The 2022 State of Crypto + Web3 with Solana's Austin Federa
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Hello, acquired LPs. Most of you know Austin Federa by now. He is one of the longest time acquired community members. I looked this up before the podcast. He literally joined the Slack basically the month it started existing in 2016. Amazing. He is, of course, the founder of the digital assets channel in our Slack.

Austin, is that your correct title these days?

What would be the best thing that we could do to sort of like start that off? And we were definitely thinking, Austin, we should do it with you as a co-host. And that would be very helpful to David and I. It's like, wait a minute, we have a world expert in this who is deep in everyday, literally building phones for crypto.

David Plylar

I might have even messed up by not going higher resolution to the weak. But there's a bunch of stuff that we've talked about since the Bitcoin episode on Acquired and Bitcoin, Ethereum, four or five LP shows we've done in crypto. And a bunch of stuff has changed since then. And there's a bunch of things that people used to talk about in crypto in the 2013 to 2016 era that they sort of no longer do. And I'm curious how they sort of have morphed into the words that we use today to talk about this landscape. You guys aren't still using token curated registries?

Or what's that phrase? I'm bearish on Bitcoin, but I'm bullish on the blockchain. Yeah, there we go. Oh boy. There's a lot of that there. So of course, there's new phrases like DeFi and yield farming and the metaverse. And we're going to dive into some real actual definitions for these things, how they've evolved over time, what those...

communities look like of people who are interested in those particular topic areas. Anyway, this is a long intro. Austin, welcome to the LP show. Hey guys, happy to be here. All right, let's talk about, go way back and do the acquired thing and start off sort of chronologically. And personally for you, what was your very first interaction with a blockchain? So my first interaction with

an asset built on blockchain. It was probably buying some Bitcoin in, I want to say, 2014. I probably bought 50 bucks worth of Bitcoin and then promptly, somewhere in the next six months, forgot about it and lost the keys. And it's probably worth several hundred thousand dollars now. So that was my first experience. How did you buy it? I definitely bought it on Mt. Gox.

So it's 100% gone. If it did once exist, it is now completely gone. I think that's my favorite piece of crypto history, that Mt. Gox was originally a Magic the Gathering online marketplace. Yeah, right? It's like everyone got rugged by Mt. Gox at some point. You can't make that up. Yeah, that's the way that I take solace in not being a crypto zillionaire. I was paying attention to it in that era, but I didn't buy it.

But if I had bought, and this is probably circa 2012-ish, then it almost certainly would have been on Mt. Gox and it would have gone to zero anyway. So I can't feel too bad about not taking action there. How is the real Wild West days? So I think you're bringing up an important concept there, which is despite Bitcoin being a self-custodiable asset...

The way in which you bought was not something where you actually own the keys. So not your keys, not your crypto would sort of apply to the Austin 2012 Bitcoin through Mt. Gox. Oh, yeah. This is true of so much about public private key encryption, especially around that time.

- I was one of those guys who was like, "Oh, I'm gonna use like PGP. It's gonna be awesome." And then like, I could never keep track of my keys. No one else was like using it. It was super hard to encrypt emails that way. And the whole experience was just like really difficult. And I was someone who was like ready for this challenge.

I just like was bad at this stuff in the early days. I didn't really understand the tech super well. I definitely didn't understand like how to properly store this stuff and how to use it. Not that like cloud storage is a great idea at all. But like this was just back in those days where like you had to have like a thumb drive or a hard drive. And that was like the only thing if you were not going to invest a ton of money into some real secure solution out there.

I was in college or I was like right after college and making like $30,000 a year working in public radio in like Missouri. Like this was, I wasn't going to go spend a few hundred bucks on like even what, but very early versions of hardware wallets existed then. So that was like my first experience with the stuff. And then it really took until like late 2017 for me to kind of get back into the space. I remember when we met, you were working at Republic, the crowdfunding website. And then at some point you,

moved over and started working at Bison Trails, which folks may know was acquired by Coinbase. How did you find your way to Bison Trails and what'd you do there? Before Republic was my intro back into the crypto space, I moved to New York after working for a company called Super Pedestrian, which was trying to do this thing. You guys remember the Copenhagen Wheel? Yes, I totally remember that company. I really wanted one. Yeah, I mean, they were awesome. They were impossible to manufacture and

Basically giant bombs on wheels because you have lithium ion batteries and a magnesium casing. And like, there's basically no way to put out that fire if it catches on fire, right? The company doesn't make them anymore. And this was a bike wheel, like a bicycle wheel that turned any bicycle into any bike. Yeah, it was a fully self-contained system. So all the retrofit products nowadays, and at the time they were like, you bolt this battery to your frame, you put this hub motor in. It wasn't like a very elegant experience.

And the Copenhagen wheel was, the thing was beautiful, but it was one of those like Kava, that like super TV remote system that used like AI vision to figure out like what input was your Apple TV or like general magic way before I was even born. Right.

Right. Like all that stuff was like amazing technology with absolutely no problem. It was really solving for people. But I moved to New York for a job with a fintech company that was promptly failing, which, of course, you know, you never know that when you join the company. But they were breaking the bank and like it wasn't it wasn't going well. And they were pivoting to a borrow lend token on Ethereum.

And this was like before anyone really had thought about DeFi at scale. This is before DeFi summer. That also failed. I basically left two months after moving to there. But that was the first time like when you have to do something for work, you're like forced to sit down and be like, all right, so maybe I don't really believe this.

the world's slowest computer is going to be something that's going to be valuable. But when you're forced to sit down and use Ethereum for work, you start to look at these things in a very different way. You set your bias aside. You say, all right, we're going to use smart contracts. I better learn how these things actually work. And that was the place where I was...

I really got bit with the bug. And so Republic was an offshoot of AngelList. It was targeted at non-accredited investors, but a bunch of the folks who used to work at AngelList started to Republic. And we had this thing called Republic Crypto and Republic Crypto Advisory Services.

And I sort of helped them build up that brand and launch that thing. And then went to work for Bison Trails doing product marketing for them. And what was Bison Trails? So Bison Trails was, I would say, really the first enterprise-grade blockchain infrastructure company. The idea of Bison Trails, it was by two founders who had already sold a company to Etsy beforehand. And so they really knew how to build and scale a software company. And the idea was that running blockchain infrastructure was too difficult at that time.

It was a lot of boutique operations, which maybe provided excellent service, but they were really only cover one or two protocols, or it was very like customized solutions that didn't have any service and support associated with them. So Bison Trails really was saying, we're going to have a broad coverage of a ton of different protocols for staking and validation and also the ability to run data nodes. But they were also going to offer like this radical idea called SLAs, right? Yeah.

It's something that just didn't exist in the blockchain industry where it's like, you can sign a contract and you're going to pay more at Bison Trails and you're going to pay somewhere else. But there's a dude somewhere or a woman somewhere you can wake up at 3am in the morning with a 30 minute response time when your infrastructure goes down. And so it was really targeting this emerging category of blockchain companies where you lose more money from downtime than you lose from having a higher monthly bill.

And this is sort of like if PayPal goes down, if Visa goes down, those companies lose massive amounts of money. And so it's worth them spending four times what they maybe quote unquote should spend on infrastructure because the downtime risk is so expensive. And that was really what Bison Trails was doing. They weren't building a ton in the space. They weren't like core contributors to projects, but they would be building things like indexers that would make it easier to interact with blockchain data. They would run like etharchival nodes. They would run all of these sort of

data availability services that are really needed to make blockchain accessible to lots of people. If you think about it, 90% of what we do, maybe 99% of what we do on the internet is a read operation. It's not a write operation. There's way more traffic on Cloudflare than there is on a database on Amazon. And so because of that, that level of availability just wasn't professionalized yet. And now there's a lot of great companies, right? Alchemy does this, Figment does this, Quicknode does this.

But Bison Chails was really the first one to do it at a level where an enterprise could depend on it and build on top of it. So that was a really cool place to be. They got acquired by Coinbase. I'm not 100% familiar with what they do, so I may be misspeaking, but I'm thinking like ServiceNow for like crypto. Exactly. Something like that. Okay, so I'll catch us up on the timeline. So then I think you joined, I'm working off memory here, Solana January 2021. Is that close? Yeah, Bison.

Bison Trails got acquired by Coinbase. So this is actually a funny story. Solana Labs had a few former Republic folks. So Jed there was the Associate General Counsel. I think that was his title at Republic. He was one of the lawyers at Republic. He's now GC at Solana Labs. Ben Sparango, who I hired as either intern or like kind of first job out of college type person. After working at Multicoin, he had joined the Solana team. So it was one of these things where it's like we

We kind of had this Republic alumni that was ready to take on a new challenge. And I told myself, you know what? I'm going to spend two or three months. I'm going to take some time. I'm going to talk to all the L1s. I'm going to talk to a bunch of the L2s. I'm going to try and figure out what the best company to join is and what the right fit's going to be. And

I got on the phone with Raj and Anatoly and I think 24 hours later we had a signed offer letter. It was just like love at first sight. Amazing. It never works that way, by the way. Every time at least I've been in a job process or thinking, you can plan out all you want, but it's never going to work that way.

