WEBVTT - The Democratic Nature of DeFi

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<v Speaker 1>I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,

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<v Speaker 1>and this is Bloomberg Crypto, a daily Bloomberg I Heart podcast.

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<v Speaker 1>It's Wednesday, July. There's tension in crypto that I'm fascinated by.

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<v Speaker 1>On the one hand, there's this prevailing belief in the necessity,

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<v Speaker 1>indeed the superiority of decentralization. On the other hand, there's reality.

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<v Speaker 1>When things hit the fan, and they often do, folks

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<v Speaker 1>tend to respond by seeking a bailout, by demanding someone,

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<v Speaker 1>perhaps even a regulator, hold fraudsters accountable. And there's a

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<v Speaker 1>tendency to consolidate around the strongest and biggest players in

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<v Speaker 1>the market. But in an industry so prone to spectacular

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<v Speaker 1>scams and expensive hats, this tension is ever present, and

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<v Speaker 1>it's getting worse. Can you simultaneously reject all forms of

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<v Speaker 1>centralized control role and then demand help from centralized authorities

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<v Speaker 1>in times of trouble? For more on this, I'm joined

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<v Speaker 1>today by Bloomberg reporter Emil Nicole. We're both in London.

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<v Speaker 1>We're going to talk about democracy around the time that

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<v Speaker 1>you know, UK politics are going through some interesting some

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<v Speaker 1>interesting things in the small d democratic tradition. But today

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<v Speaker 1>we're really going to focus on the gap between the

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<v Speaker 1>ideological tenets that underpin certain parts of crypto and how

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<v Speaker 1>those things play out in reality. And specifically, you've written

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<v Speaker 1>a lot for the Bloomberg Crypto Newsletter, to which everyone

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<v Speaker 1>should subscribe, But you've written a lot for the Bloomber

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<v Speaker 1>Crypto Newsletter about the tension between the theory of decentralization

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<v Speaker 1>and the reality of bailouts. You've written about the tension

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<v Speaker 1>between the idea of code is law, which is that

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<v Speaker 1>if you are a developer and you write a smart

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<v Speaker 1>contract and that smart contract has a bug in it,

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<v Speaker 1>and as a result, you lose all your money, tough luck.

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<v Speaker 1>Court is law. Can you talk more about one what's

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<v Speaker 1>so interesting about this and to how it's playing out

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<v Speaker 1>in this particular Crypto winter. The idea that code is

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<v Speaker 1>law just automatically flies in the face of how we

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<v Speaker 1>as humans live our lives and expect things to work.

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<v Speaker 1>And that's kind of the inherent problem with crypto is

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<v Speaker 1>that code is kind of the primacy of everything. It's

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<v Speaker 1>what you rely on, it's how we determine, you know,

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<v Speaker 1>who owns what token, who sent what to wear UM

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<v Speaker 1>And unfortunately, then when it comes to kind of the

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<v Speaker 1>rest of the way that we would interact with money, UM,

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<v Speaker 1>relying on that code to be your source of truth

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<v Speaker 1>or your oracle means that you know, for example, if

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<v Speaker 1>somebody was to hack a major play to earn crypto

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<v Speaker 1>game for six hundred million dollars, like really actually happened

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<v Speaker 1>in real life, attack or stole about six hundred million

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<v Speaker 1>dollars from a blockchain network connected to the popular Axi

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<v Speaker 1>Infinity online game. They targeted what is known as the

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<v Speaker 1>Ronan bridge and drained etheran USDC tokens and two transactions.

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<v Speaker 1>The reach wasn't discovered for six days. Who is to

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<v Speaker 1>say whether that is stolen because all they did really

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<v Speaker 1>in that particular instance was exploit a vulnerability in the network, which,

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<v Speaker 1>if you take code, is the ultimate source of truth,

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<v Speaker 1>is perfectly fine and perfectly legal according to the code,

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<v Speaker 1>and transferred that crypto to themselves. So now according to

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<v Speaker 1>the code, they own that crypto, it is rightfully there's

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<v Speaker 1>they haven't stolen it from anybody. UM. That's obviously if

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<v Speaker 1>you take everything to the extreme level, UM, and nobody

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<v Speaker 1>in crypto probably wants to do that. But if we

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<v Speaker 1>are moving towards a society where everything is based upon

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<v Speaker 1>code and never the way that we interact with all

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<v Speaker 1>of this stuff um is kind of underpinned by that technology.

