Introduction

Mike: Today's podcast iswith Thomas Mattimore and James Glasscock, the head of Protocol and head ofEcosystem at Reserve. Reserve Protocol is an ecosystem to allow developers tocreate new stablecoin projects. We discussed a few of the projects that havelaunched using Reserve so far, the history of the company and the protocol, andwe discussed what a stablecoin is, what it might be in the future, some prosand cons or attributes of USDT, tether and USDC that are concerning and how therecent SVB banking crisis has played into the need to have more secure,transparent stablecoin projects out.

And why Reserve is such an importantproject to help people do that. Hope you enjoy this conversation as much as Idid. If you do, please give the show a a thumbs up, share wherever you listento it. And without further ado, here is Thomas and James.

Mike: All right. So JamesThomas. I'm excited to be chatting with both you guys from Reserve. Maybe justkick it off with your backgrounds,  

Thomas Mattimore: Product-market fitcrucial for crypto industry

Mike: how you guys met andwhile why you both realized that this is what you wanted to spend the nextfive, 10 years of your life, plus doing maybe I appointed to Thomas, if youwanna just jump in.

Thomas: Yeah, sure. Thanks forhaving us on, Mike. our mission at Reserve is to fight inflation and helpexpand access to stable currency around the world. I joined a year ago to helplead the protocol team. And, you know, before that, back in way up I was I'vebeen in production FinTech for the last 10.

Throughout that time I was keeping upwith crypto the whole time, but it was always a side hobby. For the most part,I've always been focused on building, giving people access to financialproducts that they didn't have access to, whether that was better investingproducts or. Lower cost, faster, more efficient mortgages or whatever that was.

And, you know, crypto was always a sidehobby. And then in 2020 I used to make her down for the first time and my mindwas blown. You know, I was working in consumer lending and then all of a suddenI got, you know, like a sizable loan in a couple clicks in a couple minutes andwas like, oh wait, DeFi is here.

This is a real thing. It's actuallylike, it's possible. It's cheap, it's easy. This is amazing. And so I startedto figure out like, where do I want to dive in? Where do I think I can actuallybuild something that people will actually need and use in crypto? And so Istarted looking around and there was a couple things that I focused on.

One is what is product market fit nowand crypto? And to me it's stablecoins. And you know, it's really the biggestuse case of crypto that has gained adoption outside of speculation. Secondarilyis like, where are people using this? Right? And it's really outside of the us.People oftentimes forget in the us we have pretty good financial services.

Our banks, we aren't worried about themoney going away until recently. The you know, we have Venmo, we can easilysend our friends money. You can use a credit card wherever. It's not a bigdeal. And so but outside of the US I thought the case in, you know, in Columbiait's legal of all dollars in a bank account in Venezuela and Argentina, wherethe government's gonna take your.

There's a lot there's a lot that peoplethink for granted in the us. And then the third thing that I was looking for isI really wanted to work on a core DeFi protocol. And, you know, I've, I'velearned about a lot of different types of technology over the years buildingproducts in the web two space.

And to me, solidity, DeFi is really likethe big thing that I was interested in, wanted to worry about. And so yeah, soI, I met up with, I ended up getting connected with Nevin, the founder of theOverall Reserve project. And we had a and got to know the team and it's areally special group of folks.

And so I joined the lead, the protocolteam actually almost exactly a year ago. And it's been a, a really excitingtime. I, you know, we can go way more to many. I'll hand it off to James, who Iwas happy to know to meet along the way.

James Glasscock: His Journey From Mediato Crypto

James: Yeah, thank you. HeyMike, thanks for having me. I'm James Head of ecosystem at Reserve.

My journey I spent about the last 20 yearsbuilding media companies places you've heard of Warner Brothers, Turnerbroadcasting several other businesses growing their strategy and operationsdepartments. And I started dabbling in crypto in 2013 and I started investingin it in 2017.

So my journey with Reserve actually beenalong when I was a seed investor in Reserve back in 2018. People often ask me,why did you invest? And, you know, 2018 was an unusual moment in time wherethere were a lot of really bad projects out there, bad players out there. Andwhen I met Nevin, although I barely understood what was in the white paper thiswas a, you know, I felt completely different, you know, and, and I usually whenI invest in projects, it's, it's, I start with the team first.

So I had a really good feeling about PIand the mission that the team were. And increasingly over the last five yearsas I've been involved in a number of web two startups and other types ofcompanies I started to develop a thesis around stablecoin, which is these sicoin DeFi, especially in 20 17, 20 18.

Lots of folks were looking around at,you know, decentralized, uber, decentralized Airbnb, all the things. And what Istarted to really notice, DeFi is where the most innovation was gonna happenfirst in crypto because there's a lot of money at stake and it's actually lessabout a, you know, one click service and convenience and more about, you know,people are sometimes making five figures, six figures, seven figures, maybemore.

And so people are kind of willing tocompromise UX a little bit more in DeFi, although I hope that doesn't last formuch. And then more specifically, and you know, today DeFi is about 50 or 60billion state. It's easily the largest outside of Stablecoin specifically thelargest sort of pool of activity within crypto.

But what's interesting about Stablecoinand there's so many different designs and models for them it just struck me asa. Interesting place to be, to be on the cusp of all innovation in DeFi andcrypto thinking that things that we're doing right now in DeFi and Stablecoinspecifically will get utilized in e-commerce and streaming and all of the otherreally cool applications we're all hoping to see over the next decade.

So yeah. My role at Reserve is I supportThomas. We we're building a community and an e. Our developer relations,business development and community. That is the efforts where I'm reallyfocused on how do we cultivate a group of entrepreneurs and developers, appsand protocols to build these asset back currencies.

We call them RTokens, which I know we'llget into more here on the podcast.  

