Mike: Today's guest on Around The. Coin is Simon Jones. Simon is the CEO and co-founder of Voltz Labs. Voltz is building a marketplace to allow people to trade interest rates, so they're at interest rates swap Automated market maker or amm. We talked about the world of interest rates, the. Of interest rates in the fiat traditional finance landscape and then what's happening currently today in the crypto world.

And we branched off in many other areas. From there, Simon has a lot of different experiences ranging both in FinTech and in crypto, and we covered a lot of ground. So I hope you enjoy this conversation. I sure did. If you do, please give us a thumbs up or share this podcast wherever you listen to it.

Here is Simon Jones.  

Hey Simon. So I'm excited to dive in with you more. You are currently running a project called Voltz Lab. Why don't we start there? Would love to learn a little bit more about what you've built so far and what part of the crypto web three world gets you most excited.  

Simon: Sure. Well, obviously it's super nice to be here. In terms of Voltz Labs I think it's often nicer just to start from like why do we exist? And we actually like our North Star in many ways is that we want to help DeFi become the financial system for the whole of the world. And in doing so, we want to completely change the, and improve the lives of billions of people and finally give people the same kind of financial opportunities in life.

And I guess just to lean into that point a little bit more, right? There's a statistic that always surprises me, which is that there's 20% of the world's population. Still don't even have a bank account. It's about 1.6 billion people. And what we're building in DeFi or, or the potential of DeFi is not just to unbank that the or to bank the unbanked.

It's actually also to give everybody, no matter where you are kind of born in the world to have the same financial opportunities in life. So it's, it's incredibly exciting and like transformational opportunity and in terms, and, and we hold that as our North star. So then when Art and I art being my co-founder, when we were kind of setting out to try and work out what we wanted to build in this space there's a very, very clear problem that needed to be solved which was that the ecosystem it, it produces variable rates of return.

And at times those variable rates can actually also be extremely volatile. And clearly if the ecosystem is, is variable and volatile. Then it's only ever gonna be able to serve a very small subset of the world's financial needs. So it's a, it is a clear problem that needs to be solved, and we need stability in the ecosystem such that DeFi is synonymous with stability, not with volatility in order for DeFi to start being able to be capable of serving the world's financial needs.

And what we built at Volz is basically what's described as an interest rate swap amm which sounds complicated, but just to abstract away from that the most macro level, what it enables is an interest rate swap. It enables you to move from something that is variable to something which is stable.

Right. And in doing so, we have therefore introduced stability for the first time in DeFi, which, if I come back to this point, and almost sometimes it's better to describe it by analogy, right? Like if, if you think of DeFi as massive house that we're trying to build and we want it to provide everybody in the world want, we want to have access to this house, right?

The foundations of this house before Voltz existed were extremely unstable, right? And with the introduction of an interest rate swap Amm at two DeFi for the first time we are able to make the foundations of this house stable such that DeFi and this house to continue with the analogy is able to frankly meet its full potential.

So that's what we've created. We launched on the 1st of June and we've been growing about 30% a week since so it's pretty exciting.  

Mike: And what's an example of an interest rate swap? So if a, in terms of a person's actual experience of it?  

Simon: Yeah, so it's basically the way that it works is you trade a rate.

So you might have a variable rate of return and you trade that away in exchange for a fixed rate or via vice versa. And what's kind of interesting is, is, is well there's a few points which is probably worth breaking down in the, I think if we look at traditional finance as an example, right?

Traditional, in traditional finance, there's like a cartoonishly large number associated with the volume traded para in tradify interest rate swaps, which is, is literally a quadrillion a year. It's insane. So if you take the total market cap of crypto, you times that by a thousand, and you trade that every year, right?

That's what's happening in tradify interest rate swaps. But actually what's kind of interesting is if you go to anybody on the street and say, Do you know what an interest rate swap is, then we're certainly gonna go like, no. But if you say, Do you know what a fixed rate mortgage is, then actually they're more than likely to say yes.

And what they don't realize is in the background that mortgage is being constructed off the back of super low level capital markets, infrastructure i e, and interest rate swap in order to provide them with that product. So it's a, it's a very, very low level, right piece of infrastructure that enables lots and lots and lots of other products to exist.

Which when we then think about that in the context of DeFi in before Voltz, right? Like the use cases of the ecosystem were extremely limited. But now that we have Voltz in the ecosystem as this low level building block, we have massively expanded the potential use cases that the system can serve.

Such that DeFi can start becoming the financial system for the whole of the world and the way it works in traditional finance.

Mike: Now, if I take out a 30 year fixed mortgage, is that the, the bank that I'm getting that mortgage through often then sells that debt or sells that loan to other banks. Is that the, is there like a private market behind the scenes that that's happening in?

Simon: Yeah, so there's, there's, there's a, the all kind of like value chain, so to speak, in traditional finance from the, from like the actual interest rate. So exchange all the way through to that product that you receive. Like there's, there's multiple different participants acting along that value chain. And in part the, the why the kind of market is so large is that there's so many different use cases for an interest rate swap, and I think it predominantly breaks down into three.

So the first is speculation. That is a hundred percent a part of the market in traditional finance and in DeFi today. But alongside that you also have the kind of two bigger ones, which are kind of number two is risk management. So people kind of trading away, for example, a variable rates liability that they might have on their balance sheet for a fixed rate li liability such that they have certainty.

