RHS 115 - Jonathan Libby on Smart DeFI Insurance

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That's smart, decentralized finance insurance. It is absolutely incredible, this conversation, because it really is.
It's like we've opened up the window in time and we're able to reach into the future and get a look at how the world operates. And Jonathan's an incredibly smart dude doing some really dynamic, really interesting things.
And this is just one of those episodes that you just sit back and download it. Just let it sink in.
There's not a lot that you can actually take action on today, necessarily, from this episode, but it is absolutely going to Expand your mind on what is possible and what is happening out in the world of decentralized finance in general, crypto, cryptocurrency, and ultimately the place that insurance can have in all of it. It's a tremendous episode.
You're going to love it. Before we get there, I want to give a big shout out to today's sponsor, Agency VA.
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All right. With that, let's get on to Jonathan Libby from Steady State.
Here we go. Well, hey, man.
Thanks for coming on the show. I appreciate you taking the time.
I know you're a busy dude. I know you've got a lot going on.
You're in a very dynamic space, and I'm just incredibly excited to have you on the show. Excited to be here.
Awesome. So I was referred to you by Jeff Sheet, who's been on the podcast as well.
Good friend, runs a tremendous organization in Quantum. And when he recommends someone, I obviously am very interested because he doesn't, not the kind of guy to mess around.
And then when I looked into what you're up to, I was like, well, this is like the coolest stuff going right now.

And one of the more, and as we talked a little bit before we went live, I think maybe not tomorrow, but certainly in our future, one of the more, and I don't like to throw the word disruption or disrupt it, anything being disruptive around. But I do think DeFi has a chance to make a significant and dynamic impact on how insurance operates and how our world operates, frankly.
I'd be lying if I said I hadn't bought, I hadn't re-upped my stake of XRP about 15 minutes before we went live because I'm kind of a crackhead, but, um, you know, first of all, let's take a step back. What is decentralized finance? What is DeFi? When you hear that term thrown around, let's kind of start at the basics and we'll build our way up.
I think that's a great place to start. So decentralized finance, often it's called DeFi.
It's kind of doing everything we do actually normally in finance, but rather than people handling the business, it runs an autonomous code fully. So we have this kind of idea of, we understand how business works as a church professional in finance or in any kind of area, but a lot of normal people have an idea of how things work.
When they start explaining to your job, you realize they have no idea what actually goes on to doing how defy works is it runs on autonomous code where if you put money in you can actually see step a b c and d run naturally on a code system and you can actually know what actually is going on so what this kind of means is it's meant to like remove a lot of how people um a lot of the third party or intermediaries between getting some kind of achievement or input output. And kind of like that's not what it's supposed to be versus TradFi.
We have to go through intermediaries to get some kind of solution or kind of solve something. Rather than that, it's supposed to just be one on a one-to-one ratio where someone has an input, someone has an output, and it just goes there without the third party broker.
And it's kind of like a really unique aspect in the industry where we've always had that. And we're trying to figure out how does it work and what's the value add there? Because, you know, if you're a banker, okay, you're trying to give out a loan, let's say, you know, there's a very direct kind of framework to function on giving a loan.
But if you know the framework, work around that. So it's like, okay, well, that's better than code.
But the reality here is there's another value add this. Maybe even though it can't be as customizable in the space, it allows you to actually be more capital efficient, where you don't need the overhead.
You don't need the people. It's a system that naturally runs.
And also another thing that makes it very interesting is that it's tough to control or manipulate. This code, when it's built, often there are keys that show you the way to add more code to the system.
Well, what people often do in decentralized finance is they burn the keys for the criteria to add information into the system and make it grow better. What that means is that there's no centralized authority.
Because there's no centralized authority, there's no one to collect the overhead. And because there's no overhead or any kind of cost on that end, it's just a one-to-one ratio, like I said in the beginning.
And that's the essentialized finance as a whole. Bank lending, rather than going to bank to receive the assets, people buy capital on one end and someone lends money here and takes a lend and they provide APY.
And because of that, not low cost, you can actually get higher returns compared to traditional financial markets. Yeah.
And isn't it, the other part that I think is interesting about that is the opportunities that it presents both on just taking the lending, just that is one kind of microcosm of this of decentralized finance. It opens up the market for micro lending.
It opened up lending to people who may otherwise have been, you know, unable to hit certain triggers. and it provides maybe someone like me who doesn't, you know, I'm never going to go going to have enough money to create a traditional lending facility.
I could actually put some of my assets into a pool that is then lent out to, I could pick a risk tolerance and then be part of a lending pool. And now I'm able to capitalize on a capital that, that would have just been sitting in a bank account otherwise.
And, and that to me, I hate, you know, again, I don't want to use too many buzz terms, but like the, the, the democratization of that in its, in its untarnished form is incredibly interesting to me. I mean, it just, to me, I, it's hard for me.
So I'm like way down the rabbit hole, not as much as you, but without owning a de-finance or crypto business, you know, this is like my, I just think it's so interesting. I can't see how once you start down this path, how at some point in handicapping the timetable to me feels kind of impossible, but I can't see how we, this isn't the eventual where we go.
Oh, absolutely. You know, the question is, is it going to be like the future for everyone or is it just like FinTech? Is it going to take over a portion of the market, make things easier to access, but find its niche within how things actually work.
And that's the real question, you know, what it's going to be, what it's going to look like. The biggest, the most coolest thing about DeFi, as you dive in, is it's kind of the weird marriage of traditional finance nerds like you and me with developers and code knowledge.
And it's kind of creating and creativity. I think it's one of those kind of things where we can kind of combine these two kind of concepts of autonomous code, financial nerds, and creativity.
And I'm seeing a lot of people building a lot of unique concepts that aren't possible in traditional finance that they're applying and really challenging the way how financial systems work and proving how there could be a better solution. The reason why decentralized finance, I believe, is the future for sure is it really allows people, let's say, let's start with third world countries.
I think in first world countries, it's great. There's a lot of corruption in banking models and in currency.
I remember a story where Turkey's currency raised and the inflation raised by 40% decreasing the value and dramatically in the value of your assets. Could you imagine having $100,000 in the bank now it's worth $60,000 a day later? Heavens or where? It's incredibly disruptive.
One of the key aspects, this isn't necessarily native to DeFi, but it's very much used in the DeFi system is stable coins, where it's one coin with a derivative value that's staked to another value constantly and can't move. You know, Nigeria is one of the largest users of Bitcoin, even more than the USA.
And these stable coins, what they are is it allows people to actually keep stable value in their funds to be able to transfer it naturally. And another problem is because, you know, if you want to exchange your assets, you are often stuck in the area you are or whatever location you're in.
With the internet and these stablecoins, you can now access digitally easily from Nigeria, say in Thailand or the USA, naturally creating a more global market and actually increasing maximum market share, allowing durable countries to move up way faster and allowing us as like international countries to actually have more access to new opportunities in there. It's really amazing.
I, well, so my mind, I love this conference. This is going to be one of my favorites.
So my first thought is, imagine if the ruler of your kingdom could just drop like, let's say $1.9 trillion on the ecosystem in a snap of his fingers and tell you it's because of a disease. And, you know, and then do another six just for why not.
So, you know, this is like real world hitting everyone. Second, you know, I was one of the things, one of the cryptocurrencies that I follow quite closely is Cardano.
And one of the things that initially caught my eye, and since reading into it, I know