Exactly, right? It was one of these funny things where it was like, especially at that time, I was like, so Bison Trails ran infrastructure for Solana, but Solana was pretty small back then. We at Bison Trails didn't really have many customers using Solana infrastructure. It was one of these things where it was like, if

Like if I had predicted what company or what protocol I would have joined would have been Polkadot or something like that. It would not have been Solana. But then it just turned out that like the pitch of Solana, the experience of it, the way they were talking about it, it worked for my brain. I was like, yeah, these are a lot of the criticisms I've had about the way other protocols are constructed, the way ETH2 rollout's going. And these are really smart people who are thinking about it in the right way. And, you know, even if it doesn't go anywhere, I'm going to learn a hell of a lot. Well,

When right about this time too, if I'm remembering right, Solana was the only modern L1 that was actually like in production that you could use, right? That's also some of it. Technically made net beta, I think. Oh yeah, still made net beta, right? But yeah. Serum was live at that point on it, right? You know, there were early sort of signs and proof of concept. The smart contract language was working. There were smart contracts deployed on it, right? You didn't have to wait for additional features to be shipped for it to be usable. Yeah.

Yeah. It's funny, I said January 2021, which feels like, oh, that was very recently. But in the life of Solana, first of all, to me, it feels like an epoch ago, both because we had a pandemic and because a lot of the interaction you and I have had has been while you're at Solana and when we're hanging out at Breakpoint and stuff like that. But do you have a way to peg some kind of number to that of number of developers building on Solana then versus now?

So I think when I joined, there were about 37 on-chain programs that had transactions running through them each day. And now there's over a thousand. Yeah, pretty crazy. It's pretty wild. Talk about timing. Yeah. Joining a company right at the right time. Yeah, it was a lot of luck there for me. And of course, you know, we should say you've had a lot to do with it too.

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I want to dive right into our sort of meat of the episode here, which is the first topic I want to tackle, which is energy efficiency. And I think while we're sort of here in the Solana area, can you

Can you give us a quick primer on proof-of-work, what chains were and are today proof-of-work, and what the world of proof-of-stake has evolved to look like? Yeah, so there's something, proof-of-work, a lot of people attribute it to saying that it uses computational power and math to secure the network. And that's not really an accurate way to think about it. The goal of proof-of-work is...

to make it so the resources needed to compromise the security and integrity of a chain is above what anyone else can really achieve. And so for here in proof of work, we talk about it like it's math, but like it's not actually math, right? The difficulty of solving a block in proof of work fluctuates depending on how much computational resources are on the network. What it's actually a proxy for is energy usage. And proof of work is secured by energy usage.

It's a little bit of a strange analogy. So it's not a bug, it's a feature. It is 100% a feature. When people talk about, oh, it's so, the big downside to the Bitcoin network is that it uses so much energy. Well, sure, but that is literally the design. It is to say it would be non-economic for you to spend this much money on energy to attack me. Or setting aside economic, there's stats out there like, oh, Bitcoin uses as much energy as Argentina. You can't buy as much energy as Argentina.

You can't go out there and go to a power plant and say, "Hi, I would like 100% of your energy." "I would like one Argentina unit of energy, please."

It's just not something you can do. So the amount of, let alone the number of miners and all that stuff, the amount of raw energy you would need to attack the Bitcoin network is astronomical. And so that is really what the proxy is here. We're not really talking about solving math abstractly.

as the way proof of work has its security basis, the real security basis is energy usage. And sure, you can look at more sustainable forms of energy, but the goal of proof of work is if it uses less energy, it becomes easier to attack, like full stop. So yeah, so this cool thing called proof of state comes around, which the main virtue of it is it uses way less energy, so we're not going to consume all of the energy in the universe to try and attack one another's

networks here, which is very, very good. Okay, how's that work? Yeah, I mean, look, everything if you take it to its extreme becomes absurd. But like, there's a pretty reasonable future where proof of work requires building a Dyson sphere around the sun to harvest all the energy to run miners and disassembling Jupiter to build fusion reactors, right? That is kind of like that insane, but not quite so insane future that you see with like a proof of work based system.

There's certainly social consensus around that that could change that, but that's kind of really what the main criticism is there, is that just like criticism of capitalism, it requires ever-increasing energy usage, just like it requires ever-increasing growth. So with proof of stake, the design principles are different.

So instead of having energy be your proxy for security, you have two components. One is a fixed quantity or a known quantity of crypto assets, which is where the stake comes from. You attach certain amounts of stake to your validator. And so if you want to attack the network, you need to physically accumulate a certain amount of that currency. But the other piece of it too is the stake stands for value, right? So it's basically saying I've put up a bounty. I'm going to run...

I've put up assets at risk. I'm going to run a validator and I've attached $10,000 of Solana, of Polkadot, of pick your currency to it. And therefore, if my validator misbehaves, either intentionally, like maliciously, or just accidentally, and I'm doing something that damages the network...

The network has the ability to punish me. It can say, we know this crypto is owned by this validator, and we know this validator is misbehaving. So we're going to, it's called slashing, right? We're going to destroy a small amount of your crypto.

crypto. And if you keep doing it, we're going to keep destroying more and more and more. And it's basically a system of fining to bring people back into compliance. Other function of it, and this changes from network to network. And just as a nomenclature thing, I want to make sure for folks who aren't super deep in the Solana world.

When you say validator, this is effectively the people who are running servers that maintain the network. And the equivalent in sort of the Bitcoin land would be miners? Yeah, exactly. Or the Ethereum 1 land would be miners, right? So in this situation, the validators have assets at risk. And so it runs on game theory, right? It's trying to solve a prisoner's dilemma problem.

where no one has an incentive to defect from what consensus is, because if you get caught, the repercussions are astronomical, and you will get caught because it is a blockchain, right? This is sort of like the way that this has a self-reinforcing mechanism, where the more valuable the network is, the more secure the network becomes.

because people have more at risk. The criticism of proof of stake, and there's a lot of legitimate criticisms of proof of stake. One of them is the network recoverability is lower. So with proof of work, and you saw this when China did its thing where it was like maybe banning mining, a huge chunk of hash power of the Bitcoin network went offline. And Bitcoin blocks became extremely long, sometimes multiple hours in length, because the actual computational power on the network had dropped.

But because of the way proof-of-work works, where you just have to solve the math because it's a proxy for energy, the network is able to recover even if a large amount of the hash power goes offline. The network just gets really slow, and it might take a long time to recover, but it's not going to crash. With proof-of-stake networks, and this is true of all proof-of-stake networks,

Because the stake is the method of security, if enough of that stake goes offline, the network has to assume it's under attack. And therefore, the network halts. And so one of the criticisms of proof of stake is that it's theoretically less stable in terms of its design than proof of work. And this actually happens in real life, right? This happens, yeah. This has happened to the Solana network before. This has happened to the Ethereum 2 network before.

This does occur, and this is something that people should keep in mind when they're building or designing proof-of-stake systems, is that eventually it will probably go down, and that is going to be a human consensus effort to restart the network at that point. It's going to be like an AWS outage. Yeah, except the difference from an AWS outage, and this is the key differentiator about a distributed system. If AWS goes down, the only people who can bring it back up are Amazon employees.

If a proof of stake network goes down, everyone around the world who's been running a validator, they have a valid copy of the ledger. And so this is sort of like the cockroach theory of decentralization, right? As long as one copy exists, that person that has the ledger can go around and they can give it to everyone else and everyone can slowly restart the network and bring it back online. It's like if there's a nuclear war, cockroaches are probably going to survive because they're globally distributed, decentralized.

That's the idea of the proof-of-stake ledger. Amazing. Well, it's also a very common thing that we see in all engineering systems. Like, heavy engineering...

products that are sort of new things in the world are essentially a search and discovery problem where someone tries one thing once, it works really well for a thing, but it is very, very terrible at enough other things where either the one thing that it's really good at is sufficient and it becomes the future, or you need to riff on it because

the heat death of the universe or some reason why we're like, okay, that's bad enough that someone should take another shot. And we live in a gigantic free market so people can try more things. And so someone tries another thing and that thing has problems, but those are maybe incrementally solvable. Like,

the internet ended up being the way that we all access hypertext and images and communication online, rather than the information superhighway, which was going to be dominated by AT&T and the government and whoever else was coming together on that.

