The Way Work Should Work

Adam Jackson: Today's guest is Robert Leshner, co-founder and CEO of Compound. Compound is an algorithmic autonomous interest rate protocol built for developers to unlock a universe of open financial applications. Founded in 2017, Compound is the second largest—maybe largest now—decentralized lender. Is it the largest?

 

Robert Leshner: By a margin? Yes.

 

Adam Jackson: Okay. Okay. I know it's day-to-day here. For the audience, we're recording this on the last day of June 2020. Prior to founding Compound, Robert was a financial analyst, economist, and founder of two software startups. Full disclosure, Robert and I are friends. He's an investor and advisor to the Braintrust project, he has been immensely helpful, and an amazing thought leader in this space. And we're lucky to have him on. Welcome to the show, Robert.

 

Robert Leshner: Yeah. Thanks, Adam. It's great to be here.

 

Adam Jackson: Great. So, Robert, I mean, you're a pretty well known guy in this space, but just for the benefit of newer people in the audience. Could you tell us a little bit about your past and what led you to found Compound?

 

Robert Leshner: Yeah, that's a great question. So, I started my career as a bit of a bond geek and rates guy where I was involved in interest rate markets in traditional finance. After that, I wound up becoming a software founder and Product Manager. So working in Silicon Valley, building new technology products, and really focusing on software solutions for real world problems. And for me, these two things really came together in 2017. I'd been following crypto networks for a while. I did a little bit of Bitcoin mining in 2013. I was aware of everything that was happening and possible. But in 2017, for me, I had this lightbulb moment where I saw that the Ethereum blockchain was enabling smart contracts, actually started to program assets and how they behave and what you can do with them. And it started to reach a point where it’s like you can start to program money, and for me as a bit of an interest rate geek and software person, I said, “Well, wow! This is like an entirely new opportunity that hasn't really been touched yet.” If anyone recalls back to 2017, it was mostly focused on ICOs and people creating tokens, and not that many teams and projects trying to leverage the superpowers of smart contracts to be able to create entirely new financial applications. And so, for me, that was the moment where I said, “Wow, like this is a great new technology. It's gonna unlock extremely powerful things. I want to go all in and headfirst into this new market.”

 

Adam Jackson: Nice. And so for anyone unfamiliar, the 60-second on Compound itself and how it works.

 

Robert Leshner: Yeah, Compound is a series of interest rate markets for Ethereum assets. When we started the project, there were only a couple of Ethereum assets. Stable coins weren't really a thing yet. At this point, we create interest rates for stable coins and Ethereum tokens. And our vision is that over time, more and more real world assets from currencies to financial assets, etc, will wind up being represented on blockchains, particularly on Ethereum, and we'll be able to create interest rate markets for all of those assets too.

 

Adam Jackson: And so an example in use case today—in full disclosure, I'm a small participant on your protocol myself—So I could go in and lend a digital asset like Ether, which is the token that powers the Ethereum blockchain, and then that locks into your Compound smart contract, and then I could borrow something like USDT tether, right. And your protocol basically acts like a bank does today, except instead of the bank and regulations setting—how things work—code is literally law in your case is that right?

 

Robert Leshner: Yeah. So, the Compound protocol—you touched on the two primary use cases—one is supplying liquidity to a market and earning whatever the interest rate is. In conventional sense, you provide dollars and you earn an interest rate at a bank or in a money market fund or, you know, to a peer. It’s the same thing in Compound, you earn a prevailing interest rate when you provide an asset for others to use. And you can also borrow any of the supported assets if you provide collateral to the protocol. And as you mentioned, there are similarities with a bank, they both function on interest rates. The difference with Compound is, it's a series of essentially computer programs that are deployed onto a blockchain. So anyone can see how they work. Anyone can see why they work, anyone can see how they behave. And all of the logic is codified in these contracts. They're not run by humans. At this point, there's a decentralized community that can upgrade the contracts and maintain them, but the entire thing is autonomous. So in order to add more volume, we don't have to open up physical bank branches on corners. The protocol naturally can scale without anything changing. Any user can come to the protocol and just begin interacting with it. And that's the primary difference.

 

Adam Jackson: So that's one of the real—one the many, I think—real notable innovations here that your team has created. It's purely market driven, right? So the interest rates are set algorithmically, completely based on supply and demand. So as—what's amazing about that is you've cut out the middleman and turned him into code, basically. And so, as a supply of an asset increases, the rates will go down. As demand for an asset outstrips supply, the rates will go up. Is that generally correct?

