Welcome back. Lucas was out sick this week, so TC crypto reporter Jacquie Melinek subbed in as co-host to talk with Anita about the biggest stories in web3 this week. They discussed whether Sam Bankman-Fried is the savior crypto needs as more and more companies declare bankruptcy and unpacked the drama behind the fight for a U.S. Bitcoin spot ETF. In this week’s interview, Anita chatted with Tux Pacific, the founder and CEO of Entropy, a startup that just raised a $25 million seed round led by a16z for its decentralized crypto custody solution. Pacific, one of the rare trans and queer founders to have raised institutional funding, dropped out of college to teach themselves cryptography. They describe themselves as an “anti-capitalist anarchist” and spoke with Anita abut why they think decentralization is the only way crypto can succeed.
Welcome back. Lucas was out sick this week, so TC crypto reporter Jacquie Melinek subbed in as co-host to talk with Anita about the biggest stories in web3 this week. They discussed whether Sam Bankman-Fried is the savior crypto needs as more and more companies declare bankruptcy and unpacked the drama behind the fight for a U.S. Bitcoin spot ETF.
In this week’s interview, Anita chatted with Tux Pacific, the founder and CEO of Entropy, a startup that just raised a $25 million seed round led by a16z for its decentralized crypto custody solution. Pacific, one of the rare trans and queer founders to have raised institutional funding, dropped out of college to teach themselves cryptography. They describe themselves as an “anti-capitalist anarchist” and spoke with Anita abut why they think decentralization is the only way crypto can succeed.
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https://techcrunch.com/2022/06/30/the-sec-rejected-bitcoin-spot-etfs-again-now-what/
Anita Ramaswamy 0:03
Hey everyone, its Anita. Welcome to chain reaction where we unpack and explain the latest in crypto news drama and trends, breaking things down block by block for the crypto curious.
During the second half of the episode, we'll be chatting with tech specific from entropy. Lucas is out this week. So I am psyched to have TechCrunch senior crypto reporter Jackie Melnick, joining me to talk about all the big news this week. What's up, Jackie?
Jacquelyn Melinek 0:28
Hey, Anita, how's it going? I'm happy to be here. I actually joined second week in a row. I know, I know, I'm becoming a regular on this chain reaction podcasts you guys got going on. But I'm happy to be here. Thanks for having me. Yeah.
Anita Ramaswamy 0:40
Thank you for jumping in on this. So yeah, let's dive into our first topic. It's been a continuously rough month for crypto and couple more crypto companies have gone bankrupt. So just to sort of give a recap of the last few weeks, you know, it all started mid June around there when Celsius a crypto lender suspended withdrawals. And since that time, a couple of different crypto platforms have done the same. So Vald it's a crypto lender, backed by Peter Thiel and Coinbase they announced that they were halting withdrawals earlier this week, as well as coin loan coin flex, and Voyager which we'll get into later, all of those crypto platforms have announced restrictions or outright halts on withdrawals in recent days. And I know this was all sort of related to a big, big event in the crypto world which Jackie, maybe you can tell us a little bit more about what the what the catalyst was for all of this.
Jacquelyn Melinek 1:26
Yeah, that's a good way to call it a catalyst. And it definitely was. So it was kind of based on the collapse of hedge fund three arrows capital, which was established in 2012. It is not a new hedge fund. It's been around for about 10 years, and it was a trusted investor in the defi space. And their model was kind of based on taking lots of leverage, as we've seen in other areas. And it basically ended up affecting all of these lending firms who kind of gave out loans, two, three AC, and what we kind of see right now, all these crypto lenders are interconnected. And we didn't really see that in the last downturn, because loans were often collateralized against crypto. And as Kryptos value has been falling, a lot of these borrowers don't have the money to pay back the loans. So it's definitely been a chaotic few weeks, as you mentioned before, and a lot of these like withdrawal pauses, and everything we're seeing is kind of a result of an interconnected loop, as we're seeing in this like crypto community.
Anita Ramaswamy 2:25
Yeah. And I think that's an interesting point. And that's kind of what I've been telling myself in terms of like, what is actually different this time around. I think this time around. When you look at the defi ecosystem, a lot of these lenders are actually so interconnected, because they're all lending to each other borrowing from each other. You know, it's the same sort of set of participants in a lot of cases. And when you talked about three AC, I mean, I was thinking back to that was actually part of what caused the original Celsius crash in the first place. And now it's caused Voyager, which is a publicly traded crypto broker traded on the Canadian stock exchange, but they're headquartered in New York to file for bankruptcy. They also had a relationship with three AC. So essentially, what happened is Voyager is related to three AC because they made a loan to three AC and three AC wasn't able to pay it back defaulted.
Jacquelyn Melinek 3:06
Yep, so the reason she was unable to pay back the $650 million loan that Voyager gave out, and it's not a small loan, I don't have $650 million. But if I didn't, I don't know if I'd be loaning it out. And I'm sure Voyager is kind of feeling that pain right now. Because basically three AC filed for bankruptcy, a chapter 15, one ordered through the British Virgin Islands. So a little different than what Voyager is going through right now with a chapter 11 bankruptcy. But basically, they said, We can't pay you back. And that really screwed over Voyager, Voyager, a little bankruptcy. A bankruptcy party that nobody wanted to have. Voyager, you know, is a crypto broker with like $1.3 billion worth of crypto assets on its platform. And as you mentioned, it's publicly traded in New York based company. And now they're facing a chance of being delisted after it filed for bankruptcy. And the chapter 11 Bankruptcy is pretty interesting. Because Celsius, which has not filed for bankruptcy yet, or ever, we'll see. They also were being pushed to file for Chapter 11 bankruptcy, which basically means like after it's gone through, anyone who has funds on the platform will have to immediately kind of sell them in whatever way that bankruptcy wants them to be sold, if that makes sense. So basically, in the sense of Voyager, they said in their press release, they don't intend on giving back users Bitcoin ether or whatever crypto assets they have on the platform, but more of like a little grab bag of whatever they will give them. So it'll be
Anita Ramaswamy 4:41
you put money on the platform and they go bankrupt and you get what you get. You get
Jacquelyn Melinek 4:46
you get a need. And you do not get upset, even though I'm sure there are a lot of upset people on this on this. I mean, so Varanger plans to repay users who deposited crypto with a To crypto, maybe some stock of the restructured company, whatever that isn't, whatever that is, whatever that. Yeah, whatever that is worth Voyager tokens, and then money recovered from three AC, if they recover it from three AC. And then it's interesting little caveat they have there, if you just put US dollars in and you didn't buy or trade crypto just straight US dollars, apparently you'll be able to reclaim that after they finish a process with the Metropolitan commercial bank. But that will be time to tell we'll see how that pans out.
