#12 - The Saylor Digital Assets Framework
Balaji Srinivasan 0:00
Michael, welcome to the network safe podcast. We’re gonna do a special
episode today where we go through Michael Saylor, new roadmap and
digital assets framework.
Michael Saylor 0:10
Michael, welcome, yeah, thanks for having me. Really happy to be here.
Awesome. Okay,
Balaji Srinivasan 0:15
great. So you just published this digital assets framework, the
principles and opportunity for the US, right? It’s PDF. It’s gotten more
than half a million views. Maybe you can talk through it, say you know
what you were thinking about when you’re writing this and what the goal
is,
Michael Saylor 0:30
sure. So first of all, for the past four years, I’ve been watching the
crypto debate go on, you know, in the United States and everywhere else
in the world, and I think a lot of times everybody’s yelling, and
there’s a lot of talking past each other, and there’s a lot of friction.
And it seems to me that if our goal is to move forward in a
constructive, progressive fashion, we’d benefit from a framework. So I
put together a digital assets framework along with a set of principles,
and I try to talk a bit about the ideology, what’s the vision and what’s
the opportunity, and I did it from the United States point of view,
because I think the United States really needs to lead in the digital
assets arena. And if they do, I think it’s quite likely that’ll provide
the air cover that will allow similar digital assets frameworks and in
the Middle East and Singapore and Japan and Europe, etc, and South
America. So let’s look at the different steps. I’ve got a taxonomy, a
taxonomy of different assets. We talk about how we legitimize these
assets. And then what are the practices we need in order to make how do
we make this practical? And then the fourth section is on the vision,
and the fifth section is really the opportunity for the United States.
So,
Balaji Srinivasan 2:00
so, why don’t we start the Yeah, exactly the taxonomy, right? So you
have six definitions there, most of them, I think people have heard. Why
don’t you go through them? Commodity, security, currency, token, NFT and
Abt. I hadn’t heard the last term in that acronym, the asset backed
token. But go ahead.
Michael Saylor 2:15
So there’s a lot of types of digital assets. A digital commodity is an
asset without an issuer, backed by digital power. A digital security is
an asset with an issuer and it’s backed by a security the third a
digital currency. It’s an asset with an issuer, but it’s backed by a
fiat currency. A digital token would be a fungible asset with an issuer,
then you’ve got digital nfts. It’s a non fungible asset with an issuer
offering digital utility. But the difference is, you could have 10
million fungible tokens, and we get that, but if you have 100 different
nfts, and they give you 100 distinct rights, then it’s something
different than the token. Now, the last one digital abt asset backed
token, a digital asset with an issuer, but backed by a physical asset,
backed by a bar of gold, backed by a barrel of oil. So that’s the
taxonomy. They’re all tokenized assets, and we’re talking about
tokenizing the capital markets. And each one of these is a different
form of property.
Balaji Srinivasan 3:20
I actually like this, because it carves it at the joints pretty well.
Let me, let me go through and you see, tell me if I’m playing this back
correctly according to your definitions, right? So digital commodity
that would be Bitcoin, that may be the only, in your view, is, is, do
you think that’s the only digital asset without an issuer?
Michael Saylor 3:38
I won’t say that. I won’t go that far. I will say it’s a very high
hurdle to issue a digital asset without an issue. It’s very hard, right?
It can be done. I could. I could imagine other digital commodities. For
example, you could, I mean, China could take Bitcoin, fork Bitcoin,
create China coin, and they could say China coin is like Bitcoin, but it
has special tax privileges in China, and it’s only interesting to the
Chinese people, and 1.5 billion people, maybe something as simple as
you’re allowed to mine China China coin in China with Chinese power, and
you’re not allowed to mine Bitcoin, you would have if everything else
was the same, if there was no issuer, you would have, in theory, a
digital commodity. Maybe it’s not global property, maybe it’s China
property. But the point is, the real key is, if you want to create a
commodity, you need to create a network disclaim beneficial ownership,
and you can’t point to anybody that has control of the destiny of the
network or has some major beneficial ownership of it if you’re going to
achieve commodity status.
Balaji Srinivasan 4:53
Interesting. Okay, great, so, so let’s say for now, at least digital
commodity is sui generis. That’s Bitcoin. And then. For your other
things. All the other five categories have an issuer. So an example of a
digital security would be, we would actually legalize crypto equities or
crypto debt, crypto derivatives, for example, Uber, in theory, could now
put its assets on chain. And, you know, in another world, Uber could
have given assets, you know, in its in its company to its driver, so
that they grew with the with the organization.
Michael Saylor 5:25
Can I offer just simpler one, which is, yeah, go ahead, just
MicroStrategy stock, if it was trading on Coinbase or binance, 24/7 365,
would be a digital security, right? Apple, Apple could be, you know, A,
A, P, L, could be a digital security now, I’m not saying it would only
trade on binance or Coinbase. It could trade on a it could trade on any,
you know, layer two, or any tokenized network to speak of. But the point
is, it would be one share, a token that represents a share of Microsoft
stock or Apple stock. It’s backed by the stock, but it’s tokenized
trading in in the crypto world.
Balaji Srinivasan 6:08
Yes, and also, I think one of the things we had been talking about
offline was you could imagine a site that allowed Mom and Pop
restaurants or, you know, like small real estate operations to raise
equity or debt. Once crypto equity was legalized and you could have
people from around the world do it. Obviously, you need lock ups. You
need various provisions for alignment. But conceptually, you could
actually get a cryptographic stock certificate. You could see all the
provisions of it. The blockchain would enforce timestamps, all that kind
of stuff, right? If I’m not mistaken, if you
Michael Saylor 6:41
had just, just equity in a private company, equity in a million dollar
restaurant, equity in a $10 million hotel, you know any kind of private
equity, venture capital, equity, you know any partnership interest, any
claim on future cash flows, maybe you own 1/100 share of my Airbnb
business, right? Any of those look like small private securities, but if
you had digital assets framework, maybe you would publish, publish the
relevant disclosures, sign up to the relevant obligations, and you would
put those on a digital exchange and they trade 24/7, 365, globally.
