Reinventing The Monetary System With Decentralized Finance (w/ Raoul Pal and Alex Saunders)

RAOUL PAL: Finally we get you on Real Vision. I've been on your podcast and on your YouTube
channel, but finally I've got you on Real Vision. So good to be here with you. You're in where? ALEX SAUNDERS: I'm down in Tasmania, which
is a nice place to be at the moment, Raoul. So yeah, thanks for having me on. RAOUL PAL: Yeah, great . Tell people a little
bit about your background, just so they know who you are, what you do, and even how you
got into the crypto space.

And then we'll talk a bit more after that. ALEX SAUNDERS: For sure. So I'm actually a pharmacist by trade who
was always very interested in the world of finance and investing and lost a lot of money
in the GFC when my parents gave me some shares for my 21st birthday– which shows my age
a little bit. And I would continue to go down that rabbit
hole. And I just loved the world of options, and
derivatives, and Black-Scholes, because I had a science and mathematics background and
interests. And then I became a bit of a gold and silver
bug after the GFC, when you watch all those documentaries and try and find out what happened
and how no one could possibly see this coming.

And that led me to find Bitcoin in 2012, and
I fell down that rabbit hole in an even bigger way and committed a lot of time to that. And then, in 2015-16, Ethereum came along. And that expanded the horizons. And just, wow, this technology is honestly
going to change the world. And annoying all my friends and family with
that. And then, in 2017, I finally quit pharmacy
altogether and went full-time educating people on crypto. And we've now got around 200,000 followers. A lot of free consent, some premium research,
and we try and keep people up to date with everything that's happening in that world. RAOUL PAL: And that's Nugget News, right? ALEX SAUNDERS: Yeah, Nuggets News, yes. RAOUL PAL: So listen, obviously, the whole
crypto world is about change anyway. And I've bored, ad nauseum, our audience about
the future financial system. But over this whole coded period and coming
out the other side, I feel like everything has changed in this space, too. So it started off without me, because you're
much closer and deeper into the space. I'm macro, so I look very top-down.

The first thing I notice is that Ethereum
starts do a lot better than Bitcoin. What was that all about, and how did you start
figuring out what was going on? Because what's gone on from that, when it
started a few months ago, to here has been unbelievable. ALEX SAUNDERS: I think it's all relative,
because Bitcoin could argue that Ethereum underperformed Bitcoin for a couple of years,
and it's having its time now. So Ethereum has had a lot of setbacks along
each journey of where he wants it to be, and it ebbs and flows between being behind on
that timeline and then being really exciting and very promising again.

And we're in one of those stages where everything
looks really good and set to upgrade. And the previous boom was all about the ICOs
and that mania. And I think this boom is more real in terms
of finance, and lending, and we are now doing things which you can't do in the traditional
finance world. That's attracted a lot of capital, very high
yields, and things that we didn't really expected to take the lead here, like stablecoins. That market cap was around a billion dollars
and mainly just Tether, which was a very shadowy area. And that's now $10, $12 billion, yeah. RAOUL PAL: So I want to break these two things
down for people who aren't so familiar because a lot of people have come in on their Bitcoin
journey, and they're like, OK, I hear about Ethereum.

What is it? Is it different? Is it the same? Is it not? It's not hard currency. What is it? So we need to go through that first. Then we'll get through stablecoins as well,
just so people get an understanding what this is and why it's a bit different. ALEX SAUNDERS: Yeah, so people will hopefully
have a very good understanding of Bitcoin and that idea of being scarce in a digital
currency. Ethereum is slightly different in that it's
trying to be a platform– or, it's more of a technology play, in the way that I see it.

So it certainly has some monetary aspects,
and they're trying to change their monetary policy in some way to be a hard currency and
be scarce and finite. So that's one important aspect. But the main play here is that they're trying
to rebuild a ledger, or a platform, or a protocol where anyone can build on top of it freely. So just like Bitcoin is trying to build a
new financial system where I can send money to RAOUL PAL: Hi, I’m Raoul Pal.

Sorry to interrupt your video – I know it’s
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So, if you click on the link below or go to, it costs you $1 to get a month’s access to this incredible treasure trove. I don’t think you can afford to be without
it. ALEX SAUNDERS: Raoul freely anywhere in the
world, and we have to worry about banks, or being censored, or anything like that, Ethereum
is trying to create a new internet– Web 3.0, you might have heard this called– where anyone
can build an application. And all of a sudden, Twitter can't take down
Trump's tweet, or YouTube can't take down my video because I said the word "COVID" in
it. So they're trying to build this censorship-resistant
protocol for the flow of data or information where anyone can build an app on top of it,
a website. So it's very much a technology play. RAOUL PAL: So this is not, necessarily, just
about– we'll come into the money aspects later. But this is not necessarily about money. This is a whole protocol, platform, technology
for anything that needs to be recorded in some sort of ledger– whether it's information,
whether it's money, or whether it's assets, or whether it's– is that right? ALEX SAUNDERS: Yeah, well, I think people
might have heard this term "smart contract." And it's kind of funny, because I think of
it as a dumb program.

So it allows you to do a few more things than
what Bitcoin can do. So rather than just send money from A to B,
you can program in characteristics or traits. And the first, I guess, application of that
was the ICO mania. And being able to raise capital from anywhere
in the world was a very cool concept. Now, the second iteration of that was stablecoins
in this world of DeFi– so decentralized finance and lending.

So anything is possible, and the next things
that we might get to in future episodes or whatnot, are gaming. And there's all sorts of things. You can build anything on Ethereum, like you
can build anything on the internet. So at the moment, the things that are being
disrupted are probably those things that are ripe for disruption. The world of finance, and being able to get
a loan, and the rates, and everything that we see, it's really out of whack. So there's this new Cambrian explosion. It's just like this free- market capitalism. And who would have thought that a boring old
stable coin, in a world of volatility and huge run- ups in price, would be the thing
that is so popular and just tie this all together? 12 or 18 months ago, the central banks basically
said that crypto is too small to even acknowledge and it's not going to affect monetary policy. Here we are 18 months later with every central
bank, government, even the commercial banks. Jamie Dimon wants JP Coin. So everyone is talking about these stablecoins. RAOUL PAL: So talk to people who aren't familiar
with stablecoin, because we've got a very split audience.

Some people are deep down the rabbit hole,
and others don't really know. So what is a stablecoin, and why have we got
them? Because when I first saw them, I'm like, I
don't really get this. It just feels like money laundering via Tether. And now it's become, actually, a payment rail,
and all sorts of stuff. Explain stablecoin now, and then we'll talk
a bit about where it's going. ALEX SAUNDERS: So a stablecoin, there's a
few different iterations of these, but the most common ones that you hear about, like
Tether or USDC, basically, we have a digital version of a dollar, and it becomes a token. And in a bank somewhere, we have a dollar
that is backing that up 1 to 1. So Tether is always in the news, and it's
a little bit shady because they've got banking relationships all around the world.

And over the years, they haven't been able
to find good banking partners. So it's very hard for them to, I guess, be
transparent about that dollar-for-dollar backing. Whereas now, we have things that are highly
regulated like USDC or the Gemini. The Winklevoss twins have got the Gemini US
dollar. So that is all very transparent and highly
regulated. And it's just a one-for-one peg, and they
give you a digital dollar. Now, once you've got that digital dollar in
your hands, you can use that on any crypto app and anywhere on Ethereum. And I can send it to Raoul. I can send it to anyone, anywhere in the world,
through my app. And that is far superior system to being able
to send a dollar to you anywhere in the world through the legacy financial system. That's basically impossible to do. RAOUL PAL: So how fast is it? So if I send you $1 via Tether– or not Tether,
whichever one it is, whichever stablecoin– how fast do you get it? Because right now, if I'm to get it– if you
say, hey, Raoul, send me $10 for something, and I go to log onto my bank account, I put
in the thing, put in the transfer, they have to confirm the payment, usually the next day
because it's the Cayman Islands.