But then the third is actually using an interest rate swap to construct products. And that's products for retail, like fixed rate mortgages. It's also products of corporates. So like there's a whole bunch of different structured products that are created off the back of an interest rate swap.

But because there is so much utility associated with the instrument and there's so many different use cases for it, you end up with this kind of, kind of very rich ecosystem that exists. Where actually yes, a bank might be providing you with a fixed rate mortgage, but the actual mechanics of how that then ends up interacting with an interest rate stop exchange in the, in the background is actually.

It's very complicated with lots of different actors. But what we're doing in DeFi is actually we are frankly democratizing access to that entire ecosystem. We built a system where I, I can talk about the mechanics, but the way in which we had to build that, we had to very much think about it from a first principles perspective.

You can't just copy paste something that works and tradify into a world where the constraints of DeFi are fundamentally different. So we had to think about it very much from first principles in order to create the market, but then also off the back of creating it, we have basically created a debate kind of low level piece of infrastructure that is now open source that anybody can come in and build on top of and basically reap the benefits of that instrument in order to, to innovate or in order to kind of hedge their own risk and to really be their own sovereign individual.

Mike: And is the first principles that you boil down to the fact that there's some money, some value tokens, whatever it is, and some wallet. It could be in a bank account or in a crypto wallet. And when that's moved from one wallet to another, there's a separate contract or an agreement that says, I'm willing to give you this money under these conditions that you'll pay me a small percentage of that back over time.

Maybe there's principal, maybe there's interest payments, but there's some agreement and effectively on in the fiat world that would be legally enforced. And if someone didn't abide by that contract, then there's legal ramifications. They can go to court, but ultimately, like police will knock at their door with guns if they don't pay their interest payments over long enough time period.

And then there's bankruptcy courts and all those. And then you're thinking about this from first principles operating on chain. Like what are the, what are the kinds of first principle analysis that you've. Thought most about.  

Simon: Yeah, I, it is, it's a kind of really interesting point and to kind of go deeper into what you were saying there in traditional financing, the kind of the way in which these instruments work is you essentially have counterparty risk.

So I'm at to a swap with you. But I am then at risk of you kind of not being good for your side, I defaulting at which point there's this entire legal kind of like, set of legal infrastructure that exists in order to essentially tell me what I can do, should something go wrong. But in DeFi you don't have counterparty risk and you don't have legal infrastructure.

Instead, you actually have to build systems such that they can't fail in the first place. And like that's when we think about it from a first principal's perspective, building an exchange where the mechanics of that exchange are structured and the incentives of that exchange are tructure. So that it doesn't fail, right.

Rather than just hoping it doesn't. And then having a holiday infrastructure tells you what to do when it does Right. That that's where really where we had to at it from a first principal's perspective.  

Mike: And does that mean there is less risk that people can take? I would imagine that unless you can allow people to borrow money, like actually, you know, I'm gonna start with zero and I'm gonna end with a thousand in my bank account and you're trusting me.

And like crypto doesn't allow for that. They, they, you have to put down at least a hundred percent collateral in order to take a loan, which completely defeats the point of the loan. Is that a major obstacle or do you see a pathway forward on that?

Simon: Yeah, it's, I didn't know you were gonna ask this, but I'm excited that you have.

And part of the reason for that is actually I think it was two weeks ago somebody bought a house on open sea as an nft. For the first time. So someone has now used like essentially digital asset infrastructure to buy the ownership of a house. And the next step for the ecosystem is not just to have the transfer of the ownership on chain, but actually to finance it on chain.

So, so, so there is a kind of very, kind of well known point, which is that in DeFi you have to over collateralize in order to borrow. But if you are able to put down collateral as kind of your, of your home, for example, the digital representation of the ownership of your home, which is the same as what's happening in traditional finance, right?

And then you're able to borrow against that, then actually all of a sudden this, this kind of like, so-called like overcollateralization issue, right? That you have in DeFi suddenly starts to go away. And where votes plays into that. And just coming back to this point around the ecosystem historically being.

Extremely variable and volatile before Vols introduced the option of stability into the ecosystem. Like if we think about it in the context of this example of kind of mortgages, well, is someone going to like put the house's collateral on ave and borrow against that using a variable loan?

Like arguably not because they're gonna be exposed to the kind of variability of the rate, but are they gonna do that with a fixed rate of borrowing? Well, like at that point is actually akin to what you get in traditional finance which you'd argue that the utility then of the ecosystem is like much, much higher.

And to, to lean into this a little bit further, what's, what is actually also kind of interesting when we, we look at rates and different rate markets today in traditional finance. In order to get a fixed rate of borrow for your home you can be paying something like five to 6% given kind of the movements that have taken place.

Over the past three to six months. But actually in DeFi you can borrow at a fixed rate for one and a half percent. So you're talking about a four x improvement in terms of your cost of borrowing by financing it through DeFi rails rather than by financing it through traditional financial rails.  

Mike: And that one and a half percent is without collateral, without the hundred percent collateral?

Simon: No. So the one that one and a half percent would be through. So the way that Voltz works is that its simply an interest, It's simply an exchange for rates, So mm-hmm. The rates have to come from somewhere. And the variable rates in this example and providing are coming from a, So you would have to be borrowing from Ave at which point you would have to be putting down collateral.

But if you could put down a house i e your, an NFT of your house as collateral, so it speaks such that you could borrow against that, which is akin to what happens in traditional finance. Yeah. Then actually you're able to finance the entire thing on chain. And if you talk through the flows, you put your NFT down as collateral, you borrow against that through ave.