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<v Speaker 1>That is the reality that a lot of authorities and

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<v Speaker 1>legal play is will face is how do you counteract

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<v Speaker 1>what it says on the blockchain? So, before we get

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<v Speaker 1>into why this is particularly challenging and what we are

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<v Speaker 1>taking to call in crypto winter, when we say code,

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<v Speaker 1>what do we mean? I always like to wonder what

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<v Speaker 1>people picture when they think of blockchain, because well, we'll

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<v Speaker 1>get you know, it's in the name, right blocks? Chains?

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<v Speaker 1>Are you imagining like a room full of servers? Are

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<v Speaker 1>you imagining an actual platform on which things can be

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<v Speaker 1>built upon? A bit like a lego block system. I

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<v Speaker 1>think blockchain if it was real and physical. We thought

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<v Speaker 1>like a tapestry where everyone has their in section and

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<v Speaker 1>everyone can paint or add to their in section, but

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<v Speaker 1>at the end of the days for everyone to see

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<v Speaker 1>and everyone can visualize what's happened and what changes have

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<v Speaker 1>you made? And I picture block chain, I think of

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<v Speaker 1>lots and lots of chains linked to one another, kind

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<v Speaker 1>of like those paper chains we used to make when

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<v Speaker 1>your children, but infinitely long. When I think about blockchain,

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<v Speaker 1>I don't really visualize it as a as a physical thing.

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<v Speaker 1>I'm more just consider as some sort of computer program

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<v Speaker 1>or innovation rather than something physical that you can look

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<v Speaker 1>at or visualize. If you have to open it up

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<v Speaker 1>on your computer, it's a page full of rich text

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<v Speaker 1>and lots of words. And that isn't biggause that don't

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<v Speaker 1>mean anything to you unless you know that language. Yes,

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<v Speaker 1>unless you know that language, which very few of us do. Um.

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<v Speaker 1>But obviously those are the things that actually run the

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<v Speaker 1>way that we live our lives. Right even if we

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<v Speaker 1>go beyond crypto, if you think about the apps that

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<v Speaker 1>you have on your phone or the way you get

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<v Speaker 1>to work in the morning, a lot of stuff runs

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<v Speaker 1>on code. Um. And so when we talk about code,

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<v Speaker 1>that's what we're talking about. It's the it's the parts

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<v Speaker 1>of the technology systems that determine why things happen and

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<v Speaker 1>when they happen. The thing that refuses to set your

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<v Speaker 1>Instagram feed the chronological order and you stop showing you

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<v Speaker 1>suggested from people that you do and follow. For some people,

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<v Speaker 1>they want to put more of how we live now

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<v Speaker 1>on the blockchain and the practical implications of that are

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<v Speaker 1>something like, you know, right, so I I have a

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<v Speaker 1>hyphenated first name. There are times when I'm trying to

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<v Speaker 1>book a flight or do something, I'll get it air

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<v Speaker 1>message is like your name is not valid, and it

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<v Speaker 1>fills me with rage. But it's also a reflection of

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<v Speaker 1>the the tyranny of a circumstance in which what is

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<v Speaker 1>allowed is defined by a software engineer whose name is

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<v Speaker 1>probably John, who does not have a hyphenated first name,

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<v Speaker 1>or whose last name doesn't have more you know, absolutely

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<v Speaker 1>has more than two characters, for example, and you're like, okay, fine,

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<v Speaker 1>that's frustrating. But if my identity were tied to a

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<v Speaker 1>blockchain that also had inscribed in it that hyphens were

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<v Speaker 1>not valid, like what you know, what does that mean?

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<v Speaker 1>And I think sometimes when we talk about crypto, even

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<v Speaker 1>on the show, it can sound like these are purely

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<v Speaker 1>financial considerations, or these are purely abstract things, or these

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<v Speaker 1>are just markets. But what I'm hearing from you is

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<v Speaker 1>there is a potential for some of these concepts to

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<v Speaker 1>start to show up in so called real life. Yeah. So,

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<v Speaker 1>for example, if we think about non fungible tokens and

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<v Speaker 1>n f t s. Right now, most of us know

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<v Speaker 1>n f T s as digital artworks. It's a board ape,

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<v Speaker 1>it's you know, a pudgy penguin um, something that can

