A Conversation with Joe Lubin

A talk powered by the Paris Blockchain Society and INSEAD

Hosted online on February 14, 2024 by:

• Patrick Bouffartigue, Founder and President of the Paris Blockchain Society
• Prof. Peter Zemsky, Eli Lilly Chaired Professor of Strategy and Innovation at INSEAD

The Paris Blockchain Society (PBS) is an association that brings together professionals from the blockchain and digital assets sector in France. Twice a month, we host a Masterclass with a prominent figure from the ecosystem for our members. This exclusive exchange is divided into two parts: our guest first shares their analysis of the chosen theme and then answers our members’ questions. You can follow our updates on our LinkedIn page and join us here.

Patrick Bouffartigue: Joe, as co-founder of Ethereum and CEO of Consensys, you are one of the most respected figures in the industry. Since its inception in 2014, Ethereum has led to a revolutionary change in the blockchain industry: the possibility to create decentralized applications on a blockchain through smart contracts. Today, Ethereum stands as the largest smart contract platform globally, hosting over 4,000 decentralized applications; its cryptocurrency ranks as the second-largest by market capitalization, totaling $300 billion.

While you were working on that project with Vitalik Buterin, you started your own company, Consensys, aiming at creating tools to aid developers build decentralized applications on Ethereum and facilitate user interaction with them. Among the most notable products you’ve delivered is MetaMask, the leading self-custodial wallet on Ethereum with over 100 million users, processing 250,000 daily transactions. Additionally, Consensys developed Infura to remove barriers to entry for developers willing to build and scale on Ethereum; over 400,000 of them use it today. Last summer, you introduced Lina, a solution addressing Ethereum’s scaling and fee challenges, enabling transactions to be processed 20 times cheaper.

It is fair to say the crypto industry would not be where it is today if it weren’t for such breakthroughs. In practical terms, it owes you a great deal. That is why we are very honored to speak with you today and gain insights into your perspectives on the present and future of the industry.

Joe Lubin: Thank you, Patrick. Allow me to add one critical piece of data to that list: we’ve had a Paris office for a long time and with a team of 800 people working there, I must say it’s a vibrant office. In fact, the Linea project has been heavily bolstered by our France-based team.

Prof. Peter Zemsky: On that note, we will delve into your thoughts on the geography of the industry and its hotspots but first, let’s embrace the bigger picture: what do you make of the current bear market? How is it similar to or different from the previous ones? And what does it take for the blockchain community to start coming out of it in a stronger position?

Joe Lubin: Well, if we are indeed in a bear market, I hope it continues and I hope we have lots of bear markets like this, but I think we’re not anymore and we haven’t been for quite a while. The optimism is definitely here now. It might still feel like a bear market because the world is profoundly broken economically and geopolitically but optimism has returned. Looking back, DeFi summer and NFT summer were real breakouts for our ecosystem and were indeed followed by a downturn which coincided with the Federal Reserve’s decision to raise rates in March 2022. This led to a brief bear market from June to December 2022, with Ether dropping to $1,000 and Bitcoin to $16,000. Since then, there’s been a gradual recovery, with positive trends in user engagement and revenue.

The last bear market helped us all see the fundamental difference between money crypto, primarily focused on separating people from their money, and tech crypto, which builds infrastructure and concrete solutions¹. It enabled us at Consensys to flesh out the foundations in terms of scalability, usability, and security. A rich and agile staking ecosystem was facilitated by the transition from Proof of Work to Proof of Stake. The upcoming Dencun hard fork will bring guaranteed data availability to the blockchain. With these stones, we’ve been paving the way to real mainstream adoption.

Prof. Peter Zemsky: On the subject of bridging the gap between this decentralized world and traditional mainstream finance, what do you make of the issuance of ETFs for Bitcoin, and potentially Ethereum?

Joe Lubin: Adoption is moving differently in different parts of the world. In most of them, there has been rational acceptance of the potential benefits that decentralized technology can hold. We’ve witnessed legitimate attempts to try to make sense of this new paradigm in trust, to understand how it can fit in the political philosophy of certain nations more than others. The subject is discussed from China to the Middle East to Venezuela, although in very different terms. In the United States, a country that likes to dominate the world through financial intermediaries, the prospect of profound disintermediation is seen by some as a national security issue. Other Americans believe profound decentralization to be consistent with free-market capitalism and Western liberal democracy. We have had a major shot in the arm both from the judicial system and grudgingly from the SEC, that was forced to approve Bitcoin spot ETFs. The latter surpassed the iShares Silver Trust (SLV) ETF on their first day of trading; they are now sitting at $30 billion with massive inflows still observed. A rise in price could even see them challenge the Gold spot ETF. That would definitely make headlines. As the biggest pools of capital flow into our ecosystem, politicians and regulators will not be able to ignore or denounce crypto anymore — not when their voters, through their registered funds, are all invested in the asset class.

