 Lucia asks, what is your opinion on stablecoin? Are these valid methods towards mass adoption, or do they simply promote the legacy standard of centralization, control, and potential censorship? The corollary question, if JP Morgan coin or Facebook coin becomes mainstream and can be used as a low-cost value transfer cross-border payment method, does this weaken the potential value of traditional cryptos? First of all, I think it is important to separate the concept of a stablecoin from its precise implementation. A stablecoin as simply something that is pegged to a unit of value that has less volatility may be a very useful application for helping with adoption, especially for retail payments, medium and exchange type things. If crypto yet doesn't have enough economic activity and liquidity to have low volatility, how do you get to the point where it does have enough liquidity to get to low volatility? If you need more people to use it, but people are not using it because it doesn't have enough liquidity and therefore is quite volatile, you've got this chicken and egg problem, and stablecoins might be a way out of that by creating things that have many or all of the characteristics of cryptocurrency, but with the lower volatility of a national currency. By lower volatility, of course, the name stable is a bit of a joke, but gradually declining in value over 30 years, so that you lose half your money was too long, so stablecoin it will be. The important thing is how are these stablecoins implemented, and you really have to ask questions about centralization versus decentralization. A stablecoin that is a reserve coin where the assets are held in reserve by a centralized custodian that has some bank accounts that have US dollars to back the stablecoin is actually a pretty weak centralized controlled construction that has a fairly significant amount of counterparty risk, so it's not a cryptocurrency. It's not a cryptocurrency in any aspect of its construction. It is a form of digital money, but it is not an open blockchain-based cryptocurrency, and there's a vast difference between the two. Digital money, dollars on PayPal are digital money, Facebook coin is going to be digital money, Venmo is digital dollars, none of these are open blockchain cryptocurrencies, and they differ in great detail. The biggest difference, of course, is that they are centralized. If you have a centralized thing with reserved bank accounts that have fiat currency in them, you have a couple of problems. One is the custodian can steal. So through a number of different tricks, they can dilute the reserve so that the stablecoin is not actually 100% backed by the reserves, but it's backed at a lower amount. There's two ways to do this. One is to simply reduce the amount of dollars you have or issue more stablecoins than the reserve you have in the bank accounts. And you can protect against that risk somewhat. Pardon me. And you can protect against that risk somewhat by doing audits. So an auditor can look and say, OK, add up all of the bank accounts, add up all of the stablecoins issued, are they the same? Yes, therefore, there haven't been more issued than there are reserves. The problem is that's only half the equation. Because if I have a billion dollars in a bank account, I can go to many, many different lenders around the world, put that billion dollars in the bank account down as collateral for a loan and generate liabilities, a high amount of liabilities that I can use to leverage my position that are against that billion dollars. So now I have the stablecoins that have a claim on that billion dollars and whatever other liabilities I've borrowed against that also have a claim on that billion dollars. So the reserve effectively is not 100% because there are more liabilities than assets. So one way is create more assets than liabilities. The other one is create more liabilities than assets. Either way, it's not 100% reserve. That's not even considering the fact that there is an enormous risk from the traditional financial system because of the ease in which the reserve can be confiscated or frozen or seized by the banks or governments in the countries where those accounts are held. Imagine, for example, you've got your beautiful dollar stablecoin and you have these billions of dollars in bank accounts in a variety of jurisdictions. And then one of your idiot users takes one of your beautiful stablecoins and sends it to the Ayatollah in Iran. And now you've got sanctions. So you've basically violated sanctions or your users violated sanctions. And let's say one of the governments gets overzealous and decides to freeze your entire reserve. Whoops. So centralization is a big problem. I want to go into the corollary question just briefly. If JP Morgan coin and Facebook coin becomes mainstream and can be used as a low-cost value transfer cross-border payment method, does this weaken the potential value of traditional cryptos? Let's ask the five fundamental questions. Is it decentralized? Is it open? Is it borderless? Is it neutral? Is it censorship resistant? This is how we judge whether something is a true open public blockchain or whether it's a pretender. Now, JP Morgan coin and Facebook coin and many of these centralized coins can never be those five things. They can't be open. Why? Because they have a centralized custodian and that centralized custodian is in a specific jurisdiction. They have an obligation under law to confirm the identity of every participant in that system, also known as know your customer regulations, which means the system can't be open. You can't just have anybody using it without identification. So you're going to have to apply identification. Once you've applied identification, you also have to vet the participant. So you have to vet to make sure that those participants are not on a watch list. They're not on a blacklist. They're not part of a sanctioned country. They're not subject to an asset