🎙 Jill Gunter Talks Crypto's Role in Emerging Markets and Building Scaling Solution Espresso Systems

Jill Gunter is the co-founder and chief strategy officer at scaling solution Espresso Systems and a venture partner at Slow Ventures. She became interested in Bitcoin via her experience with Latin American markets — which is somewhat of a pattern in the space. She was a debt trader at Goldman Sachs, focusing on Argentina and Venezuelan bonds, and saw crypto’s potential to help those in corrupt or repressive regimes. She continued exploring how crypto can help skirt currency controls and enable more global and efficient markets, and we discuss how those themes are playing out right now in the war in Ukraine.

We talk about how Jill went from Wall Street to crypto, and from VC to founder. Her latest venture is Espresso Systems, which aims to bring scalability and privacy to web3. She explains how this scaling solution works and how it’s different from others in the space. Finally, we chat about what the potential unforeseen consequences of crypto might be, and whether we might be seeing glimpses of that with CBDCs. Jill is optimistic central bank digital currencies won’t lead to the dystopia feared by some in crypto.

Podcast audio and video was edited by Daniel Flynn and Gary Leuci. Transcript was edited by Samuel Haig.

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

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👀 Only paid subscribers have access to the full interview transcript below.

Cami Russo: All right here we are with Jill Gunter, co-founder and chief strategy officer at scaling solution, Espresso Systems, and venture partner at Slow Ventures. Jill, it's so great to have you on The Defiant podcast, welcome!

Jill Gunter: Thank you so much. I am a longtime fan, so it's a privilege to be here.

CR: So I'm a longtime fan. Jill has been in this space forever it seems like. Previously as a VC investor, and now also the co-founder of a technical scaling solution [and] privacy solution for Ethereum. [I’m] really interested to hear your journey, and your new venture. So to start, I'd like to go to the beginning, what got you interested in crypto and how you started out in the space?

JG: It's funny because I have been in crypto in some capacity in the sense of owning Bitcoin and toying around with things, I guess for eight or nine years now, and I've been working in the space for six or seven years. In any other industry, working in that industry for six years — that's a solid amount of time, but it doesn't make you feel like you're one of the ancient people, sort of still hanging around. But by virtue of the nature of crypto, and by virtue of the fact that it's so nascent still… it can make me feel like it's been a long and winding road already.

But to go back to the beginning, I basically got into Bitcoin initially while I was working on Wall Street. I was working on a Latin American sovereign debt trading desk, so I was dealing with the sovereign debt of countries like Argentina, which at the time was going through a debt default restructuring, as well as Venezuela, which at the time was experiencing very high rates of inflation — it wasn't yet at the point of hyperinflation that it later got to. But it was my colleagues in those places that started talking to me about Bitcoin back in 2012 [to] 2013 about getting their money offshore using Bitcoin, and about this new technological tool of empowerment, I guess, that they were suddenly experimenting with. So it was that that really kind of first opened my eyes to the space and the rest has been history.

CR: What trading desk were you with?

JG: So I was working with Goldman Sachs in New York. I think that a big part of my attraction to working in finance was the sort of constant 24 hour news cycle-nature of financial markets, and also the geopolitical nature frequently of financial markets. Both of my parents had worked on Wall Street themselves, and I grew up in a house with Bloomberg and CNBC always on the TV. And yeah, I loved that element of it, so that attracted me to, as I mentioned, the sort of Latin American trading desk where there was a lot more volatility, and for me, just a lot more interesting scenarios than I would have found in, for example, U.S. equities, or anything like that.

CR: That's so interesting! Maybe you read some of my Argentina stories back then? I was covering the Argentina default, and wrote a daily credit column…

JG: I have. I can't actually remember if I'd read them at the time, but as I have subscribed to The Defiant newsletter and followed the podcast, and so forth, I have looked back at your work on the Argentine debt crisis. It is funny how for so many of us it seems like that was this kind of defining moment in terms of a wake-up [to] what the potential and power of Bitcoin, because that was all there really was at the time that cryptocurrency in general could be. I knew that about you, I also vividly remember reading Nathaniel Popper's columns at the time about how Bitcoin was being used in Argentina. Someone who has become a good friend to me since then, James Downer started writing in CoinDesk, which was just a very nascent publication at the time, wrote a few articles about Bitcoin in Argentina. And yeah, even for those of us the gringas who are not Argentine — referring to myself here of course — it was this eye-opening and defining moment.

CR:That's so crazy. I'm not Argentine either, but as you know, I'm Chilean, and it's traditionally a lot more stable there than in other countries in Latin America. But just being in Argentina, covering all the craziness of that market with inflation and defaults every decade or so. Or recently, it's even more frequent, and just their history with financial institutions, and the Corralito and all of that. It really drives home the point [that] you really need some form of uncensorable, permissionless money.