Mike: Yeah.Interesting.  

How do you define a stable currency?

Mike: So, James, when youthink of sta the word stable stablecoin, what do you, what? What practicalutility most, most comes to mind because there is certainly algorithmicallybacked stablecoin. There's the obvious U s D or other currency backed peggedstablecoin.

There seems to be an inherent value inthe stability of the, the, the token itself. So it can buy, you know, fivestable coins can buy me eggs today. Five stable coins buy me eggs a year fromnow. That seems to be the value and like what Thomas was. Fighting inflation islike first thing in your emission statement.

Where do you see the inevitability ofstablecoin to be the pegging of fiat currency to, to crypto? Or is that justthe first place we start? Like, do, is there some other better way to do it inthe future?  

James: Yep. It's a greatquestion. It's really the kind of, the question is how do you define a stablecurrency?

And up till now we've been working withwhat I would call the Web zero Paradigm of money, right? Unit of account, storeof value, and medium of exchange. These are kind of the parameters of moneyover the last two or 3000 years. But now we have this cool new thing, which isprogrammable money. And some things are more important than other things tocertain groups of people at Reserve, as Thomas mentioned in his.

We are especially focused on helpingpeople fight the effects of inflation around the world and helping them getaccess to stable currency. But when you bring a technology like what we'retalking about to fruition, you start to get some other really interestinglevers of money that are important, safety, compounding value, security,privacy, censorship resistance, and even loyalty and branding.

Most people wouldn't necessarilyacknowledge that as being a part of their stable currency, but the US dollar infact, is probably one of the most significant memes we've ever seen in ourlifetimes. And all throughout money systems, whether you're talking aboutStarbucks points or Roblox Roblox or Caesars Palace chips these are all brandedforms of currency.

And of course in crypto you haveBitcoiners and Ethereum and so forth. So I think Mike, as we, you know, thiscommunity of folks that we're collaborating with, everyone sort of valuessomething different and some of them will be pegged to the US. Some of themwill be what's called a flat Coin, and they won't necessarily be pegged to acurrency, but they will be flat over time.

Or it could be pegged to something likean index. So those are some of the ways that we think about.  

How do view the technology addressingthe idea of currency stability?

Mike: And it is, is itpossible to have a stable currency such as like the one I just described there,where you can take the average consumer price index for all products and justsay it's, it's going to be pegged.

Like in the case of five tokens pereggs, or We are, we just, I mean, Thomas, I'm curious your thoughts on this,like where do you, how do you see technology sort of addressing the idea ofstability?  

Thomas: Yeah. The short answeris we hope so, but we don't know. And the the, the slightly longer answer isthat, you know, we we built our protocol actually as a platform because wedon't know this answer.

What is the perfect backing that peopleshould store their store pReserve and even grow their wealth with? What'sreally interesting now is that over the last couple years as as more and moreassets have become token it's now becoming possible where you can actuallyforesee a future where people can store and save their money and then spendtheir money all used in the same unit of account that.

The wealthy of traditional news to storethat wealth over the long term. And so when you think about, you know, how dothe wealthy store that wealth? They use some kind of basket of stocks, bonds,real estate commodities, cash, fiat, you know, it's like a really trulydiversified basket of funds. You know, some kind of private equity, like thefull thing, right?

And it's not really you're not storingyour wealth in dollars. Very few people do that. You're not storing your wealthin just stocks. Very few people do that. It's really this diversified thing.And so with the, you know, the advent of tokenization of more and more assets,you can actually envision a world where when you get paid or when you savemoney, It's stored in this fully diversified thing that is split up behind thescenes into, you know, a ton of different types of things. Then over time, intheory, you can also spend your money and just slice off a very tiny portion ofthat. And so our, our hope of the long term is that We to make it so thatexperimentation happens, and there's lots of different flavors of this, and oneof them, you know, proves to be the best way to store your well.

And that over time, that becomes a waythat people can save, pReserve, and also grow them well and then spend itslowly as needed.  

Mike: And now,  

Reserve Protocol

Mike: so Reserve.org, it wasan awesome domain, is the platform to allow other, other projects to launch.How many other projects, what are the top projects that stand out as beingobviously successful? Thomas?  

Thomas: Yeah. So we, welaunched our platform. Well there actually, there's a little bit of abackground to give as. So we have at Reserve, there's actually two sides to theproject. We have the protocol, which we've been talking about. There's also anapp that is used throughout Latin America which is what people use.

There's like 300 million of monthlytransaction volume and real economic activity. And it's people will in 18different countries that are using stable coins to save money, spend money totheir friend, pay the. You remittent the full gamut of what you would use moneyfor in the digital world.

And and so that so yeah, there's thatapp which is a great way for people to actually use stable currency in placeswhere they traditionally couldn't. And then on the protocol side, like Imentioned, we launched a month ago. And our partner, mobile Coin actuallylaunched the first, our token, as we call them the first asset back currency.

It's a, it's called sd, the electronicdollar. And it's It's diversified across DeFi Pro. The backing of it, it'sdiversified across DeFi protocols and other stablecoin like SDC or Tether whichare the two largest fi outback, stablecoin in the space. As you probably know.And the what's really interesting about these sta the stablecoin that'slaunched on our platform is self-healing and over collateralized.

And so we weren't expecting this tohappen, but, you know, two weeks after we launched Silicon Valley Bank had someissues and U S D C, which was previously known as the safest, you know,definitely a dollar stablecoin all of a sudden went down to Nike's, I think itwas 88 or 90 cents. And so what what our platform did, and what the protocoldid was detect that, monitor the price, automatically offload it, and thenutilize the over collateralization pool in order to make up the.