That's a variable rate. You clearly don't wanna be exposed to variable rate on your, on your mortgage effectively. So you could then use Voltz as an interest rate of exchange to trade away that variable in exchange for fixed, at which point we have effectively got fixed rate mortgages on chain.  

Mike: So is there just one guy on the internet who has the ability to take low interest rates without collateral because he has a house on through an entity?

Simon: Well, there's the, the first of many, right? That's, yeah, I think is the next step for the industry. I think that type of thing wouldn't have existed. Coming back to Voltz and the importance of stability, someone wouldn't even have thought of wanting to do that before. Cause they don't wanna be exposed to VE rate on Avi.

But if you can now fix it because we have stability in the ecosystem, then suddenly those use cases actually become meaningful. Right. At which point I, I'm excited for this stuff to get built, and honestly, over the next kinda like six to 12 months, I, I see this type of stuff happening. At which point we have fixed rate mortgages coming from DeFi, and that's, that's an exciting development.

Mike: Do you think the, the real estate market will be like the, the major thing that grounds trading or grounds lending in the crypto world? Like, it, it's so big. I mean, obviously everyone doesn't own a home or own property, but for people who do it, it does seem to ground collateral in the real world.

Whereas otherwise it's, it's, there's a difficult translation between pricing and reputational risk on chain versus real world, you know, where it cashes in and people's lives in the real world. And so housing seems like it's like, The thing that could at least bridge us there and then create the template for people to have ownership and collateral on chain.

And then people could do other things. They could put their car, they could put their, you know, guitar, whatever else eventually.  

Simon: Yeah. So we actually, it's really funny, but we actually know someone who bought a car by borrowing on Ave and then fixing their borrowing costs on Voltz. So we, we've actually already seen, like if someone in the community they kind of let us know that we didn't know they were gonna do it.

But, but, but the point there is that you are like, the door is being opened right now that we have the option for fixed cost of borrowing in DeFi, Right? Which is enabled by kind of faults existing alongside the building blocks that came before, of course. Right? Like it is now an option and I'm excited for kind of people to start buying their homes, financing it from DeFi and, and, and actually what's arguably.

Gonna be one of the, kind of like accelerators for that is the difference in, in rates that you pay, if you can pay one and a half percent financing it from DeFi, you pay 6% financing it from traditional finance, you've got a four x improvement. And that's pretty exciting.  

Mike: Yeah, it's huge. And wait, just to make sure I understand this, so, so the person who bought the car, they put the price of the car, say it was the 29 car,  

Simon: so they, Yeah.

So they, they didn't have like an NFT representing the ownership of that car. Right. So this, this particular person, they already had collateral on avo, but they had unused borrow, unused borrow capacity. So they then actually measured us saying, Hey, I've just used some of my unused borrowing capacity, which they already had on ave.

I fixed it by Voltz . Right. So I've now got fixed cost of borrowing. I use it to finance my car cuz it's cheaper than getting financing from traditional finance.  

Mike: Mm. I see. And so they, yeah, they used the money that they pulled out of ave the loan to. And so when they, when they go to Voltz, Voltz turns a variable interest rate into a fixed interest rate, how, how does that work?

So if I have a thousand dollars on Ave, it's variable, meaning it go from two to 20% interest rate if it were to go, if it were to be at 20% today, and then I take a fixed interest rate at Voltz, and that interest rate is 20% or 10% and then it drops down to two. How does the mechanics work to enable that stability?

Simon: Yeah, so you, you kind of have it's almost like a three sided marketplace. You've got liquidity providers that enable the market to exist in the first place. And then on one side you've got what we describe as fix takers where they're selling a variable rate in exchange for fixed rate. And on the other you have what we describe as variable takers.

In traditional finance, they describe it as floating. But the acronyms kind of, you ended up with FT and ft, which is terrible. I mean, and what they're doing is, is they are selling a fixed rate in exchange for a variable. So, so you end up with these pools on a, instead of it being peer to peer, which is like traditional finance counterpart, right?

Right. You end up with pool to pool right? Exposure where this kind of side of the market effectively supports this side. And you in each instance have to deposit margin in order to trade. And the way in which the system is built so that it can't fail is if your, if the margin of an individual position ever gets below a certain threshold a liquidator bot can come in and liquidate that position by effectively unwinding it.

And that then kind of basically removes this potentially like under collateralized position from the ecosystem, Right. Such that you always maintain solvency of one side relative to the other.  

Mike: So two questions come to mind. First is , you said a liquidator, a liquidator bot can come in. Yes. Is that, is this, is there some subjectivity to whether or not they come in, It's not a, like mathematical trigger or is it, or, or is that set preset?

So it's like if they drop below 80% collateral, then the smart contract liquidator bot will automatically just, Or is there some where, where, why did you use the word can?  

Simon: Yeah. Sorry, I, I actually lost you for a second, but, Oh I think I, I got the the, the, the main question, which, So, so basically there's a so the margin, there's a module within the architecture described as the margin engine.

And what that does is it kind of enables you as a trader to take essentially leverage, but it defines what your minimum margin requirement is. So you can never enter a position by depositing less than that. But you can deposit more so you can be less effectively in that instance, you'd be less levered.

But what happens then is there is a threshold called the liquidation threshold that is below the minimum margin requirement. And if you had a and mm, and if you had a position that was out of the money over a period of time, it would effectively, your margin would effectively be getting consumed because you're paying the other side cuz you're outta the money on a block by block basis until you hit the liquidation threshold.