JG: Absolutely. When I left Wall Street, I had intended to go back to school and get a masters or potentially… a PhD in political economics in order to then go back to Wall Street and go back into finance and hopefully be an economist at a macro hedge fund or something like that — that was sort of the game plan. And I initially applied to write a masters degree and do research on a very sort of cut and dry, economics-orientiented topic that was still going to intersect with Latin American geopolitics. But I basically spent that summer before I started grad school going really deep down the Bitcoin rabbit hole, to the point where by the time I got to grad school, I went into my professors the first day and I was like ‘I want to study this Bitcoin thing instead’, and I think that they were all quite skeptical at the time.

But they let me do it and it was this amazingly informative experience where I actually ended up studying specifically Argentina and capital controls, and the role that Bitcoin was or was not playing in terms of capital control evasion. The upshot of it was that it [had] a very negligible role at the time, and it was also just very eye-opening to me in terms of all of the avenues of capital control evasion that have always been open to people, but often not accessible to the average individual in a given country — it's often these avenues that are open only to kind of the privileged few who have that access.

That was a very informative experience for me in terms of understanding where and how something like Bitcoin might be useful then — this is back in like 2015 — but also where it could be useful in the future, and of course that's become a highly hot-button topic and issue over the last few weeks even with what's going on with the Russian invasion of Ukraine, and questions around whether Russia is using crypto for capital control evasion. I mean, it seems like the overwhelming evidence around Ukraine is that Ukraine has been able to successfully use crypto not for any kind of evasion, but just as an efficient way of garnering funds and support.

It's amazing to see these things that felt so nebulous and uncertain at the time, that you were writing about and I was researching, all of these years later start to become actually quite relevant and meaningful.

The role of crypto in the war in Ukraine and as a vehicle to evade capital controls

CR: So I'd love to hear more of your thoughts on how crypto is being used in the Ukraine and Russia conflict. Some people have argued crypto has been an instrument for Russia to evade sanctions, so it's kind of and seen as this instrument for evil, I guess. But then, on the other hand, it's also helped bring supplies into Ukraine, or helped everyday Russians and Ukrainians protect their savings. So I don't know if there's a clear-cut view on the role that crypto is playing in the conflict. I think it really depends on what side you're standing on or where you're looking at it from. But yeah, I'd love to hear your thoughts on it.

JG: Yeah, it is this kind of age-old question. When you have a new tool or technology platform, especially when that tool is open, boundaryless, and permissionless in the way that that crypto is, it's this question that arises of ‘is it being used for good or for evil’? ‘How do we control the ways in which it's being used’? And I think that on some level, that's one of the most important things that we as builders, entrepreneurs, contributors, and even users of all of these really nascent tools and platforms can be asking ourselves. Because it's easy to put blinders on and be focused on building the form of the future that we are so optimistic about without thinking about the second order knock-on effects. If you look back just a few years ago in… the social media space, it's very easy to trace a line with, for example, Facebook, from decisions that they were making, again, in probably a very optimistic way, to things like Cambridge Analytica or debates around the 2016 election, and so forth. So I think it's a really important conversation to be having and I'm grateful that the community is having it.

I would say though that a lot of the conversation, specifically around Russia as a country somehow using crypto to evade sanctions, at least the conversation that has been happening within certain pockets of the media and also within the U.S. political establishment, does feel like it's sort of a red herring, almost in that it's a distraction. It is pointing to issues where there's very little evidence that they would even be possible to arise, let alone that they're actually happening, and this is something that treasury is saying over and over again [but] there is no evidence that Russia the country is using crypto for sanctions evasions, and there's no evidence again that they would even be able to on any kind of scale given just the liquidity profile of crypto, and also given the fact that in general crypto is actually very easy to trace and keep track of where it's moving and between whom, again, especially when you're talking about the scale of an entire country's financial system.

I would also say though that you bring up individual Russians potentially being able to use Bitcoin or cryptocurrency as some kind of an escape hatch for themselves in the face of the devaluation of the ruble and so forth, and there, again, I do kind of hearken back to the research that I did six or seven years ago around Argentina which really just highlighted to me the fact that at the country level, or even indeed at the level of big institutions within the country or the wealthy ruling class where there is access to other financial tools and other financial systems, there are and always have been other escape hatches that have nothing to do with cryptocurrency that do allow for capital controls evasion. I think that we would be much better served when the U.S. political establishment, or the media, we as individuals within the industry do talk about these things with regards to crypto, I do really think it's important to put it in the context of all of the other ways in which countries and institutions do evade these things whether that's capital control, sanctions, even taxation… So I think it's important to put it in that context.