And so, you know, in the normal courseof operations, our protocol actually can recollect. Get rid of bad assets andre collateralize all before the banks open on Monday. And, you know, all beforethe F D I C would be able to step in and, and make users whole or, you know,break stability to the market.

Those, it was a, it was a bit of ariving experience for us because, you know, we had just launched this thing andit was getting tested so quickly, but it ended up being an awesome experienceand, you know, we got to watch as the protocol automatically did all thesethings. And yeah, self.  

Mike: So say the name ofthat, that, that project again?  

The Electronic Dollar

Thomas: That was, it's calledthe, it's called the Electronic Dollar.

And so it was launched by Mobile Coin,which is another. Okay. Yeah. It's an L one privacy focus chain that allowspeople to have you know, freely transact and not worry about, you know, Venmoor whoever it is having ever been a financial information. And so they launcheda stable Coin on our platform, and then they're bridging it actually fromEthereum to Mobile Coin, where it can be used in in their app called.

And it's, you know, it's like digitalcash that you can use around the world. And what's, you know, there's, what'snotable about mobile Coin is they're actually the first app that's beenintegrated, or the first blockchain that was integrated in the signal messagingnow. And so it's, it's, you know, it's a really interesting project.

We're super excited. To partner withthem and have them launch the first asset back currency in our platform. Might,but it's also.  

James: The electronic dollar,the first RToken on the Reserve protocol and what I'm about to say willprobably initially sound crazy to people, but there, there might be a futurewhere there's a long tail of stable coins.

There could be hundreds of stable coinsor thousands of stable coins, and you might say, Why would anyone want that?You know, we all just would rather have a dollar. But the reason why is becausewhen you can program in these sort of unique superpowers, like the electronicdollar on the mobile Coin blockchain, you can send it anywhere in five secondsfor under a quarter of a penny, and it's end-to-end encrypted.

It's a privacy dollar. That's a prettycool thing. Doesn't exist anywhere else that I know. But then you can go andbuild other interesting asset backed currencies that might be peg to a dollarand might be earning a fairly high yield profile. Something that can beat therate of inflation, good for people who want to save money.

Or you could build an entirely differentR token that's pegged to Ethereum with a basket of liquid staking derivatives.So it's kind of like you get access to the. But you don't have to do thestaking part, which is pretty cool. And you have some diversification in thatbasket, which kind of pays homage to the old don't put all your eggs in onebasket.

So those are like just a few of thepossibilities and when we really start thinking out over the next decade ortwo, You might see a range of use cases for different asset backed currenciesthat might be pegged to a dollar peg to another currency or pegged to someother type of index. You know one of the things we've seen flourish over thelast many years is currencies within video games and talk about the samephenomenon occurring in Metaverses whenever Metaverses truly.

Well, when those, either of those use acurrency, there's a reasonably good chance that a stable currency is gonna bebetter than a volatile currency. And and none of those entities also, theydon't want to be banks either. When you're a bank, you're in a entirelydifferent business. And that's one of the really powerful things about theseself custodial, fully decentralized asset back truancies.

We call 'em our token.  

Mike: Is there, James,

Market cap influences cryptocurrencystability?

Mike: do you think of a is atechnical difference between a stable Coin and a really large Coin. Like U s Dis the largest currency in the world and it happens to be one of the moststable. That's not a coincidence. Bitcoin is smaller and so it's more volatile.If b hypothetically, if Bitcoin was as, if Bitcoin and u s D had had.

Market caps, would Bitcoin just be morestable? I mean, is it, is stability primarily a function of market cap?  

James: Well, I think, youknow, there's a, there's a lot of predictors of what will happen to Bitcoinover the next couple of decades and, and maybe once it has that sort of muchdeeper network effect than it does today, cuz mostly today it's still mostlyused by speculators.

It's a strong so of value. I hold some,I love Bitcoin. I've held some since, you know, early days. But will it sort ofstabilize over time? I guess we'll have to see. I'd actually be interested inThomas' answer on this. You wanna take a stab?

Thomas: Yeah, sure. I, I agreeon all the above. And also Holton Bitcoin the the way that I think about it isYes, markets are definitely influenced by like, liquidity, right?

Like how deep are the markets? And howusable is that currency, right? Like, can you always convert in and out of it,into something else? You know, we saw this in 2008 when all of a suddentreasuries were actually that helpful because people couldn't get out of 'emright when they needed to actually use them to pay off debts.

And so that, you know, I'll like butcherthe exact financial jargon, but basically the Fed had to step in and make it sothat those things were liquid again, and they did actually seem like money. Andthe until like at the end of the day, like as things get more liquid and peoplecan buy and sell it and spend it right, then all of a sudden that does becomemore.

And you don't have to worry aboutwhether or not it's gonna fluctuate as much. And so I guess if Bitcoin wasmuch, much, much bigger, it'd probably be more stable. But, you know, it's,it's, it's still pretty small and it's still very.

Mike: I was gonna add theone point that I, I would, you know, both of your answers seem to center aroundBitcoin. You know, James, you first mentioned the long. Unpredictable nature ofBitcoin, but I, I mean, put Bitcoin, replace it for any currency that's justlarge. And, and ideally decentralized. So there's not a central point ofdecision making like the Federal Reserve to just take money out or put moneyinto the system, which seems to be the reason, obviously the reason why peopleare excited about Bitcoin is there's not a central point. James, what were you.  

Currency Customization Trend

James: What I was gonna is Ithink there's a twist on, you know, we, we all come from this era of noticingpower law, distribution of winners and losers. But if you kind of zoom out andlook at what the internet and democratization has done to for entrepreneursover the last 25 years whether it's a media company, Or some other industrylike e-commerce, the definite, you know, we, and so, you know, it used to be ifwe, if it was 50 years ago, it was like, we've gotta crush 'em all and we've gottahave, you know 50% market share to be successful.