Balaji Srinivasan 7:23
To me, this is so obviously what should happen. Because let’s say you’ve
got a hotel in, I don’t know, Australia, or, you know, in Brazil or
something like that. They can put up a website, they can advertise for
customers around the world, and, in fact, they can process credit cards
from around the world. You’ve got a motel in the Midwest and they’re
already processing cards. They’ve already got a website that anybody in
the world can access, but they can’t do is capital formation, which is
obvious thing to do on chain and of course, you need all kinds of
procedures and so on for this, but that’s solvable, right? Would you
agree with that? I do
Michael Saylor 7:57
agree with that. I think that the existing capital markets, they require
you to take four years and $40 million in order to create a equity which
trades with a four letter ticker. And that’s the 20th century. Why we
did it. But what if we could do it in four hours for 40 bucks and and I
think there’s another argument, which is, you know, maybe in the 20th
century, most businesses were municipal based or state based or nation
based. There’s a lot of international podcasters. I could have, you
know, I could have an international chess podcast with 800,000 fans
spread across every country on Earth, and it would be very easy for me
to appeal to the fans to raise capital. What if I wanted to sell half
the interest in my podcast to them? They would want to buy it. I would
want to sell it. But right now, there isn’t really a straightforward
path to legit, a practical path for me to do that in a legitimate
fashion. And so if I use the 20th century techniques, I’m at a huge
disadvantage, and I won’t be able to raise money. And so we’re really
crippling the 21st Century global economy with 20th century rules for
capital formation, absolutely.
Balaji Srinivasan 9:21
And that actually brings me to the next definition, the digital
currency, right? So by your definition, which is what we call maybe a
stable coin, right? An asset with an issuer, backed by fiat currency. So
example, USDC, or if you put some other fiat currency on chain, the usdt
might be that, but USDC would be the clear version of this, where you
have an on chain, USDC, you have an off chain, USD in a bank account.
And if you combine that with a digital security, you could, taking your
chess example, raise USDC from people around the world, all those
payments would be tracked on chain. And actually you could. Potentially
click a button and do your accounting. And if those people had whatever,
you know, profile information, you could automatically send them stock
certificates. It’d be the equivalent of accept what Excel was. You know,
people used to do accounting by hand, as you may remember, with, you
know, piece of paper before spreadsheets came. I think corporate
accounting is kind of like that now, but you could, in theory, have all
the transactions on chain, hit a button and it’ll just prepare your
books for you, at least you decide which pieces of that to have. But if
you have both digital currency and digital security, you could automate
a ton of compliance work. Let me know your thoughts.
Michael Saylor 10:32
I think you’ve got I agree what we’re talking about is tokenizing a fiat
currency or a tokenizing a checking account. So I mean, the trick to
this is there’s no question everybody in the world wants digital
dollars. And there’s no question that if I if I live in China or if I
live in Europe and I have to pay in euros or CNY, I want tokenized local
currency. And those two frames of reference as well, just like in
Brazil, you might want tokenized real. So why do you want it? Well, you
want it to be a programmable you want to move it at the speed of light.
You want to vibrate it a million times a second. You want 8 billion AIS
to be able to trade with each other 97,000 times an hour. You know, it’s
like. The utility is obvious. The challenges are, you need the nation
state that issues the fiat currency to recognize it as legitimate, and
then you need to overcome the privacy and the money transfer issues that
you know, which pop up from place to place. I think we make huge
progress simply by distinguishing the difference between digital
currency, which is really circle or tether, versus digital commodities,
which is Bitcoin versus digital securities, which is your tokenized
Apple share, versus a digital token, which might be any number of crypto
tokens with an issuer that are com you know, that have functionality in
cyberspace or digital utility, but they’re not securities and they’re
not currencies and they’re not commodities, and The entire crypto
currency industry has been saddled by this one name currency, and all
four of those things I just mentioned are sometimes are sometimes
referred to as a cryptocurrency, and the result is you just get massive
pushback and fear and uncertainty and and doubt, and we Need to break
them into four different categories so that people understand their four
different things for four different purposes. I
Balaji Srinivasan 12:48
like this a lot. And so an example of the fourth that’d be what most
people think of when they think of crypto, as opposed to Bitcoin. So
that’s Ethereum. Solana Z, cash, Monero, something that, you know, a
fungible asset that offers digital utility that’s in a portfolio, and
then something like a digital NFT and non fungible asset with an issuer.
Now, nfts are actually kind of interesting, because historically, people
have thought of them as, you know, a really expensive piece of digital
art, like a million dollars for an ft but now you can issue a million
nfts for $1 so you can issue like, the equivalent of likes, or, you
know, Reddit style, upvotes. You can issue those on chain as little
markers of things. You can issue a ticket for a digital for a
conference, either online or offline. You can use nfts to open digital
locks. So nfts, I think, are pretty interesting if a smart contract is
on chain code, nfts are on chain data. And I’m glad that you have a
distinction between the fungible and non fungible here at the Digital
token, digital NFT any thoughts on because nfts are on Bitcoin too
as
Michael Saylor 13:53
well? Yeah, I think if you, if you just characterize them as digital
art, you’re kind of under selling them. I think we got to think of them
as as a unique digital right. And yeah, I think about, I think about
other types of rights, like, maybe I’m Tom Brady, and I post on some
channel, like on x, and I’m going to actually sell 10 super fan tokens,
and numbers one through 10 actually get ranked, and their response is
underneath me. And if you always want to be the number one respondent,
you buy NFT Brady one, and if you want to be number two, you’re Brady
two. And if you’re number 10, you’re Brady 10. And if you owned Brady
tokens, one through 10, maybe that guarantees you for all of eternity,
you’ll always be one of the top 10 responses in that order. And there
might be some super fan who’s willing to pay $100,000 to make sure that
their comment is always number one. You know, underneath Brady. Yeah,
it’s like, it’s a special, right? Maybe it’s a, it’s a, it’s a key to
unlock something, you know, maybe it’s some, maybe it is a piece of art.
But I think I get, you know, this is not quite true. I’m going to give
you a physical analogy and abt if I said to you, this is a token that
represents one acre out of a million acres in Kansas, and they all look
the same, right? That’s a fungible token. But if I said, this is two
acres, you know, in Palm Beach, on the beach next to the country club,
right, when you get to the point where it’s a specific piece of real
estate. And now we think about specific real estate in cyberspace. I can
create real estate in cyberspace right with proximity and priority. So
if you, if you start to create things that have some kind of priority,
or proximity, or or or, or Providence, or, or some unique ns, maybe
there’s something there that’s interesting. And of course, the idea of
the framework is, let’s just give people the asset classes, and let
create a Cambrian explosion of innovation, of which 99% probably won’t
be economically successful. But on the other hand, the 1% might be the
Instagrams, the the metas, the, you know, the the Teslas of the world,
and that’ll be worth all of the other trouble, absolutely.
