"We Were Idiots and We Were Poor; Then From Mid 2020 to Now, Suddenly, We're Right: " Ameen Soleimani

In this week’s pocast episode we interviewAmeen Soleimani, one of the most prolific builders in Ethereum. He’s the CEO of SpankChain, a blockchain-based adult entertainment platform, the co-creator of MolochDAO, a DAO to fund Ethereum projects, and the co-founder of Reflexer Labs, which created RAI, a purely ether-backed stablecoin.

We talk about the need of a purely ETH-backed stablecoin, and how RAI is so cypherpunk it’s not only not backed by fiat, but it’s also not pegged to the dollar, it’s only pegged to itself, and stabilized by its own algorithm. It’s a pretty radical experiment and Ameen has very high hopes for it: The goal is for Rai to become a global reserve currency.

We also catch up on Spankchain, which is now a crypto payments company. It’s interesting that the project was very early in the scaling game—it was launched in 2017 using state channels— but Ameen explains why he’s not using Layer 2 anymore, and it comes down to user experience.

Ameen also talks about why he’s now posting his own porn videos; he says it’s about breaking down stigmas and making the statement that sex is normal, sex videos are a form of expression, and that sex work should be decriminalized.

We also talk about why so much of his work gravitates toward religious elements —calling Rai the MonayGod, for example— and he opens up about how it may be a reaction from growing up in a very strict, religious household. To him Etheruem isn’t just about building cool, decentralized stuff, it’s also been a way for him to redefine what “God” is.

The podcast was led by Camila Russo, and edited by Alp Gasimov.

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Ameen Soleimani: It was like 2011, 2012 that me and some of my college fraternity buddies bought mushrooms on the internet, from the Silk Road and had a great time and it was an eye-opening experience. Unfortunately, we didn't buy as much Bitcoin as we could have. But you know, shortly after that, after graduating, I wrote a Bitcoin arbitrage bot, I made a couple dollars off of the arbitrage. I made $1,000 off of the Bitcoin bubble in Mt. Gox and lost everything. And then I wasn't very rich at the time.

“...me and some of my college fraternity buddies bought mushrooms on the internet, from the Silk Road and had a great time and it was an eye-opening experience. Unfortunately, we didn't buy as much Bitcoin as we could have.”

But then I sort of walked away from crypto for a while and then only got back into it once I discovered Ethereum. And I thought it was interesting, as a programmer, I could write code that ran on Ethereum and I thought that was fascinating and could have potentially large implications and joined ConsenSys ultimately, in the summer of 2016, and I stayed there for a little less than a year, did some fun work there. We worked on advertising stuff, worked on scalability, payment channels, state channels, those kinds of solutions, and then eventually left to start SpankChain.

Camila Russo: Nice. Okay, so interesting that mushrooms was what first got you into Bitcoin with the Silk Road. And I'm guessing, I mean, having programmed an arbitrage bot and then becoming interested in Ethereum because of smart contracts, are you a programmer by training?

AS: Yeah. Well, I studied chemical engineering in college and then afterwards I was like, I want to learn something that's more on the cutting edge. And so I started teaching myself web development, JavaScript, SQL, that whole stack. And then when Ethereum came along, I started building DApps. So I started teaching myself Solidity, and then you still need all the rest of it in order to launch a DApp. You still need to make the UI and have the database and stuff like that.

CR: Nice. So you're kind of self-taught on the programming side?

AS: Yeah, self-taught software engineer.

A Money God’s Origin

CR: Okay, so now fast-forwarding, and we'll go back to talking about SpankChain, and the rest. But I want to start off by talking about RAI, which I find is a really interesting and exciting experiment. But if you can explain what this is. As I mentioned, RAI is a stablecoin that's based only on ETH. And so first, I want to start off by talking about why you thought it was important to have a purely ETH-backed stablecoin.

AS: So I'll take you back to the beginning of RAI. Which is like, my involvement in this, it's bigger than me. I'm just part of the group that is bringing this technology to life. I was frustrated last year, mid-February around ETHDenver, because MakerDAO was starting to add lots of collateral, they're making lots of decisions, and I really appreciated DAI when it was single collateral, when it was just backed by Ether, it was less complicated, and there weren't a whole lot of moving parts.

“I really appreciated DAI when it was single collateral, when it was just backed by Ether, it was less complicated, and there wasn't a whole lot of moving parts.”

And I thought that as they introduced other forms of collateral, especially collateral that introduces counterparty risk, like something like WBTC, it introduces a trust assumption to the system. If I'm a DAI holder, I am now downstream of the risk of WBTC blowing up because of some custodian, or something happened. So, I thought that it would be useful for me as somebody who primarily wanted to hold DAI, and useful for Ethereum to have something like that. And so I published a blog post called Metacoin. And the Metacoin blog post, I put it on the Ethereum research forum, got a lot of attention. And I put my design for how I would do MakerDAO.

And part of what I wanted to do is also governance minimize it, so to try and take humans out of the loop for deciding on the interest rates and stuff like that. So being backed by ETH is one part of it, being governance minimized is another part of it. And they're both pillars of the same idea, which is to try and achieve social scalability by getting the humans out of the loop. So you don't need to trust some group of humans, like, you sort of need to trust the MKR holders or the Fed or whoever, to try and get as close to ETH moneyness as possible. And in order to do that, try to eliminate as many of the trust assumptions.

“...part of what I wanted to do is also governance minimize it, so to try and take humans out of the loop for deciding on the interest rates and stuff like that.”

