What we try to represent at Lightspark is to build on Bitcoin, a network that no one owns but everyone can get value from. Enable people and businesses to have exposure to Bitcoin really without any friction. Have the ability to still hold dollars and use Bitcoin as a neutral settlement network and asset for all of the payment systems in the world.
David Marcus, thank you so much for coming on to the Bitcoin show. This is a super exciting interview. LightSpark is also a sponsor of the pod, so very excited to have you here. You're of course CEO of Lightspark, which is developing Spark, a state chains kind of style layer two on Bitcoin, which we'll talk about. But you have a particularly rich and interesting history in the payments world and sort of payments fintech broadly. I'd love to dive in. I mean, just to start with your story at PayPal. You were vice president at PayPal. I don't know exactly how you got into working with PayPal, but I mean that might be a good place for us to start.
Yeah. No, so basically I sold my company to PayPal in 2011 and joined to your point as vice president of mobile, basically running mobile. And then five months later, the then president/CEO of PayPal left to become the CEO of Yahoo and I was like, great, I'm just going to go back to startups. And I was the only guy on that leadership team that actually didn't want that top job. And sure thing, you know, because probably I didn't want it or something else, but I got the opportunity to go run the company, which I did for about three, three and a half years.
I'm curious if the reason why they sort of picked you for that role was because mobile was such an important part of the strategy at that time. Like what were the problems people were trying to solve with payments back then? Like what was the kind of conversation?
I mean, look, I think the reason that John Donahoe, this was the time where PayPal was still part of eBay. So the reason John Donahoe probably gave me the job is that I got into the company guns blazing and decided that mobile was something that we were behind at PayPal at the time and we needed to really catch up. And in a short few months, shipped a number of products which wasn't really happening at that time. The company was kind of stale, not really shipping new products. And I came in and in four or five months started shipping like the first hardware products, like the chip and pin card readers for PayPal in Europe, like the thing that was PayPal Here, which was kind of like the Square ripoff at the time for PayPal, the PayPal version of that. But the company didn't actually build hardware, and we did that in four months from start to finish. And we were really moving fast. And I think at the time what John probably saw is, okay, we need to bring PayPal back to its roots of building products and shipping products, and that's probably why he decided to bet on me at the time.
So at that time, I mean, was Square basically leading kind of the fintech payments world at that time? I mean...
Not really. It was kind of early for Square. So, it was like the time where they had like this super genius idea of leveraging the audio jack of the phone to actually have the little square terminal setup. Which was really, really smart. Not super secure. But no one cared at the time and it was still at the time where you had the magnetic stripe setup where you would actually swipe to pay versus the chip and pin version of cards that happened after.
But so you would say so I mean so then it wasn't just like necessarily the hardware piece but more like the movement into mobile payments generally. I mean was that sort of broadly understood in sort of fintech payments like okay everyone needs to be moving into fast mobile? I guess Venmo may have also been around at the time or...
Yeah, and then I acquired Venmo actually when I was running PayPal. We acquired Braintree, Braintree acquired Venmo, so we got both at the same time and basically enabled them to tap into the resources and the network and the reach of PayPal at that time which was a great acquisition.
Was anyone in the sort of traditional finance payments world at that time or fintech world talking about crypto? I mean this was what, 2014?
Yeah, it was 20... I got there 2011, but you know, 2012, 2013, 2014 were the years where I was running the company basically. And I was already deep in Bitcoin at that time.
Yeah, I was really deep in Bitcoin since, you know, 2011. So I was already talking about Bitcoin a lot. And everyone thought I was a total lunatic. And yeah, no, so I was already deep in that.
How did you get into Bitcoin?
Wes Kazarus is the answer. So Wes is a very close friend. He was like really arguably patient zero of Bitcoin for Silicon Valley and wouldn't stop talking about it. I mean I looked at it in late '09 and I was like okay this is even by my geeky standard like too geeky and put it aside. And then in 2011, Wes was kind of like obsessed and was like okay you need to really spend time, you need to really understand it. And then I went down the rabbit hole, never left basically.
Was it the payments use case that got you? Like I mean what was most interesting to you about Bitcoin at that time?
