“In all affairs, it’s a healthy thing now and then to hang a question mark on the things you have long taken for granted.” — Bertrand Russell

“You are not a drop in the ocean; you are the entire ocean in a drop.” — Rumi

A woman sits in the kitchen with a deck of cards. Her son is in the living room on the other side of the house, where he has no ability to see, hear, or communicate with his mom. The woman flips over a card, and from the other room, the son guesses the number on the card correctly. Unlikely coincidence, but not impossible. We repeat the process 20 times, and with it comes another 20 guesses - all accurate. We’ve now moved into the realm of the impossible; to the place where it’s either a hoax or science fiction.

But what if it’s true?

If you aren’t familiar with it, there is a podcast called the Telepathy Tapes that tells this exact story, putting forward an incredibly provocative claim: that non-speaking autistic individuals have the ability to communicate telepathically.1 The podcast takes us on an investigative journey that seeks to not only substantiate this claim, but to open our minds to an even more world-shattering view: that we are all connected at a layer of universal consciousness.

Hard to believe, I know. But what if we suspended disbelief? Not to accept the claims outright, but instead to stop momentarily and “hang a question mark on the things [we] have long taken for granted.”

Today, we take it as a given that materialism (the idea that everything in the universe, including thoughts and emotions, can be explained by physical matter and its interactions) is true. The resulting conclusion is that consciousness is purely a product of brain activity and that what we perceive is more or less what exists. But what if these assumptions are incomplete?

For millennia, mystics across cultures have described a universal interconnectedness. Strikingly similar accounts have emerged independently from opposite sides of the globe. Coincidence? Perhaps. But the Telepathy Tapes invite us to consider these ancient insights more seriously. Questions once dismissed as “woo” may hold profound truths: Is enlightenment real? Is consciousness independent of the brain? Is there a unifying force that connects us?

There is a wonderful book by Chuck Klosterman called But What If We’re Wrong that attempts to evaluate the present from the vantage point of the future. It poses the following question: if we were to speak with our descendants (let’s say people living in the year 3,000 AD), what would they think is absolutely crazy that we believe in 2025? Potentially, a lot. History easily illustrates the point. We don’t have to look that far back to have similar “wtf, how did they believe that” observations. Geocentrism. Smoking isn’t bad for you. The earth is flat. The miasma theory of disease. The list goes on.

I expect that our materialist worldview will be on that list.2 The Telepathy Tapes are important not because they prove telepathy is real (they don’t), but because they push us to revisit our assumptions about the world. They are important because they invite us to take questions about the nature of consciousness and the science of our interconnectedness more seriously.

Below, I make a first attempt at doing this - at approaching the topic with curiosity and the eye of a scientist rather than with a closed mind. Not because I have definitive answers, but because I believe these questions are profoundly worth asking. More than that, I suspect the answers have the potential to be essential in our pursuit of creating a future that promotes human flourishing.

So let’s approach the topic with humility and see what we learn.

We don’t perceive Reality.

To take the question of materialism seriously, we need to first understand human perception and its relationship with reality. This is best explored through a simple thought experiment.

Imagine you had to process all the information in the world around you before making a decision. The temperature of the air that is gently blowing on your face. The soft humming sound of the light above you, which is interrupted by the distant bird chirping outside. Your resting heart rate as you read this piece…

It would be impossible to make decisions on the timeline required for survival. There would be too much information to process and simultaneously take action. Had we operated that way, our ancestors would have all been eaten by lions a long time ago.

Fortunately for us, this isn’t how our perception works. Instead, we operate on heuristics and predictions, trading accuracy for speed and efficiency - and the results are pretty astonishing. We not only survive, we thrive.

But this efficiency comes at a cost: we disregard vast amounts of information and prioritize survival over truth. Donald Hoffman’s research, for example, suggests that evolution's primary concern in shaping our senses was usefulness, not accuracy (for a good intro, see his TED Talk). Similarly, the concept of umwelt - an organism’s subjective sensory world - illustrates how reality is experienced differently across species. A bat navigating via echolocation perceives a fundamentally different world than a human (see Ed Yong’s An Immense World for more).

So, let’s take it as a given that humans don’t internalize all the information in their environment and thus don’t perceive the full spectrum of reality (what I will call capital R reality) as it is. This gives rise to a simple question: What would we learn if we did take in all that other information? What would it have to tell us about ourselves and the universe?

But what if we can perceive Reality?

The simplest way to answer this question would be to speak with someone capable of accessing this information stream. This brings us to a second question: Are there examples of humans who are capable of taking in more of this information than the average neurotypical brain?

The answer is yes, and a closer look at where this is the case leads to some interesting observations about the phenomena reported in the Telepathy Tapes.

One of my favorite researchers is a woman named Alison Gopnick. She wrote a book called The Philosophical Baby (for a great synopsis of the book and her research, check out this podcast). In it, she outlines the perspective that while most people tend to think of kids as an underdeveloped form of adult consciousness, that is entirely wrong. In fact, kids are a wildly superior form of consciousness, just along different dimensions.

The poetic analogy she uses is that a child’s consciousness is like a lantern - it softly lights up everything around it, casting attention on all the contours of its surrounding environment. If you’ve ever spent time with a kid, this makes sense. Kids are taking in everything. They can’t help but be present in their current experience. Adult consciousness, on the other hand, is more like a spotlight. It disregards most of the surrounding environment, instead focusing all of its energy on one particular target. It lights up one spot with great detail and, in so doing, can operate with a high degree of capability in that area.

The more analytical analogy Gopnick uses comes from computer science: the explore vs. exploit tradeoff. Kids are optimized to explore. They are taking in information (lots of it) to build their model of the world, which is why they can learn so rapidly. Adults are optimized to exploit. They use what they have learned and deploy it efficiently. Neither is right or wrong - the critical observation is that it’s impossible to do both simultaneously.

If we look at brain functionality, it tells an interesting story that (at least intuitively) aligns with Gopnick’s framing. After a child is born, it undergoes a rapid phase of growth in synaptic connections, reaching a peak of ~1,000 trillion synaptic connections by the age of 2 to 3 years old. From there, the brain starts the synaptic pruning process, whereby weaker connections are eliminated, and stronger ones are reinforced. The result is that, by the time you’re an adult, on average, you’ll have 500 trillion connections (~50% of the childhood peak). In other words, we start with an incredibly dynamic innate neurological range (e.g., a brain that is optimized to take in as much of the information about the world around us as possible) and, over time eliminate much of it to operate more efficiently in the world.

So are young kids experiencing capital R reality in ways that adults are not? Most 2 year olds cannot speak eloquently on this topic, so we can’t ask them directly, but my intuition is yes. Fortunately for us, there are a few other categories of people who illustrate brain functionality similar to that of a child who are capable of communication. Perhaps more importantly, they all report incredibly similar characterizations of the reality they are experiencing and the idea that we are connected at some fundamental level.

These groups include:3

Deep meditators. Scans (e.g., fMRI) of an individual in deep meditation show increased communication between brain regions that don’t usually interact (i.e., there is communication occurring outside the well-worn synaptic pathways). This phenomenon is also accompanied by a decrease in activity in what is called the default mode network, or DMN, which is associated with self-referential thinking (i.e., the part of the brain that conceptualizes you as an independent, thinking self).

People on psychedelics (like psilocybin mushrooms). Brain scans show that there are strong similarities between a deep meditator and an individual on psychedelics, like non-standard synaptic interactions and lower DMN activity.

Autistic individuals. One of the most common characteristics associated with the brains of autistic individuals is a lower level of synaptic pruning (and thus higher connectivity), in particular in the prefrontal cortex of the brain. It’s almost like their brain never transitions from the explore to exploit orientation that is required to operate as a fully functional adult in the physical world.

Wait a second. Aren’t the Telepathy Tapes about autistic individuals? Yes, they are. And it’s doubtful that is a coincidence.

Deep meditators, people on psychedelics, and autistic individuals all illustrate brain patterns that rhyme. And while they get there in different ways, they also all report a very similar framing for the nature of Reality and consciousness.

For meditators, one potential explanation for what’s happening is that the ability to eliminate the noise from external stimuli (in large part by focusing on your inner world) allows your nervous system to feel safe enough to take in portions of the information that it would otherwise eliminate. You develop the capacity to return to that childlike state, as the mechanisms you’ve installed to survive can be relaxed.

For psychedelics, the compounds in the drugs act like nuclear weapons for the psyche (unpacking this is a topic for another day). This can lead to a range of outcomes, but fundamentally they are increasing the volatility of information processing functions in the brain, which opens the aperture for experiencing reality in ways that are otherwise closed off.

Autistic individuals, on the other hand, are born with a different brain design. Historically, we concluded from this that severe autism resulted in underdeveloped intelligence (in the same way we’d characterize a 2-year-old as being an underdeveloped adult). Until recently, people far out on the autism spectrum (e.g., non-speakers, which are the focus of the Telepathy Tapes) could not communicate about their experience, and so this conclusion about their capabilities remained intact.