There’s a significant chance the Ether spot ETF might be approved in 2024. The SEC may delay its approval because an Ether spot ETF is likely to be perceived as more challenging to the existing financial system. Major financial firms will likely not have the same advantages in a more decentralized financial world than they do in the traditional one. To that effect, more time could be needed to adapt. That being said, there is a convergence between systems. Some crypto wallets have credit cards, debit cards, mobile pay… Our product, MetaMask, has an integration with Robinhood in the US. Stablecoins are now heavily backed by US treasuries and, as nation-states find it less attractive to lend money to the US, large stablecoin companies could become key lenders to the United States. That is one partnership I’d call interesting.

Patrick Bouffartigue: I’d like to delve into Ethereum and its upcoming upgrades, as they reflect the evolution of much of the Web 3.0 world. Joe, you mentioned one of the primary challenges Ethereum faces is scalability. With its increasing popularity, network congestion has led to higher fees and transaction latency. The Dencun upgrade of the Ethereum blockchain is on the horizon. How will this impact the Ethereum world and the broader industry?

Joe Lubin: Let’s zoom out for a moment to understand the larger context. For millennia, we’ve operated under a top-down command-and-control trust paradigm, which served society well for a time but increasingly faltered for many people, possibly up to 99% of people now. Satoshi Nakamoto introduced a new kind of database — intended to be a globally inspectable, usable, and upgradeable system — laying the groundwork for decentralized trust. This shift has, in turn, allowed for the emergence of decentralized finance, upon which we may now re-architect mainstream systems on sturdier trust foundations.

Layer 1 networks have traded scalability for decentralized trust, unlike the highly scalable internet. Layer 2 networks like Linea, Arbitrum, and Optimism are modularized networks that are designed to increase transaction throughput by handling all the computation. The Dencun hard fork will enhance what we call ‘guaranteed data availability’: Layer 2 networks will be able to store and access data while also undertaking the heavy computation work. This is the way to both decentralized trust and infinite scalability. Vertically, we’ll scale with more powerful machines and algorithms. Horizontally, we will add more layers to the base (L2s, L3, L4s…) and witness the emergence of virtual space regions akin to how economies grow from towns into cities, into nation-states.

Patrick Bouffartigue: With such an increasing number of layers, however, the interoperability challenge may also intensify. Today, for many Web3 users, navigating between different protocols and dApps is already a challenge. What types of solutions do you think will emerge from the market to address that issue?

Joe Lubin: We are in a constant cycle of convergence and divergence phases when it comes to tech. Right now, we are experiencing a phase of divergence, which allows us to examine different options. Similar to the database world, where a wide variety of databases coexist, such as SQL, NoSQL and others, we’re seeing a need for differentiation in the blockchain space. This is a chance to explore what’s out there and improve what needs improving. Fragmentation leads to mutation. That is why, although it can be seen as a bug, it’s actually a key feature. In fact, it is part and parcel of decentralization. Open source is a superpower of our community: people can freely build on the shoulders of giants. Having said that, fragmentation can become a technological problem. Solutions like state channels have been professed to bring networks together. Justin Drake of the Ethereum Foundation recently suggested using shared sequencing at Layer-1 in a tweet.

Linea is working on such tech. At Consensys, our teams are trying to create seamless user experiences across networks via a unified interface on MetaMask; our goal is that you never have to think about moving a token from one network to another ever again.

Prof. Peter Zemsky: As you said, Joe, we are in a period of heavy experimentation. Are there particular applications or tokens that you think could be promising in the coming years?

Joe Lubin: There are real breakthroughs happening as we speak. Web3 social media protocols have recently gained momentum, like Friend.tech running on the Base Network or Tomo² running on the Linea network we developed. These platforms enable the gamification and monetization of social capital. While still in their early stages, they represent an interesting future where individuals are finally given ownership of their social graphs. MetaMask has introduced a Snaps platform where different modules can plug in, including Snaps around decentralized identities. Along the same lines of social networking, Farcaster, a Twitter replacement built on L2 network Optimism, has been a massive phenomenon. With its modular architecture enabling channels and moderation, it takes a much healthier approach to building a social network which is why I think it has a real shot at coming out on top.

Prof. Peter Zemsky: How important is it going to be to implement different measures around confidentiality for some of those use cases?

Joe Lubin: Privacy and confidentiality are critical for a healthy functioning society, particularly for the human species. Certain actors in certain nation-states feel compelled, for security reasons, to inspect every flow of value from source to destination. Many people and organizations disagree with this approach and that results in an ongoing battle that has spanned decades with various technologies. Some success has been achieved by those seeking control, like getting centralized exchanges to delist privacy tokens, which I find disappointing. Nonetheless, there are projects working tirelessly to protect privacy. We should ideally be able to interact in Zero Knowledge in virtually everything we do without worrying about potential backdoors that could compromise our privacy. Once a backdoor exists, there will always be individuals seeking to exploit it. But the technology is robust and my belief is that it will advance rapidly in a fragmented and decentralized way, which will make it harder for slower regulators to keep up.

