54 - Why DeFi is the Future | Mark Cuban

all right bankless nation we are super excited about this extra special episode with mark cuban i'm going to introduce mark in just a minute just some quick logistics we are live streaming this special episode for you so catch it live on youtube hopefully you're watching now the podcast will come out next monday of this and then after the show david and i are gonna do something different we're gonna jump into clubhouse and have an after party where we do a debrief on the episode so catch that as well there's some instructions in the show notes for that last thing shout out to the

sponsors that made this possible you'll see some of the rotating logos gemini ave monolith dharma guys these are the tools to help you go bankless and they have helped make this episode possible use their stuff mark cuban you need no introduction to the bankless community or really any community um you are mark cuban the d5 bull i think now at least that's how crypto twitter is seeing these days how are you doing sir i'm doing great how y'all doing good man it is awesome to have you on bank list

like dave and i are so psyched about this your time is super valuable we want to get right to the goods can we start with this question you weren't bullish on d5 before at least that's our general sense why are you now bullish on on or you weren't bullish on bitcoin before rather but why are you so bullish on define now what's what kind of change for you so let's let's go through it so when bitcoin first started really becoming popular in the early days let's put aside 2009 10 11 12 right um you know i was very familiar with the very

familiar with blockchain but the original um presentation or narrative if you will was that it was a currency right that it was going to be used as a currency by normal people in normal circumstances and i i just never saw that happening to this day i don't see it as being a replacement currency for the us dollar or for any sovereign nation for that matter is it a better way to transfer money yeah of course right is that are there significant benefits to um to bitcoin yeah of course but it's really

evolved to being a store of value for the longest time store value was not the you know was not the key to bitcoin right there was going to be lightning and that was going to allow all these transactions to take place and yada yada and so that to me never got me excited because i i still don't think that'll happen but i've always thought it could be a store of value i've always compared it to gold and you know it's what people will pay for but what really changed is over the last year

um as i started getting more into smart contracts in particular and really understanding more about their capability and seeing the enhancements that had been made that was the first thing that got me excited what made me really blow up on it and really get fired up about it is when i went to mintable.app and minted my first nft and it wasn't so much just minting the process but when i saw the royalties right that was the game changer because the challenge for all

intellectual property whether it's art whether it's music whether it's photography whether it's a textbook whether it's anything is the rule of first sale right once you sell it everybody else has got the right to sell it and you don't get a nickel from it and this changes all of that and the implications there and the applications are enormous so that was the first thing that got me started with nfts then i started digging in more on the d5 stuff because you can't miss you know from this summer right i mean deep i was everywhere and all anybody talked

about it seemed like and so i started digging in and there's a lot of hype you know a lot of bs going around and a lot of you know the yield farming thing and apy and token binging and all this kind of stuff but what got me excited is really understanding that d5 turned bitcoin or ethereum or even several other tokens into personal banking right and friction free personal banking you know with with the money i have in some of my bank

accounts right i still got to go to a banker and i still have to fill out paperwork and it's still a multi-day process and that's ridiculous right even you know even though i'm over collateralized and and i have a big nvl in my personal accounts right and so you know then i started looking at it and realized that okay put aside the over collateralization that's not really a limiting factor um but i can borrow or anybody can borrow regardless of size in seconds and it's this decentralization really

working to turn crypto into a personal banking platform and that to me is the most exciting aspect of d5 and then you start applying that to corporations and then you start extending um nfts and smart contracts in particular and so you can mint anything anything that's digital becomes a digital tokenizable um asset that can be resold all those things together and it really is something to get excited about because not only can it change how

people deal with their own personal assets and their own you know borrowing and lending money but also for companies it can really allow them to monetize things they've never been able to monetize before so mark this sounds like you have uh fallen down the bankless rabbit hole really this decentralized right like this this is this is what you are speaking our language sir and you're talking about these the the potential of these programmable assets whether it's an nft or whether it's it's some sort of uh programmable interest account but uh

a lot of the the the people listening here don't remember the birth of the original internet right like we've got like more generations in front of us for the kids listening i want to know if you're feeling like internet vibes here early internet vibes here is this like a an internet of of money and internet of value is this like an internet 2.0 to you or is it something different well it's different but it there's a lot of similarities right so back in the day um people you know so everything was analog