And the point that you hit the liquidation threshold, a liquidator block can trigger an unwind where they take a proportion of your margin as a fee and they basically unwind your position before the system ended up insolvent. And that, that mechanic is one of many mechanics that we had to think about.

To build and create this kind of exchange where the exchange itself cannot fail, right? Like it's not supported by legal infrastructure. It's actually the, the fundamental mechanics of the exchange are built in a way such that the ecosystem cannot remain insolvent.  

Mike: Okay. So the, the, the three, the three pieces to this are the liquidity providers, the people who want variable interest rate and provide stable, and then people who want stable and provide variable are the, is the latter?

Is the people providing stable interest rates in exchange for variable? Are those folks typically like traders and people who are doing this to make money and then the people who want stable interest rates in exchange for their variable are people who want cars or they want, you know, practical things?

Is that how It depends a lot  

Simon: at a, at a very high level, but I think the, the truth is that the utility of the exchange is extremely. Like wide, I, we see this in traditional finance, and I think if we, if we just take like one good example, imagine you're a CFI organization. You might be kind of promising variable rates to your customers for some sort of deposit and then lending them out a fixed rate, right?

And then when you aggregate that up on your balance sheet, you're basically left with the rate liability, where that rate liability could be a variable rate because you're promising a variable rate on the other side. So, so actually at that point, you may wish to be a variable taker where you're selling fixed in exchange of variable to net off that variable rate liability.

So, so because like there are because the exchange and the instrument caters to all sorts of different user groups you actually end up with this situation where you can have a very rich and diverse set of actors. Who want to use the exchange, which enables the, the balance across the ecosystem to exist.

Mike: Hmm. And is there any, I think about the, the, like great depression and the banks. I heard a stat, something like 2,300 banks in 1929 to 1931 when bankrupt for effectively having gone insolvent, you know, not having the collateral on hand to give back to people. And this, this is similar in, in more sophisticated fashion, 2008 when the banking crisis where there were these like under collateralized debt packages that were then traded after market more complicated than it was in the Great Depression.

But ultimately it's like, seems like the same mechanics where there's a over optimistic project. On the ability of the market to provide payments in return for the, the loans that the CFI organization like the bank is providing. And then when people don't cash those in, everyone get, when people don't make payments, people get scared and then they try to withdraw their remaining cash and then there's none left.

So is there is this inherent to CFI where there is there's just always gonna be more, more debt than there is actual assets or actual money on hand. So a bank will loan out a million dollars and it only will retain, you know, a small percentage of that.  

Simon: But I think if there's a point within there that I think is really interesting actually, which is if we start thinking about DeFi relative to traditional finance I, Cause there's a question of like, why do we even need DeFi in the first place? And if we kind of look at traditional finance actually as an ecosystem, I think of the highest level.

The issue of the traditional finance is that you as an individual, you are fundamentally nodding control of your financial life. There are kind of, kind of structures in place where these structures are deliberately opaque such that they favor people with kind of power such they have an information advantage.

And that doesn't put you, that means that you are basically not on a level playing field with them. Which means that you don't have equal opportunities. It also means that ultimately you end up kind of not really being in control. And I think, Can you give an example of that? Yeah, so I was gonna say, I think a really good example, which is not necessarily the institution level was actually a level a bit higher is if you think about the Fed you know, the, look what's happened this week, they put rates up.

Again, and I don't even want get into a debate as whether that was the right or wrong decision. I think the point is like, what say did you have as an individual? You didn't have a say in that. And these things like are actually pretty material. And, and if you kind of bear with me, like I can actually kind of highlight it with a story of a friend of mine.

So a friend of mine's called Matty. I actually used to live with him for the best part of four years actually here in London. And he's, you know, he, he didn't do particularly well at university. I think he'd be one of the first people to admit that. But he's like a real hustler and he managed to hustle his way into an investment bank.

First of all, working in the ops department. Then he hustled his way onto the trading floor, and then he managed to hustle his way from London to New York where he then met his girlfriend, called Katie. She works in fashion and the two of them have been looking to buy a house. And they've been basically saving up to the point that they're ready at which they were, and had been out looking at houses.

And then kind of all of a sudden the Fed starts raising rates and all of a sudden they can't afford the property that they wanted. And it has pretty material impact on them, right? As a, as a couple you know, Kind of thinking about having kids, maybe I don't wanna put words into his mouth, but maybe thinking about getting married , right?

Like, you know, these, and, and yet all of a sudden they're put in this position where the house that they, and the life that they thought they were about to be able to have is actually taken away from them, right? And he's on the inside, he works in traditional finance and he doesn't even have control. And like what that means to you as an individual is it means that like in the way in which you go about planning your life based on these structures that exist in traditional finance, you could be planning for something, but because you are not in control of your own financial life, right?

Like you can be exposed to these massive kind of events that aren't inside your control. And it basically means, like, I, I kind of make a direct comparison to freedom of speech, that you do not have financial freedom in traditional finance, right? Like, and we fight tooth and nail for freedom of speech.

And yet we seem to just be willing to accept. That we don't have financial freedom and what DeFi enables. And in part why I think it's just arguably the most transformational development that's ever taken place in finance is that it enables you to be in control of your financial life, right? It is the direct opposite of tradify, right?