Then it goes, it's three days in the middle
of nowhere going through the SWIFT payment system. Then it goes through your sorting. Then it goes to you. And it's like, if you're lucky, you'll get
it in three days. Well, if you're very lucky, you'll get it
in a day. If you're normal, it's three days. And sometimes up to five. How does this work? ALEX SAUNDERS: Absolutely. So this is one of the things that sent me
down the rabbit hole to Bitcoin. Because when I'd been traveling the world,
it costs $50, and the spreads were 10% to 20% depending on the country you were going
to and the currency you needed.

And with Bitcoin, it's a 10-minute block time. And most exchanges will let your deposits
show up after two confirmations. So if the blockchain is not too busy, then
you'll get it in 20 minutes. Whereas, if it's very, very busy on Bitcoin,
and there's lots of transactions waiting to get in those blocks, you might be waiting
an hour or so. Whereas Ethereum is slightly different.

It has block times of around 10 or 15 seconds. And some exchanges will want to wait for–
it varies– let's say 10 of those, 20 of those. So it might be a few minutes for an exchange
to confirm that that transaction is there. But if I'm just sending it to you directly,
and you trust me, it'll basically show up within 10 seconds. And you can say, I know Alex.

I trust Alex. It's there. Now, that's when the network is chugging along
nicely. At the moment, it's just been horribly congested
because of how popular it has become. So the big battle for Bitcoin, but particularly
Ethereum at the moment, is how do we scale this? So some people, at the moment, are paying
fees of $20. Now, obviously, you can't send me a dollar
and pay $20 of fees. Well, you can if you want, but it's not very
efficient. So where we're at now is there's a lot of
technologies that are either layer 1 on Ethereum itself, or layer 2– a little bit like how
Bitcoin has its Lightning network. So there's layers on top of Ethereum, and
some of these are now production-ready. And if you wanted to right now, I could send
you some Ethereum over a layer 2 solution. And that would be instant and cost 1/100 of
a cent, for example. So that's where we're at. RAOUL PAL: And what's the compromise for doing
that, then? Because if you're not on the main
network, what's the compromise of doing it on a second layer? ALEX SAUNDERS: So there's about a dozen different
scaling solutions, and all of them have different trade-offs.

Now, some people say that, obviously, you
don't have the security of the whole blockchain and all the nodes. And in the Bitcoin world and Ethereum world,
at the moment, it's proof of work, where every node confirms every transaction. So in some solutions, you're giving your trust
to that other company. But they also have to– without getting too
technical, you can always challenge things and, say, report back to the blockchain from
the layer 2, back to that original Ethereum chain, and say, hey, is that right? Is that guy ripping me off. And they can say, yeah, no, that's right. We'll validate that. So there's different trade-offs about speed,
security, decentralization, and that's, I guess, the experimentation.

RAOUL PAL: So they're basically batching stuff
and then putting it back onto the main chain, is that right? ALEX SAUNDERS: Batching is one of the scaling
techniques, yeah. And others are doing channels, like the Lightning
network style. Others are having a separate blockchain off
to the side and saying, hey, we trust you guys, that company. It might be a company or a project, but there
might still be a 100 nodes. But that's, obviously, a lot better than 10,000
nodes doing Bitcoin or Ethereum at the moment. So they're all the little trade-offs and experimentation
that's happening at the moment. RAOUL PAL: And so why the explosion of stablecoins? Who's using it? What's its uses? What the hell is going on? Because this has gone from a small-ish market,
and it's like it's gone exponential.

ALEX SAUNDERS: I think you did a really interesting
interview with Crypto Hayes from BitMEX. And he was talking about the fact that the
collateral in that world– and they were the number one exchange for a very long time–
is Bitcoin. So in the world of trading and speculation,
a lot of the time, the assets that were collateral and underpinning this were Bitcoin or Ethereum,
and they're very volatile. So all of a, sudden, we can now have stablecoins. I'm not going to go off on that tangent. We might get to that in the future. But basically, we have a stable collateral. And that's a bit of a game-changer when you
consider the volatility of the old assets that we used to have to use. RAOUL PAL: But it's kind of weird that you
have to use the US dollar as your collateral for crypto, right? It's kind of an imperfect world.

ALEX SAUNDERS: It's better than something
that falls 94%, like Ethereum did in the bear market, when you're trying to build a project,
or make a bet, or something like that. But I think it also just comes back to the fact that traditional finance
has just not served so many people. And if you can say to someone anywhere on
the planet, rather than your hyperinflating currency, you can now save in US dollars,
it gets very, very interesting. And this is where I have gone down rabbit
holes with you, and Brent Johnson, and others talking about what's going on with US dollar
at the moment, and the eurodollar system, and Brent's milkshake theory, and saying,
well, if every person on the planet has a smartphone, and they now have a digital rail
via Ethereum to get a dollar, a US dollar, that completely throws everything on its head
in terms of, oh, the Fed need to do a swap line to this country, and the RBA are trying
to get some more dollars from this other central bank, this, that, and the other, and the commercial
banking system being too afraid to lend to each other through the repo markets.

Now, every person on the planet can get a
digital dollar over Ethereum. And that's very– that's a game changer. RAOUL PAL: So what happens in countries where
there's capital restrictions? Let's say Turkey, or wherever it is. I mean, there's tons of them– South Africa. Does this get around that? Is this the best way of getting around capital
restrictions? ALEX SAUNDERS: So in those countries, we get
mixed data. Some people say that the adoption of Bitcoin
is very high in those countries. Other people say that the adoption of stablecoins
is very high. To these people, Bitcoin is interesting. But it still has the volatility. To them, the US dollar is almost like gold
in these countries where the currency is just hyperinflating. So I think we are going to see a huge demand,
and we already are. But the question becomes, how does the government
control, and censor, and regulate the on and offramps? That's basically the way that they can shut
it down.

So when people say, they'll never let this
happen, for example, well, you can't ever stop it, because it's just the internet. And even if they shut down the internet, people
will have satellite connections. So any time that someone can get online and
has a digital device, they have access to Ethereum or Bitcoin– this web, this blockchain
that exists everywhere in the ether, pardon the pun. But I think the only way that they can regulate
is those onramps and offramps. And then you say, well, even if they don't
allow any business to serve the banking system and for people to get money into Ethereum
or stablecoins, well, then, we have these local peer-to-peer markets spring up. And it's a sort of a gray market, a black
market. So someone says, I know Raoul. You go there. If you've got the cash, or he's got a banking
relationship in Panama– whatever it is.

So there's always a route in somewhere, a
way to work around it. And it's just, well, they can slow it down. They can add friction. But sometimes, that actually creates a premium
rather than making it harder to get, yeah. RAOUL PAL: Yeah, because we saw– we've seen
in various countries, even India, crypto is traded at a premium, just because of capital
restrictions and stuff like that. So there's a huge demand for it. ALEX SAUNDERS: Yeah. RAOUL PAL: So the private sector has jumped
the gun on the central bank digital currency, isn't it? ALEX SAUNDERS: Absolutely. So Libra was the one that everyone heard about.