 

Robert Lashner: Yeah, that's exactly right. So one of the things that we pioneered in 2017 was using a codified interest rate model and algorithm to set rates based on supply and demand. And it's not that different from the way financial markets work in general, or the way a central bank works in general. Everyone collectively is assessing the supply of money and the demand of money and the interest rate follows it. The macro 101 textbook from freshman econ is the interest rate is the price of money. And just like anything, the price is based on supply and demand. And Compound replicates that—just entirely in code. And so when an asset is scarce, and it's in demand, the interest rate is high. And when there's tons of it and demand for it is low, the interest rate is low. And we've codified that and it’s great to see it play out over time. The markets update in real time without humans having to go into a spreadsheet somewhere and change a number. The whole thing just runs autonomously. And it's been operating for a couple years now. It's really cool to see the growth of Compound and how it's evolved and to see how interest rates have gone high and low, and zigzag and sideways and all these things over the years. And we're starting to produce a really interesting data set on an entirely new financial system.

 

Adam Jackson:  So, it's extremely well put—it’s one of the best examples yet of tokenized technology simply replacing a middleman who was extracting disproportionate value. It's the cleanest and best example yet. So you mentioned earlier, putting other assets on this. I'm curious to hear your vision. I realize you don't control the protocol anymore. You're a meager voter like the rest of us now. But what do you think the potential for Compound is? What other kinds of assets could you see being used as collateral or borrowed?

 

Robert Lashner: Yeah, that's a great question. So one of the original theses that we had was that the rest of the world would come to crypto. I mentioned this before but when we started, stable coins weren't even a thing. Especially not on Ethereum. And now stable coins are extremely popular. Everyone knows, “Hey, this is a way to represent $1 or a euro.” and are widely used on blockchains. And we never really anticipated that. We knew it would happen someday. And the original thesis was, well, everything is going to become a digital asset. I think the same level of surprise is going to happen over the next three years. So in three years, I think people are gonna say, “Oh, it's extremely common that fill-in-the-blank is now widely available on a blockchain.” It could be stocks and bonds, it could be real estate, it could be something else. But I think in three years, we'll be surprised again. We're sort of allowing the rest of the world to come into crypto as opposed to saying, “Oh, we have to go out and build a bridge to this other thing and create a token version of it.” Over time, more and more assets wind up on a blockchain. So in three years, I think there's going to be more assets available on Compound, that we just don't even visualize right now.

 

Adam Jackson: Yeah. So we're going to come back to governance because I think the other big innovation here you've created is governance. We're gonna come back to that. I'm gonna switch gears over to Gabe though, right now.

 

Gabriel Luna-Ostaseski: Yeah. So Robert, you mentioned something really interesting, which reminds me actually—the thing that interested me most when I got into crypto, you talked about being able to program money or program interest rates. One of the things that was most interesting for me was being able to program incentives, and to design new markets and new networks with new incentive models that maybe didn't even exist before in these legacy spaces. You're an active investor in the space, maybe you can tell us a little bit more about your investment thesis, areas that you're really excited about.

 

Robert Lashner: Yeah, that's a great question. I'm excited about things that follow in the same idea space as Compound, where you're using a new technology to make a more efficient market or system. In some ways, like a blockchain and a smart contract, these networks are an opportunity to be not just like a small iterative improvement over an existing system, but a massive step function change to the way things worked previously. And everyone's excited for different ways. Some people are excited about Bitcoin as a currency that it might displace existing currencies. I'm actually excited about financial efficiencies. The first thing that got me excited was what we're doing at Compound were we're able to reduce friction, increase transparency, increase speed, increase participation, and openness by factors of 10 all across the board. And it's because we're just doing something very basic. It's building something using open source code on a blockchain instead of the way it used to be. And so the things that excite me are things that are leveraging the best properties of crypto to make massive improvements over the way things were operated, even today outside of crypto where, like 10 years ago—that we are able to compete against the status quo. And that's really my core thesis.

 

Gabriel Luna-Ostaseski: Super cool. I mean you were really early on Braintrust. You were early at the idea phase, and you backed us when it was a deck and an idea, and two people that wanted to dedicate their lives to this. So different from programming interest rates and programming money. What was compelling for you? Why allocate to the space that we're in?

 

Robert Leshner: Yeah, so there's a couple of things that excited me. One is the fact that when you look at building a global business, crypto is just a significantly more efficient financial back end, then the existing structure. So any business that's inherently, day one global, whereas best off when there's no borders, I think benefits tremendously from being built in the crypto sphere. It took Airbnb 10 years and a payments team of hundreds to manage payments across every single country. And to figure out all the nuances of different currencies and different banking structures to make it all work, it's extremely difficult to scale from zero to global domination. But when you're using crypto in this fashion, it's conceivable that you can scale to global domination, without any of that difficulty, without all of the hard parts, without having to reinvent the wheel 150 times, and have an engineering team of hundreds just focused on solving knack. So the first thing that excited me was, I think, a talent marketplace is best served by being global, and to do that, you can build something bigger and faster when it's built on crypto. So I think that's really exciting. And I think that over time, there's the second component which is using the native asset to align incentives. I think one of the things that crypto is great at is being able to create very transparent, very easily understood, and very programmable ways of making the incentive alignment very clear and transparent. I think there's a lot of power there. On Compound, we're trying to align the users with the long term success of the protocol, being able to upgrade the protocol, being able to govern it, making sure that no one inadvertently shoots it in the foot or kills it. I think that's the other second superpower of a business like this. That's what attracted me—it’s that you could achieve both of these things; scaling globally without all of the frictions of building a global entity, and two, building something that's more collaboratively-owned and incentivized between both sides of a two-sided marketplace. That's exciting.