That was considered successful. Now youhave solopreneurs all over the world, even before crypto. Take crypto out ofthe equation. Crypto is only an enabler for more of. But you have solopreneursall around the world. Even just using media companies for example. I've seenhundreds of these solopreneurs build successful media companies faster than theworld's largest conglomerates can.

And I think this is like a prettysignificant paradigm shift into the definition of success. You know, thepandemic taught a lot of us this. Oh, you know, actually I don't need to gokind of work for the corporation with thousands of employees and just be almostlike a number on the team. I can define where I want to live, what I want tocreate, and be incredibly successful for lar far less money than if I weredoing that in New York City or Los Angeles.

And I think you're gonna see the samething actually happen specifically with currencies and all throughout crypto. Youno longer need to be the the, the number one player in it. You know, withinStablecoin specifically, you're going to see a lot of ecosystems that are onlya billion dollars or only 50 million.

They don't need to be multi-trilliondollar ecosystems. Now that would be really interesting for especially whoeverthe, the so-called winner is of that. And with currency it's a little bit morenuanced because it's also a regulatory regulated environment and that varies byjurisdiction.

But this idea that you can build. All ofthese sort of programmable currencies for different use cases and besuccessful. Kind of what I would say is a just a different size spectrum is, ispretty interesting for the future of currency. So you don't, you don't necess.The reason we needed a global Reserve currency up till now is because we hadthis, what I would call web zero paradigm for how people could exchange thatcurrency.

With other currencies. But now we'removing into a world where you can exchange anything for anything. Like we arewitnessing it right now, happen in crypto, happen in DeFi, happening it inNFTs. And we're probably, you know, still a few decades away from thatinstantaneous exchange of anything. But that's what tokenization empowers.

And when you move to that paradigm, yousuddenly don't really need a one currency to serve. Everyone can have their ownthing and you have liquidity across all of these different mediums.  

Challenges with multiple currencies

Mike: So it sounds like whatyou're saying is that the reason you had one large currency, the reason thatthe world sort of arrived at that position was that the information, maybe thepricing information around all the different currencies is slow ornon-transparent, and then liquidity and ability to exchange is slower, not inexist.

You know, you need the internet to beable to exchange multiple currencies across multiple countries. If you're notin the same physical place that's now, like, in theory, it would be possible tonot have one central, large fiat ex currency. If you had those first twoconditions, you had, you know, very transparent and accessible pricinginformation, and you have the ability to exchange.

But that, that's not really the case. Imean, I don't know about you guys, but I don't. Much, much foreign exchangetraining. It just seems way more daunting than it does to even be in the worldof crypto. And so, to your point, like it's, I agree with you that that seemslike, and it seems like it's also riding the trend, you know, parallel to the,the, the attention economy used to be very centralized.

There used to be probably 1950 sixties,like two or three broadcast TV station. How many newspapers? Not that many.Now, you know, there's millions of different you know, creators, which is, it'sthis like oscillation effect that goes from one to many and then back to one.So it, it, I agree with you. Yeah.

It very much feels like we're in the,the space where there's a lot of different offerings, like moving away from thecentralized attention and currency models. I want to ask you guys about, aboutthese existent stablecoin, U S D. Circle tether being U S D T and U S D C,those seem to have captured a what, nine.

Between the two of those, what would youguess like 90% of the market, like it's, it's huge. It's a lot. Neither one ofthem are transparent about where the money is. It was only until the SVBcollapsed that people found out that U S D C had like 5% or 3% of their, theirmoney, their U S D in Silicon Valley.

Which, you know, to Thomas's example,caused all the chaos. Why are these organizations not fully transparent and doyou see them remain keeping the same structure that they do like, or is thisjust a stop gap until, you know, there's some, some new way that the stablecoins exist? Thomas, feel free to add.

Thomas: Yeah, it's, it's superinteresting. I, I think I mean on the U S D C front, I don't think anyonereally realized that that was a risk that they had to worry about, right? Like,which bank are they keeping the money? Right? Like, thinking about that wasn'ta risk that was on anyone's radar. And I, I think what it really does is, whatit was a great example of is the, the need for diversification and the factthat over time companies change, markets change, et cetera.

But at the end of the day, like if youwant something to be stable, you can't say today. This is the most stable wayto do it. You need some room for adjustment. You need some room and ability toadapt. And this is actually so a couple years, four years ago, we launched rsv,which was like our prototype of the, our token that cannot be launched on ourplatform.

It doesn't have the overcollateralization, the collateral can't be deployed and yield bearing assets toDeFi. But it, what it has is this very basic divers. And so RSV for a very longtime was just three different staple coins backing it. It was backed by U S D Cand it was backed by the PAX dollar.

It was backed by true U S D and superinterestingly, over the last six months there were, you know, three differentinstances where we had to change the basket. That this, that was, you know,back in US dollar and this for context RSV was the unit of exchange that ourunit of account and medium of exchange that the app side of that company hasbeen using.

And so all of the users in LatinAmerica, many of whom barely even know it's crypto, they just care, do careabout dollars. That was the thing that was used in this app. And so whathappened? Like, you know, when the FTX blow up happened, one of the things gota. We were a little bit worried about it, and then, you know, all of a suddenwe switched into Binance and U S D C and all of a sudden, you know, Binancegets shut down and, you know, the third largest stablecoin all of a suddenshrinks its market cap overnight.

And almost, you know, goes from, I thinkit was like 40 billion down to, its under 1 billion now. Like all, all youjust, things changed and so like we had to do another change at that. And, youknow, U S D C D pegs, all of a sudden, you know, our new stable Coin, the newstable Coin, that's launch center platform, again, had to do a basket change inorder to find stability.