That communication gap changed over recent years, though with the advent of “spelling” (which is when autistic individuals communicate by pointing to letters on a board or using a keyboard to spell out words).4 And it turns out, now that autistic individuals can communicate, they report experiences that are fully in line with other people who have taken in this “extra” information from the world around them. Read any story about deep meditative practice, and you’ll hear reports about students saying that their guru could read their mind (for two more contemporary accounts of this checkout Autobiography of a Yogi by Paramahansa Yogananda and Be Here Now by Ram Dass). Speak with anyone who is well-versed in psychedelics, and you’ll hear stories about experiencing our universal connection. Now, we can add the reports from autistic individuals to the list.

Does all of this mean that consciousness is an independent thing that underpins the entirety of existence? Is telepathy real, and do we all have the ability to tap into it? Skeptics will say no, and I understand that skepticism. The above isn’t definitive proof. It’s not information drawn from rigorous scientific analysis (and for the nerds out there, it admittedly doesn’t meet David Deutsch’s definition of a good explanation).

That being said, it fits together incredibly well. Neurotypical humans disregard most of the information around them to function in the world. This isn’t a bad thing, in fact, it’s an evolutionary requirement for survival. Under certain circumstances, neurotypical brains are able to hit the “on” switch for this information stream, but it has historically been the exception and not the rule. Non-speaking autistic individuals sit on the other side of this adaptive spectrum. Their brains are wired in a way that allows them to pick up on a whole range of information that neurotypicals disregard. This gives them seemingly remarkable abilities (like telepathy), but the tradeoff is a lack of capability on "normal" functionality. Without support, they would get eaten by the lion (in the same way a 2-year-old would), but that’s because their input stream is overwhelming the other parts of their operating system, not because the system doesn’t work.

This isn’t a scientifically validated explanation, but it’s enough to make one question the boundaries of our beliefs about consciousness and the world we live in.

Zooming out: The massive potential at the intersection of modern technology and ancient wisdom.

The Telepathy Tapes are emerging at an interesting time. Stories like those described in the Tapes have existed for centuries but have always been disregarded. Increasingly, it seems like people now want to listen; like the Overton window is shifting, and these accounts are going from the fringes towards the mainstream. I can't help but think this is happening for a reason.

Technology is increasingly challenging our understanding of ourselves and our world. The rapid progression of AI requires a closer examination of what it means to be conscious and a reevaluation of what makes us truly unique as humans. Machines can now read a person’s mind by strictly evaluating brain activity. Recent breakthroughs in quantum computing are thought to draw computational power from other dimensions. We live in wild times that test the bounds of what we historically thought was possible.

Yet, despite having more material prosperity than at any other point in history (see Steven Pinker’s Enlightenment Now), humanity is grappling with unprecedented disconnection from ourselves, each other, and the natural world. The result is an increase in our collective suffering.

The existence of the Telepathy Tapes and the questions they push us to ask are essential to guiding where we go from here. We are at a moment in time where ancient wisdom has a lot to teach us, and where things that humanity discovered over 1,000s of years of experience (as opposed to experiments) are going to be unlocked and more deeply understood. I think this is incredibly exciting.

Wisdom and technology intersect? Hogwash, you say. The reality is this is already happening (albeit at a small scale). For a simple example, let’s turn to turmeric (yes, turmeric).

People in India have cooked with turmeric for thousands of years. Why? In part because it is delicious and its pronounced golden color adds flair to any dish, but also because it is incredibly good for you. An Indian grandmother cooking over an open fire 1,000 years ago wouldn’t have said to her rambunctious granddaughter “eat this turmeric, it is anti-inflammatory,” but she would have known as a part of a deep wisdom of her people that turmeric was a valuable part of her family’s diet.

More interestingly, she would have likely prepared that turmeric in a dish with some sort of fat (like oil or ghee) and a bit of black pepper. Why is that interesting? Fast forward to today, and the most recent science would tell you 1) that the compound curcumin, which is found in abundance in turmeric, has exceptional anti-inflammatory and neuroprotective properties, but 2) that raw curcumin is not very bioavailable and doesn’t cross the blood-brain barrier (i.e., it isn’t absorbed well), and its benefits are only achieved when mixed with a lipid (i.e. fat) and bioperine (a compound in black pepper).

So, without knowing it, our Indian Granny had been preparing turmeric just the right way. She didn’t discover this through the scientific method, and instead landed on it through generations of collective intuition and trial and error. Science may not have had an explanation for what she was doing (until very recently), but that doesn’t mean the phenomenon of turmeric’s protective power wasn’t real.

This is a somewhat mundane illustration of the point, but what happens when wisdom and technological development intersect at a larger scale? When we look more closely at the wisdom shared over millennia about the power of being deeply present, the concept of enlightenment, and our universal connectedness? My intuition is that unlocking insights into these domains and the true nature of reality has the potential to >10x the quality of human experience and to revolutionize how we approach our existence in the world.5

And so I’m encouraging us all to take seriously the science of our interconnectedness and the ideas about the nature of consciousness that are put forward in the Telepathy Tapes. Not out of blind faith, but from the view that what we learn has the potential to dramatically improve our lives.

There are people out there already doing this - individuals like Mike Johnson with his theory of vasocomputation, companies like Jhourney that is diving into the experience and science of meditative states known as the Jhanas and Nudge, which is trying to use focused ultrasound to treat neurological disorders, and research labs like the Division of Perceptual Studies at UVA that are exploring near death experiences (NDEs) and reincarnation. We need more, though. So consider this a call to action - to take this research more seriously, to build products that might unlock its potential, and to explore its claims firsthand through your own practice.

Conclusion: An invitation to embrace the questions.

The Telepathy Tapes challenge us to reconsider the nature of reality and our place within it. They urge us to approach questions about our interconnectedness with curiosity, humility, and rigor.

In some ways, these questions are new additions to the domain of modern scientific exploration. In other ways, they are the oldest questions that exist, and they sit at the heart of the experience of being a human.

The beauty of the present moment is that we can embrace these two truths simultaneously - looking to both ancient wisdom and modern innovation to drive us forward - and in so doing, unlocking insights that enhance our understanding of the universe and our potential for widespread flourishing.

PS - Curious about the topic but not sure where to start the journey of learning more? Ping me and I’ll send you a list of resources. More importantly, come spend some time this summer at Edge Esmeralda, where there will be an entire week devoted to exploring the frontiers of consciousness research. And if you’re already building in the category, I’d love to hear from you too.

2

Without getting into a debate about what would constitute the materialist world view being “wrong,” at a minimum it is likely to be wildly incomplete. The best analogy here is the electromagnetic spectrum. For most of human history we believed in only what we could see (the visible spectrum), but it turns out the visible spectrum is a small portion of what exists (see graphic below). So it is possible that we will arrive at explanations for the nature of consciousness that fit into a broader framework for the universe, in the same way that radio waves now fit into our understanding of electromagnetism.

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This is Part 1 of a multipart series on Urbit. Chances are, you’ve either never heard of Urbit, or you have but feel like you don’t fully understand it. Over the course of these posts, we will dive into what Urbit is, how it is useful, and why I think it has the potential to be so valuable. Urbit has something for everyone - whether you’re into crypto (Urbit is the answer to many of the problems in web3, in particular how you build rich applications that people actually want to use), Artificial Intelligence (Urbit is the most credible architecture that I am aware of for delivering on the promise of personal agents) or just like using a computer (Urbit allows for the creation of meaningfully better software and a customizable internet) - and once you see how powerful it is, it’s hard to unsee its applications. So no matter who you are, my hope is that by the end of this you will have a deeper appreciation for why Urbit is so important.

Disclaimer: This is not investment advice, and is for educational and entertainment purposes only. Do your own diligence before investing into Urbit (or any other risky asset, for that matter). 

An Investor’s Introduction to Urbit - Part 1

What is Urbit? It’s a great question, and it’s one that I am asked with increasing frequency these days. In part because Urbit is independently gaining mindshare out in the world, and in part because people tend to be surprised when I say it’s a product I use every day. 

It’s also not an easy question to answer. I can give a two minute overview to cover the basics, but I find myself consistently reaching for the blog post that clearly articulates what Urbit is and why it is important, only to continuously be frustrated by the realization that this blog post doesn’t exist. I have yet to read an explanation of Urbit that captures the full scope of the project in language a normal person can understand. 

This series aims to change that. 

A disclosure and a forewarning before we jump in.

Disclosure: 
My approach for evaluating Urbit is largely informed by my perspective as an investor (and I am currently invested in the project). I’d be lying if I said I wasn’t “talking my own book,” but the real thrust for me writing this has less to do with me as an investor, and more to do with me as a human (and thus a user of computers). I think Urbit is one of the most important pieces of technology to be developed in the last 20 years, and that it has the potential to shift our relationship with computing and the internet in meaningful (and positive) ways. Accordingly, my goal is to help people understand what Urbit is in order to accelerate our ability to live in the future it can unlock.