 

Gabriel Luna-Ostaseski: Cool. You have a new fund, right?

 

Robert Leshner: I have a fund that I've been investing from, for a little over a year called Robot Ventures, but also, I try to do a lot of angel investing in this space as well.

 

Gabriel Luna-Ostaseski: Cool. Any kind of themes you're excited about for 2020, 2021 themes that we can talk about a little bit?

 

Robert Leshner: Yeah. So in general, I think the theme that I'm most excited about is decentralized finance. And there's a lot that goes into even that phrase. And I think a lot of ways Braintrust is part of that. For me, decentralized finance means building systems that don't run on the legacy payment stack and financial stack, and financial product stack. But where it's global, it's open, and it's transparent. And there's a lot of things that go into that, but at its core, there's a whole spectrum of new financial products and services that are emerging. Compounds is one, Braintrust is one, there's going to be thousands others that are going to succeed extremely rapidly because they're able to reach a global audience, cut out middlemen, do things autonomously with low overhead, and really be composable and interact with other financial products and services. So that's my theme at the end of the day.

 

Gabriel Luna-Ostaseski: It’s been really interesting. I mean Adam and I talk about this all the time, which is this kind of fundamental belief that user-owned, user-controlled networks that cut out middlemen will essentially grow faster and become more valuable than the traditional investor-owned hierarchical networks. And so really excited. Thank you for all your work and helping to push that forward. And we're certainly happy to follow right behind. 

 

Robert Leshner: Yeah, thank you.

 

Adam Jackson: One of the most, I think, shocking things about the adoption of all this and I'm trying to sort of transition into your Comp token, your governance framework, which in full disclosure, we are fully copying from you at Braintrust. 

 

Robert Leshner: Great! I am excited for that.

 

Adam Jackson: Thank you to you and your team for open-sourcing this and doing all the work to integrate with Coinbase, and tested, and security-tested. I remember sitting in your office a few months ago and just marveling at the sophistication. We were going to reinvent the wheel and then I saw you doing it and said, “Well I don't have to now.” What I find so fascinating is one thing we're always explaining here because it's important is when we say a user-owned and user-controlled network like Compound or Braintrust, we're not talking about a financial token returning dividends and profits off of a network. That's just not part of the game. It's a token used to voice your stake in the network, and that in itself is interesting. We're already having our talent ask when they can vote their tokens because I think they're watching people voting your tokens into the other kind of innovation here is around how they're distributed. And I know this has been—you guys are truly the canary and the innovator here, watching your distribution tactics. But the point is, this is a governance and an incentive mechanism, right. And so, the more you use the network and help build it, the more you'll get. So first of all, maybe just describe to our audience what Comp token is all about, what it's used for, and how to get it, and then we'll have a few more follow ons.

 

Robert Leshner: Yeah, that's a great question. And I'll go even farther back, which is what I see the purpose of decentralization is in the first place, and what the best outcome is possibly. In my mind, when an application or a product or a financial service can run forever, and everyone knows that it's going to work forever, it's most powerful. The goal of Compound governance has been twofold. One, we want it to run without us—you know, human life is short. If you design something that works really well, it should outlast everybody. And a financial market should be able to last for hundreds of years. It shouldn't be dependent on a core team. If you're building something really big, like a market, you want it to run forever. And the second thing is you want it to be upgradable by anybody. Now, there needs to be some processes and some hurdles, and it should be difficult to upgrade something that millions of people use and rely on. But it should be upgradable by the community, because at the end of the day, the wisdom of the users and the crowd and the stakeholders is gonna vastly outpace the wisdom of a couple people, sort of like sitting side by side. And so, the Compound token, at its heart, is a format for the holders of the token to upgrade the protocol and maintain it. And that's it. It's really just a very simple system for those who have the token to be able to come together to make changes to this protocol in this market that billions of dollars are relying on and tens and thousands of users are relying on in an open, transparent, fair process.

