.

I'm gonna be flying United the whole time. It'd be really nice if there was a really functioning marketplace where I could, you know, have my Delta miles tokenized and I could to immediately swap them for United miles and be able to, you know, basically get into United and, and not have any problems.

That's not really speculative trading. You wouldn't likely see people, you know, bidding that up and down just for speculative access. But it has real world, world utility. That would be valuable. Um, so, you know, I think, again, it's, it's, it's good that the trading and speculation started this it's good, that, that got people's interest.

It's good that they got more people to use the technology, but now we need to see use cases beyond just speculative trading. Um, and except the fact that the speculative part is going to be heavily regulat. But,

Dr. Michael Kollo

but I think, I think just to your example, it's a great example, but it's also one where you can definitely imagine that dystopian future where people are, um, speculating on Delta mile value, because Delta's looking like it's gonna cut back a particular region.

So therefore there'll be much fewer Delta miles not available or whatever. Right. So you start to see that. But, but I do find that there there's a contrasting, um, culture here, cultures here between, again, the builders of these systems who typically have. Kind of a, a society minded ideal in the back of their minds.

If thinking about communities, they think about access equality. When a lot of people I speak to who are passionate in this space are talking about the value blockchain as, as a way of creating transparency and leveling the playing field in so many different ways. The. And then you've got this other area, which we've already covered, which are, who are interested because of that, of the, the speculation, as you mentioned, speculation drives interest, drives innovation, but that part of it is, is much more about the, okay, let me understand where the economic value is and, and where the returns are and, and where maybe short term returns are as well.

In some cases. Um, I mean, in terms of the, in terms of the industry, usages of blockchain, I think, I feel like we're still at the very early stages we have. Uh, defi decentralized finance, which are, um, using block literacy to, um, facilitate loans or other financial transactions and try to less through a protocol, kind of create almost like miniature banks, I suppose you recently wrote in your, uh, piece, which I, by the way I really liked it's called, um, that's art such AHIS.

Almost as cool as the crypto cappuccino learning, um, which is good. Um, and so you wrote in there that, you know, defi is awesome and that's a fantastic innovation, but people don't yet fully understand that give given that we've had a bit of turbulence in their market. And, and as we've already said, there's a good and bad actor or the good and bad, let's say the high risk, low risk takers.

And there's the people that took more risk and, and therefore got caught out with the current downturn. Uh, is, is that an area that you see significant. Um, industry penetration of, of black blockchain and therefore growth, or do you think that that's gonna be one of those areas that is gonna get regulated very soon and, and suddenly become very different?

Jeff Dorman

Um, well I think both, um, I, I think it will get regulated, but I don't think it'll be that different once it gets regulated. I think it it'll just have a little more transparency and a little more rules established with it, but I think, um, You know, look there's there's, there's only been four real success stories in blockchain.

If you ask me right, one is Bitcoin, and you can argue all day long, whether or not Bitcoin actually has any value or merit, but you can't argue that it's a success story, right? It has penetrated the world and people use it as for anything from wealth creation to, to collateral. Two has been stable coins, right?

Stable coins went from zero AUM to upwards of 200 billion in the last two years alone. And it's clearly solving problems with regard to. You know, the transfer of, of, of, of money across the world and, and collateral, um, three has been NFTs in gaming. Um, and again, uh, you know, whether you believe that in certain NFTs or not the idea of being able to have a singular asset on chain and own it as an N NFT or a gaming blockchain based asset, like that, that is a success.

And four was defi, right? Defi is a success. I mean, you know, by assets alone, it would be, I think the top in the top 25 of us banks, um, by deposits, if you just look at defi as a whole, the, the problem with defi is not the, the application of it itself. Like defi works. If you want to take out a loan. You can do it.

If you want to trade an asset, you can do it. If you want to buy insurance, you can do it. If you want to have, you know, run of asset management firm on chain, you can do it. Like all these applications of defi absolutely work and work really well, and they don't break and they don't go down. Um, you know, there's been no downtime with the market volatility.

There's been, you know, it, it, it works, it flat out works. The issues with defi is that, um, there is no barriers to entry, so certain defi applications are riskier than others in terms of being exploited. Right. And that's something that, you know, we at least in, in developed societies, Haven't had to worry about because you have things like F, D I C insurance and the banking system, and, and you have other stop gaps that, that prevent, you know, runs on the bank or, or, or, or draining of funds.