And so this, this, you know, for manyyears people were asking us like, what's the point of this? And I think thelast six months has really demonstrated to everyone in crypto the need fordiversification and the need for what? Why build or adapt.  

Unpredictable banking crises

Mike: Why diversification?To me, your example is scream transparency, not diversification, only 3%.

U SD C'S value was in s e b, but thatcaused chaos. I mean, 3% is pretty diversified. They have 97% somewhere else.Why not just say, Hey guys, this is where it all is, and have that be thesolution. I mean, wouldn't that just solve it?

Thomas: Yes and no becauseagain, it's just like that, the risk that was highlighted, there was somethingthat no one was.

Right. And like even if they said we'vegot, I think it was actually 8% it was in Silicon Valley Bank, even if they'relike 8% in Silicon Valley Bank, 20% in, you know, prime Trust. What whateverthe different banks were right. That you still don't like, no one was reallypredicting this banking crisis. I mean, there were some people, right, butGeneral Crypto and general SDC users were predicting this.

And so what it really does is justminimizes downside risk for the individuals. And so when we think of. SB forour token that's currently live, even though, excuse me, even though U S D Cwent down 10%, since it was only half of the basket back in U s d, it only U SD only lost 5% of value. Right? And so that's where the benefits ofdiversification come in, is it just minimizes downside risk of individualactors having problems.

And so, In this world where you'rerelying on these different companies with different types of transparency anddifferent types of operations and different types of risks it, it's, it's justhelpful to diversify that risk. And so, like in this particular instance, itwas helpful for people that were holding the sd, the users didn't have to worryabout it because of the diversification in that over collateralization.

And then by the way, anyone that holdsor integrates with the E U S D on their app, they also don't have to. That outin the title of crisis, they just know that behind the scenes of the stuff ishappening. And so they're, it's almost like a user-friendly wrapper, right?Like if someone's holding the US D c, they don't, they can rely on the protocolto do the automatic stuff, and they can just know that their thing is gonna beworth, worth a dollar and not have to worry about where the stuff's held,what's backing it, et cetera.

The Evolution of Stablecoin

James: Mike, you used areally interesting term stop gap, you know, with these current stable coins. Soyeah, U S D C and Tether are something like, To 95% market share of the entirestablecoin space. I would say we are currently in the America online stage ofstablecoin. We're, we're about 19 94, 19 95 right now.

And you know, for the internet inventedin 1969, there were a couple of really interesting turning points. One was theworldwide web moment in 93. The next big one, other than the.com bubble crashingaround 99 2000 was the broadband moment, which happened in the early twothousands. And that's when we got Netflix and you know, Facebook and stuff likethat.

And then kind of the next big moment wasthe iPhone moment, so to speak. You know, around 2008 and 2009, each of thesemoments transformed the use of the medium. And I remember in the nineties Iwas. I was working with forensic accountants. I was at a law firm just kind ofstarting my career and they all thought Amazon was a fraud in 1999.

They thought, this company's going outtabusiness for sure. It's not gonna last. And and, you know, and then.com bubblebursts and people, and it did the stock drop from like 70 bucks a share down to70 cents a share. It's just like these cycles that we go through with cryptowhen everyone says crypto's dead, you know, that's what they did with.

And then, you know, then we get like, ohwow, Amazon is out into the web services business and now a multi-trilliondollar company. So it's, I think, I hate to be so cliche as I were early, butthe way we've understood stablecoin up till now have been working with theconstraints of up till now. And certainly if any of us were sitting around inthe, in the mid nineties, we, we might not have thought that there would.

An app for getting an Uber or some kindof app like Instagram or Netflix or these types of things. It's so hard tocontemplate what that could be cuz you haven't seen it yet. But that to me isone of the interesting possibilities when we think about the design space forstablecoin and, and this idea of all these different kinds of program ability,again, depending on what's important to people, is it security or privacy orspeed?

Pegged to a certain skit of assets,maybe a basket of eggs and bread and, you know, other things that we like toeat. Yeah, just it's, this is the exciting part about being a plat, apermissionless platform. As Thomas mentioned earlier, we don't exactly know howit's going to be used, but when you have a community of entrepreneursexperimenting with it and using it for free, free to use you get some reallyinteresting outcomes.

Mike: I, I love thebackground. James.  

Do you agree that USDT and USDC had notbeen transparent?

Mike: Do you agree that U SD T and U S D C are not, had not been transparent? Maybe they're more now, butthey hadn't said, here's, here's the 17 accounts where we have it. Here's theexternal auditing firm providing weekly updates. Like U S D T is notoriouslytra vague, right?

They, they're like, oh, we just don'tworry. We got it somewhere. And, and like, I think that's what gave rise to U SD. But even then, like why, why don't you guys, why is there not someone outthere that's like, here we have, we have it all in one bank account and here'sthe bank itself saying they have it and they're keeping it in dollars.

Like if you held U S D C, you'reactually holding it across a variety of banks and you're probably owningtreasuries cuz the bank is taking your money like a hedge fund and they'rereinvesting it. So there's like the, it's like the same thing as ftx, like youthink it's here, but they really, whoops. They moved it over here and then theybought some other shit.

Why do you think, I mean, I, I'm comingat this from the perspective that, yeah, diversification's great if you havetransparency, but without transparency you don't even know what you'reinvesting in, that you could even be diverse. Does that, I mean, James, do yousee any projects being very transparent in this way or know why they wouldn'tbe?

James: Yeah. Well, I thinkyou, you framed it correctly. You know, tether was first mover and they gotaway with not very much transparency at all for a long time. They're trendingin a new direction because U S D C is eating their market share. U S D C cameout as a second mover and they really emphasized this transparency.

