EBC22 | An Inside Look at the Innovation Trajectory of Blockchain and Crypto

it's been great to be a part of this particular convention particularly because of the amount of detail that we go into and so today i kind of wanted to take kind of a little bit of a complimentary approach and maybe take a little bit of a higher level view and talk about this subject about the innovation you know kind of trajectory of blockchain and crypto so let me just check to see that this works um what i'm hoping you walk away with today is basically kind of a framework and a means of thinking about this subject but also hopefully a little bit of that same excitement that i share about where we're headed but first let me start with the story so i started as a engineering student at the university of toronto i was one of those engineers who wasn't particularly great at physics biology or chemistry so please don't trust me if i ever build a bridge or don't ask me to fix your car but i studied industrial engineering which is a pretty niche discipline that looked at abstracting real world problems putting it into a model using these algorithms and math to solve that model and then translating it back and i always thought that this idea of achieving optimization or this ability to you know achieve some kind of optimal outcome without any additional ingredients was like just truly fascinating it was particularly well understood discipline within at least the manufacturing sector which is where i'm from but at the same time i thought hey wouldn't it be cool if you were able to do the same thing in a non-manufacturing setting and then people when they look inside and see that you've achieved this ultimate outcome without any additional you know uh ingredients to the system just think wow it's the magic of math right and so anyways i spent a couple of internships working in manufacturing most notably one of them was in hong kong working at aluminum factory where they melted metal so you can imagine i'm canadian hong kong is hot aluminum factory without metal i melted every day every moment and so there was a point in you know kind of my my internship where i realized there were only three things i really wanted in my career uh the first one was i wanted a justification to wear nice clothes to work and the second was an air conditioned office to wear them in and the third one was then interesting problems that you could solve in innovative ways which led me to about a decade working in capital markets especially to do that trying to find new combinations of being able to produce optimal outcomes in slightly different ways and so it kind of drove me towards the subject of innovation which i just fell in love with i spent every waking hour listening to podcasts talking with people about this stuff bugging a senior management to give me a shot which led me back to the classroom this time around doing some postgraduate studies at the site business school at the university of oxford studying the topic of strategy and innovation and i learned a bunch of really cool things over there but there was this one particular concept that i thought just stuck with me throughout my career and there's a relevance to today's topic and it was from this book called the evolution of new markets by an author named paul jarrowski and the theory goes like this effectively there is constantly this demand between well this constant tension between supply and demand and oftentimes people think about innovation as being a demand pull that some other market is pulling out innovation but the but but the theory goes that it's insufficient because oftentimes the market is not able to articulate exactly what it is that they need instead a better way to approach it is to think about supply push and oftentimes it takes the form of some new technology and in this situation the idea is that there's an exploration or an understanding of a new technology that births forth a main trajectory and this main trajectory would then have people researching pouring in investments in effort accumulating knowledge and over time what happens is it continues to build momentum and these branches start to form either their new applications or new kind of you know markets but the point here is that there was a mental map now to follow how new markets could form and when i thought about this a little bit further and read into a little bit more one particular quote from the book i thought was particularly interesting and it was this one right here where it says once the basic highway that the trajectory is going to follow becomes clear then progress along it is likely to be pretty much self-sustaining following its own logic at a speed determined perhaps in large part by the nature of how scientists and engineers work skip ahead a little bit more and i find myself a kind of a you know interesting point in my career where i'm looking for the next thing and i'm talking to a friend who just joined a blockchain company and at the time i said tell me more about what we're doing and basically he was part of this 25 person team 20 person team working on what would now become bullish and at the time i said to him hey you know what i'm really interested to know what's going on i really want to be involved in the innovation space i want to try my hand and hand at this and he said to me well we've got a couple of product people a couple of engineers couple technologists one day we'll have customers you want to be the customer guy and i was like yeah sure customer guide sounds pretty good i'll be the customer guy but at the time we were still in stealth mode and so when i spoke to my friends my family and they're saying hey what's this new thing that you started jumping into i said i work for a blockchain company it's kind of as far as i could say and they said to me oh like there were kind of two camps one camp said blockchain company cool blockchain i don't know anything about it sounds good um the other side who did a little bit more reading said blockchain what's the use case of blockchain