right it was physical in a lot of respects and so people looked at the internet as a way to to simplify things and centralize things and make them available to everybody right that was the whole value of the net and then you started to see unique applications it's like my my company audionet you know we took sporting events we took radio stations um back in late 94 early 1995 when people didn't even know what the internet was and we said you know what just like we're doing now literally you know when we started streaming starting with audio and doing live audio stream

um like this in 1995 people are like what's the point you know i'll just turn on my radio i'll just turn on my tv right i'll just listen to you know my i'll put in a cd in the cd player it was like why are you even doing this i'm like no you don't get it bits or bits right they don't care where you put them or they just want to be used effectively efficiently and now we can send audio where people want how people want when they want them right and so but there are limiting factors like bandwidth was a huge limiting factor fast forward to

today right you know back then everybody tried to digitize and internet eyes everything now with smart contracts people and and crypto and on blockchain particular people are looking for new applications everywhere and it's hard to know what's right and what's wrong what's going to work and what's not going to work so we were able to make things work um there were a lot of applications that ended up working ebay amazon etc there were a lot that failed and so we're in the same place right now and back then companies went

public and everybody wanted to own stock in an internet company even though they didn't understand it now you know there's tokens and applications and layer one two three four and people don't fully understand it but they're they go hype and they go for the narratives and and that's what makes it similar but underneath it all there are solid applications that impact the world and that's the important part i can't tell you while the winners are going to be yet or who all the losers are going to be whether it's the nft space whether it's defy whether it's smart um whether

it's blockchain and smart contract applications so there's a lot of spray and um prey when it comes to buying tokens and dealing with this stuff and that's what makes it really similar people don't didn't fully understand then we didn't know who all the winners were going to be then there's a lot of okay i'll try a little bit of everything to see what works and see what sticks and that's very similar to today so mark we the there's a frequent uh conversation in like the bankless world in the ethereum world that like all these d5 financial tools as soon as you get over this like learning curve the

the the experience of using these tools is this an absolute tree like like you said we don't have to go into a bank we can use these personal financial tools in the comfort of our own homes and they're straight up more powerful tools um and so like on a personal note these are all advantageous for us as individuals yet you and and notably you are on this uh the shark tank green screen right now i like to invest in things so how are you on abc let me just add yeah absolutely and so like notably there's like one half where like these are personal tools that can better our lives but also how

are you thinking on this from like the investor side like you you said that it was really the the ability for the resale ability of these nfts to that offer commissions baked in via smart contracts like where does your investor hat turn into like turn when you when you think about this space yeah so you know there's a lot of battles going on right now you know and there's a lot of people striving for the crown if you will you know wondering what's going to happen with ethereum and e 2.0 and transactions per second and there's a

lot of hype around that and so you know i'm trying to get my arms around what companies are going to be the survivors um and what's going to happen with the industry for that matter you know is 2.0 really going to happen is it going to be you know is it going to work what type of tps is it going to hit you know you see what's happening with binance how much of that is narrative and hype and what's real um you see a lot of liquidity chasing to try to create a story that you know this company's got all this nvl and they must be strong and

then you know people talk about the market cap of the tokens and so they're and that's really not relevant to anything that's just all narrative just like there's narrative you know like price earnings ratio price to earnings growth ratio you know those you know those are narratives that that um analysts use to sell stocks and so there's a lot of narratives right now so from an investing perspective i tried to say take my same shark tank principles and normal investing principles what are the good companies who are the smart people you know what are the applications that are going to change

the game and like i said personal banking is you know really a big change you know decentralizing what was centralized um governance is a big game changer but those are macro themes right and so you've still got to determine which companies are going to be the ones that actually create the technology that really makes it work and when i say technology you know it could be a competitive blockchain it could be a layer two add-on it could be you know layer four it could be whatever you know and now you see all the arguments is it

is you know is this dex really centralized or is it decentralized right is this yield farming sustainable or is it not sustainable a lot of the [ __ ] is not sustainable you know when when everybody is just liquidity chasing to try to you know build up their nvl and paying these astronomical rates and paying to be listed or at least hedging to be listed on on an exchange and there's so many games being played because everybody is chasing the same money trying to find narratives to bring in new money and that happens with new

industries that's not unusual but from my investing perspective to answer your question i've got to separate the [ __ ] from what's real totally and very similar to the late 1990s and kind of the to the internet.com kind of bubble and bust um we want to get back to talking about some of the the areas in crypto that you're most interested in putting on your investment at but before we do staying with kind of the macro picture here so we've got uh crypto as an internet 2.0 but you also said something super interesting in a podcast i was