Forewarning:
Urbit is nuanced. It takes different shapes depending on the angle you approach it from, and its real beauty only comes into perspective as you appreciate the multiple facets of what it offers. The result is that there is no simple analogy to capture Urbit. 

“It’s a social network.” No, not really (although it is a network, and does have social features like messaging built on top of it).

“It’s a database.” Wrong again (but it does store your data for you).

“It’s a blockchain.” Kind of, but actually, not at all (despite the fact that it provides many of the same features). 

If I were to put it in one sentence, I would say “Urbit is what the personal computer would look like if it had been built from first principles today.” It is personal computing designed for a highly interconnected world, for the ever expanding role of software in our lives, for the inevitable presence of AI, and for the increasing importance of data to our digital existence. And as we will explore more below, this is a very big deal, as it unlocks an entirely new paradigm for building and using software. 

Don’t be frustrated if what that means doesn’t click immediately. Don’t be put off by the often esoteric language that is littered throughout the Urbit ecosystem. Don’t let the project’s complicated history distract you from its promise. Put in the time to understand it, and better yet, start playing with it. I guarantee it is worth the effort.

With that, let’s get started. I’m excited to go on this journey together.

What is Urbit?

Urbit is a personal computer that runs in the cloud and natively combines a unique identity (in the form of an NFT), data storage (via an integrated database), application execution (which is run server-side, i.e. by the individual user) and P2P networking. The result is a system in which users control all of their own data and applications, and can easily interact with all other users on the network without reliance on centralized companies. 

Urbit has been around for a long time. It started as an independent research project in 2002, and a company named Tlon was incorporated to formalize building it in 2014. Fast forward to today, and Urbit is an open source project, with core development being stewarded by the Urbit Foundation. Tlon still exists and is focused on creating infrastructure and products that make Urbit useful and usable, but they are no longer alone, as a blossoming ecosystem of companies has emerged that is building on top of Urbit (more on this later).

Okay, but like seriously, WTF is Urbit?

If you’re like me, the answer above won’t fully make sense right away, so a little more color may be warranted.

Urbit for Crypto Natives

Let’s start with an explanation that frames Urbit in the context of the crypto landscape (to be clear, Urbit is not a traditional crypto project, but I find the comparison to be useful, especially for people that are already crypto-literate).

If you’ve fallen down the crypto rabbit hole, then you understand the concept of a blockchain. Simply put, blockchains are global state machines, and they allow a distributed group of computers to arrive at global consensus (i.e. agreement) on the state of a network without reliance on a centralized authority. 

Global consensus is an incredibly powerful tool, and most enthusiasm about crypto / web3 is rooted in the capabilities blockchains can in theory provide, including digitally native scarcity, ownership of one’s data, and fully interoperable and composable software. These things are all incredibly powerful and worthy of excitement. There’s just one problem: running computation through a global consensus mechanism is very inefficient. 

Global consensus is absolutely necessary for things where it is important for everyone to agree on the state of the network (money being a great example), but most of your digital existence doesn’t require this unified agreement. For example, you don’t need the whole world to agree on the state of the journal entry you’re writing, the photo you took of your friend, or the text messages you exchange with your mom. 

Those building in crypto today implicitly recognize this issue and are actively trying to remedy it. The primary mechanism for accomplishing this is shifting computation away from L1s (like ETH) to L2s (optimistic roll-ups like Arbitrum and Optimism, ZK-roll ups like Starknet and zkSync, etc.). While I generally don’t hear people in the crypto world speak about it this way, I effectively think of L2s as a “regionalization” of state. They shift computation away from the global state layer to a “region” where it can operate more efficiently, and then that region checks back with the global layer as needed.  

If you extend this move towards regionalization to its logical conclusion, you eventually realize that the most powerful version of it would be to push computation out to the individual. You realize that the most compelling complement to a blockchain would be a personal state machine: a computer that provides you with all the same affordances of a blockchain (ownership of data, software composability, etc.), but that maintains its state independently and entirely under the user’s control. 

This is what Urbit has built: a personal state machine. It is like the odd cousin of a blockchain. Blockchains are decentralized infrastructure for shared state. This is incredibly important in contexts where a group needs to agree on something for it to be usable, like who owns a scarce digital asset (e.g. digital dollars are worthless if they can be double spent). Urbit is decentralized infrastructure for everything else. Everything from where you store your personal files, to where you host the front end to your application, to where you collaborate with your friends and colleagues.

Once you see this, it is hard to unsee. It is hard to not look at many of the problems in web3 and say “Urbit is the right answer to that” (a concept we will explore in more depth below). It may seem like a bold statement, but the moment Urbit clicked for me is reminiscent of the moment that BTC and ETH clicked - and in my opinion, Urbit is similarly as impactful. In fact, an (admittedly provocative) view I have is that it’s possible all of the promise of web3 can be delivered strictly by those 3 building blocks: BTC, ETH and Urbit. 

While the crypto comparison is helpful, as I noted above, Urbit isn’t really a crypto project. It’s much bigger than that, and it has relevance for a much broader audience. So let’s approach it from a more generalized lens and see if that helps paint a more complete picture of why it is worth our attention.

Urbit for the rest of us (or, why will anyone use this thing?)

Let’s go back to the high level definition of Urbit that we shared above and unpack what it means and why it’s important.

Urbit is a personal computer that runs in the cloud…
You know what a personal computer is, and you likely have multiple; your laptop and mobile phone being prime examples. It’s easy to conceptualize that you own these devices (e.g. the laptop on your desk is yours and is controlled by you). Urbit enables this same concept of owning your computer, but rather than having that computer be tied to the device that is sitting on your desk or in your pocket, the computer exists in the cloud. 

This is different from how the internet, software and cloud computing work today. In the current paradigm, you have a virtual presence, but you don’t own any of it. Your data sits on a Google server, your identity sits split across Facebook and Twitter, and the software you run isn’t actually owned by you (you’re using it as a service provided by someone else). 

To further illustrate this point, it’s worth framing Urbit in the broader context of the history of computing.

A quick recap of the history of computing…
The first computers were mainframes - large, monolithic machines (often the size of entire rooms) that operated as a centralized hub for computational work. Different parties could use the mainframe to leverage its capabilities, but no individual user could customize it to their specific needs. Then, in the 1970s, the first personal computer was born. The PC was a device that an individual could own, operate and modify however they saw fit. Users were no longer beholden to a centralized machine, and they could build a PC to serve their specific wants and needs. This was a revolutionary advance, and the PC marked a major inflection point in how humans interact with the digital world. 

Computing’s next major inflection point occurred a little over a decade later, as the PC went from operating independently to becoming networked via the emergence of the internet. I don’t need to elaborate on the ways in which the internet has impacted the world; its influences on daily life are seemingly endless. The internet didn’t just impact the ways in which we use computers though, it sparked a fundamental shift in the structure of how they operate by catalyzing a massive migration of the software we use from being local (run on your personal machine, or “on prem” in the business context) to online and in the cloud. 

Fast forward to today, and it becomes clear that we have returned to a system design that looks not too dissimilar from the world of the mainframe. Individual users (whether they be people or enterprises) don’t really own their “internet computer”1 (meaning their data or the software that they run) and instead rely on 3rd party servers sitting in centralized data centers for their computing needs. It’s the same structure as the mainframe, just in a context where we connect remotely (i.e. via the internet) to the centralized computing resource rather than locally (e.g. actually physically connecting to the mainframe). To be clear, this isn’t necessarily a bad thing: data centers are tremendously powerful and offer meaningful benefits to us as users of software. But, the current paradigm has in many ways taken us away from the world that the PC created - one where users could own their computer and customize it however they see fit - and brought us back to a world where we are reliant upon something that is more monolithic.

Back to Urbit…
This is where Urbit comes in. As I said in the intro, Urbit is what the personal computer would look like if it had been built from first principles today. It is the personal computer, but built in an internet native way. It is (for those of you who are more technically inclined) a personal server - a server that you own, that can be customized to your needs, and that (very importantly) doesn’t require you to run your own hardware and instead allows you to leverage existing cloud infrastructure (e.g. data centers and the modern internet).

[Note: I recognize that I use the words computer and server somewhat interchangeably in this post. I have chosen to frame Urbit as a personal computer rather than a personal server because I’ve found that the average person’s head explodes when you start talking about servers. That being said, I realize the term server is more technically accurate.]

This is a very big deal. In the same way that the original PC sparked a revolution in computing, it turns out that creating a cloud based personal computer that you own opens up an entirely different orientation for your digital existence, and it provides the foundation for some really powerful capabilities.

What does that actually mean? To unpack it, let’s examine the second part of our definition for Urbit further. Urbit natively combines:

A unique identity (in the form of an NFT)...
On Urbit, you have an identity that you own, and that identity is tied to your personal computer. This is great for you as a user, because you only need one identity to engage with all of your applications. This is also great for others on the network, because your identity is apparent to everyone that interacts with you, resulting in the creation of a persistent reputation that is valuable across contexts.  