And that, in a lot of ways–
RAOUL PAL: Which was a basket currency. ALEX SAUNDERS: Yeah, so I think that's where
they messed up. If they had said that they were just doing
a stablecoin, a US dollar stablecoin, that's not much different to the Gemini dollar, or
Tether, or USDC. So the fact that they basically went after
everyone's currencies, you're really treading on some toes when you say that. And you're going to choose the winners. Well, euro, we're only going to have you as
10%. Yuan, we're only going to have you as 15%. So you're never going to keep everyone happy. You're treading on everyone's toes. And it's no wonder that that got shut down. So look, I've heard that they're going to
go back to maybe just the US dollar thing, or maybe just the currency of the country
they're in.

I'm not really sure. But really, they've got the billions of users,
but I think that the leaders are already the DeFis of the world that have gone from a billion
to over 10 billion in a year. And I know that we had a bit of an exchange
on Twitter, and you were saying that this is pretty insignificant in terms of global
forex numbers.

But what we're seeing in 24-hour daily trade
volumes is already more than the entire market cap. So the velocity of money in this world– a
recent report showed that stablecoins are about 20, whereas you know velocity of M2
in the US economy is dropping, and it's nearly at 1. So this world is just absolutely exploding. RAOUL PAL: And again, I mean, who's using
it? I mean, I'm not using it.

I've not needed to. But I understand the benefits. I've just not got around to it yet, because
it's so painful transferring money out of my Cayman Islands bank account where I live
into my bloody crypto account. I don't like holding money in third-party
wallets, and then I have to keep it in my other wallet, and then I have to plug it into
my computer. And it's just all of a bit of a pain still. But who's using it? Somebody is using a lot of it, and rapidly. Or is it just the internal system of all the
crypto businesses and everybody else transferring money around the system? ALEX SAUNDERS: There is a lot of growth and
a lot of demand from just traders, and speculators, and hedgers in this world. But I would also argue with what you just
said. I would love to sit down with you for five
minutes and show you, because that should not be the way that you're thinking about

It should be that much easier than anything
else, and you should be out to have those stablecoins in your own custody and not worry
about someone else, or plugging it in a wallet. So I've got stuff on phones, as well as the
cold storage for higher amounts. But it should be easy, like a click of a button,
to send anyone in the world stablecoins. RAOUL PAL: As a side thing, I mean, the horrible
thing is– and this is a psychological thing, because your new technology, you need to get
over the fact that the risk of transfer is yours.

So if I send you money, I don't care if I
send you $10. If I send you 100 grand, but I put in your
wrong address, I'm fucked. It's gone. That's terrifying. ALEX SAUNDERS: Yes, so there are new ways
around these that are projects and apps that are almost helping you create a backup, or
passwords, or layers of protection as well. So we want to solve those problems, because
we know that that is the case. And you shouldn't have 100 grand on a mobile
app. You should have your $100 so you can send
me $10. But at the same time, we've got business partners
and relations around the world with our business and everything we do. And we've, honestly, convinced our partners
to start using stablecoins. Because someone in Canada, for example, let's
say, has to pay us $30,000 for something we've done, website for them. We said to them, we don't want that 10% spread. We don't want to pay these high exchange rate
fees every month. And we taught them how to use stablecoins.

And now they pay us $30,000 a month in USDC
stablecoin, and the fee is $0.10 on Ethereum. So these are the people that we're educating,
and this is just a better system. So it's honestly– in my mind, it is only
a matter of time and education until that traditional payment system becomes irrelevant. And yes, we've seen Venmos of the world, and
PayPals. And so there's layers. But all those middlemen, the physical location,
this is what blockchain does. It cuts out all of that unnecessary middlemen,
and it goes peer-to-peer.

And that is what I think money is going to
become. RAOUL PAL: Talk me through– and again, I'm
just playing devil's advocate here. But some people will say, well, you've just
mentioned PayPal. What's the difference? ALEX SAUNDERS: Well, I think PayPal still
has higher fees and censorship. They can shut down my account if they see
a transaction that has the word "crypto" in it. PayPal have literally done that to me over
the years already. So it's just the same as Bitcoin. It's like, well, people say, well, the VISA
and MasterCard system is pretty good in America or Australia. And that's very true. But there's also 170 other countries that
are poorly, poorly served by their financial system. And that's where the stablecoin system is
far better. RAOUL PAL: Yeah, and also, I guess, the key
point is it's decentralized. So nobody can tell you that you can't do that,
or– all of that stuff, whatever it is.

And again, it's not from nefarious means. But as you said, even we have problems with
bloody crypto content on YouTube, let alone payments and stuff. ALEX SAUNDERS: Well, let's just say that we
have one– of our first products was a $9 newsletter. Someone in Russia can't really subscribe and
pay $9 a month through the traditional banking system. What if there's a teenage girl in Africa,
and she wants to write about the suppression of that country that she's in and the cartels,
and then she starts a blog. And I can donate $1 to her, and that can be
a life-changing amount of money if 10 or 20 people are donating that to her. And none of that is possible through the legacy
financial system. So it incorporates billions of people in India
and these emerging economies into the world of e- commerce.

And they can start an online business on Ethereum. And none of that is possible. They can't get banked. There's literally not a bank in their country. RAOUL PAL: And the good thing is, they didn't
even need to know it's on Ethereum. It's like we don't really need to know what
protocol we're operating this Skype call with. It's irrelevant. ALEX SAUNDERS: That is exactly–
RAOUL PAL: I'm just talking to you in video, and that's it. ALEX SAUNDERS: That's exactly where it's all
going. And when I said to you before about am I using
the Lightning network, or am I using loop ring as a layer 2, you don't care. You don't need to know what's happening behind
that screen when you click press, Alex send Alex $1, and it says the fee is 1/100 of a

RAOUL PAL: No, exactly. I don't even know what a processor is. I don't know anything. I know I've got an Apple Mac, and that's about
all I know. And that's top-level branding, and that's
it. ALEX SAUNDERS: That's where this is all going. So whether you're playing games, sending stablecoins,
borrowing loans– I don't know if you want to get into some of the virtual world, where
you'll go into a virtual reality and go to a virtual bank to get a virtual Ethereum loan
soon. So this is where it's all going. RAOUL PAL: So what does that– talk me through
that world. That sounds interesting. ALEX SAUNDERS: So I know you've spoken to
Barry Silbert and others about Decentraland. RAOUL PAL: Decentraland, yeah. ALEX SAUNDERS: So there's a few of these that–
RAOUL PAL: Minecraft and all these places have been using tokens and digital assets
for a long time. ALEX SAUNDERS: Yeah, so that digital gold,
or digital currencies, and in-game items are very familiar for all these gamers.

But now these things are on a blockchain,
so they can take an item from one world to another, or they can take their in-game experience,
or anything. And that becomes a token, and it has value. It has value to them, but it has an open marketplace
where anyone can buy anything off someone else. And what we're actually seeing in some of
these countries, you mentioned, like Turkey, and some of these games are actually the best
payment rails or means for people to exchange value or set up digital businesses.

So it's a little bit hard for people to understand,
but in Decentraland and other similar virtual environments, we're about to set up a Nuggets
News headquarters. And we'll have virtual meet-ups there where
people from around the world will come and get together. And we might have our Christmas party there. Barry Silbert and the guys at Grayscale–
I might give away some alpha here– I think they're setting up a big camp in Decentraland
as well. And they will have their investor conferences
in Decentraland from now on. So you can go there and attend it, just watching
the screen like you and I are. Or in the future, you'll be able to put on
the headset, and you'll be in full virtual reality.