this is again beginning february 2020 not the obvious choice yet not as much as excitement as it is today so what's the use case of blockchain you know 2017-18 there was all these managed consultants that said that there was going to be this complete disruption of the financial services industry the supply chain world was going to be completely disrupted but none of that really occurred in the same fashion that it seemed to be promised and after kind of going through a number of debates i kind of landed on this one particular use case that i thought was probably the least disputed at the time and it was simply bitcoin bitcoin was that use case for blockchain that had millions of customers using it market cap of 100 several hundred million dollars by that point in time it was an excellent example of adoption for the for the blockchain technology fast forward a couple more months later and we end up in d5 summer and all of a sudden this use case of smart contracts on the blockchain started to progress around a particular theme which was a digitally native asset needed digitally native programmatic finance that was decentralized to provide a particular way of serving the users and then you skip forward a little bit more and you end up with like you know this next wave that came through which was the nfts and to be honest with you this one kind of stumped me a little bit because all along i thought this was really cool digitally native asset moving to you know digitally native financial solutions to this and i was kind of like i'm not really sure what it is you know profile pictures 20 million dollars or more i wasn't really sure but as i kind of challenged myself a little bit i thought to myself well maybe i'm just thinking a little too superficially about it perhaps what this is signaling instead is that there are digitally native identities that are valuable more valuable than the 20 million dollars that you spent on an nft and as i thought about a little bit further what i also realized was that there was also digitally native communities and it began to become this kind of really interesting observation that at the end of the day there are few spheres in the world where technology capital and culture converge in such a unique way i mean you think about culture and how it comes from community and where community forms community in the crypto space is strong like hyper strong like you think about all the tribalism that you know kind of emerge in you know early days and still exist today that is a signal of just how strong these communities go and so going back to this map of kind of you know this theory of kind of main trajectory you start to see kind of how blockchain started you know pushing forward and as these branches started emerging around digital assets and programmatic finance and d5 you know these digital identities digitally native communities all of that compounding the development towards the blockchain the question is kind of you know where is it headed i mean when you start to map this out and i mean i've left a significant amount of detail that's been covered by so many of these sessions here during the convention doesn't this kind of look a little bit like the ingredients of a digitally native universe you know perhaps it's manifested in a metaverse but it's important when you look at these kinds of frameworks and you're thinking about these topics that you did you don't look at it in silos so you take a step back and you look at some of the bigger global macro themes that are happening let's just say for example deglobalization do you think that if we establish that there's a digitally native universe that it's going to be run by the company of a single country if you think that this digitally native universe requires digitally native infrastructure that it is also run by the company of a single country do you think that when we get to this decentralized world and university you think that the unit of value to transaction commerce is also going to come from a single country and so it's helpful to kind of use these types of tools to be able to think about where we're likely headed even for example if there's a lot of noise in the short term now let's think a little bit about the pace of movement what is the pace of this trajectory and this movement going forward one of the key things that was drilled into me when i was doing these studies was that invention does not necessarily equal innovation invention was this idea that you created something novel a new technology whatever what is novel it was the commercial creation of value that actually made it innovation and i think one of the key themes that we've been discussing here at this convention has been this idea of this crypto winter and i think actually if you were at the panel yesterday uh the amount of positivity that came from the panel that i shared with my panelists about this crypto winter was effective is the idea that the push for survive surviving this crypt of winter is going to push people more towards understanding how to apply commerciality to their inventions as opposed to a rising tide that floats all boats and you can hide in that and so i do think that actually it's a quite positive signal that we're going to move in an even faster pace because of the need to survive and the need to apply inventions in a commercial manner which is what true innovation is about so going back to so going back to this map let's talk a little bit about where we think these branches are going to emerge for those of you who are working in the innovation space or trying to understand how to build businesses how are you going to think about this main trajectory that we've established is self-sustaining at this point in time moving at a quick pace where are these branches going to emerge and that's where another really great theory comes into play by the famous uh harvard professor named clayton christensen called jobs to be done theory goes that if you were to follow traditional segmentation to identify ways to be able to market or create