Data storage (via an integrated database)...
On Urbit, you can store information in your own personal database (that you run, or that someone runs on your behalf…more on this below). This means that all your data sits in one place (a place that you own and control), and you can do with it what you want. 

Application execution (which is run server-side, i.e. by the individual user)...
On Urbit, all software “comes to you” and interacts with the data on your personal server. You’re never sending data to a company/app, and all software is designed to interact around your data. If this sounds familiar, it’s because it’s how software used to be distributed (CD-ROMs purchased from the store, installed on your personal computer), but adapted for an internet-connected world. 

P2P networking…
On Urbit, your personal computer can easily be connected to everyone else on the network in an encrypted way. You can send a message, a photo, or a piece of software directly to a friend without worrying about where to find them or the security of that communication. 

Why is all of this important? 

Talk to the OG Urbit crowd, and you’ll likely hear that the killer differentiator unlocked by Urbit’s architecture is the ability for users to own their data (aka data sovereignty). You’ll hear a passionate articulation of how computing on Urbit means you no longer have to rely on large corporations for your online existence. This is true, and data sovereignty is an incredibly important component of Urbit, but stopping there misses the full picture - both of why Urbit is so powerful, and of why it will be relevant for everyone (not just those concerned with online data privacy, which we all know is a pretty small portion of the population today). 

The truly exciting thing about Urbit is that it unlocks an entirely new paradigm for building and using software. 

For developers, Urbit simultaneously expands the design space for the types of software that can be built and dramatically lowers the friction to create that software. 

For users, Urbit not only gives you control of your data (sovereignty!), it allows for the creation of products that are personalized to your specific needs (whether you are an individual person, group or company). 

Expanding on this a bit more, Urbit makes software composable, interoperable and much lower friction to build.

• Composable: Building software on Urbit is like playing with application legos, where an open architecture allows one application to easily build on top of others. What does this mean in practice? Imagine how awesome it would be (as both a developer and a user) if every new iOS app could access all other iOS apps and the data that was generated on them. I could order a meal from Uber Eats and have the specifics of my order automatically captured in my meal tracker on Noom, I could have my payment methods auto embedded on every commerce app I download, and I could have my friend list from Instagram transported to every app that I use. This is what Urbit allows for.

• Interoperable: Software on Urbit is interoperable, meaning that developers can create custom products that meet the needs of a specific user base and still have that product easily interact with everyone else on the network. This is the equivalent of me being able to use Telegram to directly message my friends on iMessage, or of allowing competing clients/user interfaces on Twitter to all be connected by a unified messaging protocol and shared social graph. We can each use the products that we prefer without there being a resultant fragmentation of our experience. 

• Low Friction: We often take it for granted, but shipping software on the existing internet requires a ton of back-end infrastructure (known as DevOps) to go live. This is because today’s internet does not incorporate core primitives like identity and encryption at the protocol layer. The result is that you need to worry about things like authentication, user data security and GDPR compliance in order to serve customers. Some estimates suggest that this DevOps work can account for +40% of a software application’s engineering resources. On Urbit, this DevOps burden doesn’t exist. It’s all automatically integrated into the network: identity is native to the protocol, networking is already handled, and you never touch user data (as the software goes to the user, rather than the user coming to you). The result is the ability for you to build an application over the weekend, for that application to be “production ready,” and for you to easily ship that software directly to your community and the network at large.

The insight here is that data sovereignty, while valuable in its own right, is actually a prerequisite for this improved computing experience. You need to have all of your data in one place (along with all of the other infrastructure that Urbit has built) to be able to offer the capabilities outlined above. The result is an architecture that delivers on how computing and the internet were actually intended to work. It gives you not only data sovereignty, it provides you with “compute sovereignty” and the ability to run whatever software you want, however you want, in perpetuity.

If you are like me, examples are helpful for taking abstract concepts (of which most of what I just wrote likely qualifies) and making them more tangible. I’ll go into more depth about the potential use cases of Urbit in a future post, but the implications are near endless. As a preview, imagine:

• Healthcare: Your Urbit computer (often called a “ship”) becomes the home for your personal health data. It automatically ingests all the relevant info from your connected applications (everything from your continuous glucose monitor, to your step tracker, to the prescription history from your pharmacy) and gives you a unified view of the results (a view that you can customize however you see fit). You permission that data to your doctor as needed, or to a pharma company running a clinical trial, and can remove that permission at any time.

• Personal Finance: You download an application for payment processing and add your methods of payment (wallet, credit card data, bank account, etc.) onto your ship. Your payment methods can now be auto embedded into every other application you use (think an infinitely extensible version of ShopPay), so you never have to deal with a clunky checkout flow. You then connect a personal budgeting application into the mix, and it auto aggregates and categorizes your spending, letting you know when you go over a limit that you specified in a particular category.

• SMB/Enterprise: You run a start-up and use a wide range of productivity tools to operate your business. You used to stitch them all together via a combination of Zapier and manual processes, but on Urbit they all speak to each other automatically. Every tool you use is default collaborative, and that collaboration can be unified across applications. You change the status of your customer pipeline in a spreadsheet and it automatically updates a slide for your upcoming sales meeting. You easily permission access to a data set to the relevant people at your company and an external contractor. You supercharge your productivity with AI agents that run on your company’s proprietary data, and you never worry about that data leaking. 

And for those of you that are more crypto-native, you’ll find that Urbit solves many of the problems that currently exist in web3. Urbit retains the properties of decentralization (the composability, interoperability and trustlessness that make web3 appealing), but delivers it in a way that is superior for both application developers and users. For example, Urbit allows for:

• Customer engagement without customer data: OpenSea (and other Dapps) would love to be able to engage with their customers while never actually storing customer information. The OpenSea email leak is a clear example why. If an app wants to send marketing content to its users today, there is no ability to do that in a crypto native way. They either have to take an email address (which is a liability, and which many users don’t want to give) or engage with an ETH wallet address (which you can’t easily send a message to, and it would be quite expensive if you wanted to). Urbit fundamentally alleviates this issue.

• Dynamic and personalized customization: Today a trader goes on Uniswap and sees a generic interface where they execute a trade. Uniswap knows very little about that customer, other than what is publicly available (e.g. if that wallet has traded on Uniswap before), and they have no ability to customize what the interface looks like for the specific user (given the front end is a browser based application). If Uniswap was on Urbit, each user could have a custom interface—a dashboard with all historical trades, graphs showing assets of interest, tools for specific trading strategies, etc.—all run by applications that sit on top of Uniswap and pull from the user’s private data. Sound too good to be true? Things like this are already being built (e.g. learn more about an Urbit native Uniswap UI here).

• No central point of failure risk: Gnosis Safe is a multi-sig wallet provider (i.e. wallet requires M-of-N signatures to execute a transaction vs. traditional wallet where you just need 1 private key). The company has designed Gnosis Safe to have gasless signatures, which means that transactions don’t hit the blockchain until the full transaction is ready to be executed. They do this by creating a partial signature from members and waiting on the other signatures to come in before the action is executed. This requires Gnosis to operate software on their servers that index/route the signature requests between the different addresses prior to pinging the blockchain. The result is that, if Gnosis went down, the multi-sig functionality would not work anymore. This is more than just a philosophical problem, it has real implications for user adoption and security. On Urbit, gasless signatures could be accomplished with no reliance on any centralized party or server.

The State of Urbit Today - Where are we?

Urbit has been around for over a decade, so you may be wondering, why does it warrant attention today. As an investor, this is one of the most important questions I ask myself when evaluating an early stage investment - what is the “why now” for the opportunity? The simple answer is that Urbit very recently went from being a seemingly impossible mad science project to reinvent computing to a usable product. What changed? At a high level…

It is more accessible: Up until early 2023, the only way to launch your ship was to set up your own personal server. Setting up your own server is a huge burden (at least for the average person), and the result was that only people that were highly motivated and highly technical made it onto the network. Fast forward to today, and there are now hosting providers that will manage your ship for you.2 For instance, through Tlon or Red Horizon, you can now get a ship up and running in just a few clicks. A process that was historically like eating glass is becoming increasingly seamless, and thus accessible, to everyone.

It is more reliable: For those who were brave enough to make it onto the network prior to hosting, they faced another issue - network reliability. Prior to ~2021, Urbit was notorious for going down all the time. Since then, the network has been hardened and has become significantly more reliable. There are still a lot of improvements to be made to the underlying technical infrastructure (things like increasing your ship’s database size), but over the last few years the project went from the “will this thing work?” phase to the “it works, now how do we optimize it?” phase.  

It is more functional: So, you made it onto the network and it’s working. Now what? Until recently, there was essentially nothing to do on Urbit once you arrived. That all began to change at the end of 2021 when Tlon released Landscape, which is an operating system for Urbit. Landscape opened up the ability for developers to easily build and ship applications on the network, and for users to engage with those applications. The resulting experimentation since then has been astounding. Since its release, Landscape has gone from 0 applications launched to there being an estimated +100 applications, many of which are being developed by VC-backed teams. This is what Landscape currently looks like. There are applications for everything from messaging, to engaging with an AI bot, to playing chess, to listening to music with friends (reminiscent of one of my favorite old school websites, turntable.fm).