 

What we've done is we've created this token. The actual mechanics of it are relatively straightforward. You can either hold the token and vote your own tokens, or you can delegate your votes to any other address that could be a person, that could be Adam and Gabe, that could be a DAO, it could be a software project, it could be an exchange, it can be anyone you want, but you can choose to either vote for yourself or choose someone else to vote for you. And from there, it's a system to propose changes to the underlying protocol. “Oh, I think this variable should be different. Oh, I think this should work a little bit differently in some way.” And all of the people with votes can then, on chain, choose whether or not they agree with your proposal, they can say yes, or they can say no, and if it comes out to be a yes, the proposal actually updates the underlying system, it doesn't then have to go through a process of someone has to go out there and build something new. It's like, if the proposal goes through, it actually directly upgraded the underlying protocol. And so it's a very effective mechanism to allow participation and changes to a very important system.

 

Adam Jackson: I mean, code is law here, baby.

 

Robert Leshner: Yeah, it really is. 

 

Gabriel Luna-Ostaseski: This is like the opposite of the way in which decisions have been made in traditional corporations for the past hundred years which is basically the highest paid person in the room makes the decision about what should be done. So cool to see this stuff come into play. So it is the convergence of both the open source movement and also crowdsourcing. And they're coming together to have this wonderful child.

 

Robert Leshner: Yeah—and sorry, go ahead.

 

Adam Jackson: Yeah, compared to the corporate governance of something like Facebook. Again, disclosure, I own Facebook stock, it's a great company. But what are you voting on there? The board of directors who are ultimately overruled by the oligarch. What is the point of governance in a company like Facebook? It's just—one man runs that thing. And it doesn't matter how many 2, 3, 4 billion users. Doesn't matter, right? It's like one guy runs it, and you're just doing the opposite here.

 

Robert Leshner: Yeah. And what's great is—and that's a great analogy—the Compound governance system and PS for everyone listening, it's open source, we actually want other teams to take the best parts of it, copy it, recycle it as much as possible. We're just a starting point for other teams in a lot of ways, and I think that everything gets built on the shoulders of giants, and that's what creates growth for everybody. But one of the things I like about it is that any sort of system can emerge. It's actually been designed with the principle of liquid democracy in mind. What that means is if you want to participate directly, you can; if you want to have someone else represent you, you can. I can see a scenario where there's lots of people participating as individuals because they like directly voting on things. And a lot of other people say, oh, who's the smartest member of the community that has views that align with mine and I know he's gonna vote the same way as me or spend more time paying attention to individual proposals and getting involved and being active. You can have any, right? You could theoretically have things that look like a board of directors over time. Or you could have people participating on their own or some hybrid of. It's really up to the token holders to come up with whatever outcome they want. And you might have people with more power than others. They might get the delegated support of lots of community members and have more of a voice. And we're going to see all of this unfold. And it's kind of like this grand new experiment that, you know, pieces of it have been proven for centuries with our republic here in the United States, and pieces of it have been proven with corporate governance here and internationally. We've really been inspired by a lot of existing systems and seeing it unfold on chain and for a financial market, it’s going to be really cool.

 

Adam Jackson: Look, it's nothing short of historic for so many reasons. And I'm not trying to bloviate on that. It really intersects finance and technology and governance all into one place. And they're all—they're just experiments, just like everything else is. What one technical or sort of technical, but to me, it's a UX feature that you guys pioneered with Coinbase that I really wanted to call attention to, because it hasn't been talked about much. So you and I are engineers, we go way back in this space. And we know how, for all three of us actually, how frightening it is to lose private keys. And what really kind of just fucking brain damage this whole space is most of the time. And even as an engineer, it's just like when you're sweating, when you sign that Ethereum transaction, and you're hoping that fucker had enough gas to get across the chasm. It's stupid. So one of the things that I thought was incredibly innovative from the Compound group and from Coinbase is—so if you're going to vote or delegate your votes to other token holders, you generally have had to sign transactions from a hot wallet on the internet and so, with that—sorry for being too technical—what that basically means is if you're going to vote, you got to kind of take your valuable assets, your bare instruments out of a cold storage environment where they're safe and get them onto your internet-connected, potentially malware-infested computer and vote with them on a potentially hazardous setting. 

 

Gabriel Luna-Ostaseski: It’s like taking a whole bag of cash down from the bank and walking it down to a polling station and standing in line.

 

Adam Jackson: Yeah, that’s a better analogy. Mine was very long-winded. So what the Compound team has innovated here with Coinbase is they allow voting tokens from cold storage. Do you want to talk—do you want to just quickly talk about how that works? And why is it important?