Um, so that's, you know, scary and it's, you know, certainly user beware. Um, but the other part of it is simply, there's no end use case for defi, which is the problem. And what I mean by that is, you know, let's say that I want to. Lend my Ethereum, because I let's say I let's say I own a hundred thousand dollars worth of Ethereum and that's my investments.

And I love it. I never wanna sell it, but I have no other cash. I need to make cash payments. So I might wanna lend my Ethereum into something like Ave, a defi protocol, and I wanna borrow $30,000 of, you know, S D C. To take out right now, I'm three to one collateralized. I have very risk, very low risk of being liquidated.

I have three times the assets, my a hundred thousand dollars worth of Ethereum. I pull out my 30,000 of USDC and that's great. It works fantastic. It took five minutes. There wasn't any unnecessary credit checks. I'm not being dinged for what I look like or what my credit history is. It's simply, that's an over collateralized loan.

It works. Here's the money. That's fine. The problem. Nobody in the world accepts U SDC. I can't do anything with it. The only thing I can do with U SDC is go buy some more digital assets. So everyone who says defi doesn't work or there's no use case. It's, it's not because defi doesn't work it's because nobody accepts the end product.

What you take out of the defi application has no value in the real world yet. But if one day I can pay my mortgage with U S D C or I can pay employees with U S D C or I can pay for lunch with U SDC, or I can do, you know, all these different things with U SDC? Well, all of a sudden defi explodes because now it's like, well, wait a minute.

I, I don't need to ever own cash ever again. Why would I ever own cash? I can just be a hundred percent invested at all times. And anytime I need to make a cash payment. I just load up some of my assets into a defi protocol and take out some U SDC and spend it and vice versa. If I ever get cash in, I'm not gonna hold it.

I'm gonna go buy another asset or I'm gonna go pay back some of that debt I just took. So defi itself. Is amazing. It really works well. We just need to develop the end markets for what you can put in and what you put out. And similarly, similarly, with what you put in right now, the only things you can put into defi are things like stable coins and E and other tokens.

Well, I would love to put, you know, I, you know, I own a home. I'd love to put the equity in my home as collateral into defi so I can take out loans. I would love to be able to take, you know, any other asset that I own. Again, my jewelry, my, my data. Car, et cetera, and use it as real world collateral. So I think once you develop the rest of those markets, then it just opens the door even further to how, uh, applicable defi will be.

Um, so I think it's being held back by regulation as well as by just the, uh, uh, you know, the fact that this. Digital asset world is so separated from the rest of the world, right? There's no ties between the real world that you're spending your money in and this digital asset world, once we bridge that gap, defi explodes.

Dr. Michael Kollo

I, I, I, I don't think that's really interesting in terms of that's one of the reasons I think why there's probably over speculation in the digital markets as well, because we don't have prices set in digital currencies. And I always thought about this notion of, could we have. A low for bread set in units of, for example, Bitcoin or any digital currency, as well as a fear currency in a particular market.

And basically then you have direct consumption as you say, happening within digital assets. And I can, uh, pay for things. Um, I can pay my loans, my lunch, my coffee, whatever in those units. And, and suddenly it becomes a function economy rather than an abstract concept because money without an economy is just a speculative, you know, squiggly number that goes up and down on the screen.

So I think, I think that's a really important thing. And I just would just given what you've just said, I often wonder whether that now, maybe that problem is solved through stable coins because essentially, you know, a coffee will cost me five bucks. It also cost me five SDC. And so therefore, You know, I, I, by definition, it is actually, uh, recorded, uh, uh, in, in those units.

And as soon as we're able to bridge that and say, send somebody five USDC for that coffee in the same way that we give them $5, uh, in fear. Um, then I think, again, the wallet infrastructure has to be established and so on and so on, but I feel like that that is an easy bridge rather than having. Prices in two different currencies, which feels like it's, it could be, um, opened to lots of other problems and probably is not preferred way.

I mean, there's some economies that have done that previously, but it's never worked out that well, I think, um, then that I think that that kind of bridges it. So in terms of building or rebuilding an economy, I think it's, it's very, very good, but I also, I also wonder whether. If, if, uh, blockchain was a startup, whether, um, the, the, the mistake that blockchain was making as a, as a unit of a startup was that he was trying to hit the biggest problem straight away.

Like one of the hardest problems to hit is financial markets, FinTech. You know, let's go rebuild an economy in a financial system using a different kind of, uh, metric, which is global, which is integrated, which is whatever. It feels like no, uh, advisor or, or FinTech would ever say to another FinTech, listen, what you need to do is at the beginning, when you start your industry, you need to hit the biggest problem possible and, and work on that.

