Trailer: The ReDeFined Podcast

Jeremy Almond: What's up, everybody? How are you doing? This is our brand new podcast, episode zero, where we talk about all things DeFi, blockchain, and Web 3.0. How is that changing technology, society, business, and ultimately, our economy? I'm your co-host, Jeremy Almond, alongside my awesome good friend, Megan Guy. What's up, Megan?

Megan Guy: Hey, how are you doing, Jeremy? We're super, super excited to be here. Part of the impetus, I think, for starting this was we felt like we were seeing all kinds of really interesting stories about how blockchain and crypto were starting to transform industries outside of the hot takes and stories maybe that you're seeing on the front page of the newspapers. And we wanted to really bring those to light because this is a foundational transformation we see happening in the economy. And we want to make sure everyone's stories get told.

And on that note, I think we're incredibly excited to have our first episode zero guest here with us. Jeremy, you have known Roman for a really long time. So why don't you kick us off with an intro?

Jeremy Almond: I think it's been almost a decade since Roman and I first met, and he has a really interesting background. Roman's a friend of mine who's basically spanned first Wall Street, worked at Goldman (you'll hear a little bit about the stories there), then he worked in traditional tech – he was at Corp at PayPal for a long time – and then now running a venture fund. I think it's going to be really fun to talk about. What's up, Roman?

Roman Leal: Hey, guys. I'm doing well. Happy to be guest number zero here and talking about things that I love. I'm sure we'll touch on all things blockchain crypto, but also things around the investment world, diversity, inclusion, and ultimately, all the impact stuff that is happening in DeFi land. So happy to kick this off with you guys.

To give you an intro and some context of the way I look at blockchain: it's all full circle. I recall my first introduction to the investment world, or at least the arbitrage world, was when I was 10 years old.

My parents both immigrated to the US, and we grew up in Los Angeles, in an area where Spanish was all they needed. They never learned English because frankly, they just didn't have to. And so I remember them taking me to the local Western Union and my father saying, “hey, translate the documents and tell me how much they're charging me.”

I remember going down line by line and saying, “it's 10% for the Western Union wire back home to Mexico.” And in my father's case, it's 3% for a money order. We just went down the line, and it ended up being 22%. So every two weeks, from my father's paycheck, it was 22% going to these fee structures.

I remember him getting so upset and saying, “fix this.” I was 10 years old, right, so I said, “I don't know what to do.” My father said, “well, you know English, so you can figure it out.” That was the logic behind it.

And so for the next couple of weeks, I would literally go and, in my community in Los Angeles, for better or for worse, there were like six or seven of these payday lenders / check cashers in every intersection. So I would go into one and say, “hey, how much do you charge for this? And how much do you charge for this?” And I was able to take it down to 12%.

22% going to 12% was still a pretty high fee. But that meant so much to my family, right? And I realized just the power of education, the power of figuring out the arbitrage opportunities just within your own zip code.

And I think subconsciously, I've been on this quest to discover ways of fixing that. My father asked me when I was 10, and I couldn't. And I’ve been looking and looking for alternatives.

So fast forwarding a lot, but when I was at Goldman I got the chance to cover FinTech. I was the FinTech analyst there, covering all the publicly traded stocks. So the Visas, the MasterCards, the merchant acquirers of the world, and, luckily, the Western Union and Money Grants of the world. So that was the full circle moment when I first heard about Bitcoin from one of my colleagues, actually at Goldman, who started trading it. This was 2010. And I said, “I want to learn more about this.”

As I started to really understand what it meant for the free flow of value and the fee structure of the world that's been built over the last five, six decades in terms of payment rails and money transfer rails, I instantly remembered that story of when I was 10, and I said, “this is it.”

I wish I'd had this to offer my father when I was 10. And I'm sure we'll go into what the implications were, but that's sort of the context of how I look at the world of crypto.

Jeremy Almond: Take me through a little bit of the Goldman story on how you first touched crypto at Goldman.

