Making Data Honest (and Valuable) with Omar ElNaggar (Weavechain) and Zach Pettet (Money20/20)
Today, three nerds chat about data.
Over the next few years, there will be a data gold rush as every database in the world gains two key functions: verifiability and monetization.
It could be the end of financial fraud, and the birth of a trillion-dollar global data marketplace.
Omar ElNaggar is a hedge fund quant and data nerd. He is the founder and CEO of Weavechain. Weavechain is a platform that gives enterprise data new web3 superpowers.
It synchronizes databases with blockchain anchors, proving a compliant way for data to reap the benefits of proof of integrity, custody lineage, monetization, and more. A quick disclaimer: Rolling Fun is an investor in Weavechain. We met Omar over a year ago and are excited about and big believers in the future their technology may enable.
Also joining us is Zach Pettet, a previous podcast guest, good friend, and FinTech nerd. He is the Director of Content for Money20/20, the world’s largest FinTech conference.
Links to Platforms:
Here’s what I learned from the episode:
Security technology always starts off as a vitamin before becoming a pain killer (when it is required by regulators.)
Omar compares web3 technology to HTTPS, explaining how HTTPS became a security requirement for websites over 15 years.
If you have data flowing on web3 rails or inheriting web3 properties, it makes fraud impossible. (SBF, we are looking at you.)
Web3 allows someone downstream to validate bits are safe, secure, and represented by a solvent entity, while also maintaining privacy.
Weavechain is not trying to move dataflows ONTO the blockchain. They give the ability to make attestations about current state of data.
Companies don’t have to rebuild or transition databases to get benefits of verifiability or monetization. Rip-and-replace is not a thing.
People are excited about regulators regulating. We need new standards for creditworthiness.
Black Swans fly in flocks.
Finance industry has a strong desire to learn and a need for education. People tend to lump web3 data and NFTs in the same bucket, but they are very different.
Zach predicts the next wave of innovation is going to be invisible and way more meaningful than the hyper-visible consumer web3 applications.
Don’t just “trust but verify.” Don’t trust anyone who won’t let you verify.
One major application of Weavechain’s technology is healthcare data. Omar hopes that patients can be looped into the earnings of sharing of their data.
This episode is sponsored by Bread.
Bread is not your typical dev shop. They're like a technical cofounder team that you can add a whole product team as a pod. So, if you are non-technical founders or you want to spin up a new project, a new "swim lane" in your company quickly with very talented people, talk to Bread.
If you reach out to them, please tell them Eric sent you. It's madebybread.com. Check that page out. It's very cool. It's very well designed and will give you a sense of what they can do.
Learn more about Omar ElNaggar:
Learn more about Zach Pettet:
Additional episodes if you enjoyed:
Money 20/20, Fintech Innovations, and Interviewing Legends with Zach Anderson Pettet
Shane Mac: Building Messaging Protocol for Web3 (XMTP), Company Culture, and Scaling Trust
Jason Hitchcock: Your Guide to Web3 (DeFi, NFTs, and The Metaverse)
Episode Transcript:
Eric Jorgenson: Hello again and welcome. I'm Eric Jorgenson and I don't know much, but I have some very smart friends. And if you listen to this podcast, then no matter who, where, or when you are, you do too. Together, we explore how technology, investing, and entrepreneurship will create a brighter, more abundant future. This podcast is one of a few projects I work on. To read my book, blog, newsletter, or invest alongside us in early stage tech companies, please visit ejorgenson.com. Today, our guest is Omar ElNaggar. Omar is the founder and CEO of Weavechain, a platform to easily give enterprise data web3 superpowers. They synchronize normal databases with blockchain anchors, which provides an easy, compliant way for data to get the benefits of proof of integrity, custody lineage, monetization, and very many more things that we'll get into in the episode. Omar's been in web3 or crypto for eight years. He built thecryptopoops.com in April ’21. He spent time as VP of product at an enterprise software startup and a longtime at a hedge fund doing high frequency quant trading. Very interesting background and you'll see how all of those skills and talents come together in what he's building now. I'm joined in this episode by my very good friend Zach Pettet, who's the host of For FinTech’s Sake and the content director for Money20/20, which is the biggest FinTech conference in the world. I've done a few episodes with him previously. You may have listened to some. He's got a deep expertise in the world of fintech. And he really helps us unpack the applications of Weavechain to the future of finance, which is where we spend the bulk of the episode. Before we jump in, I want to offer the disclaimer, the caveat, the additional piece of context that our fund is an investor in Weavechain. We met Omar more than a year ago, and I watched with fascination as his vision and his product sort of unfolded. And now we're very excited to have invested and be able to share his story on the podcast. I'm a huge believer in what they do and the future that I believe that they can create. If you're an accredited investor, you can invest alongside us in companies like Weavechain. Please visit rolling.fun or click the link in the show notes to learn more. Our episode will begin shortly. Until then, here is this episode's sponsor, and if you're pulling out your phone to skip them, it's a great opportunity to leave a quick review for the podcast in your podcast player. It means so much to help the show. Thank you very much.
Our episode’s sponsor is my very good friends at Bread, longtime friends, have founded a technical agency. They are like a co-founder, a technical co-founder to help you launch a company or spin up a new product inside a company that already exists. They will do roadmaps, tech stacks, they'll even recruit and onboard technical team members, even technical co-founders, to just get a business off the ground, on the right track, and help you build something new. If you can't find a technical founder of your own or if you're just eager to get started, or if you need help finding a technical co-founder, they are not a typical dev shop. They don't work with big companies. They are very founder oriented. They are founders themselves. They have built multiple tech companies. They've been working together a long time. And they embed closely with the team and the users, interacting directly, acting like part of your team, part of your founding team. And they work very fast while building a very solid foundation for your future. They work hard to be a no trade off situation. They help you create a framework and a roadmap for long term product success and help you hire your internal team to continue that success. So I have a very good friend, a repeat founder with a successful exit who just signed a deal with them to build the first version of their product since we did the last sponsored episode. So if you are a startup or a company that needs very talented technical folks today, please check out madebybread.com. If you reach out to them, tell them Eric sent you. If you have any questions about them, email me, I'll happily answer them or personally introduce you. Now, with both ears and everything in between, please enjoy this conversation arriving in three, two, one. We're going to officially start, and I'm going to get to finally introduce Omar ElNaggar, the founder and CEO of Weavechain, former hedge fund quant and data nerd, to my good buddy Zach Pettet, the content director for Money20/20, the host of for FinTech’s Sake, and a FinTech nerd. And I think that's going to make for an amazing conversation. We got a data nerd, we got a FinTech nerd, and we're going to figure out how the whole future is going to work between the two of you. High expectations.
Zach Pettet: And we got you, we got a nerd nerd.
Eric Jorgenson: Yeah, I'm a nerd nerd. That's the best classification of my job I've ever heard.
Omar ElNaggar: Yeah, and while I'm a former quant, I'm definitely a still current data nerd. Just want to emphasize.
Eric Jorgenson: We, me, Bo, and Al, are investors in Weavechain, in Omar's company. So large caveat, but also, what more pure excitement can I bring then to get to sort of bring forth the story of this company and the vision that you guys have for data and web3 data and the future where we can all trust each other immensely. And we get rid of these pesky financial meltdowns, is that a thing that we think we can do?
Zach Pettet: Those are not fun.
Eric Jorgenson: Not fun. I want to start over with this line from your deck that caught my attention, which is, why will web3 data take 100% of the market?
Omar ElNaggar: Yeah, for sure. We always patent it after HTTPS, which is another technology that took over 100% of the market. And the unfortunate thing about interesting security technology is it always starts off as a vitamin before it becomes a pain killer and a regulatory requirement. And HTTPS is that the lock icon, represented by that little lock icon in your browser, that says yes, this is actually the website that I think it is, and our communications are secure. Now, that technology was deployed in 1995. But I think the market was less than 5% of all websites through 2010, until people realized that with those insecure channels, people couldn't even be in like a Starbucks on Facebook without getting their accounts hacked. And that inspired the big players to go and move along. And then in 2013, after the Snowden breach, people realized that everybody was hacking unsecure HTTP feeds from like the NSA in China to even like Verizon and Comcast were illegally injecting stuff into your internet browsing activity. And again, this is the point where it becomes a painkiller. Now, it's pretty much a requirement that all websites utilize secure ACP technology. And what we talk about at Weavechain is that we're going to see the same exact trend for data, where most data flows today are very insecure and not verifiable. And when I talk about web3 data, they are data flows that have these cryptographic guarantees of immutability, that you can show that it came from a specific source, and that it hasn't been tampered with over time, which would be very useful in the current financial climate where suddenly fraud is popping its head up in, frankly, old school ways, except for new school companies.