The last thing I'll just say quickly is that I think… there is overwhelming evidence that Ukraine has been able to use crypto not to evade anything, not to get around any kinds of controls or regulations that are in place, but merely as an improved way of gathering funds, support, and moving money across borders in a quick and accessible manner. And [I think]... for many of us who've been building in crypto for a long time… that has been… a very heartening demonstration of the value that can be created by this technology in the form of an improved infrastructure. So that's very exciting, but these are certainly complicated and important issues for all of us to be keeping an eye on, and to be considering as we're building.

CR: It's been so interesting to see how crypto has become almost central to the conflict, or to the way money is being moved as a result of the conflict. Yes, for Ukraine, it has enabled the Ukrainian government to raise over $100M in funds from crypto donations. This week in The Defiant, The Defiant video team is shooting an amazing segment on how [a] video producer from Ukraine is using crypto to get supplies over to the frontline because they're having so many issues in getting just payments done through the regular banking system, so they are actually using crypto. [For example], this woman who had nothing to do with crypto before, didn't have a way of getting these supplies over, so she was forced to use crypto for that — so you see these examples. And then from the side of capital controls evasion, I think that's a great point you bring up — maybe Russians are using crypto, but it's not like they wouldn't be using something else if crypto wasn't available, it's not as if crypto is the only way to evade capital controls. Back to Argentina, humans just will find a way to evade controls.

JG: Yes, I remember speaking to someone and him telling me the story of literally [how] he was in touch with someone who was smuggling U.S. dollars into Argentina at the time. And this acquaintance of his who he would deal with, would literally have to take suitcases of cash dollars on a boat from Uruguay into Argentina and evade sniffer dogs on the boat trained to sniff out cash. And it's like, as you say, if the human spirit, if your livelihood, if your financial wellbeing is being put into question, there are ways to be found, and I think it's so important to put it in that context. But I would love to hear if you had a similar anecdote or tale from your experience of covering all of that.

CR: Yeah, I remember the sniffer dogs in the ferry from funde leftte in Uruguay, they had dogs trained to sniff out drugs, but also dogs trained to sniff out dollars in suitcases — it's pretty wild. The other thing they also did in bunde left, in the casino you were able to buy chips with your credit card… at the market rate in Uruguay, so they were able to buy casino chips with their credit card, and then they would just cash them out — they wouldn't use them to play, they would just like use them as a vehicle for just getting dollars.

JG: Oh my gosh, an exchange mechanism to get cash, wow!

CR: Yes! So they would cash in their chips and then the casino would pay it directly in cash, so they would get dollars to bring back to Argentina.

JG: Absolutely wild, there's always a way!

CR: So yeah, we were in this moment in your story when you had gone to grad school, and you went deep into the Bitcoin rabbit hole and researched the ways that people were using crypto as a way to skirt currency controls and so on. At what point, did you decide to go full-time crypto and start investing and start your fund? Did you decide to drop your idea of going into a macro hedge fund and just go all in on crypto?

JG: Yeah, my friends who knew me when I was living in New York working in finance joke that I got lost on the way to Greenwich, Connecticut, and ended up in Silicon Valley instead while I was in graduate school. Again, this was 2015 kind of timeframe, I started applying to every company that was doing anything in crypto, of which at the time there were about a dozen. It was not that many and I was fortunate enough to get a job at a company called Chain, which started out doing Bitcoin developer tooling and then pivoted into enterprise blockchains. They had partnerships with Nasdaq and Citigroup, and so forth, and I was doing business development and strategy for them. So that was my first foray into crypto full-time.

And then, as you mentioned, I've been able over the last six years or so, to have a wide-ranging path through investing, investing venture capital on behalf of slow ventures — which is a great seed-stage fund based in San Francisco, a generalist fund but [one that] does a lot in crypto and web 3 — and then I've also been able to serve as an advisor to a couple of different companies — L1s in the space. I actually co-founded, along with Alejandro Machado and Jamal Monteser, two good friends and amazing designer friends of mine, a design research lab called The Open Money Initiative that is looking into how crypto is not being used in places with financial restriction — so still very much along the same lines of what we were talking about, there are these threads of thematic consistency even as it's been a fairly broad and and wide-ranging career path over the last six years or so.

Global adoption of crypto

CR: Nice, so you've been kind of observing how crypto is being used where there's financial restrictions? I'm curious, seeing how it's being used today compared with how it was being used in Argentina. What do you think has changed? You mentioned that in Argentina, you saw very little evidence that it was being used in a meaningful way — maybe there was a very small, niche group of people who were using crypto, but it wasn't mainstream by any means. My perception is that has changed. I’d love to hear your thoughts on what you're seeing — is it more widely adopted now, and if yes, what do you think has contributed to that?