But I think another one of these leversof programmability is around proof of Reserves on chain, where anyone can goand look at what are the assets backing the so-called currency. And where thisis important is, you know, if you had this in the Silicon Valley run, you'dhave really, I think, two really valuable tools for users and for consumers.

One is you're able to now put your moneywhere your values are. You can choose institutions or protocols that areutilizing the money in the way that aligns with what you would like them to do.Like for example, maybe if we all knew that the bank had put their money into10. We, we might, you know, someone would've sounded a red flag a lot soonerhad that been disclosed transparently.

That's pretty powerful. You know, youhave arm, this is one of the cool things about crypto. You have arm armchairsleuths solving big frauds before traditional law enforcement do. The second thingis, is once you can actually see everything transparently on. There's really noreason for a social media fueled bank run which is pretty cool, right?

Without the truth, we're left to nothingbut fear, uncertainty and doubt, and that makes people crazy. And now we're inthis new era where information travels so fast. But you know, I think it'd becool that Thomas has done a lot of thinking around proof of Reserves and how weapproach it and how we see the space as almost like a default of how the futurefinancial systems should work.

Thomas, I think it'd be cool if youcould speak to that for a minute.  

Mike: Y yeah. Also, Thomas,please do. Also, I'd love to learn how you guys make money, what the businessmodel is, where you guys as an organization or whatever you call it, areincentivized to, to do?  

Thomas: Sure. Yeah. I, I cantake, I can take both those. I, I think the, the you know, James talked a lotabout this, but one of the things that was most exciting to me about cryptoover the last year and DeFi in particular, is that as there was all thesedifferent lending crises fueled by, you know, it was kind of initially fueledby terror collapsing, and then everyone else figured out, okay, so if terrorcollapsed, who was really expos.

You know, and then all these different,like, you know non-transparent lending agreements and the under collateralizedloans came out and, you know, one by one, by one by one. More and moredifferent things were exposed on who had exposure to this. And, you know, kindof all ended up being FTX at the end of the day.

And you know, they what's not going tobed. But at the end of the day, like no one really knew that all this debt wasowned by f. Right, and what's really, what was really fun to see besides everyonelosing all their money, what was really excited to see was the DeFi productowns, like ave like compound where people can lend money and borrow moneythere.

But everyone knows exactly how much isowed and where it is. And you know, it might be a pseudonym of a walletaddress. But those lending protocols operated without any issues, even whenBitcoin fell by 70%. Meth theory fell by 70. And these are all collateralizedpositions. The auctions functioned without any issues.

And the protocols themselves weretotally solvent. And so like that, that to me was a, a really magical moment.And it really approved the windiness of these protocols. And it's liketransparent proof of Reserves and so that it's really, it's one of the reasonsthat we're super excited to build on top of those things and expose thoseprimitives as the backup to these currencies, right?

Instead of holding the funds in a.You're, they're being lent out on these super transparent protocol, on thesesuper transparent, yeah, transparent DeFi protocols where that yield is beinggenerated as like real economic activity that's generated in that yield. Peopleare borrowing it, but you know that automatically people will be liquidated ifthey borrow too much or if they're collateral goes down or whatever that is.

And to me, that's really magic.Transitioning down to Reserve.  

The Business Model

Thomas: So we talked about ita bit, but just to like spell this out in more detail of how the protocol worksand how E U S D in particular functions as an example. So E U S D, theelectronic dollar is an our token that was launched on the platform.

It's backed by 25% U S D C. That's inAve, 25% u sdc that's being led down on compound and then tether 25% in ave,25% in. And so the underlying collateral for the stable Coin is actuallyearning yield, and it's around 3% on average across those four things. That yieldis then actually shared and sent to an over collateralization pool, which isour governance token.

Rsr. People can choose to stake it in.Matt got in Matt over collateralization pool, and in the case of a default,like what happened with the U S D. That pool is sold off to make up thedifference. But in good times when there's no default then they get the yieldfrom all of the underlying, and the protocol calculates how much that yield isand sends it over to them, and so they accumulate yield.

And so basically these people can chooseto put up capital in exchange for them making the decisions on what the backendshould be and maybe paid it with the revenue. But they, in the case of anyissues, they're the first capital of loss. They're the first ones, that pay forany, any mistakes that are made.

And so we think that that incentivealignment is really important. And so long way around how do we make money? We,we have company governance tokens and we stake them on U S D and we try tostake them on other RTokens as well that launch. And so, and, you know,participate in governance along with the community.

And so our business model is, you know,the, the higher the market cap of these stable coins, or these are tokens thatmight be, you know, like a slight tweak on a stable Coin, like James wassaying, it might be like a yield bearing. Or it might be a diversified youthportfolio, or it could be you know, like a diversified basket of goods likeBitcoin and Ethereum and some dollars and some other things and commoditiesthat people just want, like a new way to store their wealth.

Almost not an etf. But kind of similarto how an ETF would give people diversification across variety of differentasset classes. And so as those, as the market caps of those things are higher,there's more yield being generated by the. That will go to these differentstaked RSR pools and we'll have our RSR stake those pools and we'll be gettingrevenue from now.

So it's actually similar to how Circleis like a really, really, really simple business model. The higher the marketcap, the more they can have in treasuries, the more yield they get from theunderline. Ours is very simple as well. We don't have as good of margins incircle. Cuz you know, treasuries are printing at like 5% right now. Right? Sothey're. There's  

less less margin for us. It'll, it'll bemuch lower depending on how much we stick in those pools. But but yeah, it's avery simple business model. The higher the market cap, the more the collateralgenerates revenue and the more that we can participate in it.

Mike: Interesting.  