Eric Jorgenson: What's an example of a data flow when you say like secured, unsecured data flows?
Omar ElNaggar: Yeah, for sure. Let's take, for example, if a hedge fund is going to go and get a position statement from JP Morgan or Goldman Sachs or even Coinbase or these modern institutions, a lot of times those guys are actually just like putting a CSV file on an FTP server somewhere, and then the hedge fund ingests that into their database. And then the hedge fund goes and passes their database along to, let's say, an auditing firm or makes a statement to investors. Well, like that's whisper down the lane. There's no way that the depositors or auditors can actually validate that this data came from a trusted source here because it's not signed. The way that HTTPS works is that whenever I go and visit a website, like Twitter or Google, that little lock icon says, I can validate that this is Twitter or Google because I can see this certificate that was signed with their private key, and we can validate it with their public key. And so, for like a web3 financial data flow, we're trying to encourage people to be passing around signed data. And it's like old cryptography. That's not even including some of the fancier parts of web3 and blockchain technology, but it’s a secure data flow in that we know who actually did it using public key cryptography.
Zach Pettet: So my head's in three places at one time here. There's this like correlation between HTTP to HTTPS. And then there's correlation that I think a lot of people try and draw between web2 and web3. There's a lot there that does overlap in the Venn diagram of like basic mental models in terms of the way that things flow. Like there's some fair statements there. But I think when you get into the depths of that, it starts to kind of fall apart a little bit. And I, to be honest, even understanding everything you just said in like an academic fashion, still have to take it back a step and be like, wait, what the fuck? Because it is so convoluted in terms of somebody that didn't study computer science or didn't study data. So I guess where my head goes is like can you give us a sense of like how that analogy of web2 to web3 and HTTP and HTTPS, and I don't even know the right question. I mean, that's why Eric's actually in charge of this thing, and I'm just here to fuck it up. But can you like pull those apart? Or help me understand if those are actually even fair analogies now that I've asked the longest question in the history of the United States.
Omar ElNaggar: Yeah, for sure. Again, it comes down to that example of that lock icon in the browser for me, which is just like as an end user, I want the ability to verify that your claim is accurate. And this is what cryptography is great for is verifying the accuracy of these things and sources. And that whisper down the lane example I gave earlier is a situation where you can't verify a source if it's not signed, if it's just CSV files being passed around to other parties. And let's say, I think Chainlink always says that the old web was based off of paper guarantees, where I'm going to go and sign a legal document that says X, Y, and Z, and you're going to take my word for it. But then companies like Enron come around, and they invalidate those paper contracts. And FTX comes along and commits fraud. We're trying to go and say if you go and have your data flowing on these web3 rails or at least inheriting these web3 properties, you can't do that anymore. The analogy people give is you used to say, don't be evil. Well, now in web3, you make it so that you can't be evil, so that it's literally impossible to do so, again using cryptography and those things like the lock icon. So our expectation is just that you're going to see data activities evolve to the point where you see those lock icons in more places. And the potential for fraud diminishes because it literally just couldn't happen.
Eric Jorgenson: In this example that you're giving us of sort of financial data moving from an original source into a hedge fund, a hedge fund into an auditor, how different is this, is the Weavechain vision from what happens now in the sense that like the data doesn't ever leave its initial resting place? It's kind of like a river that's like passing along, and people can like peek into it at different times when it suits them. I'm struggling to find the right analogy. But it's so different than like this game of hot potato where like someone has an isolated time to manipulate the data or change the data or sort or filter or adjust or tweak and then pass the potato along. And if we're all just kind of assuming that they did it honorably, but no one has visibility into the version before, the version before that, or the version before that.
Omar ElNaggar: Yeah, let's say a good way to think about it is like if we have a legal contract between all of us, and one version of it is just to go and say, here's the data that we agreed to without signatures. Well, when you pass that along in that hot potato format, the person downstream is like, how can I know that the person upstream actually agreed to this in the being of the situation? And that's what signatures are there for, like old school paper human signatures, where I'm going to go and match up your cursive against other signatures that they have of yours. We’re saying you need to go and add those signatures to data flows, that you need to go and make it so that downstream somebody can say, oh, yes, I can actually match this against JP Morgan’s signature to say that, yes, they did do that. Now, the subject sort of branches on from public key cryptography into what we're seeing more recently with Merkle trees and verifiability, with proof of reserves and proof of solvency. And what like Binance has recently released, and they're not the first, Kraken has this, Okay Ex did it back in 2014, they give a depositor the way to go and check that my balance at this exchange is represented in this portfolio that is solvent that the exchange has published. And it's still using the same idea of signatures and hashes to go and validate as part of the whole. But this is a way for, again, an individual, like if I'm an investor at Kraken or Binance, I’m small potatoes, I’m some nobody way downstream. But I want to go and be able to validate that my bits are safe and secure and represented in a solvent entity. And this is what that web3 technology enables you to go and do.
Eric Jorgenson: Without having to take the exchanges word for it because they have maintained this sort of endless, consistent signed database, chain of trusted data.
Omar ElNaggar: Yeah, we call it a chain of trusted data. And the other key thing here is that it preserves privacy. If you're talking about an exchange, maybe I want to go and validate that my position is okay. But if you're on that same exchange, you don't want me knowing your activity or your positions. We need to do this in a way that we're sharing attestations about a portfolio while not revealing information that the other party shouldn't have access to.
Zach Pettet: So when we talk about a lot of this, I mean, it sounds, to me, as somebody that like was kind of sitting front row at a community bank, trying to work with FinTech startups, having to do due diligence on them, yada, yada, yada, a lot of this sounds like something I wish I would have had, but something I'm convinced that I could not have until the entire world is on the blockchain. So is that true? Like, does the whole world have to get to this place of web3 in order for your vision to be able to get executed? Or does it come down to the cryptography? Does it come down to the technology that is kind of sitting on the layer above the blockchain that allows you to do this like today in TradFi, sort of a thing in the rails that we're sitting on right now? What is that disconnect?
Omar ElNaggar: That is such a good question. And the answer is more often than not, we think that you're going to be able to show a percentage verifiability for your portfolio that we're hopefully just going to increase over time, that it will start off as a low number and say, look, I still have these CSV files that are being uploaded to my servers from banks that I can make a weak attestation about. I don't have this really fancy signed thing that's anchored to the blockchain. And that's going to be okay. The burden is going to be on these institutions to go and increase that percentage verifiability. But the first step is just acknowledging that that's something that we want, acknowledging that we want verifiability in these transactions. And it's a situation where we're going to see more activity moving to the blockchain because it's actually a lot easier to verify blockchain transactions. If you're saying that your trading activity is done natively on chain, we can actually see that in the block explorer and get signatures from you that you own these wallets to show that verifiably the whole way down without changing a thing, versus the old school world where we’re going to have to go and actually get people to upgrade their infrastructures to go and enable those more secure attestations. Now, this is another place where we think Weavechain has a unique edge in that we are not actually trying to move all data flows to the blockchain. We go back to sort of, what we say are the first principles of web3 data. And what you're actually trying to get is the ability to make an attestations about your current infrastructure, not rip and replace it with some brand new stuff. So what our nodes do is they go and attach to legacy databases. And we put what we call anchors on the blockchain, which are hashes of data or zero knowledge proofs of data that you can match up against the data at any moment in time to show that it hasn't been tampered with, without having to move all your data over to the blockchain, which is expensive and impractical. Nobody is going to go in there. And let's just say that rip and replace exercises in web3 have not been successful for the past five years. I think that's why you haven't seen a lot of activity in the enterprise blockchain space. But we think that you can go and leverage blockchain technology in parallel to what you already have there to go and do it. So again, there's a percentage verifiability of a portfolio, the blockchain activity will be super verifiable instantly, but even the old school stuff, we're going to go and add the these anchors and trust layer to, to move it along the path.
Zach Pettet: Is there almost some kind of like gamification, or-? It's almost like the incorrect use of the term game theory, but is there some sort of gamification there almost where you're saying, and it sounds almost like a confidence interval, so like the confidence interval associated with this like CSV file and these 14 other CSV files that are based on this other CSV file that has 18 screenshots in it, our confidence interval is 1% because this is bullshit. And then you move it from there into like, oh, okay, we actually like went and verified these screenshots on something that is in some blockchain somewhere, our confidence interval is now moved up to 35% because this piece by itself we actually can verify, we're able to cosign on it. Is that kind of the idea? And then eventually, you're just almost like kind of moving them up and up and up that ladder sort of a thing until they get to- I don't know, I mean, does 100% verifiability- I mean, I guess that is a thing in this world that we're talking about. But is that kind of the idea is hopefully you're incentivizing them towards this like better place? And then my brain just goes into like, holy shit, regulators should be doing this right now. But we'll get to that. But so is that a correct way of thinking about it?