listening to recently mark which is uh defy is america 2.0 right so i mean famously america made some fantastic strides in the early internet laid out some massive infrastructure uh created a home for silicon valley and has really led the way on the internet revolution up to this point um do you think that defined crypto could be like an america 2.0 how important is it for politicians and main street to get their

arms wrapped around how important this could be for for the us as a country you know ryan that that's a really interesting question because the reality is you know the strongest plays and players are not american right we talk a lot about it but the biggest money doesn't come from here you know and the biggest you know day-to-day usage from everyday people not happening here right it's happening elsewhere around the world but a lot of the development not most not

even the biggest is happening here right a lot of the biggest in the original stuff that's been going on for a while is happening in asia and and so you know we have the opportunity to really have an impact but we're not we can't think americans like to think that we're always the biggest and best at everything but we're not really in this particular case and that can be concerning because if we don't it's just like look most of the internet's in english right in terms of the governance um dns etc um and so

we've got to really hopefully be a leader in this now you know there's a lot of ways to to discuss that does that mean selling half the gold in fort knox and buying a basket of you know bitcoin ethereum and maybe some others i would be all for that because i think gold is useless right you know gold bugs will tell you that well it has intrinsic value it has this much intrinsic value for manufacturing applications and all that jewelry usage there's no law there's there's no law of

physics that says gold jewelry is more valuable than any other metal being you know created into jewelry or for plastics and jewelry for that matter right that's just a narrative that we've all accepted hey gold is better gold band gold jewelry whatever you know and so every store of value has a story whether it's bitcoin ethereum or gold and so if we're going to have a store of value that at least is more more useful i'd rather have bitcoin and ethereum in fort knox than i would gold um but a lot of that is just you know we

need as a country to start recognizing that is real and two it makes better business sense as a country than it does for a lot of a lot of other applications i'll give you an example you know you if we created our own usdc right issued by the treasury we lose money on every penny minted we lose money on every nickel diamond maybe even quarter minted we lose money on dollars and having to recycle them right um it's bad business and now with the

pandemic where um if you if you have to go into a store if you still go into a store and you have to use cash and you get change back or you get dollars back your first thought is should i even touch that thing right you know and and so with trying to get to a touchless society for for economics usdc issued by the treasury makes perfect sense and so being a leader there and i think hopefully we'll have conversations with politicians and leaders in government to to convey to

them that 99 of transactions are already digital right we already have a usdc it just doesn't get down to the consumer retail level we just don't call it that right when i when i do a wire transfer it's in dollars but it's all digital no one's you know printing anything out you know hopefully to confirm it until after the transaction and then that therein lies the rub because all the centralized interests

government but even more so the big banks um they have a vested interest in not seeing this happen at least the way things are set up right now and so that's going to be the battle yeah so it's exactly what you said right so and we didn't have these types of battles in the early 90s with the internet so here's part of my worry mark is that we did okay well tell us about that because my worry right now is is the politicians don't get this right there's a few people in congress who sort of are starting to wrap their heads around um crypto there's maybe andrew yang who's talking about it a little bit like in

little pockets but it felt like in the 90s are you kidding me i went to see senators and try to explain it to them yeah what do they say no clue whatsoever um you know are we doing anything to stop it kinda you know whether it was copyright laws you know whether it was um dealing with bandwidth and dealing with i mean because remember back in the 90s you had a 56k modem and the biggest inhibitor to the internet was bandwidth and so there were

a lot of laws put in place in terms of being able for cable and telcos and satellites in order to how and where and when they could build the restrictions communities set their own restrictions so you had multiple layers of problems in terms of just creating bandwidth and then you had people investing in fiber because you needed to connect all these things and so there there were inhibitors there but it was easier literally to install fiber underneath the ocean than it was fiber

to the home right or fiber to a business trying to get a ds3 45 megabits was expensive and it was a hassle and there were all these taxes associated with it and so i mean it was it was a [ __ ] back then too and people didn't understand it you know we used to have this thing on broadcast.com called the cd jukebox and i remember and basically prior to 1996 we could put up any cd there was no copyright laws preventing it then the

music industry got these copyright laws passed the digital copyright act and so we'd have to go get permission and i remember explaining this to oren hatch senator orrin hash from utah who was on the judiciary committee trying to tell him that you had to be careful with copyright laws because it could really slow down the internet and all he can think about was he had a cd of hymns or something he wanted to know if he could sell my cd you know and you know his cd i'm like no it's not cds um it just had no clue and so it was very similar then but