Roman Leal: I was hosting a couple of conference series for investors on all of the innovative and disruptive trends that we saw in FinTech. So I decided to host a conference call on Bitcoin. And this was late 2010, early 2011, when I had Tony Gallipi who’s the CEO and co-founder of Bitpay, to talk about what this meant for the traditional payment processing fees, the interchange fees, the merchant acquiring fees. We spoke at length about that. I think I probably had one conversation before that conference call, but it was in that conference call that I truly understood the model and the opportunity we had in the payments landscape.

I wanted to do a follow-up report and I wrote something about the quick key takeaways of the report. Now that you know the lens of how I look at this, I was particularly excited about what this meant for the payments ecosystem. The headline was something like “Riding the Bitcoin Rails” or something along those lines. I talked about what this potentially meant for everyone downstream, particularly the issue of processors and merchant processors that have sort of tacked on all these fees, but also how the opportunity to send money from one area of the world to another of the world and receive it just as fast as you receive email. That's the promise, the premise of this would challenge even the networks, right? It would challenge even the most innovative of the FinTech companies at that point, which were companies like PayPal, that were sort of riding the secular shift to more and more internet money or more internet transactions.

Because if you looked at any of these companies financial statements – which I did all the time, ad nauseam, that was my job – you saw that the biggest chunk of profits came from this thing called cross-border payments. What if you had an infrastructure that allowed you to send money instantly at a virtually no cost or low cost?

So I thought, this is pretty much a threat to anyone in the payments ecosystem. And I laid that out in this report. It took about a week before I got a call and it was a slap on the hand, but it was a pretty hard slap on the hand. I won't name names. I'm sure it even came up two or three layers above that person. But the conversation was that we needed to make sure that we're not putting Goldman Sachs name on some infrastructures that are being used for the black market or illicit activities.

Back then we were still wrestling with a lot of those negative headlines. I think Mt. Gox had just occurred. So there was a lot of negative news around Bitcoin at that time.

And I'm kind of jumping over a lot of the personal implications that I had with my boss's boss's boss calling me. I remember coming home and basically working on my resume that day.

Then, not three months later, in a very quick timeframe, Tim Draper, Mark Andreessen, Fred Wilson and these very well respected, well known names came out and defended or championed crypto at that point. They were the early champions from the investment world, and I think the sentiment shifted. It shifted so much that within a period of three months, I actually was called on to collaborate on a sort of company-wide report. And that report was called All About Bitcoin. My name is in there. I'm the payments guy within the report.

https://www.dwt.com/files/paymentlawadvisor/2014/01/GoldmanSachs-Bit-Coin.pdf

It was a 60 plus page report where we looked at it from a commodity standpoint, a currency standpoint, what it meant versus the bond market, or what it meant versus the existing publicly traded market. And then, obviously, what I thought it meant for payments and remittances at that point.

So that was quite a wild ride.

Jeremy Almond: Yeah, so wild. It was one of the first times that there was an actual Wall Street analyst covering crypto, which was wild. And Goldman now has a crypto desk! Then you have all these other institutions that are now coming along. It's not a “might be,” it's almost a necessity.

If you're an institution now – whether you're Goldman or you're Fidelity or you're any of these folks who really built their bank on being ahead of the curve, both in the technology and the finance side – what do you think about now, where the market's now real?

Megan Guy: I think one of the funny things asking that question, though, is I'm not sure that all of those institutions are on board with the market being real, right?

I mean, even Goldman, in the last couple of years, I've put out some of these reports, much like the original one that Roman was talking about, which I remember reading. And one year we'll say, no, it's not an asset class. And the next year it is an asset class. I think everyone in this space is really wrestling with this in part because it poses a pretty fundamental disruption to their business model, right?

It's kind of a classic dilemma of, do you cannibalize your own business to move into the new wave and where you see things going? And while everyone says that they want to do that, and make sure they're still the market leader, it’s much, much easier said than done.

So I'm curious, Roman, as that report came out and you started to see momentum and it waxed and waned, what were those conversations like within Goldman about, “what does this mean for us? What should we be doing?”

Roman Leal: I think at that point there was still a lot of uncertainty, but also we didn't know what the regulatory landscape was going to look like. We still don't know a lot of it. Remember, back then it was really the Wild Wild West. People were trading in it, but what were the tax implications of that?