No, at that time it was just the wildest thing that like you can actually transmit money electronically with no one in between, like no intermediary that would actually control the payments to ensure that the payment would actually get from point A to point B. And that blew my mind entirely. And then there was that moment when I was running PayPal where the government of Argentina asked us to block currency, basically foreign payments.
And that day where we actually stopped at PayPal enabling Argentine citizens to move money out of the country, Bitcoin price shot up and it was really clear that people were going to Bitcoin to actually move money out of the country at the time. And that was kind of a reinforcing moment for me in my belief that we had something really special here.
And once this is Argentinian, right? Yeah. Yeah. Yeah. So this all makes sense. Wow. Okay, that's super interesting. Okay, so then at PayPal, I mean when you were having conversations with folks at PayPal about this, like was there interest? Like what was the conversation happening in sort of this fintech payments world?
At the time it was like really like this thing is an exotic thing. We're a very regulated business. We shouldn't really spend too much time like touching it because it's risky. We were still in that phase of like Bitcoin is for, you know, drug dealers and criminals. You know, the successive layers of FUD of Bitcoin. And so you know at the time we were already starting to talk about like hey should we actually enable people to buy and sell Bitcoin within PayPal, within Venmo, which eventually happened much later. But we were casually talking about it but like everyone was kind of freaking out because of regulatory risks.
Makes sense. And that I mean to be fair they were considerable and you have a lot of experience with that as well which we'll get into. So, so while you were at PayPal, that was pre PayPal and Venmo, you know, kind of integrating Bitcoin at all or like enabling Bitcoin payments. Okay. And then I think so makes sense now that you were already in Bitcoin personally because I did hear also at one point you were an adviser to Coinbase.
I was on the board of Coinbase. Yeah.
You were. Okay. You were on the board of Coinbase and that was also while you were at PayPal or that was...
It was after. What were you I mean, what was the relationship there like? Like why did they bring you on to the board?
Well, I think you know at that time Coinbase was really really growing like crazy and they needed someone who had experience with you know running regulated businesses and scaling businesses. And it was really crazy times. It was the time where Coinbase was actually, you know, growing like, you know, it was 2017, 2016 and it's a massive bull run like all of the systems were breaking like because customer service was just not scaling up and all of these good problems that you have when you hit a vein and the business is scaling at super rapid pace. And it was really fascinating time for the company and hopefully it provided some help during that phase.
Needed an adult in the room is what it sounds like.
Yeah, I mean you know really a bunch more experience on the regulated scaling side I think. And then you know we started launching or working on the Libra project at Facebook which I started and at that time it felt like we were starting to go after the same talent and the same talent pool etc. So, I went to Brian and I'm like, 'Look, I'm a guy who's like, you know, never wants to have a conflict.' Which is unusual for Silicon Valley, but like I and so I just can't stay on the board and at the same time try to recruit the same people you're recruiting and try to build the team, etc. So, I stepped down from the board at that time to focus on Libra. So, but it was a fun run.
I mean, it sounds like a super fun run. So, and I mean, how did you start working with Meta? I mean, like at Facebook at the time, right? So, I mean, how did that opportunity come about?
Well, I was running PayPal, so it was not an obvious choice to actually jump ship to go run messaging at Facebook. But...
It's mobile though, right? I mean, it's mobile.
It's mobile and you know, I did like the payments company that I sold to PayPal, which was called Zong, was actually a mobile payments company that was actually in the business of enabling real-time transactions on mobile using premium SMS. And so there was a lot of messaging components in there, but basically at that time I was like super frustrated at PayPal. This was the time where Carl Icahn, the activist shareholder, was in the eBay stock trying to push for the two companies to be split. The eBay leadership of course didn't want that. I felt like it was the right thing because PayPal was obviously the fastest growing part of the two companies and definitely more future oriented at the time. I mean now like it's in a totally terrible place which I can like actually complain about and feel frustrated about for hours but I'll leave that aside. But I was really frustrated at the time and I was ready to go back and jump in to start something new again. And that's when Mark reached out and was really persuasive to convince me to come and join the company to build what he thought was actually one of the most important part of the company going forward which was messaging at the time. And so I did that for four years until I found myself being super frustrated with the lack of progress of payment infrastructure and the fact that we still didn't have an open protocol for money. And that's when I decided to try to build this Libra thing.