 

Robert Leshner: Yeah, I'll start with the background. In a lot of ways, we had what I'll call second mover advantage or late mover advantage, and seeing crypto evolve for a couple years before designing and launching the token. We created the Comp token at the very end of the process of handing control to the community. We didn't start by creating a token years ago in an ICO and then hoping that we wrote the code and designed it the right way. We didn't design it until our protocol was live and there's lots of users, and we knew exactly what it should be and why. One of the things we did that's different from a lot of other tokens out there is the token itself has a lot of voting logic written directly into the token. And it's because we got to see some of the frustrations that were out there, exactly as you described. In order to vote tokens, you have to put them in an extremely dangerous position where you're putting value at risk in order to vote. And everyone hates that. And it's extremely complicated and scary. What we did is we built the concept of assigning votes directly into the token itself. So if you hold the token, you can specify any address that's responsible for voting your tokens, and this goes back to delegation. So this can be you're delegating to yourself, but on a different address. You can say, keep my tokens in cold storage or in a custodian or in a very safe place, and allow my super dangerous web three meta mask address to be the thing that votes them. There's no funds that move, there's no assets to transfer, there's no funds at risk. There's no night sweats that say, “Oh my god, what if there's like an issue in the voting process?” Your funds stay in secure safety but you can vote with them from any address. And this is programmed directly into the actual token contract itself, and this has enabled really cool product innovations elsewhere. So when we launched the token, we launched it with Coinbase custody, and Coinbase custody was able to build this really cool product and asset flow where your token stays in the security of their custodian, and you can vote without the tokens ever moving around. You can even delegate to your meta mask address, you can vote from custody. It’s made it really easy for people to keep their assets safe and participate in governance at the same time. 

 

Adam Jackson: And that is such a giant—that's one of the biggest UX innovations of the space and no one's talking about it. I don't get it. 

 

Robert Leshner: Well, you know, we can talk about it more here.

 

Gabriel Luna-Ostaseski: Yeah, it feels like it opened up a whole new market for governance. There's just too much friction involved in governance. Now without enough incentives, and what you guys did was really opened up a whole new market for governance, where people actually can participate in this, and will participate because there's much lower friction involved.

 

Robert Leshner: Yeah, thank you. We were extremely proud of the work we did on creating the token in the governance contracts. You know, a lot of people take it at a surface level view and they're like, “Oh, you vote. Okay, great”. But we spent a lot of time in R&D trying to design what we really thought would be an optimal voting process for a blockchain application.

 

Adam Jackson: Nice. Let's, let's keep moving then over to how people get the Compound token. So we've talked about what it's used for, makes sense. This has been a very fervent topic lately on Twitter. And so, how do people get the token and we've seen some sort of odd incentive loops and patterns appear. Maybe start at the top and then go into maybe your thoughts on how this is playing out so far?

 

Robert Leshner: Yeah, it's a great question. So we primarily distribute the token to users that use the protocol. The way the token is distributed right now is we've placed, you know, an extremely large quantity of tokens into the protocol itself. We placed 4.2 million tokens into the protocol. 

 

Adam Jackson: This is about 42%, right?

 

Robert Leshner: Yes, which is like over a billion dollars of tokens right now at current market prices, which is kind of funny to think about. But we placed a billion dollars of tokens into the protocol and the protocol automatically distributes it to the users of the protocol every 15 seconds for the next four plus years. And this distribution process itself, just like the entire protocol itself, is controlled by token holders. So if the token holders want to modify the rules or change the parameters or anything like that, the token holders can vote on changing the way it works. But the protocol distributes tokens to users based on their usage. And so far, in the first two weeks, this is also a grand experiment, we weren't really sure exactly what to expect. It's hard to get things exactly right when it's completely uncharted territory. And we designed it in such a way so that like the token holders could tweak and change the parameters as time went on. But in the first two weeks, we've seen this extreme increase in usage of the protocol, because now users know that they wind up being able to control and shape the future of the protocol by being a user. It's unlocked this crazy usage of the underlying protocol. When we launched the Comp distribution about two weeks ago, there was about 150 million dollars of assets supplied to the protocol. And that makes sense. When the users aren't receiving a say, when they're not receiving ownership and control. It's different from when they're receiving ownership and control. It's exciting. It's like an entirely different paradigm. Since we began the token distribution, we're seeing a massive uptick in usage. Users get it, they're bought in, they're excited, and there's now $900 million plus supply to the protocol. And we've seen this just fervent reaction where by bringing people in; one, it gives them a shape—the ability to shape the protocol with their votes and two, it gives them skin in the game.

 

Adam Jackson: Robert—at the risk, that's amazing. It's been a marvel to watch. Very inspiring. At the risk of getting a little too in the weeds, but I think it's a worthwhile question. So I saw somebody on Twitter, may have been somebody from multicoin or something, said, paying people to use your protocol in Comp or doing what you just described is likened to washtrading on a centralized exchange. Would love to hear a response to that. 