Circle's Model

Mike: How does circle'smodel work? It's very simple. Do they, they take money in from people and thendo they just l lend it out to the government in exchange for treasuries? Isthat  

Thomas: yeah, more or less.They, yeah. So they take, there's like a 40 billion market cap. They invest, Ibelieve it's like 95% of it is invested in short-term treasuries, and which is,like you mentioned, it's a loan to the government.

And so they just get, whenever thatshort term treasury rate is, is their revenue you know, multiplied by America.Interesting. And then the rest of it, they hold in cash in case people withdrawand need to convert U S D C into Shia. That's when Mel just you know, that's gouse.  

Mike: James, gimme, gimmelike a, I ha have, so Thomas just explained the model, which is you are, as acompany, you are a leading contributor to the decentralized protocol. You guyseach own.

The Market Cap

Mike: Some of these tokensthese Reserve tokens, as more people want them, the value of the tokens goesup, presumably. And then, am I right? Okay. I'm slightly off on that. Theinterest rate that's paid out on these tokens.

Thomas: The market cap market.The market cap, yeah. Yeah. But like the more people deposit into the protocol,the higher the market cap, the assets, the.

May or may not appreciate whether or notit's yield vary. Like SD for instance, doesn't appreciate, so it's, that's justfor people depositing funds in because they want this over collateralizationand this diversification and it's easy to use format. But there might be onethat's like, you know, partially backed by Ethereum or things like that wherethe press could change.

There's some new ones there. I justwanna make sure that there's no confusion about like u s. Will we going up inprice or anything like that, that should actually stay at $1.  

Mike: Right. And as a, as acompany are, or as a protocol company is Reserve moving money out and takingthe same, same strategy as circle you. I mean, you're not buying treasuries,are you?  

Thomas: It's all deployed atDeFi and so like us. Gotcha. Gotcha. Yeah, it's all, and it's all, and we don'tdo the deploying all. What Reserve did is we built this platform that allowsanyone to define how these stablecoin should work or how these R tokens shouldwork.

And so then once someone launches one ofthese things, which is like the definition of how it should work, then anyonecan come and mint and redeem it by just bringing the collateral that is thedefined backing and depositing it, and then getting the, our token in. Or viceversa, bringing the R token and giving it to the protocol and then getting thevacuum as an exchange.

And so that one-to-one redeem ability isreally important. much, it's a much safer design than an algorithmicstablecoin, for instance, which doesn't have that one-to-one backing.  

Mike: Yeah, that makes a lotof sense.

What makes a great Head of Ecosystem?

Mike: James, what makes agreat head of ecosystem? Like when you talk to other people who are doing itvery well or not so well, what, what stands out to you as people effectivelyworking for a private company, trying to grow the market cap or value of a decentralizedprotocol? What have you learned?  

James: My first, my firstanswer is I want to meet that great head of ecosystem. I'd like to learn morefrom him or her you know, let's, let's build a, a bigger community. But, youknow, I was having a conversation with someone about this, this morning aboutintrinsic motivation versus extrinsic motivation.

And I think this is a phenomenon we're,we're really observing happening in crypto, right? You know, I kinda came up inthe old world. You know, there's consultants and people who say, you know,here's my proposal and you'll pay me X. And maybe the engagement goes, well,maybe it doesn't. Sometimes they do, sometimes they don't.

And, and it's very much, it was kind ofthis old paradigm of my here's my resume and all of my cool lookingcredentials, but now we're like in this new era where still some of that. Butincreasingly, and these are like the kind of people back we're, we're hiring,we're looking for a few folks to join the ecosystem team.

We're looking for people who aremissionaries, not mercenaries. And you see this a lot in crypto. People are divinginto DeFi protocols to learn them cuz they're excited about. It's the samereason that I bought Bitcoin in 2013. I didn't, I didn't buy it because Ithought I would go up. I had no idea. I didn't even understand the white.

I bought it because I wanted to learnit. I thought, this seems really interesting and there's a couple of people Irespect that also believe it's interesting and I, and it's been a teachingmechanism for me. Same way, when I got into got interested in Ethereum and bythe way, same reason why I invested in Reserve protocol.

I wanted to learn about stablecoin. It'slike, this is a good one. You know, when you put some skin in the game, yourlearning curve accelerates quickly. You know, back to your question on like,what makes a good heck head of ecosystem or people that are buildingecosystems. I think it's finding people who are really they're going to go downthis path with or without you, right?

They're intrinsically motivated to learna lot about stablecoin, learn a lot about building a movement. And those arethe types of people that I look for because they're the ones who are gonnaendure even long after I'm gone. That's the kind of team that we're trying tobuild at Reserve and the type of people that I'm looking for.

But, you know, on your point, on headsof ecosystem, I'm actually looking at building like a small micro community of10 or 20 heads of e. Kind of at the same level of size as Reserve protocol, sowe can all learn from each other and figure out what's working best or not. Youknow, is it hackathons, is it some other type of community sort of executiontogether, or is there some type of intrinsic incentives versus extrinsic?

We're all learning this in real time anda lot of the things that were popular 12 months. Are really not that useful andrelevant. Now, the, the space is moving so quickly. Like I said earlier, we'rekind of like in the a o l era of stablecoin. I see the same thing happeningactually in growing communities within Web three.

Like one of the areas that Thomas and Iare especially focused on is attribution. What's working and what's not. How dowe track that? It's been done for more than a decade in web two. It's justbarely beginning to. Start to vibrate within web three and, and crypto.  

Mike: That's superinteresting. You know, I've been organized and I've, I've done a lot of thesepodcasts and I've started to organize people that have really particularinterests.

You know, growing in an ecosystem ofdecentralized protocol. It's like, that wasn't on your, you know, that wasn'tin your career trajectory 20 years ago. You just, it didn't. And so I, I'veorganized a few of these calls and I, I've talked to a number of people, like Iinterviewed the CEO of Mobile Coin but also a bunch of other head ofcommunities at these protocols.

