Jonathan Libby on Smart DeFI Insurance

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From all of us at Believe, have a Merry Christmas, everyone, and a happy holiday. In a crude laboratory in the basement of his home. Hello, everyone, and welcome back to the show. Today we have an absolutely tremendous episode for you. I hope you're going to crypto blockchain because you are getting the full frontal download in this episode.

We are talking to Jonathan Libby, the founder of SteadyState Smart DeFi Insurance. That's smart decentralized finance insurance. It is absolutely incredible, this conversation, because it really is. It's like we've opened up the window in time and we're able to reach into the future and get a look at how the world operates. And Jonathan's an incredibly smart dude doing some really dynamic, really interesting things.

And this is just one of those episodes that you just sit back and download it. Just let it sink in. There's not a lot that you can actually take action on today, necessarily, from this episode. But it is absolutely going to expand your mind on what is possible and what is happening out in the world of decentralized finance in general, crypto, cryptocurrency, and ultimately, the place that insurance can have in all of it. It's a tremendous episode.

You're going to love it. Before we get there, I want to give a big shout out to today's sponsor, Agency VA. Guys, I've been talking about Agency VA for over a year now. Just had the one-year anniversary of my VA. His name is Nat.

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And I promise you, you will not be unhappy with your website. All right. With that, let's get on to Jonathan Libby from Steady State. Here we go. Well, hey, man, thanks.

Thanks for coming on the show. I appreciate you taking the time. I know you're a busy dude. I know you've got a lot going on. You're in a very dynamic space and I'm just incredibly excited to have you on the show.

Excited to be here. Awesome. So I was referred to you by Jeff Sheet, who's been on the podcast as well. Good friend. Runs a tremendous organization in Quantum.

And when he recommends someone, I obviously am very interested because he's not the kind of guy to mess around. And then when I looked into what you're up to, I was like, well, this is like the coolest stuff going right now. And one of the more, and as we talked a little bit before we went live, you know, I think maybe not tomorrow, but certainly in our future, one of the more, and I don't like to throw the word disruption or disrupt it, you know, anything just being disruptive around. But I do think DeFi has a chance to make a significant and dynamic impact on how insurance operates and how our world operates. Frankly, I'd be lying if I said I hadn't bought, I hadn't re-upped my stake of XRP about 15 minutes before we went live because I'm kind of a crackhead.

But, you know, first of all, let's take a step back. What is decentralized finance? What is DeFi? When you hear that term thrown around, let's kind of start at the basics and we'll build our way up. I think that's a great place to start.

So decentralized finance, often it's called DeFi, is kind of, it's kind of doing everything we do actually normally in finance. But rather than people handling the business, it runs on autonomous code fully. So we have this kind of idea of, we understand how the business works as a church, professionals in finance or in any kind of area, but a lot of normal people have an idea of how things work. But when they start explaining to your job, you realize they have no idea of what actually goes on to do it. How DeFi works is it runs on autonomous code where if you put money in, you can actually see step A, B, C, and D run naturally on a code system.

And then you can actually know what actually is going on. So what this kind of means is it's meant to like remove a lot of how people, a lot of the third party or intermediaries between getting some kind of achievement or an input output. And kind of like that's not what it's supposed to be versus TradFi, we have to go through intermediaries to get some kind of solution or how to solve something. Rather than that, it's supposed to just be one on a one-to-one ratio where someone has an input, someone has an output, and it just goes there without the third party broke. And it's kind of like a really unique aspect in the industry where we've always had that and we're trying to figure out how does it work and what's the value at there.

Because if you're a banker, okay, you're trying to give out a loan, let's say, there's a very direct kind of framework to function on giving a loan. But if you know the framework, work around that. So it's like, okay, well, that's better than code. But the reality here is there's another value at this. Maybe even though it can't be as customizable in the space, it allows you to actually be more capital efficient, where you don't need the overhead, you don't need the people.

It's a system that naturally runs. And also another thing that makes it very interesting is that it's tough to control or manipulate. This code, when it's built, often there are keys that show you the way to add more code to the system. Well, what people often do in decentralized finance is they burn the keys for the criteria to add information into the system and make it grow better. What that means is that there's no centralized authority.

Because there's no centralized authority, there's no one to collect the overhead. And because there's no overhead or any kind of cost on that end, it's just a one-to-one ratio, like I said in the beginning. And that's decentralized finance to the whole, you know, bank lending. Rather than going to bank to receive the assets, people buy capital on one end and someone lends money here and takes a lend and they provide APY, you know. And because of that, not low cost, you can actually get higher returns compared to traditional financial markets.

Yeah. And, you know, isn't it, you know, the other part that I think is interesting about that is the opportunities that it presents both on, and just taking the lending, just that is one kind of microcosm of this, of decentralized finance. It opens up the market for micro lending. It opened up lending to people who may otherwise have been, you know, unable to hit certain triggers. And it provides maybe someone like me who doesn't, you know, I'm never going to go, going to have enough money to create a traditional lending facility.