 

Robert Leshner:  Yeah. So I think one of the important things is that Compound as a market and a protocol has been live for years. And it's been functioning for years. We're now adding a token distribution on top of what's already been working. So if the token came out of nowhere onto a protocol with zero users, I would humor that view a little bit more. The reality is, the tokens being added on to what was already previously the second largest defy application in the universe that already had tens of thousands of users and a huge foothold within the ecosystem, and now is being used to share the collective ownership of that system. I can understand the sentiment because it's definitely drawing users in. Period. Now that there's a distribution of Comp tokens to the users of the protocol, more people want to be users, and they're willing to really ramp up their usage in order to be an owner of the protocol. And so in that sense, yes, it's you. It's definitely increased participation and we'll see where it goes.

 

Gabriel Luna-Ostaseski: So, I want to tie this back to some extent. It's actually a really interesting point. As you know, both Adam and I have been long term marketplace guys, right? We used to cry in our beers together 10 years ago. But the challenges of building a two-sided network. So for those of you that are familiar with marketplaces, if you look at the businesses over the last 20 years, it has become the most valuable companies on the planet, its proprietary network effects in two-sided marketplaces, but they're notoriously hard to get started, and most of them fail in what's called the bootstrap phase, which is getting enough people on both sides to come and play in your sandbox at the same time. And I think a misunderstood component of crypto and blockchain is the ability to use a token to jumpstart the network effects. To incentivize people to join the network early before there's real utility value, and incentivizing them with the potential of participating in the network and participating in the governance of the network. I'd love to talk a little bit about that, because I think it's really still a—there's kind of like blockchain investors and maybe there's marketplace investors, and there's not a whole lot kind of in the middle that really understand how you can use these tokens to get the best elements of a two-sided market with proprietary network effects, but without having to raise $2 billion of venture capital, and hire hundreds of thousands of people. I'd love to kind of get your take on how do you think this changes early stage investing? And also, how do you think it changes the mindset of entrepreneurs trying to build marketplaces in the future?

 

Robert Leshner: Yeah. So I'll start by saying that I think a marketplace is a product, like any other. There's two customers for the product, but the product is the market. The first thing I'll say is that if there's no demand for the underlying product—if it were larger, nothing will work in the first place. But if you can add incentives onto something that would otherwise work and be popular, it can get you there faster. So if Nike was giving out ownership of the Nike-everything to its customers with every shoe purchased, that would be sort of akin to distributing ownership and control to the users. And that might work and might add even more fuel to the fire because people want Nike shoes in the first place. It's something that people already want, but if you were giving out collective ownership and decision-making over something that nobody wants, like a really ugly pet rock, it doesn't matter. Like there's nothing to amplify, it's like your pet rock business will go nowhere. Even if you try to give out pet rock governance tokens.

 

Gabriel Luna-Ostaseski: This is most of crypto in 2017. This is like a whole bunch of nerdy solutions trying to solve a problem that doesn't exist, like that rock example.

 

Robert Leshner: Exactly. So there has to be something of value there in the first place, right? And if there's a marketplace that will have value when it's large, genuinely. Did it make sense to jumpstart if it's something that won't have any value because no one actually wants the product, whether it's a marketplace or whether it's a financial service or whatever it is, then it doesn't matter how much juice you add to it, or how much like fuel you add to the fire, it's not going to go anywhere, right? So at the end of the day, it has to be an important and valuable product.

 

Gabriel Luna-Ostaseski: Yep. So that's a perfect transition to what we call the lightning round. And the idea here is just kind of a free train of thought. Couple sentence answers to a few things. 

 

Robert Leshner: I'm ready. 

 

Gabriel Luna-Ostaseski: So you get to go back to the rewind machine here, Robert, and you get to get some advice to your younger entrepreneurial self in the early days. What's the biggest words of wisdom that you would have given to yourself, entering in this space a few years ago?

 

Robert Leshner: There's a couple. One, build something that people want. You know, it's classic sort of Paul Graham advice. Two, do one thing at a time. If you look at the Compound history and narrative, we would do one thing really, really, really well, and then do one more thing really, really, really well. And then do one more thing really, really well. The biggest flaw I see in a lot of early stage teams, especially in cryptos, are trying to do too many things. They're trying to reinvent everything, as opposed to reinventing just one thing. And then once you succeed, maybe reinvent one more thing. But they're trying to change too many things all at once out of the gate. And so I would say, to distill that, focus on one thing at a time and do that one thing extremely well. And lastly, focus on security. And this is actually more abstract, but I see this as like a major problem in this space for everybody. There's this trade off between, in any startup you may want to move fast and break things, but with crypto, you're also dealing with money. And there's this extremely difficult trade off between moving faster, breaking things, and being secure. And I see so many teams get this wrong. And they're focused on growth, but not secure growth. And it puts funds at risk. And so the third thing I would tell anyone entering this space is, you're better off building something that's a prototype to see if people want the product and then not trying to scale it, building the safe and stable and final version of that, and being willing to migrate your community or transition your community. At Compound, we had Compound version zero, version one—which is the first production release, and then version two—which we saw is the final, secure, and stable thing that should last for 100 years. And so I think teams mess this up all the time, by just looking to grow really, really fast without any other considerations. So security is the third.