So, I published this Metacoin blog post, and then I got feedback from the original co-founder of MakerDAO Nikolai, who's a super genius, and he was like, actually, this was my plan. I was going to create MakerDAO in this way. Originally, if you look at the white paper that we published in 2017, it's like this. But I also have this other twist to it. And so in my original post, I was proposing to do the same thing that Maker is doing where it's pegged to $1. And the interest rates would not be set by committee or vote, it would be set by an algorithmic PID controller. We'll come back to what that is a bit. And Nikolai is like, yeah, I had the same idea, but like, you actually can do this without needing to peg it to the US dollar at all. I was like, mind blown, like, tell me more. And once I realized what he was describing, I was like we have to build this.

“... you actually can do this without needing to peg it to the US dollar at all. I was like, mind blown, like, tell me more. And once I realized what he was describing, I was like, we have to build this.”

RAI’s Mechanics

CR: So right now, RAI is pegged to this, seemingly arbitrary number, like $3.14?

AS: Yeah, so RAI is pegged to itself, is the crazy absurd way that this whole thing works. And you're like what, how does it peg to itself, like what does that even mean? And so it's that we have two different prices for RAI. We have a target price, which we also sometimes called the redemption price. And then we have the market price, which is what it's trading out on the market. The market price is up to the market, we can influence that, but we can't decide that or anything.

“...RAI is pegged to itself, is the crazy absurd way that this whole thing works. And you're like what, how does it peg to itself, like what does that even mean?”

The target price is initially arbitrary. And because we're nerds, we picked $3.14 per RAI to start with. From that point, RAI is pegged to $3.14, but the way that RAI influences the market price to try and get them to converge is that it actually moves its own peg in one direction or the other. And so it has another concept called the Target Rate. And the target rate is how fast the peg is moving, how fast this target price is moving in either direction. And what that is felt as by the participants in the market is an interest rate. And so just like the Fed raises interest rates, lowers interest rates to influence behavior, RAI automatically updates as interest rates influence the market participants to try and reach convergence.

CR: Got it. Okay, so the interest rate is like a reflection or a result of the redemption rates, and the redemption rates is how far RAI is straying from its peg of $3.14?

AS: Correct. So right now it works kind of like a spring. We are using the simplest possible form of controller. It's just a P controller, proportional. And so that means the farther you move RAI from its peg, the faster it pulls in the opposite direction until the new equilibrium is reached. And so right now, the market price is $3.2 something and the target price has moved lower as a result. Over the last two weeks that RAI has been live, it went from $3.14 to about $3.07, you know, 3% or so, movement.

CR: Okay, so I guess like this is part I didn't really get. The peg itself also moves, like it's not $3.14 forever?

AS: Arbitrary starting point, and there's nothing tying it back to $3.14 anymore.

CR: Okay. But like, how is that a stablecoin then?

AS: So, let me ask you a different question, what's the dollar peg to?

CR: Okay, I'm not sure.

AS: Right. It's not pegged to anything. Right? And like, that's kind of the point is that, when we think of stablecoins, we think stability is dollars, we're just like, dollar is stable, that's it. But that's not necessarily true and there can be other definitions of stability. And so, for the US dollar, they target an inflation rate. They target a 2% or so low inflation rate and full employment, and they have a consumer price index that they use. And so they say, okay, people buy this basket of things, cheeseburgers, toilet paper, etc. So long as the price of these things does not rise by a certain amount per year, then we are safe in terms of inflation, and that's how we determine how much money we're going to create. And the creation of the money is downstream of them actually setting interest rates, they don't actually create all the money necessarily at once. But yes, so they do these things. And we feel that it's stable.

But basically, the history of fiat currencies tells us that it is stable up to a point and then it is not. If it hits runaway inflation, then it's no longer stable. And so we're experimenting with crypto native stability. We're trying to figure out, can we stabilize something purely within crypto. Stabilize it and reference itself is the way we're doing it as the way to do that.

“...we're experimenting with crypto native stability. We're trying to figure out, can we stabilize something purely within crypto.”

So to answer your question, right now, RAI is actually, you could say our monetary policy for RAI is like incentivized inflation, incentivized even hyperinflation. So, like, right now is not a great time to hold RAI, because the interest rates per year like -70%. And the reason they're so high is because people keep bidding up the price of RAI. And the reason people are bidding up the price of RAI is because they want to provide liquidity for Ether and RAI, because they want to participate in our rewards program. Because they figured out, we published that we're going to release some amount of liquidity incentives for the people who do that. And so they're making the bet that their rewards will be worth the cost that they might incur to hold RAI. But for everybody else, who would just want to hold RAI and not participate in this…

CR: It doesn’t make sense.

AS: It doesn't make sense. So we're at an interesting point of bootstrapping the system. And for a system like this to work, it needs people to short it when it gets out of balance. So in the same way that a positive interest rate would encourage you to hold RAI, and it would make it more costly to take out leverage with ETH because it means that your debt is getting more expensive. A negative interest rate means that it's less attractive to hold RAI because you're expecting to lose value, and that it's more attractive to take out leverage because your debt is being devalued, and so you can borrow RAI, right and sell it short, and then wait for the peg to move further down and for the price to potentially move down and then buy it back, and profit the difference. And so…

CR: So that's what people should be doing now, now that the rate is negative, they should be shorting it. But you're saying they're not because the incentives are kind of out of whack because of the liquidity incentive program?