I could actually put some of my assets into a pool that is then lent out to, you know, I could pick a risk tolerance and then be part of a lending pool. And now I'm able to capitalize on capital that would have just been sitting in a bank account and, and that to me, I hate, you know, again, I don't want to use too many buzz terms, but like the, the, the democratization of that in its, in its untarnished form is incredibly interesting to me. I mean, it just, to me, I, it's hard for me. So I'm like way down the rabbit hole, not as much as you, but without owning a, uh, de-finance or crypto business, I'm, you know, this is like my, I just think it's so interesting. I can't see how, once you start down this path, how at some point in handicapping the timetable to me feels kind of impossible, but I can't see how we, this isn't the eventual where we go.

Oh, absolutely. Um, you know, the question is, is it going to be like the future for everyone or is it going to, is it just like FinTech? Is it going to take over a portion of the market, make things easier to access, but find its niche within how things actually work? And that's the real question, you know, what it's going to be, what's it going to look like? Um, the biggest, the most coolest thing about DeFi, as you dive in is it's kind of like the weird marriage of traditional finance nerds, like you and me with developers and code knowledge.

And it's kind of creating and creativity. Um, I think it's one of those kinds of things where we can kind of combine these two kinds of concepts of autonomous code, financial nerds, creativity. And I'm seeing a lot of people building a lot of unique concepts that aren't possible in traditional finance that they're applying and really challenging the way how financial systems work and proving how there could be a better solution. The reason why decentralized finance, I believe, is a future for sure is, um, it really allows people, let's say, let's start with third world countries. I think in first world countries, it's great.

There's a lot of corruption in banking models and in currency. I remember a story where Turkey's currency raised and the inflation raised by 40% decreasing the value and dramatically in the value of your assets. Could you imagine having a hundred thousand in the bank now it's worth 60,000 a day later out of nowhere? It's incredibly disruptive. You know, one of the key aspects, this isn't necessarily native to DeFi, but it's very much used in the DeFi system is stable coins, where it's one coin with a derivative value that's staked to another value constantly.

They can't move. Um, you know, Nigeria is one of the largest users of Bitcoin, even more than the USA. And these stable coins, what they are is it allows people to actually keep stable value in their funds to be able to transfer it naturally. And another problem is because, you know, if you want to exchange your assets, you are often stuck in the area you are or whatever you're in with the internet and these stable coins, you can know access to it very easily from Nigeria, say in Thailand or the USA, naturally creating a more global market and actually increasing maximum market share, allowing global countries to move up way faster and allowing us as like in first world countries to actually have more access to new opportunities in there. Yeah.

It's really amazing. I, well, so my, my, I love this conference. This is going to be one of my favorites. So for my first thought is imagine if the ruler of your kingdom could just drop, like, let's say $1.9 trillion on the ecosystem in a, in a snap of his fingers and tell you it's because of a disease and, um, you know, and then do another six just for why not. Uh, so, you know, this is like real world hitting everyone.

Second, you know, I was one of the things, um, one of the, uh, cryptocurrencies that I follow quite closely is Cardano. And one of the things that an initially caught my eye and, and since reading into it, I know more of the nuances, but one of the initial stories that caught my eye about Cardano was how, um, Charles Hoskinson, the founder of Cardano was, was using, was, was working towards applying it to the African continent, which if you don't necessarily understand what goes on there as a listener, um, you know, all the, if there's a currency and if that currency is controlled by whatever the, the, the, um, country is, it is often highly centralized and it's all grouped into whoever, like the few controlling entities are and the, the rest of the country is left. They're still trading like sticks and shit and what's happening and what Cardano is one of its early missions was to, to be able to do just like you said, provide a base layer of, of transactability to people boots on the ground. You know, I can actually pay you for the milk that I need and you can pay me for the bread and like being able to now give a stable currency to all these people. So, okay.

So that's the cool part. What really is going to be fun is when we can blockchain, um, HTTP, HTTP protocols, like web protocols, because right now they can still use the internet to kind of create geographical barriers to crypto. And it's like, as soon as we can figure out, and I know there's some projects that are working on it, but like, as soon as you bring down that layer and you put the actual internet onto a blockchain that is not able to be centralized or, or have these, you know, these artificial barriers to it, holy shit. I mean, that's like a whole nother level. I think a great example of that is, um, there was recently a subpoena on Uniswap.

So Uniswap is a decentralized exchange where people can post tokens and trade. It's like, uh, it's a broker that runs totally automatically, which is amazing. And it, we do have, it's called, um, you know, Cardano's looking to do it. Ethereum has done it. Um, Algorand's looking to do it.

Polygon's built on Ethereum. It's like a decentralized internet where no one can control and, you know, anyone can build on it. And that's where people are building on these protocols, you know, it's, we're building on it. And what we kind of saw is the power of like building on a non-controllable system. Let's say you can, it's like, you control how the output, you can't control the input within the ecosystem.

And I can go into that as well about regulation if you want to, but, um, Uniswap built a whole entire system on the Ethereum network on decentralized code. It's open source, publicly available to anyone. Um, they basically got a subpoena saying you're basically launching securities, um, the unregulated securities out and then anyone have access to them. Well, the problem was the government couldn't shut down Uniswap. They built this code on this ecosystem that just can't get shut down, it's naturally there and it's running on all this autonomous code.

They burned the keys to, to running the system. So all Uniswap had access to was an HTTP, PP front layer landing page to enter the app. And all that had to happen for somebody to make a new website in another country, copy that, pop it and place it there. And it's running again. You can't actually stop the system.

