Hello. Welcome to the Strato AMA. My name is Jeff Powell from Strato and this week's topic is tokenizing everything. A topic near and dear to my heart. This week we are very happy and excited to be joined by our guest Joe Lubin, CEO of Consensys and one of the co-founders of Ethereum. Hi Joe.
And of course as always we are joined by my boss and yours Mr. Kieran James Lubin, KJL. How are you?
It's true. I basically just do whatever I want really. Although really I would describe it as trying to on a weekly basis trying to do what's asked of me without antagonizing too many people and some weeks are better than others. Okay. So even though of course I love to talk about myself, let's get into it. You know, Joe, I think that probably most people, if not everybody tuning into this, knows you as one of the most prominent and influential figures in the global cryptocurrency industry. Certainly how I think of you and I know you a little bit, but I really don't know anything about the backstory of how you got involved with Ethereum. You know how you heard about it and what drew you to it and how you got into it. So please feel free to share.
Sure. So always been a technologist. Spent my first few years out of college working in the space of artificial neural networks, machine vision back when we were using similar techniques and we had to manufacture our own simulated data. And we had more naive architectures but we were essentially doing shallow learning. And there was an AI winter that followed that and I ended up just being a software engineer after doing about eight years in that space. And software engineer spent some time in the world of finance. Worked at Goldman for a little while. And ended up working in a situation where I was with a partner managing money for other people and so I started paying attention to the bigger game, macroeconomics, finance, geopolitics and just recognized that some things were really messy and complicated, that there were these cycles and there was more and more debt building up in the system. And so I started to get concerned that with excessive debt in the system we might move towards a sort of Japanification of the American economy and the world. So that was in and around the global financial crisis and my concerns started to feel quite tangible. And so that was a few years before I read Satoshi's white paper. So I read the white paper in early 2011. And I was pretty disillusioned to that point because I thought we were in for a decade or two or three of really slow growth and sort of an unpleasant unproductive global economy. But when I read Satoshi's paper I recognized that this invention of decentralized trust was maybe one of the most profound inventions in human history. Satoshi invented decentralized trust and showed us how to operationalize it in the form of Bitcoin. And that was great because we're engineers and we can just get busy rearchitecting the whole system of the world on sounder foundations, decentralized trust. And it was too incoherent an ecosystem to want to start a company in early 2011. But I just stayed connected. You could read everything back in those days. So I became expert in the technology and was fortunate to meet Vitalik about a month after he wrote the Ethereum white paper. And that was a really crisp articulation of how just normal software engineers could build applications, decentralized applications on a decentralized protocol. And we could as engineers actually get busy building things much more quickly than one could imagine doing so in the Bitcoin technology. So since then we've been inventing tokenization schemes, ICOs, NFTs, all sorts of waves of innovation that are essentially primitives in our toolkit now so that we can start to construct a more decentralized world. So we've been kicking the tires on our own technology since the start. And I think we're about to see two massive waves of activity come into our ecosystem. One is agentic finance or the human machine intelligence economy and the other is traditional finance moving on DeFi. And so our company Consensys in the form of MetaMask is going to say some stuff about agents using our technology in a few days. And on the institutional side of our company, we're doing quite a bit of work with TradFi companies, FMIs and FIs that are building on Ethereum technology.
Cool. And thanks for that. And I want to come back to both of those points, but I want to flip to Kieran for a second. And you know, Kieran, you uncharacteristically for a lot of people in your position don't actually like to talk about yourself. So I just want to give you also a little bit of an opportunity to talk about how you first got involved with Ethereum.
Yeah. Well, it was an interesting time. I was in grad school through 2014 really. So I was a math guy in undergrad. Also a not so good football player. And yeah, I was, you know, a real team.
Best mathematician on the football team.
Best mathematician on football. Yeah.