Anita Ramaswamy 5:33
Yeah, which is really funny, because the whole point of putting your money onto a platform like Voyager is not to keep it in cash. So I assume a lot of those people who are gonna get paid back just maybe like move money to the platform and got lucky with timing because they hadn't invested yet. Yeah. And speaking of their cash position, I mean, they do have $1.3 billion worth of assets. But I was reading earlier today that overall, Voyager only has about $460 million in cash on hand. So that's including what they have immediately on hand and some extra on a bank account. So they can't even pay back all of their users in cash and total either, which is probably why they're feeling forced to offer the sort of grab bag, as you said, so I don't know, I don't know if people are going to be satisfied with that.
Jacquelyn Melinek 6:10
I mean, no, honestly, no, I was gonna say like, if I bought Bitcoin on an exchange, I want my bitcoin back, I don't want a mix of their fun little games that they're playing or creating. And I get it, they want to give value back to users. But users put value into the platform expecting to get or be able to trade or withdraw the amount that they took, or the amount that they deposited, I should say. So I think it's honestly pretty disappointing. And if I was a user of Voyager, I would be upset. But I also understand that this is voyagers like their backs against the wall. This is really all they could do, given the circumstances with three AC.
Anita Ramaswamy 6:49
So yeah, and I think a lot of people feel the same way as you that they would want their money back. So voyageurs stock was trading around $20 in November, and at the time of us recording this, it's since fallen to around 27 cents. So don't think people are pretty happy about this. And it does bring up the question, you know, which kind of goes into our next topic, like what else could blow up if all of these different lenders and exchanges are interconnected, it could be really scary stuff coming along. But luckily, for some crypto firms, there is someone who is very much willing to intervene and try to save some of these companies. And that is Sam banks been freed of FTX, which is the second largest crypto exchange in the world. And they announced this past week that they are planning to essentially bail out block phi, which the huge crypto lender and so I know we talked a little bit about this earlier, Jackie, like FTX. It's not just block phi, right, like they have really come in and they have positioned themselves as sort of a savior of the crypto industry. And what we were discussing earlier is sort of why is it that FTX is doing so well. And they have all this capital on hand to buy up different companies make acquisitions bail out, block fi, do you want to share a little bit more on your thoughts on that? Yeah,
Jacquelyn Melinek 7:57
definitely. I think, you know, as the crypto markets continue to downward trend as the second largest crypto exchange FTX seems kind of unbothered, they were last valued at $32 billion. Their team is pretty small and tight knit. And as you mentioned, they've become something of a savior in the industry. And Sam Venkman freed, he has said and has shown through his actions that even if they're not a part of his company, he wants the crypto ecosystem to succeed. And they have had a lot of capital saved, and basically to acquire and manage and help those who are drowning right now. And we saw this with block phi even offered a helping hand to Voyager. Interestingly, though, they did not offer any deals to Celsius, which kind of raises a question of what's going on internally in Celsius. Because if they're helping out all these other massive crypto lending platforms, it's interesting to see that they didn't offer one to Celsius. But I digress. Basically, I spoke to mark Weston, the head of policy and regulatory strategy FTX. And he told me that, like their priorities have not changed, regardless of the market conditions, they're gonna continue to deploy in capital, they believe in this space, and they see it being successful long term, even if some do go belly up, unfortunately,
Anita Ramaswamy 9:13
right. And I want to dig a little bit more into this idea of what has set FTX apart. I mean, the largest crypto exchange is by Nance globally, then you have FTX. And then the third is Coinbase. And so you know, we've heard a lot in the news lately, and Lucas, and I've chatted on past episodes about Coinbase getting hit pretty hard. And I think I mean, you know, one of the big differences, at least that I see is that FTX has a ton of institutional customers and they make most of their money off of trading fees. So not only have they been potentially more discerning about their investments, you know, not extending that lifeline to Celsius. I mean, who knows what's going on there. They've also been really smart about their business model. In terms of diversifying, they announced that they were moving into just regular equities, I think it was last month. And aside from all of those strategic moves, they also have kept their business super small, whereas Coinbase you know, it seems like they really over hired and then they ended up Having to like rescind offers that they had already extended and things like that. So it's just interesting to see strategically the contrast between how FTX is positioning themselves. And it reminds me of a tweet that I saw at some point this week, which was likening what SPF is doing at FTX for the crypto industry to what Jamie Dimon did for a lot of the failing financial institutions in 2008.
Jacquelyn Melinek 10:17
Yeah, no, I saw that as well. And it's super interesting, because like going off what you said in the comparison of binance, FTX. And Coinbase. Coinbase is like very us focused and like FTX and by Nance are very globally focused and have like, a smaller presence in the US, I would argue, even though like FTX, is kind of getting into Congress and getting into the regulatory scene in the US, they also are looking at the Global aspects. And they're also investing in US companies. So it almost seems like these, like global crypto exchanges have a stronger hold on the whole industry than perhaps Coinbase, which is, as we mentioned, US centric. And I think a lot of factors have to play with it, especially the way you mentioned it with Coinbase is hiring. They're definitely not the only ones who have over hired and now are taking a step back from hiring. We've seen this across the industry, but FTX has definitely held to their reign, and like now they're benefiting from it, and they're able to quote unquote, be the savior and help the industry back.
