TOKEN2049 - Spring is Coming: How to See Past the Crypto Winter - Charles Cascarilla (Paxos)

all right so sorry you guys missed your break but you get to listen to me instead of hopefully that's yeah I'm gonna be at least as entertaining so I'm gonna spend the next 15 minutes telling you about something that I think everyone believes which is that spring is coming but I'm gonna hopefully be able to tell to you in a way that will give you maybe a little insights into what you should be looking for and how you can prepare for it and what it can do for you so spring is coming we're in a crypto winter I think everyone knows that I remember well first of all I've seen four crypto winners I remember when the Krypton winner was only called a Bitcoin winter because there was no other crypto that could go down so I've seen a lot of these I think it's just a natural part of the cycle it doesn't feel good but it doesn't mean that there isn't something that look forward to and to plan for as it unfolds so what's very helpful when you think about the crypto winner is you know what are the underlying reasons that we all believe in crypto why is crypto been something that's why people are involved in and understanding those truths which is basically going back to the future which is let's try and understand what it was like six or seven years ago can help us think about what is it going to be like when this crypto winter inevitably in my opinion hands so the core reasons for crypto which in my opinion is a way to change how assets move how information moves is absolutely still intact and when you go back to kind of the core important feature is that you have a distributed system and distributed systems and open systems are so much better than centralized and closed systems and this is really obvious in the banking system and where you basically have a centralized system that's relying on centralized gatekeepers and what is the problem with that the the problem is like we saw in 2008 with the financial crisis you can't have any institution fail or you just get a domino effect and this isn't just true in the financial system it's really true on a very broad basis across how you keep records how payments work the healthcare system identity you on and on you're relying on centralized record keepers completely inefficient and I think if you fast forward to the future and you just look and say the financial system there's 600 trillion dollars of assets in the world which is a really big number and they're gonna end up on a blockchain I think though inevitably it be on a blockchain I think almost everyone you talk to now says it's gonna end up on a blockchain so if that's the world you're gonna end up in the question is how will you get there how will unfold but it's a clearly a better way to have assets stored to have information stored than the way it is now so that means what you have is a lot of price action and price action is real it doesn't feel good price goes down people lose money but there's a couple components here firstly the chart if you go back far is still up into the right which is generally good but when you go down from the peak it doesn't feel great down 85 percent is not fantastic and certainly there are a whole variety of other assets that are down a lot more than just the price of Bitcoin this is kind of like the ubiquitous index if you will of what's going on in the industry the pain of going down is very real but at the same time that isn't a true depiction of what's going on the actual transformation that's happening is not really dependent upon price action this is kind of a de Pickett of depicting in many way animal spirits you're gonna get boom bust cycles and you can't even see some of the boom-bust cycles that happened if go real far out to the left and I can tell you those were actually much darker than this boom-bust cycle when you went from like thirty dollars down to you know whatever was like a buck or something there's a real chance you're like oh maybe the Bitcoin just is not worth anything and the whole thing is not worth anything no one is saying that anymore what this really is just a very healthy cleansing of the system and you need to have cleansing of the systems because sometimes you get over-investment things get a little crazy you throw a lot of stuff against the wall you see what sticks and then you have a retrenchment and so what I described that's going on now is this is the pets calm moment and I was talking to my team about pets calm and nobody knew who pets calm was so I thought a couple things one I must be very old or two that's the whole point then no one knows pets calm because this was a huge stock it was at Nasdaq 5,000 and it was March of 2000 this hit a hit a high and it promptly went to zero and guess what the internet continued to grow companies created enormous amounts of success Facebook Google Apple blah blah blah we all know the story of the internet since 2000 but this felt really bad pets calm and everything else it just felt like it was just a giant noise and that process was actually healthy changing the whole system is gonna take time you're not gonna always understand where things are going to go and you're and having the boom-bust is actually what you want to have happen and so that happened to the Internet I think that's a very good analogy is what happened in the Internet and where are we at now I don't know if this moment here was 2004 Nasdaq or if it's like 1994 we don't really know for sure but it's still very early I think is the key point and so pets calm Webvan all these companies they're gone the Internet is transformed everything that we do I think that's the exact right