The result of all this has been continued growth in both developers and users on Urbit. 

On the developer front, there has been a steady upward trend in monthly active developers, currently reaching ~90.

While 90 may not seem like a very large number, it’s actually quite an accomplishment. To contextualize, it’s equal to about the number of active devs on Ethereum in 2017, and is equivalent to many much larger protocols today.3  This is despite building on Urbit requiring you to learn an entirely new programming language called Hoon.4

On the end user front, while it is building from a small base, numbers have been growing ever since hosting providers opened up. This may not look like an exponential curve (yet!), but the reality is that the network isn’t ready to support tens of thousands (let alone 100s of thousands or millions) of users. It will be soon, but the result is that the major hosting providers are actually limiting access to the network at this moment in time (e.g. Tlon only releases ~30 new ships a day, all of which get snapped up).

What the user numbers don’t fully convey, however, is the incredibly passionate community that exists around Urbit.  It’s hard to describe, but energy in the ecosystem feels “special” - reminiscent of the Homebrew Computer Club for the PC computing wave, and BTC + ETH communities for crypto. There are people who are almost religious about Urbit, and that passion is authentic. It’s not about trying to shill a project to make a buck (although I do think there is a lot of money to be made in the ecosystem), and is instead driven by their belief that Urbit is creating something truly special. 

Interestingly, there isn’t one generalizable stereotype that is engaged in the community. At Assembly (Urbit’s annual conference) you’ll find a nerdy developer that loves Urbit for the power of its code, a die-hard libertarian that values Urbits principles of sovereignty, and a liberal artist that is attracted to Urbit’s infinite design space for creative expression all hanging out together. It’s intangible, but the best way I have heard it put is that relative to everything else being built out there (certainly in crypto, and arguably more generally in software), it is the only project that has a soul.

Conclusion (for now)

Okay! You’ve made it this far. Hopefully the picture is starting to become a little clearer. If it’s still fuzzy, don’t fret! I haven’t met a single person for which Urbit fully clicked upon an initial review. 

We’ll pause here for now. In the next post, we’ll explore in more depth the ways in which Urbit is useful. We’ll attempt to better understand its current functionality and the interesting things you can do with Urbit today, as well as squint into the future to imagine all the ways in which it can manifest into the most important (and delightful) computational platform in the world. In particular, we’ll dive into why Urbit is so important for the future of AI and the creation of personal agents. From there, we’ll examine Urbit more directly from the lens of an investment (yes, you can invest in the project, and yes, I think there are exceptional returns to be made in doing so). 

Until next time.

PS - Want to get on the network? Shoot me an email at basho@deeperknowing.co, and I will get you a link for a hosted ship (FYI that you may hit a waitlist when you sign up, but it shouldn’t take long for you to get access). Once you’re on, you’ll have an invite waiting for you to the Deeper Knowing group, and we can continue the conversation there. Also, for those of you with an iPhone, I would recommend you download the mobile app Small Talk (still in TestFlight), as this is the best way to use Urbit messaging + groups on mobile. 

This piece was written by Basho, but originally published as a guest post on The Generalist.

Actionable insights

If you only have a few minutes to spare, here’s what investors, operators, and founders should know about the promise of stablecoins.

• Stablecoins solve real problems. Stablecoins provide the ability to move value freely across borders, at the speed of the internet, with the ease of a text message, in a safe and low-cost way. Whether you’re an individual in Nigeria wanting to hold a stable currency or a multinational corporation managing cross-border payments, this is a big deal.

• Stablecoins have signs of product-market fit. There are ~$125 billion of stablecoins outstanding and ~1 million daily active wallets that use stablecoins. There is no denying that people worldwide use stablecoins daily. 

• Stablecoins are more than just an asset; they’re a platform. Stablecoins allow for the creation of an open, cheap, and programmable global payments system. They aren’t a singular asset (in fact, many versions of them already exist) and should be viewed as a financial infrastructure layer that significantly upgrades how value can be held and transferred. 

• Stablecoin issuers have a clear business model. Unlike most crypto companies where the path to monetization is murky, stablecoins have a clear profit engine. Stablecoin issuers monetize float on the collateral they hold in reserves and can offer value-added services to their customers over time. They look less like speculative crypto projects and more like next-generation banks and payment processors.

• Stablecoins will penetrate the real world over the coming years. While US regulators send mixed messages about stablecoins, other countries embrace them. More importantly, a mix of start-ups, growth-stage companies, and traditional financial institutions are building products designed to take them mainstream. Even if they don’t realize it, consumers will likely use stablecoins soon.

Few creations have stronger product-market fit than the US dollar. Though controlled by the American government, dollars are desired around the world, prized for their stability. The owner of a corner shop in Lagos or a hostel in Buenos Aires happily accepts payment in greenbacks because they hold their value much better than local currencies. While the purchasing power of the naira or peso fluctuates sharply yearly, the dollar holds. Given the opportunity, many would prefer to earn, spend, and save in USD – or something similarly robust. Domestic regulations and operational constraints typically make that dream either explicitly illegal or simply impossible. 

Stablecoins provide a solution. As the name implies, these digital currencies maintain a fixed price relative to a reference asset – typically the US dollar. Unlike much of the crypto landscape, stablecoins offer no dramatic run-ups and speculative gains. They are designed to maintain their value, to act like a dollar in digital form. 

Admittedly, it is a strange time to make a crypto* bull-case. The past 18 months have shown the sector in its worst light, revealing spectacular fraud and widespread gambling-esque behavior. Current headlines often make for bleak reading, foretelling irrational regulatory crackdowns and further debacles. There is good reason to be dismayed by the lack of real impact the category has made and to question the technology’s ability to solve genuine problems.

Despite these issues, I believe crypto’s transformative promise remains intact. Though 99% of activity in the space may have been noise, the 1% of companies building meaningful products will, I believe, dramatically impact the world, creating significant enterprise value in the process. Understanding where this conviction comes from requires looking below the surface and examining the primitives being built and what they unlock. 

Stablecoins represent one of the most concrete examples of crypto’s promise, protecting individuals against currency devaluation, accelerating and reducing the cost of global payments for businesses, and building infrastructure for a more open, accessible financial system. At a fundamental level, stablecoins aren’t merely a new asset but a radical new platform. 

In today’s piece, we’ll explore what stablecoins are, how they work, and why almost a million crypto wallets transact with them daily. We’ll unpack how enterprises like Stripe play in the space and how the technology could impact both businesses and consumers. To conclude, we’ll analyze the main players and explore which models might win in the future.

Stablecoins as a platform

Stablecoins are designed to maintain a fixed price, but not all are created equal. There are three primary types: “fiat-collateralized,” “cryptocurrency-collateralized,” and “algorithmic.” We’ll focus on the first category in today's piece, but it’s worth understanding all three. 

Fiat-collateralized stablecoins are the most straightforward. A corresponding, real dollar is held in a bank account for every synthetic dollar printed on a blockchain. A clear 1:1 ratio between the stablecoin and the fiat currency supports its value. The result is a high-stability currency with reasonable capital efficiency since you can scale the circulation of your stablecoin linearly with the dollars you have on hand. This method also comes with a high centralization risk. Your real dollars are held by a financial institution somewhere, which could be frozen. If that were to happen, your stablecoin might take a hit. USDT (Tether), BUSD (Binance and, until recently, Paxos), and USDC (Circle in partnership with Coinbase) are all examples of fiat-collateralized offerings. 

Cryptocurrency-collateralized stablecoins make different trade-offs. Rather than securing the currency’s value with fiat, this category relies on crypto. For every synthetic dollar added to the blockchain, cryptocurrencies like ETH are secured in a smart contract worth more than the stablecoin. For example, for every $1 of value added to the blockchain, $2 in crypto might be used to back it. Smart contracts automatically liquidate holdings when ratios fall below certain thresholds to manage collateralization. This type of stablecoin has moderate stability, low capital efficiency (given the over-collateralization), and lower centralization risk. Currencies like DAI (MakerDAO) and FRAX (Frax) fit this group.

Finally, we have algorithmic stablecoins. Synthetic dollars added to the blockchain are backed by nothing – except the native token of the stablecoin itself. Yes, it’s as wild as it sounds, which is why it hasn’t worked to date. UST (Terra) was the leading example until May 2022, when it blew up in spectacular fashion. In theory, algorithmic stablecoins have low stability, high capital efficiency (you effectively print money!), and minimal centralization risk. 

While crypto-collateralized and algorithmic stablecoins are interesting and have valuable applications, most current usage is in fiat-collateralized. This category also represents the largest opportunity for the foreseeable future, though some crypto-native readers might take issue with that claim.*

Benefits

Before considering adoption, it’s worth noting how this asset improves upon traditional money and financial systems. In short, stablecoins make money programmable, permissionless, borderless, and interoperable. Meanwhile, stablecoin infrastructure allows money movement to happen faster and cheaper. Let's spell out these transformations to avoid sounding like empty buzzwords. 