And this is where people will conduct business
meetings and so on. And if we have this backdrop of COVID, people
are working from home, people can't get together in huge numbers, I proposed to the guys at
Decentraland, you should be going to the NBA right now, the Australian Aussie [INAUDIBLE]
grand final. We can't have 100,000 people in this big stadium. Instead of selling 100,000 tickets and having
it limited, we can sell a million tickets and everyone has the best seat in the house,
because everyone's got their VR goggles on, and they can choose where they want to sit. RAOUL PAL: And you've seen that in some of
the other games. I don't know which one it was. I think it's Minecraft? No, it was–
ALEX SAUNDERS: Or Fortnight, or– RAOUL PAL: Fortnight. DJs and live music. And you buy your ticket. You go along. You can meet people who sit next to you. You've got the whole experience. And it's a real live set by whoever's doing

I think Lady Gaga has done one. A bunch of people have done them. And they've been massive, and they've sold
a ton of tickets. ALEX SAUNDERS: So people are now viewing that
world as very real, and they're tokenizing everything, from the music, to the artwork,
to the land. And now, we take this a step further and we go back to the world of DeFi. All of this is built on Ethereum to these
Ethereum protocol standards. And now I can say, well, that song that I
wrote was a smash hit, and the rights for that on Ethereum are now worth $100,000 a
year. Lady Gaga can use the rights for that song
as collateral in DeFi to go and get a loan and borrow against. Or someone can create some artwork. We've seen some of the leading artists now
building this DeFi artwork. So you might have heard NFTs, non-fungible
tokens. That can be anything from a deed to a house,
to a song, to an actual gaming sword. RAOUL PAL: All right, so now we're moving
into DeFi, which is where we were headed.

OK, talk me through all of this. So what you're doing is you're taking digital
value from elsewhere and then using it, now, within the financial system. So you're actually realizing the value in
different ways. ALEX SAUNDERS: Look, if I go into a bank right
now to get a loan, they're going to have a look at my credit score. And if I open a leveraged trading account
at a broker, they're going to say, what assets do you have as collateral if things go south? It's a very similar concept, except that this
is all verifiable, all on-chain, all on Ethereum. And they can say, well, Alex has that house
in Decentraland. We know he's got some Bitcoin. We know he's got some Stablecoins. And they can say, well, this is the digital
value or how much we're willing to lend you. And the other thing that we're now seeing
is credit scores.

So a project called Aave, which they're building
on Ethereum, they recently got a financial services license in Europe. And that is a big deal. So now it can start to build credit scores. Because at the moment, most things are over-collateralized,
or I've got to have some assets backing up to get loans, because I'm not going to lend
a random person on the internet a lot of money.

They're going to go off with it. So what we're now transitioning to is from
over-collateralized or fully collateralized to genuine loans and trust scores. And so I can build a digital reputation, and
this is the merging of the two worlds, DeFi and traditional finance. And this is where it gets very, very exciting. It ties in everything. So I can have NFTs as collateral and tokens. I can use my stablecoins. Maybe I want to use some tokenized gold. So recently, in Decentraland, they had a soccer
tournament, and the winners got a gold trophy. But the gold trophy was minted from real digital
gold tokens. So this is just like everything, this Cambrian
explosion of everything– RAOUL PAL: There's the Paxos ones, or whatever,
which are backed by gold. ALEX SAUNDERS: Similar, yes, similar. RAOUL PAL: So it's a gold trophy that has
the value of gold. But it's [INAUDIBLE]. ALEX SAUNDERS: Right. And if you win, and you say, you know, I don't
really like a gold trophy, I can go to Ethereum, go to a protocol, and melt that down.

And click a button, and it gives me back 20
grams of gold tokens. And I can go sell those on the market if I
don't like the gold trophy. So everything is tokenized, and the possibilities
are mind-blowing when you start to think about all this. RAOUL PAL: Yeah, I mean, there's a lot to
understand. It's moving so fast. And people are just really doing testers. I mean, we're nowhere in the journey. There's just so many tests. So it's the DeFi thing I want to really dig
into now, because– so we had a crypto market, started with Bitcoin. Bitcoin was a currency. Originally, it was an idea. I'm not entirely sure it's a currency.

I'm more thinking it's a reserve asset or
a store of wealth of some sort. And we'll talk a bit about that reserve asset
idea that I've been talking about, collateral. But then, when we start creating all the other
cryptos, and the tokens, and other stuff, and from it, out pops a money market, which
is a lending market, right? So for this financial system, my viewpoint,
for this financial system to take real hold is you need a time value of money, because
that's how the world works.

If I'm going to lend you money for 10 years,
I need to get paid a rate of interest for it. The world has always worked that way. And however the interest gets paid– whether
it's in streaming returns, or whatever it is, it doesn't matter. I want something in exchange. You might give me some tokens instead of something
else. But this DeFi revolution that's going on–
and I want to talk through all the [INAUDIBLE] because I don't understand any of them– this
is the short-term money market trying to be established, where we've got a lending market
going on. Talk me through, just at top level, what that
is, what's going on, and then we'll dig into some of the projects. ALEX SAUNDERS: So as you say, yeah, there's
a high demand at the moment. And the high interest rates available were
floating around the 5% to 25% mark. And some–
RAOUL PAL: So that's a year, or a month, or– ALEX SAUNDERS: That's annual yield, sorry,
yeah. And now, that was basically a function of
supply and demand and a little bit of risk.

And now we're getting into these layers upon
layers of risk, where people say, well, I'm going to go and deposit in these other contracts. RAOUL PAL: So sorry, just to back up one sec,
who's borrowing this stuff? You've got your Ethereum. You want to lend it out. Who's borrowing it? ALEX SAUNDERS: So some traders are borrowing
this, some projects that need liquidity for their– well, the two things that have really
exploded are the DEXes, so the decentralized exchange, where any person can swap any token
with another token with anyone else.

And what they basically created there was
this automated market makers, where anyone can become a market maker. And rather than having to do it on an exchange,
anyone can contribute any amount of liquidity, big or small. So all of sudden, everyone's pulling their
tokens in and saying, yes, I'm happy to lend those out or add liquidity to earn some fees. And where the protocols are trying to attract
everyone is offering them a token. So they're saying, Raoul, if you come and
offer your Ethereum and some stablecoin as a pair and add liquidity, we'll give you some
Nuggets News coin, which is like the governance token– almost like shares in this protocol. And that gives you a right to all the fees
for everyone that's exchanging value.

And now, just recently, some of these– like
Uniswap, you might have heard of, surpassed Coinbase. So they're doing billions of dollars of transactions. And if they're taking these clip and earning
millions of dollars a day, who's getting all this revenue? Well, we've cut out the middleman. We've cut out the building in all the overheads. This is just now software, and all that revenue
goes to the tokenholders, the governance tokenholders of those individual projects. RAOUL PAL: And who's using Uniswap? I mean, because to most people watching this,
again, some people will know everything about all of this, and other people will be going,
well, who the hell– where is this volume coming from? ALEX SAUNDERS: Well, a lot of it is trading
and speculating, for sure. But a lot of it is people saying, well, I'm
going to go buy some land in Decentraland, so I need their Mana token. Well, I want to go and buy some gold and silver
tokens, and I'm going to trade that against Ethereum or a stablecoin. Or I want to go and experiment on that other
project over there, so I need their tokens.

