The Decentralized Internet with Dr. Tomicah Tillemann of Andreessen Horowitz

Dante Disparte: I want to invite Jeremy Allaire, who is the Co-Founder CEO, and Chairman of Circle, and Tomicah Tillemann who leads global policy for Andreessen Horowitz to the stage. If we have a shot as a species to bend the arc of Moore's law in the favor of humanity, it's a no small measure because of these two. I would very much encourage you to pay close attention. The issues that we have at hand, the emergence of a technology that can enshrine ownership on the internet, from a world in which we were privatizing gains and socializing losses to a world in which we could flip that script on its head that is upon us, this is one of the most important policy conversations we have.

It has everything to do with national security, national competitiveness, and uploading a dollar onto the internet. That very experience you had when you took your CDs and you turned them into MP3s and you could now control your own music. Imagine if you could do that with your money, your votes, your value, your identity. The web three conversation we're about to have with these two gentlemen is exactly that nexus. Thanks for coming. Thanks for joining us. I didn't say who I was I'm Circles Chief Strategy Officer and Head of Global Policy. I'm going to exit stage left and invite these two gentlemen to the stage. Thank you.

Jeremy Allaire: Good evening. It's great to have this conversation.

Tomicah Tillemann: My great pleasure to be here and what a crew, and we always knew Circle had superpowers, but arranging the weather is a step up even for you guys.

Jeremy: It took some planning.

Tomicah: Clearly, well done.

Jeremy: Absolutely. As noted this is really a conversation that we're having, and we're going to share this conversation with the internet hopefully in a few days, but it's a real treat to have that conversation here tonight with all of you as well. I want to kick things off. There's so many topics that I think we can touch on and talk about here, but maybe to kick things off. I think there's a need to zoom out a little bit, and so much of the dialogue in this area. There's a lot of jargon. There's a lot of confusion and frankly, there's just an enormous surface area of things that are happening. That's challenging for people.

I want to come back to some basics, and actually it's rooted in some of the things that we identified over eight years ago when we started Circle, which was this idea of public internet infrastructure that blockchains in some ways represented a new infrastructure layer of the internet. Back eight years ago, it was hard to see that, because there was really just Bitcoin. I'm a technologist by background, and when I looked at it I said, the genie's out of the bottle on an architecture.

I had come from the world of the internet of software, the internet of media, the internet of communications. When I saw public blockchains, I thought this is a missing layer of the internet, and there could be an incredible amount built on it. I think so much of the policy dialogue, so much of the media attention it's focused on things like the price of Bitcoin or many other things.

I feel like the Web 3.0 thesis, and by the way, for people who aren't familiar with Web 3.0 that concept that didn't come out of nowhere like this year. It's a nomenclature that has been actually in the technical communities working on this space since 2014. Since really the Whitepaper behind Ethereum which was a blockchain infrastructure, a new infrastructure layer idea. This idea that we're upgrading the Internet's infrastructure it's a central thesis for Andreessen Horowitz, but it's not just about [unintelligible 00:03:56] firm's thesis it's happening. Maybe you could kick off just talk about that core infrastructure thesis, and I'm sure we can go back and forth on this a bit as well.

Tomicah: Absolutely. I think if you go to the beginning of the internet, if you go to the very early days one of my bosses a guy named Marc Andreessen was an originator of the very first web browser something called Mosaic. He and many of his colleagues at the time worked with open protocols and open-source code. There was a lot of experimentation, there was a lot of dynamism, but eventually, as we moved into the 2000s you saw a shift in the business model. That was really because we didn't have mechanisms available to monetize and support the experimentation that was going on in that Web 1.0 world.

There was not a clear mechanism available to support the long-term infrastructure layer, to use your terminology, that was going to be necessary to power a society-wide population-scale series of platforms. That's when you saw the emergence of Web 2.0, and the Web 2.0 platforms, the big legacy platforms that we all use every day have done a lot of important things. They've made a lot of important contributions to society, but by virtue of having created an advertising-based model, we've also seen a lot of problems arise from this.

We are now stuck in a rut where we're really dealing with two dominant technology paradigms in the world. One is Big Tech where we give up our information, and that information is then used to shape and manipulate behavior for commercial purposes, then we see in China the emergence of another paradigm where information is consolidated by state actors and used to manipulate behavior for political purposes.

Both of those paradigms are highly problematic and neither one of them is really compatible with a healthy open society. What we see in Web 3.0, to your point, Jeremy, is the genesis of a new mechanism for supporting open protocols and open platforms on the internet that will give communities greater ownership of the platforms they use, communities greater governance rights in the platforms that they use, and also, help democratize access to opportunity in a way that we just haven't been able to with Web 2.0 where most of the gains have gone to a handful of individuals at the top of those platforms.

It is as profound and as exciting as any evolution that's occurred in the history of the internet. It is really a new form of computing as you were alluding to, and one that we should take really seriously if we want to win the 21st century as a country.

Jeremy: I want to ladder off that. One of the themes in tonight's discussion is national economic competitiveness, and for the last several days I've been meeting with a lot of folks here on the Hill and throughout government. I think one of the things that's been resonating is the beginning of an understanding that these blockchain infrastructures are this new infrastructure layer of the internet. They enshrine values that have historically been really important in Western liberal market democracies. Openness, free competition, decentralization, distributing power these are tenants of classical liberalism. The internet has some of those tenants built into its DNA.

As I describe it, public blockchain infrastructures are a new operating system layer for the internet, and they literally are operating systems, but they're not controlled and centralized like an Amazon Web Services or something an individual corporation has, but they're dispersed, and allow you to build applications with tamper-resistant data, with transactions that are secure and final, and the ability to actually put business logic on the internet that can intermediate between unknown counterparties something that was just I impossible before.