Balaji Srinivasan 16:36
And I think actually, you know, one thing I would just say on that is, I
think of there being a spectrum of fungibility. For example, you could
have a one of one, like a digital Mona Lisa. You could have, right? You
take your Miami example. You’ve got maybe 10 acres of land, and each
acre is its own NFT plot. So that’s like, you know, 10 of 10. And then
you could get all the way, for example, to, for example, IP address
space. As you may be aware, you’ve got 4 billion unique IP v4 addresses,
and in theory, each of those could be tradable as an individual NFT, and
that would be finite. That’d be capped. There’d be a logic to it, but
it’d be sort of once you start to get to that point. There they are non
fungible. You can’t actually exchange one with each other, but the
pricing on one might be similar to the pricing of another. And so then,
then you get all the way to, like a fully fungible token. So I think
there’s being an interesting continuum here. I don’t know if you have
any thoughts on that, then we can go to
Michael Saylor 17:34
abt it’s, yeah, it’s just obviously a million thoughts part spark up,
and we probably want to go down this rabbit hole, but I just think about
all the domain. About all the domains, you know, like, when you think
about owning, owning a domain, like I bought frank.com and emma.com and
hope.com and Angel hope.com Great one. Yes, yeah. Like, well, I don’t, I
don’t know if they’re actually physical assets or intellectual property
assets, but, but you might very well attach an NFT to all sorts of
interesting, unique things and in cyberspace, and then they start to
trade with the price, and they can be transferred at high speed, right?
It’s just a license. Love,
Balaji Srinivasan 18:17
okay, great. Abt, so this is essentially something which is like gold or
silver or oil. It’s interesting you this is what it’s useful to
distinguish that from a digital commodity, because when you use the term
digital commodity, you mean an intrinsically digital commodity, namely
Bitcoin, and perhaps uniquely Bitcoin, at least at this point, as
opposed to additional abt which is often a commodity, like gold or
silver or oil that is traded on chain. And so it’s it’s a commodity, but
it’s basically traded on chain, as opposed to being intrinsically
digital. Would you agree that?
Michael Saylor 18:57
Yeah, the distinction is a digital commodity is an asset without an
issuer, and in order to create an asset with an issue, or you’re gonna
have to back it with some kind of digital power, whereas a digital abt
is a tokenized physical commodity, and that means at the end of the Day,
you’re gonna have a warehouse with 100,000 you know, little gold coins
or or 100,000 barrels of oil, or 100,000 bushels of soybean. And that
means there’s going to be a custodian, there’s going to be an issuer
repping to this custodian, getting audited. And now you’re going to
tokenize whatever that is, and you’re going to tokenize it so that
people can move it at the speed of light, so you can slice it, so you
can fractionalize it, so you can finance it, so you get liquidity on it,
so you get transparency on second programming.
Balaji Srinivasan 19:55
Amazing. So, okay, great. You know, in math, um. Yeah, one of my old
professors used to say you can define your way out of a problem, and if
you have the right definitions, lots of things follow, like abstract
algea, the group, the ring, the field, and then you can kind of just go
downstream from that. So with these definitions, why don’t we go to
section two, legitimacy? So like, rights and responsibilities, right? So
what you want to go through this the path of legitimacy, issuers,
exchanges, owners. Go
Michael Saylor 20:24
ahead, yeah. I mean, I think this all boils down to there’s three
general types of actors. There are issuers, people that issue digital
assets. There are exchanges, anyone that trades custodies. And then
there are owners, people that own the digital assets. Everybody needs a
set of rights that are clear, and then there’s set of responsibilities.
If we do it right, you could, in theory, have millions and millions of
issuers, and you could have a lot of owners, and then I don’t know why
there couldn’t be 100,000 exchanges dealing with millions and millions,
if not 10s or hundreds of millions of issuers dealing with billions of
owners. What are we trying to do? We’re trying to create a global, real
time, uninterrupted process to issue trade and own digital assets. So
so
Balaji Srinivasan 21:15
you’re good. I was gonna say I was. I was very closely involved with
this at Coinbase, because when I joined a CTO at the time, Coinbase only
had four assets, which are Bitcoin, bitcoin cash, Litecoin and Ethereum.
And an important paradigm shift was for us to internally realize that
asset issuers were also a kind of customer. And taking your three
definitions, you can think of it as a two sided market where you have
millions and millions of owners and a few 1000 issuers, or much smaller
number of issuers on this side and the middle is the exchange, much
like, let’s say the New York Stock Exchange has whatever 100 stock
issuers on one side and millions of traders on the other side. So it’s
like a two sided marketplace with these three actors, and then realizing
that the issuer is a customer, sort of like Airbnb has guests and hosts
or or Uber has riders and drivers, an exchange has in your you know,
framework, owners or buyers and issuers or sellers, and the issuer is
like a special kind of customer. And of course, an issuer in one
context, could be a buyer in another context. And, you know, often
market participants are both buyer and seller in different contexts. And
I think that just having, you know, some routines and some conventions,
you know, with venture capital, one of the things I learned over the
years is that every term that we had in a deal was actually something
that came from some train crash in the past 20 or 30 or 40 years ago.
Like, for example, you know, four year vesting or lockups or CO sale
rights, all that kind of stuff is meant to align, you know, you know,
dozens, sometimes hundreds or 1000s of people towards the same economic
goal where one party can’t just dump on the other party, or what have
you all the low trust stuff that happens. You know, in certain parts of
crypto markets, there are actually solutions for it, if you actually
have a organized two sided marketplace of buyers and sellers, of owners
and issuers.
Michael Saylor 23:21
The challenge here is to let all three of these players operate in real
time, uninterrupted, globally, but they need to be able to issue trade
or own those assets, and you need to see transactions between
individuals, corporations and machines. So how do you actually create an
API or a framework such that the machines can trade a million times an
hour with each other, and they’re all working for exchanges or
representing exchanges, and they’re all representing issuers or
individuals. So you want a high speed, low friction market. I mean, I
think about, you know, where would we be in the world if it cost $40
million set up a website? Or it used to be, if we think about computing,
all the computing was centralized to IBM mainframes in the back office.