Anita Ramaswamy 11:14
Right. And just to circle back to the block fi thing. I mean, they have made this deal, they've agreed that they're going to acquire block five, but the purchase price is still being negotiated. And I believe it was was it sort of leaked at some point last week, or speculated that they were going to buy block five for a much lower purchase price. And now the purchase price could be up to 240 million. So I guess we'll have to see like how much of a sweet deal does FTX actually get? I mean, are they going to get an awesome discount on blog fi right now? Or,
Jacquelyn Melinek 11:39
ya know, are
Anita Ramaswamy 11:40
they gonna be able to buy it cheap?
Jacquelyn Melinek 11:42
Yeah. And it's interesting because blog fi was valued, like last year, around three to $4 billion. So $240 million for a purchase price is definitely an a steep decline for a company that was doing so well. And I think SPF or sandbank, Winfried, for sure. He sees the value in the company. And it's kind of just like a, for lack of better words, a crappy situation where, again, we had this interconnectedness with three arrows, capital, and a lot of market volatility that kind of just brought some of these massive players crumbling down, sadly, across the whole industry.
Anita Ramaswamy 12:19
Yeah. And it seems to me like one of the big focuses for FTX has been regulation. And I think, you know, when you were talking, Jackie, about the difference between the globally minded exchanges versus the super us focused ones like Coinbase. I mean, regulation is just a huge, huge, huge thing that's affecting a lot of these companies right now. I mean, you were at NFC NYC like I worked. And we heard we heard SPF talk about how he's spending a ton of his time specifically talking to government officials, which is not not unique in the industry. I think that brings us pretty nicely to our next topic.
Jacquelyn Melinek 12:55
Yeah, definitely. So last week, the US Securities and Exchange Commission rejected both grayscale and bitwise is applications for Bitcoin spot. ETFs emphasis on the spot, because we already have Bitcoin futures. ETFs. We'll get into that a little more later. Yes. So we could the nitty gritty of like the differences there. But shortly after that decision was released, greyscale filed a lawsuit against the SEC, and hopes for reconsideration to convert its grayscale Bitcoin trust or GBTC into a Bitcoin spot ETF. They filed it literally, like within a few hours or less. And it's pretty interesting fighting this fight for a while, right? Yeah. And I remember covering this last summer, and the SEC kept pushing back their decision. And people were hopeful that because they were pushing it back that oh, maybe there's a chance that this Bitcoin spot ETF will get approved, but it seems like things have not changed. So we are
Anita Ramaswamy 13:51
Yeah, I do want to talk about that. So I want to talk a little bit later about why greyscale is fighting for this and what do they have to gain but before we get into that, let's talk a little bit about spot versus future and why it is Jackie that futures ETFs have been approved, but spot hasn't what's kind of going on with that?
Jacquelyn Melinek 14:07
Yeah, so that's the question. greyscale is asking the SEC in their lawsuit, but basically the spot Bitcoin ETF trades based on the price of Bitcoin itself, while future based ETFs trade on the price of CME Bitcoin futures product which is in turn tied to an index and this decision isn't surprising to a lot of people in the industry, because in the past, the SEC has denied over a dozen Bitcoin spot ETFs in the past year alone, but they have also approved several Bitcoin future based ETFs which greyscale is arguing is unfair, but people are saying that because there isn't exact clarity, regulatory oversight of crypto exchanges, because that's something that Chairman Gary Gensler has said in the past that he wants the SEC isn't going to approve a Bitcoin spot ETF until they have that regulatory oversight,
Anita Ramaswamy 14:59
which is kind of interesting because the SEC, I mean, as involved and sort of perpetuating some of that regulatory oversight, right?
Jacquelyn Melinek 15:05
Yeah. Yeah. So they've been kind of like sitting on their hands. But they're also like, Hey, you guys didn't do what we asked you to do. So of course, we're going to decline this. But now greyscale is arguing this isn't fair, because now we have this Bitcoin futures ETF that exists. There's a few of them out there, but there's no spot Bitcoin ETFs. But I need a it's pretty big too, because like GBTC is pretty massive, right?
Anita Ramaswamy 15:28
Yeah, it's so grayscale is one of the largest asset managers in the crypto space. And there are about a million investors in the US alone who have GBTC shares. And I think it's important to note GBTC doesn't exactly function the same way as as an ETF. It's a little bit different, you are not getting direct exposure to Bitcoin, but that's the key, right? So with a spot ETF, you would be getting direct exposure to the underlying asset in a way, whereas GBTC just tracks the price and price movement of Bitcoin. And what's super interesting about this is right now GBTC is actually trading at a 31% discount to Bitcoin itself. So Bitcoin it should be the same, right? In theory, right? Because it's supposed to track the price of Bitcoin. So why is there a discount? The reason that that I was reading about today is that because the essentially the price of GBTC is based on investor expectations that GBTC is eventually going to turn into a Bitcoin spot ETF, but the discount, you know, it's existed for a little while now. And it got even bigger this week, as people heard the decision and investors started losing faith maybe that they're actually ever going to be able to convert this into a spot ETF. Now, there's also some upside for those who are already invested, right? There's a huge, huge incentive, why greyscale and grayscales investors, the 1 million investors in the US want to convert this into a spot ETF. And that's because they could make massive amounts of money through arbitrage because GBTC is trading at such a discount to Bitcoin. So the second you sort of convert that GBTC fund into a spot Bitcoin ETF, the price is gonna go up by you know, 31%, or whatever that discount is at the time. And so it would essentially enrich all of these investors and among those investors is Kathy would have Ark invest. She's one of the best known holders of GBTC. But you know, overall, there's a ton of different investors, stakeholders, and people who have a really big incentive to want to make this conversion. Yeah, but
Jacquelyn Melinek 17:12
there's also the problem here if this conversion does go through, and I was hearing this from Valerie CEO, Lee Wald, who her firm has a Bitcoin futures ETF. So that's a little caveat there for you guys. But basically, if this were to go through that 31% discount, or like you said, Wherever it'll be, can have a negative impact on bitcoins price, because if the conversion were to happen, there would likely be like a flood of retentions, to close in that trade and lock in that profit, because that's immediately an arbitrage deal that I think a lot of these investors know about, as you mentioned. And then that would also be especially true if the underlying bitcoin is still in its current range around like $20,000. So it's super interesting, because there is a lot of risk that can happen in this situation. But there's also a lot of remorse, which is often something that goes hand in hand here, but it'll take time to see and as you were talking about before, like, why greyscale Why are they fighting for this so hard? Something that I heard from people I spoke to in the industry, including Leah Wald, they were basically saying that, like greyscale, wants to be in this conversation, and they want their investors to believe in them and believe that they're fighting for them is how I've interpreted it, because they have millions of investors hedge funds and institutions banking on GBTC, on the chance of it also becoming a Bitcoin spot ETF, so they want to show that they're fighting for this. And even if the SEC doesn't approve them, which they didn't, and even if the lawsuit fails and does not go through, it shows that they try.