analogy for what blockchain is going to do there's a lot of coins out there that our have gone to zero and they're never coming back and that has absolutely nothing to do with whether or not this technology is capable of transforming everything that happens in our lives so for reasons why I'm not worried here we go fundamental point here is the fundamental logic is still intact it's in fact improving in my opinion and this can be lost and so while there's a lot that's happening underneath the surface when you look at the price action which we were just talking about it you wouldn't know and frankly you you can just look at conferences like this one year over a year huge change in how many people are here but does that mean that the underlying fundamentals are not improving I think they actually are and so when I look at a couple things like code commits you look at code commits in the major protocols they're still going up the number of core devs that are operating and like say Bitcoin and aetherium it's actually broader than it's ever been to me that's an underlying gauge do you really have a sound foundation and so you might be losing the marginal person who's speculating in some of these coins that's not the same thing as our is the protocols themselves of the technology itself continuing to improve and continuing to be able to solve new problems so that to me is exciting the next thing is institutional engagement so the Paxos we see customers that are retail that are small institutions all the way to very large institutions I can tell you that the engagement is significantly changing and you don't have to believe me we saw fidelity getting involved and they just launched we've seen examples of the the New York Stock Exchange ice getting involved they're creating backed and there are a whole variety of other large firms that are getting involved and now that's in the financial trading so to speak which is I think bullish for the price but forgetting that there's a huge number of companies that have been working to use blockchain technology to transform what they're doing if there was JP Morgan coin there's talk about Facebook you go on and on all using blotching technology to help change their businesses improve what they're doing so to me that's a very good sign now large institutions move slow this is just the reality of them being large institutions but while they might be moving slow what's going on underneath is demonstrable and you can follow it and you can understand what's happening and we certainly see it I think that's a very good sign that the technology is still growing in its penetration and what it can change so and then maybe I make this fourth point and I'll make it again which is that under the understanding of distributed systems as a superior way of storing information that you need to use in a networked way is I think really clear and maybe a couple years ago it still was a lot of debate the topic of blockchain has really been my kind of the topic du jour for a lot of firms for a while and there are debates internally why would you want to use this when you could use a centralized database how is this better I think at this point it's really clear that this is where most of the world's assets will end up being stored on some form of a distributed system on some form of a blockchain and I not just what I would say is are the world's assets but something far beyond that because really all of your identity anything that you need to share with somebody else which frankly is going to be most information it's gonna be on a blockchain distributed system and an example would be there was a huge debate back in the internet about whether or not information would be on intranets or internets and in fact Bill Gates wrote a whole book about how it's going to be all about intranets not internets actually so believe it or not I'm this was a big book he came out said Internet you know that's great but like who's gonna put information and trust that and the answer is it basically everybody right so I think the power of a public system is so in some ways under understood in a poor way because when it's centralized it's easy to control but when it's open you're creating Network effects and when you're starting with a network effects that are small it takes a while to build up criticality and while it's building criticality it can loot you can lose this sense that something powerful is really being unleashed and being built and so in my opinion that's what I think has now tipped very clearly that there's this understanding that the benefits of a distributed system can really change the entire way the system is set up having to rely on centralized intermediaries which we know doesn't work they create systemic risk it creates financial crises or I'd say at the very least it significantly exacerbates financial crises that can all be really significantly changed with this type of system so think about okay now let's think about the future of what these systems could look like and what they're going to enable and I think this is really important because if you believe like I do that it's definitely going to change then the real question is what did you do with that insight what do you how do you think about businesses how do you think about opportunities where do you put your effort and so I'll tell you a little about what we're doing a paxos because that's easy to give you as some examples so we've been involved in the blockchain space now for over six years and I can remember when Bitcoin was at three or four cents that's when I started to get involved remember wiring money down to mount GOx when I was in Costa Rica so that was you