There's this infrastructure layer. I think the realization is that if Western society wants to win in whatever that means, if it wants continue to build winning in this infrastructure space is actually really, really critical. The answer can't be how do we out China by trying to centralize and build these things [unintelligible 00:08:32] ourselves. I think this isn't just a discussion about how do you treat crypto assets, are these things securities or commodities, or what do you do about [unintelligible 00:08:43]. We're going to talk about all those topics and DeFi and other things.

Starting on this first principle that this is a critical infrastructure it's as important as the Internet's original infrastructure. There needs to be a policy response that is about ensuring that we see that emerge. Less about risks, risks are important, we'll talk about more about opportunity and I guess turning it back to you from a policy perspective, what do you think that means? What are the highest order priorities as you think about national economic competitiveness, infrastructure competitiveness from a US policy perspective? What should members of Congress be thinking about as they now deal with this as a live policy issue?

Tomicah: Well, if we jump into the hot tub time machine together and go back to 1997 during the early days of the internet it's easy to forget that we've had this conversation before, and there was a big debate and I'm sure you remember, and many in this room will recall where the FCC really wanted to regulate the internet. They wanted--

Jeremy: You needed an FCC license to build a website like in China.

Tomicah: Exactly. We almost went that route, and it's worth thinking about how the world would be different had we gone that route. About the trillions of dollars of value that would not have been created had we gone that route. At that time, the Clinton administration put together the IRA magazine report, where they looked at the landscape and they said we know there are some risks we need to manage those risks. We also think the opportunity here is sufficiently expansive that we need to create space for innovation. That 1997 report provided the groundwork, provided the bedrock principles on which the last generation of the internet has been constructed.

We have learned an immense amount since then. I think it's critical for all of us to take stock of that, we can do better now than we did in 1997 because we know a lot of things we didn't know when 1997 but the opportunity is of commensurate scale. When I go to China, as I have and I've sat down with provincial governors, members of their cabinet, and the justice of their Supreme court, they can all go five layers deep on this technology. They can tell you with extraordinary precision how they're going to use it not only to in an abstract sense but how they're going to use it to advance their values. We need policy leaders in the United States to be able to do the same thing if we want to end up in a good spot.

Jeremy: A lot of people use the early internet analogies. I was there. I was very involved in thinking about the open internet. I think one of the challenges that I think we all run into as we engage with regulators, with policymakers, and others is what we've seen emerge is financial and economic infrastructure, that operates on public decentralized infrastructure that is not controlled by any corporation are not controlled by any government. It is global in scale and is frankly it's just based on a bunch of free open source code. That's a hard thing for people to grapple with.

How is it that we can actually have an economic system, a financial system, a property rights, system a governance system, all of these building blocks, how is it that we can have those but yet there's no one in charge? That is the beauty of the internet, obviously, is being able to construct these kinds of models. From a policy perspective, I think there's what I call the square peg round hole problem, which is this is how say capital market infrastructure has worked historically so we've got to slam this into that or this is how payment or banking infrastructure work. We're going to slam it into that. Or here's how the intellectual property works. We're going to slam this into that.

I think getting folks across the line to say okay, this is different. This is a different infrastructure paradigm. It's an internet native infrastructure paradigm but we can make it work. What happened with communications infrastructure on the internet? No one thought we'd be using that to run society but it's essentially the air we breathe today.

What are some of those paradigmatic shifts? DAO is a topic, for example, that I'm very passionate about, I think you're very passionate about. It's a hard thing for people to get their head wrapped around. Maybe talk through an example that's a web three paradigm and how that could work, how that can function at population scale or an internet-scale.

Tomicah: Absolutely. You bring up a really critical point, Jeremy, that I want to drill down on for just a moment. The core of our success as a nation and society and really, civilization has been a belief in decentralization. If you look at why we won the 20th century, it was because decentralized systems of decision-making and resource allocation were inherently more efficient than the centralized systems that we were competing against. One level this sounds very novel and yet this is deeply ingrained in our DNA. This is core to everything that we have accomplished as a society.

As we look out on the beautiful Washington DC skyline, this is what got us here. For that reason, as we struggle with a variety of new challenges around the world, including a resurgence series of competitors that model themselves on highly centralized systems, we should be thinking hard about how we can double down on decentralization. What does this look like in practice? I'll take one example from our portfolio.

We recently invested in a platform called Helium. Right now, if you want telecom services in the United States, you have a series of pretty limited centralized choices. The flavors are either chocolate or vanilla but they're pretty standardized. We are going to get to a place in the not distant future, where individuals will be able to set up their own base stations.

You'll have your own 5G network that you will be a part of, along with your neighbors and you'll be compensated as you provide bandwidth to those in your community. You'll benefit economically and we'll also be knit together in ways that I think have really powerful implications in a time of increasing isolation where too many people feel detached and forced from their communities. We're heading in an exciting direction.

Jeremy: I think a lot of us have witnessed how the internet as a whole has it's fostered globalization. It's fostered greater velocity of information, of collaboration, of trade, of commerce. These platforms like Amazon and Alibaba have made it possible for someone who's making a product some distant part of the world to actually reach a specific consumer in another part of the world. These incredible things that have happened and yet the nature of how one establishes a corporate form, and how it can exist and enter into labor relationships and produce things is still this labyrinth of all of these of corporate structures that exist around the world.