Anita Ramaswamy 18:46
Yeah, and I think for people in crypto is that that actually goes a long way. Right? The ideology behind it, the intent behind it, you know, are you kind of fighting for our people? As a question a lot of crypto people are asking, but we're gonna wrap this up. It's actually like, what do you think about the prospects of their lawsuit? I mean, greyscale has now countersued the SEC, they're trying to get their justice, so to speak. Do you think that's going to work?
Jacquelyn Melinek 19:07
I don't think people expect this suit to go in favor of grayscale. But a lot of people expect there to be a resolution within the timeframe because it's gonna take at least anywhere from nine to 18 months for this lawsuit to be finalized. And hopefully within those nine to 18 months, there will be some regulatory oversight of the exchanges. Yeah, exactly. Which will lead to the Bitcoin spot ETF and given that Canada, Australia, Singapore and Brazil, they've all launched spot Bitcoin ETF, so the pressure is really on the SEC to allow for a similar product in the US or other people are going to start looking elsewhere for that benefit. So I guess we'll see how this plays out. But it's only a matter of time to see if and when the SEC is going to approve this in my opinion.
Anita Ramaswamy 19:53
Yeah. And if they don't, you know, and as it starts to look more unlikely what's basically going to happen is that I mean this Since greyscale, sort of last resort, it's kind of the only move that they can make, right? The entire value of GBTC is predicated on the idea that eventually this conversion will happen. So you know, as it continues to drag out, it's possible that investors will start losing patience, which is why they have to fight so hard. And they have to really show that they're trying their best to get this approved and get it through with regulators. Obviously, regulators are here to play hardball with the crypto industry these days. So we'll have to keep our eye out on that.
Jacquelyn Melinek 20:25
Keep acids flowing in and ensure that the institutions are engaged. It seems like really the only last move they have, so we shall see.
Anita Ramaswamy 20:34
Yeah. Well, we'll be following that. But thanks so much for joining me, Jackie. This was really fun. Yeah,
Jacquelyn Melinek 20:39
thank you so much for having me on.
Anita Ramaswamy 20:40
Anita, appreciate it. This week, I spoke with tech specific founder and CEO of crypto custodian entropy, which raised a $25 million seed round last month led by a16z before founding entropy Pacific worked at cryptography network, new cipher and Berlin. Hey, tux, it's great to have you on the podcast. How
Tux Pacific 21:01
are things going pretty well. Happy to be on?
Anita Ramaswamy 21:03
Yeah. So last time, we talked, we were talking about your startup entropy, raising a $25 million seed round led by Andreessen Horowitz. And I remember that's when I met you was literally last month. I'm sure it's been a pretty eventful time since
Tux Pacific 21:15
then. Yeah. Has lots of stuff in progress hiring everything we are, I guess, high gear, we're kit, we're pushing pretty hard right now.
Anita Ramaswamy 21:24
Yeah. Which is unusual for crypto startup at this time. So I think to start, it would be helpful if you can just give us a little bit of a high level overview on entropy and what you guys do?
Tux Pacific 21:32
Sure. So entropy has sort of been my brainchild for the past few years. And I started it full time last year around around this time last year. Essentially what entropy is, is a threshold signing network that leverages threshold signatures to build like a signing stack for web three wallets for any blockchain. So what this means is, basically, we've constructed a decentralized network that can act as something similar to a custodian like Coinbase custody or fire blocks, where we act as a signing access control for transactions in wallets. So when somebody wants to sign a transaction, he gets to stand in the middle of that and help you sign that transaction with some sort of access control mechanism that says like, hey, is this a valid transaction for you? Is this within like your spending limits? Are you sending to an authorized person, or you know, other similar stuff like that, and we've just built this on a decentralized network and sort of built this large foundation to build other things on top of this? So to recap, in like a short TLDR Sure, entropy is a decentralized crypto custodian leveraging threshold signatures to act as an access control mechanism.
Anita Ramaswamy 22:42
Yeah. And as someone without a strong technical background, it took me a second to wrap my head around this, but just to I guess, give a little more context, you're acting like a custodian. But the key difference to me, it seems is that you are fundamentally decentralized. What does that mean? And how does that differ from the other like crypto custodians that are out there today?