Did you pitch, did you basically pitch this idea to Facebook? I mean, yeah, this was like your brainchild from like day one.
What was the connection between payments and messaging to you at that time?
Well, I mean, you know, messaging is always a lot of... there's always a lot of messaging involved in paying someone, right? It's like you have to ask someone to pay you to get paid typically. And with WhatsApp and Messenger reaching billions of people every month, those were the two natural platforms to actually try to bring native payments and to use those as a distribution mechanism to convince the whole world to adopt a standard for payments that was going to be an open standard. And so that was worth a shot. I knew it was high-risk. We actually looked at Bitcoin at first because I didn't want to get in the middle of all the governance structure and setting up like a consortium and try to devolve power and try to set governance and all of these things that eventually ended up being the weak spot of the project and the choke points that the governments used to kill it. And so my original instinct was let's build this on Bitcoin, but obviously at the time we're talking about like 2018, building on top of Lightning at a scale of three billion people wasn't going to be a thing. And there was no way to actually scale that. There was no way to set up Lightning in a way that would actually work. And there was no real way to provide stable value to customers that would not have necessarily the financial literacy to be exposed to Bitcoin volatility for everyday payment at that time. And so we decided to go the proprietary route which eventually, or the corp chain route which I like to call all of these things. And that's eventually what killed the project, that vulnerability of having some centralized form of governance that could be choked.
It's interesting you say that, you know, one of the reasons why you decided not to use Bitcoin because that would involve educating people about volatility, which I think is a common thing that comes up. But Libra originally was not a stable coin. I mean, it was a... what was it pegged to?
It was a stable coin. But it was a stable coin that had a basket of different currencies because we were totally naive. Like just to be clear, you know, it's like now I know a lot more than I did back then and it was like very idealistic like many of the tech projects start from a total utopian view of the world and idealistic point of view of the world and sometimes it works, sometimes it doesn't. In this case it didn't work but like the whole premise was really hey can we create this thing that's actually going to make everyone happy because it's kind of a basket of currency where the dollar is the predominant...
It was the proposition. Yeah, it was 50 plus%.
50 plus%. No, it was 50 plus% but then like the euro would actually be a part of it. Like then the Japanese yen would be another part of it. And so basically you had this basket that would actually represent the economic value of each of the countries and economies into a stable coin that was way ahead of its time.
Right. But it's I mean it still has volatility relative to whatever currency the user is actually facing. So in my mind that's like a little bit different than like how we think about stable coins today.
Yeah, it would be. But actually like when you think about like a dollar stable coin that's used in the US, it's one thing. But if you look at a dollar stable coin that's used outside of the US versus what Libra would have had in terms of volatility, it would have been better actually than Bitcoin to dollars. It would have been better than even a dollar stable coin would have been because like if you're in Europe and you're using, you would have used Libra, the original version of Libra, then you would have had less volatility than if you were using a dollar stable coin in Europe. And so the goal was really like a global stable coin that would actually be used as a very stable asset that represented the economic contributions of each of these economies. And of course like the net result of it and we thought this is great like the Europeans are going to be happy because they're finally going to be part of something because like you know increasingly so they're not part of anything and completely irrelevant. And so what happened is actually the opposite. It's like we actually successfully pissed off everyone. And so we had all of the central bankers that really came out with the knives instantly.
Everyone was down your throats on that one. I mean I mean the way that you describe it it sounds like you are trying to create a new global reserve currency. Like that's what it sounds like.
Yes. And the lesson here is actually like if you're trying not to be killed by doing something when you change the way that money moves around the world, then don't try to replace sovereign currencies from the get-go from a company that is not the most popular company at the time that reaches billions of people every month. So it makes the threat really real. Someone told me it's actually when you announced this thing you were systemic instantly, you presented a systemic risk even with a white paper not even launching and that's exactly what we experienced.