Or it used to be with publishing. You know, first it was just the New
York Times and The Washington Post and The Wall Street Journal. And then
all of a sudden, people could set up their own website. But then you got
those blog services where, I mean, 80 million people, or 120 million
people could, kind of use some software as a service, blogging service
and and it all comes down to, you know, to structuring this the right
way. So if you look at the next few paragraphs right, what we’re talking
about is issuers should have a right to create an issue digital assets.
And the obvious responsibility is. Fair disclosure and then ethical
behavior. The exchanges should have a right to custody, trade and
transfer assets between their clients and with the other between the
other exchanges and and the responsibility is is publish the asset
disclosures, protect their client assets and then avoid conflicts of
interest, and then for owners, owners want the right to self custody,
trade and transfer their assets. So it’s you know, you’re you’re back to
the not your keys, not your coins. But it’s not so much an obligation to
self custody that, but a right to self custody and the right to trade,
the right to transfer, that’s important, and the responsibility comply
with the applicable local law, whatever that might be. And of course,
what I think is the big idea here is create some foundation principles
like nobody has the right to lie, cheat or steal, by the way, this is
kind of obvious. I don’t even know if you have to, you would have to say
it, except for the fact that if you started from from the observation
that people don’t have the right to lie, cheat and steal, there’s
probably 100,000 pages of regulations you wouldn’t have to publish,
because most of them all boil down to that. And if you simply made those
those three observations, and then you noted that participants are
civilly and criminally liable for their actions, you might very well
eliminate 100,000 pages of regulations, years and years of review and
somewhere in the range of $10 million a year of compliance costs with
lawyers and all the back and forth that go that go into this process. So
I think that that’s the place to start. Well, the thing actually,
Balaji Srinivasan 26:52
it’s funny, when I looked at this, I was like, Wait a second, there’s
only three pages and but I like how you’ve set it up because you’re
right, that by just articulating those sort of 10 Commandment, like
principles, that actually does distill the the intent, or at least the
stated intent, of so much regulation, is all the disclosure stuff says
you’re Not hiding something. It’s not a material misrepresentation, aka,
don’t lie, right? Or you’re, you know, for example, a disclosure of when
an executive is going to sell what amount of stock, don’t cheat, right?
That kind of stuff, right? So lots of specific things are sort of
downstream implementations of these sort of very simple 10 Commandment
style moral moral directives, and yet
Michael Saylor 27:43
it’s back to this issue of it pops up in censorship. You know, the
question is, do I have to hire 100 lawyers and file paperwork with the
regulator for three years before I can publish my opinion on x, or can I
actually publish the thing that I wrote on x with an understanding that
if I slandered someone, you know, if I lied, if I lied, I cheated or I
stole through My misrepresentation, I have civil liability. If I publish
something that gets somebody else killed, maybe I’m going to get tagged
for manslaughter. But, you know, we have examples in product development
and in the media. Yeah, you don’t. It doesn’t take $40 million to design
a product and sell it to someone, but if you create a product that’s
unsafe and you sell it to them and it kills them, you do have civil
liability that the thing you sold killed the person, right? So there’s a
lot of industries that function with this, this set of observations, and
those are industries where people can do thing in one day, or do
something in one week. But at the point that you implement a nanny
state, and you take the position that no one’s allowed to say or do
anything until it’s gone through lay progressive layers of sensors, what
you really do is you choke off 99.999%
of all innovation, absolutely everything stops.
Balaji Srinivasan 29:25
It’s the difference between pre market review versus post market review.
Do you presume everybody’s a criminal, or do you allow people to
transact and then make clear that criminals will be punished afterwards
in what criminal behavior actually is. It’s not really it shouldn’t be a
process violation. It should be a principle violation. One other thing I
wanted to say is that the concept of buyers and sellers being connected
by an exchange as a two sided marketplace is so obvious. But. Is
actually one very unique aspect of crypto versus traditional stock
markets. And maybe you have some thoughts on this, but traditional stock
markets, like when a tech company files to go public, it’s only choosing
between nicey and NASDAQ, let’s say, at that time, and they do compete
for the business and, you know, what have you. But then after that, it’s
not easy. I don’t think it’s actually I’m not. I’m not aware of
prominent examples. Maybe it’s possible. But to move the asset from one
exchange to another, from Nice to NASDAQ, is not that easy. Number one,
and then number two is there’s no equivalent of send and receive. People
can’t like load their nice shares on or their, let’s say their FB shares
onto nicey, pull them out self custody, load them onto NASDAQ and trade
there. It’s not the equivalent that you have with Bitcoin. Now,
conversely, in offline markets, if you have, let’s say a farmer has a
bunch of apples, they can go and sell them at this supermarket or that
supermarket. They have the send and receive equivalent but they don’t
have the speed and the global aspect of the digital so this kind of two
sided marketplace combines the scale and speed of digital markets with
the optionality of physical markets, where you can withdraw from one
market and go and sell another market. Let me know if you have any
thoughts on that,
Michael Saylor 31:21
yeah, well, what we’re talking about is conveying property rights to all
of these 20th century assets that don’t currently exist. For example,
right? Like, I have a bunch of Apple shares, but I can’t take custody of
them. The 20th century world is is one or two settlement networks, one
or two custodians, one or two exchanges. You have a very limited set of
options, and there isn’t really a competitive market. So in a world
where you had 1500 digital exchanges in every place in the world, and
they could all handle any of these assets. Sorry, you might, um, you
might see someone that wanted to give you a credit line on your Apple
stock, or they wanted to give you a yield on it, or, you know, maybe
your bank will give you an advance ratio of 50% but there’s a bank in
Europe that’ll give you advance ratio of 95% or they’ll actually give
you a mortgage where you can top up, you know, with tokenized, you know,
barrels of oil or right, you could have competition if there was
competition, but the problem is, There isn’t competition that the owner
of the asset doesn’t have the right to transfer, to take custody, to
transfer custody, to shop out the asset to the near to the highest
bidder. And maybe more to the point, what if I had an AI program and it
had my entire portfolio of assets, and every minute of the day, while
I’m sleeping, it’s actually gathering a bid from 150,000 corporations
all around the world, asking them for the highest bidder, for me to loan
out the assets, or custody assets, or whatever they want to do with
them. And and it’s just in a fluid way, moving my capital all around the
world in order to get me what I want within my risk parameters. That can
happen in a tokenized world. But if your asset is 100 acres of Kansas
City Real Estate in the suburbs, there’s like one bank in Kansas City
that may or may not want to finance it, and if that bank is not
interested, no other none of the other 100,000 banks in the world are
gonna wanna touch that asset.