Internet infrastructure had a lot of problems, like super subject to DDoS attacks or whatever it is. But you figure out what the glue layer is or the way to patch that problem and deal with it and then continue iterating forward. And it's interesting seeing that... I'm going to get a lot of heat here, I think, if there's some group that I'm going to... The proof-of-work maxis that I'm going to bother here. But it does seem like enough people have...

Yeah, so all major smart contract platforms are moving to proof of stake, right? Ethereum is the only major smart contract chain that remains proof of work at this point.

And for Bitcoin, I mean, sure, Bitcoin could move to proof of stake. And that's a community decision around that if something like that happens. But, you know, the point of Bitcoin is that it's boring, right? Bitcoin is incredibly boring. The code base is incredibly static. You can't do, you can do almost nothing on the Bitcoin network. And that's entirely the point. It is meant to be stable, dependable.

dependable proof of work. Like you can't run a smart contract on Bitcoin. That is its entire... Right, not programmable. It's not programmable. Robust applications. Exactly. That's an entire reason for being. Or there's not complex applications, at least. I mean, there are not applications, right? Like there's no compute layer on the Bitcoin network.

work. It is just designed to do the one thing that it's designed to do. And it does that incredibly well. So the evolution here is I would say the difference between Bitcoin and Ethereum is astronomical, right? One of them is really meant to be an asset that can hold value or the value can change, whatever. It is meant to represent monetary storage in some capacity. Smart contract platforms like Ethereum, like Solana, like Polkadot, like pick your chain,

Those are all designed to be places where you can build applications on top of them. And they're designed to be more of platform technologies than they are designed to be straight-up storage value networks. Yeah, I think that's an interesting place. And by the way, we should say this would be a good place to talk about proof of history, but I would like to direct folks to listen to our Solana episode with Anatoly himself to hear his legendary explanation of how proof of history works. And that's, of course, Solana.

how Solana is so much faster and cheaper and more performant than the original smart contract platform of Ethereum. But hearing the wizard himself explain it, I found it quite thrilling.

So, Austin, what I want to ask you is, you read the original Bitcoin white paper, or at least when David and I did, it seemed to really be about transactions, facilitating payments and micropayments. And it sort of evolved to be, okay, those are going to be expensive. So what it really ends up being more about is a store of value. If we can believe that the price is going to be stable, then it's a store of value. If we believe that the price appreciates, then it's a place to invest. But

but it's certainly not a great place to go and transact with a merchant at a store. And the Bitcoin community, at least in my view, seems to have sort of decided, yeah, that's okay. It is a store of value at this point, and it is not a transaction layer.

Meanwhile, you have Ethereum, Solana, you have this whole world of things that are completely different and not solely for storing or transacting value that are like the distributed world computer. This idea that it's a decentralized thing all around the world where it's a smart contract platform, you can build applications on top of them. Can you talk about...

Should we even be talking about these two very different things in the same language today? Or are these really like two completely different technology waves that happen to get sort of confused together? I think there's an analogy there between like desktop computing and mobile computing, right? Where like

They're sort of the same thing, but they're actually like incredibly different hardware paradigms, application paradigms, software paradigms, like the things you have to manage between like, and not even desktop computing, like mainframe computing, right? They're extensions of one another, but they're really different in terms of their applications.

You know, Bitcoin gathers a lot of the attention because it's the first and it's the largest market cap. And, you know, it's been around for a very long time at this point. And that's great. But it's not really pushing the bounds of what's possible nowadays. All of that innovation and experimentation is happening on other networks. And you even see this with like, you know, lightning. Bitcoin lightning is not Bitcoin. It's something else. And that something else is fine. And what is Bitcoin lightning? It's another network that allows for basically, you could think of it as a layer two for Bitcoin.

Bitcoin, right? It's kind of the best analogy there. It's designed to allow offloading of transactions onto something else that enables smaller units of transaction. Now, you can do that on any network though, right? So there's a lot of wrapped Bitcoin, which becomes collateral in Ethereum DeFi, in Solana DeFi. If you want to use Bitcoin for micropayments, you can actually do that on any other smart contract platform.

And the fees are going to be much lower and the finality time is going to be much faster. It is economically viable to pay for your coffee with Bitcoin if that Bitcoin is wrapped on Solana. So that's kind of where the world of Bitcoin hasn't necessarily adapted to that mindset, which is like, hey, you can still love Bitcoin and you can transact on it in Bitcoin, but you can't do it on the Bitcoin network.

And Lightning is the thing of choice right now. And there's a lot of historical reasons for that. And it was really the first application for something like this. But there's a lot of solutions nowadays, the same way that you can spend US dollars via Apple Pay, or you can spend them via a credit card, or you can spend them via a check. There's multiple mediums now in the financial world for accessing that same settlement layer. And you can take that same analogy and you can apply it to Bitcoin.

There's many, many ways to settle and transact in Bitcoin. I like that analogy of writing a check as paper-wrapped USD, where paper is the way that I'm delivering it. And of course, then there's some, I don't know if it's ACH or whatever happens in the back end on how a bank processes a check and squares it up with the other bank, but

But ultimately, USD is the store of value and paper and that other stuff is the wrapping to enable the transaction at whatever the cost the transaction needs to happen at. I'm going to keep us here for a minute. You tease the idea that by going right into DeFi while talking about ETH and the Solana blockchain, that even though this is actually a globally distributed, decentralized computer,

it does have financialization characteristics. So it does sort of take from the original Bitcoin world of having store of value, having transactability. It's not just like, cool, now I can deploy my web app, but I can do it in a way that's censorship resistant. It's like, no, it has financial assets baked in. So can you talk a little bit about, let's take the Solana blockchain as the example.

tie together smart contracts running applications, and I can store value for me here. So this is actually an incredibly old idea, right? If you go back to the days of academic computing or mainframe access or even modern supercomputers, if you're a scientist or you're a researcher or you're a corporation and you want to submit a job to a supercomputer cluster...

you buy a certain amount of compute units on that supercomputer cluster. Let's say you're rendering something like render isn't like RNDR is a whole example of this and you submit it to that thing and you pay for those compute units and you get back whatever you get back. Right. And that really is the, a really good analogy to think about how developers

deploying an application on a smart contract platform works today. Instead of it being one big supercomputer in the basement of IBM or a NVIDIA graphics farm somewhere, it is instead globally run all around the world by everyone's computer that happens to be running that network. But there's an inherent financialization there because there's no free lunch in blockchain.

At the end of the day, someone is paying for the transaction somewhere. Someone is paying to serve the data. Someone is paying for that transaction. Now, it might be that the transaction cost is so minimal that the application you're using eats that cost. You see that oftentimes on Solana. Or it may be the case that you have to pay for that.

So one of the ways to think about this is like, if you're a developer and you're deploying a contract to the network, that you're basically buying state. You're buying a certain amount of storage in the account database or the state or wherever the analogy that the chain you're using uses that then is distributed on all the validators everywhere that are running this.

And so that program is basically, it has a reserved capacity somewhere in that state. And so me as a user, I can say, okay, I want to submit a transaction to Serum or to Orca or to something on the chain, some program on the chain, and it's going to transact for me. And that has a known, you know, I'm putting in inputs, but no matter what you feed that contract on chain, it's going to follow the same pipelining process for whatever input you give it.

And this is kind of the way that smart contracts work. And really, every computer program, if you think about it, you feed it an input. And depending on what the input is, you get a different output. But it's going to go through that same pipeline of processing. And that is really the way that these globally distributed systems work. You have to pay a certain amount of fee for the right to basically process that amount of compute units. That's a pretty technical explanation of it, but...

Yeah. No, it's great. And that fee, the important thing to sort of like, it's interesting trying to have this conversation because I'm trying to have it at a level that's sophisticated, but also...

at a place where people who are long-time Web2 engineers and CEOs and builders are also feeling like they're keeping up with us. The important thing to realize here is when you are buying to reserve that compute, you are doing that in a means that is denominated native to the network. Yeah.

Whereas if I was going to a supercomputer cluster in 1978 and reserving capacity, I'm paying in USD to reserve the ability to run some compute on their network of supercomputers that they have in a lab. Here I'm doing it in this pretty interesting new invention that is a currency or means of denominating value literally native and processable by the network. Yeah, exactly. And the really interesting thing about that is

Those costs are demand-driven on most networks. So there's maybe a base level cost, which is just like, this is what it costs to send a transaction on the network, and that includes a minimum number of compute units. Or it's denominated differently, like Gui, right, you see as something used a lot on Ethereum for this. But

But basically, the more complicated and the more intensive the contract you're deploying or the instruction set you're trying to execute, the more compute units you need to buy. And this is why different types of transactions cost different amounts on the blockchain, which makes sense. If I'm sending you a letter or I'm sending you an anvil, the cost for FedEx is going to be much different.