 

Adam Jackson: That's great advice. Speaking of security actually—so my next lightning round here—any thoughts, Robert, on the security of Ethereum as a base layer, as a threat to these DAPS, because somebody could come in and just start buying up Ethereum and take control the network, and then all the ERC20s built on top have an issue. Any thoughts there?

 

Robert Leshner: Yeah, it's a great question. At the end of the day, miners can either process transactions or not process transactions. They can't steal your private key, and they can't make you sign something that you wouldn't otherwise sign. They can censor transactions. But I actually think that a little bit of the security concerns are overblown. To be honest, there's always the critique of, “Oh, how could you have a trillion dollars of assets represented on a blockchain if the blockchain is only worth $20 billion?” You can because as long as there's more than one miner out there, you can always move your assets off, you can always move your assets away, you can always interact with a smart contract based on the rules of the smart contract, there's very clear limitations to what miners can and can't do.

 

Adam Jackson: It's a great, great point of view. Thank you.

 

Robert Leshner: And so I personally am not concerned. I think at the end of the day, you always have the opportunity to switch. And it's self-defeating for miners to try to completely jeopardize their own network that they're fully bought into. It doesn't really serve anybody. So I think the game theory plays out that this will continue to work for a long time to come. It might be slow, it might be expensive to process transactions, it might have major scalability concerns. But at the end of the day, no one can steal your assets. They could just choose to censor, and not process your transaction or not, but I think Ethereum will continue to be a hotbed of defy for years’ time.

 

Adam Jackson: Well in follow up to that then, are the “layer one wars”, so to speak, over? Has Ethereum won?

 

Robert Leshner: I would say I'm extremely skeptical that other chains will make major inroads. I think it's possible. But I think it's going to be very slow. And I think Ethereum has a network effect already. And it's very hard to displace network effects. Something has to be not iteratively better, it has to be a step-function better. We will most likely see another chain win, but it truly has to be a step-function, and most of the things out there are just iterations.

 

Gabriel Luna-Ostaseski: So shifting gears to more of a personal note here. Like you, we've all been in shelter-in-place since March 12 or so, what have you learned about yourself during shelter in place, Robert?

 

Robert Leshner: That's a great question. I've learned that I work a little bit too hard sometimes. There's users in our community who are like, “Wait, why is the founder of a project chatting on Discord at four in the morning?” And I'm like, “Well, that's because home is the office and office is the home.” So I kind of find that I have to carefully manage my own effort. Otherwise, I go all in on work. I've also learned that it's actually surprisingly easy to cook a variety of meals. I was the type of person that was six nights a week ordering in. Now, it’s two meals a day, seven days a week being cooked at home. So that's a big difference. But on the more serious side, I actually think that, I've learned that you can have a level of collaboration, working remotely, that I didn't really think possible. And I'll be the first one to say I think everyone working side-by-side in one office actually is probably more collaborative and more productive and better for ideation and creative development. But I think being fully distributed is not like an 80% drop off in efficiency of a team, I think it's more like a 15% difference. And in my own mind, I actually thought, going into this, “Oh, remote work is going to kill Compound. It's going to kill the way things get done.” And our team personally has actually held a huge amount of efficiency and effectiveness, even going from full centralization to full distribution of work. And that's been a surprise.

 

Gabriel Luna-Ostaseski: And that's only one dimension of measuring how this works. You're measuring on the whiteboard experience or the watercooler experience versus the measurement of now I have a completely global pool of talent to pull from, and when I place a job, I get 1000 responses instead of seven responses when you're typically recruiting in Silicon Valley.

 

Robert Leshner: Exactly.

 

Gabriel Luna-Ostaseski: So I think that people are just starting to see all the second order benefits of distributed work. No, it's definitely been beneficial to us. So touching on Silicon Valley here. Traditionally, companies have been built in Silicon Valley, everyone huddled in an office and works really long hours and has kombucha on tap and all their laundry done for them, things like that. This has now pushed people to work distributed and work in a remote way. Big companies like Twitter are just saying that people can essentially work indefinitely from home. What do you think—the Silicon Valley, is it on the way up or on the way down?