But it sounds like you I mean you said I was aware of the risks. I mean how aware of the risks were you and was there push back also from other folks at Meta and Facebook about these risks?
Oh yeah, yeah, totally. Not Mark though, who was always very supportive of the thing, but like the majority of that leadership team at the time really didn't like that idea. We had and arguably, I mean, I can't blame them. We had lots of other issues at the company at the time. And this was actually adding a lot of heat on the company at a time where we really didn't need more heat.
Like regulatory specifically.
Yeah. And attention and like, you know, what do you mean like who do you think you are? And so I can't blame them. So we were basically sandwiched between like internal pressures of people wanting to kill this thing, external pressures of people wanting to kill this thing as well. And we were under a microscope for the duration of it.
It kind of survived for a long time though considering the pressures around this. I mean like why ultimately was this pushed through for as long as it was internally despite all of this sort of internal and external pressure?
Because I died trying to make it happen. Like I and the team like we really really tried and like look at the end of the day, the version that Janet Yellen single-handedly killed in that breakfast meeting that she had with Jay Powell at the time. So Jay Powell and the Secretary of Treasury at the time had like a morning breakfast meeting every other Thursday apparently. So I heard. And Powell was actually ready to let that thing go live with some constraints and apparently Janet Yellen basically told him look this is political suicide and if you go forward with this I won't have your back. And the next thing you know next day you had the general counsel of the Fed calling all of the participating banks saying hey we can't prevent you from moving forward with this thing but if you do we would be very uncomfortable and that was the end of the project. So, soprano shakedown style thing. And that was the time where I decided to pack my bags and start again at LightSpark, but this time building on top of Bitcoin so that you can't actually call someone like they did with me and with Mark and others to testify in front of Congress every time you do something. You can't call Satoshi to testify in front of Congress.
We are definitely going to circle back on sort of it sounds like the primary benefit of building on top of Bitcoin might be regulation. Not all of your peers went that route. Some of other peers from Meta I know went on to build other L1s and sort of payment chains. So I'd be curious to chat about that. But before I do that on the regulatory front, right, like in terms of the push back that you were experiencing, what was their core like criticism or like their core argument? Like what were they actually saying and doing that from like a legal standpoint?
There was no legal basis.
There was no legal basis. Okay.
No, there was no legal basis. We had like absolutely like all of the legal rights to actually move forward. And the problem is that actually if you're presenting a risk to the financial stability of a country, perceived or real, that they can exert a lot of power on top of participants to actually not do that. And you know there were all kinds of totally egregious things that happened like we had a group of senators writing and we invited Visa and Mastercard and all of these to participate in this because we thought that they would actually bring a lot of capabilities to a new settlement network at the edges and all of that. And so all of these got letters from senators saying, 'Hey, if you continue with the Libra project, if you persist, then you can expect increased scrutiny not only on your Libra activities, but on your whole regulated activities,' which is like crazy. So we had all of those things happen and that really was the way that like the risk crystallized in real life with like all kinds of pressure to kill the thing. And that's where my appreciation for Bitcoin actually grew even more because there's no one person to pressure or no one group or no one institution or corporation or CEO that you can pressure when you're building on Bitcoin and ultimately that's why I'm building on Bitcoin today.
So you would say ultimately really it boiled down to just straight up political pressure like individuals receiving pressure from like top down forces to like disengage or like otherwise challenge the project in some way.
Yes. And then banks of course depend on retail payments revenue to a great extent and so they don't like that and so they can lobby politicians to actually pressure things to not happen and they do that better than any other industry in the world. And so again, building on Bitcoin allows us now to actually build an open real-time fast, cheap settlement network for all of the money in the world on top of a settlement network that no one owns, that no one controls. And if you think about it in the lens of what we're doing right now, let's imagine that you have a corp chain network, one of kind of there are dozens now that are being built that are now starting to interoperate. Let's imagine 20, 30% of in-n-out flows into large countries like Mexico or Brazil or India or Europe for that matter. They'll have the same problem because none of these countries want to actually delegate the interoperability of their payment systems with the world economies to an American-based company with an American corporation running it etc. And Bitcoin has the benefit of not flying any flag, being neutral, not being stoppable and behaves like the internet but for money and so that's why we're building on Bitcoin now.