I even remember submitting an approval to allow me to buy my first Bitcoin in 2011. And it was just so complicated. But what was this? And was this something that was allowed? Did it need a compliance check or not? We were just learning so much like that. Is it a security, or currency, or what?

But what was fascinating was, because I was part of the FinTech team – which was in the umbrella of TMT: Technology, Media, Telecom, where a lot of the innovation was happening – we had just witnessed a full decade of the shift to cloud. And the decade before that, we were facing a lot of similar questions to what I think we're facing now in blockchain, which was, “are people and businesses really going to adopt cloud? Is it going to be 10% of the businesses, 50% of the businesses, 90% of the businesses? Is it gonna be across all sectors?” Back then there was a thinking that this may not work for financial services. It may not work for health services because of the sensitivity of the data privacy and all these concerns. We were still debating that by then.

Fast forward now with the advent of private clouds and hybrid clouds, it's touched every sector. With the pandemic, it showed no matter what industry you're in or sector you're in, you need to have a cloud strategy.

I kind of feel like we're entering that phase in blockchain today, where a lot of these banks are thinking, “yeah, I don't know if I truly believe in this or not, but we should have a strategy.” It feels like that's where we are headed in terms of the conversation.

Jeremy Almond: I think “blockchain is the new cloud” is an area a lot of folks can start getting their head around. And to the point about the regulatory side, this is almost an area where some of the institutions who are ahead and are actually trying to be the winners in the next movement can start positioning themselves, right? Maybe some of these institutions actually can help push the ball forward. That puts them in a winning position, because it's a big market now. It's a really, really big market now. I think the blockchain volume now is larger than the top 10 banks combined. So I don't know if you can ignore it forever, right?

Megan Guy: Oh, absolutely. I think, though, the key is that we have to make sure we don't replicate a lot of the mistakes in the system we have today. It's kind of the great irony that this democratizing force that's supposed to provide access to those that haven't had access, so far, I think I saw a statistic recently, 77% of NFT sales have all been among and to men with the profits accruing just to male creators.

So some of this is a technology problem, but a lot of it is a people problem too, right? And a community problem and the way that we define and set up some of those social norms, I think is every bit as important as the technology that's underlying the evolution of these new products.

Jeremy Almond: Roman, you were talking about this. The financial system leaves behind folks, right? Whether it's business models or capital structures, there's a have and a have not. I guess in the most utopian version of decentralized finance, that's certainly, I think, a hope and a dream. There's an area, whether it's cross border or otherwise where it can play a role.

You ended up joining PayPal. Thinking along those lines, maybe a top tier tech company can have a bigger hand in democratizing financial services. I'm curious about the insider view of first trying to bring this crazy democratizing financial force to Wall Street, and then all of a sudden moving over to big tech. What was the experience at big tech? Was it as democratizing as Megan's hoping?

Megan Guy: Did it feel like big tech at the time?

Roman Leal: I gotta tell you, the first thing I did was I bought my first Bitcoin when I moved to PayPal. I didn't have to go through the compliance hoops anymore. That was my first foray into really owning the digital asset.

Really a lot of the talent in my career at Goldman was looking at sort of the new breed of FinTechs that were coming out. Personally, what resonated with me was all these next generation financial services for the underbanked or the unbanked. I remember taking companies like Netspend public, working on the green dot transactions. Some of the pioneers that figured out, if you're underbanked or you don't have a bank account, how can you buy something on Amazon, right? Your computer doesn't take cash. And so solutions like that were really intriguing to me. But there was a whole new breed coming out, Lending Club, Prosper Marketplace.

So when I went to PayPal, really what I was attracted to was the ability to work with all these next generation financial services companies that we could try to integrate. In the middle of my tenure there, I discovered there was a blockchain team being created. And this was a team that had co-founded a company called RubyCoins. So they were really early in this other digital payment hurdle, which was if you were in a mobile phone context and you were playing a video game, and you wanted to sort of buy the sword and kill the troll at the end of the level, how would you do it back then? Now we take it for granted, that you should sort of buy it within the context. But back then it was a problem to be solved. And so it was the first sort of gateway created for this digital environment. It was digital payment for digital goods.