So when you say, real quick, before you go any further, because, because I think this is an important thing to clear up for people. When you say like, it's, it's running on a deep, like, uh, I would love for you to explain how it works, like the distributed network works, how they can't take it down. Right. Because, because, because I think for people who are listening to this and maybe still not familiar with a lot of this stuff, that doesn't make sense. You just pull the plug or delete the server.

Right. Like, how is it that that can't happen? So I'm not the foremost expert on say blockchain as a base layer, but you're better than probably 95% of the people listening. So go right ahead. So, um, kind of what Ethereum is.

Um, so it's, you know, I think there was kind of like some major asset classes that are competing. Um, you know, I think Bitcoin's in a, in a world of its own where it's trying to compete itself with a store value, but the rest are trying to take over market ecosystems. So there's Cardona, Algorand, Ethereum, and Polygon, which is based on Ethereum and a lot of other, a lot of Solana, Avalanche can go, can go on. And, um, kind of what these guys do is they built a code or a system basically where there is, um, it's called a blockchain where all the information, the system is all information they would have access to. And basically how it grows is rather than keep off manually, like one group or one central actually has to grow a system out.

Like the internet, um, is someone to go and build a website and a system or expand it, whether it's kind of a layer, kind of what happens, they build a layer that's just naturally valuable or customizable and people go in and implement and grow it naturally. And you have to often have access. Now, originally you'd be like, say, well, I accept this and you have to have access to like a native token to implement and then use it. But a lot of these, you actually don't have to work for where it's this, an autonomous system that runs where a framework is given. And that framework is code.

We do have JavaScript, Python, and Ethereum and Solidity. I don't remember what Cardano's is on top of it, but it's like in a code and you say this code and you can enter anything in here. And because no one can, it's on charge of that layer, you know, it's like no one can shut it down. So if you, I can input a code or do anything, I can plug it there. No one can just like go up and say that code developer, pull it out.

If I did that on the internet, I have a website attached to me. I have, I have a domain. I have like a license. I have always different things. They can know where the code is, attaching the code and then wipe the code out and go to like some kind of centralized group to destroy it.

If I build my domain on Google and build that out, they can go to Google and say this guy with this, right? With Ethereum, there's no way to really actually, and there is, okay, I can go into it, but like on the initial layer, you don't know what it is. It's not like KYC necessarily. Now there is, and I can go into that later, but on the system itself, you can't just go perform and figure out who, what someone is. And because of that, anyone can place anything and you can't just pull it off.

And because you can't just pull it off, what that means is like anyone can post anything or do anything in the system network internally, and no one can, no one can stop them. Unlike the internet where anyone can pull it off. Now you can control and figure out who people are and it's called off ramps, but I can go into that and that's where you start really figuring. And there's also ether scan, metamask transactions. I can go into actually how it's very easy to figure out who everyone is, but it's also at the same time kind of complex, but yeah.

And the reason you can't just pull it off is because you have 20,000, 100,000 different computers that at all times. Exactly. And the computers are anyone who holds the token and you have to get everyone who holds a token to be like, take that off. And it's almost impossible. And that's actually the great point.

I forgot to add. And that's actually perfect conclusion is the people, how you can pull anything off is you have to get a large, you have, there's that native token that you have to have in the system, like I said, whether it's ADA for Cardano, Ethereum for Ether, and basically you have to get a majority of people that want to like agree to pull something or implement something new into that system. Yeah. And it has to be a universal agreement. The group that does this best, I would say, is the Bitcoin community, where it's Taproot, where it comes to that, it's almost impossible to change.

Yeah. They just recently implemented this new system called Taproot. From what I understand, you know, it's, in Bitcoin, it's very actually hard to use as anything other than the golden rock, I would say. And, but what did they try to do is they, they're allowing transactions. They built this thing called Taproot.

I still have never actually sit down and read, like really go on the nature of what Taproot is, which came out like months ago. I really should have. But basically they had like a 60% consensus, like everyone is involved with Bitcoin community somehow. To agree to implement something, you know, and getting these Bitcoin guys to implement anything is impossible. Yeah.

So they agreed to it. And basically it allows transactions to flow more freely within this thing they're trying to build called a Lightning Network. Yeah. That is something they're building that goes on top of Bitcoin. It's supposed to compete with the Ethereum concept of Cardano and Alderaan and what these guys are building as well, where you can actually build on the Bitcoin network and put transactions through on Bitcoin.

And that was one of the great examples of like, it's the first change, I think, in like eight years or something crazy like that. And the thing was built in like 2008, which tells you like, how impossible does it change anything? It's just going to get harder and harder as this Bitcoin gets a series of more people. Yeah. You know, the thing that, you know, they call it, they call it FUD for anyone's listening.

And it's basically just trash talking and nonsensical stories. There's a lot of gaslighting that goes on. And, you know, I, when I, again, I, I'm probably way too down deep into this rabbit hole for my own good, considering my limited technical knowledge. But, you know, again, the more I research the technologies, the more I understand things like, like Solana coming out with proof of history, right? So you have, you have proof of work, proof of stake, and now here's another network that has something called proof of history, which is able to even take proof of proof of stake, which I won't get into all the different details, even take it a step further.