I mean, it feels like there has to be lower hanging fruit for this technology, as we said, maybe healthcare donated or some other areas as well.

Jeff Dorman

Honestly, I, I, I go, it's funny. I go the other way, when I hear that, I, I say, I think most things in society, if you started from scratch, you would never build it the same way that is being built right now.

Like for instance, like when you walk around a city, most cities you'd be like, well, that was built horribly, but you recognize that probably that city was built 70 years ago before you realize that trains were gonna be obsolete. And instead you're gonna have, you know, every single person was gonna have three cars or, or before you realize that people were gonna be, you know, commuting to and from, you know, different jobs all the time.

So, you know, you look at Mo and same thing as with money and banking, like. When I heard about JP Morgan coin, for example, and then everyone was all excited about the Hey, like, you know, JP Morgan is gonna start using JP Morgan coin to start moving assets between their banks. And everyone celebrated. I was like, My, my first reaction was I can't believe it's 2022, and that doesn't exist already.

How is it hard for JP Morgan to be able to move money between its own banks? They own 'em all. How hard could that be? And, you know, you think about O other things, like why do we get paid every two weeks or every month? Well, that makes no sense. Well, that's because of the way the banking system works, right.

It would make a lot more sense if I was paid every. Look at the entire payday lending business where, you know, people who can't meet their bills are forced to take out two week loans at 30, 35% interest rates or credit cards at, you know, predatory 20% rates. Like that's not the better system that is crazy.

You would never have, like, you would never develop a system like that from scratch today. Right. So, yeah, I mean, sure. There might be some big things that people are tackling in, in crypto and digital assets in blockchain that, that maybe are too big. But at the same time, there's a lot of legacy systems that are absolutely terrible, that you would never rebuild from scratch if you could start.

And, you know, they, they just don't make a lot of sense. Like you can certainly see a world one day where. Every single person is paid by the, you know, hourly, right in micro payments through blockchain. Right. Instead of having to go through these horrible banking processes and swift and, and, uh, wires, it's just every, you know, every hour, there's a, you know, it's part of the next block and you get, you know, uh, it gets deposited into your wallet.

As a result, nobody ever has to have cash ever again. They just are fully invested at all times because think about it. Like the reason there's such a wealth in equality in the world is because most of the world can't invest because they need every single dollar. They have to make their next rent payment or their next, you know, whatever, uh, uh, make their food payments.

Well, now you can be heavily invested at all times because your investments are also fungible and can be used as payments. So now, you know, most of the world that's never had a chance to invest is no longer gonna have that problem because they can invest in real time as they get paid in real time, they stop having to take out credit card debt.

They stop having to take out payday lending, uh, uh, uh, uh, loans. Then all of a sudden, you know, you start to have a much more equal society and a much more functioning society. So yeah, it's some, they're tackling some big things, but it's also things that again, would never have been built today. If we knew what we knew today about the internet and about, you know, assets and investing and things like that.

So, um, you know, part, part of any new innovation technology is how do you remove the status quo? Right? Some of the things that we do in society are just so etched in stone. From a workflow standpoint, even though they intuitively just make no sense whatsoever now.

Dr. Michael Kollo

And, and I, I think the, kind of the, the idea of rethinking some of these things in a much more fundamental way is a wonderful element to this whole technology in this whole industry.

The reason I mentioned that I think, and the reason I, I just, I still think that it's a bit of a, a big one is. Again, historically speaking, we're in this period where we are, we're living in a managed economy, and this is my view. So managed economy means that, you know, the fed and the government has a big say on what happens in federal markets.

We have regulation. We have all of these things because we are still kind of, uh, you know, recovering from that two thousand eight thousand nine events. And in the midst of that, there's this industry that says, hang on a minute. I think I can create an alternative financial system that doesn't have any of those controls there ebbs and flows that dies in reloads.

And so on. That's built on better technology, but essentially, um, does not require that intermediation, that oversight does not desire. Ideally that requires an integration oversight. Although I think what you're seeing in more recent activities in various different companies is that, that there, there are instances where that is required or preferred.

Um, and, and of course here we are talking about all these multitude of other industry applications. And again, going to that conference, one of the things that kind of struck me was, um, we had very few conversations in that conference about all these. And again, I didn't go to all the sessions, so maybe I missed those about all the wonderful applications in these other areas.

Again, I'll bring back healthcare just simply because it has a nice social value component to it, as well as an economic value component to it. But there's a whole other where. You think that, you know, data sharing from, from everything, from supply chains and food security, all the way to others, this idea of a common rails of, of a transfer of transparency and all these things.