So that company, RubyCoins, gets acquired by PayPal. The two co-founders – Jim Nguyen and Nas Kavian, brilliant individuals – go into PayPal. And they're the backbone of the initial blockchain team at PayPal. They figured PayPal wanted to do something in blockchain. Again, we were still learning a lot back then, but it made sense to put a digital payment in the digital payments hub for digital goods, right? Let's just keep it all digital.

So I quickly tag-teamed with those two individuals and we said, hey, let's create the team. So I was sort of, I wasn't officially on a strategy team, but I went out with Jim to try to figure out who can we integrate, what technology can we integrate that makes sense at PayPal.

We launched really the first integration that PayPal did, which was with Coinbase, BitPay, and OKCoin. So the digital payments hub was implementing now, if you were playing a game, you can choose to buy any digital good using your Visa, your MasterCard, obviously your PayPal wallet, and now Bitcoin. That was the big add-on. But I like to say that I played a small role in that evolution.

Megan Guy: What's been interesting to me over the last couple of years is a lot of companies that didn't originally conceive of themselves as blockchain or crypto companies are finding now that there is an application for what they're doing or a way to do it better that utilizes that tech.

We spend a lot of time in the creator economy space. NFTs obviously have really transformed that, but you start thinking about art and music and the way that that gets shared and value gets created and distributed – this is revolutionary there, right? You probably see this too in your day-to-day, Jeremy, with the companies you're talking with. Part of what I love about your business, Paystand, is people don't need to understand the ins and outs of the proofs and the math behind how blockchain works to accrue real value from making that shift in their business.

Roman Leal: When we met Jeremy, it was right after we had tried, I think for the sixth or seventh time, to figure out a B2B payments approach. And the reason was obvious, right? Huge freaking market. A magnitude of 10 times bigger than B2C, but we couldn't figure it out for a variety of reasons. It's hard to tell a company that's making hundreds of billions of dollars in terms of volume in the B2C landscape to say, hey, shift over to B2B. It’s very hard to do that organizationally. And also the business model, the distribution model, the whole product strategy just was built for B2C. It was very hard to then shift.

Back to the cloud analogy, one of the other reasons why that's an interesting lens to look at it through is because what the cloud allows is it allows you to rethink business models and allows you to rethink distribution models. And so if you can lower your distribution costs or your acquisition costs, then you can rethink your average contract value. Do I want to charge one time a year or a subscription model, which is now the go-to model. But that was allowed because of the scalability that cloud technology brought to you as a company. I think that blockchain is doing that.

One of the first “aha!” moments I had was when I learned about Paystand. When I thought about, can you address B2B with a different business model from a different infrastructure standpoint? I thought blockchain was just a very smart way of approaching it.

I always tell people that I think Paystand is the largest enterprise application of blockchain. But back then it was probably the first that really tried to leverage blockchain technology to try to crack the B2B payments puzzle. That's sort of when I met you, I was thinking, “man, why can't we make it work?”

Jeremy Almond: We see so many enterprises that are now aware. The question is now, how do you engage? Kind of like cloud was early on, even how the internet maybe was when I got my career started in the late nineties: clearly it was gonna do something. But how does a bookstore engage with the internet? Well, e-commerce, right?

So I think there's this big question of, what's the engagement model for institutions? What's the engagement model for the enterprise? What's the engagement model for users? That's the part that's really early. Where you have the Facebooks of the world trying to build their own engagement model around cross-border. You have the Walmarts of the world, which have work that they're doing on the supply chain on one side and then adding digital asset ATMs in stores. I think a lot of folks are trying to figure out the engagement model. Ultimately, the value is what wins. How can we build things that are better, cheaper, faster, and more efficient?

And hopefully that's a little bit of what this podcast will show the audience is there's a lot of really, really well-built new tech that's out there that's actually changing things behind the scenes and not just in front.

Roman Leal: It also goes back to the original promise of what blockchain could do, right? One of the biggest challenges with payments is the fact that you had this ad valorem tax, a percentage of volume plus a fixed fee on transactions. It made it very difficult to then think about, what if I wanted to do microtransactions?Microtransactions were always just too expensive to really do in a feasible manner with the legacy infrastructure. So now you have a blockchain that can divide it up to eight decimal points. You can be anywhere in the world, it can be real time. So you can lower the cost dramatically and allow for things like microtransactions.