AS: Yeah. So my expectation is that if we stopped it all immediately, then like there might be some short-term pain while the market rebalances, but it would stabilize, because we haven't created this like shock in the system in a certain direction. But at the same time because we're sort of subsidizing the people to create this market imbalance, we're creating this opportunity for the shorts to learn how to arbitrage the system properly back or down. And so I think it's a good thing that we are doing this and we are training shorts. I see people arbing it when it gets too high and then pushing the price down and buying it when it gets low. And…

“...we're creating this opportunity for the shorts to learn how to arbitrage the system properly back or down. And so I think it's a good thing that we are doing this and we are training shorts.”

CR: Oh, cool. So it's working?

AS: That's what we were hoping to see and that's what we're seeing. And it takes some time to bootstrap a system like this. We sort of exceeded our expectations a little bit, because it attracted a lot of liquidity. There's about $250 million dollars in Ether deposits in Reflexer right now, and about $100 million in loans, like in RAI borrowed, and then another $200 million-ish of liquidity on Uniswap of RAI and ETH pooled, so 100 million RAI. Most of the RAI that exists is being pooled on LP on Uniswap.

CR: Got it. And that's just after what, like, a couple of weeks since you launched? Yeah. And I'm seeing 34 million total RAI issued right now? So that's…

AS: 34 multiply by $3.0, whatever, and then that would give you the…

Fiat Currencies As Global Reserve Assets

CR: Market cap. Yeah. Okay, so that's still obviously a ways off from DAI, right, like DAI is at 3 billion today and in the post, that you had announcing this, you had some really, big ambitions for this becoming like a global reserve asset at some point. So from here to there, what needs to happen? How do you see that progressing? I mean, first, you need to win over DeFi and the Ethereum ecosystem, and then kind of expand to the world, so how do you think that can happen?

AS: So, like most ambitious things, it's almost certainly doomed. But the upside is such that it's worth trying anyway, because if it does work, that would be like, totally ludicrously awesome. So I talked in my posts a little about the Triffin Dilemma, and I actually didn't really know what that was until I was following MakerDAO’s CTO. In my post, I pointed to Andy Milenius, former CTO of MakerDAO, who talked about the Triffin Dilemma in one of his MakerDAO presentations. And that is like, basically, this problem that the entire monetary system has, because we've decided to use one of the countries’ debt. All of our currencies are backed by debt, because we're not backing it with gold anymore.

“...like most ambitious things, it's almost certainly doomed. But the upside is such that it's worth trying anyway, because if it does work, that would be like, totally ludicrously awesome.”

And the dilemma is that most countries, when they consider their central bank policy, they consider it for domestic only: they only have to serve their economy. They need to print only enough money to serve their economy. But what happens is, when you're the global reserve currency, you have to print enough money for the world. And it harms, potentially, your economy, because then you have all of these outstanding dollars, you have created all of this debt, and your only way out of this debt is to devalue the debt by printing even more money. And this initially hurts your economy, because in some ways, it can make your economy less competitive, because the demand for dollars is so high globally that your exports can't keep up. Because at the exchange rate, I can get cheaper stuff somewhere else, so I don't go to the US to do it.

“...when you're the global reserve currency, you have to print enough money for the world. “

And the central bank governor of China, Andy pointed this out, he said in 2009, we should try something else. He was like, the system leads to booms and busts. It might not be our intention to create booms and busts, but that's definitely a feature of the system. And if we could, we should strive for international monetary reform by creating a reserve currency that is not any one country's debt. Now his plan was to use the International Monetary Fund to add a lot more money to the Special Drawing Rights, which is a sort of basket of currencies split up, some dollars and euros and some different country’s currencies and then have some governance system that decides on the weights and the issuance schedule and who gets it and stuff like that.

And I think that's cool, but it didn't go anywhere. Like in the 10 years the SDR has existed, it went from like $200 billion to $300 billion. And in the 10 years that Bitcoin has existed, which was published right around the same time, and came out in 2009-ish, whitepaper a little earlier, and so forth, yeah, and Bitcoin has gone to a trillion-dollar market cap from zero. So like, there is something to be said for global networks grassroots coalitions of people all across the world to get together and decide what we want the future to look like.

“...there is something to be said for global networks, grassroots coalitions of people all across the world to get together and decide what we want the future to look like.”

Global Reserve Asset

And so the aspirational goal of something like RAI is like, maybe in 5 years, 10 years, Ethereum, I don't know, become this like, the world's computer, it's like settling all the CBDC, Central Bank digital currency chains. It's gone from like Cryptokitties to the world infrastructure then like maybe a stability widget on top of Ether can serve the demand for a stable reserve asset. And that's the huge goal and it's like, how do you get there. Right? It’s like, make it work for DeFi, make it work for our fellow nerdy friends, and that goes through stages, bootstrap the economy, teach people how to long, short, maintain the peg, floating pegs can't actually break.

“It’s like, make it work for DeFi, make it work for our fellow nerdy friends, and that goes through stages, bootstrap the economy, teach people how to long, short, maintain the peg…”

But then we try to integrate horizontally with as many platforms as we can, create more use cases for RAI, borrowing RAI, lending RAI. Right now, for example, you can only short it against ether, because you have to mint it with ether. But if you had it on Compound, and Aave and Cream and other lending platforms, then you could borrow it against your DAI or some other asset. And so that gives you more options on how to play the market. And the more diverse participants there are in the market, the stronger the equilibriums will be, because it's less likely that everybody will lean in one way here, or everybody will lean the other way at the same time.

And I think, it's like we've gotten to that part, and then it's like a bunch of question marks in five years and then we'll see what happens. But the hope is that, like, all the central bankers are actually paying attention. So like, in my blog post announcing RAI, I pointed to the St. Louis Federal Reserve Bank, which published their own whole DeFi report, really good. It was very thorough. And they mentioned DAI, MakerDAO 31 times in the report, I was blown away. I was like, wow, these guys are really paying attention. And it's possible that maybe this works and becomes the thing or maybe it inspires central bankers and they can't run this experiment. And in Ethereum, that's what we love to do. So we can, and if it works, then maybe they learn from it and maybe even they use it.