Or if I'm executing Hello World versus I'm rendering a Pixar film, that costs a different amount of compute resources in order to make that happen. And this is something that I would say most Web2 engineers are deeply aware of because of the way that cloud infrastructure pricing works. Especially when you're looking at something like egress bandwidth coming out of a cloud provider. That is what you get charged for more than anything else. This idea of there being a finite number of resources for a chain and you have to somehow meter those and control those

That's really where this idea of a smart contract platform comes in. And that's also where you see scaling and capacity limitations on some chains nowadays. Okay, so let's talk about an element of crypto that everyone listening is familiar with. Oh man, numbers go up. Uh-oh, numbers go down.

And those things being driven by market forces speculating on the currency themselves versus the pure intrinsic value of user gets economic value out of running application and therefore it is worth developer paying to deploy that application on the blockchain. Why do the numbers go up and down so much versus them just being driven by the slow organic development

development of use cases on the network? So there's a whole bunch here, but I think one important thing to start with is the network doesn't care about a token price.

The cost of sending a transaction on Ethereum or Solana is not denominated in US dollars, and it has no regard for US dollars, right? The compute costs are going to be the same whether the price of Ethereum is $10 or $10,000. The thing that's going to be different, sure, is maybe the demand will be different depending on those stages. But the network can only look at what it can look at, and that's the stuff that is native to that base layer. So it's sort of like...

If the price of US dollar, well, US dollar is a bad example because it's a global reserve currency. But if the price of like, let's just pick a currency out there. If the exchange rate between the US dollar and like the Russian ruble massively fluctuates, that doesn't actually have any effect on the exchange rate.

in theory, on the internal economy of either country. It only affects trade going back and forth, right? The cost of buying something in the United States does not change because a different currency moves in valuation. And that's kind of the best analogy to look at in this situation. Now, as things get more interconnected in blockchain, that's changing a little bit. But fundamentally, the cost of sending a transaction is denominated in that

cryptocurrency and so does not change with the external US dollar price equivalent to it. So helpful. Yes. Now, why do prices go up and down so much? Look, no one knows is the short answer. And if anyone knew, they would probably have several billion dollars at this point, just based on being able to predict trading. The interesting thing about crypto is it's the only market in the world with perfect information availability.

And that is a distinct characteristic of blockchain markets that is different than everything else in the world, is that while the content of the information going over the network isn't necessarily public, the existence of the transaction is public. You see this all the time where markets can act with perfect information availability for anything that's happening on-chain.

And that is not true of anywhere else, right? You and me transacting on Solana have the same information access as Citadel. That is definitely not the case in the equities world, where they're literally buying fast lanes from the NYSE and all these other places that are faster data feeds. Right.

Right. You don't know what transactions are happening in a dark pool before they get submitted to the exchange, that sort of thing. Right. All of that work. Or you could either do a block trade or whatever. Sure. There's tons of things in the existing financial industry that are built to obfuscate that, either intentionally or as a side effect of the way they've been designed. But for stuff on blockchain, it just doesn't work that way. Right.

There's one theory out there, which is that markets actually operate worse with perfect information and perfect information availability. The efficient market thesis is fundamentally flawed because it doesn't include human decision making in the process. And you see this all the time, right? Where like the more information is in the markets, the more overordering or underordering usually takes place at a corporate level.

So there is a theory out there and like, I'm very curious if someone's actually been able to prove this out that because crypto markets have greater information availability than any other market in the world, they actually have higher volatility than any other market in the world because they're more subject to crowd impulses, which are acting on perfect information. Fascinating. Yes.

Let me pop up one level, and this is going to be a little philosophical, so let me see if I can land the plane, and then I'm curious to hear your thoughts, Austin. So what we've been talking about here is very much...

speculation and trading of the financial assets of ETH or Sol or BTC in a market, in a financial asset market. And what we were talking about in the previous question was using Sol on the Solana network or ETH in Ethereum to pay for compute of a decentralized application. And

One could imagine that if there was no financial market for the token, that you would sort of see this slow organic growth of the market cap of a network that literally just increased with the usefulness today of applications on the network. In practice, what that might mean is it just forever stays at zero because there's no way to bootstrap the network. There's no way to get to critical mass or enough people caring

Because no user is ever going to receive value from an application because that application, there'd be no financial incentive to create the application. I think you're quickly seeing the analog to sort of venture capital of, hey, wait, startups most of the time couldn't really exist without some startup capital in order to incentivize the employees to build the thing in order to pay for the resources required to build the thing.

so that eventually users can get value. I think an interesting observation for crypto, and I haven't dug into it as much as you have, so I'm curious to hear your thoughts, is the market caps of tokens, because numbers go up so much and people get all excited, and there is a very liquid financial market to trade these things, the market cap of tokens can expand massively quickly at rates

tens, hundreds, thousands, tens of thousands, I don't know, millions of times the scale of the usefulness today of applications on that network. And so there's like a ridiculous amount of future growth and value priced in to the token values that we see today. How do you sort of think about that? Because I'm sure you think about that a lot. Yeah, I mean, one of the interesting things here is I think for a long time, I

I mean, me at least, other people I talked to were thinking that as crypto matured, it would become a little bit more stable and it would more closely mirror the stock market. And instead what's happened is the stock market has become mirroring crypto. Yeah. You see, sure, there's a crypto downturn right now and, you know, Bitcoin's off 80% of its value. Ethereum's off 80% of its value. Solon's off like 85% of its all-time high value.

So is Netflix. So is a bunch of tech stocks, right? And so it's this really interesting thing where you could do a thought experiment, right? And there's two that I really like. The first is what would have happened to WeWork if it were publicly traded from day one? Would it have been a $43 billion valuation crashing down to a $4 billion valuation? Would it have ever gotten there? Would it have gotten there sooner?

These are really interesting questions and it's really hard to answer like what would have happened. But that is the situation for all these cryptocurrencies that it's all traded in public. And that means that the same way that like penny stocks on those sort of like websites that are pretty disreputable.

will go up 400% in a few days and they'll crash down again. It's because people have the ability to mislead themselves, right? You see this in the normal stock market now too. And you see that it's not just retail investors, it's institutional investors who also have those exact same biases and problems with them. Another fun thought experiment is how valuable is Linux? Like if you had to put a monetary value on Linux, it's either zero or infinite.

There's no number in between. It's either the world's most valuable thing ever created, or it's entirely unfavorable.

And in particular, unvaluable because even though it has obviously created tons of value since everything we use every day is based on it, it has managed, whether intentionally or not, to capture zero of it. Yeah, and you can't overstate, if you use a piece of electronics, even if it's made by Microsoft, there's a chance that Linux is running in it somewhere. Almost 100% chance. Yeah, it is astonishing how ubiquitous Linux is nowadays. Yeah.

it's captured no value. And so it's interesting, like I just painted a little bit this case of like, wow, token prices in general across all of crypto, even after this crash, may be pricing in some absurd amount of future value that hasn't yet necessarily been created. On the other hand, if you look at the total market cap of crypto, which I haven't checked today and actually isn't relevant because it'll be a little bit before we release this episode, but somewhere around a trillion dollars, 2%.

to the extent that decentralized applications running on Solana and its brothers and sister chains, to the extent that that becomes the dominant way that we all compute in the future, a trillion dollars, it's going to be a lot bigger than that. Look at what the internet's market cap is today, if you sum up all the internet stocks.

And so that's, of course, the other side of this where you're like, you kind of just have to decide, well, do I think that this technology paradigm is the future? And if so, sure, it's pricing in a bunch of future growth, but certainly not all of it are nowhere close. Yeah, I mean, at the risk of sounding like a Google executive, it's early days.

Right. Well, and that is the fundamental difference between crypto and Linux, right? Which is that there is a currency, there is a unit of value that exists, that is tradable, that is associated with it, and there is no analog to that for Linux. The most generous numbers you could give is there's 20 million daily active users of Web3. That's probably the most generous number. I would guess it's probably more like 10 million.

that are actually signing transactions each day in some form of self-custody capacity. And that is, what, a 20th of Twitter, which is the smallest social media network? Right. The amount of growth that is still possible in this space is hard to fathom, honestly. And will it get there? I personally think it will, but it's not a given, right? Every time you go through one of these boom and bust cycles in crypto, you see...

a whole series of concepts that people thought were going to be important fall away. And you see a whole new series of concepts come up in its place. And that's one of the most interesting things is that like the industry and the ecosystem is still very much figuring out what is the use case. And that's not to say there aren't use cases, but there isn't like one use case. There's every cycle, there's a new use case that adds

X percent more user base, X percent more utility. Oh, man. I'm thinking back to like the general magic days and Go and right. Like everybody thought the iPhone was, you know, the equivalent of the iPhone was coming in the 90s. And like, right, not then, you know, but the Internet was.