Tux Pacific 22:58
Sure. So there's two things that set us apart from I think pretty much everyone out there right now. The first is, first and foremost, we are decentralized, we don't have a central place to store those crypto assets. And this is a huge benefit of crypto in general, is that we don't actually have to have a bank account to hold all those assets on to more or less, we also don't need to worry about where this funds are stored and who has access to what and that kind of thing, because the network itself has no control over that information at all, or has no control over spending what you do, we can simply just say yes or no, and we don't have any power to sign for ourselves or move those things there. On top of that, being a decentralized network. This means that we're there's a sense of reliability that comes with it, you know, the uptime of like Bitcoin and Aetherium is Barna unlike anyone else, right. So you can think of it in similar terms there. You know, if you try to use Coinbase custody, or firebox or any other similar crypto custodian, you're at the whim of them if they're up and available, or if they're signers are on vacation, or whatever. And so if you need to move those assets really quickly, you may not have access to them. So being a decentralized network, essentially allows us to eliminate that risk altogether. And then on the second part of this, because of the way that we've done the cryptography at entropy, this is kind of a novel part of it is that involves you, the user and the network itself. So for you to actually sign a transaction that requires your participation in the signing process. What that means is without you, we can't spend those funds on your behalf. And likewise, if the network is hacked or compromised, or if there's a 51% attack or a civil attack, or any of that kind of stuff that attacks the network, the funds are never at risk, they can't be moved. They're your it's your money, and that sense, it's actually non custodial on it. So it's we say custodian to evoke that sort of like what it is kind of thing. But really this kind of implies something that's kind of new and novel is that we're a noncustodial custodian. Does that make sense? Right.
Anita Ramaswamy 24:53
So you see you're helping, basically individuals or institutions that hold crypto hold their assets somewhere. Exactly. And that's the fundamental premise, right? But I guess not to get too in the weeds. But one thing I'm curious about is just sort of like, what's the benefit of using a platform like entropy specifically, versus just holding your own keys to your wallet.
Tux Pacific 25:08
So if you lose your keys to your wallet, you know, you lose those funds as well. But you also don't get any benefits that you would with a traditional custodian. So for example, like a common thing that maybe a wealthy person, or even a fund would want to use is a time lock. You know, these are common things or spending limits. These are common things that individuals are used to having in traditional finance, we have things like if you want to spend, you know, if you want to move a significant amount of your wallet, from A to B, right, there's probably a chance that you can probably wait a little while for that transaction to go through maybe a week or 72 hours or some waiting period, right. And that's kind of like the kind of stuff that entropy allows to enable. So if you yourself were like this wealthy individual who was trying to move account money from A to B, there should probably be steps in place that prevent you from moving too much accidentally, or moving to the wrong place, or having some time to sit back and understand what you're going what you're trying to do. So if you're just holding your coins on a Tresor and you're trying to move it to your new ledger or something like that, there's nothing in place that prevents you from actually doing it much. I mean, you've probably accomplish this with hardware controls, but then it's certainly not blockchain. It's very probably blockchain specific. And the cool thing about entropy is that the cryptography for most blockchains are very similar minus two or three things. So we build once and we get all the blockchains. Likewise, if a new blockchain comes along with different cryptographic needs, we can incorporate a new signing mechanism and that and it's very easily just added on to it. So the cool thing about entropy is really that it just lets us actually build very quickly for crypto native people and move at this what I say is move at the speed of crypto, because things are always moving incredibly fast. Yeah, totally. So yeah, just to recap that, I mean, like, there's tons of stuff that you can accomplish with hardware, or, you know, multisig. But really, what the cool thing about entropy is, is that it really allows us to emphasize user experience and actually bring together like a lot of those combining user experience and sort of user centric cryptography and combining it into one and actually allowing us to build a lot on top of it, and enabling like protocols to even get some of these advanced features that they otherwise would have to implement themselves.
Anita Ramaswamy 27:15
Got it. Yeah, and I do want to get into some of the ideology and philosophy behind what you're doing entropy but before that, just one question to clarify. So you're talking about how you support a bunch of different blockchains but what are the Fiat on ramps and off ramps with entropy? Like what if you kind of want to withdraw and turn that into USD for example?
Tux Pacific 27:31
So entropy again, like is completely blockchain agnostic? We have no association with the coins you're touching. We don't touch the coins. All we act as if you imagine like, what is your traditional wallet? And then you say, Okay, well the wallet holds my cryptocurrency you say like meta mask holds your Ethereum, right. So when you sign a transaction with meta mask, you get a pop up whenever you see the what you're trying to sign, you click yes, no, whether you don't want to sign it, you know, and that kind of goes on with it, whether you use Tresor or something. Entropy lies specifically in that signing part of the whole process. And it's the most crucial part in the user experience of crypto generally. Right, right. So on Metamask, you want to sign a transaction send somebody that signing part is specifically where entropy lies. We don't touch the coins. You know, we don't touch anything like that. So when you're talking about an on ramp? Well, it's the same on ramps you already use. It's the same offense, you already got it. We have no participation in that whole process there. We just simply sit exactly right, the siding stack and again, like our network just simply says yes or no. And that's it.
Anita Ramaswamy 28:35
I see. And because you don't touch the Quinns directly in that way, is there any specific sort of reporting or I guess, documentation you have to give, especially operating in the US specifically.
Tux Pacific 28:44
So the company that's building entropy is mostly comprised of just employees and contractors based in the US and abroad. But the company itself does not operate the network network will be again, completely decentralized when we launch it. So it's my understanding that whether or not that sort of relies on likes and reporting or things, you know, that's probably up to the blockchain, you're using and you yourself is that kind of thing. It'd be the similar, same similar saying it's like this Trezor ledger after recording, we don't really involve ourselves
Anita Ramaswamy 29:15
that cool. No, that makes sense. So zooming out a little bit, we've had a bunch of different guests on this podcast, including couple investors, and a lot of them have expressed the sentiment that centralization is actually sort of a good thing for the crypto ecosystem, and that it's actually maybe necessary for crypto to reach sort of mass adoption, which is what a lot of people talk about. And obviously I would I would guess that you sort of sit on the other side of that debate. So why do you think decentralization is so important?