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<v Speaker 1>be easily dismissed as a gimmick. But the hopes and

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<v Speaker 1>dreams for n f T s in the crypto industry

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<v Speaker 1>go far beyond that, because the way that they'll make

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<v Speaker 1>n f T is more relevant to the regular person

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<v Speaker 1>on the street is to say, Okay, you would normally

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<v Speaker 1>sign ten different pieces of paper to buy this house,

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<v Speaker 1>but instead we're going to put it all on the

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<v Speaker 1>block chain, and therefore that house will belong to you

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<v Speaker 1>in a verifiable way that everybody can trace. And in

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<v Speaker 1>future that n FT can get past to the next

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<v Speaker 1>owner and the next and there will always be a

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<v Speaker 1>chain of a traceable chain of ownership of that house.

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<v Speaker 1>UM whether or not there will be authorities that recognize

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<v Speaker 1>UM that verifiable ownership. Yes, is I think one of

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<v Speaker 1>the biggest questions at the moment around that that I

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<v Speaker 1>think is actually one of the more interesting parts about code.

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<v Speaker 1>It is law because at the moment it's not just

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<v Speaker 1>about you know whether or not you and I agree

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<v Speaker 1>to accept that the n f T you have given

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<v Speaker 1>me that piece of code dictates that the ownership has transferred.

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<v Speaker 1>And if we think about what progress is being made

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<v Speaker 1>to determine that there's some stuff going on in the

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<v Speaker 1>UK at the moment with the Law Commission trying to

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<v Speaker 1>look into the how, um, how blockchain can assist in

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<v Speaker 1>terms of rights of ownership or de facto companies that

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<v Speaker 1>spring up around crypto projects, how those can be respected

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<v Speaker 1>as legal entities while not really being based anywhere at all.

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<v Speaker 1>Um And that's a bit of a headache. Let's go

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<v Speaker 1>back to the idea of crypto winter and what's happening now.

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<v Speaker 1>We had, as you've said, you know, hacks, we've had scams,

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<v Speaker 1>we've had odds, and I would say in general, even

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<v Speaker 1>the most like die Hard, we believe in the sanctity

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<v Speaker 1>of the software person. If they're at risk of losing

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<v Speaker 1>five hundred million dollars, they're going to excuse me, police,

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<v Speaker 1>or you know, some investor, please please come bail me out.

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<v Speaker 1>And that that is absolutely one of the circumstances that

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<v Speaker 1>we've seen. But we're also starting to see bankruptcies. We're

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<v Speaker 1>also starting to see companies in distress. We're starting to

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<v Speaker 1>see people worrying about the fact that they handed their

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<v Speaker 1>tokens over to these you know, entities or in some cases,

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<v Speaker 1>these protocols having consequences that they weren't necessarily thinking about.

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<v Speaker 1>When all the prices were going up. What are you

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<v Speaker 1>observing there in your in your reporting and your conversations

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<v Speaker 1>with folks. One thing that has popped up a lot

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<v Speaker 1>from investors, especially online, is saying, you know, I was

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<v Speaker 1>prepared for my crypticurrency to go up or down in value.

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<v Speaker 1>I was prepared to potentially lose all of the money

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<v Speaker 1>that I've put in. What I was not prepared for

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<v Speaker 1>was not being able to access my money. Because a

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<v Speaker 1>lot of this the appeal of crypto is that it's decentralized, right,

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<v Speaker 1>It's all on you. There's no middleman, there's no big

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<v Speaker 1>brother telling you you can't do x, y and z

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<v Speaker 1>with your dollars um. But when crypto lenders suspend withdrawals

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<v Speaker 1>and say, actually, we're really in trouble, so we can't

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<v Speaker 1>handle giving your money back right now, We're going to

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<v Speaker 1>keep hold of it, and you have to just sit

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<v Speaker 1>there and watches the price of bitcoin goes down and

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<v Speaker 1>you can't cash out or do anything with it um.

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<v Speaker 1>That's that therein lies the rub like that's where people

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<v Speaker 1>are starting to now feel very uncomfortable about the way

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<v Speaker 1>the industry is going and actually shows that something that

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<v Speaker 1>previously was thought to be decentralized is pretty centralized in reality.