And I sort of intended to make a career out of research. I spent a year after graduating working for a professor and then went out to California to be in the math department at UC Berkeley. It's a great department. And so I passed my qualifying exam roughly like April 2014. And I was looking for something to do for the summer. You know, you get it's like an intense oral exam. You get a little bit of burnout from prepping for such a thing. Almost took a job in machine learning but I was lucky enough to through Joe get my hands on the Ethereum white paper and we weren't 100% sure what I would do at the outset. Like I remember writing a little bit of code in certain cases trying to understand what the clients did but also so it ended up being valuable to Vitalik that I was pretty plugged into what was going on in academia. And obviously he could reach out to anybody but a lot of the center of crypto at that time Stanford had a great group that was right down the road and we did a lot of organizing activity in the Bay Area where Vitalik would sometimes stay at the Thiel Fellow House and my co-founder Jim who's a particle physicist with a couple startups under his belt by background he was living in Hayward. Of the three of us, he was the only one with a car, so sometimes we'd be shuttling Vitalik from San Francisco to a meetup in Mountain View and back and all that sort of thing. And we worked on some aspects of the protocol together in the very early stages like specifics on like we contemplated at one time making the storage have an ongoing fee associated with it because otherwise you get bloat which you definitely get. Yes. And yes, never quite went in there but there were some cleanup op codes and so on that went in later. So it was really like technical interest at first. So I read the Ethereum white paper first and kind of worked back to the Bitcoin white paper. I had a little bit of Bitcoin as of maybe 2010 2011 but just not nearly enough. It's the lesson from that everyone says right, how much Bitcoin you get, not enough. But I didn't really get what it was until starting to work on Ethereum. And yeah, these were great times. So I came back to New York for the summer 2014. Effectively stayed in grad school a little bit longer, but really got in, helped some with recruiting. Like we ended up later, our CTO and I and then later our third co-founder building one of the mainnet Ethereum clients in Haskell, which is still the basis of our product today. But yeah, it was like a rabbit hole we started digging and never really found our way back, so to speak.
All right. Well, cool. I mean I want to stick on the old days a little bit but Joe I just think about like so you know back in this time say Kieran mentioned 2014 when you're working with Vitalik and you're working on this new architecture concept where people can post assets without having to build their own blockchain. I mean at that point in time did you see it going to where it is? I mean, did you see, for us at Strato, just thinking about this multi-billion dollar RWA industry, is that how you imagined it or did you think of something different or is there any surprises for you? The direction that it's gone since then?
So I had doubts early in the evolution of the Bitcoin ecosystem. I thought that was such a radical idea. And in the past when people invented their own monetary systems, Liberty Reserve was a centralized maybe Panama based money system. That didn't go well for those founders. So I thought that the powers that be would recognize that Bitcoin was an existential challenge to how the system of the world operated, which was through top-down command and control, and do what they could to thwart it. One sec.
Need to open a window. There's a puppy who needs to monitor the outside. So, there were a few times when Bitcoin shot up, and then retraced, got hammered. And maybe by the third major time that it recovered and demonstrated that the technology was antifragile and the ecosystem was antifragile, I felt that at that point that it was going to survive. It would get too big and because it was decentralized it would be too hard to kill it. You'd have to shut down the internet. And so when I went into the Ethereum ecosystem, I was already really confident especially bringing in new robust programming technology in the form of smart contracts, a computationally complete virtual machine at every node of the system. I was already confident that it would survive, that Ethereum would be even more antifragile and that over time we would build out sufficient infrastructure and the next layer was essentially decentralized finance. And once we got that working decently then we could have different use cases that would cross the chasm into mainstream culture and sort of establish themselves, disintermediate existing business models etc. And so we started to see that in DeFi where we brought in crypto financial nerds to join the crypto nerds and we brought in art nerds in the NFT ecosystem. And soon we're about to bring in machine intelligent nerds or people who write AI systems and TradFi is obviously embracing the technology pretty massively right now. So I think we've built enough scalability and usability so that we're ready to welcome our TradFi friends and essentially onboard what's looking like hundreds of trillions of dollars of traditional securities to be tokenized on decentralized rails. It'll take a while for regulators to fully wrap their heads around that and to create constructs where that doesn't cause a lot of problems. But it is happening right now and it's coming on pretty fast.
It is coming on pretty fast and I do want to talk more about that. Just maybe last thing just on the old days, Kieran, I'll flip it back to you for a second. So, at Strato, one of the things we talk a lot about sort of all of the time is community building. You know, as our community is growing, getting bigger, do you remember what that was like then? Like the Ethereum community, how that was growing out, what that looked like, how did that work, you know?