you know people find where there's opportunity smart people find workarounds and companies find workarounds and capital finds workarounds and the same thing will happen here you know as gen z start voting more younger millennials start you know becoming more aware because they're not even as aware you know um and so as they become more aware then they'll make sure their politicians are more aware and smart capital will find ways to invest and that's what's happening now so you're optimistic that we'll be able to get over this regulatory education

hurdle yeah because it's like the 90s right you know there's no choice because you can work around them because it's decentralized look if there's no usdc that's not going to stop defy the only thing that's going to screw up defy is the liquidity chase and the yield farming because you know somebody in the government is going to step up and say it's too good to be true and let me just tell you why and show all the problems um you know and like i say to people who yield chase you know the wrist doesn't leave the system you just don't know it's like a game of musical chairs you just don't know when the music is going

to stop and so you've got to be really careful there in terms of yield farming but you know that now if you're sitting home you're getting a stimulus check i don't blame people from yield farming because it's actually smart as long as you can be agile but it's not a long term it's not going to be valid long term so mark one thing we've been uh super impressed with is um your ability to go deep in defy like so our biggest criticism on bank list is that many of the investors you know vcs institutional investors

they don't actually use defy right so they're not informed investors imagine going and buying or like investing in apple stock in you know 2008 without ever having use let me give you a better example so we'll go back to the 90s so broadcast.com was going public in july of 1998 and we go on this thing called a road show and a road show is where you make an um a presentation to investors and we go i mean we even got to take the concord to go to london and come back today it was unbelievable but we would go into these presentations

and we could see their eyes just glossing over and there were never rarely any questions and the questions just showed that they had no clue what they were investing in and then we go public it's the biggest one-day jump in the history of the stock market at that time everybody placed their maximum order and the price just skyrocketed but none of those people had a clue or understood the technology of what we were doing none and so it's it's no different here i mean that's just the way it is people are momentum investors in a lot of

respects that's what we say it's like your edge can just be actually using d5 protocols have you gone in and and deposited something in ave and are earning some interest you have an edge because 95 of the other investors haven't even gone that far no no clue whatsoever right because okay so you know investing and working with some of these companies i'm like you guys you got to do me a favor if i'm going to invest here's what you got to do you have before you hit confirm right for that swap or whatever deposit whatever it may be you need to put up the transaction fee

versus the apy and how long it'll take you to earn back your transaction fee right because people will see an api of 60 or 70 and invest a hundred dollars or a thousand dollars and have a gas fee because they do it the wrong time of a hundred bucks right and that's ten percent immediately right off the top and don't realize even if it's a fifty percent apy that's an annual yield right and you gotta hold it long enough to cover just to break even before you even think about it right and

they don't do the math and so i'm like you got to save the little guy because otherwise it you know if you don't take care of the little guy like that it's going to backfire in the whole industry and you know whether it's ave um or others you don't see that right and that's going to create problems because you know there's a lot of people you're farming on a small level trying to figure it out and losing money including me i'll you know because when i when i first learned it and i first did my first deposit and then um did did some yield farming where i deposited and i

saw the high apy and i wanted to see what happened and then i was like yeah and then i swapped it back out losing money thinking i'm getting this high yield right well but that this is exactly right like you have to have skin in the game and you have to be willing to experiment you have to have a few transactions where you're like oh that didn't go well and like here's why in order to level up and understand this stuff so what is is that generally how you approach investing and is that how you improv approach defy like tell us how you learned defy and how you

approach investing yeah i just do it right i mean i'm teaching myself solidity right now i'm taking solidity tutorials so i understand smart contracts better because it's important for me to be able to say okay this is what you can do with a smart contract it's almost like artificial intelligence right so everything ai is included in almost every investment crypto doesn't really talk about it but you know every traditional regular business company does and so i'm taking you tutorials and ai i'm learning the difference between

gans you know cnns reinforcement all this stuff i'm you know doing machine learning tutorials you know reading books whatever watching the videos so i can learn because i got to know what's real what's [ __ ] and 99 of the deals that say they have ai or computer vision are [ __ ] you know they have one guy or one person who is there you know that went to mit or harvard that took a class in data science and has done you know a three-layered neural network like i have and that's it right and they're going to try to figure it out ai is hard crypto