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<v Speaker 1>We'll be right back with more from Emily Nicole. This

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<v Speaker 1>is where we get into an interesting nuance, which is

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<v Speaker 1>you've got the coda's law elements, but then you've also

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<v Speaker 1>got not your keys not your coins. Can you talk

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<v Speaker 1>more about that? So not your key is not your

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<v Speaker 1>coins is a phrase within the crypto industry that basically

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<v Speaker 1>is exactly what I just described. It is that if

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<v Speaker 1>you are not hosting your coins yourself in a cold

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<v Speaker 1>wallet normally, but just something that is not stored within

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<v Speaker 1>another entities treasury, then you don't have control over those

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<v Speaker 1>and that's not something that everybody in crypto is aware of,

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<v Speaker 1>particularly as we have like a massive retail investor market.

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<v Speaker 1>Now you probably didn't think, okay, well, if I buy

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<v Speaker 1>some bitcoin with x y Z exchange um and I

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<v Speaker 1>just like, you know, leave it in on that platform,

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<v Speaker 1>that's not my bitcoin. It's so funny because when we

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<v Speaker 1>talk about real life parallels, it's like when you buy

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<v Speaker 1>a kindle book from Amazon, that you can actually take

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<v Speaker 1>that book back at any time. Right, So we we

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<v Speaker 1>do have in tech at least the idea of what

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<v Speaker 1>you think of his ownership is really leasing. But I

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<v Speaker 1>think a lot of people to your point, didn't think

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<v Speaker 1>that they were leasing their crypto from these exchanges. It's

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<v Speaker 1>like if we if we think about the decentralization of

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<v Speaker 1>social media, a lot of the appeal there if you

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<v Speaker 1>listen to any of the vcs investing in these projects,

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<v Speaker 1>is that Okay, so you have a follow a list

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<v Speaker 1>in one place, and you want to be able to

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<v Speaker 1>take that follow a list to another platform and it

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<v Speaker 1>should automatically follow you if all these things are sold

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<v Speaker 1>on blockchain and everything's interoperable, etcetera. And you know, we're

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<v Speaker 1>used to thinking that way a little bit more in

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<v Speaker 1>something like you just described with books or with music

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<v Speaker 1>like these. Yeah, if you have a Spotify account, you've

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<v Speaker 1>spent years building up a library of playlists that are

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<v Speaker 1>painstakingly curated. But you know that if you stop being

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<v Speaker 1>a Spotify user, you can't take that with you. And

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<v Speaker 1>that's what vcs are trying to change. That's what they

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<v Speaker 1>that's what they say they're trying, Yes, exactly, that's what

0:12:52.960 --> 0:12:55.079
<v Speaker 1>they That's what they think is the major appeal here,

0:12:55.080 --> 0:12:57.319
<v Speaker 1>because that's a bugbear of ale of us. Right. Whether

0:12:57.400 --> 0:12:59.880
<v Speaker 1>or not they can change that is another matter, And

0:13:00.000 --> 0:13:02.440
<v Speaker 1>to be honest, it goes against most of the usual

0:13:02.640 --> 0:13:05.560
<v Speaker 1>ways that business work. If you were to allow people

0:13:05.600 --> 0:13:07.720
<v Speaker 1>just to move things around and stop being a customer

0:13:08.280 --> 0:13:11.240
<v Speaker 1>if they wanted to um and so. But I think,

0:13:11.559 --> 0:13:14.680
<v Speaker 1>as you as to your point, nobody thought that would

0:13:14.720 --> 0:13:17.400
<v Speaker 1>be then the case for their cryptocurrencies as well. They

0:13:17.400 --> 0:13:19.120
<v Speaker 1>didn't think that. You know, if I hold all my

0:13:19.200 --> 0:13:21.120
<v Speaker 1>coins on coin base, I won't be able to take

0:13:21.120 --> 0:13:23.480
<v Speaker 1>them to crack. And those are just two examples, and

0:13:23.559 --> 0:13:26.079
<v Speaker 1>neither of them are suspended withdrawals. But there are now

0:13:26.120 --> 0:13:28.760
<v Speaker 1>a few players that have suspended access to tokens and

0:13:28.760 --> 0:13:31.760
<v Speaker 1>people can't move them anywhere. Do you think that this

0:13:31.880 --> 0:13:35.280
<v Speaker 1>current crypto winter is going to encourage more people to

0:13:35.360 --> 0:13:37.800
<v Speaker 1>go like self host called wallet there like even though

