[SPEAKER_03]: What's up everyone?
[SPEAKER_03]: Welcome back to the Crypto Madrich podcast and we have a great and actually guest here for you today, Ethan Buckman.
[SPEAKER_03]: He's a CEO of Cycles.
[SPEAKER_03]: He's a co-founder of Cosmos.
[SPEAKER_03]: We'll be talking a little bit about clearing in capital efficiency and all that good stuff here.
[SPEAKER_03]: Ethan appreciate you jumping on.
[SPEAKER_01]: Thanks for having me.
[SPEAKER_01]: Glad to be here.
[SPEAKER_03]: Well, we're excited to have you here.
[SPEAKER_03]: It's definitely always an interesting day in the world of crypto.
[SPEAKER_03]: So in it's no matter what, bearable market.
[SPEAKER_03]: It's always a busy day for everybody that's especially working in it.
[SPEAKER_03]: So again, we appreciate you jumping on.
[SPEAKER_03]: But before we get going, we start talking about cycles.
[SPEAKER_03]: Tell us a little bit about yourself.
[SPEAKER_03]: How'd you get into the crypto industry or co-founder of Cosmos?
[SPEAKER_03]: We'd love to know the background of Ethan.
[SPEAKER_01]: Cool.
[SPEAKER_01]: Yeah.
[SPEAKER_01]: I've been in the space a long time 12 plus years or so.
[SPEAKER_01]: I think going on 13.
[SPEAKER_01]: Yeah.
[SPEAKER_01]: I was a technologist studying biophysics and learning about the economy for the first time in university and around the time the, you know, sovereign debt crisis was taking place in Europe.
[SPEAKER_01]: And, you know,
[SPEAKER_01]: the balans in 2013 sort of got me into heavily into Bitcoin and then I was I was a base near Toronto so I was sort of early in the Ethereum scene and you know Bitcoin meetups in the theory of meetups in Toronto and I just sort of fell down the rabbit hole and never never managed to climb back out so you know people will get stuck in there and yeah and for you know from the beginning I was working on I mean I've got early commits and go Ethereum and I was you know coding up Bitcoin transactions from scratch
[SPEAKER_01]: You know, while back so I was always a dev and I got really interested in consensus and distributed systems and I did a master's thesis on Consentus algorithms and tenderment ultimately I hooked up with Jake Juan who was the, you know, the other co-founder of tenderman and we started to cause most together, you know, back in almost 10 years ago now.
[SPEAKER_01]: So that defined my life for quite a while, but I've mostly moved on from Cosmo specific work and transition the leadership just over a year ago and have primarily been focused on cycles, yeah.
[SPEAKER_03]: I love it and you could probably we've had some very small people in the podcast, but you know that's a that's a hell of a background a technologist a biophysic Sis sad don't even know I'm saying it right that's how low I got it.
[SPEAKER_03]: Yeah a big brain over here and that's the time when people join I need on the podcast because and you've been through your fair share of cycles, too.
[SPEAKER_03]: I think you said you 2013
[SPEAKER_03]: So you've kind of seen it all, but I want to dive in a little bit to cycles.
[SPEAKER_03]: Give our audience a breakdown of what is cycles, why do you build it, what are you building, tell us all about it.
[SPEAKER_01]: Yeah, so at a high level, cycles is an open clearing protocol.
[SPEAKER_01]: Our mission is to clear the most debt for the most people with the least amount of money.
[SPEAKER_01]: And the idea behind cycles, the core insight, is that far more cash is used to pay debts than is actually needed.
[SPEAKER_01]: And the best way to understand this is like, it's like traffic, actually.
[SPEAKER_01]: You guys sit in traffic, you drive cars,
[SPEAKER_01]: Yeah, I'm in Toronto.
[SPEAKER_01]: It's brutal.
[SPEAKER_01]: And the problem is like you often can't go because the guy in front of you can't go because some other guy can't go You know because you can't go and it's you get stuck in this gridlock, right?
[SPEAKER_01]: Well, it turns out there's gridlock like that all throughout the payment system and people can't pay because they haven't been paid and you know mostly talking about
[SPEAKER_01]: Businesses, but it also applies to individuals waiting on their wages to pay their rent, things like that, right?
[SPEAKER_01]: And so it turns out, if you zoom out and you look, you know, I always have the experience I'm sitting in traffic, I'm like, if only they would coordinate the lights better, they could make people move, right?
[SPEAKER_01]: There's just, you know, they had to appoint a traffic star in Toronto recently, I don't think they've achieved anything yet.
[SPEAKER_01]: So you have the same kind of problem in payments.
[SPEAKER_01]: If you zoom out, there's a network structure there.
[SPEAKER_01]: And a lot of payments actually flow in loops are certainly in long chains.
[SPEAKER_01]: And so far less cash is actually needed to make all of those payments than people think.
[SPEAKER_01]: Right, because if you can, if you can zoom out and see that, you know, for instance, Io Brian, Brian O's Joe Joe's me, that's a simple loop.
[SPEAKER_01]: Normally we're not aware.
[SPEAKER_01]: There's a closed loop there, but if some system could be aware of that, then it could say, hey, we can net out all of those debts, or at least the small of some out, and everyone owes less in the end, right?
[SPEAKER_01]: There's a funny video of like the three stitches where one of them's like, hey, you only 20 bucks.
[SPEAKER_01]: And he's like, well, I only got 10 in the hands of no.
[SPEAKER_01]: like you owe me 20 bucks and you know they pass this $10 bill around twice and by the end of it they all have the same amount of money they started with but all the debt you know $60 and debt has been paid right and that's the core idea is that they only needed $10 but they paid $60 and debt right and so cycles kind of formalizes that and and generalizes that and you know one of the what's interesting to me about it you know we got into crypto to revolutionize the monetary system the financial system and make all this stuff more accessible and equitable and so on and we've had
[SPEAKER_01]: From what I can tell, from studying the history of money and studying all this stuff, the most powerful financial technology in existence is clear, and most people, practically everyone, doesn't have access to clear, only the largest financial institutions.