I mean, how, how much is, for example, um, uh, you know, just outright fraud worth in the whole world corruption. And, and all those kinds of things. If you just kind of quantified, if you could remove corruption mostly from government agencies, by using blockchain more transparently and so on. Imagine the amount of wealth, especially in emerging markets that would be created.

And therefore, you know, hopefully captured not by the few, but by the many of those citizens, so enormous applications for some of these technologies. Um, and I think from the us perspective, there's absolutely a conversation about the fed and economy. I think for the emerging markets and the global perspective, there, there should absolutely be a, a parallel conversation about all these other.

Wonderful applications and, and, uh, potential impacts.

Jeff Dorman

Yeah. I mean, I totally agree. I mean, I think, I think blockchain verification itself is, is, you know, probably the, you know, in your words, one of the lowest hanging fruits, right. Just having a, a, you know, immutable record of when something was created, you know, everything from, you know, my, my son is in little league baseball right now.

Um, you know, for anyone who is, is, you know, uh, older than 30 years old, they probably remember the Danielle Monte story, right. The kid from the Bronx. Played in the little league world series and was pretending to be 12 years old, but really he was 14 or 15. And as a result of that, which happened, I think 20 or so years ago, it is crazy how much identification we had to pull out for my son just to let him play in the little league, all star turn.

And I mean, like it's unbelievable, right? One, one bad actor. And I don't blame Danielle Monay. I mean, it was obviously parents or, you know, other people who took advantage of him. Um, but. It it's amazing how much had to go into proving that my son is who he said he was. Right. That is a really easy thing to solve with a, you know, a blockchain record of his birth, right?

There is, it is tamper proof. It is there forever. Um, you know, things like that are, are going to be a, a, a, a, a very big part of our society going forward. um, and it's sometimes it's upsetting that, that some of that stuff is masked by the volatility of Bitcoin and doge coin and all the stories that are written on the other hand, again, the interest that was generated because of the volatility of things like Bitcoin and doge coin is what is funding, the innovation and the, uh, uh, capital growth into these other projects that will eventually be a big part of our society.

Dr. Michael Kollo

I think, I think that's a really powerful point. That's a very, very good point, which is, yeah, you absolutely have. Um, interest that you need. And sometimes that interest has to be overwhelming, right? So in terms of the, the, the kind of, uh, the headlines or the, the alternative applications that people kind of catch them and, and put the money into that then goes into the other areas.

Again, it's a little bit like the development of, uh, The internet, which as we both know, it wasn't developed for, uh, Wikipedia , but it was a lovely, lovely side project that Wikipedia came out of it. And it's, it's a great asset to, to humanity, but, uh, you know, it was, uh, it was pretty much used for various other kind of activities that probably not related to the betterment of, uh, human society, uh, in the same way.

Um, but listen, I mean, thank you so much for your time today, before we close up, I just wanna. Um, maybe just ask you one kind of big open leading question, I suppose, if you had to cast your mind forward five or 10 years, and we're sitting back here talking at another podcast called something else. Uh, and, and, um, we are kind of discussing about how things went down in this space and, and maybe the, the thing that you.

You go, wow. You know, that was the big thing about, about this technology that maybe nobody saw that that was seen, but never underestimated as to how much impact it would have, which area of our economy do you think, uh, will see the biggest impact of the next five or 10?

Jeff Dorman

Um, I, I think it is gonna be in terms of how organizations interact with their constituents and what I mean by that is like, I really truly believe that a token is the greatest capital formation.

Customer bootstrapping and customer alignment mechanism we've ever seen. And what I mean by that is you've never had anything before that can raise money quickly this quickly, right? Without having to use banks in other way, you know, just a very quick way to, to raise money. Then to have a vehicle, right?

A token that aligns everyone from the issuer of the token, to the customers, to the investors, to, you know, developers all incentivized to see the growth of, of, of that asset. And when you think about what that means from a, from a, a, a network bootstrapping and from a alignment standpoint, It basically means that every organization in the world is gonna want to have this one day.

So think about what I mean by that, you know, universities right now, universities have donors and boosters all the time giving money. Right. And you also have your, you know, the students paying for tuition. Well, it would be great if they were able to use a token to do that, right. A token is, you know, if I'm a big supporter of, of, you know, I don't know, UCLA, um, and all of a sudden, I don't want to be a youth support youth supporter of UCLA anymore.