0:13:37.840 --> 0:13:40.480
<v Speaker 1>it's a pain, it's worth it. Or do you think

0:13:40.480 --> 0:13:42.040
<v Speaker 1>people are just going to be like, none of this

0:13:42.120 --> 0:13:43.959
<v Speaker 1>makes sense. I can't get my coins out if I

0:13:44.000 --> 0:13:46.280
<v Speaker 1>put it on in exchange. The self hosting thing is

0:13:46.320 --> 0:13:48.240
<v Speaker 1>too annoying. I'm going to put my money in a

0:13:48.280 --> 0:13:52.240
<v Speaker 1>see things account on a high street bank, I'd be

0:13:52.360 --> 0:13:56.800
<v Speaker 1>slightly more skeptical. I guess in the present um, most

0:13:56.840 --> 0:14:00.000
<v Speaker 1>of the players that have suspended withdrawals are still relative

0:14:00.040 --> 0:14:03.040
<v Speaker 1>the niche within crypto as a whole. So the investors

0:14:03.040 --> 0:14:05.160
<v Speaker 1>that would have been putting their money into platforms like

0:14:05.280 --> 0:14:08.600
<v Speaker 1>Celsius or platforms like block Fire, which also suspended with

0:14:08.640 --> 0:14:12.599
<v Speaker 1>drules previously, um, they would have been kind of a

0:14:12.679 --> 0:14:16.080
<v Speaker 1>little bit more aware, a little bit more um discerning,

0:14:16.200 --> 0:14:18.320
<v Speaker 1>as you know, how they might go about storing their

0:14:18.320 --> 0:14:21.240
<v Speaker 1>crypto in future. But as it hasn't happened to a

0:14:21.360 --> 0:14:25.120
<v Speaker 1>major crypto exchange yet, most people who buy crypto are

0:14:25.160 --> 0:14:27.320
<v Speaker 1>going to think, well, that looks really sucky for them,

0:14:27.360 --> 0:14:29.680
<v Speaker 1>but I'm doing okay and I'll take the risk. They

0:14:29.680 --> 0:14:31.720
<v Speaker 1>may not even be paying attention to the statements that

0:14:31.840 --> 0:14:35.240
<v Speaker 1>they very clear that this exactly could happen to them

0:14:35.280 --> 0:14:38.280
<v Speaker 1>on on major exchange. Is if if the situation arose

0:14:39.040 --> 0:14:41.440
<v Speaker 1>for the folks who have been burned by, as you

0:14:41.560 --> 0:14:46.720
<v Speaker 1>rightly point out, the more esoteric parts of defy are you,

0:14:46.760 --> 0:14:50.440
<v Speaker 1>are you getting any sense that there's still true believers

0:14:50.560 --> 0:14:53.440
<v Speaker 1>in the court is low idea like that sort of fundamentally,

0:14:53.480 --> 0:14:56.160
<v Speaker 1>even though they're like, but I also want my money back.

0:14:57.400 --> 0:15:01.000
<v Speaker 1>The libertarian instinct to not be regulated, to not be

0:15:01.080 --> 0:15:04.760
<v Speaker 1>told what to do. Is that persisting. I think it's

0:15:04.800 --> 0:15:07.880
<v Speaker 1>definitely persisting, at least even even if we look outside

0:15:07.880 --> 0:15:10.760
<v Speaker 1>off even if you look straight at the most mainstream

0:15:10.800 --> 0:15:14.160
<v Speaker 1>part of crypto, that is bitcoin, you're still seeing people

0:15:14.480 --> 0:15:17.680
<v Speaker 1>shout about how bitcoin is the only monetary system that's

0:15:17.720 --> 0:15:19.840
<v Speaker 1>going to work and not be you know, under the

0:15:19.880 --> 0:15:22.560
<v Speaker 1>oversight of central banks and governments, the only thing that

0:15:22.600 --> 0:15:26.920
<v Speaker 1>will give you true and free liberty in your monetary system. Um.