Tux Pacific 29:38
So decentralization for crypto is the only way it's going to succeed? If you talk about mass adoption, in the terms of you know, what we're used to seeing in traditional finance systems, then maybe if you're trying to onboard JP Morgan, Wells Fargo, whatever, and for these investors and these people who are sitting at that side of the table to debate that's going to enrich them that's going to make them very wealthy. Of course, they're on the side of that table, you know, they are investors in these banks, they hold large positions that would benefit very massively from it. But you know, we talked about like web three companies and what web three is, you know, we're not talking about Coinbase. We're not talking about crack, and we're not talking about Gemini, you know, we're talking about uniswap. We're talking about Aetherium. We're talking about Bitcoin, large cryptocurrencies that actually are decentralized, that are actually empowering, massive scale of free market, free exchange, whatever free enterprise doubt, these are the things that we're talking about this. And so my argument to them is that the crypto users are going to come from crypto itself. So this, this obsession with trying to get mass adoption is kind of absurd. It's very absurd to me, like, who are we trying to adopt into the space here, like everyone says, Mom, and pop, you know, other people are talking about other businesses and things like this, but where's the need for a lot of those people's to begin using crypto today, like, we're not trying to get people to pay with Aetherium or Bitcoin for pizza anymore? You know, we've gone far beyond that we have much more complex things to build. Now, you know, we have entirely decentralized institutions and organizations that are have billions and billions of dollars in wealth, and they're allocating it, using it and building things on top of it, and empowering, you know, completely alternative economy. And that is what is interesting about me to crypto, that's what mass adoption, to me looks like is having a completely alternative gray economy that has no access to any state or any institution without going through what is decentralized economic coordination between everybody there. So again, like I see all these people saying, like, Oh, this is, you know, this is this is how it's going to be adopted, this is how it's going to be used. And really, they're not actually using crypto at all, to talk to these people. Who are these investors, in my expense, having contact with plenty of investors at this point, you know, they don't use crypto, they have no idea what it does, despite reading all about it and experiencing what it is they don't know anything about what's going on. They don't know what's being built, they have no opinions on how the economics are playing out, you know, they're just, you know, investors, they're just trying to get wealthy. So of course, they're on the side of, you know, web two, and what I would say is there on the side of wealth going back to the traditional owners, you know, they're going back to the, to the traditional concentration of wealth. And really, to me, web three is more about decentralizing that getting rid of that mechanism that constantly gets wealth accumulated back into the hands of these super elite, wealthy bankers.
Anita Ramaswamy 32:25
I guess when you talk about the idea of mass adoption, and you're talking about individuals, would you say that maybe crypto isn't for everyone? I mean, what do you think about sort of the mom and pop or the everyday retail investor getting involved in crypto,
Tux Pacific 32:37
I think the mom and pop investor getting involved in crypto should take note that they're being involved in an alternative economy. And that's kind of what I think empowers all of this is the ability to opt out. And for me, an anarchist, the ability to opt out is one of the best. Like, that's what Liberty looks like for a lot of people the ability to opt out of their state institutionalized banking or their state run currency. You know, this has been monumental for people in like Argentina, Venezuela, like all these countries that are dying to get more cryptocurrency, where they're trying to escape inflation or something, it's the ability to opt out. And that is what's powerful about crypto not, you know, trying to say, let's get JP Morgan involved. So when I say we're building things for crypto, and we're saying mass adoption, for us looks more like building for ourselves. It's in a similar vein of like saying, like, a punk musician doesn't make music to get known. You know, in the in the alt scene, or even the pop scene, they're making punk music or punk says like, I'm a noise musician. I make noise music, artists, you know, so I'm not interested in trying to get adoption by all those people. I'm interested in participating in a completely alternative economy and eventually forming a completely alternate way to live, which is kind of where I sit.
Anita Ramaswamy 33:52
Yeah, that's a big vision. And last time we talked, we talked about how your philosophy you described it to me as free market anarchism, and I think a lot of people actually do associate crypto and sort of the beginnings of crypto with anarchism. Can you explain a little bit more on why that is? And what's the link there in your eyes?
Tux Pacific 34:06
So specifically, I use the term Free Market anti capitalism, which is a variation of this mutualist based economics and anarchism, it's specifically in like, I will specifically say I'm an individualist anarchist. And so there's plenty of anarchists have this, you know, opinion? You know, folks like Benjamin Tucker, Voltaren declare who is amazing queer anarchist from the 1800s who wrote beautiful poetry I highly encourage reading her Renzo Nova Tori, Kevin Carson, who's a contemporary Gary chardee, a another one, as well as like huge, modern I think, influencers that exist in like things like the Center for stateless society. So we talked about anarchism and free market anti capitalism, which may sound like a misnomer when people talk about capitalism. They're really talking about four things separately. So when somebody says that they're a capitalist, you know, we have to really dive into What that means for them. So people are often familiar with like the first part, which is free market, fair exchange, wealth exchange, that kind of stuff, free association free enterprise, being able to start your own ventures move wealth between a person and yourself, you know, that kind of thing. Then the next thing that we talked about is, you know, pro business politics, you know, taxation, bailouts, these kinds of things are pro business things that the government trying to influence the market, trying to control it, regulating it, trying to just make it, you know, often making giving businesses more of a foundation in the economy. And then there's things like the wage labor system, this is the third part of this, which is another understanding of capitalism, and the fourth is probably commercialism and materialism. But the free market, anti capitalist perspective of this is that, first of all, when we talk about like certain critics of capitalism, and even proponents of capitalism, they're in favor of pro business politics, generally. And maybe they like free markets and free exchange of free enterprise. But we have to know in that in a truly free market system, is that the first principle free market free exchange, whatever is mutually exclusive with pro business politics, that's where we get to things like corporatism. Right? And that's like, there's proponents of capitalism, who will sit there and say, Yes, we need to prop up businesses, we need to have government encourage that sort of thing. A central banking, that sort of stuff. Yeah. And this is specifically where that dichotomy emerges that you can't actually have a free market system. And then also have the second principle that Providence politics and so they're completely mutually exclusive. Now getting a bit more technical with that, you know, anarchist such as Benjamin Tucker, Volterra, declare Kevin Carson, Gary chardee, a, there's this thing called the causal capitalist hypothesis, which says that in a free market system, it would in turn imply and generate the third and fourth principles, which is the wage labor system and commercialism and materialism, right. So essentially, Benjamin Tucker critique this hypothesis, and he has his own thing. I encourage people to look into that if they want. But the whole point of that is basically, those two things. wage labor and commercialism and materialism, which are identified with the capitalist system we have today generally, are only a result of the pro business politics, the government intervention, all the state interventionist policy, things like disaster capitalism, and not any client talks about these things lead to those wage labor system and the commercialism of materialism that we're used to. And the argument from individualist anarchist that I've previously mentioned, is that in a free market system, devoid of you know, coercion, and economic coercion is state intervention in the art in the system, taxation, all these things, the fundamental cornerstones of the wage labor system of commercialism and materialism would be undermined and fall apart and be dismantled because they just can't exist without the state actually intervening in property themselves up, you know, this is kind of evidence of things like giant monopolies like Walmart, Amazon, even SpaceX, and whatever, you know, that they require the state subsidies, they require these bailouts, the banks, they require all this stuff to stay alive, and had the state not intervene, they would have collapsed, you know, decades ago. So there's these things that just kind of imply wage labor and the anarchist, individualist anarchist slash free market anti capitalist argument is that in the free market system, we would no longer have these things, should the government no longer be there to prop it up?
