346: What’s the Big Deal about DeFi?

Buck:

Welcome back to the show, everyone, today. My guest on wealth from your podcast is Alex Vergara, who leads Earth Funds Community Team and Earth Fund is responsible for growing and engaged global community of people that want to help fund big ideas with the potential to change the world. Alex brings his experience as an entrepreneur together with his firsthand experience growing a philanthropic token to launch Earth Fund. So welcome to the show, Alex.

Alex:

Thank you. How are you? Thanks for having me.

Buck:

I’m doing good. Thanks for joining me. So, you know, why don’t you start out by telling us a little bit about yourself, how you got interested in, you know, the things that you’re involved in, namely, I guess, the big things being, you know, cryptocurrency and philanthropy and DAOs. How how how did you arrive at this space?

Alex:

So, I mean, that’s very that’s multifaceted. But I’ve been I really about five years ago, I had this yearning to really give back to community in order to, you know, to raise money to to work voluntarily. So I just had something inside of me that I had to do it. And then I, I go to church now and I read the Bible. So it’s like, okay, this is telling me that I have to do it. I started reading like Rich Dad, Poor Dad by Robert Kiyosaki started reading thinking grow rich. And I’m like, okay, all these books are talking about how you have to give and you have to give in order to receive and giving is so important and they all have a chapter assigned for it.

So it really sparked this interest to give to my community and give to too many people as I I could. And there’s a quote that really stood out to me. I think it was like your psyche that he said the purpose is to serve. So don’t think about making money. Think about serving as many people as possible. And that just really stood out to me. So fast forward a couple of years I was in I was talking to actually one of my clients at the time in his garage. I was a personal trainer. I had I was in the fitness industry. I had a couple of gyms and we were learning about Defi, so decentralized finance and you know, we started learning about I don’t know if anybody’s familiar, but we started going into this rabbit hole of how to use it.

And you have all these weird names like Pancakeswap and Sushi Swap and Uniswap and all these complicated methods to get these tokens and these smart contracts under each one of these, like, let’s say, Etherium. So I started teaching him how to do it, and we started working together on it. And all of a sudden he knew somebody that was launching a project. So I said, Okay, I’m going to invest a little bit by $30. And he put it like I think it was like $1,000, $2,000. And within a very short time we were seed investors. I saw my 30,000 I’m sorry, $30 go to $170,000. And he saw his $2,000 go to I think it’s 6 million now. It was unrealized, but it was just this exponential explosion. The company went from being like, I don’t know, worth three grand at the time to being a 70 million market cap. And all the sudden, yeah, we looked at each other like, what just happened here?

Buck:

But, but that was, you know, that was part of the crypto boom or what.

Alex:

This was about two years ago. So yeah, it was it was as as the bull market was kind of picking up. So, you know, there was a lot of promotion of the company. There was a lot of big events. And from there, Adam bought his the client that I was talking about, who really is like, wait a second, I’m success three fintech companies like I’ve I’ve formulated all these companies and very large around investors like we can make something out of this we can make something really good and we can make something that, you know, if we’re focused, we can make the world a better place using this technology.

Buck:

Well, I hope your $30 hasn’t returned back to $30 since the market crash.

Alex:

No, I mean, you know, I, I, I, I slowly sold over time. So I, I did realize a significant gain. But, you know, you also don’t want to rug for the liquidity, you know, so, so there’s kind of that side where you care about the project, you want to take care of it long term. But from there we grew, we grew Earth Fund and we created a platform for the good for the world.

Buck:

So Earth Fund has its own token. Is that right?

Alex:

Yes, sir. So you create a smart contract token Artemis Theorem. So it’s a little bit complicated, but basically think of Ethereum as the New York Stock Exchange. And then our token one Earth is like a stock within the stock exchange.

Buck:

Okay. And that is traded where like, how do you trade that?

Alex:

It’s on a platform called KuCoin and we’re also on Gateway. We actually launched exclusively on KuCoin initially. So it’s a top five exchange.

Buck:

Sure. Sure. Got it. All right. Well, let’s back up a little bit. You know, I think just for the sake of, you know, what this audience may know, may not know, I think one of the the things that I think we should drill down a little bit on and try to understand better is decentralized finance and, you know, DAOs and how the what exactly these things are. So tell us, you know, I think you just mentioned Etherium as a bank, but let’s let’s talk a little bit about decentralization and specifically as a, you know, DAOs. How what exactly does this all mean in finance?