0:15:26.960 --> 0:15:30.840
<v Speaker 1>And if you then think about defy, there are still

0:15:30.880 --> 0:15:34.680
<v Speaker 1>players that are offering insanely how yields without really explaining

0:15:34.680 --> 0:15:37.640
<v Speaker 1>where that yield is coming from. UM. And obviously we

0:15:37.680 --> 0:15:41.160
<v Speaker 1>don't yet have like real customer data on you know,

0:15:41.320 --> 0:15:44.200
<v Speaker 1>has there been demand drop offs, Has there been you know,

0:15:44.360 --> 0:15:47.240
<v Speaker 1>businesses having to wind down certain parts of their activities

0:15:47.280 --> 0:15:50.920
<v Speaker 1>in different jurisdictions. But what we do know is that

0:15:51.160 --> 0:15:54.560
<v Speaker 1>the market is still struggling, UM and whether it will recover.

0:15:54.960 --> 0:15:57.480
<v Speaker 1>I think there has been a significant knocking confidence as

0:15:57.480 --> 0:16:00.560
<v Speaker 1>to whether people will continue to buy the idea that

0:16:01.120 --> 0:16:03.160
<v Speaker 1>fields can be magiced out of thin air. And if

0:16:03.200 --> 0:16:05.600
<v Speaker 1>you put money in the box and say this worth something,

0:16:05.600 --> 0:16:07.840
<v Speaker 1>it'll it'll come out with even more wife on the

0:16:07.880 --> 0:16:12.640
<v Speaker 1>other side the boxes magic. Thank you very much. Always

0:16:12.640 --> 0:16:14.160
<v Speaker 1>a pleasure to have you on the pod. Thanks for

0:16:14.160 --> 0:16:17.000
<v Speaker 1>having me. You can find more of Emily's reporting on

0:16:17.040 --> 0:16:20.040
<v Speaker 1>the Bloomberg Terminal, on Bloomberg dot com and on Twitter.

0:16:20.520 --> 0:16:24.200
<v Speaker 1>She's at Emily J. Nicole. That's n I C O

0:16:24.560 --> 0:16:28.840
<v Speaker 1>L L E. On the next episode of Bloomberg Crypto.

0:16:29.560 --> 0:16:31.840
<v Speaker 1>Earlier this year, the pop music duo known as The

0:16:31.960 --> 0:16:36.880
<v Speaker 1>Chain Smokers released five thousand non fungible tokens for free.

0:16:37.480 --> 0:16:39.440
<v Speaker 1>These n f t s gave fans a one percent

0:16:39.480 --> 0:16:42.440
<v Speaker 1>cut of the streaming royalties from their latest album, as

0:16:42.480 --> 0:16:46.000
<v Speaker 1>well as priority access to concert tickets and free merchandise.

0:16:46.800 --> 0:16:49.480
<v Speaker 1>What are artists and musicians like The Chain Smokers hoping

0:16:49.480 --> 0:16:52.440
<v Speaker 1>to achieve with these moves and how are fans responding?

0:16:53.200 --> 0:16:56.480
<v Speaker 1>Could the decentralization of the music industry actually be upon us?

0:16:57.200 --> 0:16:59.480
<v Speaker 1>For more on these questions, I'll be joined by Bloomberg

0:16:59.480 --> 0:17:03.120
<v Speaker 1>reporter Ana Miller and by Justin blou CEO of Royal

0:17:03.320 --> 0:17:10.600
<v Speaker 1>a decentralized music Stato. I'm Stacy Marie Ishmael and this

0:17:10.680 --> 0:17:13.800
<v Speaker 1>is Bloomberg Crypto, a daily podcast from Bloomberg and I

0:17:13.880 --> 0:17:16.960
<v Speaker 1>Heart Radio. For more shows from I Heart Radio, visit

0:17:16.960 --> 0:17:20.000
<v Speaker 1>the I Heart Radio app, Apple Podcasts, or wherever you

0:17:20.040 --> 0:17:23.480
<v Speaker 1>get your podcasts. Email your questions, comments, or suggestions for

0:17:23.560 --> 0:17:26.600
<v Speaker 1>the show to Crypto at Bloomberg dot net and you'll

0:17:26.600 --> 0:17:31.760
<v Speaker 1>find us on Twitter at Crypto. The supervising producer of

0:17:31.800 --> 0:17:35.919
<v Speaker 1>Bloomberg Crypto is Vicky very Galina. Our producer is Mohammed Farup.

0:17:36.280 --> 0:17:40.119
<v Speaker 1>Our associate producers Ozanam Siddiki and Moses and m Desta

0:17:40.160 --> 0:17:43.760
<v Speaker 1>wonder At is our engineer. Original music by Leo Sidron