Balaji Srinivasan 33:50
Yeah, and I think one thing that’s interesting is scale enables the long
tail. Scale is actually good for the small because if there’s only 10
lenders, one of those lenders may not want to take a chance on some
small business. But if there’s 10,000 then one of them may actually want
to take a chance on that small business. There’s more risk tolerance. If
you have larger markets, you know, there’s people who are willing to try
out smaller things, you know. And it’s kind of like, you know, with
enough drivers, somebody will be able to pick you up it, you know, they
will take the job of picking up from this street in this suburb and
drive you into New York or what have you, right? So there’s a sense in
which the scale is actually very good for the little guy, because it
allows them, finally, to have access to the same capital markets that
the big guys
Michael Saylor 34:42
do, you know. And I get to that in my section four of the framework on
vision.
Balaji Srinivasan 34:48
So when we go, when we go to section three and four. So, three,
practicality, right, rational, compliance to empower innovation. And so
I think this is related to Thou shall not. A lie, cheat or steal. You’re
really trying to bring it back to simple short go back to the spirit of
the law rather than letter of law. Why don’t you talk about this?
Michael Saylor 35:09
Well, the first principle is we want to prioritize efficiency and
innovation over friction and bureaucracy. The existing system
prioritizes friction and bureaucracy. Everything takes too long, too
many lawyers, too much money. So how do you how do you prioritize
efficiency, innovation? Well, you start with simple principles, like,
don’t lie, cheat and steal. Then you define data structures for each
asset class. You know, what? What are the common data structures, right?
This is, I mean, this is how you write a computer program, right? It’s
not that complicated. If you know, if, for example, you want an abt, you
want to know, what kind of asset is it? Where’s the asset stored? You
know, how do I know the assets there? How many of the assets are there?
Who’s the Counter Party, etc. And you would have a different data
structure for a currency versus a token, versus an NFT versus a, you
know, a commodity. But once you define the data structures, every
digital exchange in the world can support those data structures. And
then you can publish. You can create a client that publishes the data
structures you create all the audits, so that’s standardized disclosure
that reduces the friction, instead of like 200 pages of custom legalese
for every security you’ve got one data structure, and you convert a
three month process into a three hour, three minute or three second
process. And the second idea is industry led compliance. If you define
the data structures, then the exchanges can collect and publish the
data, you know, as a service to the to the issuers, to the investors, to
the other traders, etc. And that helps you get to the third element
here, which is cap the cost. If you want it to be a real business, you
can’t afford to spend more than 100 basis points of the assets you issue
in order to issue them. So if you’re gonna, if you’re gonna raise 100 by
the way,
Balaji Srinivasan 37:20
100 basis points for people, for people who don’t know, like, one basis
point is 110 1000. So 100 basis points is, like, 1% of your asset.
That’s extremely expensive to go ahead. What I’m saying is, if you
Michael Saylor 37:32
wanted to raise 100 million, you definitely can’t spend more than a
million. Not 1% might be a big investment banker fee or a fee you might
pay. I came public, and when we came public, sometimes, you know, the
fees were up to 6% for a small deal, 3% for a bigger deal. But you know,
we might pay one or 2% for a big deal if we’re doing a bond deal. But
here’s my point. The big point, it costs $10 million a year in order to
stay public, to be compliant, and you might spend 30 or $40 million to
get public. And so it’s pretty obvious that if you want to raise a
million bucks, you can’t pay $40 million for an insurance policy, and
you can’t spend 10 million a year in order to raise a million dollars,
right? It’s kind of like saying you gotta basically buy a $10 million
insurance policy. To publish a website or express opinion on X, you
know, it’s, it’s or to post a video on YouTube, you gotta buy a $10
million a year, you know, liability insurance policy.
Balaji Srinivasan 38:40
They were trying to push the world in this direction. Over the last few
years, the establishment was and fortunately, they lost. But they were
trying to do this.
Michael Saylor 38:48
Yeah, I definitely can see it. And here’s the sad fact Balaji, which is
they did do it in 1933 for all, for all publicly traded assets they
didn’t lose. If you read the history of money and banking by Murray
Rothbard, like something like 50 years ago in the last century, he wrote
about the formation of the modern sec, and he writes about the SEC 33
act. And one thing that he points out, long before the crypto industry
was formed, as he says, the SEC 33 and 40 acts, they were put in place
to centralize control over the capital markets in Washington, DC, and
limit access to the capital markets to a very small cartel of Large
issuers that could be overseen by the government. And, you know, he has
another observation. He thinks it was the Rockefellers interest edging
out the JP Morgan interest and shutting down too much entrepreneurialism
in New York City. It was a
Balaji Srinivasan 39:54
decent funny I wanted, I wanted to put something on screen for a second,
which is exactly this. The. SEC essentially was set up to limit self
allocation right to put allocation of a capital economy placed under
federal control, a planning agency would assign capital industries and
then apportion the allotted capital right. The need would decline,
right. So a federal planning agency, not the security Institute, operate
the process by which capital is allocated through the economy. So the
this was the whole point of the SEC was step one control capital
allocation in the economy itself, right? And just go ahead,
Michael Saylor 40:35
yeah, you think about it is, and, yeah, I think there’s a certain
Stockholm Syndrome. Or, remember, in the in Star Wars, they say these
are not the droids you’re looking for, and there’s this Jedi mind trick.
It’s like, you know, raising money from the capital markets is not for
you. You’re too small. That’s not for me. I’m too small. That’s only for
billion dollar mega corporations. But you’re not that. So raising money
is not for me. And used to be like that.
Balaji Srinivasan 41:02
She used to be that a small cap. Could, you know, could go get out there
its modern star boxes make it so expensive.