more of the nuances, but one of the initial stories that caught my eye about Cardano was how Charles Hoskinson, the founder of Cardano, was working towards applying it to the African continent, which if you don't necessarily understand what goes on there as a listener, you there's a currency and if that currency is controlled by whatever the country is, it is often highly centralized and it's all grouped into whoever the few controlling entities are. And the rest of the country is left.
They're still trading like sticks and shit. And what's happening and what Cardano is one of its early missions was to be able to do, just like you said, provide a base layer of transactability to people, boots on the ground.
I can actually pay you for the milk that I need and you can pay me for the bread. And being able to now give a stable currency to all these people.
So, okay. So that's the cool part.
What really is going to be fun is when we can blockchain HTTP protocols, like web protocols, because right now they can still use the internet to kind of create geographical barriers to crypto. And it's like, as soon as we can figure out, and I know there's some projects that are working on it, but like, as soon as you bring down that layer and you put the actual internet onto a blockchain that is not able to be centralized or have these, you know, these artificial barriers to it, holy shit.
I mean, that's like a whole nother level. I think a great example of that is there was recently a subpoena on Uniswap.
So Uniswap is a decentralized exchange where people can post tokens and trade. It's like, it's a broker that runs totally automatically, which is amazing.
And we do have, it's called, you know, Cardano's looking to do it. Ethereum has done it.
Algorand's looking to do it. Polygon's built on Ethereum.
It's like a decentralized internet where no one can control and, you know, anyone can build on it. And that's where people are building on these protocols, you know, it's where we're building on it.
And what we kind of saw is the power of like building on a non-controlable system. Let's say you can, it's like you control how the output, you can't control the input within the ecosystem.
And I can go into that as well about regulation if you want to. But Uniswap built a whole entire system on the Ethereum network on decentralized code.
It's open source, publicly available to anyone. They recently got a subpoena saying you're basically launching unregulated securities out and letting anyone have access to them.
Well, the problem was the government couldn't shut down Uniswap. They built this code on this ecosystem that just can't get shut down.
It's naturally there. And it's running on all this autonomous code.
They burned the keys to running the system. So all Uniswap had access to was an HTTP, front layer landing page to enter the app.
And all that had to happen. So you need to make a new website in another country, copy that, pop it, and place it there.
And it's running again. You can't actually stop the system.
So when you say one real quick, before you go any further, because, because I think this is an important thing to clear up for people. When you say like, it's, it's running on a deep, like, I, I would love for you to explain how it works.
Like the distributed network works, how they can't take it down. Right.
Cause, cause, cause I think for people who are listening to this and maybe still not familiar with a lot of this stuff that doesn't make sense you just pull the plug or delete the server right like how is it that that can't happen so i'm not the foremost expert on say blockchain as a base layer but you're better than probably 95 percent of people listening so go right ahead so um kind of what ethereum is um so if you know i think think there is kind of like some major asset classes that are competing um you know i think bitcoin's in a in a world of its own where it's trying to compete itself with a score value but the rest are trying to take over market ecosystems so it's cardona algorand ethereum and polygon which is based on ethereum and a lot of other a lot of solana avalanche can go, can go on. And kind of what these guys do is they built a code or a system basically where there is, it's called a blockchain where all the information in the system is all information they would have access to.
And basically how it grows is rather than people have manually like one group or one central agency has to grow a system out. Like the internet is someone has to go and build a website and a system or expand it, whether it's kind of a layer.
Kind of what happens is they build a layer that's just naturally valuable or customizable and people go in and implement and grow it naturally. And you have to often have access.
Now, originally you're like, say, well, I said, you have to have access to like a native token to implement and then use it. But a lot of these you actually don't to anymore where it's this an autonomous system that runs where a framework is given and that framework is code we have javascript python and ethereum and solidity i don't remember what cardonyms is off top of my head but it's like in a code and you say this code and you can enter anything in here and because no one can is on charge of that layer you know it's like no one can shut it down.
So if I input a code or do anything, I can plug it there. No one can just like go off and say that code developer, pull it out.
And if I did that on the internet, I have a website attached to me. I have a domain.