“...it's possible that maybe this works and becomes the thing or maybe it inspires central bankers and they can't run this experiment. And in Ethereum, that's what we love to do. So we can, and if it works, then maybe they learn from it and maybe even they use it.”

Contrasts With MakerDAO

CR: Okay. So one, like, small question on what you said, which, amazing big vision, but so you said potentially, the idea is to be able to borrow RAI with DAI, but wouldn't that go against the reason for creating RAI? Like if DAI is already depending on USDC and WBTC, I mean, would you want to exclude any non-100% crypto-native collateral?

AS: I want to be careful, because when I say borrow RAI against DAI, I'm not talking about including DAI as collateral in RAI. I mean, on other platforms, like Aave and Compound that already support collateralized lending with DAI, listing RAI as a place to lend and borrow allows you to have a position with DAI that starts on that platform. We intend to maintain purity ETH only forever.

CR: Okay. So you won't add any other type of collateral, even if it's 100%, like, crypto, no other like…

AS: I don't know how you get anything else that is crypto. Ether is the only thing that we have that's programmable. I don't introduce any additional risk by using Ether in my app because I'm already on Ethereum. If Ethereum goes, Ether goes; if Ether goes, Ethereum goes… But if I add USDC, well, now I have to worry about Center getting shut down. And just are they good for the money and then DAI’s like well, did Maker holders mess something up? Or any other asset that you could use on Ethereum introduces some sort of trust assumption.

CR: Makes sense. So the last question on RAI is, the reason why DAI or MakerDAO added all these different types of collateral was to scale this thing. They assume Ether isn't enough to get Dai to scale to billions and billions of value. Is your way of solving that just assuming that Ether has like that big a potential basically?

AS: Yes. I think about half of the value in Maker’s still ETH. And so for all the other types of collateral, for all the conversations, maybe it helped them two times, maybe by the time they add even more collateral, like Ether also scaled up, and then it's still half. But it allows them to hedge against a future where Ether does not scale up fully to serve the demand for DAI. They also need other types of collateral, because then you can do arbitrage between the types of collateral.

So for MakerDAO, one of the fundamental challenges of having the $1 peg is that they can't have a negative interest rate. There's the DSR, the DAI Savings Rate, and the stability fee that is charged to the CDP openers, the vault openers, who deposit their Ether and borrow DAI, they pay some percentage 2, 3, 4% to borrow. And then the DAI holders, if they lock their DAI up, they can receive rewards from that. I don't think they're doing it right now, but they did last year for a bit.

“So for MakerDAO, one of the sort of fundamental challenges of having the $1 peg is that they can't have a negative interest rate.”

And the way that Maker is able to get the price of DAI up if it's below the $1 peg like 0.95 or something is they can increase the interest rate. And increasing the interest rate makes borrowing DAI less attractive, and so the people who have will buy it on the market, and then pay it back their debt and move on. And that buying it on the market is what they incentivize, and then that helps bring the price of buy DAI back to dollar.

They can't do the same thing in reverse. Because they cannot charge all the DAI holders and pay all of the DAI borrowers. Because if they don't have a good way of decrementing your DAI and your wallet, and because they're maintaining the peg, they can't do what RAI does which is just decide that the currency is now, the peg is lower, and we've devalued it. So they don't have the ability to devalue it.

And so we can get away with not needing multiple types of collateral to provide arbitrage opportunities. Which like, for example, I don't know, Samyak from Instadapp, did this crazy thing where you just like triple leverages his USDC. So he puts a bunch of USDC into DAI, borrows a bunch of DAI against it and then sells all the DAI for more USDC locks up, gets more DAI, does that whole loop. And is like shorting DAI using this other type of collateral that allows him to mint and do that. We wouldn't be able to do that. But what we can do is we say there's a negative interest rate and that should influence the market participants to correct.

“...there's a negative interest rate and that should influence the market participants to correct.”

RAI’s Necessary Growing Pains

CR: Yeah. And I mean, yeah, I think like TBD whether in practice how that works. The fact that you can devalue your currency and have people kind of accept that as a means of payment, for example. Because I think it would have to be pretty ingrained in DeFi for people to start, for example, I don't know paying salaries in RAI. It would just have to be like a very kind of integral part of the ecosystem for you to accept that your salary might move on a dollar-basis.

AS: I agree. And I want to point out that we don't expect these negative rates to last forever. This is not like a permanent feature of RAI. This is a bootstrapping phase. Once we are out of the bootstrapping phase, I expect a different equilibrium. I'm hopeful, and I am optimistic that once yes, those incentives are completed, the bootstrapping phase is done, then it'll reach an equilibrium where RAI might actually have a slight positive interest rate against the US dollar.

For RAI to have a negative interest rate compared to the dollar means RAI’s actually inflating faster than the dollar. Right? And so we can say, dollar inflation… but we're actually like, hold my beer, Federal Reserve. Like, you guys want to do 2% interest rates, but we're like, we got like -70%. But that's just a feature of the bootstrapping phase. Hopeful that once that's done, we actually see RAI more stable and possibly have positive rates relative to the dollar.