Michael Saylor 41:10
Yeah, yeah. So it comes down to the issue of, are you going to let
adults take risks and lose their money, right? Are you going to impose a
$10 million insurance policy to keep someone from taking $100,000 risk?
And if you do that, the result is that 99.9999% of the action can’t take
place because of the crippling regulatory burden, because the government
wants to keep anybody from taking a risk or or losing their money, or
making an investment that might not pay off, and and you know, it comes
down to a free market view. Do you believe that free markets will make
the right decision, or do you want a centrally planned economy? And do
you think a set of bureaucrats at the headquarters should just decide
every single business decision and every allocation of labor and
capital, you know, and talent in the economy so as to quote, unquote,
not make a mistake.
Balaji Srinivasan 42:11
Well, take a look at this. So this is the peak number of listings was
mid 90s, and then, especially after Starbucks and so on. It basically
just fell off a cliff to almost, you know, 70% drop in the number of,
you know, listed equities because the price went up so high. And I
thought you’re phrasing just now of $10 million insurance policy to
prevent $100,000 loss by somebody is really good way of thinking about
it, where the insurance is so expensive. Basically, people are only
thinking about risk. They’re not thinking about reward, and they’re not
reward, and they’re not properly calculating the cost of that risk, and
the whole thing is just a pile of paperwork versus being rational about
it.
Michael Saylor 42:50
Yeah, I’ve lived through that Balaji, because I came public in 98 and I
think there were about 10,000 plus public companies, but over the next
20 years, 60% of them disappeared. And basically what what happened was
with Sarbanes Oxley and and with, with the encroachment, the progressive
encroachment of the regulators on the public markets, it just became so
brutally painful and expensive and risky and anxiety inducing to be a
public company. People just said, you know, screw it. I’m just not. I
don’t want to do this anymore. And they all went private. And
Balaji Srinivasan 43:32
paradoxically, that led to the rise of the great tech companies, because
it meant that Zuck and others did not, could not for many years in tech,
the the wisdom was, don’t go public. Go public as late as possible. And
the good thing about that is it meant that they controlled their
companies all the way up, and so they could have voting control, and
they could make bold decisions and so on for the public, the bad part is
that they actually missed out on the upside of that with Bitcoin or
with, you know, cryptocurrencies, they actually have an ability to get
that upside. But for many of the giant tech stocks, most the upside
happened before the public markets. There’s exceptions, the big
exception being Nvidia, but or Apple, arguably. But still, it’s
something where a lot of the upside was not available in the public
markets because of that. Let me know your
Michael Saylor 44:20
thoughts. Well, I, you know, I think there’s about 5040, to 50,000
publicly traded companies in the world. There’s 4000 in the US, but
that, even that really understates the problem. Because of the 4000 in
the US, there’s only about 400 or so that are well known, seasoned
issuers. So that means there’s 400 companies, maybe 600 that can file a
registration statement and sell securities the next day or within a
couple of days, without waiting for approval from the SEC or from a
regulator. On the other hand, there’s 400 million business. Businesses
that can express an opinion or create a product or improve a product. So
if you look at if you look at the economy for products and services,
it’s evolving at a very rapid rate. But if you look at the economy in
the capital markets, and you look at the rate at which we can develop
capital assets. They’re crippled and evolving at a very slow rate. If I
want to do something as simple as maybe I want to tokenize a Picasso
painting, well, you own the painting, it’s worth 10 million bucks, and
you want to sell 100 shares of it, and you’d like to float that, you
know, on an exchange. There’s a global market for it. People would like
to own it, but it would cost you $40 million to take a company public,
and 10 million a year. So you see, at some point, it just you can’t
capitalize, you can’t legally, practically tokenize an asset that isn’t
a billion dollar asset. So what we’ve done is we’ve just we’ve capped
the market such that if you’re not running a billion dollar to trillion
dollar enterprise, the capital markets don’t work for you, right? And
the crypto economy, the crypto markets, they’ve tried to overcome that,
and they’ve issued millions and millions of crypto assets, but they
haven’t been legitimate. They’ve been deemed illegitimate, and that’s
why we’ve had the war on crypto. And so this framework would allow us to
create legitimate digital assets, and the way you’ll know it worked is
you can actually tokenize a $10,000 asset, 100,000 a million dollar, a
10 million, 100 million, a billion, a 10, 10 billion. It’s like, it’s
hard to defend the status quo even because, yeah, there are examples of
successful companies that are monsters, but they would have been
successful despite regressive regulation. I would argue that Apple stock
would be more valuable if it was tokenized and it could travel to any
iPhone or any Android phone anywhere in the world. On Saturday
afternoon, people would find it to be better collateral than it is right
now. It would. There would be a lot of innovations. My point is, it’s
not practical to issue an asset if it costs more than 10 basis points a
year to stay compliant. And you can pull that number by looking at the
ETF industry, and you’ll see that any democratized asset issued by
BlackRock, or look at like spy or or others, when they get to more than
10 to 20 basis points, they get crippled. You can spend 10 basis points.
10 basis points means that over a decade, you give up 1% in order to
stay compliant. But when you get to more than that, it means it’s kind
of a regulatory encroachment. It’s so much friction is crippling you. If
you want the industry to come to life, you need to take the regulators
off the critical path of issuing assets you can’t file to tokenize your
Picasso and wait for three months.
Balaji Srinivasan 48:22
Oh, my God, right. It’s the thing about this is it’s actually dead
weight loss, right? Those delays make less money for actually the
government, for the seller and for the buyer. They they just the whole
concept of imposing cues and weights and delays for no reason. Is
something that just costs everybody in the system money and doesn’t gain
anybody anything, maybe, obviously,
Michael Saylor 48:47
and I’m the case is worse than that, Balaji. It’s, like I said, three
months. But the truth is, if you want to actually tokenize an asset
legitimately in the United States, it would be three years of work. It’s
three years of work, 30 to $40 million of accounting and lawyering, then
it would be three months of filing the paperwork. Then it would be $10
million a year to stay compliant. So so if you think about everything
else in our world, think about the entire innovation economy. If it took
you three years to publish a webcast, if it took you three years to come
up with a new idea, right? It just takes too long and so, and the answer
is it’s like, imagine if it took you three months to get permission to
drive your car out of your driveway to go across the city right? Or it
took you three months of to get permission to put food in your mouth it
should, or to breathe, right? It’s just, it’s just ridiculous. But that
is the problem we have today. And the answer, of course, in an
enlightened society. Is, if you drive your car out of your driveway and
you run over a bunch of school kids because you’re speeding and drunk,
you have criminal liability and civil liability for operating the
vehicle in an unsafe fashion. So what we ought to do, and we do the same
thing with like, posting things, and we do the same thing in every part
of our economy that works, we let people think for themselves and
innovate and create and find a customer, and then they’re civilly and
criminally liable for their actions. And so here, what we need to do is
just take the regulators off the critical path, we need to have a set of
data structures. The industry will create a set of services. And then,
if you have 100 Picassos, and you want to tokenize all 100 of them, you
know, you take the photo, you post the certificate of ownership, you
upload it, you publish it, you offer it to the public, the market forms.