And all we're just continually moving to the idea that in order for something to change the, the group, you know, the whole group or, or a massive portion of the group has to agree to it. And each one of these evolutions makes it harder and harder to rig that change in any way that isn't an agreed upon part of the network as it was set up. So like, there's a set of rules for that network and, and it's, and you can operate inside those rules as much as you want. And what all these iterations and new attempts of doing is, is just solidifying the security of that network so that you can't have someone come in and just all of a sudden debit themselves a million dollars for no reason. Wait a minute.

That's not how the system works. And 73% of the people in the network say that it's not so too bad. So sad. And, um, that to me, I look at that and, and, and now I kind of want to, I want to transition a little bit and we can go down these rabbit holes again as much as well, but I want to transition that a little bit to insurance because, you know, you think about how, and I mean, that freaking way that insurance, I have a hard time because I live in traditional property casualty insurance world and to run a traditional property casualty insurance business, you have to operate by those set of rules. And then you see the things that are happening in finance and you're like, oh my God, like look at what they're doing and the way data is passed and how it's held and, and how, how easy it is to, to, to, to, to spread risk.

And this is what we're doing in insurance yet. You know, we're still using AL three download systems in order to transfer inaccurate and oftentimes antiquated data bites between, you know what I mean? Like I just look at it and I'm like, this is insane that this is how we operate. I know that's not, you're not operating in that same space. Like you're, you're doing something slightly different, but it just, this to me, if there isn't like right now, every major property casualty insurer in the country should be finding people who think the way you do, who have your type of expertise and putting them on staff.

And even if they're not doing anything, they should be researching and testing and talking to people and starting to build these networks. What's up guys. Sorry to take you away from the episode, but as you know, we do not run ads on this show in an exchange for that. I need your help. If you're loving this episode, if you enjoy this podcast, whether you're watching on YouTube or you're listening on your favorite podcast platform, I would love for you to subscribe, share, comment.

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You've got to have it. If you want to discuss insurance and implement a lot of these new concepts, you have to understand insurance and you also have to understand the space and you have to combine it. It really is. You can't have one or the other. Like, you know, what I built, you know, started originally as, you know, we had a parametric framework, parametric insurance framework built under a captive insurance model.

And then I like implemented the idea of the insurance and security, which is a brand new concept, you know, in cat insurance and CDOs, credit, post-fault models, like the whole thing. And it's like, you have to, you're not, you're paying these guys a thing, give them a problem and you tell them to solve this. And if they do their job, they're passionate. If you get the right person, they'll create some crazy solutions. You're like, oh my God, you know?

And that's kind of like why you hire these guys is like, they're the strategists who can think 10 years ahead of what is the industry going to look like and actually bring your company forward. Um, yeah. So let's talk about steady state. Oh man. What, what's going on?

What, what is it to, you know, give us the lowdown. Um, steady state. We are so under these layers, let's call it theory. Okay. Cardano is not there yet.

They're heading there and Solana is heading there as well. And Avalanche started, um, there are these things people build these decentralized code businesses on top of these networks. And they're, um, what we simply are, they're providing insurance to these businesses for different kinds of risks, specifically catastrophic. Now, catastrophic risks, like we actually normally understand them are, you know, hurricanes, lightning storms, earthquakes, but there's a new kind of catastrophe risk. We understand to be a cat event, um, such as technological risk or cybersecurity risk.

We actually don't, we forget those are catastrophe events. The biggest risk right now in this industry is the code is still early. This industry is still early. And it's like the wild west. Nevermind like we have the internet and probably you, Brian, I were like on the cusp of that when we were young, but like people with like, um, phishing attacks and viruses and scandals.

This is where we're at right now in this space. It's a wild west. You know, if you're not careful, you can get in serious trouble, you know, and what we're doing is basically the, the, the risk you're exposed to is if you build this decentralized code, if there's a bug in the code, someone can take advantage of that saying steal the money. Okay. Or, or if there's a, you can blackhead exploit.

And like, if the coders themselves make a mistake on like some kind of a poor decision on like the infrastructure, you can blackhead exploit that. And people who provide capital to build these networks, these systems are totally exposed. Okay. And these kinds of events we're trying to find starting to share for protocols, how the industry currently works is there is no insurance for protocols. And it's $145 billion industry just on Ethereum.

And it's probably heading to a trillion dollars, probably a year or two. I wouldn't be surprised because a year, a year and a half ago, it was like $10 billion, maybe less. So it gives you an idea of how quickly it's scaling and growing. And, and there's no sign of stopping. And so basically what we're doing is we're starting to show these protocols for catastrophe that risks.

And currently how the industry works right now is I'm a retailer. If I want to get in, there's no insurance for protocols and the retailers have to get insurance. And if I, I can use like 50 protocols. Okay. I can use like 50 business models in this new industry, you can work in like 50 businesses rather than being attached to one.

I didn't, I'm involved with 50, 60 protocols, running capital, actually using them, growing my, my, my, my, my, my, my, my, I guess my stake in all of them. And, and basically if anything get hacked, we're having the business being responsible for writing the code or the people in charge of that area, I lose the money. And if I want to get insured for that, I have to go to mutual systems. How it works in these mutual systems is incredibly fundamentally flawed where people like you and me, Ryan, they provide capital into a pool to insure people and I get insurance in that pool. So I want a hundred dollars insurance.