JG: Certainly. I mean, globally, it's much more widely adopted — I'm not up on the stats in terms of where it is in terms of adoption in a place like Argentina or Venezuela where I also spent time, but I do think that certainly, without doubt, globally, it is much more widely adopted, and I can only imagine that that would be even more true in these places that we're talking about.

I would attribute that to a few things, I think that, first and foremost, it's just broader awareness and education. In a lot of the research that I've done in talking to people who are facing these types of circumstances — inflation, capital controls, etcetera — the main reason why they're not using cryptocurrency… was a lack of familiarity with it, frequently a lack of even knowledge that such a thing exists. But then, when there is knowledge that such a thing exists, there's just a lack of comfort with it, of ‘oh I've heard of that thing but it sounds really complicated or highly technical’, or ‘I don't know if it's fully legal or if the government can come after me or something like this for using it’. I think that as education — podcasts and newsletters like yours — has helped to make it much more mainstream, then we've also seen follow on from that of a much greater proliferation of easy and accessible on and off-ramps Into and out of crypto that span globally that are not just Coinbase and Gemini in the U.S. Although they're great and they do great work, for a long time, the main options for on and off ramps in some of these locales was just LocalBitcoins. And LocalBitcoins is an amazing company, an amazing service, and they are some of the originals, but I do think that a big important catalyst has been the development of more local exchanges that can serve us as centralized on and off ramps. So that has been, I think, a huge evolution over the last several years.

CR: Yeah, for sure, I'm really happy to see that, and how in Argentina, crypto is so mainstream right now, it's incredible. People are just using it for everyday life, like for savings, and purchases. So yeah, it's been amazing to see.

JG: Amazing, I would love to go back

CR: Yeah me too, I've been speaking to so many Argentines, I went to EthRio and it was like 80% Argentine, so I got to talk to them about how they're using crypto. They were saying it’s pretty much mainstream now, so it gave me a lot of nostalgia, so I'll find that excuse to go.

The need for privacy when transacting with crypto

JG: Absolutely. But it's that kind of vision of what crypto can look like as it goes mainstream, whether it’s in a place where it was sort of forced to go mainstream like in Argentina where there were these dynamics that we've been talking about, or whether it's as we think about stablecoins going more mainstream for payments maybe even in the United States, or in a business-to-business capacity — all of these types of things — there was a lot of consideration and almost soul-searching that I've done over the last few years of what will need to be true if and when we reach that point, and that is a big part of what drove me to want to focus on building solutions for both scalability, and really specifically privacy.

So frequently I would be talking to people in the form of either interviews, or just at conferences, or getting to know each other, and so forth, and they would start talking in these really inspiring ways about the ways that they were starting to use crypto in a more day-to-day capacity, and in the back of my mind I would just be thinking ‘oh gosh, but you're doxing your complete financial information your whole financial life, you're broadcasting that out to the world’. Talking to people about that, initially, they’re of the perspective ‘yeah, but no one is really looking at what I'm doing’, or ‘it doesn't matter so much’, but again, as you think about these things potentially going more and more mainstream, it may start to matter. Even for people who think no one's looking or think that they would have nothing to hide.

CR: So when did this process of starting Espresso take form? How long have you been working on this? Can you give an overview of how it works?

JG: So Espresso Systems is the company that I'm working on building at the moment with an amazing team. We're about 26 people currently, about 18 of whom are engineers, and then there's four of us who are the co-founders of it. So it's myself, and then three incredible cryptography PhDs — one of whom is a PhD drop-out, the other two are still in or just after the throes of academia from Stanford; Ben Fisch, Charles Lu, and Benedikt Bünz.

We are building the scaling and privacy functionality that we think web3 will need in order to go mainstream in these ways. Where we've started with that is a privacy application that works on Ethereum, and we think will work even better on the underlying protocol that we're building out for it over this coming year, and that's called CAPE — Configurable Asset Privacy on Ethereum. The idea there is to be able to take existing ERC-20s and ERC-721s, and also to enable the development of new assets and new tokens, that have, as the name suggests, configurable privacy policies around them.