Firstly, stablecoins make money programmable. When money is natively embodied in code, it can be manipulated like software. This unlocks a wave of new uses and applications. Suddenly, you can tell money to do things – to act or interact with other applications in certain ways. In the future, application developers will use smart contracts to program money into fascinating, valuable configurations. 

Next, stablecoins make money permissionless. Owning a stablecoin is like holding cash in digital form. That’s very different than having money in a bank account. You can give it to anyone you want without relying on third parties. It is the equivalent of handing someone a $20 bill, but over the internet. That’s powerful not only for consumers that use stablecoins, but for developers that want to build financial applications freed from the legacy banking systems’ constraints.

Third, when replaced by stablecoins, money becomes borderless. Blockchains create what looks like a globally unified financial system. There are no international borders in stablecoin payments, allowing wallets across the world to interact with each other easily. A user in Mexico can send money to a friend in Egypt seamlessly. 

Fourth, stablecoins introduce interoperability to the financial system. Suddenly, your “dollar” can interact with any application. You can send money freely from Venmo to Cash App and back again without going through intermediary steps. Walled gardens no longer exist. Not only is this a radical improvement for consumers, it’s an unlock for developers and opens up a rich design space for financial application development. 

Finally, stablecoin infrastructure makes money movement faster and cheaper. The removal of intermediaries results in the near-instantaneous transfer of funds and settlement. The idea of a wire transfer or international payment being pending doesn’t exist with stablecoins. Moreover, such capabilities are available 24-7-365. That beats the hours of operation for every bank on Earth. The removal of banks – and their associated cost structures – should dramatically drop the cost of money transfers. At full scale, blockchains should facilitate value transfers that cost just fractions of a penny. Such economic benefits are good for customers, of course. They also open up new business models like micropayments. 

These are all compelling benefits, but what would a mature stablecoin ecosystem feel like in practice? My hope is that it would resemble an open, cheap, and programmable version of Venmo that spans the globe. It would provide the ability to send money to anyone, anywhere, regardless of what application they were using. It would offer low fees and enhanced functionality, powered by the wide range of dynamic applications built on top. If executed correctly, it would be financial infrastructure that appealed to everyone: retail consumers (think WeChat Pay for the entire world), enterprises (imagine B2B payments on stablecoins), and financial institutions (streamlined operations across the board). 

And while it’s fair to say that stablecoin infrastructure has yet to fulfill all these promises, they are within reach if development continues at its current pace. 

Adoption and usage

Though still in its early stages, stablecoins see widespread usage. There are roughly $125 billion of stablecoins in circulation, of which over 90% are fiat-collateralized. Approximately $80 billion of the total exists on Ethereum, while most of the remaining $45 billion exists on Tron, a blockchain popular outside of the US that sees heavy usage of USDT. As demonstrated by the graph below, stablecoins have grown rapidly over the past few years: 

In 2022, users transferred $7 trillion in stablecoins (an average of $20 billion daily), and today there are approximately 1 million daily active wallets using stablecoins. All told, more than 30 million wallets hold a stablecoin of some kind. 

As the graphs above illustrate, stablecoin usage has shown remarkable resilience in the face of the Terra collapse and a broader crypto winter. What’s driving this utilization?

Today, the primary use case is from crypto natives – specifically traders – who rely on them as a stable asset for investing and settlement purposes. While this endemic usage has been a major driver of stablecoin growth over the past few years, it’s nothing to get particularly excited about. It creates a floor for stablecoin demand but is unlikely to catalyze broad societal adoption.

What about stablecoin usage in the “real” economy? While it’s the early days of stablecoins’ penetration outside of crypto, there is real world traction. This is apparent by looking at the data – stablecoin wallet balances and sending patterns suggest usage by real people, not just crypto traders. It’s further validated by the anecdotes you hear from users around the world: the interior designer in Nigeria, the developer in Mexico, and the business owner in Argentina.

What will catalyze stablecoins achieving more widespread adoption? Usage is likely to occur where stablecoin functionality offers a meaningfully better experience than the status quo. In many instances, customers won’t know they are touching crypto, as the stablecoin infrastructure will exist behind the scenes (in the same way the average user doesn’t realize they are using the ACH network). Some areas where I’d expect to see adoption are wherever transfer of value is:

• Cross border, where existing infra is inefficient and high cost, including B2B payments (SWIFT is often slow, expensive and non-transparent), P2P payments (remittances cost on average 6.3% of the transaction sent) and international capital markets (like the Eurodollar)

• High administrative burden, where accounting for transaction flows is important (and often expensive), e.g. interbank transfers, securities settlement, loan servicing, and mortgage payments

• Conditional, where you rely on something to occur before payment is sent, e.g. gambling or multi-party transactions 

• Related to digital goods, where the item being consumed exists fully in the digital domain, e.g. gaming (or NFTs, if they ever gain widespread adoption)

• In emerging markets, where existing financial infrastructure is not well established, and where access to USD is otherwise limited (e.g. imagine what it takes to open a USD denominated bank account living in Hanoi, and then compare that to spinning up a wallet and buying a stablecoin: it’s a night and day difference)

• P2P, where lower barriers to building financial applications (given less reliance on traditional banks) and the ability to create novel product experiences opens up the opportunity for new consumer applications

• B2B, where having information natively attached to value transfer can be incredibly impactful for operational efficiency, and instant settlement can dramatically alter a company’s working capital dynamics and contracting risk

To make this even more tangible, below are a few examples of how traditional companies are building at the intersection of stablecoins and the real world. It’s worth highlighting that a number of banks and traditional financial institutions are very focused on deploying the technology (albeit, some on “permissioned” blockchains rather than open ones like ETH).

• A Fortune 500 company. This firm currently has USD-denominated bank accounts in 35 countries. The team is exploring moving to a single, centralized stablecoin account to streamline operations. This could result in major improvements in capital efficiency, transparency, and internal business liquidity. 

• Visa. The company is piloting a program to settle global transactions in USDC. While Visa can authorize transactions 24/7, it still relies on banking hours to move money worldwide. 

• Stripe. The fintech has assembled an entire team dedicated to stablecoin infrastructure. They’ve already launched USDC payments for Stripe Connect customers, meaning you can pay a contractor in Argentina with stablecoins. 

• The USDF Consortium. A group of 11 FDIC-insured banks are attempting to tokenize deposits to create more efficient interbank transfers. The consortium is primarily owned by its members and subsequently regulated federally.

• Paypal. Paypal was readying the launch of their own stablecoin, which would have been a major milestone for the space, but pulled the plug on the project at the last minute due to regulatory concerns. 

• JPMorgan. In 2020, the bank launched an internal settlement coin dubbed JPM Coin. It powers securities settlement across the firm’s client base. JPMorgan’s longer-term goal is to experiment with stablecoins’ programmability. “We increasingly want you to…actually tell the money what to do,” the team lead noted in mid-2021.

Stablecoins may be in their early innings, but consumers and enterprises are substantively using them. As we’ll discuss later, their utility could expand greatly in the years to come.

Regulatory complexities

Stablecoins are not just technologically disruptive. They pose important geopolitical questions. Indeed, for the US government, they represent both a challenge and an opportunity. On one side, they pose all manner of complications to anti-money laundering initiatives. There are few better financial tools for bad actors than a reliable currency outside formal governmental control. 

On the other hand, stablecoins may help promote national strategic interests. What better way to reinforce the USD’s position as the global reserve currency of choice than to get more dollars into people’s hands? Given China’s concerted efforts to shift international capital flows to RMB, the evangelical impact of stablecoins could prove important. 

Except for the SEC (*grimace*), US regulators are aware of this potential. Notably, both the House and the Senate have proposed bills to support the existence of stablecoins. For example, Senator Toomey’s proposed Stablecoin TRUST Act outlines a regulatory framework for using “payments stablecoins.” The now-retired Pennsylvania representative laid out the initiative's purpose: “By digitizing the US dollar and making it available on a global, instant, and nearly cost-free basis, stablecoins could be widely used across the physical economy in a variety of ways.”

It’s an exciting vision, albeit not one without risks. Regulators may kill the whole ecosystem. The SEC appears to be attempting this in the US while the rest of the world marches ahead. The European Union, for example, released constructive guidance on crypto markets via something called MiCA. More top down payments modernization initiatives will have an impact on how the market evolves as well. Real-time payments (RTP) networks – for instance Pix in Brazil and UPI in India – may operate in silos, but are already driving innovation in their local markets. Looking further ahead, Central Bank Digital Currencies (CBDCs), which 114 countries representing 95% of global GDP are currently exploring, could make independent stablecoins obsolete. 

Time will tell how the government treats stablecoins. I hope that the various regulatory bodies can recognize the technology for what it is: a true platform that can improve the lives of consumers and businesses. 

Stablecoins as a business

We’ve established what stablecoins are and how they are being used. But is there a business here? In short: yes. Indeed, issuers benefit from one of the clearest business models in crypto: they can monetize float on their collateral reserve and attach value-additive services. These providers are, in essence, building the next generation of payment processors or banks. 