Okay. Now let's say one of the users, okay, viewers wants a hundred dollars insurance and you and me provide $50. If it's the, we agree upon a criteria to pay him out. If the event happens, we have to vote, Ryan, on whether or not we pay him our money. It's kind of an odd system, the mutual model, and there's no regulation to provide without being able to pay out.

In the current model right now is the current model, the approval rate for a payout is 18%. No one's going to trust that model of insurance. And so businesses aren't trusting that either. What we're doing is all these events that we're trying to cover for have historical evidence of what kind of loss you're expecting. And the events you want to look at can be tracked on on-chain public data.

So we've actually just partnered with one of the biggest players in the game, Chainlink. We're integrating, sorry, we're integrating with Chainlink and, and we're working very closely with them. And basically we're, what's the key, they have this concept called the Keepers Network. What it does is it tracks all this on-chain data that's going on constantly, all these different protocols. And when it finds whatever it needs, it'll actually bring the data to the smart contract you're looking for.

And then from here, we have this network now that can detect events almost automatically what's going on. Where there's also this, we're using parametric insurance for protocols where you agree to a value payout created the event and we agree to establish criteria. The Keepers Network looks after those criterias and when it finds the event, it brings it in and it starts bringing a payout for claims process. It's almost completely automated to the protocol. So rather than humans intervening and voting on the decision, it's run by technology and humans evaluate the technology to make sure it's correct.

Now, the other problem we have with insurance, this is kind of the, this, yeah, automated insurance is innovative. Very cool. How actually, but what the problem we have also is we are not like a $500 billion insurance fund. How do you provide business insurance? And that's the other key problem with states, how do we actually provide capital to ensure these protocols?

Well, the parametric model, how we're kind of building it out initially is, you know, you have a predefined level of pay value of payout pre to the event. Often it's the average loss. You need about 23% of the actual protocol size value to be able to fully cover 90% of hacks on the protocol, so we've already calculated. And so basically that 20, 30%, they say they close with it. Rather than you, I can insure them as a business initially because they don't have the capital.

People can stay capital. Say you have Aave. Aave is a lending program on the Central Ice Minus on the Ethereum network. Aave is willing to pay a 20% rate of return in their own native token, let's say, if I'm up to that $30 million policy. Let's just say something crazy like that.

So if I, as a user, take 100 USDC to cover their downside, I can receive a 20% rate of return to offer. So by the risk, basically, by the risk of a business, they're paying me in business stock, which is a whole unique aspect to it. But the problem here now with this, Brian, is my upside is 20% in moving value, which is great, actually, in my opinion, but your downside is 100% on a USD value loss because it's parametric. If the payout happens, it's going to pay out. And so what we're doing, rather, is actually rather than trying to, like, argue, like, what are the odds of peso because we're always doing that when we buy a bond, we buy any kind of structured debt, you're deciding your loss and betting on a chance of it happening.

We're trying to control your loss. We're buying from CEO credit default swap models to release things called index pools. It's just a derivative pool with weighted exposure to multiple different insurance pools on the coverage side. So if I have a pool, say, with 5% exposure to 20 protocols, okay, and the premiums here are really high, by the way, the APYs are here are stupid high. And with the blue chips, the Aave's, the compounds, the ones that are really long-term, the Googles in the Apple's of the future, they're either wise on accumulation or very well.

And so basically, we're building derivative pools with, like, weighted exposure to multiple these different kind of parametric coverage pools, say, 5% to 20 pools. If an event happens to any of these pools, rather than losing 100% of value, you lose 5%. And say, my upside is, say, 20% again, of 20 native tokens being accumulated naturally during the duration period. Our long-term vision is to make this a top 100 DeFi index pool, structured pool with 1% exposure. The odds of one protocol file for insurance in the system is, like, 5% in a top 100, which is, you're taking a 5% chance at a 1% loss.

Two, you're taking a 1% chance at a 2% loss. Let's say Black Swan, five protocols file for insurance on this network. You're taking 5 chance, you're looking at 5% loss of your principal, but your upside is a 25% return, 20% and 100 tokens being paid out to you. You're accumulating. We're actually trying to turn insurance into one of the most natural accumulating products you can buy while controlling your downside risk.

This is going to be one of the best ways to accumulate blue-chip tokens in DeFi that are the future of the industries, while also controlling the downside. We're looking to take the structured product model, going on the KYC-compliant blockchains and actually looking to sell that and bring institutional finance in. And our long-term goal is to take these fees, collect them naturally, and then build an insurance pool that floats over all of it. So what you actually see is this is more of a reinsurance model than an insurance model for a billion out. But the goal is to pick the fees, collect them, and then build an insurance pool that floats off.

When the insurance pool floats up, it'll actually keep the APYs high for the stakers while reducing it for the protocol. So essentially, if I were to... That's a lot, right? No, but it's awesome. I followed like 90% of it.

So essentially what you're providing, if I were to put this back into analog terms, is you're creating an insurance company in which the dollars that normally would be invested by the company and reaped by the company are invested into the products in which you are actually insuring. And then the people who you're actually getting to reap the investment dollars out of those entities, insurance, right? Kind of like that, yeah. We can almost create an insurance where business can buy their own risk and then profit off of them. Again, I know it's a lot for you guys listening at home who haven't done a lot of the research.

Maybe you don't understand all the terms. And I'm certainly not going to ask you to stop and define them because go do the research. But I just, I can't, like I come back to it. I'm like, I can't see how this isn't where we're going. Like I can't see how, you know, how this isn't the path forward.