Omar ElNaggar: You just need to think of a name for the game. How about like the world of accountability or something like that?
Zach Pettet: Oh, yeah. There you go, Omar. You paint a sexy picture there, my friend. Yeah, the world of accountability, that's what gets us out of bed.
Omar ElNaggar: Here's the thing, everyone is now excited about the regulators coming in and saving the day. The tune has changed over the past six months in Silicon Valley and the blockchain world, where now we're really excited about this regulation coming in and turning us all into adults. Let's say before that, what I have found is the best tool for incentivizing people in this world of accountability is money. And your example that you gave earlier was very good about like, how do we describe that confidence interval? Well, people have had that before with credit scores. And one of our first use cases for this is actually like not proof of reserves or proof of solvency, which a lot of the major exchanges are doing. We've been working on a use case around proof of custody with lenders and crypto market makers, that let's say before FTX, we're living in very happy world where everybody was making money, and there were no defaults. And then after FTX blew up, suddenly, a lot of people that were custodying in FTX were defaulting on their loans in a very bad way. So the only way you can resume lending activity is if you go and establish a new kind of credit score for these borrowers that is based off of new criteria, like where are you actually custodying your assets? Are you showing that your books are solvent in the case of crazy black swan blow ups that appear to be flying flocks these days, whether it's FTX or SVB or Signature. It's just sort of there's a new standard that you need to show and a new form of credit worthiness that we can quantify, that we can showcase, and that people can be sharing with each other without disclosing their trade secrets. Because let me tell you, as an ex hedge fund guy, nobody likes sharing their positions. Nobody likes sharing their strategies or their secret sauce because everybody's trying to rip everybody off.
Zach Pettet: Eric, are you going to tweet black swans flying in flocks, or am I? Who's going to win the Twitter race to that fucking amazing quote?
Eric Jorgenson: It's Omar's line, man.
Zach Pettet: I know. But that’s what I'm saying, which of us is stealing it? Have you said that before, Omar? Because that was a hell of- that was quotable, my friend. Sorry, Eric, I cut you off. But that was damn good.
Eric Jorgenson: No, it's the new reality it seems like. We might need to come up with a new term. I mean, yeah, they're coming so hot and heavy, back to back black swans. It is bad for everybody but Tolib. That's a really a very like important input, though, because the crazier this world gets and the more interdependencies, and I remember this being a big part of both FTX and the SVB stories is everybody like immediately trying to run down all of their holdings, all of their dependencies of like what else- oh, shit, Celsius holds $3 billion in SVB. Like, if they lose that, does that fold? If that folds, what comes next? And so this sort of proof of solvency is a really, really interesting and important thing against and tracking that whole the river of data and dependencies down. Because as an LP in a fund or user of a bank or any stakeholder in the financial ecosystem, the more you have at stake, the more you need to know about the various risk factors. And if I'm evaluating all my banks or evaluating my investment options as an LP, I have a strong preference for somebody with the highest verifiability score or with the highest proof of solvency or the least- the most redundancies, the least single points of failure. I mean, it's why you see like who's your accounting, who's your legal, who's your banking in all of the decks of a hedge fund. But I think you're going to increasingly see redundancies in those and scores.
Omar ElNaggar: So as an investor, how often do you see that list for a startup that you're about to put money into?
Zach Pettet: Thank you, Omar. That's what I wanted to know.
Eric Jorgenson: Add it to the due diligence checklist. Do you have 10 bank accounts? Make it 20.
Omar ElNaggar: Exactly. But really, I think this is what LPs are going to expect out of their venture capitalists as well in the future. Are you going into this level of diligence and rigor for the companies that you're investing in? And are you keeping tabs on it? Because we talked about this in December with regards to FTX. And it's crazy that it just happened in a non crypto world over the past month. But nobody knew where their companies were custodying their assets. Some people told me they actually, like in the old days, you didn't want to know. It was just sort of like I won’t ask, you don't have to tell, that kind of situation. That's just not going to fly anymore. It's going to be- the reason I say it's like a new form of credit worthiness is that, if nobody was ever looking at it to date, then we actually have no baseline for what we expect. If you have $5 million in your bank account, is that five bank spread okay when each bank is still only insured for 250k? We don't necessarily know yet. But I know at this moment in time, people are sick of scrambling after these events and picking up the phone and calling all their portfolio companies, and then trusting their word to say that we're going to be solvent on Monday. It's just like that's not going to fly, I think.
Eric Jorgenson: Yeah, this is what's interesting to me about when a new technology comes out like this, like blockchain or like anything, you can imagine, it seems- what you said in the very beginning is very interesting. It starts out as a vitamin, and it ends up becoming a painkiller. Like why, as soon as it exists, we have to go through this painful slow adoption curve. But with any imaginable future, it is inevitable that our data should have all of these attributes that you're telling us it can now have, verifiability, provability, like tracts- it makes absolute sense to me. I think we will eventually talk about versions of this that are outside finance. But it seems like finance may be the first industry to adopt this kind of through and through. Is that sort of what you're seeing? I know you serve use cases outside of that.
Omar ElNaggar: Let's say we dipped pretty heavily into healthcare data and medical data as well in Q3, Q4. And the question is like where are we going to go and see mass adoption of web3 data flows, we think it's where the data is most valuable. And pharmaceutical companies pay a ton of money for this data to go and research new drugs that then go and build billion dollar businesses. Financial data is also very, very valuable. And in the short term, there's just a larger problem space there. It's not as much about the opportunity, it is that we have been suffering for the past six months through crisis after crisis that's related to, is this financial data reliable, and is it going to allow us to go in and build second level operations on top of it because we can trust that it's legitimate.
Eric Jorgenson: Is the pressure in that coming from- I can’t imagine it's coming from the funds or the companies. Is it coming more from the LPs, the investors? Is it coming from regulators? Like, who has the most need of the painkiller in the finance market? Because it's a complex market and there's a lot of different stakeholders who would all want this but for very different reasons and I imagine with different intensities.
Omar ElNaggar: So I'll go back to that example of the lender. In that case, it was their LPs that said, you clearly were not doing enough diligence on your borrowers. You went and let something like FTX happen, and you had no idea where your borrowers were custodying their assets, and then they blew up and you had no recourse. So how are you going to do better next time, to give us assurance that we can go and give you our money, and that you can still go and generate these 11 to 15% return by borrowing it out in a good way. And again, money is like the best incentive in the world in a capitalist society. So you follow the money and figure out who's going to make demands based off of where they're going to give money. And that's a really interesting use case that will then further the rest of the space. This is sort of like we're not the painkiller side of things. Let's say there's a very real problem where people are suffering that needs to be dealt with. And I think it's going to be in this position first. But the regulation’s coming. I think we did that webinar a couple of weeks ago on this subject with the head of crypto for PwC in Hong Kong and a DeFi fund and some guys in accounting, and it was really interesting just seeing that it seems like every two weeks, you're having a new notification from the Fed or the FDIC or somebody else who- what was it, the New York Department of Financial Services is trying to go and pioneer here.
Zach Pettet: Do you guys want to hear something kind of- sorry, to cut you off, Omar, but this just dropped, and it's exactly what you're talking about. So I'm going to hit us with like a little bit of just in the midst of this kind of thing. So the CFTC, which is obviously the- I'll break it down, Eric, because it's not my podcast, so I can't assume that everybody knows all the acronyms. So the CFTC is the Commodity Futures Trading Commission, which because of the convolution and confusion about how to regulate different coins and how to consider certain things equities or commodities or whatever the fuck, CFTC gets involved in a lot of regulation when it comes to web3, crypto, whatever the hell you want to call it. And they recently put together, they've been putting together this technology advisory committee, and they finally announced the people that are on it. And actually, Eric, there's a couple of our- well, at least one of our mutual friends on it and some really kind of hopeful names, to the point of what Omar was just saying. So there's the VP of Global Policy at Circle, not super surprising considering the SVB situation and that $3 billion that they had there that you just referred to, Eric. There's somebody from Paradigm. This is kind of a fun one, Eric, Ben Milne founder and chief executive officer of Brale, so was the founder of Dwolla. And on and on and on. There's people in here from Espresso Systems, from Claros, from AWS, just across the board actually very- so Michael Scholl off the CEO of Fire Locks. So this is like there's a lot of like TradFi people in there, but it shows you the CFTC and I think these broader, kind of the rest of these acronyms are also starting to actually fucking listen to the Omars of the world and listen to the people that are doing the real work and have been on a soapbox screaming about this for years. And now that, to your point, we're shifting from vitamin into painkiller, like, oh, now let's listen. So it is like, again, sorry to interrupt, but such a point in time that all of a sudden, I'm just getting like exactly what you're talking about Slacked to me from Money20/20 people, so proof.