And you asked me, how does RAI get there? And it's like, maybe RAI doesn't have to do very much. And this is actually a feature of many of the most prominent projects in Ethereum, where they just exist for long enough for the world to catch up and then they get bigger. And so it's possible that like, over the next five years, the stable act comes and maybe there's more and more inflation, inflation ramps up and then RAI, by virtue of those things, is able to get a more positive interest rate and become a competitive hold. Right? And then it might start to ingrain into the store of value, like, I will hold this, I will transact on this, I will settle my debts in this type of thing.

“And you asked me, like, how does RAI get there? And it's like, maybe RAI doesn't have to do very much. And this is actually a feature of many of the most prominent projects in Ethereum, where they just exist for long enough for the world to catch up and then they get bigger.”

So, very good points. Very good points. We are careful, because we do not want to be like, oh, RAI, that's just the negative interest token, but like we're just trading shorts.

CR: Yeah. And on that kind of bootstrapping phase, can you say more about the Reflexer token and what's the plan with that? When will it be issued?

AS: Yeah. So we announced the FLX token and the token distribution for the liquidity mining. We have not finalized when it's coming out, we hope to do it soon. But I don't want to give an exact date. And then we have an official liquidity mining program that'll start. Right now, it's like a retroactive thing. So for all the LPs that have provided liquidity from the last two weeks, and I think it'll go on for, you know, I forget what the exact date was, but you can check the ReflexerFLX announcement and get all of the information about that.

CR: Well, okay. I mean, this is mind-blowing stuff. So I'm just like interested to see how it all develops.

AS: It's like a nerd snipe because all the nerds love this stuff. Like I studied chemical engineering before I got into software engineering, and like, most computer scientists don't really get into control theory. But most, just like industrial, chemical, that kind of engineer realizes that like, all of the systems, like almost all of our systems that we keep stable, keep the temperature of this at this, keep the flow rate of this at that, keep your car cruise control, keep the drone in the air, these are all control systems. And we use what we learn in these control systems to stabilize money.

And like if you actually look there's a paper, I think it’s 2012, somebody looked at all of the different types of central bank policies that they have in order to decide on the interest rates. And the policies have different types of terms. They have terms that are relevant to the current era between where they want to be and where they are, the historical era between where they've been and where they want it to be, and the expected era, which is the rate at which they're moving to where they want to be.

So these actually map exactly on to PID control. PID stands for Proportional Integral Derivative. So proportional is like, what is the current difference between where you want to be and where you are. Integral is, what is the historical difference. And then derivative is what's the rate of change of the difference and based on the rate of change that we want. And so, in fact, central bankers have guess-and-checked their way to using control theory to manage all these systems. And like, all we're saying is like, it's possible that the way that they're doing this, by keeping the human in the decision loop, is actually creating more instability than if they had just let the algorithm run by itself.

CR: And it could be. Yeah.

AS: What if we just let the algorithm run. Let’s see what happens? And so that's the inspiration of RAI and that's what we hope to see what happens.

“And so, in fact, central bankers have guess-and-checked their way to using control theory to manage all these systems. And like, all we're saying is like, it's possible that the way that they're doing this, by keeping the human in the decision loop, is actually creating more instability than if they had just let the algorithm run by itself. “

Ungovernance

CR: Wait. Okay. So I keep wanting to go to SpankChain but then something else comes up. So if you want to take the humans out, then what's the point of a governance token? I know you call it ungovernance, but what's the point of having iy?

AS: Oh, it’s a very good question. So in Maker which we forked off of, the token has two distinct uses. One is deciding everything, the governance part. And the other is that it's the lender of last resort for the system. And so if for whatever reason the system goes underwater, it's undercapitalized, they have more debt than they have assets, what the system will automatically do is start printing MKR. And that will be auctioned off for DAI and then that DAI is used to make the system whole. And so all of the MKR holders are sort of the last line of defense if anything goes wrong.

So we still keep that part in FLX, and so it's important to keep that part. We call it ungovernance. It's a meme. Right? The reason we call it that is because we're trying to find the people who are aligned with our vision of ungoverning the thing over time. We are not trying to recruit the people who want to come in and make a bunch of decisions about stuff like proposed collateral and side interest rates, and… Right? And it actually takes skill to ungovern a thing, to figure out in which order do I remove the levers, what do I need to know, how much data do we need to collect in order to have confidence that, like, the thing can continue on with minimum human intervention for a while?

And in the same similar way that Ethereum has minimum viable issuance, we are trying to get to minimum viable governance, like, what is the absolute minimum set of things that we can change, or we might need to change, and then maybe the FLX holders govern that at the end of it in a couple of years when we have automated the entire rest of the system. So yeah, that's kind of the idea there. We want to ungovern and it's not easy. And we want to find the people that help us do that.

“...it actually takes skill to ungovern a thing, to figure out in which order do I remove the levers, what do I need to know, how much data do we need to collect in order to have confidence that, like, the thing can continue on with minimum human intervention for a while?”

SpankChain

CR: Okay. Got it. Okay, so now on to SpankChain. Wanted to know more about what the status is of SpankChain. I interviewed you for my book, and included the really fast growth that the platform had, and also, really interesting that it was one of the first to use actual Layer 2 scaling with state channels. So what's the current status of that? It’s growth? How many people are using it? How are state channels working out?

AS: Yeah. So in 2017, there is basically nothing on Ethereum. In 2018, there was very few things, it was CryptoKitties crushed it, MakerDAO crushed it and then we launched Spank Live, which was our payment channel-enabled camsite. My bet was that payments and adult entertainment were going to be big adopters of this early on. It turns out that that wasn't quite the case and that crypto people really like collectibles and leverage and stablecoins. So they were right. I was not as right.