[SPEAKER_01]: have access to clearing and they clear huge volumes of debt with almost no money at all, just through this netting process.
[SPEAKER_01]: I owe you, but you owe him and he owes me, right?
[SPEAKER_01]: They're doing that every day and they have been for hundreds of years.
[SPEAKER_01]: The only way you can do clearing is if you use like split wise with some buddies, you know, on a trip or just, you know, split a dinner, roommates, it's like, you know, small groups of friends, but everyone between small little groups of friends
[SPEAKER_01]: and the largest financial institutions in the world are systematically cut off from this incredibly powerful financial capability, which is clearing.
[SPEAKER_01]: And so we figured out through cycles how to make that available to everyone, which opens up entirely new avenues for capital efficiency and for saving, for regular people, for regular businesses that reduces their working capital costs, reduces their risks.
[SPEAKER_01]: So many, you know, this is, this maybe doesn't,
[SPEAKER_01]: won't resonate as much with, you know, a crypto native audience, but so many small businesses in the world, which are the vast majority of businesses, they suffer from liquidity stress.
[SPEAKER_01]: Right?
[SPEAKER_01]: They have invoices to do, they have invoices, they're trying to collect, right?
[SPEAKER_01]: And they, and their solvent assets exceed liabilities, but if you look at their sort of liquidity profile, they get crunched, and then they have to pay high rates to, you know, factor their invoices or to get loans from banks and so on, right?
[SPEAKER_01]: And so much of that cash that are trying to get,
[SPEAKER_01]: they don't actually need if we can zoom out and allow them to do cleric, right?
[SPEAKER_01]: And so that's where cycles come in and that's what we're trying to build.
[SPEAKER_03]: Yeah, that's extremely interesting because I never really thought of it that way to be completely honest, but when you, when you say you zoom out and you kind of see the overall picture, that's certainly there's certainly a more efficient way you mentioned that clearing is capable of mostly being reserved for big institutions what do institutions get from clearing that really most people never even see.
[SPEAKER_01]: Yeah, I mean, it's what makes being a large bank possible because, you know, if I'm at one bank and you're at another bank and I'm trying to send money to you, what's happening behind the scenes is the banks are establishing an obligation between themselves, right?
[SPEAKER_01]: One bank says they owe the other.
[SPEAKER_01]: And what the banks and, you know, most major financial institutions do is they use what's called a clearing house, which is a central institution that they're all members of.
[SPEAKER_01]: that they can submit all their obligations to and the clearing house will do the math to net them all out and say, okay, you only owe this amount, right, at the end of the day.
[SPEAKER_01]: And so it reduces the overall volume of cash that that all these financial institutions actually need to move.
[SPEAKER_01]: So it allows them to do a huge volume of trade, a huge volume of activity.
[SPEAKER_01]: with very little actual cash or actual assets, right?
[SPEAKER_01]: So it allows them to operate with this kind of huge leverage, right?
[SPEAKER_01]: And this isn't new.
[SPEAKER_01]: I mean, bankers have been coordinating large-scale clearing for hundreds of years.
[SPEAKER_01]: I've spent a lot of time studying actually the medieval history of banking prior to the rise of central banks.
[SPEAKER_01]: when you know let's say the 16th century there's an extremely advanced international banking system where these bankers would coordinate at these fairs and you know let's say the city of Lyon was a was a quite popular one where they would clear virtually all of the trade credit in Europe without using any money at all without any actual gold coins or silver coins changing hands and that allowed them you know to carry on their business and systematically profit and so on so financials
[SPEAKER_01]: the two of them had been doing this for hundreds of years and especially since 2008 and even earlier, clearing houses and clearing facilities have become like really critical, linchpin infrastructures at the heart of the financial system.
[SPEAKER_01]: Everything kind of depends on them and they start to take on really systemic risk.
[SPEAKER_01]: They become the core counterparty to everyone, they ensure everyone against default, things like that.
[SPEAKER_01]: And so the problem with clearing houses
[SPEAKER_01]: The membership is very, very limited.
[SPEAKER_01]: It's 50 firms, or 100 firms, or maybe at most, a few hundred, right?
[SPEAKER_01]: And they have to sort of treat every firm like they're equal risk.
[SPEAKER_01]: And all the firms that are joining have to be willing to participate in that and sort of be at that standard.
[SPEAKER_01]: And everyone has to trust the clearinghouse, basically, right?
[SPEAKER_01]: And so what we figured out is actually there's a way to do clearing, which is actually how they did it, you know, in medieval times before we had central banks that has kind of been forgotten about using get this a decentralized graph algorithm, right?
[SPEAKER_01]: And so it turns out, you know, with block chains now and with privacy preserving technology that, you know, has kind of matured especially over the last number of years, we can build a privacy preserving open clearing protocol that allows
[SPEAKER_01]: without any new counterparty risk being created, so we don't need to introduce a central counterparty that serves as an intermediary to everyone else like a clearinghouse typically would.
[SPEAKER_01]: We can just take advantage of structure that already exists within the network.
[SPEAKER_01]: Like I was describing, I, O, Brian, Brian, O's, Joe, Joe, O's me.
[SPEAKER_01]: Those kinds, that kind of cyclic structure exists everywhere.
[SPEAKER_01]: And wherever it exists, you can take advantage of it to clear more debt with less money.
[SPEAKER_03]: And that's just, you know, savings for everyone.
[SPEAKER_03]: What's broken about how crypto settles obligations today, even with stable coins and instant transfers?
[SPEAKER_01]: No, it's a great question, and I think there's a fundamental conceptual problem, right?
[SPEAKER_01]: Crypto thinks that the way we approach the world and this is, it's actually ironic because this is how mainstream modern economics approaches the world, too.