You have, instead of having opaque systems, you have transparent open source systems. Instead of having systems where the people in power are in control, you have systems where actually the user is at the center and the user is provided ownership over these venues such that the user is ultimately in control, right?

Instead of having kind of like a system that because of its opaque nature is arguably kind of massively exposed to kind of like systemic fragile events like the 2008 global financial crisis. You actually have a system, and Voltz is a great example of this, where the system is. More anti-fragile because it has to be built so that it cannot fail in the first place.

So DeFi enables you to actually have control over your financial life. And for me, kind of as, as someone who, who's kind of now done multiple startups, but coming into this space, it's something which we really wanted to see built and wanted to see, you know, happen. We want DeFi to become the financial system for the all of the world, but in order for that to take place, right.

And ultimately why we started Voltz is, is you know, the ecosystem. It cannot remain variable and volatile, right? We had to have stability exists such that DeFi is synonymous with stability, not synonymous with volatility, right? And that's why we created Voltz. And off the back of that, we really do hope a lot of these new products and services get built.

Mike: Yeah. Yeah, a couple different area, different directions. We could take this. I, I'm curious to get your, just quick feedback on this slight tangent is, as you were speaking, I was thinking about why, why it is the way it is. What you made the point about free speech first, free financials, finances freedom of speech for freedom of financial control.

I tend to think, like, the thought that came through my head was the protocol for language is maintained, decentralized. It's maintained in your head, It's maintained in my head, and we cross reference that when we speak, if you say a word I don't recognize, I might ask you about it, or maybe I'll adopt it, or maybe I'll like, you know, modify it in some way.

But there's also some, there's some centralization, like a dictionary, but for the most part we don't, we don't need that. Whereas in banking, you need a centralized ledger to keep track of it, and I tend to think that it's, it's,  

Simon: Sorry, can I just, I don't wanna interrupt you, but do you, Why can't I have a decent slash ledger?

Mike: Well, this is what I'm saying. You, you can't have a decentralized ledger in your head the way you can with I I think there's just the, the amount of precision and sophistication is not and the amount of, the amount of implication of it, like if we disagree on a word, like I say for forge is a word, and you say, No, it's not.

And I say, Yes it is. Well, maybe you don't recognize it and we go on about our day. But if I say I have a, you know, $500 I wanna pay you and you disagree, then there's a, there's a higher implication of that misalignment.  

Simon: Right. So, but, but is this, is this not the pa Like, is, it's kind of an interesting point.

Is this not the power of blockchain technology? This is arguably what is unlocked.  

Mike: Right, Right, right, right, right. And, but I think it's, it's fundamentally reliant on the actual. Technology itself. So it's, it's, it needs the computational power of machines to be able to up level us. Like language was a discovery, it was a invention of sorts, if you could call it that, of human beings to, to collaborate and use this communication layer.

But it ha it's limitations. It's like we hit the ceiling of that and the financial fiat world, I view as like it was the best technological advancement that was possible with the computational power at the time. So centralize all the money, the fed prints, the money, the fed controls, the interest rates.

Then you move to a computationally decentralized financial world where it's, it's it's agreed upon in the protocol itself. So there's, there can be no, it's as, it's as objective as it can possibly be. Yeah. And that's what makes it.  

Simon: Exactly. Exactly. And, and it is, And whilst I kind of I think it's really important to highlight the differences between traditional finance and DeFi.

And, and part of the reason it's not just some like technology, which is cool, but doesn't actually have any utility, like the point of highlighting those differences because like, we're able to build a better world, right? It's not, it's not even necessarily like a swiper traditional finance. Like in, in many instances there are, this is not a hundred percent true, but it, like, there are, there are many people within that kind of sector who want to do good.

And but, but the kind of technology that they had available at the time meant mm-hmm. , the structures that got created had these limita kind of limitations and weaknesses and flaws associated with them, which create these adverse outcomes for people in society. But we got new technology and we got this new technology enables us to address those limitations.

And that's why like kind of DeFi frankly, is able to exist off the back of a distributed ledge technology just existing. And like that's frankly why I think it's one of the most exciting elements to have ever taken place in financial services.  

Mike: Yeah. Probably even more broadly than financial services Society, they  

Simon: society, right?

Is it, is the disentanglement of like the financial services sector from the state. Right. And that is pretty big.  

Mike: Yeah. And, and if you think about that historically, whenever you disentangle the most powerful branch, the most powerful branch of like control from a centralized state, there tends to be like, if you look at the separation of church and state, we had to fight a war to go through that.

America was like, Hey, we're gonna, this is the one thing we're, we're gonna fight for and, and split off from Britain and. It seems like to me, I, I wonder how how this forking will, will happen and, and, and what's the, If you wanna optimize for peace, like that's one thing if you wanna optimize for quickness or effectiveness that's another thing.

How do you see the branching, How do you see the, this disentanglement happening in the future? Is it something that ultimately is gonna come down to like really strong oppositional stances and federal governments clamping down and forcing it? It's like we're effectively at like a pseudo war state, or do you see it somehow being more are peaceful?

Simon: It's, yeah, it's honestly the answer to that. My opinion on the answer to that question changes like all the time. It's I think DeFi and. Regulators arguably have as, as two separate, like sector versus set of institutions have arguably been at war to date. And it's kind of, it is kind of logical in many ways because DeFi basically makes the regulators obsolete.

So you can kind of see why they would want to kind of impose their authority on the, the ecosystem. I think, I think truthfully, and in terms of my opinion, like what I think is likely to play out is DeFi arguably has much greater utility in the developing world than it does in the developed.