What we've seen and witnessed, literally, with an increasing scale and velocity over the past couple of years are essentially entirely software-based corporate forms, where the actual entity is entirely managed on a blockchain. The ownership of the identity, the governance, and voting of the identity, the treasury of that entity, the movement of value between that entity and the people who contribute work to it or what it produces or invest in. That's all happened uncoordinated without any laws. There is an application of law to DAO's question here but that has happened.

We've seen multi-billion dollar entities created. In fact, there are entities that are valued at $10 billion and that are supporting hundreds of billions of dollars of transactions in them. It's extraordinary as a laboratory for new models of how coordination can happen over the internet and so it's a live policy issue. Okay, well, Wyoming has got a DAO law. How do we ensure that these software-based internet native new forms of entities can exist?

We should support that because, in some ways, it's the next logical evolution of how corporate forms can exist. I think a16 I think put out a set of principles on how to establish a legal framework around Dallas. I don't know if you want to talk about that.

Tomicah: This is absolutely crucial for the reasons that you outlined, Jeremy. The joint-stock corporation which is the foundation for much of the human collaboration that occurs on our planet today is a very old framework. It dates to 1850 to 1862 and really, has evolved remarkably little during that time period. DAOs, as you said, are really the next stage in defining paradigms for how human beings can come together and collaborate to solve common challenges.

We're seeing this in real-time play out this week as many of you likely know there's an effort to use a DAO to purchase one of the 11 copies of the constitution and make it available for public display. In the past, this would have taken months and months of planning, a big national media effort, and enormous amount of very expensive manual coordination to make it happen.

In this case, somebody put the idea together I think about four days ago, and they've already raised last I heard about $20 million which is anticipated to be at the top end of the price estimates for the constitution. We'll see how that plays out on Thursday but it is exciting to see the potential to supercharge human collaboration, utilizing new tools and legislation is going to be critical for doing that.

Jeremy: This is the organization of work, the organization of capital, the organization forms of governance and we're literally going to build that as an infrastructure layer of the internet and we should be embracing that not running away from it or trying to litigate it into a corner. It's fascinating.

It's actually an interesting bridge into another really important topic which I share the view that, basically, the joint-stock corporation has outlived its utility. We have this labyrinth of ways in which corporate forms establish themselves my company being one of those examples. I live in that world but the joint-stock corporation was also- It was a way to organize capital and it was a way for people to then have a tradable instrument and that tradable instrument actually gave birth to modern banking and capital markets.

There was this interplay between the joint-stock corporation, these corporate forms, how capital was formed, then how value could be exchanged in support of that and so on and so forth. Capital market functions were a hugely important part of growth in society, they still are massively important. We're now seeing, similarly, capital market functions also moving to effectively entirely software-based forms on the internet. Again, it's one of these, I think, topics, which it takes a leap to see it, which it's now possible to take something like the exchange of value or time value, exchange value, borrow, lend, these other primitives that make up the way that capital markets function.

Those are now available as free software protocols on the internet that any individual or any entity, any household, any firm, in theory, can interact with. That's a tricky thing. What do we do about DeFi is one of these topics. The reality is it's going to continue to be built, and these are market structures that are inherently global, so they don't fit cleanly into. While, "It's this jurisdiction." "It's this jurisdiction," they're public goods on the internet.

It is a challenge from a policy perspective, but at a high level, this is DeFi as a category. I'm going to anchor it back to stablecoins, no pun intended, in a moment. This is another one of those building blocks that's been made possible by this new operating system layer, these public blockchains. The one application is organizations. Another application is the coordination of capital. We're going to get onto content intellectual property and other things in a moment. DeFi vexing policy issue, if you're sitting, again, a member of Congress, how do you think about this? How do you protect it, evolve it, but also deal with the inherent risks?

Tomicah: Well, the first thing to recognize is that all regulation, when done right, calibrates risk to use case, and there are certainly use cases in DeFi. There're use cases within the broader Web 3.0 Ecosystem that deserve regulation. We need to recognize that there are some potential downsides if things are not done well. The flip side of this is there is an extraordinary need and opportunity if these tools are utilized responsibly.

In the United States, we have at least 20% of the population that is either unbanked or underbanked, that is in the richest country in the world with the most evolved financial infrastructure in the world. That's outrageous. Nobody should be satisfied with that status quo, and an even smaller percentage of that number has access to sophisticated financial instruments. There are huge needs that are going unmet right now because individuals can't access the protocols that would enable them to use their capital more effectively.

Ideally, regulators and policymakers, and lawmakers can weigh these two, recognize that there will be instances in which we need oversight, and we're very candid about that. We are not among those who think that this can be a lawless realm. In fact, [unintelligible 00:23:06], one of our partners, describes blockchain as bringing the rule of law to the internet because you're creating computers that can make commitments in a way that we really struggle with previously. We need to get to a point where we understand the extraordinary upside of getting this right, and then work to manage the risks associated with the downsides.

Jeremy: One of the things the internet's been amazing at is creating these incredible multi-sided markets that have enormous scale. What Chris Anderson, the former editor of WIRED, called the Long Tail, the long tail of advertising, the long tail of selling and making products, the long tail of content. It's extraordinary because these multi-sided markets can make it efficient, even the smallest creator in the world to find an audience, or a maker of a very, very niche product to find buyers in some completely different part of the world.

Even things that I think scream out risk have been able to build using the internet itself. In some ways, self-governance, how many of us, 10, 15 years ago, would've thought it'd be a great idea to just get into a random stranger's car and drive around, or pick up a random stranger and drive them around, or how many people thought--

Tomicah: Sleep at a random stranger's house.