Omar ElNaggar: When in your life have you ever seen all these technologists and like entrepreneurs trying to work with the federal government and saying, please, let's figure this out together. Like, come in, give us regulation, add some sanity to this insanity.
Zach Pettet: Well, the irony is like right after SBF, like I want to be the one that helps us figure out regulation, and then just like everything blows up. And then everybody else that like actually has a good point of view on it comes in to actually solve the fucking problem. But it's a whole, I mean, it's a whole new world. And the regulators want to listen. I talked to, yesterday, I was on the phone with an ex chairperson of the FDIC. And just like hearing the perspective that she has about the way that she just takes calls to learn now, and she's an ex-chairperson. The person that's in there now is not quite as much of a spring chicken and is not exactly wanting to learn. But anyway, it's hopeful. It's hopeful, and it's fucking crazy, to your point, Omar.
Omar ElNaggar: There is a strong desire to learn out there, I'll say that. Like, our technology, we're really proud that we're on the cutting edge of all these different things. But more often than not, our first calls with customers are about education. Like we went and got on the phone with all the executives of PwC Hong Kong to just go and teach them about like the different areas that need to be watching, whether it's like a web 3 data flow or a token, which are completely separate things. Everybody just sort of blends everything into this massive web3 bucket right now, but these are very separate concepts. And that's a very good thing. It's, let's say, a healthier attention than, let's say, some of the speculative activity that's been common in web3 to date. People want to learn, what is this technology? Why does it make things better? How do we go and prevent these issues? And that will then lead to investment of political capital and physical capital and good solutions for it.
Eric Jorgenson: I think there's two pressures, which is rare. It's like one of the things we're talking about is like the regulators- This technology is the regulators’ best friend. This is going to save them so much time, so much effort. I think, Omar, you had some collateral that was like this enables consistent real time auditing and regulation and compliance. Like this lets the government do its job which is to protect us from bad actors in a much more scalable, defensible way for less, which is great. And at the same time, there's this pressure, the capitalist pressure, which is that anybody who adopts sort of being held to a higher standard of verification and solvency and proof, like don't trust, verify of like I have already self verified, and I can consistently produce these returns in these ways, and stay solvent and stay like you will never have to worry about me, you won't lose sleep, like you will be automatically notified if I breach any of these service level agreements. Like, put your money with me. There's no better pitch. And that's a possible pitch right now. And it's a huge advantage to whoever picks up those capabilities first and takes them to market.
Omar ElNaggar: I was just talking with a new exchange for defi today that's going to have Stablecoin as part of their platform. And this is a startup that's less than six months old, preparing for a main net launch this summer. And that's exactly what we're talking about. I was like, you guys should go and have verifiable financial data by default when you launch your product as a v1 to convince people that you are going to be an honorable steward of their capital. And this isn't something that's, if you're a startup, you have negative time; your priority queue is a nightmare. And yet, this is worth doing from the gate because it's just like the strong foundation that we think will give people confidence in these really innovative products of the future.
Eric Jorgenson: Especially in an industry where rug pulls are the meme and almost the expectation.
Omar ElNaggar: Yeah, we're entering a new generation, I think, of web3 companies that, not to say anything against PFPs. Eric, as you know, I was the founder of thecryptopoops.com back in 2021, some of the finest shit on the internet. But we were trying to go out there and say very explicitly, you can go and buy crypto poop JPEGs at your own peril. Those were the times. It was 2021. We launched on 4/20. It was lots of fun. This is a very different kinds of technology. We're talking to a very different kind of startup in web3 right now that's very deliberately trying to do serious things in an adult fashion. And you can have your poop on the side, but like your financial data should not be shit. Your financial data should be rock solid and held to a higher standard than it ever has been before.
Zach Pettet: Omar, you have no idea, but you just got on stage at Money20/20. Like, if you do that 30 seconds and then just talk about verifiable financial data, you're in, man, that's all I needed to hear.
Eric Jorgenson: That’s both the most confusing and impressive resume I've ever heard.
Omar ElNaggar: It's been a fun time being a web3 builder, that's for sure.
Eric Jorgenson: Omar can do it all.
Zach Pettet: Investors investing in founders that chip and shit. Anyway. So there's a couple of things I was going to say there that I lost. One of them I wrote down, so I remember that, but there was something else that I was going to take us to. I'll go to the thing that I wrote down because I forgot the other one. So to your point about this being regulators’ best friend, when we were describing that venture capital due diligence example previously, and the thing about my experience that I was talking about before doing due diligence on startups at a bank, which for us was not, I mean, it was about making the investment, but pretty much it was just like I had the right to make the investment if I wanted to make the investment. It was 50k checks into seed startups, like there's nothing really to check there. But it was a lot of screenshots, it was a lot of just- it was a lot of things that even the data that I did feel confident in, I was like, okay, this is true two weeks ago. And I think something that regulators run into a lot is these like every six months cycles or these yearly cycles, and again, not comparing at all SBF and FTX to SVB. Like what happened with SVB was a risk management thing, not a fucking fraud. But to be able to see a data flow and a financial model as it moves through time I think is the other thing here that we don't talk about as much. We talk about like, oh, we really want to verify if that's true. And it's like, of course, we want to verify that's true. But we also want to verify that's true today, and then in 20 minutes, and then in an hour, and then in two days. Because I think one of the things that we also don't talk about is that like SBF could have put $10 million in an account, take a picture of that account, or like have somebody take a snapshot, have somebody- or even like actually have some sort of Plaid connection, get in there, check. Okay, the funds are there in USD, and then just fucking float it out the next day. And like they'll check again in six months, and by then he will have already made off or back in or something like that. So I guess I'm just curious about, one, how you think about that, kind of where you see that use case being most important. And also, I just felt like I needed to say it out loud because we just haven't covered yet.
Omar ElNaggar: Eric, you touched on it briefly earlier, where you're talking about like consistent real time auditing and compliance. And this is one of the things that we're really proud of at Weavechain is that we're going to enable, let's say, web3 grade synchronization between databases, so that you're not going and like downloading data into a CSV file, putting it on an FTP server, and then hoping that it actually lands in the target database as desired. People always talk about like distributed ledger technology as opposed to a blockchain. And the problem that we see is that, again, it would require all these institutions to rip and replace their existing infrastructure and build it on a blockchain, which I just don't think is going to happen. So instead, let's say that you have FTX with their internal database of all their positions and then you have their auditor. I think it was Armanino in that case. We want to just go and synchronize those positions in real time. And we're talking with auditors and fundamental administrators about how we can go and set up those systems so that they shouldn't just have these monthly or yearly snapshots of the data, it should always be synchronized. And that's different from when they want to make those attestations. Maybe you still only want to make your attestations weekly or monthly or annually. But let's just deprecate that whole manual part of the process with people sitting there trying to go and make sure that the fields match every time and identifying these discrepancies. It's like a horrible process that wastes everybody's time and is super inefficient. And once we have that live synchronization of data, then we can go and have what is my favorite part is a cosign calculation by these auditing entities. So if FTX is going to make a statement that their books are solvent as of this date and time, well, if the auditing agency has the exact same positions, they should do the same calculation and say, yes, we attest that this is correct. We are willing to stand behind both the data and the calculation methodology here and give some sort of guarantee to depositors who, especially today, are just scared.
Zach Pettet: I mean, there's almost like a mathematical truth that can be confirmed on a second by second basis. Like kind of what you're talking about there sounds like something that it's, I mean, Stablecoin’s a terrible analogy, but like one should track the other. Like in terms of, is that like a human? At this point, obviously, that's a human thing of like, okay, we cosign this, but in the future, could that algorithmically- Or is that just what you're saying, and I'm not quite there yet of just like algorithmically they track each other, like it's just constant?
Omar ElNaggar: The latter. It is all programmatic. I use the word signature very loosely because I am a data nerd, as discussed earlier. But for me, it's always a programmatic signature. So, it's like you can go and, again not a ink signature, but you can actually go and add cryptographic signatures to PDF documents that say we have issued this PDF at this moment in time. And then in that signature, you can include all kinds of metadata that says that this calculation was performed by this exchange and this auditor and this third entity over here, and you can trust all three of these guys got the same answer to their math problem and they used the same input data. We call it a computational lineage. And it's one of those like far out concepts that I think is not common today. But our bet is that within the next 5 to 10 years, it's going to be as common as that lock icon. And you're just going to go and judge all these calculations that have been done in a way that can't be verified in the future. Because it's instantaneous. It's not like it's going to go and add more time to the process. It actually shrinks down the time that the process happened. We just need a little bit of investment in technology today to do it.