I wanna be a supporter of, of, you know, whatever duke, um, It would be nice if I would have the fungibility of that token to be able to transfer it. Like, I might be more willing to give money to UCLA today. If I know that I'm getting back a token in return, that I can then trade for something else. If I no longer want to be a backer of UCLA.

Right. What about, uh, you know, a city, a city who's building a park. Well, great. Right. You know, historically they've used revenue, bonds, or general obligation bonds to fund something. Um, but most of the people who fund it don't necessarily have any real claim or stake in it. What if they issued a token to, you know, to fund a new park.

And if you are a token holder who funded that park, maybe you get, you know, dibs on music and activities at the park, or you get first in line for your kid's birthday party at the park. But then again, if you move, okay, great. I'll just transfer that token to someone else who's gonna move in. Um, or what if you know, what if I live in New York, but I'm a big believer in the growth of Austin, Texas, but historically, how am I supposed to bet on that?

The only way I can bet on that growth is to either move there myself. Or to buy a house there. Right? Well, now what if I can buy Austin token? And that Austin token is gonna increase in value as more people move there. And now I have a much easier way to invest in the growth of another ecosystem. Um, you know, I mentioned Disney, right?

What if Disney issues a token and that token, uh, you know, partly gets the same financial upside as the stock, you know, maybe 10 or 20% of the profits goes to token holders, but it also gives you your Disney plus membership and it gives you. Access fast pass at the parks. Um, and it gives you maybe early dibs on content that they release and things like that.

Right? There's all these different things you can do that raise capital that align your stakeholders, that help bootstrap the growth of your companies. And it goes so much farther beyond that, right? Your low, like how many things do you do in your daily life, where you have no economic incentive? Um, you know, like I, on a typical Saturday, I might go to a local place for brunch, with my family.

Um, we might go to like a kid's activity, like a, you know, like a, a, a lo a gym or, or, or a trampoline park or something like that. I don't have any economic stakes in those things. I would love to what if all these things had a token? And they said, okay, well, if you're gonna be a member here, here's the token.

But not only are you getting the membership loyalty, but you're also getting, you know, some of the financial upside, it's just gonna start bridging people together and stakeholders together. Where one day, you know, your everyday life is also gonna be represented in token form in your investment portfolio.

You're gonna have some sort of a stake in everything that you do. And I think that is incredibly powerful from a coordination standpoint, from a stakeholder alignment standpoint, from an equality standpoint. Um, you know, you're no longer gonna see situations like, you know, DoorDash where seven venture capital firms made all the money when DoorDash went public.

But none of the people that made DoorDash successful, you know, the people who cook food, the people who eat food, the people who ride bikes to deliver food, none of those people made any money off of DoorDash is success. Even though they're the ones who created the success, same with Airbnb, same with McDonald's, you know, you just go down the line, this solves for a lot of that.

And I think one day you're gonna see much better alignment. Coordination and equality due to all these different organizations issuing tokens.

Dr. Michael Kollo

I think, I think that's very well put and I would even go beyond that and say that there's a corporate ends, uh, as you said, capital versus stakeholder type of argument there, which is, which is very powerful.

I think you can take it further into social identity, into values alignment. Things like that today, people hold 401k portfolios, ation portfolios, where they hold tremendous amount of companies that they have no connection with at all. They they're just sitting on a balance sheet somewhere, PNL wise. I think ESG starts to bring us closer to our wonder what those companies are doing.

And we'll, if they're doing the right thing, I think this is a much, much closer element of bringing us closer to the economic activities that where our investments and our dollars are actually supporting. And. And making sure that that aligns with our values and social identity. Ultimately, the question for me is whether this seeps into political identity as well and voting, and whether you can have lots of little micro voting systems that are tokenized as well.

So for example, do we gonna build a park or a car park in that location? Everybody who lives in an area happens has a token. Those tokens are regularly used to vote or to, to kind of confer a particular, uh, point as well. So we don't have to no longer buy political systems that are bundles of decisions like large bundles.

And essentially what you're buying is just that bundle together, whether you are, you know, in the us or wherever else, typically, uh, political parties are just bundles of decisions. But you might agree with some of them, but not all of them. You might in fact have a mix between the two parties or three parties or four parties.

And so these, so eyes can unbundle a lot of that and, and actually give you that, that sort of, um, more microtargeting if you want to. So yeah, the applications are phenomenal and we could sit here talking about it for we a few more hours over a few more beers. Um, but thank you so much for your time today. Uh, Jeff, it been absolute pleasure chatting.

Jeff Dorman

Absolutely appreciate having me. It was a great talk.

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