But then we got into the issues with gas fees, and there were always these other issues to really think through. I'm happy that we're now really starting to solve a lot of these structural issues that are going to allow for the true promise of this technology.

So one of those promises was just lowering the cost, lowering the barriers to entry. But really I think what's powering all this innovation is the fact that it's decentralized. I think at the end of the day, that is the magic here. That it allowed for the transfer of value in a decentralized manner without a central intermediary that held all the keys.

When we think about Megan's point of the people part of this, we have to make sure we understand who the innovators are, what the intentions are, what the impact is, what demographics, et cetera. But we're starting to see some really interesting use cases that are leveraging this decentralized framework to bring value to parts of the world that were misunderstood or under-invested or under-served.

And to me, that's what's really fascinating. I'm happy to hear about all these use cases coming about now.

Jeremy Almond: Even then, we're looking at cases where the infrastructure in the US or places where it's well built might not actually be the first places that these things get to economy scale, right?

Roman, given your background and my background in places like Latin America, you see financial infrastructure that quite frankly just doesn't exist. So it's not surprising that those are some of the first places, whether they're high inflation countries or low banked places.

How do you think about the least of these, the most undemocratic spots whether it's El Salvador now that has more wallets out there in three months than bank accounts. In 30 years, how are you thinking about both just deploying capital and in general, what that's going to do to the emerging markets?

Roman Leal: You know, I wish my mom was alive to see this. My father and all his family is from Mexico. My mother and all her family is from El Salvador. So this hits close to home.

The way the president presented this to his citizens, or to the world was, we know there are millions of dollars that are sent from the U.S. back to their families in El Salvador and other countries like it. But in El Salvador what happens is, on the U.S. side, the center side, Western Union or MoneyGram or whatever remittance network you use, they charge a tax. It could be 5%, 10%. It's wired to the local country, but if it's cash intensive, which a lot of these countries still are, and especially the receiver that's receiving money back from the U.S. typically is very low income, under-banked or unbanked. They go into their local retailer and they cash out, and that cash becomes untraceable, really hard to tax. If it's a cash intensive society, they probably spend it in a place that accepts cash. And again, very hard to trace.

So that's millions and millions of dollars that the government would want to track, to tax, but ultimately also to then use data on so that they can use that tax revenue to redirect it to some programs that go to the ones that need it the most. The thought process there or the claim is that, look, we just don't know, we don't have data on it. So we don't know who's receiving money, how much they're receiving, how can we help them?

Let's see if it ultimately kind of trickles down and helps the people who need the most help, but at least there's now data. And at least this user is not getting taxed on both sides, right? Western Union on the front end or the remittance of the sender side, it's already taxing a piece of the economics. So now you could hopefully avoid the second piece because it drops into your Chivo app. Chivo is a way of seeing money in a software. It goes into your Chivo app and then you can retain it there until you're ready to spend. Then hopefully more and more merchant outlets start accepting it.

It's a fascinating use case. And it's such a small country to take such a bold stance. I don't think it’ll be the last. And when you think about Latin America, there are some real problems around the financial inclusion issues, absolutely, when you think about diversity issues within financial inclusion. More than likely, you’re going to be unbanked if you're poor, if you're female, if you're a single parent household – there's just all these metrics that show that the systems against you are just so difficult to navigate. So we hope that things like blockchain and Bitcoin can enable countries that have financial inclusion issues to bring more banking services.

Jeremy Almond: If you look at the countries that are growing the fastest right now, it's often times economies that are less stable, right? With currencies that are less stable.

Part of that, one might say, is it's inflation driven. Then at the same time, you also have entirely new ways to capitalize companies with all of this token economics. So how does that play into VC? On one side, there's ways to capitalize business so there's more choice for operators. And then there's democratizing it, maybe giving access into capital where before, certain places that are underrepresented couldn't get to Silicon Valley. Then there's just the token economics question. Which is, how do firms even capitalize decentralized apps that might not actually have normal equity, but have token as a component.