So actually, I think that's a great spot. Let's talk about what are you building now? How do you how does Solana think about that question today? Yeah, so blockchains have a very interesting dual entity structure usually. So there is a there is a foundation, which is the Solana Foundation, which is a Swiss foundation.

And it's charged with the community treasury. It's charged with helping be a neutral arbiter of the direction and future of the protocol. It's not fair to call it a standards body, but it's more similar to a standards body than it is, you know, anything else in that regards.

And the reason it has a strict charter is so that it can't have investors that try and take it over or change the function of the network and make it rent seeking or something along those lines. And so from its capacity, like the goal of the Solana Foundation is to promote the adoption and advancement of the network.

And that comes in many different ways. So sometimes that means building reference implementations and then open sourcing those and giving them to the community and saying like, you know, we made an investment in this early stage, basically R&D technology. So,

Someone can now pick it up and build it. It's totally open source and free to use, and here you go. And that's kind of where you saw Serum was built on, a bit of a reference implementation that the Solana Foundation sort of funded in the early days. A bunch of the lending protocols are the same way. Metaplex is the same way. Candy Machine and NFTs, yeah, Metaplex, yeah. Yeah, right. Metaplex was basically a six-week sprint project by a bunch of engineers who were like, wouldn't it be cool if we

re-envisioned what an NFT standard could be. And that became the code that then the team at EverStake took and launched Metaplex. And that's been, you know, three and a half billion dollars of value have been created in just about a year using that.

That's just that's primary and secondary market transactions, right? That's not even there's no like metaplex token or anything like that. That's that's just the amount of value created through that network. And so that's really the function of the foundation is to like support development of stuff that's either not economically viable yet, or it's too risky for someone to come in and be like, I'm going to found a company that's going to build the new NFT standard on Solana. That would have been hard to figure out. What it really is like you guys are in the position and doing what you were just talking about, right? Which is like, hey,

because this is a complex adaptive system as are all markets and technologies, what the right things to build are or things that are interesting is constantly changing. And so you guys are there to sort of push that forward and provide resources to do that. Yes. And then there's also the other model, which is the for-profit unit, right? And so this is on the Ethereum world, this is consensus. On Solana, this is Solana Labs, right? And so because

So ConsenSys built Infura, ConsenSys built MetaMask, ConsenSys built a huge number of these like foundational technologies and products and companies on the Ethereum ecosystem. People kind of forget that nowadays, but like they were all funded and they were all basically built in ConsenSys and then spun out of ConsenSys. And that's kind of how a lot of that stuff got started.

Solana Labs is doing similar work, right? So sometimes that is something like the Solana Mobile stack and Saga, which is this crazy idea of building a Web3 Android phone. Oh, we got to talk about that. Okay, I'm going to put a quick, like, that one sentence is like the next two things I want to talk about. Web3 and mobile. First, let's take Web3. So you had earlier mentioned every time there's some sort of crypto bust or a new boom that happens, a bunch of old use cases that people thought were important sort of like go away or, you know,

activity that the blockchain will serve to promote sort of go away and new ones come in.

Sometime in the last two years, Web3 became a thing, and a lot of people started tweeting about Web3. To Austin Federa, what is Web3? Web3 is a few things. On a conceptual level, it represents the idea that the next evolution of the internet is a transition where users of a platform, a product, a network are also owners of that platform, product, or network.

network. That's sort of like the philosophical transformation, right? Web one was the ability to read data from the internet. Web two is the ability to write data from the internet. Web three is the ability to own what you use on the internet. And we're not just talking about data here. We're talking about like YouTube takes 50% of all the ad royalties that creators make.

just off the top, that's a flat 50% tax on using YouTube. Now, you could see a model where you rebuild YouTube, and it's owned by the creators on YouTube, and it's built on blockchain. And you know, yes, they still are going to have to pay some amount in order to run the network to the validators. But the ownership and the decision making authority would actually be within the users of a platform, right? Facebook users have no say in the moderation of content on the platform. And

developers on the Apple or Google ecosystem have no direct say in how those policies are implemented. And so Web3 is... Yeah, I mean, it's early days, but this for sure exists. You know, Braintrust is this, Audius is this, Phantom is this. Absolutely. Every DeFi application works this way.

It's a paradigm shift in how we are building things for the internet. And I noticed none of this has an implementation detail. You didn't reference a blockchain there. You didn't reference specifically any crypto assets. That was purely philosophical. Yeah, I mean, I would argue that Web3 could be stuff that doesn't involve blockchains either, right? There could be a new model of creating and funding a company that doesn't involve...

a joint stock corporation or something along those lines, and that that thing doesn't inherently have to involve blockchain, but philosophically it would conform to Web3 if the users of that thing are the people who benefit from that thing. It doesn't inherently have to be built on a blockchain. The blockchain is just the best thing we have to build it on right now.

Yeah, makes sense. Yeah. I would also say that another key component of the differentiation between like DeFi summer and Web3 is that Web3 is the expansion beyond overt financialization. So Web3 includes things like NFTs. It includes things like gaming.

It includes like the ability to do things like sign in with a wallet address. It's sort of the expansion of these networks and the integration of them sometimes into web two applications and sometimes just into into other sorts of new avenues. Right. The ability to do a blog that's now on chain is like something that was not really part of what people thought was possible in crypto beforehand.

And so moving from overt financialization, and again, everything is slightly financialized, moving from overt financialization into this sort of different space, I think is really where you start to see some of those changes taking place. It's interesting, right? When you zoom out and think about it like this, there's been so much hype, there's been so much money made and lost in Web3, NFTs, all this stuff over the last 12 months. But it's kind of like DeFi summary, you know, the ICO boom leading up to it. It's like,

Whatever money people made or lost in the moment, this is an expansion of the concentric circles of what crypto writ large can do. Slowly increasing the sphere of things that can be built on a blockchain. It's kind of interesting as you describe that line between DeFi and Web3. It's a little fuzzy. It's almost like DeFi is part of Web3, but Web3 is not contained within DeFi.

And because we haven't talked about it yet, DeFi being decentralized finance, that's things like staking my tokens or yield farming or finding very creative, composed smart contracts that exist on a blockchain that feed into each other that can do interesting financialized things with the native token of the blockchain that I'm using.

And all of that is like, blah, jargon. But the outcome of that is, I either have more or less money that I put into it. And in terms of other use cases of a dfly application, it's like, what do you mean? The goal is to have more money than what I put into it by some complex transformations that happen inside the composed set of smart contracts. Whereas Web3 is like,

Well, sure, it uses those financial elements and you can benefit from owning your data, but the output could also be that you listened to music or that you talked to a friend or that you did any of the things that we're accustomed to doing on the internet that just happened to use the input of the same native network token, Sol, ETH, whatever. Right, so here's a question. Is Spotify a fintech app?

facilitates payments to creators. I mean, you pay money and users pay money and Spotify pays money to creators, right? So if you squint your eyes and you look at most Web2 applications, they're actually some form of fintech application. And moving it to crypto is the thing that makes it transparent. It makes it overt.

The idea that you give money to an entity, that money just gives you some service, and then it distributes money out to a whole host of other different places, right? This is the sort of idea that you either die here or you live long enough to become a bank. I love that.

By the way, all of this we got to say, shout out to friends of the show, Modern Treasury. This is the reason they exist. Yes, you're right. Everything has financialization built into it these days. Every piece of software. Every piece of software. Yeah, you're right. If you could just describe an application as you pay some money into a system, you use it and get value out, and then the system moves money to an alternate party behind the scenes, that

that is many Web3 applications and that is many Web2 applications, or most if not all of both. Yeah, and you don't necessarily think of it that way, but the end goal of every Web2 product is to move money around the world in some capacity. And that is unavoidable. And it's almost like a tautology, right? Because you're like, well, of course it's the point of a...

company is to make money. It's like, well, yeah, of course, the point of a company is to make money. This is how all of these things work. The exception being, of course, open source software, which is like an amazing side note, which like... But even there, right? Like Wikipedia is also a fintech app, right? Like they collect donations, they do donation drives, like that funds like the infrastructure, like money still moves. Yeah, right. And so with all of these things, like, you know, people are sometimes upset about crypto because they're saying it's making everything into a market.

And I would argue it's actually just peeling off the veneer and showing you that it's always been a market, right? It's turtles all the way down.

Yeah, we're getting into the philosophical highfalutin level here. It's kind of like that Elon Musk phrase that he keeps repeating, which I actually love and I think is quite mind-expanding, which is that money is just a database that you can read and write to that allocates resource across time and space. And you're like, whoa, you really are a billionaire. Sounds like a blockchain. Speaking of total aside, but since it's in the news,

We can all agree, right, that the whole Twitter bot thing is just because Elon doesn't want to pay that much money for Twitter, right? That's what's going on here, right? Yes, and they probably also have a pretty big bot problem. Both of these things are definitely true. Well, yeah, right. But if the market hadn't dropped 80% from the time he signed the agreement, he wouldn't be talking about this. Look, I've been on Twitter for a few years, and it's pretty hard to be on Twitter and not know that there's a bot problem. This was not something that came up in Discovery.