[SPEAKER_01]: And both crypto and modern economics have the same view of the world and they're both wrong for the same reasons and this is, you know, crypto people wouldn't want to hear this.
[SPEAKER_01]: But the view of the world is that the world is a giant multi-asset spot market.
[SPEAKER_01]: that everything happens on the spot, right?
[SPEAKER_01]: That there's no room for credit, there's no liabilities in the system, there's really no money, there's just assets, right?
[SPEAKER_01]: And, you know, this goes back to, you know, late 19th century, you know, marginalized economics and while Rossi and models of, you know, auction mechanics and,
[SPEAKER_01]: Um, you know, there's sort of no room for money in those models.
[SPEAKER_01]: They just treat the world as a spot market where it's like you're bartering goods But like okay, one of the goods for convenience is this money thing and and whatever right and in the crypto world It's a yeah, we're just bartering goods and one of the goods is this, you know, supreme form of money whether it's Bitcoin, whether it's stablecoin, whatever and all that matters is that is that we make it go fast Right and no one's asking the question well how much money is actually needed?
[SPEAKER_01]: to clear those obligations, right?
[SPEAKER_01]: Where does the money come from?
[SPEAKER_01]: And why should it exist in the first place?
[SPEAKER_01]: And where should the authority to issue it, you know, emanate from?
[SPEAKER_01]: And how should we reason about how much money they're ought to be, right?
[SPEAKER_01]: And you know, it's very interesting for instance, when you look at what happened to the central banks across the 2008 boundary, the balance sheet of the central bank, let's say the federal reserve used to be quite small, right?
[SPEAKER_01]: They kept the amount of reserves in the system very low.
[SPEAKER_01]: And so they could adjust the reserves and by adjusting the reserves, they would, you know, adjust the interest rates a little bit more, you know, adding a little bit more reserves reduce the interest rate and and vice versa right and ever since post 2008 we've been in this abundant reserve regime where there's just they've just exploded the amount of money in the central banking system that now they can't use it like that to adjust the interest rates, they just set the interest rates directly and they just pay interest on reserves and so they kind of they kind of broken the broken the model like that and in crypto.
[SPEAKER_01]: We've just been like, oh, well, we can invent these tokens and maybe some of them are, you know, sound money and they have low inflation and some of them are just representations of the dollar.
[SPEAKER_01]: And if we could just make the move faster in 247, then we can solve all the problems of, you know, banking and all this stuff.
[SPEAKER_01]: But the the problem is all of that is just so focused on the asset side of the balance sheet, right?
[SPEAKER_01]: It's just all about, you know, counterparty free assets, moving assets around blah, blah, blah.
[SPEAKER_01]: but it misses the whole thinking of the liability side of the balance sheet, right?
[SPEAKER_01]: Every time you transfer assets, it's because you're trying to discharge a liability, you're discharging an obligation.
[SPEAKER_01]: If I'm sending you money, it's because I owe you something, right?
[SPEAKER_01]: So, but what nobody is actually trying to represent the network of debts that actually exists in the world and ask the question, well, how much money do we actually need to settle all these debts, right?
[SPEAKER_01]: And it's far less than the size of the debts.
[SPEAKER_01]: And that is, you know, incredibly powerful because it means capital efficiency, means savings for everyone, it means doing more with less.
[SPEAKER_01]: It means higher velocity, means all these amazing things, then nobody knows how to talk about because we're stuck in this, you know, bilateral transactional view of the world.
[SPEAKER_01]: Well, I have my debts to you and my debts to other people and that's it.
[SPEAKER_01]: And I need assets to pay them and that's it, right?
[SPEAKER_01]: But, you know, going back to first principles and zooming out and looking at things from a network perspective.
[SPEAKER_01]: And from, you know, the perspective of blockchain, the powerful thing about blockchain, what blockions are so good at, is that the technical term is multilateral atomic settlement, which means many people settling their transactions in one-shot, one operation atomically, right?
[SPEAKER_01]: And when you have that capability, we use that capability for dexes and for lending pools and all this kind of stuff, but we can actually use it in a more powerful way to reduce debts.
[SPEAKER_01]: But to do that, we have to actually represent the debts, which no one is doing, right?
[SPEAKER_01]: When you think about, you know, paying off a debt, it's not really the invoice itself that you're putting on chain and saying, okay, well, here's the debt, how much money do I need to pay this debt?
[SPEAKER_01]: It could be less than the size of the debt.
[SPEAKER_01]: If people are putting invoices on chain, it's because they're trying to turn them into assets.
[SPEAKER_01]: They're trying to do the exact opposite thing we're doing, right?
[SPEAKER_01]: They're trying to say, oh, the invoice is an asset.
[SPEAKER_01]: We can sell it.
[SPEAKER_01]: We can factor it off at a discount.
[SPEAKER_01]: you know, it's someone who buy it because they'll get a yield on it.
[SPEAKER_01]: Instead of saying, well, the guy who needs to pay that invoice, how much money is actually needed because they haven't, they have bills due to that, right?
[SPEAKER_01]: And those can be offset.
[SPEAKER_01]: And so for some reason, no one is asking these, you know, kind of fundamental.
[SPEAKER_01]: And so we're just going back to first principles and just trying to reason about things from the basics, starting with, you know, basic double entry bookkeeping assets and liability is very simple, first principle stuff.
[SPEAKER_01]: I mean, you know, it's shocking that how simple it is, what were the position we're starting
[SPEAKER_01]: The world is not a spot market.
[SPEAKER_01]: It's a lie that it's just a spot market where you barter goods and one of the goods might be money.
[SPEAKER_01]: Everywhere transactions happen, there's credit.
[SPEAKER_01]: There are obligations for them.
[SPEAKER_01]: I ship you goods and you owe me later, right?
[SPEAKER_01]: The only place we have like true spot markets are actually inside blockchains, indexes, and flash loans, and things like that, right?