know even before Japan so I can tell you I can remember a long time ago when things were really speculative but we made investments in terms of thinking about how you would set up a structure to be able to leverage this technology to be able to create some fundamental changes and so that's what paxos is about trying to do we created a trust company in May of 2015 we were the first firm to be approved by a regulator in the crypto space creating a chartered financial institution that's what a trust company is it's organized under banking law this is really special we've had it for a while it allows us to operate like a financial institution at the same time we're trying to operate very much as a technology company but trying to marry those together that's a very unique process and what it does is allow us to create infrastructure in a completely different way for the financial system so as a custodian we can hold assets we hold real world assets it could be it could be crypto which is a clearly a digital native asset but we can hold cash we have a PACs coin which is a stable coin we hold our customers cash and you can put into a blockchain we hold securities we can hold commodities so you hold real-world assets but we act as a gateway into a blockchain world so anyone can come to us we can hold their assets and we can put it into any type of blockchain that they want and so this acts as a gateway both on and off of a blockchain world so this is a really important intermediary layer that anyone can build on top of and so it allows basically trusted a service to be leveraged by anyone that way other people have to go out and create trust companies or financial institutions and so when we've sat here and tried to think about what do you need in order to push this world forward it's a way of being able to translate from the way things are now into the way things will be or in many cases the way they are right now and so the most clear example which I was just mentioning is PACs which is our stable coin and so you deposit a dollar with us and this is different for depositing a dollar with any because as a Trust Company even if we fail its completely segregated and it's and even if banks fail it doesn't matter it's held in US Treasury t-bills so very very safe to hold your cash with us safer than a bank we're not taking anyone's money and making the loans with it so you'll give us your money it's held completely segregated we put it into the etherion blockchain we'll put it into other block chains over time so we're acting as this gateway from cash that's trapped in commercial banks where you're tied to nine to five operating hours doesn't move very quickly and it's very costly into something that is very very flexible and we're gonna do that not just for cash we do it for a whole variety of other assets that's just the one that's I think really easy for people to understand so that's what we've been doing is basically continuing to invest in our business building infrastructure building infrastructure for the broader ecosystem but what's also really important is realizing that in some ways these types of pull backs that Bitcoin chart where price is going down is a real opportunity and the opportunity is to realize where the world's going and to invest and you got to do it in the right way no one wants to run the money but continue to invest through these down cycles because actually this is when you can find really great people this is when you can start to push out new products and you know the noise in the room isn't so loud that you might get drowned out so in some ways while the price doesn't feel good it creates the opportunity for the entire next up part of the cycle and it can be one that I think will be far more transformative than anything we've seen so far so my last piece of advice is if you know how if anything else fails you know you have any other thoughts about what you're supposed to do just hold all it I'm a Bitcoin holder for a long time I still hold Bitcoin I still believe in it I don't think there's any doubt that Bitcoin as a crypto native asset is a great store value potentially the best store value that's still to be proved out but I think it really has this unbelievable position that it's built but even more importantly what is the technology that underlies it and what is it enabling and what is it creating the opportunity for us to do as we keep building businesses and continue to transform both the financial services world which is what we're doing but actually something far more broad than that so I think that this type of winter is actually just a completely normal part of the cycle and that while there might be less people here I think that the actual intention of the people that are still in the room is much higher and that's actually what you need which is concentration of energy and so I think spring is coming I think everyone here must believe that because clearly when people come to a conference after the price is down 90 percent they must think that spring is coming too but I wanted to make sure that everyone could understand it from a whole different perspective which is what is the first principles reason why spring is coming and so we don't know the time but I can tell you it's absolutely gonna happen and what we have to do is make sure that we lay the foundation so that that next spring is as big as possible so with that I mean I'll see if there's any questions do we have time for any questions cool anybody have any questions somebody going once there we go do you see feedback tokens is a useful way of doing cross chain transactions yeah so I think the important there's a couple things about a fiat