I have like a license. I have all these different things.
They can know where the code is, attach me the code and wipe the code out and go to like some kind of centralized group to destroy it. i build my domain on google and build that out they can go to google and say this guy violent this this right with ethereum there's no way to really actually um and there is okay i can go into it but like on the initial letter you don't know what it is it's no like kyc necessarily now there is and i can go into that later but on the on the system itself you can't just go perform and figure out who what someone is and because of that anyone can place anything and you can't just pull it off and and because you can't just pull it off what that means is like anyone can post anything or do anything in the system network internally and no one can uh um no one can stop them unlike the internet where anyone can't pull it off now you can control and figure out who people are and it's called off ramps but i can go into that and that's where you start really figuring and there's also ether scan metamath transactions i can go into actually how it's very easy to figure out who everyone is but also at the same time kind of complex but yeah yeah and the reason you can't just pull it off is because you have 20 000 100 000 different computers that at all times exactly and the computers are anyone who holds the token and you have to get everyone who holds a token to be like take that off and it's almost impossible and that's actually the great point i forgot to add and that's actually the perfect conclusion is the people how you can pull anything off is you have to get a large you have they have that native token that you have to have in the system like i said whether it's ada for cardano ethereum for ether and uh basically, you have to get a majority of people that want to agree to pull something or implement something new into that system.
And it has to be a universal agreement. The group that does this best, I would say, is the Bitcoin community, where it's Taproot, where it comes to that, it's almost impossible to change.
Yeah. They just recently implemented this new system called Tapper.
From what I understand, you know, in Bitcoin, it's very actually hard to use as anything other than the golden rock, I would say. But what they tried to do is they're allowing transactions.
They built this thing called Tavern. I still have never actually sat down and read like really on the news of what Tavern is, which came out like months ago.
It really showed up. But basically they had like a 60% consensus, like everyone is involved in the Bitcoin community somehow to agree to implement something new.
And getting these Bitcoin guys to implement anything is impossible. So they agreed to it.
And basically a lot of transactions will flow more freely within this thing they're trying to build called Lightning Network. That is something that really goes on top of Bitcoin that's supposed to compete with the Ethereum concept and Cardano and Alderaan and what these guys are doing as well, where you can actually build on the Bitcoin network and put transactions through on Bitcoin.
And that was one of the great examples of like, this first change, I think in like eight years or something crazy like that. And the thing was built in like 2008, which tells you like how impossible does it change anything.
It's just going to get harder and this big one gets a three of more people yeah you know the thing that you know they call it they call it fud for anyone's listening and it's basically just trash talking um and and nonsensical stories there's a lot of gaslighting that goes on and you know i when i again i i'm probably way too down deep into this rabbit hole for my own good, considering my limited technical knowledge. But, you know, again, the more I research the technologies, the more I understand things like, like Solana coming out with proof of history, right? So you have, you have proof of work, proof of stake.
And now here's another network that has something called proof of history, which is able to even take proof of proof of stake, which I won't get into all the different details, even take it a step further. And all we're just continually moving to the idea that in order for something to change, the group, you know, the whole group or a massive portion of the group has to agree to it.
And each one of these evolutions makes it harder and harder to rig that change in any way that isn't an agreed upon part of the network as it was set up. So like there's a set of rules for that network and you can operate inside those rules as much as you want.
And what all these iterations and new attempts of doing is just solidifying the security of that network so that you can't have someone come in and just all of a sudden debit themselves a million dollars for no reason. Wait a minute.
That's not how the system works. And 73% of the people in the network say that it's not so too bad, so sad.
And that to me, I look at that and now I kind of want to, I want to transition a little bit and we can go down these rabbit holes again as much as we want, but I want to transition that a little bit to insurance because, you know, you think about how, I mean, that freaking way that I have a hard time because I live in traditional property casualty insurance world and to run a traditional property casualty insurance business, you have to operate by