We're talking about disrupting business and society, but what does it do to VC?

Roman Leal: As investors, we want to invest where the value is being created. You can think about a lot of use cases, but I think one that’s sort of the simplest to understand is when you invest in any credit-based company – a company that's giving credit to businesses or to individuals – the value there is the actual loan and the repayment of that loan. So whether it's on balance sheet or off balance sheet, it makes a lot of sense to mess in the equity because the actual loan servicing of that business is where a lot of the value is. What happens when that's decentralized, and all of a sudden, it's the individuals that own the tokens?

So through the token sale, you then finance the balance sheet that lends out to customers. Then the repayment goes essentially back to the token holders. That changes where the value is generated, right? As an investor, you think, well, where is the value? Is it on the equity of the company or is it in the underlying token?

It's because the utility of this is where the value is being created. So it definitely changes the dynamics. And that's just one use case, but across the board we're looking at it in terms of where the value’s being generated. A lot of the companies will end up doing this, the whole 10-20% or more of the underlying tokens.

So as there's more utility and the token economics grow, you also benefit from owning the equity in the parent company because they have a large chunk of the tokens. It definitely changes your calculus around where you should invest.

Should I invest in both? How much in each one? And it varies by model. But I do think it's an added sort of complexity to the investor world. You're seeing a lot of very smart investors, definitely smarter than me, that go in and say, “hey, we're specialized in crypto and blockchain.” And a lot of what they're doing to add value to their shareholders is this calculus between do we want to own tokens versus equity, and what's the split? They think they can generate extra alpha. We all identify blockchain as a secular trend, that's great. So they come in and say, “well, I also think that the token economics is where the value is at.” That's another edge that investors like that can have.

I know I'm killing this analogy to death, but back to the cloud analogy. We're in this mess we're in today in tech and VC in general, where there's a true lack of diversity. Maybe we've seen it for a while, but now we're finally just accepting it. It's a big, big problem. There's a lot of value for the economy that's being left on the table.

I feel like one of the reasons why is when we saw this amazing shift to Web 2.0. The shift to cloud was happening. It was not a topic of discussion of who's going to build the new cloud technologies and the big tech companies for the future. We allowed it to happen because it just wasn't a priority. That's not the case now. It's a priority. We know even in the political agenda, this is a priority, but from the actual industry landscape, tech companies are finally talking about it and accepting it. VCs are talking and accepting it. Capital providers or LPs that, frankly, have a lot of pull in this conversation are talking about it. And I almost feel like, not on our watch, right? We are talking about this now. We know that Web3 is being built. How can we do our part to ensure that, if blockchain is going to tackle some of the world's biggest challenges, we have the best people on the table, regardless of how they look, where they come from.

We have to make sure that we're doing our part to fund diverse founders because that brings diverse thought, and that's what we're going to need to solve the problems of financial inclusion and other big world problems. Hopefully we learn from the mistakes that cloud showed us, which we just didn't think about at that point in time.

Jeremy Almond: I think the democratizing access to capital is one of the big levers that there is. It sounds really touchy feely, but the reality is if you want more contributors to the economy, you need more access to capital. So an underrepresented person, whether they're an immigrant or from a different country that's a slower growth country, or whether they're just traditionally left behind, access to capital is how those people can be the masters of their own destiny, in my opinion. Starting more companies, which then create more value to the economy, which then create more jobs, which then replicate more access to a more diverse employee base, which then creates this self-perpetuating cycle.

So the capital access is actually one of the key levers. And that's one of the big things going back to even the venture side, democratizing Silicon Valley is a massive opening. Then you're right to the blockchain side, so much is going on with new financial inclusion. That can happen anywhere in the world with any level of technology now in Web 3.0. So it's a super exciting time.

Roman, Meg, this was great. I think it's a wrap.

Roman Leal: Thanks guys!

Megan Guy: Roman, thank you so, so much for being here. You've been a fantastic guest. It's been a great conversation.

For those listening, if you want to learn more about the awesome work Roman's doing, you can follow him on Twitter, or look at his firm, Leap Global Partners, and all the great work that they're up to. Thanks!