Jeremy: Yes, sleep at a random stranger's house. In the early days, "eBay, how the hell do I know that that beanie baby really is a beanie baby?" In all seriousness, the internet has established ways for risk, for reputation using communities, using Applied AI to make these long-tail markets work. I have this idea that DeFi's natural outcome is long-tail capital markets.

A landowner in a country could issue a token for the yield of their output of that and have that participate in a capital market, form capital, get liquidity, find financing, and have others who have a capital that they don't need to find those opportunities in a hyper-efficient way in the same way that we have these hyper-efficient other systems on the internet. That sounds like progress to me. That sounds like a better global capital market that can serve more people, more firms, more households.

I think the real challenge is because these are vexing because they don't map cleanly too, you got a registered broker-dealer and a transfer agent, and then you've got this, and you have a settlement thing, and you've got a national exchange, and you have all these structures that exist to support risk management in the legacy financial system, these break the mold.

Do you believe that we need new definitions, new statutes, new interpretations of risk into statutes that step away from 80-year-old laws, that step away from things that were designed for the highly country-specific paper-based universe? That's a loaded question.

Tomicah: We certainly need to start that conversation. The reason we need to start that conversation is because so much of the innovation that's occurred in the digital space over the last 20 years has automated the work that goes on on the periphery. It's been really challenging economically and otherwise for people who are on the periphery to deal with innovation.

The incredible thing about the technologies we're describing today, and one of the reasons that policymakers should be extremely enthusiastic about this opportunity is that to paraphrase, [unintelligible 00:26:42], this is technology that automates the center, and it pushes opportunity out to periphery. For the Uber Driver, in your example, a moment ago, this is a technology that doesn't automate the driving, it automates Uber. It pushes the trust out toward the center, out to the periphery, and it pushes the financial benefits out to the periphery.

Jeremy: You could have a transportation coordination protocol on a blockchain where the users and the drivers govern it and get the economic benefit from it, and the platform itself is running natively on the internet, and there is no Uber. There's a protocol. That's actually possible, and I can't wait to see it. It's fascinating example clearly. Maybe, we can move into another topic, which is near and dear to my heart, which is stablecoins.

Presidential working group report emerged, as I like to say, it's a live policy issue. That's certainly been reflected in our conversations with agencies and staff members and others. I'd love to hear, I'm quite biased on this. I'm happy to share my views.

Tomicah: I can't imagine why.

Jeremy: I'd be interested in your perspective. What do you think in this Web 3.0 context of this infrastructure and this ecosystem and the building blocks that are there? What do stablecoins represent, and perhaps, your three-step policy advice?

Tomicah: Here for starters, Jeremy, you have played an extraordinarily central role in defining this landscape. I think it's critical to recognize that, and this is the language I've borrowed from you, and I use it all over the place. Stablecoins are digitally native money with a form factor that is superior to what we have had historically in a bunch of really, really important ways.

If you, again, got to go back to Marc's experience creating the first internet browser, he's told me that he tried to figure out ways to move resources and value, and he couldn't. Stablecoins solved that problem, and they solved that problem really elegantly and efficiently and in ways that have the potential to unlock extraordinary value for society over the coming decades. It is for that reason, crucial, that we get it right.

The presidential working group that has been engaged on these issues has made some recommendations. Some of which are intriguing and encouraging, and others I think are problematic and probably will need to be revisited. We think there are three core principles that folks should keep in mind as we approach the design and deployment of a stablecoin regulatory framework.

The first is that we need to keep financial inclusion at the forefront of our efforts. We need to recognize for all of the reasons, that I outlined a moment ago, that the status quo is neither desirable nor sustainable, and we have to come up with forms of financial architecture that are going to do a better job pushing opportunity to people who need it most. We failed at that with the traditional banking sector for much of the last 40, 50, 60 years.

The next thing we need to recognize is that as we work to push this opportunity out, it will be critical to have confidence n the underlying issuers of stablecoins. Circle as a best practice has for a very long time, I think since 2018, you'll correct me on the dates, been issuing regular attestations by Grant Thorton, outlining what your assets are. If I'm buying USDC, I know what's behind the USDC and I can have confidence in that. That's a very good best practice, and we need to probably have a lot more organizations doing that.

You guys are even upping the game and providing greater transparency into the underlying asset mix that supports USDC. That's very valuable as well. We need to have a regulatory framework that gives consumers and issuers confidence that they're doing things by the book, and we don't have that today. The final thing we need to recognize is that going forward, some of the critical risks in this space will involve the actual operation of stable coin networks.

Rather than fighting to use your very good analogy 80-year-old battles that were designed for the time of telegraphs and horse and buggy, we need to be thinking about how we ensure that the underlying networks that are going to power stable coin systems are up to par and functioning the way they need to. If we do that, we're going to end up in a really good place and create a lot of value for society and create a lot of opportunity for people that don't currently have access to financial sector.

Jeremy: I think the last point you made, I think it comes back to an earlier discussion that we had, which is, I think conceptually it's oftentimes hard for regulators and policymakers to understand that the actual operation of the transactions and the settlement and the infrastructure that makes that possible, we're outsourcing it to the public internet. That sounds scary at first [unintelligible 00:31:50] just like we're outsourcing communications for basically all of the world's activity to the public internet, to decentralized peer-to-peer protocols. We use that like the air we breathe, we don't think twice about it.

Now and then you have an audio-video issue on your Zoom, but overall, we just assume that this is going to work. That's a leap I think for regulators. They're used to saying, well, if you're going to run a payment system, it's got to be tightly controlled by these narrow set of corporations, all locked down, et cetera, and outsourcing it to the public internet sounds really scary. Interestingly, the beauty of public blockchains is they are very specifically designed to be the most resilient, the most secure, the most tamper-resistant infrastructure that the internet has ever seen.