[SPEAKER_01]: But everywhere else, everything is operating on credit.
[SPEAKER_01]: But nobody is trying to represent that credit.
[SPEAKER_01]: And so the reality of the world is it's not a spot market.
[SPEAKER_01]: It's a network of balance sheets and those balance sheets have assets and liabilities and they're in their interlocking because one guy's asset is another guy's liability in many cases and people in crypto don't want to think like that.
[SPEAKER_01]: They want to think about counterparty free assets assets with no liabilities attached like you know like Bitcoin allegedly is
[SPEAKER_01]: Of course, now the main adoption is happening with stable coins, which are fundamentally the liabilities of a bank or some issue or like circle or whatever the case may be, which is fine.
[SPEAKER_01]: I mean, that's good.
[SPEAKER_01]: But it also gives us an opportunity to really ask more fundamental questions about how much money do we actually need, how can we do more with less.
[SPEAKER_01]: How can we use this technology not just to tokenize bank deposits?
[SPEAKER_01]: I mean, if that's where this ends, you know, what are we really doing here, right?
[SPEAKER_01]: Anyway, there's my little rant on how crypto is just the same as mainstream economics is just thinking about the world in terms of assets and spot market and that's all wrong to network a balance sheets and that's that's really where the opportunity emerges.
[SPEAKER_02]: You convinced me, but I got a dumb question, just like Brian.
[SPEAKER_02]: Please.
[SPEAKER_02]: I don't know.
[SPEAKER_02]: Blockchain's transparent, but privacy has been a big trend.
[SPEAKER_02]: Some say it's optional.
[SPEAKER_02]: Some say it's required.
[SPEAKER_02]: How do we kind of build that repository that you're talking about or does psychosolve that, right?
[SPEAKER_02]: All that debt on that credit.
[SPEAKER_02]: How does that work when things are obscure?
[SPEAKER_02]: Like, I just interviewed someone from a lighting network and they're like, oh, yeah, everything's private, and lighting what we don't know what's happening.
[SPEAKER_01]: Yeah, yeah, it cycles as a design also from first principles for privacy.
[SPEAKER_01]: So everything's fully encrypted on chain.
[SPEAKER_01]: So it isn't on chain protocol, but you can't see anything, everything's encrypted.
[SPEAKER_01]: It uses shielded pool technology like ZGASH, Penumbra, you know, other kinds of shielded pool designs.
[SPEAKER_01]: And it extends them to support obligations as a core primitive.
[SPEAKER_01]: So I can represent my debt to Brian,
[SPEAKER_01]: as an encrypted obligation on chain, that no one else can see except me and Brian.
[SPEAKER_01]: And what cycles depends on for clearing is what's called a trusted execution on play.
[SPEAKER_01]: This is secure hardware, where within the hardware it can see everything, but it's all encrypted in the hardware's memory.
[SPEAKER_01]: So no one else can access it, right?
[SPEAKER_01]: But we only rely on that hardware for privacy.
[SPEAKER_01]: We don't have to rely on it for correctness because everything it does is proven with a zoonology proof.
[SPEAKER_01]: Right.
[SPEAKER_01]: So that, you know, there's a lot of thought about TEEs.
[SPEAKER_01]: We can get into some of that.
[SPEAKER_01]: So we use a mix of zero knowledge proofs, encryption, and trusted execution on claims to have an end to end privacy preserving system.
[SPEAKER_01]: We're only you and your direct counterparties can see things, can see the outcomes of clearing, but everything can still happen on chain, can still be proven to be fully correct in zero knowledge, and nobody has no one can see anything that doesn't pertain directly to that.
[SPEAKER_03]: So it's a true peer-to-peer electronic clearing system.
[SPEAKER_01]: You got it, and that was the title of the White Paper, I mean, Satoshi said, you know, peer-to-peer electronic cash system.
[SPEAKER_01]: And we said, no, no, no, what you need is a peer-to-peer electronic clearing system.
[SPEAKER_01]: Because a clearing system is actually a superset of a cash system.
[SPEAKER_01]: You can instantiate a cash system within a clearing system, and that's exactly what we do.
[SPEAKER_03]: So what walk me through a realistic case where there's a situation someone would say, you know, cycles solve this, this, you know, just something easy for our audience to fully understand.
[SPEAKER_01]: Yeah, I mean, the basic model we are, where we're starting actually in two places, but I'll start with one of them, is among, let's say, crypto trading firms, right?
[SPEAKER_01]: So these are large market makers, prime brokers, exchanges, and they're in the markets trading with each other every day, right?
[SPEAKER_01]: And in some of it's on chain and it's over collateralized and whatever, in some of it's off chain.
[SPEAKER_01]: and it's trading on credit, right?
[SPEAKER_01]: One of them says, hey, can we lock in this trade?
[SPEAKER_01]: I haven't necessarily prefunded with you, but we'll lock in the trade.
[SPEAKER_01]: And within 24 hours, we're gonna settle.
[SPEAKER_01]: And both sides are gonna settle.
[SPEAKER_01]: And maybe one is to settle first and whatever, right?
[SPEAKER_01]: And so they're building up these obligations with each other.
[SPEAKER_01]: This firm owes that firm $2 million in Bitcoin and that firm owns another one and a half million in Bitcoin to go, you know, until you get these loops of flows in the different currencies.
[SPEAKER_01]: Right.
[SPEAKER_01]: And where cycles can come in and say, Hey, if you submit those obligations to us, those post trade aggregate, you know, once a day kind of settlement obligations, we can net them out and tell you the net amount you have to pay instead of having to deal with that gross amount right and end.
[SPEAKER_01]: And so we reduced the amount of inventory, those firms need, we reduced the amount of credit, they might have to draw, we reduced the amount of risk, because we can allow their balance sheets to compress at multiple times throughout the day to allow them to put on more trades.