Maybe the IPO fails, maybe they succeed. Maybe you know, maybe you you
know, you sell the thing and you’re a cheating criminal, and then
someone sues you, and you go to jail because you committed criminal
fraud. All that stuff just needs to happen, right in a rational fashion,
needs to happen a million times faster. So that’s the idea of a
practical framework to do this.
Balaji Srinivasan 51:33
The only thing I would just say about that is, there, there is, it’s
it’s possible. One thing I think about is regulation is like binary
classification. If you know the concept of a binary classifier, for
example, your your for each security issuer, either they are good or
bad, and then what you detect them as being good or bad. So you could
have a true positive, a false negative, a true negative and a false
negative. And so you know, for example, you know you’re detecting good
guys versus criminals in terms of issuers. Or you know your your it’s
like, similar to a molecular diagnostic. You’re looking at someone who’s
whether they’ve got a disease or don’t have a disease. And then your
readout, your test, says positive or negative. And so you can have all
four possibilities, true positive, false positive, true negative, false
negative. And we actually start measuring the regulatory state by the
speed and quality and cost, by which it actually makes these
classification decisions. And so you mentioned one variable, which is
they should do it a lot faster. Another thing is we should have
independent regulators. You know, for example, if you have regulators
from different states or cities or countries and they have the same
judgment about somebody, that’s actually one thing, versus if they have
different judgments, it’s sort of like, let’s say there’s a driver and,
you know, they don’t like their rating on air on Uber, you know, they
can actually go to Lyft instead, and maybe they just had a bad
experience on Uber, for example. So I think that there’s, there’s
something to that where you actually have some check and balance on the
regulator itself, where you start looking at their history of correct
classifications, because the reason I say that is with the SEC over the
last three, four years, they were not going after FTX. In fact, they
were meeting with Sam bankman Fried while they were attacking many of
the legitimate projects in the space. And Ben Horowitz has talked about
this, that it was almost like an intentional thing where they wanted the
space to be littered with scams and frauds and go after legitimate
projects so that this way it would just kind of corrupt the whole space.
And, you know, go ahead,
Michael Saylor 53:49
yeah, I’d say being charitable, it’s, it’s just hopeless for a
government agency to do some of these things. But in
Balaji Srinivasan 53:59
the West, yes, and that’s why I think a lot of this is going to be led
by tech companies. So go ahead.
Michael Saylor 54:04
Well, let’s say, let’s take eBay, right? What we really want is a
marketplace to form like eBay, where you didn’t need to get government
permission and wait for three months in order to list, you know, your
comic book collection on eBay, but at some point the sellers have a
reputation, or the issuers, in that case, have a reputation. But eBay
had an interest, and over time, the free market kind of figured out how
to how to figure out who to trust, who not to trust, and how to take
risk and how to clear the market. So, you know, you would think that
digital exchange like Coinbase or binance will start to apply, you know,
AI and modern techniques to figure out whether someone’s getting ripped
off or not getting ripped off and and and over time, people will work it
out. But what’s clear is you kind of that. Why I think we wouldn’t have
1500 exchanges. You might all of a sudden see Apple and Google and meta
get into the business and Microsoft, and you might get see all the
banks, and you might see lots of Wall Street firms and hedge funds, and
then you’ve got the natural short sellers and the natural arbitragers.
And in a world like that, there’s a lot of people that will write a
computer program that sifts through 10 million things at, you know, at
the com speed of the computer, and they form an opinion about whether
it’s a good thing or a bad thing, and they short it or they go long it,
and just let the market cook. Right? The key point here is the market
just doesn’t work if there’s a regulator on the critical path, so they
need to publish some standards and guidelines, get out of the way and
and then you will actually have a practical path to compliance. And then
you can empower regulation, or, sorry, empower innovation, and then, you
know, what you’re getting is exponential improvements. You know, you’re
going to get exponential improvements in cost and speed and
accessibility. You know, just like what’s happening with all these AIs
right now, you’re looking at these things, and they’re changing every
week, right and on the other hand, you know Balaji, I can legitimately
tell you that I came public in 1998
Balaji Srinivasan 56:28
you survived quite a downturn. You yourself are actually like that’s why
you can be in Bitcoin, because you survived this giant downturn, and you
survived all the way through and rebooted.
Michael Saylor 56:37
I did. I lived through 99.9 99 point eight, seven, maybe 99.9% downturn
there and back again. But here’s the point I’m going to make. I haven’t
seen an innovation in the way that my stock trades on NASDAQ since we
came public. Not one it trades the same way. It’s literally the same
thing for 26 years. You
Balaji Srinivasan 57:05
know, the only innovation is just HFT guys, which is not really an
innovation. That’s like, it’s a arbitraging the thing that shouldn’t
matter, which is, like, the ping time to, you know, where the actual
exchange is in downtown New York. Go ahead.