We have infrastructures like Ethereum and Bitcoin, as well as relevant examples that have half a trillion to trillion-dollar bounties on them that never go down, that have higher security and privacy assurances than anything in the financial system today, have settlement finality that's better than almost anything we have in the financial system today and have been designed to be resilient from nation-state attack factors. That sounds better than what we have. I think while on the one hand, it sounds scary to outsource it to the public internet, that's exactly what we need to do if we want to step forward in this economic infrastructure.

Tomicah: Absolutely. If you look at both the finance sector and government, it's critical for all of us to recognize that we have a lot of institutions that were designed in the 19th century and are now using technology from the 20th century to try and solve 21st-century problems. For the most part, that's just not working out so well.

Rather than blindly accept the status quo that everyone, if they take a step back, should acknowledge very freely is not delivering the way we need it to deliver. We should think long and hard about how we're going to utilize 21st-century tools, 21st-century innovation to solve these problems. Fortunately, we have some very, very powerful new instruments that we can bring to bear on these challenges and they're working. You guys prove that.

Jeremy: Thank you. I want to move to another topic and then I think we'll open it up for Q&A as well. One of the, I think really hot topics right now is the creator economy. Again, using the Web 2.0 analogy, the creator economy in the Web 2.0 world was essentially you create and we, the platform operator. We take the take rate and we take the monetization. We're seeing an inversion of that. It's a very powerful inversion. In fact, I was there when blogging platforms were invented, when the first read-write web emerged in Web 2.0, we were doing that in the video landscape at the time.

I think the ideas of Web 2.0 were about decentralization, enabling more participation, enabling creators to have a greater role, but what ended up happening was these platforms emerge that centralized that, and then monetized that in these different ways. It goes beyond that because now with non-fungible tokens, we've entered this world where essentially intellectual property and frankly, entitlements as a concept can now be represented in a digitally scarce manner. That's a huge breakthrough. Digital entitlements, digital intellectual property could unlock an enormous amount, not just for the creator economy, but for the very way in which the firms relate to their customers or artists relate to their fans.

I think, again, we've got a situation where from a regulatory and policy perspective, you've got folks saying, well, hold on a minute. Isn't all of this stuff just might as well be traded on the NASDAQ? Which is insane when you think about it. This is a big theme I know for a16z, the creator economy what's happening there. You've made some major high-profile investments in this space. Maybe talk a little bit about your thesis. Also, again, where do we go in the policy arena to make sure that we allow that this creativity and new modes of monetization to take place?

Tomicah: Well, the historical analogs here are really powerful, and I think it's crucial for policymakers to understand the magnitude of the shift that is embodied in these technologies. If you look back on feudalism in the 11th century or the 12th century, individuals would wake up every morning. They'd go out into the fields, creating value that they would send up to the manor house and then they would literally get some crumbs back in return for their efforts. Everybody was more or less okay with that arrangement. That was just how the world worked.

We live in a world today where each of us wakes up every morning. We start creating value the moment we turn on our devices. We post we create art. Virtually, none of that value comes back to us as creators. Even if you're a full-time creator, you're getting crumbs. You're really getting crumbs. Instagram gives you nothing for all of the arts that you create and post to Instagram, they make a whole lot of money off of that. I've been to their offices. They're really, really nice. This isn't a knock on Instagram.

It's just the way the system works right now. We have the opportunity to shift that dynamic. In the same way, that ideas of private property and individual autonomy very rapidly unwound a feudal system that had dominated many parts of the world for millennia, for centuries, we're seeing now with the advent of private property on the internet, a way to do things differently, a way to give individuals a stake in the value that they create.

The beauty of NFTs is you can do this in two ways that really upend everything we thought we knew about the digital economy, the digital creator economy. The first is you don't need a lot of people to like your stuff in order to make a decent living. A very small handful of artists on Spotify receive the overwhelming share of the financial benefits from that platform. Just the overwhelming share of the financial benefits.

In a world where you have access to NFTs, you only need by most estimates, 1,000 true fans. There have been some great pieces written on this to sustain a pretty comfortable middle-class lifestyle. That is a game-changer for people who want to be creating art, who want to be creating music, who want to be bringing life and vitality to the world that we live in. That's super exciting. The other piece of this is if you are, for example, a visual artist in the past, if you put a nice piece of art into the world and sold it at whatever price it was that at the time, whatever it was worth at the time, no matter what happened to the value of that art in the future, you were out of luck.

You had one shot, and that was the end of the story. I, like many of you, have visited museums with priceless masterpieces that were originally sold by their artists for what at the time was a pittance and what today would be even less. NFTs enable artists to take a stake in residual sales, which is again at one level, very simple innovation. At another level, it's an absolute game-changer that enables individuals to take part in the creator economy in a way that would not have been possible prior to the advent of these tools.

Jeremy: Connecting the dots here a little bit. You're seeing DAOs that are formed to curate digital intellectual property. You're seeing this digital intellectual property become tradable on global open markets of intellectual property, which is a profound thing that was never possible before. You're seeing financial infrastructure to be able to borrow on your intellectual you're seeing stablecoins as a medium of exchange to enable these things. A lot of these things complement each other, this idea of composability. These are each building blocks that are on these new public internet infrastructures, and we're just at the start. I think this is one of the things that we have to realize is that today, the number of projects that have matured-- it seems like there's a gazillion that are happening every week, but we're in the early stages of this. The activity and most of the work is really just in the past couple of years.