To answer your first question about the origin story of all of this… over the course of 2018 to 2019 through Defi summer, I was watching a lot of not only DeFi-oriented products take off, but also the DeFi-enabling products take off, specifically stablecoins. All of the stablecoin growth curves were just hockey sticks over the course of this period, and at the time, I was working in venture capital. As a venture capitalist, you're watching these types of growth curves and trying to ask yourself the important questions of what needs to be built in order to maintain those growth curves in order to catalyze them further. I started thinking about the notion of a privacy-enabled stablecoin, something a bit different from what already existed in terms of what you could do with stablecoins with Tornado Cash — something a bit different from what already existed in terms of privacy-oriented cryptocurrencies, not necessarily stablecoins but things like Zcash and Monero, but a privacy-oriented stablecoin that could meet the needs, for example, of a business that wants to be able to have some transparency and some controls perhaps over what they're doing, but don't necessarily want to be broadcasting all of their activity to the whole world. You could imagine this being applicable also in some of the examples that you and I talked about just a few moments ago in terms of the types of things that people might want to maintain privacy around.

As I was thinking about, considering, and brainstorming around this idea, I reached out to a couple of old friends who I knew had done some work around privacy — namely Ben in this case. [I] started talking to him about this and he was saying ‘well, funnily enough, I'm working in a similar direction, we just incorporated a company and why don't you consider coming on board’, which I very happily did.

So that’s kind of the origin story of Espresso Systems, and that's the use-case that we started with. We have come to expand the scope of what we're building, and I think that this is how so many of the great crypto projects out there have gone about building — that they start with a very specific application in mind, or very specific use-case, and then realize as they go about building it ‘wait, we need to build the primitives, the protocols, and all of the infrastructure technology in order to make this possible.’

And so again, that's where we're starting, with Configurable Asset Privacy for Ethereum — this CAPE product that we recently open-sourced and that we'll be launching on testnet in a few weeks time. So stay tuned and that's a little bit more also about where we're going with the company.

Configurable Asset Privacy on Ethereum

CR: Very cool. So first question on CAPE, if I understand it, is that like a separate blockchain? Is that like a protocol built on top of Ethereum that enables private transactions?

JG: Great question. So there is what we refer to as the CAPP protocol, the Configurable Asset Privacy Protocol… As protocols are basically the rule sets around how privacy can be enabled and privacy can function, that protocol can be implemented on any EVM-chain, so it can be implemented on Ethereum. We are also building out what we refer to as the Espresso Layer 1, which will enable all of these things to be possible in a much more scalable way — that's of course one of the big problems with rolling these things out on ethereum today, particularly anything privacy oriented. But we will be implementing the Configurable Asset Privacy Protocol natively on our infrastructure once that's ready. But again it could be supported on any of this infrastructure.

What we've built as the starting place, while our infrastructure is under construction if you will, is an instantiation of this protocol on Ethereum. Again, we’re starting on testnet, of course, so we'll be live on the Goerli test net in just a few weeks time, and that lives as a smart contract on Ethereum. Part of the beauty of Ethereum's turing completeness is that we were able to implement it,, you can think of it as an application on Ethereum, and so today, CAPE is an app on Ethereum that you can interact with just as you would any other smart contract or application on Ethereum. And then later down the line on the roadmap is an implementation of it on our own Layer 1, where, again, we'll have all kinds of scalability benefits, and also importantly, potentially some privacy benefits too.

CR: What can you do with this application? How does it work?

JG: First and foremost, if you are an asset creator — let's say you're one of the big stablecoin issuers, just to go back to that as an example, but equally you could be a DeFi project with your own governance token, you could be a DAO figuring out governance or your own payroll, you could be an NFT artist, you could be any kind of asset creator, but let's just use stablecoins for a moment because that's intuitive… — you can create an asset using CAPE that you have control over who can see what's going on with that asset. So if you're a big stablecoin provider, you might want to say ‘okay, I as the provider am going to serve as the trusted third-party in terms of what I can see is going on in the network, but I'm going to offer improved privacy over and above what exists on Ethereum or pretty much other blockchain today to my end-users’. So I'm going to say I will retain visibility into what's happening with this stablecoin that I'm creating within CAPE, but then if I am a user of the stablecoin and I want to send you a payment using that stablecoin, then the general public will not any longer be able to go on Etherscan and see that I paid you a thousand dollars for rent this month, or that you I paid you $5 for the coffee that you bought me yesterday. The stablecoin provider would still be able to see that, which might be important to them for any kinds of controls that they might want to have or any kind of data integrity, or reporting requirements, or anything like that they might want to retain. So that's one example of how an asset creator might use CAPE to create a fundamentally new kind of user experience.

CR: Would the assets created still be ERC-20s?

JG: So that's a great question and the answer is if you want. So if you are a stablecoin provider who already has your ERC-20 stablecoins that exist on Ethereum, then what you could do is use CAPE to create basically a wrapper, a template wherein I, as an end user, could take some of my existing ERC-20 stablecoins, wrap them into that template, get the privacy properties that the stablecoin provider is providing to me — again, maybe it's privacy from the general public but they can still see what's going on. Importantly, also I as a user can see that they can see what's going on. It's flagged in big red writing to me, at least on the user interface that we've developed for it. That's an important element too.