those set of rules.

And then you see the things that are happening in finance and you're like, oh my God, like look at what they're doing and the way data is passed and how it's held and how easy it is to spread risk. And this is what we're doing in insurance yet.
you know, we're still using AL three download systems in order to transfer inaccurate and oftentimes antiquated data bites between, you know what I mean? Like I just look at it and I'm like, this is insane that this is how we operate. I know that's not, you're not operating in that same space.
Like you're, you're doing something slightly different, but it just, this to me, if there isn't like right now, every major property casualty insurer in the country should be finding people who think the way you do, who have your type of expertise and putting them on staff. And even if they're not doing anything, they should be researching and testing and talking to people and starting to build these networks.
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of this show i love you for listening to this show and i hope you enjoy it listening as much as i do creating the show for you all right i'm out of here peace let's get back to the episode you gotta have it if you want to disrupt insurance and implement a lot of these new concepts you have to understand insurance and you also understand the space and you have to have it. If you want to disrupt insurance and implement a lot of these new concepts, you have to understand insurance.
And you also have to understand the space and you have to combine it. It really is.
You can't have one or the other. Like, you know, what I built, you know, started originally as, you know, we had a parametric framework, parametric insurance framework built under a captive insurance model.
And then I like implemented the idea of the insurance and security, which is a brand new you know and in cat insurance and cdo's credit false fault models like the whole thing it's like you have to you're not you're paying these guys to think give them a problem and you tell them to solve this and if they do their job they're passionate if you get the right person they'll create some crazy solutions you're like oh my god you know and that's kind of like why you hire these guys yeah it's like they're the strategists you can think 10 years ahead of what is going to look like and actually bring your company forward um yeah so let's talk about steady state oh man what what's going on what what is it to you know give us the lowdown um steady state we are so under these layers let's call it theory okayano is not there yet. They're heading there.
And Solana is heading there as well. And Avalanche has started.
There are these things people build, these decentralized code businesses on top of these networks. And what we simply are is we're providing insurance to these businesses for different kinds of risks, specifically catastrophic risks.
Now, catastrophic risks, like we actually normally understand them are hurricanes, lightning storms, earthquakes, but there's a new kind of catastrophe risk we understand to be a cat event, such as technological risk or cybersecurity risk. We actually don't, we forget those are catastrophe events.
The biggest risk right now in this industry is the code is still early. This industry is still early and it's like the wild west.
Never mind when we have the internet and probably you, Brian, and I were like on the cusp of that when we were young, but like people with like phishing attacks and viruses and scandals, this is where we're at right now in this space. It's the wild west, you know, if you're not careful, you can get in serious trouble, you know, and what we're doing is basically the risk you're exposed to is if you build this decentralized code, if there's a bug in the code, someone can take advantage of that, say you steal the money, okay, or if there's a, you can blackhead exploit, and like if the coders themselves make a mistake on like some kind of a poor decision on like the infrastructure, you can blackhead exploit that, and people who provide capital to build these networks and systems are totally exposed, okay? And these kinds of events we're trying to start and ensure for protocols.
How the industry currently works is there is no insurance for protocols and it's $145 billion industry just on Ethereum. And it's probably heading to a trillion dollars probably a year or two.
I wouldn't be surprised because a year and year and a half ago it was like 10 billion dollars maybe less so it gives you an idea of how quickly it's scaling and growing and uh and there's no sign of stopping and so basically what we're doing is we're starting to show these protocols for catastrophe that risks and uh currently how the industry works right now is i'm a retailer if to get in, there's no insurance protocols and the retailers have to get insurance.

And I can use like 50 protocols.

Okay.

I can use like 50 business models.

In this new industry, you can work in like 50 businesses rather than being attached to one.

I'm involved with 50, 60 protocols.

I'm running capital, actually using them, growing my, I guess, my stake in all of them.