Michael Saylor 57:18
I’m like, well, for the issuer, we got one thing. We got the at the
market, ATM, we got that one thing that was somewhat useful to us, but,
but there was nothing else. So if you think about what happens when the
regulators get out of the way, you would have 1000 exchanges all
competing to provide the best service. The irony is, within about a year
of us getting into Bitcoin, binance was trading mstr token on binance,
24/7, 365, so we actually had the first innovation in the crypto economy
from a company, not even in the US. And of course, and of course, the
result was the German regulator shut it down like, like the one
innovation that took place. And the regulator’s view was, we just have
to stop that, as opposed to let that continues. Let’s go on to the
vision. So the vision is, instead of taking 10 to $100 million to issue
an asset, we move the price or the cost to issue an asset to $10 to
$100,000 right? Let’s, let’s change my orders of magnitude. Instead of,
um, taking months and years to issue assets, let’s change it to hours or
days, the amount of time it takes you to post on Airbnb, or the amount
of time it takes you to post on eBay, or the amount of time it takes you
to post on X or YouTube. Let’s change it. And then, instead of having
4000 publicly traded issuers in the US, let’s shoot for 40 million. And
instead of limiting access to the capital markets to very, very large
companies, let’s empower small businesses. Let’s empower artists,
celebrities, mid size enterprises. Let’s a lot. Let’s empower them to
tokenize assets. And let’s um, let’s expand dramatically the asset
classes right now, people think about things that trade on Robinhood is
like, what can you trade? You can trade like equity for the most part.
But if you look at the market of preferred stocks and assets and
commodities and collectibles and IP and brands. Most of those things
don’t trade via four letter ticker on Robinhood. It’s, it’s, you know,
there isn’t that much art that’s tokenized. It’s very difficult to do
it. It’s hard to tokenize real estate. It’s hard to tokenize other
things people might want to buy. If you look at publicly issued fixed
income. Um instruments, of which is 300 trillion. Of them, most of them
trade over the counter. The spreads the bid ask are very wide. They’re
illiquid. So it’s like a 300 basis point spread to buy or sell a bond.
There is no quote. It’s a dark market. You need a $25,000 subscription
of Bloomberg to even get the quote. So why is it that we block 99% of
the investors and then we have 300 basis point spreads instead of three
basis point spreads? And why is it that so much asset is sitting why is
it the most of the art in the world is sitting in vaults underneath
mountains in Switzerland and not trading right there. They’re they’re
stay they’re dead assets in cold storage, just like your cryptos in cold
storage. And it’s because we haven’t really democratized access to all
these things. So I think, I think with the right framework, we can usher
in a renaissance where you can tokenize hundreds of trillions of dollars
of assets. And I’m not talking about just Bitcoin. What I’m thinking is
bitcoin is just the capital asset. I’m thinking that there’s that we’ll
get to $500 trillion worth of equity, real estate, commodities,
collectibles, arts and did and new digital assets that will be created
and legitimized, digital nfts, digital tokens that never existed before,
right? And then there’ll be a whole range of products and services that
come to life on top of those digitized assets that are inconceivable
right now. Like most people, if they hold equity, like if you, if you
hold $100,000 of equity, it’s not likely somebody wants to give you
interest. It’s very difficult to pay, get paid interest, but there’s
someone that wants to short that equity. So in theory, you ought to be
able to collect five, 450, basis points. I If you have a million dollars
of of of equity, why can’t you get paid sofr on the million dollars by
someone or half of sofr? Because in theory, a bank might very well post
that block of asset and charge the sofa rate and split that interest
with you. And the reason that you don’t get paid interest on a million
dollars of equity, but you do get paid interest on a million dollars of
treasuries, is because one asset gets superior treatment by your bank
and the other asset, the other asset, the bank feels like it doesn’t
really need to, right?
Balaji Srinivasan 1:03:09
But it could be, you could have, you could have the benefits of full
custody, while also maybe getting some return on that asset, where it’s
just much more agile, it’s more it’s more liquid, it’s more visible,
it’s more more collateralizable. If it’s on chain,
Michael Saylor 1:03:30
or maybe I would just say you ought to have the option to have the
benefits of full custody, which is, you own it. It’s a bearer
instrument. It’s tokenized on on your handheld. Or if you’re willing to
loan your assets out to a bank and let them rehypothecate it, you ought
to have a choice of 1000 different banks. And maybe there’s someone in
Singapore that’ll give you a better deal than the bank in New York City,
or somebody in London or Paris or fill in the blank. And you know,
granted, maybe they’re untrustworthy counterparties and they’re going to
rug pull you. But the real point is, people ought to have the freedom to
own their own assets or trade their assets or custody their assets, and
the marketplace ought to be able to form capital markets. Maybe it’s
not. Maybe it’s all I’ll give you a loan against it. Maybe it’s I’ll
give you interest on it. But maybe, maybe it’s something different.
Maybe it’s all form a derivatives market like, for example, if I can
tokenize a bunch of old masters art, then maybe someone else can create
derivative of old masters arts and sell me futures on it, right? Or
maybe I can, I can short it, or go long,
Balaji Srinivasan 1:04:53
or we can make, we can make all these combinations that we couldn’t make
before.
Michael Saylor 1:04:57
Yeah, and, and, you. That market comes to life when you are able to pull
a billion dollars of liquidity on a global basis, and that market, and
by the way, when you publish it and you trade it, 24/7, but when you
have an illiquid pool in a dark market with someone with a monopoly on
it, when one of the problems is you’ve got one bank in Kansas, and
they’re the market maker on real estate in Kansas, and they set the
price, they set the bid, ask, and no one else gets to enter that market.
No one else has transparency. And so instead of them giving you the
highest common denominator, they’re the lowest common denominator. And
there’s a pretty big difference in the way the markets function when
everything is up for bid to everyone all the time, in real time, with
with transparency, and that’s a world where everybody just gets
treated
Balaji Srinivasan 1:06:02
better, absolutely. So let me see if I can recapitulate your PDF. You
have these six definitions which cut the space in a useful way. Next we
define these three categories. We have the buyer, the exchange and the
seller, and anybody can be any of these three things. But the overriding
principle is not paperwork. It’s not cost, it’s not delay, it’s not
bureaucracy. The overriding principle is just don’t lie. Chain steal and
this 21st Century securities and markets regulation, if designed in this
way, would be something where any mom and pop could raise money, where
it’s similar to just like any business can go online, any asset can go
on chain, where people can raise debt, where, if you’ve got a chess
podcast or a chess website in Florida, which has a global audience, you
can actually raise from that audience all these things that are obvious
to us that should happen could happen, and the new administration could
be a leader in this. Is that a fair summary of your
Michael Saylor 1:06:57
analysis? Yeah, that is a fair summary.
Balaji Srinivasan 1:06:59
Awesome. Well, Michael, this is great. Thanks for being here, and we
will, we’ll see you soon, and maybe I’ll, I’ll see you in Miami next
time out there. Yeah,
Michael Saylor 1:07:08
thanks for having me. You.