Let’s review how this works and examine how major players attack the opportunity. 

Making money

To understand how fiat-collateralized stablecoins make money, we must first go a bit deeper into how they actually work. We know that an actual dollar in a bank account backs each digital dollar. But then what happens? 

After the primary issuance (aka “minting”) of the stablecoin occurs, the stablecoin user can do anything with the asset. They could send it to a friend, pay an invoice, trade it for another asset, or invest it to generate yield. In theory, at least, recipients of fiat-backed stablecoins don’t need to worry about the value of the money they’re receiving since it’s backed 1:1. To demonstrate that’s the case, issuers rely on traditional certification methods – attestations from the company itself or third-party auditors. These are released regularly to assure stablecoin users that their money is appropriately collateralized. 

As an aside, it’s worth noting that decentralized finance (DeFi)* offers a better attestation method called “proof-of-reserves.” This is because, if the collateral lived in a smart contract, it would be programmatically verifiable by everybody. Since fiat-collateralized stablecoins rely on centralized entities – and there’s no live-feed video of a bank account – that’s not possible here. (FTX is the clearest example of why “proof of reserves” or other robust forms of attestation are necessary. As readers will know, the exchange misused consumer funds that should have been segregated and fully reserved. The company’s fraud couldn’t have happened had it been built on crypto-rails.)

As the stablecoin holder uses the asset as they wish, what does the issuer do with the capital it’s holding? In short, it acts like a bank looking to earn net interest income. It does so by taking the capital in the reserve account and investing it into assets that earn a return. Like a bank, risk management and asset/liability matching are critical to ensuring the account is liquid and solvent. The issuer wants to increase the yield on the reserve as much as possible without taking on so much risk that it undermines trust in the stablecoin’s 1:1 peg with the dollar. As we’ll see below, different issuers take different approaches to asset allocation. The safe approach is to keep cash in well-capitalized banks (a lesson Circle learned after almost losing billions of dollars of collateral in the SVB collapse) and investment assets in highly liquid, highly safe securities (typically, that’s short-duration US treasuries). 

To frame the economics, the three primary stablecoin issuers are currently sitting on ~$115 billion, up >20x from early 2020. These deposits earn more than 5% a year (3-month treasuries are yielding 5.4%) and are effectively zero marginal cost. That suggests they’re making more than $5 billion of high gross margin float revenue today. Illustrating the point, Tether announced that it made an eye-popping $1.5 billion profit in the first quarter of 2023 alone. 

Given the operating leverage and scalability of the deposit base, it's an attractive economic model. Crucially, the core product can be monetized well without charging fees. That supports higher usage and adoption, which drives more deposits, leading to more revenue.

In addition to float revenue, issuers have adjacent monetization opportunities they’re well positioned to pursue. For example, they can offer crypto on-off ramps, compliance management tools, and treasury services. Like traditional banks, issuers have the opportunity to build a suite of lucrative products, deepening their relationship with customers. 

The stablecoin model comes with obvious risks, of course. Can issuers manage the collateral base effectively and minimize the risk of depegging? How will they maintain monetization in a reduced interest rate environment? Will they be able to keep deposit costs at zero, or will competition make it necessary to pay a portion of the float to users? All of these questions will need to be answered along a sustained timeline. Despite the risk, stablecoin issuers have a clear business model and outstanding upside. They look set to become the banks and payment processors of the next generation.

Different approaches

Now that we’ve outlined the business model, let’s take a quick look at the category's major players: Tether (USDT), Paxos (BUSD), and Circle (USDC).

Tether is the unregulated first mover of fiat-backed stablecoins. Owned by holding company iFinex, Tether launched in 2014. With broad global usage, it has become the most widely used stablecoin in the intervening years. 

Tether’s success is thanks to its deep liquidity, broad protocol coverage, and, arguably, weaker regulatory supervision. The firm is based in Hong Kong and is not technically regulated in the US. It runs its banking through a Bahamas-based entity called Deltec and has a murky relationship with crypto exchange Bitfinex, owned by the same holding company. As you might expect, Tether is the least transparent of major issuers, including regarding the management of its reserves (which includes assets other than US Treasuries). Indeed, in 2021 the New York Attorney General found iFinex and Tether guilty of deceiving clients and overstating reserves. 

Although Paxos offers its own stablecoins (USDP and PAXG), it’s best known as a white-label infrastructure provider. Until February of this year, Paxos acted as the issuer for BUSD, Binance’s stablecoin. Support for BUSD ended after the SEC claimed BUSD was an unregistered security. (Somewhat confusingly, only BUSD was subjected to the SEC’s wrath, not Paxos’ other stablecoin offerings.) The company is regulated by the New York State Department of Financial Services (NYSDFS); Paxos is currently pursuing a de novo national Trust Bank charter. It has a transparent reserve policy and keeps all assets in cash and short-dated US treasuries.

Beyond stablecoin support, Paxos provides various blockchain-focused infrastructure products for third parties. That includes providing brokerage solutions (e.g., adding crypto investment or payments to an application) to PayPal and Mercado Libre; and settlement solutions for securities and commodities trading for clients like Credit Suisse and Koch.

Circle is the full-stack, enterprise-grade player of the stablecoin space. Alongside Coinbase, the company founded the Centre consortium behind USDC. While Circle does the actual issuance of the currency, a revenue-share agreement means that Coinbase also benefits from the float generated*. The company is regulated as a Money Transmitter in most states, is registered as a money service business (MSB) under FinCen, and intends to become a fully chartered commercial bank. It has a transparent reserve policy and keeps all assets in cash and short-dated US treasuries.

Circle’s ultimate goal is to support the use of USDC by building a fully featured financial platform. Its three core product focus areas are payments infrastructure (e.g., API to accept all payment types and settle in USDC), business banking (e.g., treasury management), and crypto services (e.g., custody solutions). It has partnered with companies including Blackrock, Jack Dorsey’s TBD, Visa, and Robinhood.  

Ultimately, all three main players take different approaches in the fiat-backed stablecoin space. It’s certainly not clear who will win the market. Will it be an open, independent asset like USDC or USDT? What about a branded offering by someone with distribution a la BUSD or PayPal? Could banks pursue direct issuance if regulatory headwinds lighten up? We are in the early stages of a new design space. The ultimate, winning stablecoin construction could differ greatly from any on offer today.

The broader landscape

It’s worth noting that while our exploration thus far has focused on the existing stablecoin issuers, there is a Cambrian explosion of companies building interesting products in the category. Some are creating valuable infrastructure for the widespread adoption of stablecoins, while others are focused on novel products that use stablecoins as the underlying foundation to offer compelling experiences. All of them are bringing stablecoins closer to widespread adoption, and they provide further insight into what a stablecoin powered future could look like. Although the stablecoin issuers are the dominant players today (and do enjoy a privileged position in the ecosystem), I expect that ten years from now we’ll look back and see that many of the most successful companies in the category, both in terms of enterprise value creation and impact on user behavior, are just getting started today. 

Who are these other companies, and what are they building? It would be impossible to cover them all in one post, but here is a quick snapshot to bring to life the wide range of players that are emerging.

Neobanks are building products that leverage stablecoins to provide retail customers a better banking experience. One example is Eco, which automatically converts users’ fiat deposits into USDC in order to unlock a novel rewards offering. Another is DolarApp which offers Latin American users a dollar-denominated account using stablecoins. It protects savings from devaluation and offers cheap cross-border payments.

Next-gen payments companies are using stablecoins to offer new ways for individuals to spend and send money. Companies like Sling (an easy interface for sending money to friends), Bleap (a stablecoin backed debit card that can be connected to any digital asset wallet) and Stables (a stablecoin wallet that is tied to a Mastercard prepaid card) are pushing this frontier.

On the enterprise front, B2B payments focused players like Cedar are using stablecoins to eliminate the frictions of cross-border trade.

And behind the scenes, infrastructure providers are laying the foundations for greater connectivity between both the traditional financial system and stablecoin applications. For example, Monerium has created the ability to tie a digital asset wallet to a specific individual fiat bank account (using the IBAN system), and Bridge is building stablecoin orchestration APIs that provide developers with a way to easily integrate stablecoins into their applications and swap between fiat and different stablecoins. 

Looking ahead

We just covered a small snapshot of the experimentation that is occuring in the stablecoin ecosystem right now. Looking further ahead, it’s easy to imagine how improving crypto’s infrastructure could unlock even more exciting stablecoin use cases. Here are a few examples of implementations that could become impactful: 

• Embedded payments. When a crypto wallet acts as your single-sign-on (SSO) for the internet, payments are automatically embedded in your browser. In the future, we could effortlessly make micropayments for media, services, or goods we appreciate.