Alex:

Yes. I mean, for decentralization, we can go really deep into the rabbit hole, but basically not having a centralized entity control in this case, let’s say your shares. So in order to purchase shares, you have to go through please excuse me. I don’t know the exact terms or anything, but you have to go through a centralized entity, right?

So if I want to buy some Apple shares, I need to go and purchase them, whether it be through Robinhood or some through some holder, in decentralized, in defi. It’s all done automatically. So it’s all done through an algorithm and it’s all done through software. Mm hmm. So the custodian, the person holding these tokens or let’s say let’s call them stocks for this instance.

Buck:

It’s like a direct trade as opposed to having a middleman.

Alex:

Right. Right. Precisely. It’s immediate because you have the liquidity pull and you have a contract that’s holding on to this. So at no point can anybody just say, like, we’re turning off the button and we’re turning off the switch. Trading is not allowed like we saw on Robinhood and we’ve seen with a couple other platforms as well.

Buck:

Does decentralized finance specifically, is it really referring to the process of market trading or is it broader than that?

Alex:

Very simply put, I would say yes, decentralization and a whole gets very, very broad. It’s basically, you know, a group.

Buck:

I mean, defi.

Alex:

Yeah. Yeah. It’s the trading in and out without having to deal with a centralized entity. Exactly.

Buck:

So what’s what’s de in your view? You know, some people may argue, given, you know, some of the characters that have come out lately in the world of in the world of cryptocurrency with this, you know, like Friedman or, you know, with Terra Luna stuff that happened in all that that, hey, you know, maybe it’s not so bad to have a centralized bank that is under scrutiny of securities regulation and make sure that people don’t get screwed. Right. And so so that’s that might be the way some people think. What what do you say? What’s the rebuttal to that from the standpoint of decentralized finance?

Alex:

I would say a couple of things. The first would be most of life solutions are neither extreme. They’re usually somewhere in the middle. And secondly, to that, I would say that regulations haven’t stopped people from being scammed. So if you if you rewind to the era of Enron, there was heavily regulated. Plenty of people did their due diligence. A lot of people lost a lot of money. I think it was $20 billion. So, you know, there’s there’s this I would argue that there’s this misconception that regulation equals safety. I will say myself, I was a radical for decentralization. And now I look at decentralization as an option, whereas I wanted to be available. I want people to be able to access these things.

Will there be bad characters? Absolutely. Will there be amazing projects and will there be the opportunity to capitalize on them? Absolutely.

Buck:

What is the main advantage for decentralization as opposed to having some central authority, in your view?

Alex:

Just democratization, you know, the ability for individuals to have power. So here we have a project or we can fundraise across the entire world and anybody can launch a project or be in Nigeria or the USA or Mexico, and they can get funds from people all around the world to fund their ideas. I think that’s very powerful. I think that it goes across borders. And if we look at money, money, computers are advanced. You know, we have a very digital age where we’re talking through Zoom right now, but money is still very analog. We have swift payments. It’s very slow. It’s very expensive. It’s very inefficient. And Defi gives us the opportunity to work across borders. So I think that that’s a very powerful tool.

I think that that there do have to be some safety measures put into it and there has to be a better understanding of the technology in order to move it forward. But I definitely want to see it as an option for the future.

Buck:

Yeah, you know, I think I think we’re idea of, you know, not being a radical on this issue is probably wise because from I think from my perspective, the technology is really important. It’s it’s an advancement. It’s more efficient. And we’re moving towards more efficient technology. But I think the challenge is the the very thing that makes it, you know, gives it the democratization and all is also the things that makes it extremely difficult to control. And to your point about Enron, that may be the case, but I don’t think I mean, you or me. Listen, I’m I’ve been in crypto since 2017. I would never argue that there is a parallel in terms of the amount of scamming going on in crypto versus regular markets, right?

Alex:

Oh, I agree. I agree. Absolutely.

Buck:

So I don’t know that that’s a fair parallel. But I think if you look at it more as a as a technology than then the question is, well, is it so powerful that, you know, the mainstream banks and trading platforms are going to have to move towards it, right?