Right. As just speaking literally right now, and I think what is likely to happen is that we are gonna end up with decentralized protocols that are used by a lot of the developing world. And then where it kind of has a touch point with kind of the more developed economies like the us there's gonna, my feeling is that there's gonna be so much kind of like political pressure and influence that you know, the protocols that choose to operate in those spaces end up having to comply in some way with some, some form of regulation.

But in order for that to actually take place, what needs to happen is there needs to be some sort of, instead of there being war, there needs to be some sort of bilateral conversations between people in the industry and the regulators. And I don't, you know, my answer to this always, like I said, it does evolve.

I, I see that as an interim step in order to start. Really unlocking the power of DeFi, right? Such that it can start serving kind of the, the global population, right? Where we can have decentralized protocols serving the rest of the world. But then protocols kind of that are touching, say the US where there's Portugal making deliberate efforts to comply and engage with regulators such that there's a primitive, it can actually be used, right?

Cuz otherwise you're kind of building something which the regulator's gonna stop people from actually interacting with. And that in my mind is kind of like the interim step, and then what happens beyond, That's that hopefully there's no war, but let's, let's see.  

Mike: Well, I I sort of, it's funny. It's, it's so important and interesting to play out.

So I think of the banks as being effectively a pseudo arm of the government. You know, they're, they're locked inside with what the government says. So you also have kind of like central, even like Coinbase and any crypto exchanges. Are going to be less, less willing to be compliant because less of their DNA is ingrained in centralized, bureaucratic personality types and conservative mindsets.

But they still ultimately will comply. And so like a, you know, tornado protocol, tornado cash protocol was recently banned, which is a decentralized, completely open source encrypted protocol. And it was used for money laundering and, you know, a lot of it, a lot of money like went to North Korea supposedly, and the US issued a sanction saying, No US citizen can use this protocol, which was the first time that that happened.

And the actual levers that the government used to push that out there was they, they would say, Hey, Coinbase, you have to take this down or else you know, or else gonna come after you. And ultimately it's a threat of like physical violence. Like that's where it cas in. And that's why it's, you know, difficult for people in other countries to the US government can't reach into other countries nearly as easily because of the, the, the limits of the, you know, military.

And I, I find it interesting to play it out to that level because like when it's peaceful and we're all just talking, you don't think about the actual hard power. But when there's tension and disagreement starts to arise, and, and especially if you go into like economic recession, then you start to sink deeper down into the levels of power that that different teams actually have.

And it seems to me that it's somewhat, one of the major advantages that Team de decentralization has is that it's just economically infeasible to prosecute individuals. Like the reason the US government can be effective towards banks and Coinbase is they're centralized. They have an office and a location and a ceo and.

They can go after that. But if they were to say to millions of people, Hey, we want you to, you know, use the US dollar, and we don't, we're not gonna allow you to use Bitcoin to make trades. They have to have a way to effectively enforce their executive brands in a decentralized fashion coming to each person's door.

And that just isn't feasible. You know, they can do it one-offs to make examples, but they just can't afford to send a million people to a million homes to attack a million hardware wallets. So I think that's the major advantage that that's outside haves.  

Simon: It, it, it's, yeah, it does. I mean, as soon as you're a centralized entity, then there's a, there's a, there's a attack vector, right?

From a like regulatory perspective. And then Bitcoin not the other extreme is the most decentralized form of currency that frankly will ever exist, right? Mm-hmm. So like is is just impossible for like a regulator to really go after people that kind of use and consume But there is a spectrum.

And then, and I guess the question then starts to be like, what, what happens to everything that's in between? And it, and I guess what this is part of, one of the challenges of the space, and this is kind of why I think that we might end up with this world where there is a like there are decentralized protocols that are kind of used by the vast majority of the world, but when that touches something like the us teams would be gonna be forced to find a way to comply with those regulations is because if you think about that spectrum, there's a lot of people in the middle of the spectrum, right?

And actually as kind of more people enter the space and more people come in and innovate, you're still gonna have like small. Kind of founding teams or kind of labs entities, like what we have or kind of what is commonly used is like core contributors where there's an unknown as to what would happen should you kind of try to decentralize, but then ultimately serve us people in a, just using us as an example, us people in a non-compliant way.

So, so that's why I just have a feeling that there might be these two different worlds that get created. Mm. But I would also question whether as an interim step that is a problem because it enables the ecosystem to continue to grow and it enables the protocols and the benefits of the ecosystem to be kind of used by like everybody around the world, which is ultimately what we want.

We want, we want these kind of transparent, open source pieces of infrastructure to be accessible to everybody such that everybody can root the benefits of it.  

Mike: Yeah. Yeah. I've always, I've often wondered about this sort of recentralization component to it, so it's like, why, why isn't there? And maybe there is that I'm not aware of, but there seems like there would be, given all the momentum and technological attention that's going into decentralization, web three, et cetera, there would be sort of a concerted effort, like pool, let's pool resources together and lobby government to like, make advances now as opposed to just kind of kicking back.

And we all do our own thing and we're all on different teams and projects and protocols. And the, the government effectively doesn't have a major resistance point. And I, I feel like that could be orchestrated through a Dow or a foundation where you have donors and you have a board and you have collective action that's taken among the community.