[SPEAKER_01]: So for instance, we had this October 10th liquidity panic, which it seems like we might not have actually recovered from by this day, and people are still publishing, think pieces about what actually happened on October 10th and news to blame, and blah, blah, blah, blah.
[SPEAKER_01]: But we hear from some of the trading firms,
[SPEAKER_01]: they're in the office all weekend long, dealing with that crisis and constantly trying to map out where to get liquidity to settle trades because the liquidity was so tight over that weekend and that has sort of carried on potentially for months since.
[SPEAKER_01]: So where Cycle's comes in is it provide that's sort of neutral clearing infrastructure that allows them to net down the gross amount that they have to settle, freeing up capital for more trading for the settlements they have to do and so on.
[SPEAKER_01]: That's on the institutional side, but it also applies to just, you know, every day average businesses, right?
[SPEAKER_01]: I mean, if, you know, if, if one company owes another company that owes another company with cycles, if those debts, those invoices, essentially, are all within the cycle system, then cycles can simplify the transfers or the funds just flow from one end of the chain to the other, right?
[SPEAKER_01]: So, if, you know, if Brian has invoiced me into I'll Brian and Brian owes Joe, my money
[SPEAKER_01]: right and Brian just gets set off notices that say hey your your debts are clear right and that the really cool thing about that is like say I want to pay in USDC and Joe wants to accept USDC but Brian doesn't for whatever reason right you only accept USDT or something else right but he's willing to use cycles while cycles can see that match so normally I'd be kind of screwed I would have to convert to USDT and pay Brian okay that's getting cheaper and cheaper but
[SPEAKER_01]: You know, if you generalize, there's still that like coincidence, it wants issues, you have to, there's spreads, there's fees on the way and stuff.
[SPEAKER_01]: So cyclists can reduce the overall number of transactions that have to take place and can directly send funds across multiple hops.
[SPEAKER_01]: reducing the exchanges that might have to take place along the way.
[SPEAKER_01]: And what that does is it means that if a small number of people are willing to use a currency for payments, then a much larger number of people can benefit.
[SPEAKER_01]: People are always wondering like the problem of using Bitcoin for payment.
[SPEAKER_01]: It's not just that it's volatile, it's that your direct counterparty probably doesn't want it.
[SPEAKER_01]: And if there's other people in the network that would be willing to accept it, cycles can make that match.
[SPEAKER_01]: So cycles can allow me to pay in Bitcoin because Joe accepts Bitcoin, even if I don't have a direct relationship with Joe.
[SPEAKER_01]: Right, and so on that because of the privacy preserving properties, I'll never find out who Joe is, I'll never find out where my Bitcoin went.
[SPEAKER_01]: All I'll know is my deck got paid, I got to pay it in Bitcoin, even though Brian doesn't accept Bitcoin, right, which is kind of incredible.
[SPEAKER_01]: Just unlocks all kinds of new opportunities for payment.
[SPEAKER_01]: So those are a few examples, both at the high end of trading financial institutions, but also at the just everyday regular businesses trying to make payments and stablecoin.
[SPEAKER_01]: So yeah.
[SPEAKER_02]: maybe crazy, but I'm getting it after your third explanation of it.
[SPEAKER_02]: It's making a lot of sense to me.
[SPEAKER_02]: It's like those mainless mainnet is not live yet, right?
[SPEAKER_02]: You guys are coming on board soon.
[SPEAKER_01]: It's not live yet, yeah, that's right.
[SPEAKER_01]: We will be launching a private beta this month of our payment app, so it's just a shielded, it's just private payments.
[SPEAKER_01]: So you can pay and get paid in stable coins, in a shielded pool with a mobile app, very nice and clean.
[SPEAKER_01]: So, but the goal is to get to businesses as well within another month or two.
[SPEAKER_01]: Right now, if you're a business, and you want to pay and get paid in crypto, and you want privacy and self custody, there's basically zero solution, there's nothing, right?
[SPEAKER_01]: If you want to be on chain, that's great, a lot of people want to be on chain, but then you're fully transparent, right?
[SPEAKER_01]: And if you want the privacy, then you're probably, you know, you have to go through some KYB and sign up on some third-party platform and, you know, who know, and it's just a lot of overhead to that, right?
[SPEAKER_01]: So we're probably building the first, you know, private, self-castodial.
[SPEAKER_01]: a payment system for payment platform for businesses that then also has this clearing feature built in, but you don't need the clearing to start benefiting from private self-costudial payments.
[SPEAKER_01]: That's just, you know, for paying paying bills and getting paid on invoices.
[SPEAKER_01]: But then once that starts getting adopted by many businesses, then clearing can just automatically kick in and all the benefits and features that come from clearing just get layered in from the network effect that builds on top of that.
[SPEAKER_03]: So, okay, so the stable coins even help to solve the settlement issue.
[SPEAKER_03]: I know it's a fast and smoother, or is it just making it even more obvious that the whole issue
[SPEAKER_03]: is that we need the we need clearing for settlement.
[SPEAKER_01]: You got it.
[SPEAKER_01]: Yeah.
[SPEAKER_01]: I'm not going to pretend stable.
[SPEAKER_03]: I kind of feel like I've been wrong for this is enlightening to me.
[SPEAKER_01]: It's okay.
[SPEAKER_01]: The whole industry is wrong too.
[SPEAKER_01]: I mean stable useful.
[SPEAKER_03]: Right.
[SPEAKER_03]: Well, like the pitch, the pitch, the stable comings.
[SPEAKER_03]: that I'll tell somebody for the first time, feels like I've been wrong a little bit now, because it really helps pitch me.
[SPEAKER_01]: Why do I always do it every time, right?
[SPEAKER_03]: Well, it's just quicker, faster, easier.
[SPEAKER_03]: It's 24-7, you know, more secure, transparent, you know, then you know, you can get into a lot of different features there, but that's the
[SPEAKER_03]: But now you're telling me we don't need all that money, we just need to fix the way the plumbing is to redirect the flow to the right person and just set all the debts on the way.