And so we ultimately closed Spank Live because bear market, market sort of dried up for it. The payment channel stuff has continued on. I've been super impressed with Connext’s work. We partnered up to build the system for us and demo it, and then they've sort of gone on, and now they're positioning themselves as actual, like Layer 3, where you can do swaps between other Layer 2s instantly through Connecxt. And I think that's actually probably where it makes the most sense. So in 2017, when we were like, yeah, there's going to be like a whole branching tree of plasma chains, and we sounded a little nuts. But now there's like roll up this, Layer 2 that. It actually seems to be the right time.

As for us, what we're doing now, we focused more on just making ourselves useful to the community, so we built SpankPay. SpankPay is a crypto payment processor. We have a bunch of merchant partners. We have a bunch of models. So it does both. So it's a checkout for just your fans. It's like a clip site. You want to buy some adult content. It’s the same as PayPal or some other checkout system. You can pay with crypto, and then they get it and they can decide if they want to keep it in stablecoin or whatever.

And then the models, we offer them a personal payment portal. So you have spankpay.me. I'm SpankToshi, and you can see your profile and it has tipping. And so we found that there are a good number of models that are using it for just receiving tips from clients, customers, people who are buying content from them and helping them. The cool thing about crypto that most of their other platforms don't provide is the ability to cash out instantly, because we don't have any chargeback risk. And so we're encouraging them to like, get their own wallets.

And we talked about decentralization, and then we have like, Coinbase, right. And it's like, we're trying to be like Coinbase, but in the same way that Coinbase is like a bridge for all of us to get into the space, and then it's the first step toward sovereignty. We want to help create crypto veterans, so maybe they don't need SpankPay as much anymore. But maybe they use it because it's convenient, for example, connecting to their bank account or so forth, or stabilizing their earnings.

CR: Okay. So you're not like, a platform for performers anymore?

AS: No, we’re not doing any of those.

CR: Okay. But now you are like a crypto payment system for different sites that want to use crypto?

AS: Correct.

“We want to help create crypto veterans, so maybe they don't need SpankPay as much anymore.”

CR: And a way for models to get tips in crypto too?

AS: Mmmhmm.

Scalability and Layer 2

CR: Okay, cool. And are you still using state channels for this or no?

AS: We're not. We moved to a service provider, I think we're using Wyre to manage the money and help move it around. Not that it was just more convenient, you know, we had all of those like crazy payment channels, technology was like super over-engineered. We thought it was really cool, we got a grant from EF for it, we put it into production, but ultimately, what models care about is when I hit withdraw, how fast do I get my money.

CR: Right, makes sense. And is crypto helping out, do you think, or is the use case not really there for them?

AS: I think it is, it is having some growing pains because of the scalability. Six months ago, none of this was very popular. Suddenly, it's very popular. And so the transaction fees scale with the popularity. And if, for example, it costs $10 to send an Ethereum transaction, which it did for a couple of weeks ago, it doesn't make sense to spend $50 anymore to buy something. It still makes sense to spend $1,000 to buy something. And so we saw a lot of adoption with like FinDom, Financial Dominatrixes who have submissive subs that tip them thousands of dollars for being mean to them, essentially, or as a symbol of their worship. And we're trying to focus on that community and other sort of high-value use cases.

But right now, crypto transaction fees went down a bit. So like, it's sort of, okay, we're starting to see more smaller transactions again. And I think that we might go through like a crypto-awkward teenager phase, where the money that people have in their wallets is like, has too high transaction fees, but like, people have money on this chain and that chain and like a bunch of scalable stuff that they want to transact with, but they haven't all gotten money there. The service providers that we're using to integrate, like, don't support all of them yet. And so it might be six months or a year or something before we see. Like, if we go full bull run, and the fees get high, it might be dominated by these higher value transactions for a while.

CR: Sure. So, it's weird to me that SpankChain was one of the first to use Layer 2, but now you're not. Are you thinking of or like, did you have not a great experience because you said it was over-engineered?

AS: Yeah, so I think we might. Critically, what you need is support from exchanges to onboard people to Layer 2 easily, because otherwise, you still sort of have the same problem. Which is like, how do you get your money onto Layer 2? And it's like, well, you've got to pay the Layer 1 transaction fees to get there. Right? It's like, okay, well, that doesn't help very much. So if you could, for example, go from Coinbase to Optimism in Ethereum Layer 2, that would mean that many more people have money on Optimism, that would mean our service providers integrate Optimism, we would say, pay with Ethereum, Bitcoin, Optimism. You click Optimism, and then select your currency from that and then we would support something like that.

So it's not that we don't like payment channels. It was that I was running SpankChain. It was not a payment channel company. My job is to build something that is maximally usable for the community that I was trying to bring on, the models and their customers. I sort of stormed out the gate with SpankChain with the Layer 2 stuff like way in advance of everyone else, and then got exhausted, and then realized that like, I could just wait. And it's a team effort, right, and it takes some time. And as these things build, there are companies that are specifically focused on them, that's our mission, Connects, Optimism, others, that'll really be the key to bridging the gap.

CR: Right. So, for now, I guess, like more infrastructure needs to be built until it's actually kind of useful and just until it makes sense to actually integrate something like that?

AS: Yeah. More infrastructure, more adoption.

“My job is to build something that is maximally usable for the community that I was trying to bring on, the models and their customers. I sort of stormed out the gate with SpankChain with the Layer 2 stuff like way in advance of everyone else, and then got exhausted, and then realized that like, I could just wait.”

Adult Videos

CR: Yeah. Okay. And then I wanted to ask you about the porn video that you posted.

AS: Which one?