seizure or forfeiture from any government anywhere. Oops, now it's no longer censorship resistant because you now have an obligation to stop any transactions that are going to go to someone that the government in the jurisdiction you are doesn't like. Or if you're a global company, any government in any jurisdiction doesn't like for any reason, which means that you're going to have an even bigger burden when you're doing cross-border transactions. So cross-border transactions are going to become increasingly problematic. So if you're a multinational stablecoin provider that centralized now, you really can do cross-border transactions unless you have the very limited circumstances where both participants are identified and regulated entities and you've done all of your anti-money laundering and know your customer regulations, etc, etc, which means it's no longer neutral. It can be neutral. So you can't just say it's neutral to send or a recipient. It isn't. So it's not open and it's not borderless and it's not neutral. It's not censorship resistant. And it's not decentralized because the custodian can confiscate any of these coins anytime they want, can change the rules, can increase the inflation, can decrease the inflation. So it's not crypto. It's a digital money that simulates the same thing we already have just on a bigger scale. Who should be afraid of Facebook coin and JPMorgan Chasecoin? PayPal, Venmo, they should be afraid. This is going to produce some significant competition for bank-based digital coins and bank-like fintech digital coins, where they now have to compete with someone who really knows how to do tech, like perhaps Facebook, and already has billions of customers. In order to compete on the basis of who can provide the most surveilled, controlled, not neutral, closed, bordered, jurisdictionally hampered, identity-laden surveillance-based shitcoin. And so as a result, you're going to have fierce competition there. JPMorgan Chase should be very worried about the fact that Facebook may enter the financial services industry with a bank. We've already seen that happen in China. You get this really horrible surveillance coin as a result, but it does provide significant competition for the banks. If you understand what the unique proposition the differentiator of cryptocurrencies is, which is that they are open, borderless, neutral, censorship-resistant, decentralized, that they have public ledgers, that they have APIs, that you can interact with them and build applications without asking for permission, that they're trustless, because you don't have to trust in a custodian that they're permissionless, because you don't need permission to participate or build applications, none of that is provided by these centralized stablecoins. And finally, the one caveat is there is a particular type of stablecoin that uses cryptocurrency as its reserve in a smart contract, which is not centralized. So in this case, we're talking about a stablecoin that is managed in a decentralized fashion, that is operated through smart contracts, and that has reserves in cryptocurrency, rather than fiat, and has all of the characteristics of crypto, meaning it's open, borderless, neutral, censorship-resistance with public ledger, with immutability with all of these other characteristics. That is interesting. It's very interesting. One example of that is the MakerDAO DAI, which is a decentralized stablecoin. There will be more, and they will be interesting. And I think those actually compete even more with the traditional payment providers and give us that bridge solution where you may be able to reduce volatility for retail use and medium-of-exchange use without compromising on every single principle of the open blockchain cryptocurrencies. Roscoe asks, what is your review of DAI, the crypto-backed stablecoin from MakerDAO? I did talk about that in a question about stablecoins. I'm going to talk about it a tiny bit more, but keep in mind this is not a review. It's certainly not a technical review, and even more so. It's not an endorsement or suggestion about how you should invest your money. So, having said that, let's start again. Roscoe asks, what's your review of the DAI, the crypto-backed stablecoin from MakerDAO? Love to hear your breakdown of logic and your general reaction to this type of decentralized project. DAI, or DAI, presents an interesting censorship-resistance stable cryptocurrency. Do you think this brings us closer to mass adoption? I think the idea of DAI, which is using a smart contract to have a more than 100% reserve-backed cryptocurrency... that operates as a stablecoin, is great. I think it's a very interesting idea, and it opens the door to a number of very useful applications. Especially for a broad adoption of medium-of-exchange activity, where you have something less volatile... to base retail transactions on. Having said that, there are all kinds of challenges to overcome before I would really consider this a successful experiment. First of all, how does DAI work? Briefly, there is a smart contract. This smart contract controls what's called a CDP, a collateralized debt position. What a collateralized debt position is, is basically a smart contract vault... in which you invest a cryptocurrency, in the case of DAI, for now, that is Ether. You invest Ether into this collateralized debt position. Based on how much Ether you put in, you can choose a collateralization ratio... and then extract DAI, or have the smart contract issue, stablecoin DAI against your reserve for a certain value. For example, you have 150 Ether, and based on the current exchange rate of Ether to US dollar... you have an exchange rate of Ether to DAI that allows you to issue the US dollar value of 100 Ether. You are 150% collateralized, which means you have room in your reserves. When the price of Ether goes up or down, to a certain degree you can absorb some of these fluctuations. The way a CDP works, which is