No! Yes. And by the time we release this episode, there will have been three more advances in this saga. But speaking of saga, you like what I did there, Austin? Yes! There we go. All right, so you guys did a pretty insane thing, and you announced both a phone and a stack of mobile services, mobile software services built on top of Android. Yes.

Sorry, what? What was that and why are you doing it? And then let's use that as a framework to talk about crypto and mobile broadly. Yeah, so this is a really great example of something that is not done by the Solana Foundation, but is done by Solana Labs. So the expansion here is basically, right now, the vast majority, over 80% of anything in Web3 is stuck on the desktop.

and it's stuck in a desktop class browser, and it's stuck in a Chrome extension. And it's crazy we've gotten this far with Chrome extensions. Yep. And why is that the case? Like, why can't I use... So that's the case for a number of different reasons. Part of it goes back to the use cases of blockchain in the early days just weren't really compatible with the ethos of mobile, right? We can get into that in a little bit. But the thing that was announced in late June here...

was the Solana Mobile Stack, which is a fully open source software stack that is built to make it easier for developers and users to transact on Web3 on mobile. There's a whole bunch of different software components involved in this. The first is something called Seed Vault, which is really this way of not as secure as a hardware wallet on a ledger, but it's significantly more secure than any software wallet you've ever tried to use.

That actually, we can go real deep on that, that actually is writing to the secure element inside of a phone and storing private keys on it and using like trust zone authentication to actually like is using the same security stack that face ID on a phone uses or a fingerprint reader on a phone. And that's very cool and exciting. We were talking the other day about this.

You and me. There are only a very small set of companies and developers in the world that get access to that, right? Yeah. You essentially have to be like Qualcomm. Yeah, to do a fun sidebar here, right? Most of modern phone security is based on this idea that there are multiple layers within a phone and that there are very different levels of privilege as you get closer and closer to the hardware. So...

The browser, anyone can do anything in the browser. Android, people can do less in. Android subsystems, there's less you're allowed to do in it, right? This is sort of like the classic, like, why can't Zoom have my camera on when I have it, like, minimized on an iPad, right? Like, a lot of those sorts of things were like, well, a background application is just not allowed to have access to your camera full stop, right? That was like a policy decision that was made by Apple.

You go down to the Apple level, surprise, surprise, FaceTime can have access to the camera when it's a background application because Apple makes it and they can give it a higher trust level. But you move down the stack and eventually you get to a place where you're dealing with an incredibly secure component of the processor. And it's different in every company, but Qualcomm is the one that's like in this phone. So we'll use this for an example.

Qualcomm has this thing called TrustZone. And TrustZone is a piece of, it's an incredibly secure virtual machine that's running on the processor. And there's only a few applications that can read or write data to it, but any application can request data from it. So let's just say I'm a banking application. And I say like, hey, David has set up fingerprint authentication. I'd

I'd like to know if this finger that's touching this phone is David's or not. Right. This is, I'm logging into my Wells Fargo app. Exactly, right? And so in a classic system, you would sort of assume that

Oh, well, Wells Fargo is now going to countermatch your fingerprint against the fingerprint that is touching the phone. That's not how it works because under that model, Wells Fargo now has your fingerprint. They now have access to that biometric data. Instead, they just send a request via the API down to TrustZone, and TrustZone basically says, hot dog, not hot dog.

Right. That's all it's giving you. And so what we've been able to do working with awesome, you don't Wells Fargo doesn't get your actual fingerprint. Exactly right. It all it gets is a security pass fail. Right. And so if you pass great, it unlocks it. If you fail, no, you can't get into the thing.

So what we've done here is worked with awesome and awesome OSOM. They are a like just top tier hardware and software manufacturer, right? This is Jason Keats is the founder. He was the original architect of the original iPad pro. He worked on a ton of secret stuff at Apple that like he still can't talk about, which is particularly fun when you're getting like drinks with him. You get to a point where he's like, and then we, well, we can't really talk about that yet.

Which is the best thing to hear from someone, right? But he also built the door for James Cameron's submarine. He was the lead architect at the Essential Phone. He's a world-class hardware engineer here. And the Essential Phone being, that was part of Andy Rubin's company that came out of Playground. And of course, the original Android team and company, which as we covered, was acquired by Google for $50 million. Goodbye. It keeps getting better. It keeps getting better. So...

They are, because they've been building phones for a decade at this point, they are authorized by Qualcomm to actually write software to that trust zone. And so what we have worked with them to do is be able to store BIP39 seed phrases in that secure element in the same place that you would store a fingerprint or a face ID print or a credit card for Apple Pay or Google Pay or something like that.

And this has been at least one big blocker to mobile adoption for crypto, right? It's like, are you really going to type in your seed phrase on a phone, on a virtual keyboard?

Sure. Or just like the risk of like, oh, I downloaded like a fake copy of Phantom or I downloaded, you know, the wrong thing or just like the risk is really high there. And so by storing it in here, it's much more secure. And so once we've solved that problem, the ethos of Solana is like, you got to do the hard thing before you do the easy thing. Doing the hard thing is like, it's just like baked into Anatoly's DNA, right? So he's like, we got to solve the hard problem and then we can solve all the easy problems.

And easy problems are never easy. They're just slightly easier to solve. So on top of that, then, there's this whole mobile wallet adapter, which is a way you can talk to that seed vault and request signing. But one of the most interesting ones is... And these are the Solana mobile services things, right? These aren't unique to that Saga phone. Correct. So the entire Solana mobile stack is open source. So anyone can grab it and use it. Now,

Again, because writing to like our engineers at like Solana Labs don't even have permission to program for TrustZone. It's that access control that you do need a manufacturer of a phone to really do that implementation work to put the seed vault on the device. But once that's been done, the rest of the stack and also that code is fully open source. And so anyone can take it and put it on a phone and start using that.

So Samsung or LG or Apple could grab it and use it at some point. I never use the word trivial when talking about firmware engineering, but it's as trivial as firmware engineering gets to take it from one Qualcomm phone and put it onto another Qualcomm phone if you're the manufacturer.

Once that hard problem is solved, it unlocks a whole bunch of possibilities that we haven't even really begun to think about. So one of the biggest issues with crypto right now is that everything on mobile is controlled by Apple or Google. And Apple and Google, they're services businesses. They want their cut of transactions that happen on the phone.

But the very nature of blockchain means that the entity selling the thing or facilitating the transaction is usually not the original creator. And so the idea that there's a 30% margin or a 70% margin somewhere that Apple or Google could take 30% of and that be an economically reasonable transaction, that's just fundamentally incompatible with the way Web3 works, right? If you're using...

Magic Eden or OpenSea or something like that to buy an NFT, their margin is 2%, 1%, half a percent. It's incredibly razor thin margins because it's a decentralized application. It's not built in that same sort of way and structure. And

And so you really need the ability to run a decentralized app store, which is just simply an app store where you can use crypto-based payment methods. You can totally bypass the Apple and Google tax that's being imposed here. The same way that like a Samsung store on a Samsung phone is an alternative distribution channel for applications.

So just to flag something to disambiguate, there's the UX issue where when you're setting up your wallet on a phone or something, it's annoying to type in your seed phrase. Or there's going to be things that are more cumbersome than what exist in the sort of typical way that we use phones if you aren't using anything in the crypto ecosystem. But then there's this whole other issue of...

I know the Apple system better than the Google system, but if you're purchasing a virtual good, something that doesn't exist in the real world, I'm not buying groceries, then you have to use the in-app payment system as a requirement.

And everything in the blockchain, or at least the most valuable applications of blockchain, are for fully on-chain assets and fully on-chain applications. It's all a digital good. Right, that's where you run into a brick wall, where it's just like,

We can't use the in-app purchase system to transfer Sol from this user to this other user via a smart contract. It's not even denominated in USD, let alone even us having a conversation about the cut. It's like...

for us to use the in-app payment system. So stand still. Right. It's a totally weird, wacky system. And especially as mobile games are, I mean, games in general built on blockchain, they're usually not using USDC, right? They're usually creating some sort of in-game token, the same way that Fortnite's got its own in-app currency. Now you purchase that using US dollars, but like...

Like, look, there's no reason Fortnite can't use the Solana Dapp store and distribute itself through that and start taking, you know, USDC or some crypto payment in order to buy in-game Fortnite currency, right? All of these things are possible because the phone itself now has the custody, right? The phone itself will hold crypto assets, and it's a secure enough place that you can trust it to hold a significant amount of assets in it.