Zach Pettet: When you- that PDF, I just had like a oh moment over here when you described the PDF. I feel like sometimes I'm slow on the uptake. But when you describe the PDF example, like oh, we're not that far away- where we're like some CFOs and risk people making some decisions and signing some contracts with the right companies. But other than that, we're not that- like we could do this tomorrow in terms of like the technology and everything that we kind of have in the world today. It just takes buy in.
Omar ElNaggar: It's the scariest thing. It's not like we're always talking about fringe bleeding edge technology. A lot of this stuff is technology that has been around for 20 years. But security technology always starts off as a vitamin. It's those first 15 years of HTTPS only being used for credit card transactions online until there was a real moment of pain for the market. And we're in that moment of pain right now for financial data. It's not trustworthy. People don't believe books are solvent. And hopefully this is the inspiration that people need to go and make that upgrade.
Zach Pettet: It's almost hard for me to not just scream from the rafters that regulators need to implement this yesterday. And by hard for me not to, like wait until October in Vegas at Money20/20. But it's like good lord people. The technology is here and we're kind of at a point where we all agree with it from a political or philosophical perspective. It's a moment- this is the moment to strike it feels like, especially politically.
Eric Jorgenson: There's nobody politically who's pro financial fraud, so far as I'm aware. And so this should be a multi bipartisan issue to reduce financial fraud, the cost of regulation, the overhead involved, and invest in, yeah, this real time proactive consistent self regulation seems so obvious to me and such an obvious need. This is something that I feel like everybody could agree with, and everyone in the market should be willing to embrace. This lowers their overhead too. Nobody hates regulation, the principle of regulation or the outcome of regulation, which is like safety. It's the process of minutia and managing and sending the spreadsheets and manipulating the data and matching the fields and all of this sort of like time and investment overhead. If we make it easy for companies to participate in that regulation, which Weavechain does, it's easier for everybody. They're saving time and money too, and the regulators can do their jobs better, faster and cheaper.
Omar ElNaggar: We're hopeful that we can go and build these case studies right now that showcase people that were organically incentivized to do the right thing in a way that's easy, like you described, and that hopefully that will go and inspire these regulators to just say, oh, there's the right answer. Let's go and move towards that and make that a standard.
Eric Jorgenson: Is that what happened in HTTPS? I'm not super familiar with that backstory.
Omar ElNaggar: Effectively. But HTTPS started as something that was mostly used for like when you were entering your credit card transactions online. So, the old eBay and PayPal websites would have that HTTPS on them. The problem was it slowed down that part of the process. Security technology is not as fast as insecure technology. The time it takes to go and do those cryptographic math problems is not great for the user experience. Thankfully, computers are getting faster, 2x every couple of years kind of thing, the Moore's Law scenario. And so now it's kind of transparent for the user experience. And that's why in 2010, the exploit that Facebook and Twitter had to deal with, it was called Firesheep. It was the one that made it so you couldn't be in a Starbucks on Facebook without getting hacked.
Eric Jorgenson: Hate it when my sheep are on fire.
Omar ElNaggar: The worst. So of course, those guys went and sort of got ahead of the curve and started implementing before there was a real issue. And then, now it's one of those things where like I think it's to be software compliant, you might need to actually have an HTTPS certificate for every activity on your website.
Eric Jorgenson: And if you don't, Chrome is like danger, danger, like unsafe website. So it's just a change in expectations of the user and the context of the environment as well.
Omar ElNaggar: Yes. When enough people get hacked, then they start to complain that they want this as a default and to be warned if it's not the case.
Eric Jorgenson: Yeah, it's really a great analogy.
Zach Pettet: The sheep part?
Eric Jorgenson: No, the sheep as a part of the HTTPS story. And the timeline is interesting, too. I think like it's one of those things where you forget how recent that was really in the scope of internet time. Like, that's wild, and how pervasive it is now.
Omar ElNaggar: To your point earlier, Zach, it always starts with a few people that are shouting off mountaintops that are just like, guys, this is the path, please, please follow it, do the right thing. And unfortunately, it's not that easy. It's not that easy.
Eric Jorgenson: Those who have listened to my previous podcast with Zach know that his role is to be the neck that turns the head of fintech, I believe is the analogy that he used, just to stack up some more analogies.
Zach Pettet: We are stacking the analogies and metaphors on this one. I feel like we're going to have to do a count at the end as to how many we absolutely butchered.
Omar ElNaggar: It's going to be great.
Zach Pettet: We're all really trying to circle back to that. One of the things I was- I mean, this is like correlated and not correlated, but because we're recording this so close to the SVB situation, I guess there's some pieces of this that Chainalysis would be able to- a lot of this seems like stuff that Chainalysis can do in retrospect. It's like it's stuff that they can do in the rear view. And I think maybe just like, I don't know, maybe they have some plumbing that gives them some ability to do some piece of this as it stands today, but I don't think they're thinking about it like that. And as I was thinking about wires, I think probably all three of us have sent a wire in our time. Eric and I are at least Eskimo investors in one or two companies together. So we've sent at least two wires. There's probably enough people that fucked up trying to- well, granted, all of the wires got canceled up until- actually they got sent out on Monday. But the amount of wires even on Monday that probably got sent to the wrong place and just thinking about like the tracking of funds, and like this is not necessarily like the use case that we were talking about through this whole thing. But just as I was thinking, like I was talking to a founder yesterday that literally his Wi-Fi went down, he had to go to a Starbucks and wire millions of dollars out of SVB into another account somewhere else from a fucking Starbucks. So it was also our HTTPS like Starbucks black sheep story, like glad that happened then, not now. But just like between the fact that we still have wires, like all of this, I mean, the amount of money that is probably flowing up and down to community banks, up to the big three, like just what we would know and the level of confidence that we could instill in the financial industry right now and in the banking industry if we were able to have a real time view of how deposits were flowing around the world, like good lord, would that be helpful right now. And all of its in retrospect, like it's all post settlement, and even then it's really hard to have that full view.
Eric Jorgenson: Zach, maybe you can, between you and Omar, maybe you can enlighten me because I know that I share Omar's pessimism of rip and replace of everything, especially in FinTech, like those rails and databases and stuff are so old, and the way all that information flows today is so difficult to change for a bunch of good and not good reasons. So how true is it, I suppose, that we're adding a capability to that data without really having to replace the skeleton that all of finance in the US is built on today?
Omar ElNaggar: I'm biased. I think it's way easier than you think precisely because at least databases have been designed that it's very easy to read data from them. So, if you can go and maintain those anchors, it's a coordination exercise. It's about saying, here’s my infrastructure, I'm going to add these cryptographic guarantees of immutability. And then when I share it with somebody else, even if it's in a legacy format, I can go and point back to those anchors to show that nothing has been tampered with. So, it's like every financial stack. If you're going to even a small regional bank, I'm sure they have 140 different pieces of software they're running inside that institution to make things go. Piece of software 141 is not going to be the one that breaks the camel's back, as long as it lets pieces of software 1 to 140 continue operating the way they have been. There needs to be a commitment for these institutions that says yes, we want this, this is the future that we want, we're going to go and put our money where our mouth is and make this happen for ourselves to set an example and make it so the entire community is pursuing these things, instead of realistically, like the prisoner's dilemma that is out there right now, where everybody's like, well, if I'm not going to be forced to do it, I'm not going to be the one that goes out on a limb and puts my time and capital at risk when it's not a regulatory requirement.
Zach Pettet: Yeah, I don't know if this is the right- I agree with Omar. And I think that I'm not, I think that my knowledge about the actual workings of the payment rails, returns, the lack of web hooks, like all of that, like I know a lot of its failings. I don't know enough to say, to give you a really good answer about that. But my gut and like what I would, without the technical education, say – Omar, I'm really curious about your perspective – is that probably our only way out of the tech debt that we're in right now is to add more tech debt. Like the only way to get out of the spaghetti is to make more spaghetti almost, but we just like have to think deeply about the way that that spaghetti is structured. To your point on 140 to 141, I think it's just like 141 and 142 need to be 10x better than 1 through 140. And they also like potentially need to wrap 1 through 140. Like 141 needs to be like the aggregation layer a la [inaudible 48:30] kind of vibe situation to be able to actually have any of this get solved. So yeah, I agree. I don't think that most community banks can even get their head wrapped around the idea of how they're going to implement FedNow when it finally comes out. And finally, they gave an announcement date on when it's coming out. But they don't have CTOs. They don't- like they're just doing whatever FIS feeds them. So yeah, I think we got to go deeper, deeper into the hole to get out of the hole.