CR: I don't know. I just saw you on Twitter saying that you hosted on like a video on Pornhub with one of like SpankChain’s advisors or something, right, I don't know. I haven't watched it. So anyways, I mean, to me, it was just like, wow, it’s incredible that you're a prominent kind of member of the Ethereum community. You've been here for a long time, and you're a well-respected founder, but you can just go ahead and post a porn video.

That’s really different from the traditional world, Web 2.0. If you were in a traditional startup, I don't think you would be able to do that. And I don't know. Like I don't think you've faced any backlash from crypto, so yeah, just want to hear your experience on why do this and what was kind of the reaction, I guess from the community?

AS: Oh, yeah. Some people said they liked it. So they’re like, hey, I really enjoyed that, don’t tell my wife?

CR: Is it weird to have like, I don't know, if people in the community watch the video to you. I don’t know.

AS: I think what's weirder is that like, it's just the looming sexual repression, and like, we don't talk about it, just to like appease sort of like the religious fanatics among us. I think that's weird.

CR: Okay. Talk about that. I just want to explore this theme because you're right. We don't talk about it, and you're just like so out there with this stuff. So want to know kind your motivation for it?

AS: Well, first part, it's fun. Like I enjoy doing it. It's fun to make a video. It's fun to pick the right script, do it and then blast it and see people react. I enjoyed it. Another part is like, if you want to normalize something, right, you kind of have to do it. If I'm here saying sex work is fine, it should be decriminalized, we should try to destigmatize it. One of the ways that I can lend myself to that is to participate.

CR: Walking the talk.

AS: Yeah. And I think that porn is unique in its classification, and that it is art. And it's cool that we can hire people and create art. And, yeah, it's sexual in nature, but it's a statement, you know, the statement is that this is fine. There's nothing wrong with this. And I think for that statement to be made, I sort of, like, I don't have to do this myself. But if I do it, and people see that there isn't that much backlash…

So the way stigmas work, is that it's a mirage in everybody's head. And we all think that there's a stigma, because other people think there's a stigma. And the way bubbles pop is when everybody realizes at the same time that other people actually don't care, and they're like, why do I care?

CR: Like the emperor has no clothes, but like, literally, there's no clothes.

AS: Yeah. And the way that sentiment of these things changes is not that you convince the existing rule makers who are old and they are the tastemakers, they say, oh, that's good or whatever. No, it's that they die and then our generation makes the rules. And then the norms reflect whatever we want. I would say it's analogous, like a Bitcoin versus like gold boomers.

And it's like, kids have been sexting each other since they were like 14, right? Like we really got to think harder, even about the stuff around that. It's like, the culture is going to be very different because it's going to be more open in some ways, and people are, I think, going to express themselves. And I think, post-COVID, we're going to see a lot of activity in that kind of area, where people are excited to be united with all their friends and satisfy some of the desires that they might not have been able throughout quarantine. And I think that's healthy, and I think it's good. And I hope everybody has a great time.

“Andthe way that sentiment of these things changes is not that you convince the sort of, like, existing rule makers who are old and they are the tastemakers, they say, oh, that's good or whatever. No, it's that they die and then our generation makes the rules. And then the norms reflect whatever we want.”

New Religion

CR: Awesome. Okay. And then the other thing I wanted to ask you about is, you mentioned kind of, we stigmatize to, I think, you said something like to appease of the religious people or something like that. And it's just a theme that is in your work, like this gravitation towards God or divinity. Like, in the right paper, you said, this is like the money god, then, like in MolochDAO, Moloch is some sort of idol too. So just wondering, like, why this inclination, I guess?

AS: So, I mean, I didn't choose for there to be religious fanatics. I was raised by one, you know, an Islamic one. We sorted it out, it took a decade, now he's an atheist. Props. But it caused a lot of pain. And it's like, why, who benefits from this? And it ends up being the religion Ponzi or whatever that you try to get other people into it, and then you just keep perpetuating it and the Vatican gets $100 billion. That's like, how that works.

So in my terms, I think it's powerful to choose your own belief systems, right? And I don't need to believe in the canonical God, Creator of the galaxy, there's only one, doesn't like you worshipping idols, jealous, has all this baggage.

You can believe whatever you want. For a lot of people in tech, Elon is their Jesus. Right? We believe in Elon. Because he comes into the world with a view of, like, how do we make the world maximum? You know, how do we progress in a way that solves the existential risk of being a single planetary organism? It's like, well, actually, we need to make rockets land. Like, that's the engineering challenge of doing this and letting yourself get still inspired by that goal. It's a practical goal. I think it’s really powerful. People are moved by superlatives.

“You can believe whatever you want. For a lot of people in tech, Elon is their Jesus. Right? We believe in Elon. Because he comes into the world with a view of, like, how do we make the world maximum?”

So with MolochDAO, I mean, it was fun, it's like punk rock. I really did that entirely because I wanted more people to read meditations on Moloch blog post. Because I found this blog post in 2016 when I was discovering Ethereum, right at the same time, and I was like, the Moloch blog post is about, it captures this phenomenon, and it describes it as a God. Not because it's a God, but because it's interesting to recognize it as a thing that is absolutely not a God, and is absolutely only a human phenomenon, or it's just us. It happens to animals and other organisms and stuff too.

And the point is that, like, Moloch is in rationalist circles, the God of Coordination Failure. And so we want to work together on something. The more people try to work together on it, the more incentive for somebody to defect and ruin everyone's day. And this happens like countries. We all want to spend money on hospitals, schools, infrastructure, but we end up spending money on guns, bombs, planes. Because why? Because if we all tried to disarm, then we create the incentive for whoever, whatever douchebag to stockpile all the weapons, then take everybody else over. And then they're the only remaining player in the next round of the game, and they decide the rules. So you end up with these like unfortunate equilibria.