is easy relatively speaking but you've got to learn you've got to learn what it is in order to be able to make legitimate decisions you know if vr i've got a patent pendant with a medical application for vr i got you know a patent that was issued for computer vision for counting things from uh from the air on the ground i mean you know i had help but these are things you know over the years just diving in and what you learn very quickly about technology generally is once you get these fundamentals in place it's not hard to add new things right

d you know d5 is really straightforward um if you just try it and you understand the principles behind it but you know you've got to understand finance to a certain extent you've got to understand why people are chasing liquidity or why the dexas are chasing liquidity and trying to offer these yields and why it's a game of musical chairs but that just takes time and experience to do it mark so you've been playing in these defy apps yourself which is absolutely fantastic like ryan said you're already

like leagues beyond the typical vc who doesn't actually play and the fact that you're learning solidity is insanely cool um we talked about gas fees and gas fees are they're pretty prohibitively expensive for a large part of the population it's an unfortunate place that we find ourselves in where ethereum has so much demand that everyone wants to use it yet we haven't actually learned how to how to scale it right there are l2 solutions on the way they're just very nascent not very mature we do believe they're coming there's been a ton of content that we've produced on l2s but one of my opinion

one of my questions that i have for you is like do you think uh the average person like assuming that ethereum scales assuming that l2 does work do you think that the average person just you me just like the listeners here are actually making these individual transactions managing their own money uh playing when their own defy apps and putting their own money into ave putting their own money into maker dao or do you think there's going to be some sort of like uh service provider some sort of like centralized entities like how do you think how do you think about the long

term for every business ever whether it's a little company coming on shark tank or the biggest companies customers take the path to least resistance period end of story we don't you know we don't want to have to think about it we put our money in a bank because we don't want to have to think about it and we know fdic insures it and we feel it's safe right better than under a mattress hopefully um and so whichever company creates look at top shots right look look what flow has done with top shots their biggest thing wasn't you know creating the videos the video

moments aren't anything special the biggest thing wasn't a deal with the nba that helps makes me some money i'm glad right um the biggest thing was there's no wallet you just put in your credit card everybody's been trained for decades you just put in your credit card you buy what you want that is the key you can talk about flow blockchain all you want right and you know you can talk about whether it's better or worse and you know who's going to develop on it or why that's not the secret sauce the secret sauce is the fincen side where there's

no know your customer there's no any of this other stuff you just put in your credit card you buy and if the prices go up you're happy there's a two and a half percent no it's more than that now um it's well depending on the size of the transaction but you know it's gonna be a seven to ten dollar transaction fee that's cool too because people are used to that because of shipping and credit card fees and you know and that's a thought right there's no shipping fees you know on on nfts and all that stuff but you get my point right it's the path

or least resistance to dealing with things look you can't take your money off of top shots right now you know you can have something that just skyrockets in value and okay you know it looks good you know on your collection but it's you know you can't really take it anywhere you know so there's a lot of limitations and it just goes shows even despite those limitations the site being down it's hard to buy a pack you know they're still working on getting out bots all that kind of stuff people still do it because it's exciting to collect and it's easy

and so deep i right now is not super easy it's not easy at all right understand standing pooling and swaps or exchanges different people use different naming conventions right yield farming and pro what what's really profitable people see apy and they're they're used to you know the concept of apy or apr because of their credit cards right and so the advanced users or people who just learn their way through it um can get to it right but you don't see nvls into the

billions because of everyday people right there are big old players and i know some of them now that are just moving money around and you can do it now because you know the the exchanges of the world are able to hedge still and you know they're still the liquidity chases because it's a zero-sum game you know you talk about similarities to the internet i used to do deals with companies because they wanted traffic and with broadcast.com we got a ton of traffic and we invented these things called

guaranteed click-throughs right so just like nvl is the the metric for how successful you are because that leads to market cap right so traffic was the currency back in the day and so we would charge ex you know obscene amounts for sending people traffic because they in turn use that as a metric to either go public stay public their stock price whatever it was legitimate traffic it wasn't bot traffic or anything like that it was legit but we would charge the [ __ ] out of it you know and it's the same thing now people are paying

overpaying for the metrics the nvls and everything they're paying influencers who don't know [ __ ] about crypto to say you know come you know you know just to jack up their tps or jack whatever the metric is that they're using their nbl whatever it may be their user numbers and so you're seeing a lot of people gaming the system right now and you've got to really be careful of that and that hurts the ordinary user who doesn't see that bigger picture because it truly is a game of musical chairs you know if your yield that you're earning that you've