Omar ElNaggar: Yep, I'll say this on the rail scenario, you are seeing more transactions than have ever been done previously in the history of mankind being done on web3 rails, whether that's a ripple net or in like interbank processes that are built on Corta. It's growing, it's just when the growth can be 10x every year for 10 years and still be 1% of the market kind of thing. It's still tiny as a fraction of all financial transactions. I just don't think that trend is going anywhere. I think the institutions that have gone and implemented improved rails for the payments themselves are never going back. It's just how do you go convince those shops that don't have a CTO to do this thing, which is particularly complex, especially in a time where everybody is kind of freaked out about the technology. We were talking earlier about how one of the most important things for us to do is educating our prospective customers and just other people in the space. And the reality is that most people understand very little about what's happening in web3. It looks like pictures of poop more than it looks like real financial systems and upgrades to technology, especially when you see these crashes. And it's a horrible thing to say, but one of the interesting things that's showing up in all our chats this past week is like, hey, look, banks are failing that are not crypto. You don't have to be in crypto for a whole project to implode, even if it’s a $175 billion bank. It's like finance is hard. There's some crazy things that happen out there. And we're not in a move fast and break things world. It's just things are hard.
Zach Pettet: It's so funny to me to think about like the world of- I try and separate them, the crypto world and the web3 world, but to think about the crypto world being like, hey, look, the TradFi banks fail too is like, have you opened a fucking history book? Like no shit. Of course, that is how the system works, like yes, and that's why we have the FDIC. And that's why we have everything that we have. And if we went to this like supposedly utopian version of the world that you want us to go to, it ain’t much better, motherfuckers. Like, it is scary. It is scary. And it's not- you don't want to live in a world without regulation. And as you were talking, the thing I was thinking is like that the irony of a lot of this is that there's like this gray market of regulatory ideas, I think, that we don't talk about enough, which is the regulators signal a lot and don't dictate much. It's very rare the regulator is going to be like, you fucking, you got to have this, if you don't have this, we are shutting you down. That is like for the most part, they will never do that. The only way they're going to shut you down is if you get into a risk management oriented situation where there's a run on the bank, and yada, yada, yada. Otherwise, if it's not in a situation that actually is systemic where they're going to do that, they're going to fine you to hell. They're just going to add zeros to the fines and just keep going in that direction. But they will hint. And that's the thing here. And I think, like the thing that we saw even today, there was news about- So along with the SVB failure, Eric, I imagine your listenership would probably have been paying attention to the Signature Bank failure because a lot of clearing of crypto, a lot of off ramps of the world of crypto went into Signature Bank, and Signature Bank is also going through this auction process. And according to- there's two sides to the story right now that's pretty interesting. One side is the FDIC saying who wants to buy Signature? And no, you don't need to divest from the crypto business to buy Signature. And then everybody on the street, everybody that is not writing from a perspective of the FDIC where that says that on their LinkedIn is like anybody that buys Signature has to shut down the whole crypto business. Like that is the gossip, to the point where I believe it completely because the only people that are saying the opposite is the FDIC. And I think they have to say that because they're not allowed to tell people how to run their banks. So, there's this like they're hinting and hinting and hinting. And I guess this whole diatribe, this rant is leading me to one thing, which is, I wonder if what we're talking about here is going to be something that is ever actually, maybe not ever, but in the short to medium term or even the medium long, really not long, long, that's the one I'm excluding, is this going to be mandated? Or is this one of those gray market you should do it or else you're not a good bank sort of things? And that's the wrong way. It's not a gray market thing. But you know what I mean. It's just unspoken expectation. Exactly. What do you think of that, Omar? I'm curious.
Omar ElNaggar: I don't have a great answer. It was really interesting having gone through the FTX scenario for crypto back in November and seeing like this flurry of interest in activity and doing things right and then honestly seeing it fade a little bit into like January, February of this year as like narratives change and new fires arose. And now it's ignited again following all these local bank failures. Like is this going to be the time where the interest is maintained? We think so because it's so much more widespread, but I'm not sure if it's going to be the regulator's that force it. I'll just give an example of some regulatory activity that happened over the past couple months. So, the SEC went and effectively shut down Kraken’s staking business. And [inaudible 54:54] did that, Hessler came out the day after and issued a dissenting opinion saying this was not the right approach to going and doing this. We should not be establishing policy by enforcement. We should be establishing policy with guidance ahead of time and working with these companies to go and do so. They did something though. Like, I don't support that activity. But they're trying to go and make moves that they think are helping investors and trying to further things. But I don't know what the approach is going to be for the regulation that's related to preventing these kinds of situations like SVB and these other banks. It really take people that are sort of deeper into the machinery of government, I think, then a humble technologist like myself. I know how we can go and fix problems from a technological perspective. But politics is a completely different beast. It's not always about just having right answers or things like that.
Zach Pettet: But to be honest, that's what scares me about this whole thing. Like, what scares me the most is the fact that the people that are capable of solving these problems, the humble technologist, like Eric and I have a good friend, Das, I think Riddhiman Das, the CEO of TripleBlind is very much in this too.
Eric Jorgenson: I introduced them.
Zach Pettet: He's the fucking man. I mean, there are a few brains on Earth like that, of Riddhiman Das and the people that he brings around him, like just very rare. And I think he's one that kind of like can get in those rooms and do that a little bit. But I mean, I don't think he likes it, and I don't think that's what gets him out of bed in the morning. And that's what scares me is like the people that have the answers, the people that know how to build the technology don't have that same put on the blue suit and go be a banker on Capitol Hill and get what you want out of it because it leads to some big bonus for you.
Eric Jorgenson: But that's why I'm glad we have the capitalist incentive too. Like, I think something Omar and I talk about a fair amount is like what is distribution going to look like in web3 and crypto. I think there's a lot of people who expect the killer app to be like a game or a wallet or NFT drops or something like NBA top shots. And I think Weavechain is really interesting because it's so much more- it's like the b2b SaaS channel of crypto adoption, of web3 adoption. Like the future is actually slow, methodical partnerships that help businesses win and gain an advantage and move us closer to this like 100% adoption of like data with web3 capabilities. And who owns most of the data in the world? It's businesses, like managing giant ass databases. And I think it's an interesting, this is a really interesting view for what web3 adoption truly looks like. And it's like a trenches enterprise sales battle, which is totally not new. Like, this happens all the time, every day, we're really good at this now.
Omar ElNaggar: I think a lot of people think that like web3 adoption is going to look like everybody having like a Metamask wallet on their computer and trading poop and monkeys and stuff like that. And I'm not at that camp. Like, I really think that it's going to be more similar to this HTTPS adoption thing, where suddenly, people are just going to see lock icons on these different data flows. Like you're going to perform some financial transaction in an app. And it will say, this was anchored to Ethereum or Polygon or something like that, and there's a secure financial transaction. Or you're going to see that like, yeah, this data point, your personal health information that you just shared in this application is being stored in a way that is using the highest grades of cryptography and will not be shared without your consent, things like that, that aren't going to make the user experience worse, they're just going to add that stamp of approval that says that we're doing things in a better way.
Eric Jorgenson: It doesn't change, it doesn't require a user to change behavior at all.
Omar ElNaggar: Exactly right. It's I want to do what I do today more securely, with more confidence.
Zach Pettet: I mean, to me, it feels like, I mentioned FedNow earlier, to me, the most exciting part about this conversation and about actually where we're getting to because of a lot of the bullshit falling out from under us, like as much as it sucks and as much as there's hard parts about kind of the culling of the herd, like we're finally getting to a point where these use cases are worth discussing, but really hard to see. And it feels like this next wave of innovation, and I can't believe I just said the term wave of innovation, but the next wave of innovation is going to be invisible, and it is going to be way more meaningful than any of the shit that was hyper visible. Just like it's going to be extrapolated away and this is like finally is my answer. Like FinTech started like 12 years ago with like putting lipstick on a pig. It started with like the rails fucking suck, but so does the UI, so let's make the UI a little bit better. And finally, on this journey, we're getting to the point where we're actually changing the thing that I think we all got into FinTech to change, which is like the efficiency of it. And the more efficient this whole thing becomes, the more we can bank the underbanked, the more we can do all of these things that we want to do, and the more that the world is actually a just fucking place. So glad you're here, Omar.
Omar ElNaggar: Now you have a tweet that I'm going to rip off, the idea that the next wave of innovation will be invisible is a beautiful concept.
Zach Pettet: That's already- well, it's not copywritten; you can definitely steal it. But it's definitely already- it's on a staging server for the Money20/20 website for our call for content this year. So it's yeah. We'll get you in there, man. This conversation has been like the definition of validating so much of the research and will just like work. Every year, I basically have to like write a new story for the show, or not I, but my team and I have to write a new story for the show. And it's like prognosticating about what the fuck finance is going to do in the next 12 months. And I was supposed to write that coming off of FTX and going into this SVB situation. So I'm just pulling everything out of my ass. And like the things that I am clear on is like, okay, infrastructure change and trust, and like this conversation hit on both of those really strongly.