Now, one of the things, one of the questions, like, do you guys, do you guys have a token? Like, do you have consumer, consumer, could a consumer like me buy steady state to start to get into, to start to get into these pools and start to be part of this process? Yeah, so we're going to have a release. We're releasing product in Q1 2022. We're about 30% through our build out and we're going to be in test net probably November, December, you know.

And so once we're all set, you know, we're planning to release our token with product, with utility value in Q1 2022. And basically, yeah, you can have our tokens, whoever holds our tokens, one of the nice value is you're collecting the fees, a portion of the fees throughout the whole system, which is really nice. So it's natural, like, you know, automatic paying, you know, a dividend, but also in the same time, you know, using these systems, these models and state pools, it's where we're almost building the first, turning insurance into like in this space, building the first insurance in this space, but also like building the first bond market for these structured products. That's what I was going to say. It's, it sounds, it sounds like a, like a hybrid insurance slash bond product.

Like there's, yeah. And the long-term goals to build an insurance pool that flows over the network. Okay. You know, as we get, like, we can offer 40% collateralization to all the pools in our system. What protocols can do is they have like an insured payout, let's say 50%.

And then they have like a floating payout on the, like a natural insurance pool in the floating pay that like receives that only promises say 10% of value. So then we're only receiving the business 10% of premium, let's say on, on the 40 million, which is actually 2% or whatever. But the people who stay capital will still get their, their, their high APYs because you're paying the full on the collateralization. And so you can see full collateralization on this people's stakes and capital still receive those APYs, but us receive a lower one, which makes it much more attractive for the business. What this will do long-term is as we keep floating, it'll create scarcity on the stake.

And then people will start trying to buy and trade these on these index pools on a, on a discount and premium value on a secondary market. Similar to that system, you know, fixed income system, but at the same time it's insurance and longer term, we create, our goal is to create a short-term and long-term scalable model to ensure protocols, you know, and actually we're almost like building a model that prioritizes reinsurance, but we move from reinsurance to actually ensuring the protocols ourselves as we keep developing. And by us, I mean a decentralized community, not run by me, not run by anyone, you know, directly, but by the people who actually want to be involved in the space. And when you have that token, that native token risk, you can be a part of that community and help develop it in the future. We're planning to build fintechs that work with DAOs, this new kind of concept where this DAO community, how often there's a fintech.

Okay. And then that runs everything. Whereas in this community, fintechs have to fight to receive these tokens, they get a stake in the business. And then these fintechs are going to take these products long-term and want to go into KYC, KYT, through blockchains. And we want to take these products and sell them as new asset classes across a whole new industry of the traditional finance.

Because honestly, these structured index pools are a concept that you really understand on the financial model, but you get exposure to DeFi in a way that makes sense. Yeah. Yeah. How did you get into this? DeFi?

Yeah. Just do what you're doing right now. How did you get here? Like, how do you get to this level where you're, you know, I mean, talking about derivatives of, you know, de-financed, you know, what is essentially a bond product. You know what I mean?

We're talking about layers on layers that we're still seemingly years away from. But, you know, how do you get to this space? Like, how do you, how do you get to this point as far back as you feel is relevant? I mean, I fell in love with DeFi in the fall of 2019. One of my professors was, he ran a product called Pool Together.

Pool Together is a no-loss lottery savings account where I put money into a savings account and I receive like everyone, every week, everyone sees like some of the rewards of all the aggregated APY. What they use was Compound. Compound is a new lending protocol that pays interest by the second or by the hour, which is, and banking, you get it annually or semi-annually. How do they compete with by the second? And basically all those generated APYs pay out a winner every week and they receive rewards.

So it's like a savings account where your money is never, you never lose money, but then you have a chance on top of that receiving like extra million dollars randomly one week, you know, and people do win that. It's crazy. And then, and then from kind of what interested was Compound Finance, where I saw the interest that paid by the second as a finance account, like how is that even possible? Doesn't Gemini run off Compound Finance? I think a lot of people use Compound and off it, you know, they're very secure systems.

They're very effective and they're very, they're very up to like code standard in just normal in any industry. So they're very solid. So I think Gemini uses it. I bet a lot of people use it. Comp is a very good token.

Again, I think these are blue chips of the future, the new blue chips of the future. But yeah, so Comp is like, I immediately looked like, I thought this was a scam. You know, there's no way interest paid by a second, right? And then I found that, oh crap, that's not a scam. What blew my mind and really brought me into DeFi, you know, it really was another product built called Urn Finance.

Urn Finance, what it was originally, it has a lot of uses now. It's like an ultimate hedge fund for anyone to use, basically, I would say, on this decentralized node by anonymous people. But what it was kind of like really built out to be initially was basically a smart contract where I put my USDC or my stable coins in the smart contract, it would find the highest APY every second between ABE, Compound, Synthetics, and other lending protocols and naturally move my money at all times between all these networks and systems and find the highest APY possible in all these bankings. And my thought was like, if you put that on a bank, what would happen? Okay, if you put that to a bank, like what, it would force these guys to think, how the hell do we get these APYs up or how the heck do we get these APYs up, you know?