products you would look at this particular demographic what they kind of like and what they kind of produced but it was all established based on this one core assumption which is correlation what he argues in this is shouldn't we be looking at causation instead shouldn't we be thinking about what are the things that people actually need to have done that they're willing to give money out of their pocket to pay for and by doing so you'll be able to understand where these branches may form so i think the best way to to give like an inside look at the case studies to talk about the company i'm a part of which is bullish when we started bullish there were two particular themes that we had noticed back in early 2020 the ideas were simple one this space was going to grow in an incredible rate and capital was going to be flowing and so you needed more and more deeply liquid venues to absorb the introduction of a wave of significant capital the second part of it was that this space was going to grow so large that there will be without doubt greater regulatory clarity and involvement into the future and so we set out to build effectively a centralized regulated exchange covering the hygienic factors of that second point but wanted to make sure that when it came to being able to solve for the liquidity problem that we found a way that was rooted in some core technology and so we actually decided early on that we were going to build based on some of the things that we found in let's say some of that branch territory around programmatic and and defy we built this on liquidity pools and automated market makers just very very high level a liquidity pool is a mechanism where you park two assets let's say bitcoin and usd and an automated market maker takes that the assets that are that are in that liquidity pool and puts business offers in our situation we have an order book like you'd see in any other exchange but there's an amm behind it that's constantly streaming bids and offers now i bring this up because you have a problem you have this kind of technological solution what are the uvps well the first one is that every single dollar that's in the liquidity pool is not a dollar anywhere else in the street which means it's truly unique source the second is that the automated market maker only changes its price when it's traded against there's no oracle there's no external data that's being brought in to update the price it only moves when someone buys ourselves on our exchange independent price discovery and the third one is if you park enough assets into these liquidity pools you can be really really deep in fact a couple weeks ago bullish became the deepest bitcoin exchange in the world based on the 2 amount of inventory on the order book if you look at them in price just go and go to coin mic go to corn market cap look at bullish compare it for yourself but going back to this idea of now you have these uvps what are the jobs to be done well it's pretty clear if you run a systematic strategy and you are looking for a way to generate alpha through connecting different endpoints unique source of liquidity independent price discovery really deep markets i mean it's pretty it's pretty straightforward on the other hand if for example you're looking to just execute this whether you're executing this for yourself to establish some kind of trading strategy as a fund or maybe you're a broker looking to do this for your customer i would argue the cost of execution is going to be so compelling based on the fact that it's a unique source of liquidity independent price discovery and really deep markets and so just thinking about that i think that's great theory is cool michael that's really nice but for us in the last seven months we've been able to achieve over 50 billion dollars of traded volume in the first seven months of our operation and i think to us this is a signal that we've figured out kind of certain jobs to be done within that particular part of the you know the branches if you will that we've decided to build our business upon and so you think about this whole thing inside look on the innovation trajectory of you know blockchain and crypto we've established this idea that you know there was this you know incredible amount of invention that happened early on with the creation of the blockchain and all of a sudden you start to see that start to move and move and move and you start to see branches forming and you start to see things like digital assets and tokenization taking place and you know services to to to to capture you know i guess particular needs in the market based on the use of smart contracts in programmatic finance and defy and then you saw these digital identities that formed based on you know the fact that you now have these you know tools to be able to express yourself but also these communities are that are that could be self-governed but also you know just tie in again this unique convergence of culture technology and capital moving at this pace that is you know only going to be i think a function largely of innovation as opposed to just pure invention which given the current climate that we're in i think it's only going to progress faster and faster and as you're thinking about these kind of branches that are emerging in particular many of you here building businesses in addition to building the products themselves what are those jobs to be done what are those things that people literally will say i will give you a dollar to do this because i don't want to do it myself or that this fulfills something that's way better than anything else that i found into the market i think what you'll find is that this is a really really great kind of mental model mental map to be able to think about the bigger picture of where we're headed what's going on as new things emerge where does it fall into this grander scheme of how this technology progresses how this business progress and how this industry progresses and i think it leads me to my final conclusion i'm bullish i hope you are too thank you [Applause]