Alex:

Oh, absolutely. They already are. I’ve I’ve connected with and had meetings with people in Visa, and they’ve been looking into blockchain technology for years now because they understand that the payment system is just it’s a dinosaur, you know. And when you look at stablecoins for countries, this is already happening. And there’s there’s countries that are expecting them as early as 2025. If you look at China, for the people listening, a stablecoin is just a digital currency for the for the for that country. So China, during the previous Olympics used I think it was over a quarter million dollars in just digital currency. And they were experimenting with the Olympians, paying with digital currency. So this is something that whether people realize it or not, it’s already happening.

The back end is being built out. And from my perspective, like I said, if the countries are working so pragmatically towards it, why why wouldn’t we have an option as individuals? You know, so I really look at it as an arms race of centralization versus decentralization and again, not to be radical, to say the future is decentralized, but I definitely want an option.

Buck:

Yeah. Yeah. Terminology wise. Um, DAO, what’s it about decentralized autonomous organization? Okay, so that’s what you have to tell everybody. What, what exactly that that means.

Alex:

Really all it is is it’s software that allows people across the planet to vote on, let’s say for the example, our company is restructuring and we’re creating a parent company to use it as a vessel for investments. So in order to do that, our company had the votes and accepts it. So it’s in public ledger. Everybody can see it. It can be done as little as three days. We have this bill, this one in particular for two weeks, and I’m not mistaken. And all the token holders decide whether this is going to be something that passes or not. So it just really allows the international community to have a voice within the company and within the nonprofit, within a small group. So it’s just a really easy way to vote and organize the votes and have a ledger and record system.

Buck:

Let’s talk specifically about what you’re doing as is so we can kind of understand how a DAO works, right? So you’re you’re you’re DAO is you have a you have a DAO, right?

Alex:

Yeah. So that’s part of the company is Earth Sun DAO. So, so for example, we have the parent company that’s about to be formed and your son DAO will own approximately 20% of that. So any time it’s in profit, any time there is movement, the Dow owns 20%. The Dow can then decide how to distribute that money. So whether it be funding other projects across the world, whether it be token buyback, whatever the case may be, you know, you can propose it and people will vote on what the let’s say the destiny of the money is mechanically speaking.

Buck:

So like, how how does that work without having some kind of central process or, you know, like even to put like where does the money go? Who’s the one who’s giving people choices?

Alex:

Yeah. So it’s a great question, actually, and that leads to understanding DAO. And there’s a DAO first system and then there’s exit to DAO and DAO first. I think it’s a little bit too chaotic and it kind of goes into the lines of anarchy a bit. But basically you do need like a centralized governing body. So like, let’s say a board of governors, you don’t need it, but you need a some type of constitution, some type of document for governance. So it’s not like it’s completely decentralized. Some people would like to believe that, but that that just has shown that it’s not efficient and there’s no forward progress. Right. Are we going to be voting on what the flavor of coffee is like? Do we have to vote on everything? So then within that document, you start setting up what you believe the responsibility of the is.

And then, like I said, you can do sort of like the governance. There’s, there’s many different forms of governance just like in, in countries around the world. But it just allows people to get together and vote on whatever that DAO in particular decides.

Buck:

You know, I’m curious because, you know, I think this is actually common in this is it’s a good thing. But on the other hand, this is the point where I think people start to get suspicious, right? Where, yeah, it’s decentralized, but no. Except there’s a centralized component. Right. And the centralized component is, you know, the whole concept behind decentralization in part is to to, you know, to level the playing field, you know, and and democratize things.

But if ultimately there is some sort of centralized figure there, I mean, I guess they don’t really understand necessarily the advantage. I mean, other than access for people.

Alex:

Like I said, it depends on your on your Constitution and your voting system. Right. So there’s the voting system where it’s one for one. So if if I, I represent one vote or you can work on you know, how much how much money you have put into something or how many tokens you own and you can do it that way. So to kind of use an example of real estate, let’s say. Mm hmm. And let’s let’s forget about all the securities and legal stuff for a second. Let’s push that aside. But if a group of ten friends get together and they want to invest in a real estate project, let’s call it a commercial project, and each one of those friends puts in an equal amount of money.

So, you know, each one puts in a quarter million dollars. And and they they decide that, you know, they’re deciding if we want to take this project down and we want to build over it. And if you build over, you have to put in another equal share of of money. You can decide that in a DAO. So you don’t have to get together, you don’t have to have a meeting.