On top of that, the fundamental models there where the store is an opaque place

box where developers have no idea what the moderation policies are, this Dapp Store is going to be governed by users and developers, right? There's going to be direct involvement in how those policies are made. And yeah, it's not like the DAO is going to be voting on every single application to approve or reject it. But if there is an appeal, that can go to a vote that is owned and controlled by the actual users of both the phone and the SMS stack and the developers of the platform.

And so the arbitration process, I wouldn't even call it arbitration. It's like open source, right? It is the same process where we say in Linux, here's

here's a proposal to add something to the code base. What does everyone think about it? Is this just a good idea or is this actually the right implementation? How are we going to support it? And through that process of human and social consensus, you can decide what are the appropriate moderation policies. Of course, if someone submits a fake FTX app, there's got to be a way to nuke that thing. That's just basic user safety. But that process of determining what is allowed and what is not on a conceptual level, that has to be in the hands of developers and users.

Fascinating.

Yeah.

We are doing a hard thing, which most people have shied away from because it hasn't worked historically, which is launching our own app store that lives alongside the Google Play Store, in this case, the Dapp Store.

And we believe that there is such an impediment to users having the experience that they want for a growing set of users that there's going to be meaningful enough consumer demand to bootstrap a second new app store, at least on Android devices now, and tilt the negotiating position with the existing powers that be in mobile.

and say, hey, we have to consider doing something like this now. Yeah, look, Solana Labs is absolutely not trying to take on Samsung and Apple, right? There's no qualms that like that is not a tree worth barking up here.

The goal really is to move the goalpost, to show phone manufacturers that there is... I mean, A, Saga is a fantastic flagship device, right? If you look at the comparative specs on Apple or Samsung, you'd spend about $1,300 to $1,400 on a phone of similar specs. And this thing is $1,000. So if you're an Android user, this is just a good deal. You should probably check out the phone, even if you have no interest in the Web3 stuff. Now, looking at the Web3 stuff, like...

The goal really here is to show that there's a market for this, that people are willing to switch from iOS to Android because they're tired of like having to leave a dinner and pull out their laptop to do an NFT mint, right? Or you see that like, oh, this NFT is like really spiking in price. I got to get back to my computer so I can delist it because I don't, you know, I want to sell it for more now or something along those lines. If you work and you live in this space, you all have a friend who's like either had to cancel on you or been late to something because they were stuck with their desktop or it

It's very funny. At like every crypto conference, you can always find someone at a fancy restaurant in back there in a corner, like jamming away on a laptop. And more often than not, it's because they couldn't transact on their phone, right? Sometimes it's me and sometimes it's because something broke and I have to do a comms thing. But usually it's someone who like needs to transact on the blockchain and they can't do that through their mobile phone.

And of course, what you're describing is like, obviously for superpower users. And as you said, there's probably 10 million daily active users of crypto apps, period, right now. But it's not about the applications today. It's about enabling applications tomorrow, right? Absolutely. If you watch that original iPhone reveal and the breakthrough internet communications device, I think very few people would have looked at that and said, camera, multitasking.

Multi-touch, beautiful screen. The next jump is we're going to change dating forever.

And that's exactly what happened, right? You had Tinder, you had all these different applications come up. Or even that they could have predicted Uber. Or they could have predicted Uber. The fundamental social fabric of the world was changed because the device had some new features. And that's just such a wild concept to think through. That something that would have cost, like Uber would have cost a billion dollars to launch without mobile phones. Right, yeah, what would you even do? I don't know, give everyone pagers? I have no idea. Yeah.

you'd page a number and then they'd page you a license plate back and then you'd like have to bring out a bunch of it wouldn't have worked it would have been like again like general magic back in the day

Yeah. Okay, I want to move us forward from mobile. And I'm glad we spent the time on it because I do think it is a thing that the absence of mobile activity and the structural inability for there to be mobile activity to this point has been a governing force on the adoption of all things blockchain-based. And I want to go through a little bit of a lightning round here as we drift to a close with you on other topics, one of which being the buzzword of the day, which is the metaverse. And I

And I'm curious how you either would describe it, like if you were to define it, or how you would segment it to say some people are talking about this and other people are talking about that to help add some clarity to what is otherwise a very murky term. Yeah, I would say the best way to think of the metaverse is as the information superhighway. It's a it's a

catch-all term for a whole bunch of different ideas. And we're probably going to use a totally different term in a few years when the stuff actually catches on.

So the idea of, there's many different versions of what the metaverse is. I think the most useful framework to think about it as is it's a series of open and interconnected APIs that are going to allow different systems to interact with each other in a space that makes sense to users. Maybe that's AR, maybe that's not, but like, is the idea of...

The walled gardens that exist on almost every Web 2.0 system are not going to exist on Web 3.0.

I think that's the most intellectually honest definition of the metaverse is just a process of breaking down those walls. So our digital lives, our digital identities, our digital assets are much more interoperable and intercompatible. And who knows what we build on top of that? Maybe that's crazy AR stuff. Maybe that's just like the ability to text an iPhone, right, from an Android phone and not have it go through as a text message.

Right, because I think it's interesting to hear the way you talk about this is totally different than the way that Facebook now meta would talk about theirs, which is much more as a user interface paradigm. And what I heard from you is,

It's a way of interacting with other people where you bring your own assets. Yeah. Or you potentially use Rails you own or something. Any definition of a concept that's attached to a piece of interface tech, I think is a fundamentally flawed definition of a concept, right? Like, would we describe, like, imagine if we described computers as like using a mouse and keyboard. Yeah.

That would be a completely inadequate definition of what a computer is and wouldn't be a helpful definition for anyone else in the future, right? Would that, okay, so gaming on an Xbox is not a computer, but gaming on a PC is a computer, right? Like all of these things, whenever you lock it into an interface paradigm,

It just feels intellectually lazy. I would say that the reason Meta wants to define it this way is because Meta's moat is money, and they have more money than anyone else except Apple. And 10,000 hardware engineers at this point. I don't know what 10,000 hardware engineers are doing. Awesome has like 40 hardware engineers. Genuinely, I don't know what 10,000 engineers are doing. I think it's actually Bell Labs type stuff. I think it's stuff that otherwise would be in public research institutions. I

I think they're like inventing new display tech. Yeah, which is awesome. And I'm glad someone's doing that stuff. Defining the metaverse as something that's like capital gated, I think is not a helpful definition of what the metaverse is. As when you hear someone to pitch you, because you get pitched on a lot of different ideas and they say it's a metaverse block versus it's a web three block. What

What are the things you think of that are metaverse but not Web3 and Web3 but not metaverse? I'm going to be honest. The volume of metaverse pitches is a fifth of what it was six months ago. Interesting. It is not a term that I am seeing. This is just my limited perspective. I am not seeing metaverse be a sticky term. I am seeing people talk much more about creating experiences or creating community spaces in virtual worlds.

The idea that this thing is wrapped up in a metaverse or that it's wrapped up in a user interface or it's wrapped up in a specific technology, I think it's really starting to fade, at least in my experience. What we see people talking about is that they're building open

open digital communities that often involve AR or VR, right? They're building some form of a digital avatar. But like a metaverse has like baked into the Facebook definition of a metaverse is that there's a place you go to and that place is the metaverse, right? It's a very ready player one. Like I've logged into the metaverse and now I'm, right, it's canonical. I put the glasses on, I'm in the metaverse, I take the glasses off, I'm out of the metaverse. And be

And because there is no space that everyone has agreed upon is a metaverse, I think the idea that you're building for a metaverse is, or the metaverse or one version of a metaverse isn't really catching on with developers because they don't have something to build against, right? So instead, it's more of a series of processes and approaches that say, maybe we're building a game, maybe we're building an NFT collection, maybe we're building something else, but the way we're going to build it

is with interoperability and interconnectivity from the start, which is a huge paradigm change from like when Bungie makes Halo. They're not even thinking about cross console play at that point. And the metaverse folks nowadays are the folks who are building things that maybe six months ago they would have called metaverses. Like OpenAero is a great example, right? All of them, what they're really talking about building is stuff that is meant to be portable from the ground up.

It reminds me a little bit, the analogy doesn't totally hold up, but it reminds me of electric cars before Tesla. Other manufacturers made electric cars and they were, we can use profanity on the LP show, they were pieces of shit. They were almost intentionally, they put the wackiest stuff on there. They looked crazy. They were not like a car that anybody would ever actually want to drive. Right.

And then Tesla came along and was, or Elon's Tesla came along and was like, no, we actually want to make a better car that people want to drive. Like a car. People like cars. It can be better by being electric.