 

Robert Leshner: Personally, I actually think it's on the way down. And I think it's, and I'll justify my answer by saying, I think it's all the way down because this sort of network effect and superpower that it had was—all of the investors are in one place, all of the teams are in one place, and everyone's sort of geographically here, and it turns—and why is that effective? Because it's very easy to drive 10 minutes or take an Uber for 10 minutes and meet someone face to face. And that was the advantage over every other market. Period. And in a sort of distributed world, we start to move away from that. It doesn't matter where the engineer is located, it doesn't matter where the investor is located, you can probably run a just as successful venture firm from the Bahamas as you can from San Francisco. It doesn't matter at this point. I think geographic advantages will subside, and I think that could be potentially difficult for the San Francisco real estate market or the local environment. I think we’re gonna start to see a little bit of an exodus in a lot of ways, both commercial and residential, but it'll balance out. People go where it's easiest to live, or where their dollar goes farther, and at the end of the day, I think it's gonna deplete a lot of the inherent advantage that Silicon Valley geographically had.

 

Adam Jackson: Sure I agree with you, it's why we're starting to see a trend on these responses. Like those of us that are local and have been, as the three of us are for our whole adult lives basically, we're like—I'll speak for myself—sort of tired of seeing people held hostage in San Francisco in order to just be participants in this business, because it's not fair. It's not a great place to live. We've learned—we did Braintrust completely distributed from day one and realize like, “Oh, actually having a global team means that the sun kind of never sets on what you're doing, right?” You wake up, hand the baton, work, hand it off, go to sleep and it's pretty if you got Europe and Asia covered in addition to here. It's pretty amazing.

 

Robert Leshner: Yeah, yeah. Exactly, it's great. I mean, I think it definitely has been a big shift for everybody. We can have our teamwork pretty much anywhere at this point.

 

Adam Jackson: Yeah, I mean, it's funny. We've ended—this is one of the reasons why Braintrust came out of stealth last week, instead of waiting. We're remote, first model, and all of a sudden, all of our clients are asking like, “Oh, wait. Now that we're forced to do this, how do you do it?” And so we saw this giant surge. Okay, so just wrapping up here, Robert. Appreciate your time here today. This is borrowed from one of my favorite people, Peter Thiel—what's something that you believe in strongly that's an unpopular view today?

 

Robert Leshner: It's funny. If you asked me this a couple years ago, I would have had so many answers about Compound. I would have argued for define, I would have argued for these things and everyone would have disagreed with me, and now they're starting to be this communal vindication and buying it like, “Yes, you can have financial applications that run on a block chain autonomously, and they work.” And seriously, two years ago that was heretical, no one would believe it. It was like crazy talk. So now I don't really have too many views that fit into that mold. I'm just happy that we've gotten to play this out. But two years ago, it sounded bizarre. People looked at me really weird when I said, “Oh, yeah, there's gonna be a financial market that runs on a blockchain and connects offline businesses and all these things”, and people thought it was bonkers.

 

Adam Jackson: Is there any [inaudible] that you think is true now that people would say you're bonkers for or you’re just sort of trying to catch up?

 

Robert Leshner: Yeah. Well, a lot of people, and I won't say who, but a lot of people were extremely skeptical about us distributing half the tokens of Compound to the users. I even had pushback from previous investors that were like, “Why would you do that? Why would you give so much value away?” And I think that's a little crazy, handing off control to the community, and ownership to the community is a big shift that I think it's gonna look totally normal in another two years. It's gonna be “Oh, yeah, of course you do this.” 

 

Adam Jackson: Isn't it funny? The three of us are just too close to it right now. But we all live three years, five years in the future. And it's all painfully obvious to us. But we do kind of look stupid right now. We're like, “Why would you give half of the value away just for people using the platform?” And it's still too early to declare victory there, of course. But I think we might be onto something.

 

Gabriel Luna-Ostaseski: Yeah, but there's something there. Remember when software was sold on prem? And everyone liked these massive multi-million dollar upfront contracts. And then these guys came along and said, “Hey, how about you just rent it by the month?” That sounded really crazy. And now it's called software as a service. 

 

So, thank you so much for all the work that you're doing in that perspective. We're obviously super excited to build on top of everything that you've been doing, out of munch and round it out.

 

Adam Jackson: Yeah. Robert, thanks for the time here. This has been just so enjoyable. Please tell people where they can reach you online and find out more about Compound.

 

Robert Leshner: Yes, and thank you. And it's been an absolute joy to be able to talk through a lot of these ideas with you. You can go to Compound.finance, learn all about the Compound protocol. Compound.finance/governance to learn all about decentralized governance and how token holders actually run the protocol today. It's really cool. Join the chatroom Compound.finance/discord. There's a great community of people always talking about the protocol and ways to upgrade it. And try to learn from Compound, take ideas from it, use it, evolve it, have fun. Crypto’s an extremely exciting place. And there's a bright future ahead.

 

Adam Jackson: Well, I know we sure are. So, thank you again so much for being here, Robert. Awesome to talk to you and we'll see you soon.

 

Robert Leshner: Talk soon! 

Gabriel Luna-Ostaseski: Great to have you. Take care!