You can just have the proposal and people can vote on it. With that being said as well, if a partner wants to get out of it, they can sell their even tokens. So let’s say, you know, everybody decided to put in a quarter million. Like I said, someone can purchase them out for the quarter million and they would they would own that token and continue the voting process. So it’s really just an easy way to have a voting system. But again, DAOs can be as small as three people or it could be as large as a million or even greater than that. This just really allows for scalability and the software. Actually, you can hold money custodial through this software as well to and you can create contracts.

So like vesting schedules you can which we’ve done, you can create liquidity whatever you like, you can create it within this ecosystem. So it just adds a trustless system for people to get together and raise funds or or just decide on something even without money.

Buck:

So there’s I know there was a bunch of DAOs. I mean, I didn’t get involved in anything like this, but especially when Nfts were going crazy, there were like DAOs buying. And if keys and things like that in those set ups, like, were they truly, in your view, trying to get everybody in equal shot at making money? Or was there often a central figure that was sucking up a lot of the profits?

Alex:

I mean, I would say that there have been cases of idealists that, you know, that are hardcore decentralization fans that want to make an even playing field for more people. And then there are opportunities that come in and say, hey, listen, we’re going to we’re going to own this and we’re going to take this. I’ve seen both. But then you do have ideas like people that want to buy it, let’s say like the New York Giants, you know, through the through, through a DAO. You have people that wanted to buy a copy of the Constitution and the Constitution. DAO So it’s just, you know, you can put it out into the universe. There’s also links down. They want to create the world’s most perfect golf club and, you know, not club itself, but like a golf range, let’s say, so that people could come together and play on it.

So, you know, you have it’s a great way to kind of form a community and to let the public know, hey, we’re forming this community. If anybody wants to work in on us, this is how you purchase on it and this is what we’re going to build and you’ll be able to have decision making abilities for it. But absolutely, like everything like you said, there are scammers. You know, there are people that are taking advantage of the system. Absolutely.

Buck:

In terms of the how difficult it is, you know, you talk about democratization, but to a certain degree, there’s also an element of, you know, being tech savvy enough. How difficult is it to set up a DAO, right. Like can can somebody could could I say, hey, you know, I want to set up a DAO and you know, I’m, I’m not super tech savvy. I can use you know, I can use your exchanges and things like that. But, you know, I’m not you know, I’m not a programmer. How difficult is it for somebody to set up a DAO? Are they going to need somebody who’s there as a super techie?

Alex:

I’m really glad you asked that before. Platform launched. It was it was pretty difficult. It was very tech heavy. There’s a lot of research that had to be done to understand how to do it. Multiple steps and our platform really wanted to work in the system of Apple, meaning we want to create the user experience, what we want the user to experience, and then we build the back end. We push that into the technology. So using our platform, people can literally go on the website. They have to know how to set up a digital wallet, which is a couple of minutes at the most. And then after that, once they launch it, it’s a couple of clicks and it’s all very, very web. Too easy. Very, very easy. We when we first went in, when I first went into the world of Web three, it was along a long list of things to learn before you could interact that that’s unacceptable. If we want this to be ready for mass adoption, it has to be easy. Okay. So I don’t know.

Buck:

So just real quick in terms of that. So let’s let’s say I wanted to do this, you know, I wanted to set up a DAO for, you know, buying art, okay? By buying a specific piece of art or some watches or something that I like to kind of walk through it to figure out, like the the issues that come up. So I want to do that. I go to Earth, you know, I go to, you know, your site. Is it EarthFund.io Okay. Now you get a bunch of people that are sitting down with us now.

Alex:

Please.

Buck:

So we go to EarthFund.io and basically there’s something there that help says set up a DAO. Right?

Alex:

So currently I will warn before people go on orbit. Those are currently in place for making the world a better place. So for philanthropic reasons, you know, for people that want to build a better world, got it.

Buck:

Got it. So it’s not for profit then. Generally it’s profit.

Alex:

Generally, it’s just it’s just for for philanthropist organizations, people like the Deepak Chopra Foundation that want to make the world a better place. They’re one of our partners.

Buck:

Okay. But I’m just for exercise because I presume there are other, you know, platforms outside of Earth Fund that help you set up doors pretty easily.