It's like the birth of the web, and everyone's building a website, and so this comes back, it's the heart of the policy issue which is, how do we let this flourish? How do we let the creativity of creators, not just IP creators, but entrepreneurs? It's global. This isn't just a United States issue. This is an everywhere issue. In every corner of every city in every part of the world there are people that are freely building on these blockchain networks in the same way that people are freely connected to the internet. Then it got to a size that it was like, "This is the new universe."

Is that where we're headed? Is that how this gets to it, or do we have to have regulatory clarity? Do we have to have laws that are defined for this new world or there are degrees of freedom that we need to ensure stay in place to allow this to continue to flourish?

Tomicah: Well, ideally, we start by deciding what we want to achieve, and we should have a vision for where we want to go. This is a set of opportunities, and frankly, a set of challenges that is sufficiently large that it demands we have a vision for where we want to go. The countries that are doing this best have a clear vision for where we want to go. In the United States, we don't have that yet, so we need to begin a conversation about what we want our digital future to look like and how we want to use these tools going forward.

I would suggest there are a few core elements that we should all be able to get together on as we shape that vision. We should be committed to greater security on the internet. We should be committed to greater privacy on the internet. We should be committed to pushing out opportunity to those that had been left behind by prior waves of innovation. We should be committed to reducing the power and the benefits that accrue to a small handful of middlemen that have taken a great deal of the spoils from the last era of digital innovation.

Fortunately, we have a technology available that can do all of that, and in the process, it can replenish the reservoir of trust that irrigates everything we do. It is a reservoir that has been sorely depleted in recent years and needs a recharge. This is a very exciting moment if we can get the vision right and a regulatory framework that will enable that vision going forward.

Jeremy: That is awesome. On that note, I want to end our formal conversation. Thank you Tomicah for a fabulous conversation tonight.

Tomicah: Thank you.

[applause]

Jeremy: We are going to have some Q&A which would be great. Dante is going to pass the mic, and we'll do our best to do that for 15 minutes or so.

Dante: Any questions, raise your hand. Don't be shy. The first one over here in the back row, and then we'll come to you.

Jennifer Schonberger: Hi, Jeremy. Jennifer Schonberger with Yahoo Finance. It's great to see you again. I know we spoke a couple of weeks ago. I know where you stand on the PWG's recommendations for regulating stablecoins. You favor those. Today, Fed Governor Waller said that banks shouldn't be the only entities that are allowed to issue stablecoins. Do you agree with that? Do we necessarily need bank-like regulations to regulate stablecoins?

Jeremy: I'll certainly take a crack at that. I think that this is one of those things, maybe referring back to something Tomicah said, which is, how do we take a risk-based approach to thinking about this? Money transmission statutes in the United States are how legal regulated stablecoins work today; state banking rules, you have to be licensed, you have to have compliance programs, you have to have consumer protection around the funds. We have a framework, and it exists today. I think the question is, at a certain scale might that change?

If you go from PayPal, which is probably the biggest money transmitter we can all think of which has $35 billion of balances on its system to something like USDC which has $35 billion of balances that's growing fast, it could be hundreds of billions of dollars, there may be reasons for a stablecoin issuer like Circle to have direct access to the Fed to hold the reserves differently. It takes on a different scale and scope, but I agree with the view that there ought to be multiple paths for how stablecoins can come to market. It shouldn't be only federally regulated insured depository institutions.

I think there can be multiple paths, and you see that around the world. We are in the process, for example, of registering to become licensed under a regulatory framework in Singapore that will allow us to operate stablecoins out of Singapore. It's a very well-thought-out piece of legislation. It does not require us to become a bank. I think in different parts of the world you're seeing different approaches to this. I don't think it's a unidimensional answer.

Dante: Thank you for the question. We'll come here to the front row.

Yaya Fanusie: Thank you. Good evening. Great to hear from both of you. I'm Yaya Fanusie of the Center for a New American Security and also a consultant for Cryptocurrency AML Strategies. My question is, I'm wondering for either of you if you could provide what is the one rule and which agency that you think is the biggest hindrance to Web 3.0 just because--

[laughter]

Not to single out-- I don't know who's here. Because obviously there are lots of different agencies, there are lots of different regulations. I'm just trying to get a-- If you don't want to name-- Okay, forget the agency, we're being recorded. We're not going to name any agency, obviously.

Tomicah: It's the CIA.

[laughter]

Yaya Fanusie: There we go. There we go. Good thing I don't work for them anymore.

[laughter]

Yaya Fanusie: What sorts of regulations would you want to prioritize, to address?

Tomicah: Yaya, you're going to get us in trouble here I can tell.

[laughter]

Tomicah: Our Chief Regulatory Officer, Jay Ramaswamy, is here in the front row, and I'm very tempted to defer to Jay for his brilliant insights on this one. Let me say two things on this, which echoes a conversation that Jeremy and I were having right before we started. We in the United States right now for much of our financial sector are using regulatory frameworks that are 80, 90 years old. The world has changed a lot in that time, and the form factor of our assets to, again, use Jeremy's language, has evolved pretty dramatically and in the last few years has evolved very profoundly.

It is foolish to assume that a regulatory framework that was probably fit for purpose 80 or 90 years ago is going to be fit for purpose today, and so I would suggest that we need to begin by looking at the most dated elements of our regulatory architecture in the United States and start thinking through how we design systems that are not imprisoned by legacy systems but are instead fit for purpose in the 21st century. If we do that, we'll end up in a decent spot.