[SPEAKER_01]: Yeah, but I want to be careful there.
[SPEAKER_01]: It's not like we need no money at all.
[SPEAKER_01]: We need some amount of money.
[SPEAKER_01]: Yeah, we missed that.
[SPEAKER_03]: But just way less, right?
[SPEAKER_01]: Probably way way way less.
[SPEAKER_01]: And, but the money we do need.
[SPEAKER_01]: We wanted to be fast.
[SPEAKER_01]: We wanted to be 24-7.
[SPEAKER_01]: We wanted to be here.
[SPEAKER_01]: We wanted to be all the things stable coins give you.
[SPEAKER_01]: I don't get me wrong.
[SPEAKER_01]: I'm not a, I mean, stable coins are a massive enabler for cycles.
[SPEAKER_01]: We wouldn't be able to be doing cycle.
[SPEAKER_01]: We'll be way harder to do cycles with that stable coins.
[SPEAKER_01]: I try a couple of years ago and I just gave up.
[SPEAKER_01]: It was like, okay, we need to go all and on stable coins here.
[SPEAKER_01]: And, you know, thank God it's being, uh,
[SPEAKER_01]: adopted so widely and you know we're able to write that way.
[SPEAKER_01]: It's essential, but the point is it doesn't go the whole way to the space is opened and unlocked by blockchains, right?
[SPEAKER_01]: Because we can do this, we can ask this extra question of, well, now that we have this fast money, how much of it do we actually need?
[SPEAKER_01]: And everyone just assumes you need the full amount of the debts you have to pay, but that's actually not true, right?
[SPEAKER_01]: It's much less.
[SPEAKER_01]: How much less,
[SPEAKER_01]: is anyone's guess we have lots of data from you know a few different kinds of real-world invoicing systems and so on it could be as low as you know it could be 50% could be more it sort of depends on the on the region but cycles opens up a lot more than just more efficient payments
[SPEAKER_01]: It also offers new ways to do lending, new ways to do capital efficient exchange.
[SPEAKER_01]: You can build all of modern finance on top of this capital-fishing foundation, and entirely new opportunities for commerce, for trade, for lending, sort of, open themselves up.
[SPEAKER_01]: So that's really what we're looking forward to.
[SPEAKER_01]: We have to start somewhere kind of small and humble, but we've big ambitions to actually take on a reform of finance and how much
[SPEAKER_01]: how much money is actually needed, and where it gets issued from, right?
[SPEAKER_03]: My thing is that you're solving an issue, a problem that I didn't even really know, new existed.
[SPEAKER_03]: Is that makes sense, guys?
[SPEAKER_03]: Like any of you know, this existed.
[SPEAKER_03]: I just thought like we could chip stuff fast, money fast, and then when you break it down this way, I'm like, I didn't even know this was a thing, you know?
[SPEAKER_01]: Yeah, most people don't, and it's not a surprise.
[SPEAKER_01]: I mean, there's never been a system that allows you to do it.
[SPEAKER_01]: I mean, there's split-wise.
[SPEAKER_01]: Split-wise, it only works with small trusted groups of friends, right?
[SPEAKER_01]: But any financial actor, any financial institution, trader, they all know about clearing.
[SPEAKER_01]: I mean, clearing is essential to making that world go around, right?
[SPEAKER_01]: If you deal in FX, you know about CLS, right?
[SPEAKER_01]: If you, you know, everyone knows about the DTCC, which clears all the equity trades and stuff like that, I mean, you know, they just kind of,
[SPEAKER_01]: pops by, is like, oh, that's essential infrastructure, the central bankers that stuff up and whatever, it doesn't really affect me, it just makes things safer, right?
[SPEAKER_01]: But it turns out, you can actually, we actually, the amazing thing to me, because I've been, I was spending a lot of time studying the history, right?
[SPEAKER_01]: And the amazing thing is how much people dismiss or assume about the world before central banks.
[SPEAKER_01]: There was an advanced financial system.
[SPEAKER_01]: In the 16th century and earlier I mean it started in the 12th century if you can go back that far back I mean they started the crusades and then you know finance exploded right and the Pope started banking and all this kind of amazing I was I could talk for hours about people banking and you know early finance and the champagne fairs and all this kind of good stuff
[SPEAKER_01]: But there's this event system of clearing that the bankers used that was decentralized, you know, they would literally run this algorithm manually, the algorithm we're using to I mean, they basically do that manually at these fairs.
[SPEAKER_01]: It's been like three days running around looking at other books, who knows who like let's net this stuff out, right?
[SPEAKER_01]: with no central, with no central counterpart.
[SPEAKER_01]: And then the central, and then that system collapsed violently in the 1570s.
[SPEAKER_01]: And what emerged out of that was central banks.
[SPEAKER_01]: If you don't understand the system that came before, you cannot possibly understand the actual origin and motivation and context in which central banks in the modern monetary,
[SPEAKER_01]: constitution emerged.
[SPEAKER_01]: And so, you know, the whole, like, who are raw and and, you know, raise them to Ezra of crypto is sort of ungrounded.
[SPEAKER_01]: If you don't actually under properly understand that history is very difficult complicated stuff to understand.
[SPEAKER_01]: I mean, it's not not well written about even, you know, in academia, you know, they only understand sort of outlines of it.
[SPEAKER_01]: You know, it's not like I understand all of it.
[SPEAKER_01]: I've just been, you know, studying it for meaningful amount of time.
[SPEAKER_01]: But we actually forgot, like fundamentally because of central banking
[SPEAKER_01]: And it's sort of re-emerged once computers became a thing in the 90s in Slovenia, like in Yugoslavia and then Slovenia, okay, just of all places, all right.
[SPEAKER_01]: And the Slovenian government has been running a system, a clearing system like this for businesses.