It is, yeah, it was remarkable. My memories of the period are a little bit fragmented but it was clear okay so like let's say November I think 2013 Vitalik circulates the white paper pretty immediately there's huge interest in it now bearing in mind I came in about six months later, five six months later. The it felt like meetups started to self-organize like almost immediately maybe by February people were, you know, there was an active kind of list serve if you will and I think the Bitcoin talk actually kind of created a culture where a lot of people would hang out on the internet discuss interesting technical ideas obviously Vitalik spent a lot of time there but yeah it was very fast. Mix of people interested from just kind of anon or semi-anon nerds to professors to all that sort of thing. And yes it took so also the idea of doing a sale came together. I wasn't like in the backroom conversations about it. But I think by the time I had arrived there was an intention to do the sale. And again so that's around April. And the team, the kind of date kept shifting as work was getting done to make sure it was done cleanly and all that sort of thing. It was the like two weeks, meaning two weeks was the meme where the date kept getting pushed back. And we actually we definitely saw a big uptick in interest right before and after the sale. We spent a bunch of time in a Times Square office that summer 2014 with some other folks and did a bunch of help. So the sale was like 42 days and a good spread. The release schedule was such that you got the best price for the first I don't know 14 days or something and then it got a little bit worse but still if anyone put in during that period for the subsequent 42 days. And so yes you did see big spikes of activity like right at the beginning right when the schedule changed and right at the end and through that summer we would find people would come in kind of request a meeting and say oh hey I put a bunch in actually so maybe we should talk and a lot of these people ended up helping to build the ecosystem later. I think very novel distribution mechanism. There was an intentional decision not to go try to raise VC that happened, was hotly debated, but it did occur. And so but yeah, something like it was the largest crowd sale in the world as of that moment. Many larger have happened a lot of them on Ethereum since. Something like 8,000 wallets just all bitcoin so pretty exciting way to do it and I think it's responsible for a good chunk of the success obviously the idea and the execution were super powerful some of it needed the funds to make it happen but it's just people were bought in early and so it was a mix of organic and well I guess it was kind of like all organic but giving financial mechanism for folks to participate really worked I think.
Well was that I mean so was that the idea was that like that's how the ecosystem would grow through the sale?
I think no but like so it's a token there's a token at the center of it right and you have to distribute it some way. Bitcoin did it all through mining. I think the end state intended was that the thing is the world computer right all financial and transactions run through it on some level. But it needed the switch from Bitcoin not being super programmable to Ethereum was that you could kind of do whatever you wanted from a coding perspective with it, but you then needed to meter how much of that activity occurred so you didn't crash everybody's computer on the planet, you know. Yeah. So Ether ended up being the native energetic unit of account, let's say, for that process. So they had to give it to people one way or another. And so if you made them only mine it like Bitcoin did, the funds kind of all go to the miners, right, which is good and bad, but the miners are kind of mercenary. They have hard expenses. They've got to sell the token at a bit of a profit and all that sort of thing. Whereas I think by selling it to people you got more app developers, more commercial people etc who are involved and the distribution worked better for building out ecosystem.
Yeah. So, Bitcoin had a form of immaculate conception. Nakamoto, whoever they were, Hal, Len and others. They invented the system, they started it up, they did some sending of Bitcoin on the system, and then they effectively disappeared, unfortunately for their families. Ethereum had a different form of immaculate conception where it needed to be not strictly a money or have strictly characteristics of money. It needed to be a platform for decentralized applications and so it needed the token to pay for transactions and storage on the network. We intended it to be proof of stake right from the start. We thought that was a more correct way to do things. And we just knew that there were edge cases in the existing proof of stake systems that we didn't know how to solve for. We did know that we could make a better form of proof of work work for quite a while. And using that better form of proof of work, you could sell the tokens to a self-selected group of crazy people who would join the self-selected group. So those token purchasers joined the self-selected group of crazy builders. So there were like a hundred or so people who self-selected to call themselves the Ethereum project and build the thing in the first year and a half and through this token sale and through activity in the system through proof of work and applications disseminating the tokens around the world we figured we could fund the project and also disseminate the tokens fairly broadly. Turns out it took a little while to build a bulletproof or best-in-class proof of stake system. And so there's a huge period of time where those tokens got emitted and mixed all around and very widely distributed across the ecosystem. So good system proof of work to distribute all the tokens and then proof of stake to run a more secure more decentralized consensus system with virtually no expenditure of electricity or 99.995% less than the early proof of work system.