Jeremy: I would add one specific point of color on that which is, I believe we need statutory definitions of digital assets. We need to define digital assets in statutes in the United States and recognize that there are digital assets that can at one time have characteristics of currencies, have characteristics of utilities and commodities, and have characteristics of securities. That's not been possible ever and now it is. It's a way to organize capital, work, value, usage, technology. It's a major innovation. It's a bigger innovation than the joint-stock corporation.

It's a very big deal, and we've got to think that through and not try and jam it into something that has existed in trying to stovepipe everything based on what the world had been. I think this [unintelligible 00:48:35] of principles-based risk-based approach is correct. There are people committing fraud, there are people conducting rug pulls, that's a technical jargon, there are people manipulating other people, there are people taking risks with technology without really having that technology audited properly. There are really significant risks. Those are real, but they're distinct and they're specific to this, so let's try and think those through. I think that can be done at an industry self-organized level and it can be done in a statutory level. I don't think we need to rush to judgment. I think we need to think that through carefully.

Tomicah: I faintly heard-- Can I get an amen over here? In the back, I have a question.

?Dante: Michael.

Michael Piwowar: Hi, Michael Piwowar from the Milken Institute. I'm a former commissioner at the Securities and Exchange Commission, so you were very smart not to call out any of the other agencies.

[laughter]

Michael Piwowar: I can tell you're a former diplomat, so great job. I actually have a technical question for you. You spent a lot of time talking about the difference between the original web and Web 3.0. One of the things that made the original web so powerful and so unique was the fact that there was a common protocol, but Web 3.0 is based on blockchains. There isn't a blockchain. There's a bunch of different blockchains. Does Web 3.0 require everyone to figure out, "We've got to be on the same blockchain," or is there interoperability across blockchains? Or what inning are we in this? Has Etherium won the race on this or is there still a lot of innings to be played on this?

Jeremy: I'll take this. I think there's a lot of conceptual models and these analogies are never perfect. You say it's like the web, is it? I think when I look at what these public blockchain networks are, I think about them as operating systems. In fact, they provide many of the basic building blocks that operating systems provide. Data, storage, transactions, compute, they're really general purpose in nature. Increasingly, as you look at the second generation blockchains like Ethereum, third generations of blockchains platforms like Solana or Avalanche or Cardano, and others, they're really competing to be open, decentralized internet operating systems.

That's like the operating system competitions that we've had in the open internet. Today we live in a world where if you want to create a piece of software that reaches the most people, you might create a web application, you might create an iOS application, an Android application, a Windows application, you're going to build that for multiple platforms. That isn't the end of the world. People do it. The most popular apps, take the Netflix app, I think they've got 75 different versions of the app for every smart device ever created. There are these operating systems.

I think the question is, to your point, where are we? I think we're in an accelerating adoption phase and I think the third generation of this is now really coming into production. I think you're going to start to see network effects and power-law curves, to use Internet platform analogies, that do develop but I do think we're still somewhat early. Just like the early internet, yes, it had HTML, a common protocol. There were a lot of competing ways to evolve that and it did take standards and then various platforms winning the developer hearts and minds.

I think that will continue to be the case and I think that's a good thing. We want this really powerful public infrastructure that's out there for the public good of everyone in the world. We want it to be intensely innovating. We want it to be something that's constantly advancing. I'd like to see blockchains that can support a million transactions per second in the next three years. I think we can realize that. They haven't been built. They're going to be built. We want that competition. We don't want to lock in and say, "This is the infrastructure you got to use if you want to make a payment over a blockchain." That would be insane from my perspective. It would be totally insane. I think that's where we are.

Tomicah: Sorry, I just wanted to make one additional point on this because Jeremy is too polite to say it himself. That is why it's so critical to ensure that we have a vibrant, private stablecoin marketplace, beyond whatever CBDC infrastructure may evolve over time because the dynamism and the innovation, and the interoperability is going to come out of private-sector innovation. There may, at some point, theoretically, be a place for a central bank digital currency in the US or other countries but it is absolutely crucial that we retain dynamism around private sector stablecoins unless we want to get locked in the architecture that we inevitably will regret at some future time.

Jeremy: I'm going to add one more thing, which is USDC is designed to be a protocol and it's designed to be a platform-agnostic protocol. It's a $1 on the Internet Protocol. It's a Fiat on the internet protocol that runs across multiple blockchains because we don't want to be locked in because there is this innovation cycle, and we want to see that play out. It's like if you're building a digital game, you want it to be cross-platform and have reach across all these different platforms. If you want a digital dollar, you want it to be cross-platform and you want it to work across these environments. We look at it that way. At some point you'll see greater standardization but it's going to be a constantly evolving innovation cycle, I think, for a very long time just like the internet itself.

Ashley Gunn: Hi, Ashley Gunn from Coinbase. I wanted to follow up on the stablecoin question. You all have been talking a lot about it. I get the question a lot and I'm curious what your views are. Why would you use a stablecoin as opposed to just hard cash? Then following up on that, and I wrote this down because I didn't want to forget, you mentioned several times that crypto reaches the underbanked, which I think is fair and true but at the end of the day, the underbanked have to have access to the internet or they have to have a mobile phone. Those people may not have that available. How do you justify using the usage of stablecoins as opposed to hard cash for this underbanked community when they may or may not have access to the internet?

Tomicah: I'm happy to take that. I think there are two broader questions there. I think the first is stable coins as a general form of digital cash like utility that anyone with a mobile device could utilize. We are not quite there yet but we are extraordinarily close. What I would say there is there's these generational evolutions in the technology itself. I like to use the metaphor that if you remember, we went from dial-up internet to broadband internet. It was like the capital investment happened and then the pipes got wider and all of a sudden, the utility value exploded. You could do so much more. It was a high-fidelity experience. Cost dropped dramatically to move around data. It was a breakthrough.