[SPEAKER_01]: for like 30 years okay and Slovenia is you know one of these cool countries I mean it's actually like pretty far on the curve on like you know crypto adoption in Europe and you know they've got you know some companies that are just like the best in the world that doing the thing you know it's like a people think about like German companies that you know produce this one part that all engines need or whatever right this Slovenium companies are are kind of like that
[SPEAKER_01]: And so they run this clearing system where all the businesses in the country can submit their invoices to the government.
[SPEAKER_01]: The government will do the clearing and send everyone back like smaller invoices.
[SPEAKER_01]: And this thing clears like percentages of the country's GDP, right?
[SPEAKER_01]: So my co-founder on cycles, he worked on that, he's Slovenia, and he worked on that system for a number of years, you know, we joined Forza, like, let's bring this to everyone else.
[SPEAKER_01]: And it's like shocking that people don't...
[SPEAKER_01]: They didn't think about it because everyone's just been so sort of like sideline by how central clearing institutions work that we didn't even realize and then, you know, and on the flip side you have this three stitches video going around that's like everyone's laughing off banking is so stupid and it's like, no, that's that is the answer right there, like just we can just do that, you know, so anyway, it's like, it's like
[SPEAKER_01]: And I didn't think of it, right?
[SPEAKER_01]: And that's part of what bugs me, right?
[SPEAKER_01]: And a lot of people kick themselves.
[SPEAKER_01]: They're like, oh, I can't believe I didn't invent Bitcoin.
[SPEAKER_01]: It's so simple, right?
[SPEAKER_01]: And this clearing thing, I was circling it.
[SPEAKER_01]: I was thinking about clothes, loops of energy flow from biophysics and money flowing and loops and all this stuff.
[SPEAKER_01]: And then this paper came out by, you know, it was now my co-founder and so I was co-authors who had been working with.
[SPEAKER_01]: And I was like, oh my god, this just answered so much for me.
[SPEAKER_01]: As you can tell, I'm very, very passionate about this stuff, and I think it's so silly how much we've forgotten, but it's amazing what we can learn from looking back and, you know, center bankers and economists now, they write all these articles about the issues with clearing houses and the systemic risk and, you know, the, the,
[SPEAKER_01]: the prosciclicality so they like require more margin to be posted in condition in volatile conditions and so there and you know exclusive access all these kind of issues and it turns out there's a hundred years old you know approach that we can revive that's very simple based on very simple principles double entry bookkeeping and graph theory and that's what our white paper does.
[SPEAKER_01]: It sort of goes back to first principles combined double entry bookkeeping and graph theory
[SPEAKER_01]: If those sound important to you and let me tell you they're pretty important, then it's probably important to combine them and to have a financial design that's sort of based on that.
[SPEAKER_01]: So that's all we've done.
[SPEAKER_01]: We haven't launched yet, so we still have a lot to prove, but yeah.
[SPEAKER_02]: love your passion for it and super exciting got me excited and I'm not even the expert in that few.
[SPEAKER_02]: You don't have to come this way, crypto.
[SPEAKER_02]: Yeah, yeah, yeah, you know, the convinced me that crypto makes, you know, finance more efficient, especially the sector that you're in.
[SPEAKER_02]: Is there any hand when they're tailwinds?
[SPEAKER_02]: Are you global, a specific US?
[SPEAKER_02]: Are you guys waiting for a clarity act?
[SPEAKER_02]: How's that look for you guys?
[SPEAKER_01]: Yeah, we're global.
[SPEAKER_01]: I mean, we're certainly riding the stable coin adoption wave.
[SPEAKER_01]: That helps us a lot.
[SPEAKER_01]: Stable coins are very important because we need a on-chain payment medium to actually do this atomic multilateral settlement, right?
[SPEAKER_01]: We need to be able to move money from one person to another without creating any intermediaries or connecting them.
[SPEAKER_01]: And blockchains just are the perfect solution and stable coins are the perfect medium for doing that, right?
[SPEAKER_01]: And so,
[SPEAKER_01]: The products we're building, the product we're building for businesses, initially, is really a stablecoin payment solution.
[SPEAKER_01]: The reason they use it isn't because of clearing, I mean, we're not trying to sell clearing on day one, including doesn't work for an individual.
[SPEAKER_01]: You need an opportunity to have to snap a network, right?
[SPEAKER_01]: So the product we're building is it's a stablecoin payment solution, private self custodial built for businesses, you know, paying yet paid in stablecoins, right?
[SPEAKER_01]: And so we're writing that stablecoin adoption wave.
[SPEAKER_01]: And what we're trying to build right now so many of the stablecoin solutions out there they're actually not about end users holding stablecoins.
[SPEAKER_01]: They're about using stablecoins on the back end on the rails to move the money between bank accounts or fiat accounts or whatever, right?
[SPEAKER_01]: I mean a lot of them are just like wrappers around bridge or stripe or whatever now, right?
[SPEAKER_01]: Whereas we're sort of trying to build for a future where no, no, no, no, we want to enable businesses that operate 100% in stablecoins.
[SPEAKER_01]: No fiat banking component, right?
[SPEAKER_01]: What does that world do in the club?
[SPEAKER_01]: If that's not what we're targeting, then and I'm not saying there isn't a role for banking or banks, but it needs to evolve and stablecoins are going to apply a kind of pressure there.
[SPEAKER_01]: I mean, I like to say genius is like,
[SPEAKER_01]: It's a run on the banks to legitimize crypto and finance the government something like this right I mean it's basically forces us to ask all these questions well I mean all these all these things are supposed to be backed by government that I'm a government that really should there be right I mean everyone's sort of lost sight maybe of that question I mean maybe not I mean you know you're seeing the metals.
[SPEAKER_01]: explode or whatever, and maybe that's somewhat in response to these debt markets, but there's sort of more fundamental questions to be asking about the nature of money, how much money do we need, what does it ought to be backed by, how does it relate to the actual circuits of trade and obligations that are generated in commerce, and that's the kind of fundamental stuff that we want to get after.