Omar ElNaggar: I'll just harp on one bit there. So, one of our- I think it's actually our slogan for the Accountable software is don't trust, verify. And remember, you want verifiability in everything. Trust implies that it's kind of blind, like I'm going to be okay with you because you're a reputable party because you and Sam Bankman-Fried and have crazy hair or something like that. I want to be able to verify that stuff. I think it's actually an old Russian proverb originally, but it's a very different mindset.
Eric Jorgenson: And I will go- I will add to that, which is something that I said recently, it's like, don't trust, but verify, and don't trust anyone who won't let you verify. If they won't verify, there's a fucking reason, and you should default to not trusting them.
Zach Pettet: 100%. Or if they take too long to let you verify. If they're not willing to- if they need to go back there and make the hamster run a little bit faster on the fucking wheel to get it to do what they needed to do, that's also not great.
Omar ElNaggar: I think we need to start holding people to a higher standard. I think it used to be seen as something that was like impolite to say, oh, I want to go and verify these things. Like what, you don't take me at my word? It's like, no, the better thing for everybody to do is to not take each other at our word going forward. And it's not about lack of trust, it's that verifiability across the board prevents problems. It makes it harder to have these issues because there's going to be a bad actor. I'll give you a weird analogy on this one. But it's like, I'm in my mid 30s, and friends are getting divorced these days. It's like people are getting ready for round two. And when you're in your late 20s and everybody's getting married, it's like, oh, well, there's no way any of these situations are going to go bad. We're all best friends, like nobody needs prenups and all that stuff. And the reality is statistics are unfortunately honest. A lot of people will get divorced over time. And you never want to bring that conversation up when you're early in a relationship. But at the same time, it's like, man, it's hard to fight math. So verifiability is a good thing that we should be promoting for each other not as a way to say I don't trust you, but as a way to say this is how we actually build healthier relationships.
Eric Jorgenson: And what this technology fundamentally does is make verifiability really, really cheap and easy and low cost and low overhead. So, why wouldn't- if the reason to not verify was expense or awkwardness or discomfort before, it's basically free now. Why would we not all want it and get it and deserve it and put it forth if we are as honest as we all say we are.
Omar ElNaggar: It is one of the value propositions that we say to these auditors and fund administrators; we're going to go and deprecate your CSV FTP upload process. We're going to go and just make that a thing of the past so that you're going to go and save 100 man hours per audit that you're doing. And that's going to enable this better standard of data that's going to make your processes more trustworthy, to give investors confidence and depositors confidence.
Eric Jorgenson: I think it's amazing that we are like basically done with this podcast and spent the entire time on like the proof side and none on the data economy side, like let alone the fact that there's value, huge value. Like there's revenue to be earned from every database, almost every database in business. I'm curious what your sort of prioritization of that is, like who you think is coming first with some of the- who's the data economy is most meaningful too. Because that's the other thing is it's not just let me turn my database- let me allow access to my database for verification, it's also let me allow access to my database privately, securely in place for vendors who can then monetize and pay me access for that data too.
Omar ElNaggar: You got it. And the analogy we get there is that today, I think everybody has just sort of acquiesced the fact that we are the product for most services. Like if you don't know what the product is or what's being sold, you're the product and you're being sold kind of thing. And I actually just came from the NextMed conference in San Diego, where there were so many brilliant people talking about the future of healthcare and how they're going to go and revolutionize legacy processes that haven't been changed in 30 or 40 years. And one of those is actually how patient data is shared with researchers, pharmaceutical companies have a bad name. But realistically, they save lives. They go and build the drugs that go and allow us to live into our 80s versus the 50 year life expectancies from 100 years ago. And back in 2014, there was a company, IMS Health, that went to hospitals and said we can go and anonymize all of your patient data and then go and sell to big pharma companies. And you won't even have to ask patients for their consent for that. And they sold $2.6 billion worth of people's healthcare data without ever asking. And it's kind of crazy, but the end result is people got these new medications and things of that nature. But that's kind of weird that my healthcare data would be sold by this broker without including me in the loop. And a lot of the companies that we work with are really excited about this idea that let's go and include users in the value chain. It's like that old a16z chart where the difference between web2 and web3 is that in web2, the value is almost all towards like the investors and the builders and very little towards the users. Let's flatten that out. And let's actually give the users part of the value of these economies. And so we work with companies like GenoBank and Regular Health, and we're chatting with a team over at Data Lake who has a model that they call consent to earn. So I'm not going to go and give you awards for playing these games or walking around and things like that. I'm going to go and ask you for your consent to use your medical data for research purposes. And if you give me your consent, we're going to go and make sure that you get rewarded for that passively, with no activity on your part. And it's not actually changing most processes. It's still going to be somebody in the middle that's going and working with pharmaceutical companies to enable this data to be available for research. But it's being open and transparent about it and saying we are going to go and show you from day one how this is happening and what's going on and make sure that you're okay with it, and not just doing it without your say so. And so, at Weavechain, what we do is we go and give data the security properties first. We make it so that it has this lineage so that you can see how your data is being used across all these different sectors. And then we go and enable data economies to exist on top of it, where payments can happen from a researcher to a data broker and trickle down to the users themselves. And we think it's going to happen for all datasets. But again, we're starting in finance and health tech because we think those are the most valuable data sets in the world. And really exciting economies exist around them already.
Zach Pettet: I wasn't expecting this to come out of my mouth. But that's what Eric gets when he brings me on. The end of that sounds like a perfect wedge into insurance though. So if you have that figured out for health, and if you have that figured out for finance, like you put those two things together, and you basically have a story to tell to the entire insurance industry as well. It feels like that, they're more risk averse, I guess, to some degree, hence- Eric, are you just changing sides of the room? Anyway, but it feels like the wedge into insurance there feels like a really kind of- I mean, maybe you'll just like fall backwards into it, but obviously maintain the maniacal focus, but seems like the overlap there could be obvious and next step-y dominantly.
Omar ElNaggar: I agree completely. Insurance is one of those things that is a direct combination of finance and health in the case of health insurance. And we say it's like the first step is actually just making it so that there is a way for this data to be accessible because currently it's just in silos. It's sitting in some hospital somewhere not available to anybody except that anonymized person who is doing that kind of shady data brokerage. So if we can go and connect these datasets and make it so you can have these 360 degree calculations of individuals, then how can we go and improve processes, make them more efficient, let the insurance providers do a better job for cheaper on behalf of patients and then have that trickle down to those services. But it's slow. Let's say whereas the financial use cases that we're talking about today have this crazy hair on fire problem of banks shutting down almost randomly, in healthcare, you're going and trying to convince organizations that are really slow, that have an established way to do things, to go and implement technology that's better, but maybe not solving an immediate problem. And there are a lot of visionary companies out there that are pursuing this in the way that I just described. One of the less known fields of web3 is one that's referred to as decentralized science. And you have really passionate people that are trying to rebuild these processes from the ground up. But it's, let's say, a little bit harder to go and get the masses inspired to pursue these motions than it is for trading monkey and poop pictures.
Zach Pettet: Is that like all of folding at home? Or is that like a different- Is that like decentralized computing kind of all running together on solving one like Alzheimer's oriented issue? Or is decentralized science something different?
Omar ElNaggar: That's one form of it. So, a bunch of the guys from BOINK, which I can’t remember the acronym, I think it's related to Berkeley Open- I'm not going to have it here.
Zach Pettet: I just got a giggle out of BOINK. So that's all I needed.
Eric Jorgenson: No, there's a bunch of them.
Omar ElNaggar: Berkeley open infrastructure for network computing. So Jonathan Star is one of the guys there. They went and evolved BOINK to have a pretty well known product called [inaudible 1:11:29]. I think it's Bitcoin. I don't think it's Bitcoin. But they're trying to go and promote public goods work that's around this decentralized computation. The trick with like decentralized computation is that IP rights are very gnarly. So we sort of break down the decentralized science problem from a research perspective into are you dealing with a decentralized data set, or are you dealing with decentralized research that has decentralized IP associated with it. And it's a lot easier to do decentralized data right now because then you're just saying we as a collective are going to agree on how these data subjects will be compensated. And then that's the end of it. And then the research can happen from one organization that owns the IP going forward. If you're going to go and have Pfizer and GlaxoSmithKline and Stanford and MIT collaborating on a research proposition, well, those four organizations need to go and establish a corporate entity that can own the IP after the fact and determine who owns what percentage of that equity. That's hard. That level of coordination between entities is just challenging in a way that I haven't really seen materialize super well right now.