And my thought was like, let's apply this. And I'm like, this is the future. And so I started looking, how do I put all these concepts together and build something? Eventually, I met a very well-known figure in the space named Tim Frost from Yield App. And Yield App contracted me to build an insurance solution for them and how to insure their portfolio for like DeFi risk.

Tim Frost is a very, very, very well-respected person in the industry. And I was very blessed to get to know the guy. He's a great mentor. And basically, they liked my solution. They thought it was like, this is typical insurance, like an alternative insurance, but combined with the finance, combined with all the derivatives.

And they're like, oh, crap, this makes sense, actually. And they were like, let's go for it. And then we ended up going that with our first client and our first partner. And we're very excited to work alongside each other to build the future of insurance. That's awesome, man.

That's very cool. I, you know, this, this would be if I, if I, I mean, you're what, like 25? Yeah, 24. Fuck you. If I wasn't like, if I wasn't, wasn't like, if I wasn't 40 and deeply invested in the standard insurance space, this is absolutely where I would be.

I think, I think this world that you are playing in is just so intriguing on so many levels. And the, the, the, the, you know, you know, the, the, the, the freedom that it provides to people, the opportunity, the, the, you know, I, um, redistribution of wealth in a non-communist standpoint, right? In a very capitalistic opportunistic standpoint. I mean, I see this. It's incredible.

I think in cryptocurrency, universal basic income is, for the first time, is actually ever possible. Yeah. Um, in a way that actually can actually feasibly work where people can all have a standard of life without sacrificing individual liberties. And, uh, I have found that very attractive. I am a big believer in trying to find the best ways to create global equity.

I think if you sell poverty and wealth, a lot of different kind of like wealth disparities, I think you saw a lot of problems in the world. I think it's to prove that and crypto for me is that solution where in one sense, you and I no longer have to attach to one business, whether it's, um, you know, Goldman Sachs or Liberty Mutual or Walmart, let's say you can now work in whatever industry you want and get paid and work in the industry you want, but also, you know, you're paid for the value you produce. There isn't, and the money, like this is, these are money Legos. So like, say I get my, I work with this one network. Okay.

It's one protocol. And then I use all work and all these other protocols. All my tokens get is doing this other protocol and it gets naturally grown. And then I get like the protocol that's going to be income. And then the rest gets grown into a growth account grows like say 20% annually, which is not crazy in this space.

And then like, and then like that 20%, the growth on now that moves into other growth accounts. It's like this new space is if you're willing to be creative, you can disrupt everything. And I, I still really encourage you Ryan to look into it and, and really do certain things either ways I contribute to be involved because there is so what this was basically is all these concepts we do in finance, whether it's insurance, PMC, title, uh, health, life, uh, alternative parametric, it's all these different concepts are going to be put into a decentralized sphere where if you know these concepts willing to be a little bit creative, you can build, uh, billion dollar unicorns because there's already a billion dollar industry in this space. It's, it's not crazy. And I think it's, I think it's going to get shit crazier, you know, as we, as we keep progressing.

Yeah. I mean, to me the, you know, I, I just, I see, I, I, I don't have my head wrapped around it, but you know, a completely, but the property casualty space, particularly in, let's say personal lines, auto, home, things like that. The, the, the idea of starting to decentralize those risks, starting to categorize them, better understand what they are. And the, the, the other thing too, is, and this is the part that's interesting to me is like, is like, why I, when I don't, when I find a concept that I was toying with, and you could even tell me if this is bananas, right? I'm the word word, this is just what I was thinking about.

I was listening to some podcasts and they were talking about different concepts and I'm always thinking about what is, what is blockchain. And I, I, you know, not that term, but what we're talking about, this decentralized autonomous code, what is, what can this do for property casualty? And I started to think to myself, what, you know, rating is such a problem. And often at times it's because let's take, let's take a, a, a less standard account, like a, like a roofer, right? Let's take a roof, tougher to place, limited markets.

The roofer is forced to go through multiple hoops, oftentimes paying a drastic premium because of the risk that they have. Well, what if that risk was, was able at the base layer, not at the reinsurance layer for the huge players, but at the base layer, at the small business level, you could spread that risk out over five or six carriers, or as many carriers as we're willing to take a layer on that business. How much more competitive could the pricing be? How much more reasonable could it be? How much faster could it be delivered?

If one of those carriers didn't have to take the entire chunk, which today would be impossible based on current systems. But in a decentralized manner, you could easily chop up those risks or just buy into carriers could buy into a roofer pool that'll, and run off basically the same concepts that you're talking about right now, and there's an enormous opportunity there because now I don't have to be scared. You're talking about cat events, right? I don't have to be scared about one of your guys rolling off a roof, breaking his neck and dying and having that destroy my year because that risk is actually going to be distributed over five or seven different companies at the base layer, at the primary layer versus, you know, the only time you get into any kind of distributed risk in this capacity is when you get into the, you know, you're into umbrella layers that are, you know, tens of millions deep. You start to chop it up.

