✊ Crypto Devs Are "Building a Life Raft For The World After Fiat Falls Apart:" Erik Voorhees

Voorhees speaks to The Defiant about how ShapeShift is leaning into DeFi, and about the inevitable collapse of the US dollar.

In today’s episode, I speak with Erik Voorhees, long-time crypto advocate and founder and CEO of ShapeShift. Voorhees has been in crypto since 2012 and first learned about Bitcoin through his involvement in the Free State Project.

The idea of peer-to-peer money, where each individual is in control of their assets, appealed to his libertarian beliefs. Fast forward a couple of years later and he was founding ShapeShift, a non-custodial exchange. So the decision to add KYC to the platform in 2018 was especially tough. In this interview, he talks about how he was able to stop gathering information about his customers and take the exchange back to its roots, by leaning into DeFi. His plan is to create a platform that connects with all of the different DeFi applications, starting with decentralized exchanges.

Voorhees holds probably the boldest view of anyone who has come on this podcast. He thinks we will see the collapse of the US dollar within our lifetime. He argues the level of US debt and continuous erosion of the currency is untenable. When this happens an entire financial ecosystem built on open, immutable blockchains will be the solution. He believes today’s developers aren’t just building a product for their customers. They’re building a life raft for the world after fiat falls apart.

🎙Listen to the interview in this week’s podcast episode here:


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Erik Voorhees: I heard about Bitcoin in May of 2011. I was living in New Hampshire at that time, part of the Free State Project, which attempts to get 20,000 radical libertarian types to move to one small jurisdiction in order to have a more outsized influence on the political system than it could be scattered across the country.

To me that, at the time, that seemed like one of the ways in which I could make a difference doing something that I cared about, and that I thought was important. While I was there, a friend of mine posted on Facebook, an article about Bitcoin. I clicked it and I read it, and first, I dismissed it after that first article, and then read another one and another one, and then within 30 minutes I was absolutely hooked. I completely understood the value of something that could not be turned off and allowed you to move money anywhere in the world instantly. So I was immediately just enamored with it, and saw it as a way to basically pull the control over money out of states and into the free market, where it belongs.

“I completely understood the value of something that could not be turned off and allowed you to move money anywhere in the world instantly.”

Money is really the most important good in a market economy. It is the most important good for it to be non-centrally planned, and Bitcoin provided an actual possible solution to that. I put everything I had into that as my hobby and career and passion.

CR: I love kind of the idealism behind that. I agree with a lot of that, for sure. Just curious, are you still involved with the Free State Project?

EV: No, not anymore. I left New Hampshire to move down to New York to join BitInstant, so I haven't really been back to New Hampshire since then. Still certainly a supporter of that project, and hope that they can achieve those goals. But I saw Bitcoin is just such a higher leverage tool for achieving change. In New Hampshire, if we were successful over a couple of decades, we would change a very small state in the US. With Bitcoin, over a couple of decades, we would change the entire financial system of the planet. So, that's what I dedicated my time to.

With Bitcoin, over a couple of decades, we would change the entire financial system of the planet..”

CR: So you got into BitInstant, then SatoshiDice, how did all of that lead to ShapeShift?

SatoshiDice, BitInstant, ShapeShift

EV: SatoshiDice was just like a side project, basically a way to let people gamble with Bitcoins and to show them a way of gambling that was provably fair so that they would know what the odds were and they would know that the rolls were actually fair. The reason it was cool is because anyone in the world could play the game without signing up, with no account. They didn't have to trust the system. The system didn't need to trust them. It was a demonstration of how Bitcoin in cryptography could be used to let two unrelated parties who didn't know each other actually transact.

That got totally carried away and became like half of all the Bitcoin transactions back then. It was pretty, pretty crazy. I realized that if I was going to be an outspoken proponent of Bitcoin, then I probably shouldn't also be running the world's biggest Bitcoin casino, just from an optics perspective. I felt like Bitcoin had plenty of reputational issues it had to overcome, and so if I was going to be one of its advocates, I didn't want to be running a casino. So sadly, I decided I needed to sell it and just focus on Bitcoin advocacy itself.

That was all around the same time as BitInstant. I left BitInstant after the Winklevoss brothers invested because I had a falling out with them, which I won't get into, but left BitInstant and went down to Panama and I was running this little wallet company called Coinapult for a year, decided I didn't want to be in Panama anymore and didn't want to be part of Coinapult. So I left, moved back to Colorado, and started ShapeShift.

The whole impetus for ShapeShift was just as a simple tool to allow people to convert one digital asset into another as safely and easily as possible. This was pre-Ethereum, but I saw that there were going to be more and more tokens in the world, there will be millions of digital assets eventually, and the world needed an easy way to move between them. So that was really the first idea for ShapeShift. It wasn't meant to be like a big business or anything, it was just meant to be kind of a useful tool. But as crypto grew, ShapeShift itself grew. After Ethereum, certainly, the number of tokens just boomed, and so we've been trying to ride that wave ever since.

CR: Was ShapeShift from the beginning a noncustodial exchange?

RV: ShapeShift has always been noncustodial. That was really, like when I said earlier that I wanted to make it safe and easy, the main way to make it safe was to not hold customer funds. So every exchange back then held customer funds. This was a couple months after Mt. Gox blew up that I thought about how to do ShapeShift. So it was based on the same model that SatoshiDice was, you know, user sends in a transaction and the system sends something back to them. So that noncustodial nature was key from the very beginning.

CR: So it's noncustodial, but it wasn't really a DEX, right? You were processing token transactions on a centralized database?

EV: Correct. So ShapeShift has never been decentralized. So it was noncustodial and we didn't hold customer funds. But it was a central company, and when a customer did a transaction, we would receive, ShapeShift the entity would receive coin A and send coin B out to them from our own wallets, our own inventory. So yeah, it was never a DEX.

CR: Right. So I guess that's what led you to have to implement KYC in 2018, right, because you were actually kind of doing that trade yourself as a company?

EV: So our initial analysis was that because we were noncustodial, and because we weren't handling regulated fiat currency, that the banking rules essentially did not apply to us because of that model. In 2018, by then we'd grown substantially, we were over 100 people by then and we had been able to lose millions of dollars on legal fees, trying to analyze this stuff really deeply. Came to the conclusion at that point in 2018 that we would likely be considered an intermediary and because of that, we would have to act like a bank, and KYC users and run our entire compliance program and all that.

That was obviously the darkest time for ShapeShift, coming to terms with that. Our customers hated it, our employees hated it, I hated it. It didn't help anyone, it only hurt them and I did not want to be in the business of building a big financial surveillance apparatus. But we continued through that, because I didn't want to shut down the company and I still felt that the noncustodial nature was really important.

Fast forward two and a half years, just a few weeks ago and we have changed our model, such that we're not an intermediary anymore, we've stopped trading with customers entirely, and instead, we have integrated decentralized exchanges into ShapeShift. So now when customers trade, they're trading from the customer to the DEX, instead of from the customer to ShapeShift. That means we are not an intermediary, and that means that we do not need to do KYC or run compliance on that because it is not a regulated activity. So that was a huge, profound change that we've been working on over the last six months and just went live on January 6th.

CR: Congrats on that. So just to understand kind of how this works: Basically, ShapeShift now is sort of a DEX aggregator like 1INCH, for example, or are there some differences there?

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