So it's just people that are trading different
tokens. Another part of this that's got very, very
interesting recently is Bitcoin. So Bitcoin being, we call it, wrapped. And it basically turns Bitcoin into an Ethereum
token. And that just recently has surpassed a billion
dollars. RAOUL PAL: Much like the US dollar is– the
stablecoins are US dollars wrapped in Ethereum, right? ALEX SAUNDERS: Exactly. And again, there are scales of this. So there are centralized companies that are
basically storing your Bitcoin and giving you a wrapped Bitcoin, and there are decentralized
companies that are doing the same thing, but with software. So instead of trusting the company, you're
trusting the smart contract to lock up your bitcoin and give you a wrapped Bitcoin, a
digital Bitcoin. And so now you can say, well, what we are
seeing is a lot of Bitcoin coming to get the yield.

So rather than just HODLing and waiting for
it to go up over time, there's some very attractive yields now on Bitcoin. And so I just think this is giving it more
and more value and utility. But getting back to your first question, what
we're now seeing is the yield curve. So the money markets are maturing, and there
are projects that are building out that yield curve and offering some stability. Because one day, it will be 10% APY, and the
next day, it will drop to 5%. And people want certainty if they're going
to lend and borrow money. So yes, the yield curve and the money markets
are very much maturing. RAOUL PAL: I was thinking this through, and
eventually, because of the nature of the asset of Bitcoin, most people hold it for longer

So that's perfect as a collateral asset, particularly
as its volatility goes down over age, and size, and everything else. So you've got this asset now which is proven
ownership. It's like pristine collateral, as I call it. It's like you prove the ownership, it's immediately
transferable, it's immediately ownable. It's not like gold in somebody's warehouse
that might have been rehypothecated. So it's verifiable, and it's instantaneous. So if I'm going to give you any collateral
because I want to borrow some money from you to do something, you're more likely, once
the volatility has gone down over time in Bitcoin, to lend it to me for a premium. Which is a weird world, because we're used
to pristine collateral– US Treasuries, which aren't pristine, but they're the best we've
got– trading at the lowest risk rates.

It's weird, because that collateral is actually
riskier, because there's more gets issued all the time, so there's no rarity in that. Yes, it has an income stream, but the income
stream seems to go down over time because the yields go down. And the currency that it's in over time gets
debased, whether it's small fractions or in larger times, depending on what's going on. While crypto, with Bitcoin, there can be no
new issuance. Nobody can debase it. Nobody can issue more of it, because nothing
can happen to it, so it's pristine. It's like giving you a van Gogh and saying,
OK, here's my collateral. ALEX SAUNDERS: I'm going to try and tie this
all together in 60 seconds on why I think things have really changed this year. Why are people buying stocks and still speculating? Because there's that growth aspect to it,
but there's also a decent yield on a lot of these. But they are relatively scarce. So even if Apple print 5% more shares, that's
still not as bad as the Fed and the US government staring down the barrel of these $3, $6 trillion
deficits and having to add this the liquidity, and print money and just inflate them, too,
by 10% or 20%.

So if you just put aside all your preconceived
notions of value and just say, how scarce is one thing compared to another, we've got
this food chain of people no longer really trusting the US dollar as much as they used
to. And then, as you said, bonds, they are going
to be that scarce as they once were. Do we trust the US dollar as much as we used
to? The yield on these are now– it's a pittance. And then you say, well, shares. Is Apple going to print more shares? Is that more scarce than currency? I'm not sure.

And then you go down and say, this is why
gold is, obviously, so attractive in this environment. Even tokenizing digital gold, you can get
a good yield on Ethereum now. But then you go down that food chain to Bitcoin,
and you say, well, hold on. This is the most scarce asset I trust it. I know what it is. Compared to everything else out there, it
is just way more scarce in terms of the trillions of dollars that's going to have to be monetized
in one way or another, either through bond issuance or the Fed directly monetizing it–
whatever it is.

But now, you can get a yield on that as well. This is really incredible. And in terms of Ethereum– which, in my mind,
is the second blue chip cryptocurrency– we can get a pretty decent yield on the Ethereum
token. More so on the stablecoins and other elements
of that space, but Ethereum is about to make that big move to proof of stake, where you'll
be able to lock up your coins and, basically, get a dividend, a yield, a reward. RAOUL PAL: The proof of stake change is, again,
further cementing a money market, because you have to have the time value of money while
it's locked up. ALEX SAUNDERS: Yeah, and we're already seeing
people– you know how we just spoke about wrapping up Bitcoin to put it on Ethereum. People are already wrapping up Ethereum to
put it on these other chains, because Ethereum is clogged now. And they're saying, I don't want to wait for
that layer 2 thing to be ready, and production-ready, and trusted.

Let's go use– I'm trying to think of– there's
probably none that people are familiar with. But basically, you can wrap up Ethereum, and
put it on another cryptocurrency, and send it to you, and then you unwrap it. And that saves paying fees. RAOUL PAL: And a lot people will say, well,
bloody hell, there's all these tokens, and who knows what anything's worth. I look at that and say, look how ingenious
this space is. You said problem, solution comes. Because all you're trying to do is clear all
obstacles to get value from A to value to B and realize that value. And people are clearing all the obstacles
and making it worthwhile doing it as well. ALEX SAUNDERS: Yeah, now I should preface
it by saying, like I've always said from day one, that 99% of these are going to fail,
and they're junk, and they're scams. But I just believe if you are betting against
Ethereum, you are betting against thousands, tens of thousands of the smartest people in
the world trying to solve every problem from the gaming industry, to the music industry,
to the finance industry, to building a new internet.

And these people are leaving Silicon Valley,
they're leaving their banking jobs, and they're coming to work– and out of their own pocket,
sometimes– for years. And now, all of these guys are millionaires
or billionaires, and they've got that capital behind them. They don't have to go and get on their knees
and beg VCs to do this idea.

And the VCs say, well, just change this, that,
and the other, and then we'll let you do it. This is pure free market capitalism. And it is no surprise that this stuff is growing. As I said, the stablecoin market is testament
to that. 1,000% year-on-year growth, and I think it's
going to grow 1,000% next year. RAOUL PAL: I mean, what's interesting, as
you say– and you raise an interesting point– is the space is starting to self-fund itself. Because the people who made– the OGs of Bitcoin
originally created large businesses. Those businesses generate cash. They've got VC operations. So it's just
money staying within the system.

They don't even need all the other guys. ALEX SAUNDERS: Yes. RAOUL PAL: And Jason Horowitz and a bunch
of these guys have walked into the space seriously, but there's so much capital within the space. ALEX SAUNDERS: Absolutely. So there's a decentralized funding program
called Gitcoin Grants. And literally a few hours ago, someone, they
opened up the next round of grants, and our first grant was $1,000. And I can go hire a new junior researcher
to help find the best Ethereum projects and do more research. And for the first time ever, a project that
has just absolutely boomed lately, they donated more to this pool of money than the Ethereum
Foundation. So there are thousands of dollars that are
getting given to all these grassroots projects directly from anywhere in the world. You don't even know who gave this to you a
lot of the time. And this is the community. And a lot of this just happens on crypto Twitter. People will say, that is a fantastic idea,
and the guy's a billionaire, and he just sends you $10,000 to your Ethereum address and says,
good stuff.

Keep up the good work. And this is just an unbelievable space that
this is happening. RAOUL PAL: It's very self-reinforcing. It's really even– I was talking about this
with Santiago Velez, about the tribalism in the space, which actually makes it stronger
because it's like the clash of the tribes all the time. So everybody's testing each other's protocols. Is that one shit? Is this one shit? But what you're doing is eventually, the tribes
are gathering around a few places. Those have been really well-tested now, and
those guys are very protective of it. So it just makes a very robust environment. ALEX SAUNDERS: Yes and no. I would agree on that in some ways.