Eric Jorgenson: Decentralized science, the finance, the health, these are all- it's interesting to me that these are all the starting points, but that eventually, all data ends up there. Like this is something when we first met, I was in the middle of working on the Balaji book, so I was like fresh, I had freshly installed his idea of the ledger of record. So I think like that's a good, like the vision of the ledger of record is maybe a good place, a good capstone to put on this because I think it's a really broad view. And so, I want to- I can read a quick version of this. And then I sort of want to end with like what is the 50 year version of Weavechain and the future of data? And how does the world look and work and feel when all data has the capabilities that sort of we just technologically learned to give it? So this is a quote from Balaji about the ledger of record: The ledger record is the combination of all feeds of on chain data. It subsumes social media feeds, data APIs, event streams, newsletters, and RSS. It'll take years to build but will ultimately become the decentralized layer of facts that underpins all narratives. People will put data on chain because they'll earn money from supplying it. Every person or organization slowly moves from posting on centralized social media platforms or databases to posting on decentralized protocols. Decentralized media will turn that into monetization, permissions, distribution, and programmability all built in. And I think that's the data of all those individual oracles go into the ledger of record, which gives us cryptographically verifiable facts about the world, like the entire world. And he has another passage where he talks about like how many of our activities produce digital artifacts now, like every Fitbit tracks where we are, phones track where we are, phones track like every minute that we're looking at it, every transaction, every communication, like not every bit necessarily is going to end up on a chain, though maybe it will, and what becomes possible. He's like, you can essentially replay an entire civilization through its digital record if it's saved in these like decentralized ways. And I think it's so fascinating to just think about the world through that lens and what another decade or five of progress in this world in this direction can look like.
Omar ElNaggar: That was amazing. I couldn't agree more with that statement. And I'll use that as the foundation for where our vision of the world is going with Weavechain. And you mentioned at the start of our conversation today, we think that 100% of the world's data is going to move over to web3 data rails. Now, I would say this, that like the only difference between our vision and, let's say, Balaji’s is that I don't think it will be one ledger of record, I think it's actually going to be a variety of ledgers of record that are interconnected and interoperable. And it's sort of like a beautiful network of networks kind of thing that is connected, but allows for isolation and privacy, frankly. But at Weavechain, what we think the properties of web3 data are is that, first off, anybody who's going to go and interact with the, we'll call it the ledger of record for now, it needs to have a verifiable identity. It needs to be provable activity from individuals that can't be spoofed. And the second thing there is that once they are doing something, it needs to have these cryptographic guarantees of immutability, either by putting the data directly on chain or by using Blockchain anchoring, like we do at Weavechain. And third, and really I think more interesting for most people is this idea that there will be a perfect lineage of how data has been moved and shared and accessed and transformed between parties. I think our children are going to look back on the days of us being a product and not knowing that our data was used in a Cambridge analytical scandal as a crazy thing. It is just going to look like we're all these leaky sieves, where all that wearable information that's coming from our bodies is just being sucked up by people that we don't even know about. And once you have that lineage, we hope that the individuals are active participants in this data economy, that you can be proud of the fact that your healthcare data is being used to drive these amazing pharmaceutical discoveries in plain sight, not as like a dirty secret from some guy that's benefiting on the back ends. We really like tokens for that compensation as opposed to just dollars because tokens give you the ability to incentivize people with more than just cash. You can be establishing reputation for individuals for not just giving their healthcare data, but trying to answer surveys and participate in these trials and do more, or it's not just cash compensation. And ideally, they're able to share that data in a way that doesn't even dox themselves, that can be shared without breaching personal privacy. Maybe I don't want my personal medical conditions to be visible by the world, but I still want to make it accessible for the right people to understand and use in studies. And the last thing is to the broader ledger of records, we think there are really exciting things happening with decentralized applications that have decentralized logic, as opposed to web3 data, this is truly decentralized logic. And we think that's going to be part of that interoperability spectrum. So what we're trying to do at Weavechain is make it as easy as possible for data to get those properties in the short term. That's going to be how that invisible wave of innovation is going to happen is by making it easy, making it easy to participate as opposed to saying the only way to do it is to rebuild your entire application on Etherium. Gosh, it's like it's just not going to work. It's not going to work. It hasn't worked at a mass scale at least.
Eric Jorgenson: It's especially not going to work in finance.
Omar ElNaggar: That's right. You got it.
Eric Jorgenson: Nobody's rebuilt anything in finance since 1924.
Zach Pettet: Not and had it adopted.
Omar ElNaggar: There's some interesting innovation lab projects out there. But it's really tough to achieve production scale.
Zach Pettet: Yeah, but we still use IBM products from when Watson was alive. And we're not talking about the AI.
Omar ElNaggar: I was having a lot of conversations this past week about SAP and Oracle and these ERP systems that are still built in COBOL. And let's say even further away from being upgraded. So, there are some warts.
Zach Pettet: I think when the final COBOL programmer dies, I think that just, I don't know, it's going to be an interesting funeral is my theory. Like, I think we should all go. And it just feels like a moment in time, feels like something that we need to either celebrate or be very scared of.
Omar ElNaggar: Be very scared of. One of the fun anecdotes I heard is when COVID hit, they had to go and bring all these COBOL programmers out of retirement to go and fix these government systems that clearly were not going to be upgraded in the short term.
Zach Pettet: Yeah, there's one of my mentors in Kansas City actually got re enlisted. He was the CIO of like aerospace company way back in the day, and he got re enlisted during COVID to like- he was like 84 at this point, and we're asking him to put on a mask and walk back into fucking government buildings and work on-
Omar ElNaggar: It is like Lethal Weapon 4. I’m getting too old for this shit, man.
Zach Pettet: Exactly. Yeah. And I don't know if you have to get- like I don't know about like COBOL programming. Do you have to get into a flow in order to- like I don't know how this works. But I can't imagine that man with like a 2 liter of Mountain Dew and like just full dark out curtains, like I just can't imagine that happening. Anyway.
Omar ElNaggar: To me, the most powerful thing of Chat GPT, it is going to learn COBOL to take care of this.
Zach Pettet: Holy shit, dude, that's actually a fucking thought.
Omar ElNaggar: GPT-4, now in COBOL.
Zach Pettet: Yeah. Eric, do you want to wrap it up? Or what are thinking on final notes?
Eric Jorgenson: I mean, I feel like we're, yeah, we're in garbage time. This is a good, I mean, amazing overview. I think it's so hard to like know where to stop with this because I feel like Weavechain touches so many things and can touch so many things in the future. And Zach has just such a deep understanding of FinTech, and I just want us all to talk forever. But people don't want to listen forever.
Omar ElNaggar: Well, I hope they reach out. I hope the people that are excited about building this future with us figure out ways that we can go and build it together. Because I think that's the most important thing right now.
Eric Jorgenson: Let's sort of end on those notes. So Omar, who's sort of the perfect set of people for you to talk to? Who are the role players? Who are the companies? What are the best people to sort of carry forward this flag into the future?
Omar ElNaggar: At the enterprise level, it's anybody that's in the org stack for a chief data officer. But the reality is we're working with institutions that don't even have Chief Data Officers a lot of the time. So people in the tech stack that are working on even financial reporting and not in the tech stack, reach out to us. And those could be hedge funds, startups, venture capitalists, or people that are on the auditing side of things and are trying to go and build better systems for making these attestations at scale for organizations. And similarly, any data developers that are going out there and trying to build these web3 data flows, we'd love to talk to you. Weavechain is in a public beta right now, so people can go and get started with it on their own and reach out to us when they're looking for a little bit more help to speed things up.
Eric Jorgenson: Beautiful. Thank you very much. And thank you, Zach, for lending your FinTech expertise to this. I understand some of the- this is a little bit of an abstract view of the future. It's not quite nuclear reactors, but I think it's incredibly deeply important. And some of the invisible innovations are some of the most important and some of the most underrated and are going to have a huge impact on people's lives going forward. So I appreciate having you data nerds doing your work and making this invisible wave of innovation happen. I can't wait to learn more about it and see it touch more people whether they realize it or not, invisible touching. You don't even know. We almost had a good outro and then I ruined it.
Zach Pettet: And another episode of somewhat smart friends is in the book.
Eric Jorgenson: I appreciate you hanging out with us today. Thank you for listening. If you liked this episode, you will also love my previous episodes with Jason Hitchcock, Grace Guo, and Shane Mac, all similar topics, very interesting sort of infrastructure of cryptocurrency and the impact that they might have on the future. All the blockchain technology is really interesting stuff. But it can be a little abstract, so it helps to sort of unpack it in these long form conversations, talk about the applications, and talk about how it's going to impact the future. Remember, you can invest alongside me and my partners in world changing companies like Weavechain through Rolling Fun. Also, please check out this episode’s sponsor madebybread.com. Links to both are in the show notes. For a free way to support the show right now, please leave a quick review or text this episode to a friend that you think would enjoy it. Keep those sandwiches toasted everybody. See you next time.