So yes, I could be able to do that with an ERC-20 token, but equally, the asset creator might decide ‘okay, I'm just going to create a brand new type of stablecoin within CAPE’ — that's really up to them. But there is that interoperability supported.

CR: So, for example, if Circle and Coinbase wanted to issue a more private USDC, if they used CAPE to do that, it would be like a wrapped USDC? Like WUSDC…?

JG: Right now, internally, we've been calling these assets ‘caped assets’, sort of like they're cloaked or wrapped. But yeah, that's the idea, and I mean that's obviously very hypothetical. It would be a very cool scenario to see this picked up and used by the likes of such big providers. But yeah, that's exactly the idea.

CR: And does it have to come from the issuer? Or would a USDC holder be able to go and like ‘cape’ their USDC?

JG: So yeah, potentially other parties, whether that's individuals, or other service providers, could go in and create their own wrapped type of USDC that has [its] own privacy parameters around it, and their own viewing capabilities, and all of that. I think that from our perspective, thinking about it from a product perspective and even a go-to-market perspective, there's a big question there of how those types of players would end up driving adoption to it if it's not the issuer. So that's why we tend to talk about it with the actual original asset creators in mind. But if you wanted to go out and create a Defiant wrapped version of some ERC-20 on CAPE, then we can't stop you. No one is going to stop you. It's a totally open protocol. That's something that I'm actually really excited about as we go live on testnet, to see the ways in which people do pick up and use the technology, because we certainly have not thought of all of them. It may well be the case that that ends up being much more interesting to people than even we've anticipated, so that's something I'm really excited for.

CR: Would Cape support the common privacy transaction use-case of simply scrambling transactions? Or just enabling more private transfers of value?

JG: Like blanket privacy. The way that we see the world is that today in crypto, you have this kind of black and white notion of privacy [where] you have Monero on one end of the spectrum, and then you have Bitcoin, Ethereum, and everything else on the other end of the spectrum, where it's just all or nothing. It's either you are trying to keep everything private from all people all the time, including maybe even the government or whatever, or you're comfortable with everyone seeing everything that you're doing and you're doxed constantly. We think that both ends of those spectrums are pretty well served with the products that exist, so what we're really focused on is building products that create, we think, a much more expansive and interesting room in the middle of that spectrum. So CAPE is really designed for the gray area there in terms of being able to configure situations and specifically assets in which some people need to or want to retain the benefits of transparency which are very real, while also offering privacy as a feature and as a function for end-users. That's also reflected in the user interface that we've created, where in the user interface, you have to designate what we call ‘viewing keys’ for each asset. It's not even an option in the user interface to have it be sort of fully private, I think in the way that you're talking about, and again that's a very proactive decision because there are tools for that end of the market, and that is just not the opportunity that we're going after.

CR: So the issuer decides who can actually see everything, right?

JG: Yeah, that’s right.

Opening the door for TradFi to explore DeFi

CR: So going back to the Circle, Circle would still be able to see all the information there, but not the holder of the asset?

JG: Yeah. So there are many different ways of configuring this, but in that example, specifically what you're doing is you're replicating basically the privacy parameters of the traditional financial system where, perhaps, as an American who trusts my bank and kind of trusts the government, I am happy for a Chase Bank to be able to see all of the data on the transactions that I'm making in my bank account. But I certainly would not want everyone I know to be able to see all of those transactions. So this example specifically that we're on with the stablecoins, I think is kind of a reflection of the way that TradFi works and approaches privacy. But I think that what is most exciting to me, are the ways that that can even be enhanced, improved upon, or altered in much more creative and novel ways. So one example of this would be, for example, to stick with the stablecoin for a second, if a stablecoin provider decided ‘okay, transfers under a certain threshold we don't need to see anything about at all’, that's fine, that can be fully private. But transfers above a certain threshold, ‘for our own reporting requirements, or for our own internal data integrity, we need to be able to have insight into that and we want to leverage all of the transparency benefits of web3 and crypto’, then they, in future versions, of CAPE, would be able to program that natively into the asset so that they can have only the insights that they need. So it's areas like that where we can actually improve over the privacy that's offered in traditional systems today that I think excite me most.

CR: Very cool, super interesting. So you're able to improve on how TradFi works now, and also open the door for banks and financial institutions to potentially feel more comfortable using Defi.