And, and use that as a, like a recentralization recentralized push a push point back onto again strike. Yeah. Right. Yeah. Cause I mean, right now the, the real advances countering the regulators are central organizations like Coinbase, you know, fighting the scc, but it's still pretty one off. And it's not like, you know, there's not a, there's no industry, there's like, you know, you see this in like workers unions or auto unions or things where they like pull resources together for their own common incentives.

Simon: Yeah. It's, it's an interesting I dunno, it's just an interesting point because there, there's kind of the path for a protocol. Like, so the, the easiest path for a protocol to be able to serve the world is to decentralize as much as possible at which point it can, like, you know, at which point the, the regulations of different regimes, like as you were saying, the influence of those regulators is massively reduced.

Like, who is it that they're going to go after? So that is the path has been like the predominant path that protocols have gone down or kind of people that create new perimeters have gone down that path. I think some of the tornado ca is, I mean, this is, it is gonna be interesting to see how it kind of plays out because writing code is, I mean, you're talking about freedom of speech earlier.

Mm-hmm. and like financial freedom. You know, writing code is equivalent to talking and what is happening there is arguably invading on somebody's rights to freedom of speech. But if just the extreme that he were to get prosecuted, then it sets a kind of very dangerous precedent for people kind of looking to create protocols and then follow that aggressive decentralization route because there's still somebody that wrote the initial code at which point maybe something like what you are suggesting becomes, you know, a more predominant path where.

The original kind of creators of, of like version one or whatever you wanna call it. You know, there's a greater incentive to engage with regulators and either push back or find ways to have sensible regulation. Right. And I think that's mm-hmm. , that's also one of the issues, which is that almost by definition, in fact it's not even almost by definition, literally by definition, regulation lags innovation and it has to mm-hmm.

right? You have to have people that innovate and then you have to have regulators that think, oh, like now there's this new thing that exists. What are the flaws associated with it? That can only be solved through regulation. Cuz I don't think all regulation is bad, and I don't wanna go off on a tangent with this, but like, just a really obvious example is just kind of road regulation on roads.

Imagine New York without any like road regulations, like the whole thing would just break, right? And if you kind of play that on a wider scale, you'd have way more deaths, you'd have way more car accidents. So like regulation and rules does, you know, it has the opportunity to move society to a better equilibrium.

But I think what is happening right now, and unfortunately, particularly from the US is there is kind of relatively draconian kind of enforcement of old regulation to new innovation, which just doesn't make it, I mean, those two things shouldn't be at all compatible with one another, right? Like if you've got a new type of innovation, then it needs new regulation.

But unfortunately, I think one of the, the, the only ways in which we're actually going to get there, right, is if there starts being some sort of bilateral kind of conversations. And frankly, as a team, we are one of the teams, which is I think, kind of kind of most kind of keen to actually start kind of making these types or engaging these types of conversations.

There needs to be bilateral engagement between kind of people building the space and regulators such that if regulation is gonna be created and introduced in some shape or form, it's actually sensible regulation that's beneficial, not just application of the old rules to something new, which just doesn't make any sense.

Yeah,  

Mike: Yeah, Yeah. And are you guys active in in the UK with, with any  

Simon: sort of,  

We're not active in the uk The reason I kind of mentioned this is we, so, so as a, as a team, we have obviously built a kind of like very much zero to one innovation in the space. And like I was saying at the beginning, we've been growing 30% a week since we launched, so there's.

There's kind of very clear evidence that there is a need for this type of primitive, I mean, it is a, mm-hmm. kind of core pillar of traditional finance, and it didn't exist in DeFi. So it's relatively logical that it should exist, and it creates the opportunity for stability across the ecosystem. But at the moment there's whilst there's aspects of the protocol that are decentralized like the community actually voted to deploy the contracts you know, there's still some touch points which are centralized, such as the front end, right?

Which is still controlled by the labs team. And what we do as a result is we actually just completely block the us because of the regulatory environment in the us and it's a shame we don't, we don't want that to be the case. So, you know, we, there's two route who either decentralized but there probably wouldn't be a front end.

There'd just be a protocol and people can interact with that, which is good. And it's a massive step forward relative to what we have in traditional finance today. But actually we also want an interface to exist and there needs to therefore be some sort of engagement with the regulators to try and come up with a sensible way to start regulating this innovation.

And that's where as a team we are in many ways starting to engage on that, which I think is, is something which other teams either are or, or kind of aren't publicly talking about at the moment.  

Mike: We were talking about all sorts of things, regulation prior to that, the market, the likelihood of war, and how decentralization and centralization the fiat world are going to intersect. What, what has inspired you the most? Are you following certain people online?

Are there any particular books or sources where you are paying most attention to learn and stay up on what's happening?  

Simon: Yeah, there's a, well, there's actually another part to that question, which for me personally is kind of like, why on earth, on my own finance in the first place. Mm-hmm. . Cause I can promise you that was not the original plan.

And actually I need to take you all the way back to 2009. Mm-hmm. , I was actually a relatively young man, certainly younger than I am today. Playing rugby out in Australia. And I wasn't really getting paid much money. So I was out trying to get a job and I kind of remember just going down the high street from restaurant cafe to shop and no one was hiring.

And there's this point that I kind of remember relatively vividly where I was sat at home on like a Friday night. All of my friends had, I was living in Sydney. All of my friends had gone to Melbourne for the weekend, which I was couldn't afford to do cause didn't have a job. And I sat there feeling a little bit sorry for myself with this giant bag of like $1 pasta that I bought from the co-op.