And basically, if anyone gets hacked, we're having the business experience model for the code or the people in charge of that area, I lose the money. And if I want to get insured for that, I have to go to mutual systems.
How it works in these mutual systems is incredibly fundamentally flawed where people like you and me, Ryan, they provide capital into a pool to insure people. And I get insurance in that pool.
So I want $100 insurance. Okay.
Now let's say one of the users, okay, viewers wants $100 insurance and you and me provide $50. If this, we repound a criteria to pay them out.
If the event happens, we have to vote Ryan on whether or not we pay him our money. It's kind of an odd system, the mutual model, and there's no regulation to provide about me if we want In the current model right now, the approval rate for a payout is 18%.
No one's going to trust that model on insurance. And so businesses aren't trusting that either.
What we're doing is all these events that we're trying to cover for have historical evidence to what kind of loss you're expecting. And the events you want to look at can be tracked on on-chain public data.
So we've actually just partnered with one of the biggest players in the game, Chainlink. We're integrating, sorry, we're integrating with Chainlink and we're working very closely with them.
And basically, they have this concept called the Keepers Network. What it does is it tracks all this on-chain data that's going on constantly, all these different protocols.
And when it finds whatever it needs, it'll actually bring the data to the smart contract that you're looking for. And then from here, we have this network now that can detect events almost automatically what's going on.
We're using parametric insurance for protocols. We agree to a value payout period of the event, and we agree to establish criteria.
The Keepers Network looks out for those criterias, and when it finds the event, it brings it in, and it starts bringing a pay claims process. It's almost completely automated to the protocol.
So rather than humans intervening and voting on the decision, it's run by technology and humans evaluate the technology to make sure it's correct. Now, the other problem we have with insurance, this is kind of the, yeah, automated insurance is innovative.
Very cool. How actually, but what the problem we have also is we are not like a $500 billion insurance fund.
How do you provide business insurance? And that's the other key problem with studies. How do we actually provide capital to ensure these protocols? Well, the parametric model, how we're kind of building it out initially is, you know, you have a predefined level value of payout pre to the event.
Often it's the average loss. You need about 23% of the actual protocol size value to be able to fully cover 98% of hacks on the protocol.

So it was already calculated.

And so basically that 20, 30%, they say they process it.

Rather than you, I can insure them as a business initially because we don't have the capital.

People can stay capital.

Say you have Aave.

Aave is a lending program on the centralized finance on the Ethereum network.

Aave is willing to pay a 20% rate of return in their own native token, let's say, up to that $30 million policy. Let's just say something crazy like that.
So if I, as a user, take 100 USDC to cover their downside, I can receive a 20% rate of return offering. So buying the risk, basically, buying the risk of a business, they're paying me in business stock, which is a whole unique aspect to it.
But the problem here now with this, Brian, is my upside is 20% in moving value, which is great, actually, in my opinion, but your downtime is 100% on a USD value loss because it's parametric. If the payout happens, it's going to pay out.
And so what we're doing rather is actually, rather than trying to like argue like, what are the odds of peso? Because we're always doing that when we buy a bond, we buy any kind of structured debt, you're deciding your loss and betting on a chance of it happening. We're trying to control your loss.
We're buying from CEO credit default swap models to these things called index pools. If there's a derivative pool with weighted exposure to multiple different insurance pools on the coverage side.
So if I have a pool, say, with 5% exposure to 20 protocols, OK, and the premiums here are really high, by the way, the APYs are here are stupid high. But the blue blue chips, the Aave, the compounds, the ones that are really long-term, the Googles and the apps of the future, the APYs on accumulation are very well.
And so basically we're building derivative pools with like weighted exposure to multiple these different kinds of parametric coverage pools, say 5% to 20 pools. If an event happens to any of these pools, rather than losing 100% of value, it was 5%.
And say my upside is say 20% again of 20 native tokens being accumulated naturally during the duration period. Our long-term vision is to make this a top 100 DeFi index pool, structured pool with 1% exposure.
The odds of one protocol filing for insurance in the system is like 5% in a top 100, which is you're taking a 5% chance at a 1% loss. Two, you're taking a 1% chance at a 2% loss.
Let's say Black Swan, five protocols filed for insurance on this network. You're taking five chances.
You're looking at 5% loss of your principal, but your upside is a 25% return, 20% and 100 tokens being paid out to you. You're accumulating.
We're actually trying to turn insurance into one of the most natural accumulating products

you can buy while controlling your downside risk.

This is gonna be one of the best ways

to accumulate blue chip tokens in DeFi

that are the future of the industries

and while also controlling the downside.