So Bitcoin became the obvious like the only option basically in your mind like after this Libra experience you were like Bitcoin is the only way that we're gonna...
As far as the settlement network is concerned absolutely and then stable coins play a role but like ultimately and that's why we built Spark and I'm sure we'll get to that but ultimately what is the core network that carries the TCP/IP for value and that network in my opinion cannot be controlled by a corporation, by a consortium, by governance. And if you look at most of these other chains, if not all of them, there are a few exceptions, but like I think most of them, can actually be controlled by humans. And that's a problem. And by not a large number of humans, it's like a short number, like a small number.
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So, you went on to create Lightspark, which initially was building lightning infrastructure. It's interesting because you said that you had looked at Lightning in the past and you were concerned about its scalability. What changed that made you have enough conviction in Lightning to raise, you know, $175 million to build this company?
Yeah, I mean, look, for me, the underlying technology is, you know, always not the goal, right? The goal is can you fix a problem and do you have the right solution to that problem? And so for me the goal, like we didn't raise that money to build on Lightning. We raised that money to build on Bitcoin. And Lightning was the thing that we started with because it was the most obvious thing if you want to move Bitcoin cheaply in real time. It was the first step towards that and so we spent the first two years really working very very intensely on making Lightning work better for enterprise types of customers and that's how we ended up like powering all of Coinbase Lightning infra, all of the largest exchanges in the world basically using, maybe not Binance, but like everyone else basically using us for Lightning because we've automated channel management, liquidity, route finding and all these things to actually make Lightning usable by enterprise types of customers. And then like after working on Lightning for a while, we really truly understood what the limitations are and you have to spend a lot of time working with it to understand where the limitations truly are and we tried to push the boundaries as far as we could and the two things that we understood would never work on Lightning was self-custodial Lightning. And we can dive into that.
And then for the same reason that self-custodial Lightning wouldn't work, stable coins on Lightning, we believe are not going to work either. And so in a world where everyone is stable coin obsessed and you want to deliver the right settlement network that is not controlled by any one entity, we needed to go and figure out how to build something that would actually address self-custodial and stable coins really really well and compete with all of those high performance corp chains that are meant for stable coins but on top of Bitcoin a network that no one owns. I think that that's where Spark really started germinating and really really taking shape.
So you would say the mission of Lightspark was never to build infrastructure for Lightning necessarily, but just to build on Bitcoin and make payments work on Bitcoin more broadly and Lightning was just sort of the...
Obvious thing that maybe needed support. Yeah.
What was the strategy in terms of enterprise Lightning usage at that time? I mean how were, who were you talking to to try to onboard to Lightning? I mean like who were the companies that were the enterprise clients initially?
I mean exchanges and really so like we assumed many things when we started. First of all it was a bear market. So we started in 2022 and you know we were buying Bitcoin for the purpose of liquidity at $16,000, $20,000 right at the time. So that was 2022 and it was a bear market and we felt like it's interesting because we're in a bear market. Exchanges have nothing better to do. There's just not a lot of shitcoin activity and trading. But they have the right regulatory setup. They have the integration with the payment systems locally to actually...
Move from fiat to another network, Lightning in this case, and we can leverage the exchanges to build a payments network. And so the first step is actually making sure that all the exchanges are on the Lightning network. And at the time there were lots of exchanges that were not on the Lightning network because their calculus was this is going to take like an army of people to implement and maintain, and then I have to have a team like rebalancing channels and looking at liquidity and optimizing routes and doing all these things, and where's the volume? And so it's kind of a circular problem of there's no volume, this is high effort, and so then it's kind of a self-fulfilling prophecy, right? And so what we did is we automated all of the craziness of Lightning so that the equation changed, and now it's like actually easy to integrate, not hard to maintain, not a lot of people needed. And so as such, like Coinbase and a bunch of others came on, and we thought, okay, this is great because now we have a bunch of exchanges, now we can build a payments network using these exchanges as the edge endpoints.