And I was eating this with like, no source, just, you know, like really kind of like no money kind of lifestyle. I just remember thinking, I need to do something about this. And that's the point where I really started researching kind of what was going on in more detail. And it wasn't just me that couldn't get work.

There's millions of people that been made unemployed because is the middle of the global financial crisis. And you could see it, you could see it on the street, You could I just kind of remember the kind of rates of homelessness. So I'd speak like really increasing as living in Central Sydney.

And there's a point where I was trying to, I was going to a charity shop to get rid of a bunch of clothes and I decided just to give it to these homeless people. And this guy, I really remember, he came over, he kind of asked me like, very politely, Cause I gave it to one person of people in the homeless kind of group.

He's like, Can I, can I have clothes out these bags too? And I was like, Yeah, of course. And he went in and he pulled out this pair of shoes and he was like holding them above his head. Like finally got a pair of shoes. I finally got a pair of shoes. Wow. And this kind of like period of my life, it, it had an impact where I kind of called the university.

I was set to go to from Australia to switch from architecture, which is what I was originally going to do with my life. And I switched to economics and then actually coming out of the other side I was basically determined to try and make sure that stuff like this didn't happen again, which is why I then went on to set up three different financial technology companies.

First two were more traditional web two businesses. Obviously this is kind of web three and, and frankly has the potential to be kind of completely transformational. But across those three and including a lot of the investing work that I've done, I've, I've actually now been involved in over a billion value equation.

But, but frankly, what I actually care a lot more about is the consistent theme that threads all three is that they have all been focused on democratizing access to financial services, which is when we come back to like our North Star at faults and kind of like the reason we exist. Because we want, we wanna see this stuff built.

We want people, no matter where they are, kind of born in the world to have the same financial opportunities in life. And DeFi has the potential to enable that. And it is like we were saying before, arguably, you know, not just for financial services, actually for society, one of the most transformational things that is ever gonna happen.

And that's why we're excited to try and build it.  

Mike: Do you think that these, this, the shift to decentralized financial technology will dampen or reduce or eliminate the economic depressions, at least specifically the financial related ones? Like could, could the 2008 banking crisis, some analogous thing happen in crypto?

Crypto? Obviously, you know, you could say that it happens already with pricing, but it's kind of separate, right? Like, it it is, it's somewhat right.  

Simon: So, Cause I think the thing with, so, so, so economic cycles happen. Right. And I think, I think that's gonna continue to take place, right? But kind of what is different now versus 2008 is it's an economic cycle that's been caused of other factors, right?

Like you know, we just had covid, we've got kind of war in Ukraine. You know, these are the contributing factors that are creating that economic cycle, not the financial services sector being opaque and structured in a way that enables the pupil in power to extract massive amounts of value and basically push recession onto, and therefore the cost onto everybody else around the world.

And obviously that 2008 was a long time ago, but I think what's exciting with DeFi is it not just creates an ecosystem that prevents that type of thing from happening. Maybe not entirely, but like it certainly massively reduces it because you have these. Open source transparent protocols where the rules of the system are known to everybody.

So if there's something kind of very obviously going wrong, like there's lots of viables that can go in and identify that and prevent it from happening. But not only do we have that kind of replacing infrastructure that kind of exists in the western world, we actually also have that infrastructure being accessible to anybody no matter where they are in the world.

Which, which enables people in the short term to have choice, right? You've got a choice of the existing financial system where you're not in control versus a decentralized system where you are your own sovereign individual and you're in control of your own financial life. And long term, we hope it displaces the structures that exist around the world.

Mike: Me too. . Are there any particular people or, or, or books or blogs that you pay attention to?  

Simon: The, well, there's two that really still stand out to me. Sathi wide paper of course. Right? Like you know, somebody at that point in time kind of haven't gone through the experience described. I remember 2013 it was actually a bit after it being released.

I remember reading it for the first time and just being like, Wow. Right. Like there's, you know, the ethos of this paper and the ethos of decentralization and creating a decentralized financial system is something which is so exciting. But for me is always about the technology. And the truth is the technology at the time didn't enable you.

It didn't, small contracts didn't really exist. It didn't enable you to build the entire stack. Right. And I think we are now at that inflection point where we actually can build the whole stack. And then the other person has gotta be a fat, of course, you know, he. I mean, look at Ethereum and where it is today, and the introduction of kind of proper smart contracts such that you can build kind of financial protocols on a decentralized kind of like layer right?

Of, or kind of basically you know, kind of on a infrastructure layer that facilitates decentralization, right? You know, that is those two people. I mean, Satoshi's potentially group. No one knows you know, people that particularly inspired me.  

Mike: Hmm, that's awesome. And are you writing or tweeting anything personal you wanna throw out there?

Simon: Yeah, I write and I tweet pretty regularly. You can find me on Twitter, zero X Simon Jones is my handle. And I typically post a lot of the content that I write on Twitter too.  

Mike: And what does the zero X refer to? .  

Simon: Well, zero x is just the start of every address on Ethereum starts zero x, so I decided to take that into my Twitter handle too.

Mike: Nice. Awesome, Simon. This is a lot of fun, man. I really enjoyed it. Congrats on all the progress with both labs, and I hope you guys fulfilled the mission and allowing decentralized finance to flourish.  

Simon: Yeah, no, it's been awesome to be here.  

Mike: All right. See you buddy.  

Simon: Cool. Cheers. Mikes here.

‍