We're looking to take this structured product model

going on the KYC compliant blockchains

and actually looking to sell that

and bring institutional finance in. And our long-term goal is to take these fees, collect them naturally, and then build an insurance pool that floats over off all of it.
So what you actually see is this is more of a reinsurance model than an insurance model for building out, but the goal is to pick the fees, collect them, and then build an insurance pool that floats off. When the insurance pool floats up, it'll actually keep the APYs high for the stakers while reducing it for the protocol.
So essentially, if I were to... That's a lot, right? No, but it's awesome.
I followed like 90% of it. So essentially what you're providing, if I were to put this back into analog terms, is you're creating an insurance company in which the dollars that normally would be invested by the company and reaped by the company are invested into the products in which you are actually insuring.
And then the people who that you're actually getting to reap the investment dollars out of those entities, those entities in sorts right kind of like that yeah we can almost create insurance where business can buy their own risk and then profit off of it again i know i know it's a lot for for you guys listening at home who haven't done a lot of the research maybe you don't understand all the terms. And I'm certainly not going to ask you to stop and define them because go do the research.
But I just, I can't, like, I come back to it. I'm like, I can't see how this isn't where we're going.
Like, I can't see how, you know, how this isn't the path forward. Now, one of the things, one of the questions, like, do you guys have a token? Like, do you have consumer, consumer, could a consumer like me buy steady state to start to get into these pools and start to be part of this process? Yeah, so we're going to have a release.
We're releasing product in Q1 2022. We're about 30% through our build out and we're going to be a test net probably November, December, you know, and so once we're all set, you know, we're planning to lease our token with product with utility value in Q1 2022.
And basically yeah, you can have our tokens, whoever holds our tokens. One of the nice value is you're collecting the fees, a portion of the fees throughout the whole system is really nice so it's natural like you know automatic paying you know a dividend but also at the same time um you know using these systems these models and state pools it's we're uh we're almost building the first turning insurance into like in this space building the first insurance in the space but also like building the first bond market because these structured products yeah that's what i was going to say it's it sounds it sounds like a like a hybrid insurance slash bond product like there's yeah and the long-term goal is to build an insurance pool that flows over the network okay you know as we get like we can offer 40 percent collateralization to all the pools in our system what protocols can do is they have like an insured payout let's say 50 and then they have like a floating payout on the like a natural insurance pool in the floating rate um that like receives that only promises say 10 of value so then we're only receiving the business 10 of premium let's say on on the 40 million which is actually two percent or whatever but the people who stay capital will still get their their their high apys because you're paying the full on the collateralization and so you get the full collateralization on this people's taking capital, still receive those APYs, but us receive a lower one, which makes it much more attractive for the business.
What this will do long-term is as we keep floating, it'll create scarcity on the stake. And then people will start trying to buy and trade these on these index pools on a discount and premium value on a secondary market.
Similar to Similar to that system, you know, fixed income system. But at the same time, it's insurance.
And longer term, we create our goal is to create a short term, long term scalable model to ensure protocols, you know, and actually we're almost like building a model that prioritizes re-insurance when we move from re-insurance to actually ensuring the protocols ourselves as we keep developing. And by us, I mean a decentralized community, not run by me, not run by anyone, you know, directly, but by the people who actually want to be involved in the space.
And when you have that token, that native token risk, you can be a part of that community and help develop it in the future. We're planning to build fintechs that work with DAOs, this new kind of concept where this DAO community, how often is a fintech, okay, and then that runs everything, versus this this community fintechs have to fight to receive these tokens they get a stake in the business and then these fintechs are going to take these products long term and want to go into kyc kyt group blockchains and we want to take these products and sell them as new asset classes across a whole new industry of the traditional finance because honestly these structured index pools are a concept they clearly understand on a financial model, but you get exposure to DeFi in a way that makes sense.
Yeah. Yeah.
How did you get into this? DeFi? Yeah, just do what you're doing right now. How did you get here? How do you get to this level where you're, you know, I mean, the sophistic, you know, talking about derivatives of, you know, de-financed, you know, what is essentially a bond product.
You know, I mean, we're talking about layers on layers that we're still seemingly years away from. But, you know, how do you get to this space? Like, how do you get to this point as far back as you feel is relevant i mean i fell in love with defy in the fall of 2019 um one of my professors uh was uh he ran a product called pool together pool together is a no lost lottery savings account where i put money to a savings account and i received like everyone every week everyone sees like some of the rewards of all the aggregated APY what they use was compound compound is a new lending protocol that pays

interest by the second or by the hour which is and banking you get it annually or semi-annually

how do they compete with by the second and basically all those generated APYs pay out the

winner every week and they receive rewards so it's like a savings account where your money is never

you never lose money but then you have a chance on top of that receiving like extra million dollars

I love you. pay out the winner every week and they receive rewards.
So it's like a savings account where your money is never, you never lose money, but then you have a chance on top of that receiving like extra million dollars randomly one week, you know, and people do when that's crazy. And then, and then from kind of what interesting was compound finance, where I saw the interest that paid by the second as a finance town, like how is that even possible? Doesn't Gemini run off compound finance? I think a lot of people use Compound and Aave.

They're very secure systems.

They're very effective.

And they're very up to code standard.

It's just normal in any industry.

So they're very solid.

So I think Gemini uses it.

I bet a lot of people use it.

Comp is a very good token.

Again, I think these are blue chips of the future.

The new blue chips of the future. But yeah, so Comp is like, I immediately looked like, I thought this was a scam.
There's no way interest paid by a second, right? And then I found that, oh crap, it's not a scam. What blew my mind and really brought me into DeFi, you know, it really was another product built called Urn Finance.
Urn Finance, what it was originally, it has a lot of uses now. It's like an ultimate hedge fund for anyone to use, basically, I would say, on this decentralized node by anonymous people.