It's great. We need competition in that regard. But what's happened in Ethereum this year
is the opposite. It's almost like– we call it the DeFi LEGOs,
because they all snap together. And people are saying, oh, well, that lending
app, oh, I can just snap that code into my gaming app, and it works together because
of the composability. And now we've got hundreds or thousands of
projects on Ethereum that aren't tribal. They're the opposite. They're saying, hey, if we can all–
RAOUL PAL: No, I mean– I would mean tribal Ethereum versus Bitcoin, and stuff like that. ALEX SAUNDERS: Yes, absolutely.

But I think another important aspect I want
people to understand is the fact that almost the opposite is happening on Ethereum, where
everyone sees each other as creating the network effects that– Metcalfe's Law, where if we
have 1,000 projects that are all very interesting, and have different features and utilities,
and they're composable, we start to snap these together, and now there's
a million possibilities and that is what is happening at
the moment. I like– insurance has recently popped up,
for example– decentralized insurance.

ALEX SAUNDERS: You say, hey, I'm not going to put a million dollars into that lending
protocol. It's probably going to get hacked. Well, now you can insure that. So every problem that is coming up is being
solved, and some of these are being solved within weeks or days. It's insane. RAOUL PAL: So talk me through– and I got
lost in some of this– Yam, Sushi, blah, blah, blah. There's a ton of this stuff going on. What are these all? Because everyone will see them on Twitter,
and nobody knows what they are, and before you know it, they've gone under before you
know it. ALEX SAUNDERS: Oh, yeah, and look, I got my
fingers burnt a little bit the other day as well. So this is a high, high risk space, and if
you're a beginner or even intermediate, you should not be dabbling in this space.

What's happened is the Uniswap example we
gave before, the DEX, decentralized exchange, that was originally funded by some VCs. And you mentioned Jason Horowitz and some
of these really good firms. So look, in my mind, those guys that were
the early backers, they deserve good rewards. But one of the things that the ICO movement
started was the decentralized funding, more of a level playing field than going to the
VC market– those different rounds, and having to bend the knee, and this, that, and the
other. But then it went too far, and we saw all the
scams and whatnot. So we're trying to make a fair way to raise
money and have ownership over a project. That's the problem that we're trying to solve.

And what people are now saying is, well, should
those be– RAOUL PAL: Right, because people sell their
tokens and then go away and don't do it. ALEX SAUNDERS: Well, in a scam example, yes. But in the example is, well, should a VC get
rich if it's the community that are the users and paying all these fees? And so what's happening now with all these
Sushis and Yams and that, they're basically cloning the open source code.

So they're just copying Uniswap and calling
it SushiSwap. And they're saying, instead of the VCs making
all the money from all the fees, here. For the first two weeks, everyone that uses
our protocol, you're all going to get these governance tokens. You're going to get Sushi tokens. And at the end of the two-week period, you're
all going to own this protocol. And a billion dollars moved from Uniswap to
SushiSwap out of $1.4 billion. Now, this gets to another question. They call them "liquidity locusts." Are they going to be loyal? Or are they just going to go to the next one,
and the next one? And that's what we're waiting to see. But what they're trying to do is give ownership
to the community rather than the VC.

So even though these VCs are good people,
I would say, in Uniswap's case, and Hayden Adams, the guy behind that, worked very hard
for many years. So it becomes an ethical question– well,
should those guys get the rewards, or should the community be the owners of all these different
protocols, and should they split the rewards, and get all the dividends, and remove the
VCs? RAOUL PAL: Sounds like robbery to me. ALEX SAUNDERS: It is an ethical question. It is an ethical question. Who should get all the profit? RAOUL PAL: Because if you build a Uniswap,
and you've had to get in. You build Alex Project. ALEX SAUNDERS: Yes. RAOUL PAL: AlexSwap. You've put your blood, sweat, and tears. You've gone around on bended knee to all the
VCs who've listened to your thing, put their risk capital in so you could build your business,
and the next day, I come along and say, ah, it's not AlexSwap any longer, it's RaoulSwap.

I'm doing it over here, same terms, but I'm
going to give some free tokens– ALEX SAUNDERS: Yes. RAOUL PAL: That's–
ALEX SAUNDERS: But then, the next day, someone else comes along and makes Real Vision Swap. And so you say, well, where is the loyalty? What do people want? It's whoever delivers the best user experience
and the lowest fees, to a point where they can still make money. And it's all–
RAOUL PAL: Maybe. ALEX SAUNDERS: It's an equilibrium. RAOUL PAL: Maybe it's just perfect competition,
and what we haven't done is erode the super- normal profits yet. So when the profits collapse, or the yields
collapse, too, same as money market rates in the US or whatever, that's the end of that
game. So everybody–
ALEX SAUNDERS: Or people say, well, why would I do anything if I don't have a moat? And then, this is like, we're trying to find
out what the happy medium is.

Because we don't know, and if people are going
to keep all these projects open source, then anyone can come along and copycat those. RAOUL PAL: And there's something, also, inherently
good about lots of failure, because the space is super enabled to test ideas. And if it fails, people just laugh it off. I mean, yes, as long as you're not putting all your belief in the new new
thing– you see Arthur Hayes and people like that and go, oh, Christ, that one went to
zero. OK, but what they're enjoying is actually
the testing of ideas and seeing boundaries getting pushed, pushed further out all the
time. ALEX SAUNDERS: Yeah. RAOUL PAL: And that's what I think is amazing. And people are really tolerant of it. ALEX SAUNDERS: The other day, the SushiSwap
one and the one I was saying that I got burnt a little bit on, where the lead developer
basically solved a lot of his tokens at once– like dumped $10 million of tokens. And so he's lost the trust of the community.

And again, that is a learning lesson, where
the next iteration of a different project, or the same idea, whatever it is, they will
say, well, we need to time-lock the contract for the tokens of the developers. And everything, every failure, will improve
upon. And that's where I really think that I don't
like the over-regulation that happened after the ICO boom. I think people have learned their lesson,
and people aren't going to throw money at stupid things again, and they're going to
be more cognizant of scams.

If you had kept that completely free market,
I would have thought that people would learn from it, and that people would teach their
friends about, well, don't do this, that, and the other, and be careful of scams. And I think we're going to find a happy medium
of, well, how do you protect people, versus how do you just allow pure innovation to spread
and everyone to try every idea? Whereas, have we over-regulated? I think in some countries, we have. In others, we haven't. RAOUL PAL: So do you think that, as more and
more money piles into the DeFi space in search of yield, that yields are just going to converge
to standard Fed yields? ALEX SAUNDERS: They will always be slightly
higher .

I see them maybe settling around– if we get into a couple of trillion dollar
market cap, which I think we going to in the next few years, I still think you'd probably
get natural rates of growth that we saw like pre-2000s– 5%-ish, call it. RAOUL PAL: Well, that is probably more like
a junk bond market. And by the time you hedge that risk– which
is the Nexus Mutual thing, which is the insurance, it's like buying CDS on your junk bonds–
and so your final yield might be 3%. ALEX SAUNDERS: And at the moment, some of
these things that are offering crazy high yields, the yield number that you're seeing
on the screen, when somebody says it's 1,000% yield, that's because you're getting that
governance token. And the market is paying a huge premium for
that. Everyone wants to own these new projects and
get in early. And so when you see, oh, it's 1,000% yield,
it's not really like they're paying you 1,000% in stablecoins. It's you're getting this governance token,
which is worth a fortune at the moment. RAOUL PAL: So in the old world, you're getting
bonds plus shares.