token and this is our stable coin that's back one-for-one with US dollars you could back it with other types of fiat currency but what are you solving the first thing is a commercial bank money only moves nine to five five days a week so obviously everyone understands blockchains are twenty four hours seven days a week also you can move the money instantaneously money doesn't move instantaneously right now it usually takes well hours two days depending on whether or not it's a bank wire - it's an international movement so it's moving slowly and it's not programmable which is probably really important to mention here so commercial bank money isn't programmable sitting in a bank account and you can't really do too much with it whereas when you put it on a blockchain you can start to program it with smart contracts a lot more functionality and so that ability to program cash moving is really important because now you have a way of being able to communicate between chains in a way that isn't going to be fluctuating nearly as much as native tokens are now you know there's pros and cons to using native tokens like communicate between chains versus using something that is fiat backed but it really does I think allow a certain type of flexibility because different block chains are solving different types of problems they're meant to solve different types of problems deliberately and every time you're dealing with another native token you start to create coordination cost between the chains because you got to figure out how to swap back and forth and make sure that you're getting the right amount of value every time you move between them if you have something that's a stable store of value acting as means of value transmission between the chains you can really solve I think a lot of the problems that have made it difficult to be able to operate with a cross chain unless you're almost really running in exchange and the problems burning exchange is your centralized again which is what we're trying to avoid ultimately is crying to be as decentralized as possible so I think you're never gonna get away from the need to trust a certain entity in a blockchain you're going to always have to have at least some amount of trust the question is how can you make that as small as possible because the less trust that's required the more freedom that you can create and so having a common Fiat coin that's used between different chains means you have to trust that Fiat coin for sure but that means you don't have to understand how to get between all these different chains in a way that could be really confusing yeah one more question and then okay great and then we're getting the high sign thank you a hundred percent Reserve seems a very inefficient what do you think of fractional reserve by currency which is like government's have operated or banks operate yeah I mean there's a long-running debate between should you have fractional reserves versus should you be fully backed I mean it goes all the way back to the being on the gold standard frankly and so the the issue is being fully backed is that you probably get less velocity out of the money when you're fractionally backed you usually end up going down a slippery slope of devaluation or inefficient signaling because you're not fully backed by something someone can create additional currency of whatever kind that might be and you don't necessarily know if the signal you're getting from the currency is just someone creating more of it or there's actual real demand or not enough demand and so this is the complexities that you constantly have our view point has been we're not gonna try and solve that problem it's a hard problem to solve I have a viewpoint on what I think is a better solution but that's a bit above my paygrade to actually propose that solution because we're not gonna be a central bank what we're really trying to do is just say hey here's a fiat currency that we've upgraded that's the way I think about it we've upgraded it from being on a central ledger most likely a COBOL mainframe in some banks back office instead we've taken that and we'd now put it onto a blockchain and so instead of being trapped in technology from 40 or 50 years ago with a nice light kind of GUI interface slapped on it that makes it look like it's kind of new instead of doing that it's gonna we're gonna put it on to new infrastructure which is a blockchain that is completely modern and completely flexible and able to be programmed so we're just gonna upgrade the cache and if a central bank decides they want to you know make more cash then that's you know kind of their decision and they can decide whether they want to do that we're not going to do fractional based stable coin because I think that defeats the purpose which is do you want to have one dollar equal one coin you know exactly what's going on with it and if you want to redeem it you can get it back I don't think anyone's looking to Paxos to basically recreate the monetary system we're sort of now looking at ourselves in that way what we're trying to do is change the infrastructure of the financial system from being old and archaic and therefore not very responsive and not very flexible to something that is far more dynamic and that's something that we know we can do whereas being a central bank which other tokens have tried also unsuccessfully so far because there are securities rules and there's regulations and there's all kinds of other problems that's just not something that we think that we have the right tools to be able to solute solution really so I think that's it I got the hi sign here so I appreciate the questions thanks everyone for your time [Applause] you