And I wanted to like focus on, you know, because a lot of times we start out sentences with like, if only we could all just... And like, every time anybody said that, it's like a waste of your time, waste everybody else's time. Because that's just not how things work. Things only progress when you can, like out-coordinate the existing coordination structure, and create a new one in its place. And I saw Ethereum and I recognize it as a coordination engine, and I was like, this is a tool that we can use to scale human coordination. And how do I tell people about this? And like, how do I get people to see what I see? And I was like, I'm going to call this thing MolochDAO. And MolochDAO was a charity, essentially, punk rock, open source charity to fund Ethereum development, got money from Vitalic lumen, it’s got like $3 million right now, funded a lot of important stuff like Tornado Cash.

“And I saw Ethereum and I recognize it as a coordination engine, and I was like, this is a tool that we can use to scale human coordination.”

So in doing this, I was able to get people to read that blog post to understand where it's coming from. And also understand, because there's a lot of Ethereum utopianism, where Ethereum people just assumed we were going to win because we're first and we're the best and it's going to always be that way. And I think it's important to recognize how not true that is. And it's like only true to the extent that Ethereum successfully accomplishes its goals, outcompetes other platforms. Like it does not exist in isolation, it exists in a highly competitive environment. And we shouldn't be arrogant and assuming that it is destined to work. So, I also wanted to point that out to people.

And then, with Reflexer the money god, I was trying to imagine how I would feel about a thing that lasted 100 years and just ran itself. Right? And in the same way that people in Bitcoin feel a sort of divine devotion to Bitcoin, because it's not like a company, it's a global network, fixed schedule. Nobody has been able to successfully change it. It doesn't seem very likely that anybody will. You can project out Bitcoin 50-100 years, maybe longer, and say this will still be there. And so you might like, believe in it as if it is almost like your religion, right? I believe that I am part of the force to help bring Bitcoin to the world because if we do this, then it'll last 100 years.

“With Reflexer the money god, I was trying to imagine how I would feel about a thing that lasted 100 years and just ran itself, in the same way that people in Bitcoin feel a sort of divine devotion to Bitcoin.”

And I wanted to capture some of that sentiment for RAI because we have similar goals. Money god, you can’t argue with the money god. You can't control the money god. You do what the money god says. The money god controls you. Right? And so I wanted to capture that as part of the social scalability, part of the governance minimization. Because I believe that it's possible that this thing might work, and that's enough for me to want to dedicate time and effort into making that reality happen and trying to recruit other people who share the same vision.

If you don't care about Ethereum, if you don't like Ethereum, I don't care about you, you're irrelevant to me. You’re irrelevant to the goal of the project. Like I'm not talking to you. I’m talking to people who want to see this work and want to help contribute to making it work. And maybe they don't like money god, I'm not trying to push...I'm the last person to try and push something like that. I do it because I think it's funny, and to the degree that we can create our own gods, you know, god sort of doesn't have power.

Big Success

CR: That's so interesting. So cool. Yeah, like, your background and upbringing comes from this place of having this religion imposed on you and having this very traditional upbringing from a God that comes from up in the sky, and then reimagining that into, with Moloch, a human-driven coordination system, and just putting Ethereum in that light as well. And then with RAI, a little bit of the opposite, this other divinity, which is programs based on something that can last forever without humans.

So, we are coming to the end of the hour, but I wanted to spend a second talking about your, I guess, like DeFi activity and how that has turned out for you.

AS: Sure. We got really lucky. That's the short version. I was, through SpankChain, one of the earliest liquidity providers in Uniswap. Somebody told me about it, and I was like, this is dumb. You know, within likedays of it existing. But I read the code, and I was like, this is genius. Like, they just turned providing liquidity into money, like, oh, like, I can just put the liquidity in my multisig, like I'm going to do this. And so I tried to put as much money as I could into Uniswap liquidity providing and just kept it there for two years.

And I actually faced a lot of harassment because people were like, why aren't you applying to the centralized exchange? Why aren't you listed here, like, go apply to this? And I was like, I don't want to deal with sketchy market makers. I don't want to like have to manage a bot, if I want to do it myself that like, maybe it goes offline. Right? Like Uniswap just made my life a lot easier. And the end result of that was that we were very fortunate to receive a large chunk of UNI, much of it, we cashed out to our token holders. And one of the places that we've put that UNI is into this house that we just bought in Las Vegas, and you can see that I have absolutely no furniture as we just got here, plus my only piece of furniture is this one little unicorn cushion that I have…

CR: To those listening, there's a huge house on the video, you have to check it on YouTube. There's a pool outside and then there's a tiny unicorn stuffed animal and it's the only piece of furniture in the living room. Very cool. A homage to Hayden.

AS: Thank you, King Hayden. Because we put all the UNI in MakerDAO to draw DAI.

CR: And it was inspiration for RAI? So…

AS: Yeah. Very cool. The last two years were fun because, I showed my mom and some of her friends, I did a presentation there asking like, what is Ethereum? Anyway, I was like show them the total value locked chart on DeFi Pulse. And I was like, look, from here to here, 2018 to mid-2020, we were idiots, no one cared what we were doing and we were all poor. And then from mid 2020 to now it's like, the total value locked exploded, suddenly, we're right. We’re geniuses, and this is the future of finance. And so I'm just stoked to be part of it and grateful.

“2018 to mid-2020, we were idiots, no one cared what we were doing and we were all poor. And then from mid 2020 to now it's like, the total value locked exploded, suddenly, we're right.”

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