ALEX SAUNDERS: Yeah. RAOUL PAL: So yeah, you get dividend plus
warrants. You see that kind of structure quite a lot. So you get a bit of upside in the thing if
it takes off, but you get yield as well. And I mean, that's pretty attractive. But still, I mean, those rates are still pretty
high. ALEX SAUNDERS: Yes, and I just think that
it's– water always finds its level. And if you've got negative interest rates
in the real world, even if– they're going to bring in these digital dollars. And, I'm not sure if you want to talk about
the central bank coins, and the government coins, and whatnot. RAOUL PAL: Yeah, talk about that. ALEX SAUNDERS: Are they going to program in
negative interest rates onto these digital currencies to penalize people? And then, do you say, well, hold on, why don't
I go to a Tether? And they can't program in negative interest
rates– RAOUL PAL: I mean, the logical conclusion
that we've reached, we are pretty much at the end of the ability to use monetary policy
as a driver of economic policy.

Sure, there's some stuff we can do, but we
know that most of it is now effective. So the law of diminishing returns has set
in. That's one of the key reasons. There's a bunch of other reasons why the central
banks want to use digital currencies. What I'm interested in in this whole space
is the ability to completely reinvent monetary policy and fiscal policy at the same time
as part of the same thing. Because I can give you– I can give Alex $1,000
and a 10% yield, because you're young, and you're an entrepreneur, and I want to make
sure you're supported. And I can give the baby boomer 10% yield and–
a different yield and a different thing. I can offset your tax credits, or your tax
could be charged out of it, so it's net of taxes.

I mean, everything can become a lot simpler. Now, a lot of people don't like it because
of the heavy hand of the state. Well, get over it. You've got roads. You've got cars. You've got hospitals. Part of it is the state. If you want to get over it, do what I do. I live in the Cayman Islands. Or, as you said, digitally, you probably can
get out of it. But you're going to be breaking the law at
some point, because at some point, you have to cross the tax system. And you have the freedom to choose to move. And if you don't like your government regime,
go somewhere else. And that's OK. And same with– we'll come to the currency
side. But I just think we're going to reinvent what
monetary and fiscal policy is. ALEX SAUNDERS: Yeah. RAOUL PAL: Because I can do it to different
people precisely and exactly. I can have a different tax rate for you–
because you, I think, are going to be great risk capital for the future of my country–
and those guys differently.

I can do anything, down to the individual. ALEX SAUNDERS: And if you think about like
the macro– which I've learned so much from you guys over the years and other smart people
out there– and you talk about the debt, demographics, and deflation, well, I've got two more Ds. So I think everything digital and technology
is deflationary. And I think we're really going to have to
have conversations about overpopulation if we keep growing. And there's not going to be as many jobs as
what software is going to do. And then, you've also got D, danger. So whether it's COVID or civil unrest in these
cities in these highly-populated areas, what happens if we do go to a recession? RAOUL PAL: Is that not a function of population? That's a function of population as well, I

ALEX SAUNDERS: I think it's population in
the CBDs. So why are people going to live in these concrete
jungles where there's– if we're in this recession with no jobs, and it's more expensive to live
there, and there's no fresh water, food, clean air, I think we're really going to see the
way that we live our lives changed because of digital AR, VR, working from home. So that's the kind of things that I think
we're facing. So you say, well, how are we going to pay
off everything that we've borrowed from the future– these 26 trillion in the US, or 100
trillion unfunded liabilities? That has to be monetized either by the sale
of the bonds, the printing of US dollars, or defaults, or whatever it is. So that is the situation that we are staring
at in terms of the traditional world. And then you've got this other world, which
is natural growth, everything is collateralized, there's no debts. As you said, it's almost like the perfect
collateral, the hardest collateral– whether it's Bitcoin, or Ether, or some of these other
gold-backed tokens.

I think that world is where people are going
to want to be. And I just think that that's where monetary
policy is facing so many challenges, because you say, well, how do we print money if people
know that they can park in a scarce asset? How do we deploy negative interest rates if
people know that they can go on parking in Tether, or gold, or Bitcoin? How do you stop that? And so more and more people are going to opt
out of that traditional finance system and opt for this newer system. RAOUL PAL: The genie is out of the bottle,
and that's the problem. I said that when Facebook talked about Libra. It's like, OK, the genie is out of the bottle.

You can try and stamp down Facebook, but a
basket of global currencies is coming, and it may not be denominated in dollars. It may be just a basket of currencies with
dollars. And that becomes a whole stable currency for
the whole world. That's a zero-vol currency. ALEX SAUNDERS: The thing that I think that
everyone is still missing with this conversation around stable coins is Chinese government
want to launch this digital yuan. Then you've got Jamie Dimon wants to launch
JPCoin, and Zuckerberg that wants to launch Libra. So you've got the corporate world, private
world, and then you've got the central banks that want to launch Fedcoin. So that's actually those three that are in
the battle, that all want to stay relevant. And then we have the Bitcoin crypto world,
which is the fourth option as well. So when people say, well, they won't let this
happen, if the Fed launch Fedcoin and everyone can have Fed app, and have a direct ledger,
and transfer money to them, you almost make the commercial banking system irrelevant. And that is really going to upset Jamie Dimon.

But then, the Chinese government aren't going
to like that either, because the government want to have control over all their citizens,
and they want the world to use the digital yuan, which is a government-issued coin. And so you're going to have this battle between
the commercial banking system, the central banking system, and governments, and then
the crypto world. RAOUL PAL: And you've also got rid of the
need for SWIFT.

So the problem the Chinese have is the Americans
can block the flow of capital. Well, that's gone overnight. So the Americans don't get the exorbitant
privilege of having a reserve currency by owning the payment system. ALEX SAUNDERS: And if we want to talk about
the eurodollar system– and this is something that Brent and I spoke about the other day. And I think even you've changed your opinion
on this a little bit. It's like, I've started to think about the
dollars outside the US, the eurodollars, as almost a separate currency to the domestic

And it's kind of unregulated when you compare
it to the rest of the global currencies. And yet, it's still the Fed's problem. So the Fed have got this big problem that
they're trying to fix here, but then there's these $10 or $20 trillion problem here. And when they say, oh, we're going to print
a trillion dollars, and people go, oh, that's so much, well, it's not, really. Because there's this huge demand for dollars
to pay down all these external debts, as well as their internal problems. But now you've got this new payment rails
with my– I joke about it and call it the thick shake theory, because it makes the old
system look like your I trying to suck thick shakes through straws, compared to everyone
with a digital rail and smartphone in their hand, moving all these dollars around the
world instantly.

So that's where I think they're going to face
a huge problem. And I don't think it's even that much of a
privilege anymore. I think that's where I've changed my mind
a little bit, that it's almost becoming a bit of a burden on the US to have this other
external problem to try and solve. RAOUL PAL: It is a burden, but the burden
still remains on the debtors more. So the debtors, it's a real problem. It would normally function if the European
and the Japanese banking systems functioned. But debt changed, right? The regulation changed, Basel III and a bunch
of other stuff, and just how bad their banking systems have become– the rotting carcass
that's left. So you took out the velocity part of the equation. So they would have direct access to the Fed. In the old days, Deutsche Bank US, fungible
with Deutsche Bank Germany, lent to everybody. OK, endless supply of capital, It flows around
the world. No problem.