The third-generation blockchains that are being launched, that have launched in the last year, that will continue to be launched are like the broadband. What that means is that you can have a digital wallet that is your own self custody digital wallet and it can transact at Visa-scale throughput, peer-to-peer, or between you and a business with the ability to have the funds settled between parties in 400 milliseconds, which is pretty good, and with a transaction cost that's about a 20th of a penny.

It gets to a point where the utility is there. We're seeing a new generation of digital wallets that are being created to connect to this, and that's key. Once you have that, those can be put in the hands of feature phone Android devices all around the world. Those can be put in the hands of, really, anyone and you have the ability to then have that peer-to-peer value exchange with scalability, with cost-efficiency.

I think we are as Circle very focused on lighting that up. We're not in the business of reaching consumers, you guys are, and many other firms around the world. I think one of the things that we're really excited about is to see consumer-scale internet companies lighting up these rails, and that's a very powerful thing. I think that's what starts to enable that kind of reach but it doesn't have to be bound to a specific corporate entity.

I think a fundamental first principle of this is that like digital cash, an individual should be able to have a self-sovereign digital wallet and possess that, and control that, and exchange that. There are risk and compliance issues that have to be addressed with identity, which I think are being solved, but at the end of the day, you can get down to that value proposition that you have with any type of cash transaction. That ties into your first question which is why would one use it?

My view is that if you take the price stability of a dollar and you import the fundamental assuredness of a dollar and you essentially give it the form factor of digital currency, you now have dollars with superpowers. You have dollars that work at internet scale between any counterparty anywhere at the speed of the internet with that efficiency. That will unlock an incredible amount of value for individuals, households, firms. Then when you layer on the ability to intermediate those transactions with things like smart contracts, then all of a sudden from a financial and commerce perspective, you start to unlock an enormous amount of value.

What's interesting today is even with USDC, we see people using USDC to make micropayments for scarce digital intellectual property and we see people settling $500 million trades between big institutional counterparties, and everything in between. I often get asked, what's the use case for USDC? My answer is what's the use case for a dollar? I think it's actually going to be more useful than a dollar because it's going to be an internet super-powered dollar. I think we can't even begin to imagine all the uses.

Just like when messaging platforms emerged, email emerged, other things, it was hard for us to think about what 1,000x increase in the velocity of content produced, a 10,000x increase in the amount of communications activity that happened in the world. We could not imagine that but that's what happened when you commoditize the ability to communicate and exchange data. Similarly, I don't think we can imagine yet the forms of economic activity that will happen when you commoditize the movement of value as well.

Dante: Last question here in the back.

John Berlau: Yes, John Berlau of the Competitive Enterprise Institute Think Tank. Thank you so much for having this forum. I think you both made a great case for the atmosphere of permissionless innovation that drove the internet and, hopefully, will be allowed to drive crypto, blockchain, LLCs and DAOs. No, no excuse me. NFTs and DAO but I was getting to that. I'm going to ask about LLCs in a minute.

Just wanted to clarify first, by DAO, you mean, because it's not I think as familiar a term as, say, NFT outside the crypto world, Decentralized Autonomous Organization, not the stock market index that's known as Dow. The other thing is that one of the things when you're talking about a DAO replacing a replacing the joint stock corporation is one of the advantages and one of the reason people gravitated toward's that and why it's grown so much is because of the limited liability aspect that if you're not a decision maker, you can be a part of it, take the risk but also make the gains but you don't have the risk of being sued. Now, how are DAOs going to replicate that? I understand in Wyoming they're a form of LLCs but would you have the limited liability aspect carry over from joint stock corporations? If you don't, do you think it can grow ever to be as big of a corporate form as the joint stock corporation?

Tomicah: Wonderful question. For those interested in exploring the minutia of this topic, I highly recommend our Web 3.0 policy hub where you will find endless pages of information on the details of DAO regulation. We have put forward a legislative proposal at the request of the Senate Banking Committee. This specifically addresses some of the issues you reference and suggests the creation of a new section within the IRS code that would be specifically applicable to DAOs. It would enable not only DAOs to pay taxes, which is important if they want to do a whole lot of things in society and exist as an entity if they so choose, but also address some of the liability questions that have emerged. We think this process of regulatory engagement is going to be absolutely crucial.

If you think about defining innovations of the 20th century, you had the aircraft, you had the automobile. In each instance, you had extraordinary breakthroughs technologically that were followed by investments in infrastructure and regulatory frameworks. That's where we are right now. We have had the breakthroughs. Jeremy has outlined the breakthroughs, he's been responsible for many of those breakthroughs technologically. Now we need the investment in infrastructure and regulatory frameworks.

What happens is once you get the investment in infrastructure and regulatory frameworks, that's when these innovations, the technologies, are able to reach population scale. That's when they're able to reach a lot of people who right now are on the outside looking in. I will quote the great Dante Disparte who told me many years ago that we will know we've won when we can stop talking about blockchain. There's a lot of truth in that. We will reach a point where in the same way we don't obsess over TCP/IP or HTTP now, these protocols are just operating in the background powering large swaths of our lives and economy. We'll reach a point where all of this stuff takes place in background. We have great confidence that it's going to work as intended and it unlocks a new renaissance of creativity. That's where we're headed, which is really exciting but it's dependent on getting the right policy and regulatory framework in place, which is why conversations like this are so important.

Dante: On that note, ladies and gentlemen, let's give a warm, warm, and big round of applause for Tomicah and Jeremy.

Dante: Thank you both.

[01:03:28] [END OF AUDIO]