And like, let's not make it look crazy. Let's not make it, we'll make it look beautiful. Not like, you know, it's got weird fins and stuff on it. And like, that was what people wanted. Remember the really early days of texting when you could only text people who were on your cell phone carrier? Yes. Right? Or you could only port your number from one Verizon account to another. Or like, calling between T-Mobile and T-Mobile was free, but calling to Verizon cost you money. Yeah.

If someone had pitched that as the communiverse, everyone would have been like, what are you talking about, man? That doesn't make any sense. It's this slow process of creating interoperable systems that

that then just enable new things to be able to happen. I think that's probably the best definition of a metaverse I can give. And who knows, maybe that world won't come to pass. And maybe what we'll see is instead a bunch of community-owned walled gardens as opposed to corporate-owned walled gardens. That's entirely possible that what we, you know, all we end up doing is like rebuilding this stuff, but in ways that it's owned by the community. And I would call that like the Reddit model, right? Yeah.

where each subreddit is its own little island, but it's owned by its community. And you could see that being the model, or you could see a model where it's more open and everyone has access to it. Cool. Okay, continuing our lightning round, last two topics. You told me you were getting...

Small fraction of the pitches involving metaverse, as you were hearing six months ago. Give us an update on the same thing with NFT related ideas and how are people talking about those now versus six months ago? And then same thing applying to DAOs. Oh man, NFTs are going crazy. Genuinely. So in August of 2021, there were, I think on August 1st, I want to say there were maybe 2000 NFTs on Solana. And today there's over 15 million NFTs on Solana.

It is just an astronomical acceleration there. And it continues to. Mostly on Metaplex? Yeah, 99.9% are built on the Metaplex spec. But they are just continuing to expand. There's new NFT projects launching every day. And what's really cool to see is it's not just new projects launching, it's existing projects beginning to sort of like...

their ground and be able to figure out like we launched an incredibly successful profile picture collection. How do we build a brand out of this? Right. And so one of the things that I find particularly fascinating about NFT is, is almost every brand that's tried to take IP that they developed external to blockchain and bring it onto the blockchain. It's been very poorly received. But what we've seen is that this IP that's generated on chain is actually starting now to move off chain. But,

The biggest and best example of this is Bored Ape Yacht Club on Ethereum. And now how there's like, you know, Bored Ape Yacht Club themed fast food restaurants opening up. There's all the sorts of stuff like that. And like, sure, it's a little bit gimmicky. It's a little bit of a toy, but everything is a gimmick and everything's a toy at the beginning.

And then you look at something like the Degenerate Ape Academy on Solana, which was the first really big project that like hit. That was in August of last year. They've launched like two or three sort of spinoff collections at this point. And like, you really see a path where like something, not necessarily them, maybe them, but something like that. It has the bones to become the next Marvel. Right.

has the bones to become the next Disney. And that these characters, this idea of a community-driven story and this like IP that has a lot of just like vibes around it, you can really see this becoming something where there's TV shows, there's movies, there's comic books, there's lunchboxes. Like there's the whole nine yards of any sort of like beloved IP monetization.

But it's all starting on Web3 and it's all owned by communities. And like, maybe if your specific ape becomes the one that everyone loves or it becomes featured in a TV show, like you're going to get perpetual royalties on it. The same way that an actor gets perpetual royalties when their film is rebroadcast or their TV show is rebroadcast. It's a really interesting model there.

So that's kind of on the art side. The additional thing is people are starting to use NFTs in really new ways. So there's nothing about an NFT that actually means it has to be immutable. People like to think of them like, oh, NFT has to be immutable. It actually doesn't. It's non-fungible, but it's not necessarily immutable. Right. And so you read the original ERC-721 spec, there's nothing in there that says like, oh, and it will never change, right? There's always been this idea of upgrade authority. And so...

you will see NFT projects that are now suddenly building games and your NFT will suddenly gain a new trait and it will have like lives or attack or something along those lines added to it. Or you will start to see something like Parcel, which is a real estate DeFi application. Like they've been toying around with doing NFTs that represent actual pieces of real estate, right? And

The non-fungibility doesn't have to be attached to artwork. It could be attached to specific types of financial instruments as well, right? If you have, you know, everyone's favorite example from 2008, a mortgage-backed security, that could be represented as an NFT on a blockchain, right? And there's abilities to do all this kind of new stuff with NFTs. There are EmpireDAO in New York City, which is this like Web3 co-working space that like Solana Labs has one of the floors in it.

Is it actually a DAO? Is it actually a community-owned and governed co-working space? Yeah. I mean, there's a legal entity to sign the lease, but yeah, exactly. It's pretty cool. You guys should come check it out next time you're in New York. But their door access system that they're building to get in is going to be an NFT with a rotating barcode, like a two-factor code that...

Because it's proof that you have that NFT and it rotates like a two-factor code would. And that's how you can get into the building. Oh, I see. Like the NFT itself rotates every once in a while. So it's not like anybody could just screenshot and be like, here's this screenshot of an NFT from six months ago. Right.

which is very interesting. It's different ways to do proof of ownership. Yeah. Okay, same question then on DAOs. So I think DAOs are still finding their footing. There's a whole bunch of DAO infrastructure that got built for Solana, which has had a lot of early success. Mango uses it, a bunch of other ones. It's called Realms. It's the front end for it. And the SPL governance is the governance contract.

You saw a lot of attention in the bull market for things like we're going to buy a golf course, we're going to buy a stadium, we're going to buy whatever. A blimp in the acquired community. Yeah, we're going to buy a blimp. One of the ongoing challenges with DAOs is that they often try to acquire things in the real world. And things in the real world often require upkeep and taxes and a signatory contract.

and a bunch of things like that. And that's like a model that no one's really fully cracked yet. I think that, you know, Paki talks about DAOs as like a chat group with a bank account. And that's sort of like your MVP of a DAO. I think that's been really successful so far. The other way to look at DAOs for more crypto native stuff is their upgrade authority. They're a way of making sure that the people who are participating in something have the ability to vote in it.

So going back to our mobile conversation, like the Dapp store is going to be governed by a DAO, right? There's going to be a way that the people who own the phone and are developing for the network can vote on chain, on policies, on changes, and other sorts of things like that. And it's an alternative to just strict...

I mean, obviously token-based governance has existed for a while, but wrapping it into a structure of a DAO formalizes the arrangements a little bit more. And it gives it a little bit, it's sort of like putting Robert's Rules of Order around a city council meeting. It just gives you a framework to work under that helps the process move more smoothly. Yeah.

But we'll see. I am still excited for the future of DAOs. I don't think they've really like found their, they haven't found their breakout moment yet. Well, Austin, as we close here, is there anything we didn't talk about that you think it is worth leaving listeners with?

So I think it's worth talking about a little bit the bear market that we're in right now. Yeah. You've seen a massive drawdown in the market caps across all crypto assets, right? If you go on like CoinGecko and look at the market cap number there, it's somewhere below 1 billion right now. And, you know, it was 2.8 or so just like back in November. And so that's a pretty massive drawdown. And there's a lot of ways to look at that. But there's really never been a better time to start building on blockchain and in Web3.

And the reason for that is if you launch a product in a bull market, there's so much noise and there's so much noise you have to cut through. And you're not really sure if you found product market fit or if you've just found like hype market fit.

It's a really great time to sort of get involved and get building no matter what network or chain you're building on. Building in a bear is very much what you want to do. This is how Solana launched, right? You get to build with a little bit less excitement, a little bit less fanfare. You get to figure stuff out. And then when you do see a resurgence of the market, you're ready for that.

The other piece of this is this is a very different bear market than we had in 2018. You saw users leave. Ethereum activity dropped in 2018. There were objectively fewer people using the network after the price dropped.

And here you're not seeing that. You're seeing that the number of active users across all chains is continuing to go up, even as the prices again have fallen off a cliff. And so that's the strongest signal here that this tech is going to be around in some form for the long term. It's fascinating. It's also decoupled. I mean, the 2018 one was decoupled from macroeconomic financial event. This one is not. This one is directly correlated.

And so it's almost like this bubble popping is less intrinsic to crypto itself and more about, oh, everything was overpriced in the world, period. House, stock, crypto, whatever you have it. And so I think that's a big distinction that people should sort of try and reason through too. Okay.

Well, Austin, thank you so much. Frankly, I want to do one of these every six months with you because I think this landscape evolves so quickly that it's just really helpful to get your views and data on watching this ecosystem so closely, but also to get your redefinitions of everything, I find to be very, very helpful in interpreting this world. Well, thanks, guys. I mean, this is just a ton of fun. I think that Choir has been something I've been listening to for years and watching you two go through the journey of

becoming a podcast that's doing more work in crypto is really exciting too. And just how that change has come about. So this is great. You're a big part of it. Thank you, Sarah. Thanks. Thanks, Austin. All right, listeners, we'll see you next time.