And for instance, one thing that I, thatcame out that was surprising was one of them told me we, in the foundation, wehave grants and we use part of the grant to give out to developers to build onthe. Build on the protocol. Sounds great. Right. You know, you have someproposal out there or they submit proposals and then you make a decision in thefoundation.

Give out the money. Well, there's a,there's a, a large number of people that are applying to all the differentfoundations and they're receiving a lot of grants and then they're not doinganything and there's, and so that approach like basically does, just doesn'tseem to work across the board. Like I haven't talked to.

Head of ecosystem protocol that, youknow, maybe one or two examples here and there, but overall it's likeunprofitable endeavor and I, I just, I, I wonder how many are out there stilldoing that. And if, if there's a way to make it profitable for the protocol.It's like a, a very nuanced insider conversation that I'm sure you have takeson an insight to or experience with that would be super interesting to like,contrast it with other protocols and hear their experiences and what they.

Because it's very much, it's not likecompetitors getting together, discussing what marketing strategies work. It'slike your success actually makes in like a real genuine way. You know,companies will often say like, oh, I want the best for my competitors, but youknow, it's all kind of like, not actually true, but here it's actuallylegitimately true.

Like you want other token projects towork. You know, given that it's, so maybe that changes one day, but for themost part yeah. So it's awesome to hear that you're doing that and interestingto hear. I'm curious to hear how it goes.

James: Sure.  

The Real Competitor

James: And, and on, on thatnote, on competitors, I mean, the real competitor is the current brokenfinancial system.

Yes, totally. It's not other stablecoinprojects as far as I'm concerned. You know, there's a couple of folks in thespace who talk about positive sum collaboration, not zero sum. I'm a bigbeliever in that we're so early that, that us fighting over small littlefiefdoms within crypto Yeah. Is, is not a good use of.

Meanwhile, there's this multi-trilliondollar landscape that is broken and underserving people all around the world.You know, you've seen people robbing the banks in Lebanon to get their moneyout. You've seen riots in the streets in Nigeria because they're printing a newform of money that the people don't trust.

Places where we started in Venezuela andArgentina, people that just want to pReserve their spending. You know thatthose are the systems that are broken, and that's where the real opportunityis. So I'd love to collaborate with you or anyone in your network that wants toshare those practices so we can learn and grow together.

Mike: Yeah. Awesome.Well,  

The Future of Global Reserve Currency

Mike: I, I'm superinterested to see how this all goes, because I saw STAT recently that was saidthere was five, five major Global Reserve currencies in the last. 600 yearssince 1490, I think it was. Portugal, Spain, the Dutch, British American,somewhere. Somewhere about that. On average, they're 94 years long and the USis on year 99 of its global Reserve currency status.

And so the kind of consensus is like,yeah, the US is gonna lose it at some point, but to who and how and how does itgo down? We don't want it to be China. The US doesn't want it to be Bitcoin.There's this rising. Tension between states within the United States that arelike Florida and Texas and Wyoming.

They're like, we have Dow laws. We'relike a Bitcoin sanctuary state. And so it seems like now's the time to preparefor that increased tension, particularly between us and btc, to, to like, tohave an escape route, to have a place that people can go if and when the U S dglobal currency. Decreases in influence.

James: There was a reallyawesome part of this too for governments, right? You know, America made itselfbased on open markets and experimentation and innovation, creativity,entrepreneurs. When you let entrepreneurs go out and try something a thousanddifferent ways, the whole system moves much faster.

Yes. There's going to be some failures.There's, there's gonna be some fraud. Frauds have been going on though forthousands of years. They'll probably go on for several thousand more. Crypto'snot gonna stop fraud. Probably make it better to track. Easier to track thoughit seems like, seems like that's working.

When you let free markets experimentwith these technologies, this is really an opportunity for the US governmentand other governments around the world to let free markets do their work, tofind the parts that are gonna work and find the parts that are gonna break and,you know, maybe they will be able to solve the innovator's dilemma themselves.

You know, we, you mentioned kind of thefive global Reserve currencies over that period of time. None of them made the.To, to bridging to the next era and, and sustaining on. I would prefer not togo through any period of apocalypse or, you know some of the conversations thatare happening. I, I think we would all enjoy stability and being able to buy eggsand, you know, the pandemic was pretty annoying at the very least and terriblein, in other parts.

So letting the free market experimentwith these things in a smart way I think is really something that can work forgovernments. And it's, and it's interesting to see, even though in the UnitedStates, regulators don't seem to be kind of coming to the table transparently.Meanwhile, in Europe, they are in Dubai, they are in Singapore, they.

Even in the uk it's like, okay, there'slike a new revolutionary war, but it's not being fought on a battlefield. Likethe UK is moving ahead on stablecoin regulation faster than the United States.So these are just super interesting things to watch. I'm a little bummed ofwhat's happening right now in the United States, but I'm hopeful that thepolitical process Yeah.

Will do its work.  

Mike: The next, the nextAmerica is the internet and you know, you guys are leaning in. Embrace whereit, where it's happening. Guys, I wanna be respectful of your time. Do eitheryou guys wanna give a shout out to where you are writing or tweeting orblogging personally? We'll have all the company links in the show notes.  

Thomas: Yeah, sure. on twitterI'm @mattimost, which is like Mme. Moore. A little bit more M A T G I Mquestioning.  

Mike: Nice. And James, areyou?

James: I'm, I'm @0xJMG onTwitter. And then you can follow a lot of cool stuff at the Reserve Protocol atReserve Protocol on Twitter.

Mike: Awesome. Well, thankyou guys so much and wish you the best of luck.

James: Thanks, Mike.  

Thomas: Thanks.