Anita Ramaswamy 38:26
So So you want number one, but not numbers, two to four, essentially?
Tux Pacific 38:30
Exactly, exactly. And it doesn't imply that some of these things maybe like, I don't want to imply that there's any like moral issues with, say, like the wage labor system, it's like there could be a free market system that includes a wage labor system. But the whole point of having a free market system is that it's devoid of coercion. So there's alternatives like worker coops, there's alternatives, like even in the future, maybe Dows participation or like a mechanism, it doesn't mean a business will look anything like it is today, it could be completely different. But the entire point is that given one and actually get getting rid of some of the systemic injustice, these you know, things like racial oppression, gender oppression, wealth, oppression, you know, policies that prevent poor people and impoverished people from actually participating in the economy, which is what borders are, and other things like that, we would see the entire wage labor system collapse, and this economic concentration of wealth would generally fall apart.
Anita Ramaswamy 39:23
So I want to bring this back to crypto because it actually kind of ties well into my next question, which was about government intervention, which you just talked at length about. So things are pretty bad in the crypto markets right now, obviously, even when he raised funding for entropy, there were a lot of big projects like Celsius, you know, sort of crashing. Now. Today, there's news on Voyager also experiencing some difficulties halting withdrawals, and I guess a lot of people have been talking about like, if crypto was regulated. If crypto was FDIC insured, just like regular deposits, then investors would be safe and people wouldn't lose their money. I mean, do you think that do you think that's true? Do you think there should be some investor protections here? Okay.
Tux Pacific 40:00
The entire myth that the state regulation protects investors is exactly what it is. It's a myth, you know, investors are not protected any more than they are, you know, with regulation that without, like, sure what when they talk about regulation, what they're trying to say is, you know, the state is trying to get their hands on more of a means to control who can do what it's purely authoritarian politics, it's never been about keeping investors safe. Anyone who looks at, you know, the policies of the SEC, or any of these, you know, market regulators can look at this, and specifically say, it's never been about investor safety. It's always been about authoritarianism and control, they explicitly see alternatives to these economies and say, well, this could mean, you know, sure, people could lose money. But it also means, you know, they can do a whole lot more stuff, like get out of the US dollar, or get out of, you know, whatever bad currency that are currently they're holding on to, it means you no escaping whatever weird centralized control of the market, they have. And that does scare regulators. And I'm sure there are people who believe that they're going to make things more safe. But generally, it's done a whole lot more for anarchism, and for getting rid of government, big business stuff than I think for making people safe. Now, you know, I think there is something to be said about scams in the in the space who are misleading people and taking and robbing people, essentially. But again, this has been going on in traditional capitalist society for decades, I mean, Theranos does happen, and they've fleeced a bunch of rich people out of their money. And so you know, the whole thing here is all it means now is that, you know, we're just getting a better opportunity to get more people involved in the whole economic in this alternative economic system, rather than trying to, you know, generate some weird overview, like some weird, hybrid system that basically requires the government to say yes to every interaction we have financially.
Anita Ramaswamy 41:51
Yeah, so I don't want to oversimplify what you're saying. But just at a high level, you know, it's it sounds to me, like you're saying, even if there is some sort of intermediate pain of not having certain regulations, and people will lose money, that you're willing to take that trade off because of the bigger benefits, right?
Tux Pacific 42:06
Yes. I mean, in general, the anarchist position has always been more freedom than, you know, safety in that sense. And now if we get into things like decentralized economic coordination, and even more complex topics than that, but you know, we start talking about preventing people from losing too much money in certain ways, or preventing people from losing their money and unsafe things. And generally, building systems and alternative systems that promote this kind of decentralized safety will inevitably result in people losing less money, and having more economic stability for themselves, and the ability to actually move and, you know, get an equalized wealth and eliminate inequality.
Anita Ramaswamy 42:43
So you have a really interesting and unique perspective for a crypto founder, especially as a founder who has sort of, you know, you've raised money from Andreessen Horowitz, you have this sort of anti capitalist philosophy. And those things are really interesting. And I'm curious about in terms of entropy, and how you think about the business model. When we last talk, you actually told me, you know, that's not something you're thinking about right now, can you share a little bit more about that? And what what do you see as the role of your VC backers, and helping you get there and figure out your business model?