JG: That's one of the hopes. One of my big theses or theories about the next five years of crypto is that up until now the big players have basically been individuals or institutions that either got in early, like some of the big venture funds, or institutions that are crypto-native that grew out of individuals or startups, or venture funds that were started within crypto itself, or trading outlets that were started within crypto itself. And I do think that one big area of growth over the next five years or so will be more traditional financial institutions getting in, and I think that this type of privacy guarantee will be very important as a way to open up those floodgates. I also, however, think that there are a lot of amazing applications for configurable privacy outside of purely enterprise… We've spoken to NFT artists who are excited to be able to offer NFTs in a more privacy-preserving way for their users while they themselves as the artist might be able to then maintain insight into who owns their art, and how it's moving around, and things like that. So I think that's just another example of the range of options that will be created and the range of users that I hope and foresee CAPE, and down the line, Espresso, more broadly serving.

CR: Very cool. Briefly, can you touch on the tech that you're using? Is it like zero-knowledge proofs?

JG: Yeah, it's zero-knowledge-based. Probably most of your listeners are familiar, but zero-knowledge proofs zero-knowledge technology is a cryptographic mechanism to be able to prove that certain things are true while not having to disclose the underlying data that would otherwise prove that. [Zero-knowledge proofs] have been researched and developed in academia for quite some time and were first commercialized in the form of Zcash, which came out back in 2014. Since then, there has been an explosion of development, greater research, and engineering breakthroughs in the zero-knowledge space where a lot of the challenges — and all credit to the Zcash team, they were able to… pioneer through a lot of those challenges — have either become moot or been diminished with time. These are challenges related to everything from what's called the trusted setup, that was previously needed to be done each time for every Zcash upgrade… there are now systems that have been developed that greatly improve upon that where you can use what's called a universal setup, where everyone is contributing to it and therefore everyone can have enhanced and improved trust that is secure and is going to work the way that it's supposed to, and it hasn't been compromised — all kinds of developments like that that just make the tech really ripe to underpin a lot of different breakthroughs. So that's been an exciting thing to be a part of, and it's a really exciting space and area to be working on.

The potential impacts of CBDCs

CR: Nice. Changing tracks a little bit, I want to ask about something you mentioned earlier about how crypto, or just tech, has unforeseen consequences. So with web 2.0 and social media, and how that's kind of devolved in[to] a place where they’re selling our data to, potentially, organizations that then can manipulate us and so on — nobody could have foreseen that. And with crypto and digital assets, I think… what is starting to surface is a question that I've been kind of interested in — what happens when governments use crypto or digital assets with CBDCs? Does that have the potential of bringing some maybe not so great, or even sinister unintended consequences? I know that you've been looking at CBDCs closely, and I saw that you maybe worked with the BIS recently?

JG: Oh, I presented at the BIS a few weeks ago. Yeah I was just a small part of a day of presentations that they put on with regards to CBDCs.

CR: Okay, so yeah, I am really interested to hear your thoughts on that. Is it as sinister and big brother-like as we think?

JG: I think they certainly have the potential to go the route of surveillance and an overstepping of government controls in terms of what people are doing with their money, and so forth. But I don't think that they have to be, and I think that there is this tendency within people who've been in crypto for a while and perhaps have seen things go south before to get very worried when they hear things like CBDCs talked about. I appreciate that those conversations are happening, but the way that I look at central bank digital currencies is that if they were to come about… firstly, hopefully they would be designed in such a way, and a lot of the evidence at least out of the U.S. Federal Reserve, the European Central Bank, and some of these other big leaders in exploring this space, if [CBDCs] respect people's privacy, if they respect people's sovereignty over their own money and their own financial assets, if they have these types of respect and sort of freedoms built into them, I think that they can be great. I also think that they can be great even if there is some element of oversight happening on the part of the central bank or on the part of individual private banks… as long as CBDCs are not positioned as the only option available to people, as long as they are just one of the options available to people. I think that that's a great world that I would be very happy to live in.

I think that the full range of choices should be available to people in terms of how they interact with money and their finances, and how they transact with others, and I think that if CBDCs are to be one choice amongst many — amongst the existence of Bitcoin, and physical cash and the visa network, and all of these other options that exist — I think that that's great. I think that where it gets scary and hairy to talk about is when we start to consider if CBDCs were to be the only option.

CR: That's a good point, but are you seeing that central banks are exploring actually using blockchain technology like distributed ledgers and crypto to create their CBDCs. What I've seen is that they're not really thinking about that yet, it's like more of a close ledger system that they're they're thinking about, and it doesn't look at all like an actual cryptocurrency. What are you seeing?