Yeah. All right. Cool. Thanks for that. And not to sound too ham-handed, Kieran, but of course talking about the Ethereum token sale makes me think about what's going on at Strato right now. So maybe you talk to us about the Strato community ICO coming up.
Yes. Without beating him to death, so tomorrow pre-bidding will start on our token sale. So the Strato token will be paired with ETH, in part to our spiritual origins. So we've partnered with Uniswap to they have a nice mechanism called a continuous clearing auction. The goal of which is to help get a token distributed and help get trading liquid on it. For folks watching, trading will not start right away. The tokens will be blocked for a bit if you participate in the auction. And the really cool thing about it is, basically there have been many problems with token sales. So, Ethereum being a great one, probably still the best of all time. And there have been many subsequent token sales that have been good. But as they got popular, the mechanics became sort of more gameable. So sometimes people will auction tokens and have a fixed supply available starting at a certain point in time and it was often the case that the entire supply would be sold in one block at a high price allowing only whales with bots to get in kind of thing. Whereas again a process like Ethereum ran it sort of slowed everything down. There was sort of a max bid at least per address and so on. So it ensured that at least some number of people could get in. The CCA ICO is the sort of the spiritual descendant of the Ethereum sale mechanic in which so it actually spreads things over an amount of time you choose about a week in our case. There's a day of pre-bidding to kind of figure out how things are going. And so when you bid, you specify an amount you're willing to bid in ETH and a max price for the token. So that bid fills between now and the end of the auction, right? So your incentive is to kind of go early and bid the max you think reasonable because you actually get the price rises block by block. So you get the best execution by starting at the beginning if you're high conviction. What the token does really it's sort of our ETH, right? Like so we went backwards in a sense where many crypto projects you kind of token first token is sort of the most important product in the system. I think that may still be the case for us as well. Vitalik is out there saying like yes, ETH itself is an application and it is maybe the most important application on Ethereum. But so we built out all the mechanics. So our system allows you to tokenize assets like gold and silver, feed them into DeFi primitives, borrowing, swapping, etc. And we still have a need for that same computational metering that Ethereum has, gas basically. We've done this in our native stablecoin to date so far. But the way you really want to do it to scale the network is with a native staking token like ETH is and that's what we call Strato basically. So this will be the beginning of the distribution of Strato as we kind of put the final steps towards true decentralization within our system. You have to tackle these thorny economic design and cryptographic design questions that we've kind of I wouldn't say put off but we've focused on the user experience side sort of first and knocking out the final kind of decentralization scaling details starting basically now. So that's what Strato does. And yes, tomorrow for pre-bidding and the auction will start to clear about 24 hours after that.
Okay, thanks for that Kieran. And I do
I do want to get to more about Consensys and MetaMask and about the tokenization of everything, the main topic, but maybe just quickly, I'll flip it over to the both of you. Maybe just talk a little bit about the history of BlockApps leading to Strato and Consensys and how that all came into being.
Oh, which one first? I mean, yeah, okay, so BlockApps went through a process where we sort of formed as a separate team in the process of building the client. So, I met up with our CTO, Jim, in the Bay Area again, like I started to meet with him maybe September 2014, something like that. And mostly he, with a little occasional help from me, started building out an implementation of Ethereum. There were many implementations of Ethereum both now and at that time. And it kind of came in reaction to Bitcoin. Bitcoin had one definitional client. And it became a sort of a bit of lock-in, a centralization point if you will. You were sort of at the mercy of the core developers because there was one version of the software that was sort of official and defined consensus and so on. Ethereum went way in the other direction having at times maybe seven or eight different even early on compatible versions of the protocol. And I'm not sure how many there are now that are getting serious use, but there's probably about the same, right?
It's about five and five. Five at the execution layer, five at the consensus layer, but there are a bunch more that are...