[SPEAKER_01]: And stablecoins actually allow us to sort of put pressure on that and just start thinking, well, what does it look like to have a fully native 100% native stablecoin business that only operates in Stables?
[SPEAKER_01]: I mean, that's that's cool.
[SPEAKER_01]: And we want to be the product that unlocks that.
[SPEAKER_01]: If you're listening to this and you're like, hey, I want to operate 100% stable coins, you know, check us out, cycles down money, you can sign up there to stay tuned.
[SPEAKER_03]: I love it.
[SPEAKER_03]: Yeah, yeah.
[SPEAKER_03]: We're going to give you another chance to plug it as well.
[SPEAKER_03]: So everyone can do all the investors, all the investors, all the builders out there can learn more.
[SPEAKER_03]: Because it's truthfully, it's extremely interesting.
[SPEAKER_03]: You got me thinking quite a bit.
[SPEAKER_03]: Big picture.
[SPEAKER_03]: our cycle works the way we want it to, the way you think it will.
[SPEAKER_03]: What's changing about how capital is going to move across crypto markets over the next few years?
[SPEAKER_03]: I feel like it's going I feel like it's going to revolutionary.
[SPEAKER_03]: I feel like this could be enormous.
[SPEAKER_03]: If I'm understanding correctly, this could be solving a problem people didn't even know we exactly had, but it could be so efficient, so fast, so cheap, so easy.
[SPEAKER_03]: I don't know.
[SPEAKER_03]: What's it going to look like?
[SPEAKER_01]: Yeah, it's, it's essentially huge unlock, uh, what we, we think this has the opportunity to, to really take a massive amount of pressure off of small businesses, right, they've been under their consolidating, they're being bought out, they're, they're being pushed into insolvency by this liquidity stress and so this could result in just like a massive release and, and huge growth in what is, what is, what is supposed to be the like center engine of the economy, right, is like,
[SPEAKER_01]: small medium size businesses right and they've been they've been suffering tremendously since at least 2008 and this could just like completely restructure that.
[SPEAKER_01]: I mean right now economic growth is like entirely dependent on basically the AI sector and data centers and you know maybe on-shoring and stuff like that.
[SPEAKER_01]: And there are these systemic impediments and frictions built into the payment system that's not just about money moving.
[SPEAKER_01]: It's not just like stablecoins are going to unlock that and stablecoins help like I've been saying.
[SPEAKER_01]: But the actual unlock of not even needing any money at all.
[SPEAKER_01]: I mean, the best money possible is the money that doesn't even need to materialize because it's going to flow in a loop anyway.
[SPEAKER_01]: right, and that's what like, you know, actual sustainable foundations are made of.
[SPEAKER_01]: That's how organisms work.
[SPEAKER_01]: It's because we cycle, you know, energy in these, in these cyclic flows over and over again, right?
[SPEAKER_01]: And so if we can, if we can build something that allows our economy to do that, then just, you know, the, the worlds are oyster.
[SPEAKER_01]: I mean, we can, you know, it's just massive growth
[SPEAKER_01]: for the middle class, for small medium-sized businesses, that cut set that actually kind of realize is work to actually toward realizing the vision of crypto, of removing intermediaries, removing unnecessary frictions and costs, and really just like unlocking the economic potential of the world.
[SPEAKER_03]: amazing.
[SPEAKER_03]: It's amazing.
[SPEAKER_03]: So we got some big dates coming.
[SPEAKER_03]: We have the launch up coming here.
[SPEAKER_03]: How do builders connect with you and learn more about cycles?
[SPEAKER_03]: How do investors who are interested in investing in cycles and what you're building?
[SPEAKER_03]: How do we get all hooked up?
[SPEAKER_03]: I want you to plug because I think this is something everyone should check out.
[SPEAKER_01]: Sounds great.
[SPEAKER_01]: Yeah, it's Cycles.Money is the website.
[SPEAKER_01]: We've got a beautiful website there.
[SPEAKER_01]: You can click through, you know, there's some product pages and sign up for, you know, for info.
[SPEAKER_01]: We've got our Twitter account at Cycles Money.
[SPEAKER_01]: You can follow me on Twitter.
[SPEAKER_01]: I'm at Buckmanster, BUCHMAN, STER, you know, tweeting about medieval history and occasionally about crypto.
[SPEAKER_01]: You can check out my blog there and blogging about medieval history and occasionally about crypto.
[SPEAKER_01]: all of that, trying to figure out how finance works, what we're missing, what the big on lock from.
[SPEAKER_01]: You know, the thing about block change is just to sort of, you know, my overall view is I got into this to revolutionize things, there's all these problems and finance and money.
[SPEAKER_01]: It feels like what we've achieved in
[SPEAKER_01]: Let's say the last 13 years that I've been in this space, we have made a meaningful intervention into securing a fundamental international human right to transact digitally and perhaps we could say privately.
[SPEAKER_01]: I think there's still more work to be done on the privacy side, but you know, it's a fundamental human right to be able to transact digitally any time a day online, not be able to stop you Bitcoin, Ethereum, you know, Solana, some of these big chains, you know, they're they're they're locking in that human right.
[SPEAKER_01]: But beyond that, you know, I
[SPEAKER_01]: on what we're doing and what we're really unlocking.
[SPEAKER_01]: And that's what cycles is sort of trying to bring back that, you know, momentum, that energy of how can crypto really materially change things for real people, right?
[SPEAKER_01]: And that's what we're trying to do with cycles.
[SPEAKER_01]: We've a long road ahead, but follow us, check us out, and stay tuned.
[SPEAKER_03]: awesome amazing stuff Ethan really really amazing stuff in front of everybody in the audience I'm gonna put all those links down below in this description so make sure you check it out We appreciate you jumping on awesome.
[SPEAKER_01]: Thanks so much for having me.
[SPEAKER_01]: It was great chatting with you guys