really interesting, is that if your reserve drops below a certain percentage... then you basically have that collateralized debt position liquidated and you lose it. You have to re-collateralize it, meaning put more money in reserve, or sell back some of your DAI... and remove them from circulation in order to maintain that stability. Everybody does that in their own CDP, which maintains the stability of the DAI as a self. There are some governance aspects to this. There is an interest rate that applies to the reserve funds and the DAI itself. There is another token called MakerDAO, or MKR. That token is used to vote in the governance aspects of setting the interest rates... in order to maintain the peg between DAI and US dollars. The goal is to have one DAI equal one US dollar, but backed entirely by Ether and a completely decentralized smart contract. It is a fascinating idea. DAI has failed to maintain the peg, but not by much. I think the worst that has gotten was about 95% or 96% instead of 100% parity of the value. Usually it is always on the downside, meaning that a DAI is worth a bit less than a US dollar. It hasn't been able to maintain complete parity, but it has managed to be very stable. People are gradually learning about governance aspects of building these kinds of things. One of the interesting things about this decentralized stablecoin is that the risks are different. It is important to understand that there are no risks. The risks are different from a centralized stablecoin that has a full reserve with US dollars in a bank account. No one can confiscate the Ether collateral that is behind the DAI. The reason no one can confiscate it is because it is on a smart contract running on an open public decentralized blockchain. That gives it a much better risk profile than having US dollars in a bank account held by JP Morgan Chase... under the jurisdiction of the US government, which may get pissed off for whatever reason and confiscate all of that money. No one can easily confiscate the Ether collateral that is in the CDP. Because it is decentralized in terms of its governance, it is difficult to manipulate the interest rates... and things like that and cause the project to crash, so there is less risk of various problems... that would occur with one custodian playing around with the interest rates for their own personal motivation... at the expense of the system itself. You do have a very good degree of decentralization. Here are the other problems, however. At the moment, a significant percentage of all of the Ether in circulation is now locked into CDPs to support the DAI. I think at some point it reached 5% of total Ether in circulation and was locked in dye. That represents a significant risk. The reason it represents a significant risk is if there is a bug in the governance contracts... or in the CDP smart contracts, or in the base layer of Ethereum, or in the EVM implementation. Any kind of bug like that creates a repeat of the DAO scenario, where someone is able to drain money... from CDPs or negatively affect the interest rates or change the ability of the dye. You could have all kinds of negative side effects, including losing all of the money. You can imagine a scenario where 5% of all Ether is lost in MakerDAO. That is a terrible scenario. But it is also what happens when you have a smart contract that is only two years old now... and is now being tested at scale under adversarial conditions, with an enormous amount of money invested into it. I would probably have liked to see a cap that prevents people from putting too much money into these contracts... until the concept is tested better, but that is not the way the community went. People are willing to take much bigger risks, and one of those risks is software bugs. Different risks in custodial and reserve-based stablecoins that have a third-party custodian... and third-party reserves that are held by banks. You have massive counter-party risks of confiscation, and hacks, and things like that. In decentralized smart contracts-based stablecoins, they are much more promising because it is decentralized. But you still have other risks, including software bugs in the implementation of the smart contract... or in the platform they are running on, in this case, Ethereum. I would be very cautious about this. I wouldn't invest much of my own money in this. You can't invest in a stablecoin. I am expecting the returns in the future to be a gradual decline in price by 2% because of the inflation of the US dollar. I will lose my money slowly. You can't really invest in a stablecoin as the asset itself. You can make money on the interest of participating in this, supposedly, but I am not interested in playing around with these things. For the time being, this is one of the things I am going to watch as a technology and try to learn how it operates. The lessons we can get from projects like this are incredible. We can get lessons not only on success, but also on failure. In fact, we might be able to get better lessons on failure by observing the way in which someone may take this down through adversarial action, or the governance fails through some kind of split in the community, or whatever else. The failure scenarios are rich in lessons that we can use to build the better version next time. In general, long-term, decentralized stablecoins are a fascinating example of the kinds of things you can do with smart contracts. This is probably the most interesting example of smart contracts today, and something I am watching carefully and learning how the technology works. At the same time, there are some significant risks which would cause me to be cautious about investment. Don't put more than you might be comfortable losing. As they say, the rule of thumb is, take the amount of money you are supposed to put into this project, put it all on the table in front of you, and set it on fire. Did you cry? If not, that's the right amount of money.