• Tokenized securities. By tokenizing securities, financial market transactions become meaningfully more efficient. In the current paradigm, the administrative burden required to establish ownership, facilitate transfer and actively service assets is massive. (For reference, an estimated $133 billion is spent on post-trade securities clearing and settlement.) In a world with tokenized securities and stablecoins, this friction largely goes away. For instance, a company could programmatically pay a dividend directly to the wallet of a shareholder, and then the shareholder could automatically have those funds reinvested into whatever asset they please – all with zero intermediary paperwork.

• Streamlined verification. Transaction flows can become much slicker when KYC and identity verifiers exist on a blockchain. You’d never have to re-submit fund subscription documents or go through paperwork related to capital calls. Instead, when you invest in a new fund, you could grant the GP permission to check your credentials via an NFT that verifies your Accredited Investor status, and then with a click of a button approve future capital calls from a wallet you specify.

• Dynamic lending. When a company can cryptographically certify details about the state of their business – for example, providing a snapshot of their balance sheet via zero-knowledge proofs or tokenizing the Real World Assets (RWAs) they have as collateral – lenders can issue loans in much more dynamic, real-time ways. For instance, if a lender on a factoring facility can directly see the inflows and outflows tied to a company’s tokenized inventory/accounts receivable, they can disburse capital more quickly and with meaningfully greater confidence.

• Automated rewards. Loyalty programs (and thus pricing and rewards) can become integrated with spending when a consumer’s loyalty status is represented by an NFT. Imagine going to a store to purchase an item, the point-of-sale device pinging your wallet to determine if you have an NFT badge signifying that you’re a top-tier customer, and a 20% discount being auto added into the purchase flow once the NFT’s existence is confirmed. There is no need to ever type in a rewards number, as your loyalty status is embedded into your payment method.

Despite the significant risks, stablecoins represent a technology with extraordinary promise. I would bet that they play a meaningful role in the financial infrastructure of the future. Whether you’re a skeptic or a convert, I hope this piece reveals the category’s real traction (despite market turmoil) and potential to positively impact the broader economy. Crypto has endured a terrible winter, but it still has the power to create meaningful financial innovation around the world.

*Footnote 1 - It is worth stating that crypto needs a serious rebrand. To avoid doubt, when I use the term, I don’t explicitly mean cryptocurrency but the set of technologies (blockchains, etc.) that allow for open and trustless computation. “Open” means that any user can access it, and any developer can build on top without permission. “Trustless” means that platforms built on crypto infrastructure are credibly neutral and verifiably accurate – and that no single party can unilaterally alter the foundations of what is created. 

*Footnote 2 - For this group, centralization is one of the great weaknesses of the financial system, as the Silicon Valley Bank collapse underscored. Given their reliance on centralized financial systems, fiat-backed stablecoins cannot offer true peer-to-peer money. I hear that, and I think there are many interesting experiments being run with more decentralized assets that maintain stability, but I believe a massive opportunity exists just upgrading financial rails around the world (as opposed to completely displacing them).

*Footnote 3: The term DeFi is widely used in crypto, but I prefer Open Finance (OpenFi). The exciting thing about the financial infrastructure being built in the DeFi ecosystem is not that it’s decentralized: it’s that it’s open, transparent, and programmable (and, if we are being honest, it isn’t always decentralized). More on this another time.

*Footnote 4: It’s worth noting that the revenue split between Circle and Coinbase is a topic of fierce debate between the two organizations. This is perhaps not surprising given the quantum of money that is at stake. To contextualize, in Q4 of 2022, ~30% of Coinbase’s revenue was from interest income, the lion’s share of which was generated by USDC.

This post is for informational purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax counsel or investment recommendations. This post may feature entities in which Basho has invested.

He is a young man (mid-30s). He is deeply curious, and enjoys learning about the ideas that are changing the world. He also enjoys learning about himself, and aspires to be the best father, partner, son, friend and human that he can be. He is consistently surprised by how often these two themes intersect.

He thinks it’s an incredibly exciting time to be alive. He spends most of his day researching the technologies and companies that are at the frontiers of innovation (and occasionally making investments based on the conclusions). He feels very fortunate to be able to spend his time this way. 

Outside looking in, he appears accomplished in all the traditional ways modern society evaluates success. Below the surface, he has an intuition that the ways modern society evaluates success aren’t actually aligned with living a rich and meaningful life. He sometimes wonders if he has spent too much time cultivating resume virtues over eulogy virtues. He feels very comfortable operating from his head (which feels safe), but often struggles to live from his heart. 

His whole life changes in an instant.

Meet Basho’s rare cancer.

It is a pernicious disease. It has been silently growing in his body for years, only to reveal itself in a grand fashion on a random Tuesday afternoon. It makes itself known via a very large tumor in Basho’s eye, as if saying “look at me” in a disturbingly triumphant tone. Fighting it makes Basho blind in one eye. It has won a battle, but the war wages on, and its true deadly secret lies in waiting. If it spreads, there are no effective treatments. There is just an 18 month median life expectancy - a statistic that stares coldly at you in the mirror. 

Demanding to not be forgotten, it shows up on a scan of Basho’s liver a year after its original discovery. With a new location in Basho’s body comes a new name: metastatic. 

The reality of impermanence settles in. 

Experience Basho’s emotions.

Words are inadequate to convey Basho’s emotions. An odd mixture to have simultaneously. A potent cocktail that doesn’t always go down smoothly. Hope. Terror. Sadness. Shock. Determination. Most of all, vulnerability. Vulnerability experienced not just as an emotional sentiment in the present moment, but as a more fundamental state of being. 

To borrow from a poet (David Whyte in Consolations):

Vulnerability is not a weakness, a passing indisposition, or something we can arrange to do without, vulnerability is not a choice, vulnerability is the underlying, ever present and abiding undercurrent of our natural state. To run from vulnerability is to run from the essence of our nature, the attempt to be invulnerable is the vain attempt to become something we are not and most especially, to close off our understanding of the grief of others. More seriously, in refusing our vulnerability we refuse the help needed at every turn of our existence and immobilize the essential, tidal and conversational foundations of our identity.

To have a temporary, isolated sense of power over all events and circumstances, is a lovely illusionary privilege and perhaps the prime and most beautifully constructed conceit of being human and especially of being youthfully human, but it is a privilege that must be surrendered with that same youth, with ill health, with accident, with the loss of loved ones who do not share our untouchable powers; powers eventually and most emphatically given up, as we approach our last breath.

The only choice we have as we mature is how we inhabit our vulnerability, how we become larger and more courageous and more compassionate through our intimacy with disappearance, our choice is to inhabit vulnerability as generous citizens of loss, robustly and fully, or conversely, as misers and complainers, reluctant and fearful, always at the gates of existence, but never bravely and completely attempting to enter, never wanting to risk ourselves, never walking fully through the door.

Witness Basho’s relief.

Months later, the spot that showed up on Basho’s liver miraculously disappears. The doctors do not know why or how, but sometimes the outcome is more important than the explanation. The Sword of Damocles lifts from Basho’s neck. The immediate reaction is gratitude. But then questions…lots of them. 

I am Basho. 

Welcome to my journey. Why share this with you? Because my story is your story. Because I lived in the same blissful ignorance as you, and assumed the extended runway ahead would give me ample time for all the important but not urgent activities of my life. Because the questions I now ask myself daily - How do I live in the face of extreme uncertainty? What should I prioritize? What is the purpose of the time that I have left on this planet? - are questions that we all confront.

The answers are not always straightforward.

If I knew I had one year left to live, my priorities would be clear. Time with family and friends. Cherishing every moment I get with my daughter. A lot more love, and a lot less stress - about work, or what people think of me, or the expectations I have carried about myself for so long. 

And if I knew I had 50 years left? The reality is that none of the above would be any less of a priority. There would just be more time. More time for joy, investment, responsibility, learning, service, exploration and growth. 

It is not clear which path I am on. Do I have 1 year, 50 years, or somewhere in between? It’s impossible to know the answer. This is not unique to me though; this uncertainty is a fundamental truth of the human experience.

This is Deeper Knowing

I know what you may be thinking: “You thought you were going to die, and that inspired you to write a Substack?!”

Not exactly. 

What the experience of facing cancer did do was amplify my courage and my compassion. It pushed me to ask better questions about myself and the world, and demanded that I be more open to the answers. It reinforced the foundational components of how I want to live my life, and underscored that I want to prioritize:

• Spending time on things I care about, with people I care about 

• Exploring my curiosities about the world, and ensuring that the learnings are shared in a way that enriches those around me (if I’m not creating value for others, then what’s the point?)

• Continuing to live with presence, both in respect to myself and others, from a place that acknowledges the fundamental truth that no future moment is guaranteed

Deeper Knowing is an output of all of these things. It’s an experiment. It may seem odd to have essays about the impact of business and technology on the world sitting next to meditations on living a meaningful life, but these are the themes I find myself constantly reflecting on, and I’ve found that the most interesting people I spend time with are thinking about them too.

Will it work? I don’t know. What I do know is that the world is infinitely interesting, that the self is endlessly complex, and that the more we know about both, the more we can flourish for the limited time we have.

I hope you have as much fun reading this as I do writing it.