But, you know, the full risk of a million dollar death is taken on by the comp carrier on a roofing account. And I just, you know, to me, you know, this is one idea, you know, one thing that I was thinking about, like, how does this space start to just get, how does the decentralized finance and, and blockchain and all that kind of stuff, how does that start to impact the property casualty world and just the idea of being able to buy into pools of risk, maybe as an agency, I want to, I want to go be the roofing guy and I buy into the roofing pool because now I'm actually incentivized to write people into that pool because I'm, I'm staking my, you know, what I've bought into in that roofing pool. So now, I mean, there's just all kinds of concepts there where you can start to distribute the risk, lessen the burden of any one major disaster. And what the, the, hopefully the idea would be is quicker placement, processing, distribution of information, and ultimately, um, a diversified catastrophic loss. Once we separate the concepts of stock security and token security, um, you know, and really start separating that and tokens give them a new value add, I think everything you said is just absolutely possible.

Well, our concept connects with tokenization, um, there's a guy built guy. I just recently met, um, not going to disclose this game, but he's talking about DraftKings, um, GameStop. I just, I'm going to be checking with Barstool where they're building tokenized DAO systems within these kind of ecosystem using loyalty rewards. And I'm thinking like what you're saying, combine these pools, which I want to get invested in these systems to make sure that they're doing their job, right? Get a portion of their tokens, get an infrastructure, actually evaluate them and tell me, crap, you, you, uh, you, you, they're incentivized to make sure that this is running as good as possible.

Yeah. You're right. I think you're seeing it, Ryan, what it's going to look like. And it's going to get crazy. Um, you know, I love it when I hear stories about kids, like, like 10, 14 to understand this, like I met a kid who made a 400,000 on NFTs last month.

He's 14. I'm like, wow. Like, you know, they get it. It's like, we're just catching up with Ryan, you know, but you know, it's crazy. Another industry that demands disruption, I think you can immediately look at is title insurance.

Um, why do we have title insurance? If there's a blockchain, you can like associate an ID to every person. I think that is, um, one of the most easiest industries in insurance and PNC or real estate to disrupt is title. Uh, I think it was one of the easiest use cases is what's the point to say you own something. You can literally attach an ID to that on a public layer.

Yeah. That's basically, exactly. I think what you're saying, all these things, you can just start seeing it. Yeah. Wow.

It's, um, yeah, I mean, where my mind goes with this is like, it's, it takes someone having balls like you do to, to do these things because, you know, they've never been done before. Right. We're talking about concepts that are literally being generated. I mean, obviously there's a, there's a, there's, there's tangible things that come out of them, but, but you're generating ideas that didn't, that didn't exist and concepts that didn't exist. And, and the way to, to, to, you know, maneuver around, um, you know, I, I just think there's so many barriers, all the barriers that are keeping what we're describing from happening are up here.

And, and it's, and it's having the storytellers, it's having the use cases. It's, it's, it's podcasts like this, where 90% of the people that are going to listen to this man, they're only going to understand 25% of what we said, but, and that's, yeah, but, but that's good. Right. We need to expose more people to these concepts because, you know, like, you know, I look at some of the things that happen in insurance and people call them disruptors and I'm just like, that's bananas. That's not a disruption.

A disruption is when, you know, the, the idea of what it takes. I mean, if I, I mean, you probably know, but if I were to describe to you what it takes to purchase an insurance policy today, just all the steps, all the different things that have to happen to get an insurance policy, you would, you would shit yourself. You'd be like, that can't be 2021. What we're still doing today to get insurance when it's like, you know, you can, there's, there's just a whole better method. It's just going to take time for it to leak down to the lay.

And when we start as, as, as adoption continues, it's why I just, I hope things like Bitcoin and Ethereum and Cardano and some of the networks that you talked about, I hope people continue to build on them. And I, what I really hope is we don't get the over the pendulum swing over regulation into this space that, that hinders what's actually happening. Because to me, it's one of the most exciting things. You know, it's the most exciting technology that we've seen since the early nineties with the internet. I mean, it's certainly it is.

Yep. This is the new internet. I, when people tell you, anyone that tells you that like, this is the future of blockchain, DeFi, NFTs, or it's like people telling you telecommunications, internet was not going to destroy telecommunications. You know, it's, this is the next step. It's, it's, it's, we have like, for people that told me that I'm like, you have history to prove it.

Yeah. It's like, we, we, you, you were wrong here. Telecommunications, internet, something you're right now, like you're not. Okay. Let's stop being skeptical and really explore why.

And ask a question like you're saying, open the minds and ask why. Yeah. Personally, I think that it's an even bigger jumped in that. And this is kind of how we'll close, but I, uh, I see it more like the Manhattan project than I do the internet. Like, you know what I mean?

To me, this is that, that generational jump that, you know, when we went from nuclear power, not existing, no one could even imagine it to what we got after the Manhattan project. I look at what's happening is that right now, like this is, this is that big, a leap, in my opinion, it, it just, it is that powerful if things are happening. Granted, we're like, we're like this, we're like in the coin flip of the baseball game. Like we're not even in the first inning yet, like of what's possible, but, but that being said, um, I I'm, I'm excited, man. I'm excited that we had a chance to meet.

I'm, I'm going to be following along with what you're doing. I'll be buying some tokens. As soon as you get those out, you know, you want to sneak me some on the side. I'm cool with that. You can be like, Hey, Ryan's a cool guy.

Um, no, it's probably against like every regulation that exists, but I'm not against that. If you're in, um, but no, uh, dude, I'm just, I appreciate you taking the time. I'm really glad that Jeff introduced us and, uh, hopefully we'll have a chance to connect again in the future. Great to be here. We'll close twice as many deals by this time next week.

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