But what it was kind of like really built out to be initially was basically a smart contract where I put my USDC or my stable coins into the smart contract. it would find the highest APY every second between Aave, Compound, Synthetics, and other lending protocols,

and naturally move my money at all times between all these networks and systems,

and find the highest APY possible second between Aave, Compound, Synthetics, and other lending protocols, and naturally move my money at all times between all these networks and systems, and find the highest APY possible in all these bankings. And my thought was like, if you put that on a bank, what would happen? Okay, if you put that to a bank, like, well, it would force these guys to think, how the hell do we get these APYs up, or how the heck do we get these APYs up, you know? And my thought was like, let's apply this.
And I'm like, this is the future. and and so i started looking how do i go to get build all these concepts together and build something and eventually i met um a very well-known figure in the space um named tim frost um from yield app and uh yield app contracted me to build an insurance solution for them and how to ensure their portfolio for other defi risk um tim frost is a very very very uh well well respected person in the industry and i was very blessed to know the guy he's a great mentor and um basically they like my solution they thought it was like this is typical insurance like an alternative insurance but combined with defi and combined with all like derivatives and like oh crap this makes sense actually and they were like let's go for it and then we ended up going that with our first client and our first partner.
And we're very excited to work, work alongside each other to the, uh, to build the future of insurance. That's awesome, man.
That's, that's very cool. I, uh, you know, this, this would be, if I, if I, I mean, you're what, like 25? Yeah.
24. Fuck you.
Uh, if I wasn't like, if I wasn't, wasn't like, if I wasn't 40 and deeply invested in the standard insurance space, this is absolutely where I would be. I think this world that you are playing in is just so intriguing on so many levels.
And the freedom that it provides to people, the opportunity, the, you know, redistribution of wealth in a non-communist standpoint, right? In a very capitalistic, opportunistic standpoint. I mean, I see this.
It's incredible. I think in cryptocurrency, universal basic income is for the first time is actually ever possible in a way that actually can actually feasibly work where people can all have a standard of life without sacrificing individual liberties.
And I found that very attractive. I'm a big believer in trying to find the best ways to create global equity.
I think if you sell poverty and wealth, a lot of different kind of like wealth disparities, I think you solve a lot of problems in the world. I think it's pretty proven that.
And crypto for me is that solution. Where in one sense, you and I no longer have to attach to one business, whether it's, you know, Goldman Sachs or Liberty Mutual or Walmart, let's say.
You can now work in whatever industry you want and get paid and work in the industry you want. But also, you know, you're paid for the value you produce there isn't and the money like

this is these are money legos so like say i get i work with this one network okay this one protocol

and then i use all working on the protocols all my tokens get this through this other protocol and

it gets naturally grown and then i get like the protocol that serves me income and then the rest

gets grown to a growth account grows like say 20 annual which is not crazy in this space and then

like and then like that 20 the growth on that moves into the growth accounts it's like

Thank you. And then the rest gets grown into a growth account grows like say 20% annual, which is not crazy in this space.
And then like, and then like that 20%, the growth on that moves into other growth accounts. It's like this new space is, if you're willing to be creative, you can disrupt everything.
And I still really encourage you, Ryan, to look into it and really do strange things. Either way, it's like a tribute to be involved because there is so, what this was basically is, all these concepts we do in finance, it's insurance pnc title uh health life alternative parametric it's all these different concepts are going to be put into a decentralized sphere at one point so it's like if you know these concepts willing to be a little bit creative you can build billion dollar unicorns because there's already a billion dollar industry in this space it's it's not crazy and i think it's i i think it's gonna get shit crazier you know as we as we keep progressing yeah i mean to me the you know i i just i see i i i don't have my head wrapped around it but you know completely but the property casualty space particularly in let's say personal lines auto, home, things like that.
The idea of starting to decentralize those risks, starting to categorize them, better understand what they are. And the other thing too is, and this is the part that's interesting to me is like, is like, why I, what I don't, what I, the concept that I was toying with, and you could even tell me if this is bananas, right? I'm the word, word, this is just what I was thinking about.
I was listening to some podcasts and they were talking about different concepts. And I'm always thinking about what is, what is blockchain? And I, I, you know, not that term, but what we're talking about, this decentralized autonomous code, what is, what can this do for property casualty? And I started to think to myself, rating is such a problem.
And oftentimes it's because, let's take a less standard account, like a roofer, right? Let's take a roofer. Tougher to place, limited markets, the roofer is forced to go through multiple hoops, oftentimes paying a drastic premium because of the risk that they have.
Well, what if that risk was was able at the base layer, not at the reinsurance layer for the huge players, but at the base layer at the small business level, you could spread that risk out over five or six carriers or as many carriers as we're willing to take a layer on that business, how much more competitive could the pricing be? How much more reasonable could it be? How much faster could it be delivered if one of those carriers didn't have to take the entire chunk, which today would be impossible based on current systems, but in a decentralized manner, you could easily chop up those risks or just buy into, carriers could into a roofer pool that'll and run off basically the same concepts that you're talking about right now. And, you know, there's, there's an enormous opportunity there because now I don't have to be scared.
You're talking about cat events, right? I don't have to be scared about one of your guys rolling off a roof, breaking his neck and dying and having that destroy my year, because that risk is actually going to be distributed over five or seven different companies at the base layer, at the primary layer versus, you know, the only time you get into any kind of distributed risk in this capacity is when you get into the, you know, you're into umbrella layers that are,

you know, tens of millions deep, you start to chop it up. But, you know, the full risk of a million dollar death is taken on by the comp carrier on a roofing account.
And I just, you know, to me, you know, this is one idea, you know, one thing that I was thinking about, like, how does this space start to just get,

how does the decentralized finance and blockchain and all that kind of stuff, how does that start to impact the property casualty world?