The rules change. That office is not fungible with that office. And these guys in Germany now don't have enough. So they're playing musical chairs with all
of the people who've borrowed it. And the Japanese are doing the same, and every
bank is doing the same. ALEX SAUNDERS: So bear with me here. Can we solve this problem with our new digital
payment rails? So tying together everything that we've spoken
about today. If you're in Russia or China, and you don't
have a SWIFT system, or they're blocking, or you don't have a swap line, the Fed aren't
giving you that privilege, what if you now tokenize your house? Vladimir Putin tokenizes his house, and he
goes to the Ethereum protocol, and then he can now mint stablecoins against that as his
collateral, or his bitcoins as collateral, or all his gaming swords that he's been playing
games in Decentraland.

RAOUL PAL: The problem– yes, I mean, you
can. But when you're dealing with governments,
who are dealing with military as well. Collateral is not as meaningful– yes, Bitcoin
is possible, but the problem is, the Russian state is–
ALEX SAUNDERS: So where I'm going with this is not to do with the governments, though. If Vladimir issues and mints all his own stablecoins
to himself– so the Ethereum protocols, the software, all these different apps will let
you borrow against whatever collateral, as long as it's digital. So everyone around the world in these different
countries meets their own USD stablecoins, and there's an unlimited supply of these. You can meet them as long as they have collateral. And now, these digital stablecoins can go
down to pay these US dollar debts. And somewhere, if they go back to the Coinbase,
or the USDCs, or the Tethers, they have to be paid.

And this is where you get into this food chain
problem of, where does that money come from? And if it's Coinbase, that have JPMorgan doing
their retail banking, and JPMorgan have got the Fed behind them saying, hey, we've got
more demand for these dollars coming in– because they've got these reserves, and they're
happy to lend them out if there's demand and projects– this is the food chain that stablecoins
are going now. RAOUL PAL: Well, the issue is here– and you're
right, but it's not– I don't think the architecture of the systems is there yet, because the problem
is the debt.

So I'm a South Korean car company, and I've
borrowed in dollars. And I've borrowed from the Bank of Alex, and
I now need to roll my debt. The Bank of Alex is like, everyone's asked
me to roll my debt. I don't really have the capital. I've been regulated, right? So now it's not a matter of money, me giving
you liquidity. You're like I can't do it. So how do I get that? Right now, the Tether system– which could
work, because you could hack, basically, the Fed direct to the South Korean corporate,
right? Which is what we're talking about. Because right now, you have go swap line,
to banking system, to corporate. And bits of that are broken. So let's say you go stablecoin from US bank
branch, stablecoin, South Korean corporate. They're not after the cash to pay the loan. They're after the loan. So we need to have a money market that's three
years, five years. We don't have any of that yet. We're still fighting over a world of what
money's worth in this.

So yes, I mean, it changes– again, it's the
same example as the central bank digital coins, because everybody can pay anybody directly. And it's the same with that. So they can handle liquidity. And it becomes– it is a problem for them,
because why do they care about the bloody South Koreans? ALEX SAUNDERS: If you think about it, it's
this super fluid system, with money, digital dollars, and digital yuans, or whatever it
is, floating around the world on the Ethereum rails. As soon as you've got collateral, and you
can mint stablecoins, and then you can go to an exchange and sell those for actual US
dollars at 1 to 1, then you can pay down these US-denominated debts. And that's the thing that I keep–
RAOUL PAL: No, because I'm the borrower, right? So I've borrowed, for my car factory, $100

I've given you the collateral already. So the collateral is already there. The problem is I need to either borrow more,
or I need more money to service my debts. ALEX SAUNDERS: Oh, you're talking about servicing
your debts, yeah. And I'm coming at it at a different angle
of more about how do we address the shortage of supply of US dollars that's been constrained
by the banking system? Whereas I think you're talking about more like solvency problems,
and economies slowing down, and how to actually pay down the debts that they've taken on. RAOUL PAL: Yeah, because the banks– see–
yeah, I mean, there are two problems.

There are two problems. And what–
ALEX SAUNDERS: I just love thinking about this stuff. I just think that it's going to play a very,
very important role that central banks, governments, and retail banks aren't really considering
at the moment. These rails are going to be able to address
some of these issues. RAOUL PAL: Most of these guys are very, very
far behind where this space is going, and this space has always attracted– well, that's
a scam. That's ridiculous. But what they don't understand is these things
are being tested by the free market, a lot of very, very smart people. And everybody's doing minimum viable product,
iterate, improve, see how that works, move on. And at the epicenter of it all is this kind
of holy grail of perfection, which is Bitcoin, which acts as the solidifier for the whole
space, for people to know, yes, we can build from here. It's extraordinary what's going on. And to go back to the beginning of the whole
idea of the series we're doing right now is, has everything changed? And it's clear from our conversation that
even in the last six months, pretty much everything's changed.

ALEX SAUNDERS: Yeah. I think once you get rid of all your preconceived
notions, and say that everything currency is going digital– whether it's corporate
coins, government coins, or central bank coins– once it's digital, and they have a supply
and a value, and you compare the one that's printing trillions and the one that's scarce,
it's very obvious where you park your money to store your wealth. You agree with that. And the thing that I think takes us to $100,000
bitcoin is that the smartest people I know– the Brent Joneses of the world, Lyn Aldens,
yourself, these people weren't really around and advocating in 2017 when we had that sort
of retail boom.

And I think we've got some very, very intelligent
people that understand all the different aspects. Because Bitcoin is so multifaceted. To some people, it's a payment system. To some people, it's a store of value. To some people, it's actually the hardest
computing network and most secure, and we've got Microsoft piggybacking off that. So that has value in and of itself. So Bitcoin is so many things to so many different
people. And the smartest people in their fields are
saying, Bitcoin, super bullish. And when all the smartest people are saying
that, it's no longer YouTubers or retail speculators. It's people that are followed by high net
worth individuals and sovereigns.

MicroStrategy last night came out and said
we've bought another $125, $175 million. RAOUL PAL: I'm speaking to Michael tomorrow. So It will have been out by the time this
is out, I think. It's going to be [INAUDIBLE]. ALEX SAUNDERS: So who knows? It's– yes if every company on their balance
sheet is just hoarding Bitcoin, this is incredibly bullish. And I always said, no one wants to be first,
and then, no one wants to be last. And it is a matter of time until the first
sovereign– even some of the governments now that are beginning to talk about hoarding
gold– why wouldn't you, when you've got your printer going "brrr" out of thin air, buy
as much Bitcoin as you can before other people notice? It might already be happening. RAOUL PAL: I'm sure it is. ALEX SAUNDERS: And that's what I think. When people say everything's changed, I don't
think China are going to be able to buy up commodities off Australia or the US by money
printer go "brr." And we're already seeing hoarding of commodities
in the news.

People are going to start to say, what is anything worth when everything
is just backed by nothing in the fiat world? Am I going to keep giving you all my oil,
all my food, all my land to money printer go "brr" in these different countries? RAOUL PAL: Well, there you go. Perfect, Alex. That was a really, really great conversation. Loved it. I think it was a lot for people to digest
in this, a lot for me to digest as well.

So appreciate getting you on. And you've got a fantastic piece coming out,
a whole piece about the whole ecosystem of Ethereum on Real Vision. I'm not sure when it comes out, but it'll
be out in the crypto channel. So it's super exciting. ALEX SAUNDERS: Yeah, I appreciate everything
you guys do, and thanks for having me on, Raoul. Yeah, cheers. RAOUL PAL: Perfect. JASON ZIEMIANSKI: Do you like what you see
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