Tux Pacific 43:09
I feel like people and like, I took a lot of flack from this from from the article, as people looked at me and said, Oh, you're anti capitalist raising from venture capitalists. And really, it's not that weird. I mean, these are wealthy people who are giving you money, sure, they're going to be more wealthy if your idea is successful, or something. But the ultimate result here is that there is no loss of control for us. You know, there are participants in a decentralized market, like anyone else would be like, you know, other wealthy people are, the majority of control is still going to go to other people. They're just there to participate to add, bring stability to the network to run nodes and participate in governance, then sure they have their own economic interests, as do I, as do the other people who participate in the network. But this idea that venture capitalists are this like, evil boogeyman looking to steal control of decentralized networks is kind of weird, from my perspective. And so from the anarchist perspective of me, like taking money from these folks, you know, it's kind of one of those things where it's like, Hey, if you're being offered a lifeboat, you should probably get on the lifeboat because there's a lot of hands that you can help pull into the lifeboat as time goes on. And like the reality is, you know, venture capital as much bad as it has done has also done a lot of good. And really, it's up to us and I think people like myself to, you know, become successful and aid in ending this systemic inequality that continues to perpetuate from wealthier people. So I'm kind of have the perspective that it's like, critique this all you want, but inevitably, it's the we're trying to all reach an end here that is better for everyone. And it really, I don't think people understand the effect that it actually has. Certainly there are bad malicious actors in BC Yeah, but they're Also a lot of people who are just interested in crypto and especially, you know whether or not they like it, they're building the alternative economy, like they can be on the side of regulation all they want. But the reality is, there's now an unregulated market that the government can intervene in. And that's massive for us. That's massive for everyone in the world.
Anita Ramaswamy 45:18
So on the topic of VC funding, that's sort of where I wanted to wrap up this conversation, you are one of the very few trans founders who has raised any VC institutional money just based on you know, percentages and LaTroy proportions, especially in crypto. And I mean, I just want to give our listeners a little perspective on this, at least from what I've seen, there's barely any data on how much VC funding actually goes to LGBTQ founders as a whole, let alone trans founders, but the estimates that are out there, say it's definitely like, well below 1%. So given that, that's your background, I would love to hear you talk a little bit more about your experience about, you know, like, how has your identity as someone who's openly trans and openly queer affected your fundraising journey?
Tux Pacific 45:55
Somebody recently asked me this question. And my answer is that it honestly didn't feel like it affected it too much. I mean, I will say there is a privilege that comes with being you know, what, quote unquote, the tier one teams like I've launched a project before, I have great people on our team. It's like one of the I will say, it's one of the best teams in crypto today. And you know, when you come to VCs with that kind of thing, and you have a vision that's very strong, and you have a strong founder personality, generally, they're more inclined to just go with you than anything else. I've certainly empathize and understand that for other trans founders and I have talked to other trans founders in the space, it is very difficult for them to gain the trust of other venture capitalists and other VCs and like other market participants, specifically, because, you know, maybe they're like, they have some, like, different goals in mind for fundraising, or, you know, maybe they just haven't had much experience in web three. But the weirdest experience, I think, I will say, is just experiencing trans misogyny from VCs and other investors. And it's very subtle, it's not like something they're out there, and they're like, Oh, we don't like you, you're not going to get the money. No one's ever said that, to me, my all my expenses, fundraising have been overwhelmingly positive. But there's subtle things, you know, like people who miss gender, you, you know, that kind of thing, where you can generally tell that they're like, Yeah, you're trans, whatever, doesn't that I don't care about that, which is can be good. But also, generally is like, it also has this thing where it's like, I'm looking into the eyes of someone who doesn't actually care about my survivability, or my, you know, my people, like they don't care about Yeah, this, this is a hole. And that is very, very sad to me, you know, it's a, it is, greed manifests, it is, you know, that kind of thing where it is they are purely interested in profits. And my advice to other trans people, in essence, is use that against them, you know, like, come up with things that they can't say no to, and use that power to gain power for yourself. But don't forget to get rid of your own power and liberate liberate others along along the way. So I don't know, I like I said, it has been overwhelmingly positive. But that doesn't eliminate, you know, trans misogyny or transphobia, that has been inherently and explicitly even profited from, you know, this system already are perpetuated by it. You know, I think sometimes there's just outliers. And unfortunately, as a trans person, it's kind of weird to be involved in this, I was talking with another person, it's weird to be in a position of privilege as a trans person, because you're always surrounded by people who don't have that privilege. And it is very hard to see, it's very difficult to look at that. And, you know, acknowledge that. And so it's kind of up to us and up to myself to sort of eliminate that in the future. And, and, you know, try to alleviate it.
Anita Ramaswamy 48:46
Yeah, yeah. And as someone who's achieved some success in this space, I'm sure that's helpful advice for a lot of folks out there. So thank you so much for sharing your perspective and for coming on the show.
Tux Pacific 48:55
Yeah, thank you for having me. It's
Anita Ramaswamy 48:56
been great. Likewise. Take care.
Unknown Speaker 48:59
Thanks. Me too.
Lucas Matney 49:04
Thanks for listening. We'll be back every week with the top crypto news and interviews with experts in the space. You can catch us on Spotify, Apple Music or your favorite podcast platform and subscribe to our companion newsletter also called Chain reaction@techcrunch.com. Forward slash newsletters. You can also follow us at chain underscore reaction on Twitter for the occasional Twitter space about breaking crypto news. We'll see you next week. Chain Reaction is hosted by myself. Lucas Matney along with my co host and Anita Ramaswamy. We are produced by Yashad Kulkarni and our associate producer is Maggie Stamets with editing by Cal Keller Bryce Durbin is our Illustrator Alyssa stringer leads audience development and Henry pic of it manages TechCrunch his audio products thanks for listening