and just the idea of being able to buy into pools of risk,

maybe as an agency, I want to go be the roofing guy and I'd buy into the roofing pool

because now I'm actually incentivized

to write people into that pool because I'm staking what I've bought into in that roofing pool. So now there's just all kinds of concepts there where you can start to distribute the risk, lessen the burden of any one major disaster.
And what the hopefully the idea would be is quicker placement, processing, distribution of information, and ultimately a diversified catastrophic loss. Once we separate the concepts of stocks as a security and tokens as a security, you know, and really start separating that and tokens give them a new value add.
I think everything you said is just absolutely possible. Our concept connects with tokenization.
There's a guy built guy. I just recently met, not going to disclose this game, but he's talking with DraftKings, GameStop.
I'm going to be checking with Barstool where they're building tokenized DAO systems within these kind of ecosystem using loyalty rewards. And I'm thinking like what you're saying, combine these pools, which I want to get invested in these systems to make sure that they're doing their job right.
Get a portion of their tokens, get an infrastructure and actually evaluate them and tell me, crap, they're incentivized to make sure that this is running as good as possible. I think you're seeing it, Ryan, what it's going to look like.
And it's going to get crazy. I love it when I hear stories about kids like like 10 14 understand this like i met a kid who made uh 400 000 nfts last month he's 14 i'm like wow like you know they get it it's like we're just catching up with ryan you know yeah you know it's crazy another industry yeah i'll say real quick that demands disruption and you can immediately look at is title insurance.
Why do we have title insurance? If there's a blockchain and you can associate an ID to every person. I think that is one of the most easiest industries in insurance and PNC or real estate to disrupt is title.
I think one of the easiest use cases is what's the point to say you own something, you can literally attach an ID to that on a public layer. Yeah's because exactly i think what you're saying all these things you can just start seeing it yeah wow it's um yeah i mean where my mind goes with this is like it it's it it takes someone having balls like you do to to do these things because you know, they've never been done before, right? We're talking about concepts that are literally being generated.
I mean, obviously there's tangible things that come out of them, but you're generating ideas that didn't exist and concepts that didn't exist and the way to, you know, maneuver around, And, you know, I just think there's so many barriers, all the barriers that are keeping what we're describing from happening are up here. And it's having the storytellers, it's having the use cases, it's podcasts like this, where 90% of the people that are going to listen to this, man, they're only going to understand 25% of what we said.
But, and that's more than you. Yeah.
But, but that's good, right? We need to expose more people to these concepts because, you know, like, you know, I look at some of the things that happen in insurance and people call them disruptors. And I'm just like, that's bananas.
That's not a disruption. A disruption is when, you know, the idea of what it takes.
I mean, if I, I mean, you probably know, but if I were to describe to you what it takes to purchase an insurance policy today, just all the steps, all the different things that have to happen to get an insurance policy, you would, you would shit yourself. You'd be like, that can't be 2021, what we're still doing today to get insurance.
When it's like, you know, you can, there's just a whole better method. It's just going to take time for it to leak down to the lay.
And when we start as adoption continues, it's why I just, I hope things like Bitcoin and Ethereum and Cardano and some of the networks that you talked about, I hope people continue to build on them. What I really hope is we don't get the pendulum swing overregulation into this space that hinders what's actually happening.
Because to me, it's one of the most exciting things. It's the most exciting technology that we've seen since the early 90s with the internet.
I mean, it's certainly it. It the new internet i when people tell you anyone that tells you that like this is the future blockchain d5 nfts or it's like people telling you telecommunications internet was not going to destroy telecommunications you know it's this is the next step it's it's we have like for people that told me that i'm like you have history to prove it's like we you were you were wrong here tell me if you have the internet something you're right now like you're not okay let's stop being skeptical and really explore why and ask a question like you're saying open the minds and ask why yeah personally i think that it's even even bigger jumped in that and and this is kind of how we'll close but i uh i see it more like the Manhattan project than I do the internet like you know I mean to me this is that that generational jump that you know when we went from nuclear power not existing no one could even imagine it to what we got after the Manhattan project I look at what's happening is that right now, like this is, this is that big a leap in my opinion.
It, it just, it is that powerful that things are happening. Granted, we're like, we're like this, we're like in the coin flip of the baseball game.
Like we're not even in the first inning yet, like of what's possible, but, but that being said, um, I'm, I'm excited, man. I'm excited that we had a chance to meet.

I'm going to be following along with what you're doing.

I'll be buying some tokens as soon as you get those out.

You know, you want to sneak me some on the side.

I'm cool with that.

You can be like, hey, Ryan's a cool guy.

No, it's probably against like every regulation that exists.

But I'm not against that if you're in general.

But no, dude, I'm just, I appreciate you taking the time.

I'm really glad that Jeff introduced us.

And hopefully we'll have a chance to connect again in the future. Great to be here with us.
Thanks, Alex. Cheers.
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