Alex:

It’s getting there. It’s getting there. But but just to walk you through what what setting up a DAO entails, it’s it’s you have to have a digital wallet. So that’s one usually the main go to is metamask. Once once you have a digital wallet, you need a voting system. There’s a gas list voting system called snapshot. And you have to in order to set that up, you have to have what’s called the DNS domain DNS domain name, which is basically reinventing your digital wallet or having like a website for you and web3. After you do that, then you need a Treasury management system, which we use coin shift. We’ve partnered with coin shift and snapshot. Then after that you need to set up, you don’t have to, but it’s advised to have a multisig wallet, which means that that wallet has to be signed by multiple other wallets in order for money to go in and out of it. And that’s for safety reasons. So it’s, it’s, it’s quite labor intensive and our platform does all of those things with just two clicks. God does it all automatically.

Buck:

So if somebody okay, now going back to your platform in particular, if somebody wanted to set up some kind of a charitable thing, they go there, they click on it. And what, what does that do? Like, in effect, all of a sudden you have you’ve created a new token or what?

Alex:

Yep. So our our our website creates the platform, creates a new token for you. You can name it. Let’s say you want to say we love the Earth token. You set up that so you can actually say how many tokens you want. So let’s say you want it to be represented by 500 tokens. You can say when it’ll be distributed to a community, if you’re going to distribute any of them or if they need to purchase them, you can select the Dow name. So that domain name of let’s say we love the Earth, so it’ll be you know, we love the earth. It’ll also give you a sub domain name on earth one platform meaning earth fun that I o forward slash. We love the earth and I’ll give you a charity page. So all of those things just happen autonomously. You get the Multi-Signature wallet, like I said, and you get gaseous voting.

So for those that don’t know, when you when you vote on the blockchain, it actually costs money. So snapshot, it doesn’t cost you any money. It just gets saved.

Buck:

Okay. So so say you have a thousand tokens and now I want to go raise money and you tell me. So I tell my friends they sent out an email, Hey, I’m raising money for this cause. Where would that where do they buy? Would they have to go back to this same platform and then they would buy and then that market cap basically would determine the price or no.

Alex:

So so we’re we’ve created those tokens to be more like stablecoins in the sense where you can buy your votes in and out and sell them for the same price. Because we don’t we don’t want volatility to be a factor for it. But but there’s two separate entities in that sense, not not legal entities, but there’s two separate functions.

Alex:

Let’s say there’s a side of people who want to vote and interact with the community in that sense, and they can buy their tokens to do that. And then there’s a side of people who just want to contribute funds financially, who want to, you know, just say, I want to donate to this cause. And that goes into the main treasury. Now what’s interesting about it is we’re rewarding users for voting. So you set up this, we love the Earth, DAO. You can set up that for every time that a project gets funding, all the token holders are users get rewarded, let’s say 7%. So in the case of the Deepak Chopra, never alone DAO, which we set up, there was a $100,000 project that got funded. Alex:

All the token holders got 7% of that. It got distributed evenly. So everybody got seven grand distributed by how many token holders there were.

Buck:

So effectively they were able to make a profit and do something to help. So they raised and then they got some money back precisely.

Alex:

So that that kind of encourages people to to spread it on social media. It encourages people to vote. It encourages people to vet the projects, do research on them, comment on why they voted on them. So we’re rewarding people for for, in fact, making the world a better place. Precisely.

Buck:

Tell, tell, Alex, tell us anything else about Earth Fund that we should know, because I mean, I don’t, you know, I don’t know enough about the stuff to make sure that they ask you all the right questions.

Alex:

Yeah, sure. So something that we’re working on that’s actually pretty interesting, a solution that we’re looking to solve is a KYC system. So know your customers. So when people give large donations, they can be tax free. So people in fact will be able to donate crypto and they’ll be able to receive a receipt from the nonprofit. So this is something that that a problem that hasn’t been solved for you. And we believe that it’s a major step for mass adoption.

Buck:

Cool. Alex, been really fun talking to you and and putting up with my, my basic questions about DAOs and decentralization. It’s been fun and and good luck to you on your project.

Alex:

Thank you. Thank you for having me. And I hope you have an amazing day. This has been a great time. Thank you.

Buck:

We’ll be right back.