JG: I'm not sure that I would have too much more insight into that than you or anyone else, but I think that my observation would be that it's still very early days for most central banks, and that they're trying to explore the full range of options. But even just for myself in reasoning about it, it is tricky to reason about under what circumstances it would make sense for a central bank — I mean, that has the word ‘central’ in it — to use a decentralized ledger technology… If it turns out that it's not a blockchain that ends up making sense for CBDCs, then I think that is a reasonable outcome, and actually maybe much better than trying to shoehorn a CBDC onto a ledger that is not fit for purpose.

But I will say that a lot of what the conversation seems to be in the United States at policy-making levels around stablecoins — private stablecoins, so the USDCs of the world — is very exciting to me because it does seem like we're at least maybe hopefully trending towards a greater acceptance of stablecoins being an option a choice to people that is not sanctioned by the government but sort of has the blessing of the government and a framework dedicated to it that policymakers are on board with. I think that that's a very exciting development and direction.

CR: Nice. Okay, I like this more optimistic view [that is] less scary about the future.

JG: I think… it’s going to be okay, I hope.

Market outlook

CR: And then to start wrapping up, I'd love your thoughts on what the market is looking like for you? You've been a long-time analyst and you have a really knowledgeable take on the broad market.

JG: I'm a trader at heart for sure.

CR: Today, everything is looking awful, there's red across the board, and this year there's been so much volatility in general with rates going up and obviously the Russian invasion of Ukraine. It seems like there are so many roadblocks or different issues looming on… Do you think that that's bound to continue? What are the main drivers going forward?

JG: I think that the biggest driver over the next year is going to be macro. Specifically what I mean by macro in this case is rising interest rates. We'll see the ways in which inflation persists.

I think that the added volatility of the Russian invasion of Ukraine and also inflation pressures, given the price of oil right now on the back of the war going on. I think that those are all going to be the biggest drivers of price action. If I look at it on a three-month, six-month, one year timeframe, I think that is going to cause some pain, particularly in terms of the rising rates, I think that that's going to cause some pain across liquidly-traded risk assets in general — so that's everything from tech stocks to, of course, cryptocurrencies.

I think that there's an interesting observation to be made though about the kind of bifurcation of private markets versus public markets, where at least in crypto, all of these venture funds with really sticky money over the last six months, even nine months perhaps. have raised billions of dollars in capital to continue to put towards earlier-stage companies, startups, and so forth. To me, I think that's cause for optimism, both in the sense that there's one part of the market that is going to hopefully be a bit more resilient to those more kind of global macro pressures of rising rates and the war, and so forth, and it's also optimistic because those are the investors who are investing on the 10-year time horizon. I think that it's a good reminder to look out on the 10-year time-horizon, I think that you really should not be investing in crypto if you're not looking that far out. I think that looking out that much farther past this year, which might be a tough year in terms of trading and price action, is a good place to seek the refuge of optimism because it's hard for me to see a future in which crypto and this technology does not continue to grow and mature and take off.

CR: Yeah, same. I think it makes a lot of sense that so many funds raised billions at the end of last year, and it's kind of a relief that at least there's that cash waiting to be deployed in crypto. So that will continue to see development, innovation, and crypto startups get funded — so that's definitely a positive for this space.

JG: Yeah, absolutely.

CR: Awesome. Okay, and then the final question is Jill, what makes you defiant?

JG: What makes me defiant? I love that. I think for me, being in crypto in general… is an act of defiance… Certainly if I think back seven or eight years ago, getting into it, it flew in the face of what was expected of myself, [and] in a way, what was expected of the way that the financial system was going and would continue to develop.

I think, for me, what makes me defiant in the sense of motivation comes back to so much of what we talked about in the first half hour of this conversation, where you look around at the world and the systems for how we transact and interact online are so broken for so many people. Whether that's people living under regimes where they don't actually have free control of their money and finances, whether that's digital creators who don't have real ownership over what they're doing or control over the platforms that are accruing all of the value for the things that they're creating. Whether that's other individuals who are trying to transact across borders — the global remittance market is one that has long been promised to be disrupted by crypto, and we've yet to see it happen. So all of these types of insights into the ways that our models of ownership and transactions are broken. And you don't have to go to Latin America to see it. You don't have to go to Argentina or to Venezuela to see it. You don't have to go to Russia and Ukraine to see it. We can see it wherever we are, playing out across social media platforms, or messaging apps, or banking apps or lack thereof that we may or may not have access to. I think that is what drives me in this space, and so that is what makes me defiant.

CR: Awesome, what a great answer. Jill, thank you so much for taking the time, I loved getting to know you a bit better and getting to know your new venture. Super interesting. Will definitely be keeping an eye out for coverage on The Defiant and see how that develops. Thanks again for joining me!

JG: Thank you, likewise. Thank you so much.