Patrick Bouffartigue: Among the current narratives that have drawn attention lately regarding better user experience are Account Abstraction and Intent-Centric Architecture. How do you see these innovations play out in the coming years?

Joe Lubin: I think we’re in the midst of a revolution in how wallets operate and how transactions work. Wallets started out pretty basic and have become more capable over time, especially in terms of security. But there’s always a trade-off between security and usability. It’s like putting something in a cement box and burying it: it is very secure but not very practical. We face this challenge regularly at MetaMask. We are heavily focused on security, to keep users safe. Yet, as more apps and games emerge on blockchains, they need to be user-friendly. To that end, we are exploring various wallet approaches: Account Abstraction, to allow for a simpler, more fluid navigation across networks, and Progressive Onboarding³, to reduce friction for users entering Web3.

Joe Lubin: We see ourselves as stewards. We’ve been building businesses and products but also progressively decentralizing them. We’ve been involved in the research and development of the Ethereum protocol for a long time, built multiple execution clients and consensus network clients. Currently, Besu and Teku are our Ethereum clients, they are widely used and still growing.

One of our key contributions has been Infura, which has enabled software developers to access the blockchain for reading and writing for many years. Infura is on a path to decentralize itself, we will actually make announcements at ETHDenver about its evolution into what we’re calling the Decentralized Infrastructure Network. This will allow software developers to deploy the backends of their applications in a permissionless way, using a network of backend service providers. Infura itself is one of these Layer 2 modules that is in the process of decentralizing itself. It’s going to work with at least one other Layer 2 to decentralize the proving mechanisms, that is, to enable multiple provers to serve as bridges to Layer 1. This is part of the standardization and homogenization needed at Layer 2. It’s going to take a few years, but we need Layer 2 to resemble Layer 1, where many clients cooperate and compete to produce something generally usable and not too fragmented.

MetaMask is the most heavily utilized non-custodial wallet in our ecosystem and is also moving towards greater decentralization, through permissionless innovation first. Now, anyone using MetaMask Snaps can build their frontend and backend, and deploy them on the Decentralizing Infrastructure Network. soon, and remove all the gatekeepers for the decentralized protocol ecosystem.

Prof. Peter Zemsky: You’ve talked about regulation and some of the pressures that come with it. Where do you stand today regarding the role regulation can play constructively in this space?

Joe Lubin: Self-regulation could play a great role, unfortunately our ecosystem is not very good at that. We’re improving but it’s challenging. Regulators have a tough time understanding how powerful, exponentially evolving technologies and their overlaps impact their citizens and systems. Regulation has definitely helped, especially during the recent darker period. Regulators realized they had been quite hands-off and finally stepped in against bad actors and that’s been good for our ecosystem. It helped clear out a lot of the CeFi rot. The narratives they promoted were not true reflections of our community but rather exploits by others using our technology for harm. So maybe we need more regulation, maybe not. In the AI space, that question is going to be a tough one. In the US, there are thoughts about limiting the amount of computation a single AI project can use, which is not the right approach. But, regulatory overreach, as seen with the SEC, pushes people towards more rigorously decentralizing their projects. This could help the AI sector ensure that its foundations are decentralized, broadly owned and transparent.

Audience Q: Could you comment about the concentration of ETH on staking and re-staking protocols? Do you consider them a threat to the ecosystem?

Joe Lubin: I don’t have a straight answer to that question but we have been discussing it. There’s currently close to 30% of ETH staked, and a lot of liquid staking is happening. My guess is that staking will grow significantly, up to 60% according to estimates I have heard. However, when numbers get too high, people tend to vote with their feet and leave for other ecosystems. There’s a huge number of approaches in liquid staking, re-staking, and now liquid re-staking. I do hope there will be diversification so that if one app fails it doesn’t cause a contagion.

Patrick Bouffartigues: We’ve talked a lot about retail adoption and retail applications. How do you see enterprise adoption evolving in the coming years, especially with the emergence of DAO tooling?

Joe Lubin: We are definitely discussing that at Consensys. How do we transition our operating framework, which consists of various important meetings, team structures, and decision-making mechanisms, onto the blockchain seamlessly? This doesn’t necessarily mean decentralizing our organization, but rather moving these mechanisms on-chain. I believe many traditional companies will make that transition. They might struggle with it as it might not align with their operations or customer service needs but there will be more user-friendly tools available for them to adopt a hybrid approach. Additionally, there will be companies that naturally evolve into what you referred to as “Enterprises” that are inherently decentralized. The term “Enterprise” used to be associated with legacy companies, including traditional financial institutions. Now, we use the term “Enterprise” to describe entities like Aave, Compound and Farcaster.

Audience Q: What are your thoughts on the tokenization of real-world assets, given the growing interest in this area? To what extent is Consensys considering playing a role in this space?

Joe Lubin: We used to have a rallying cry: “Tokenize all the things !” There are now many digital assets in the world, and we see physical assets increasingly being tokenized, from cars and real estate to diamonds and wine. Even aspects of identity, such as nation-state and self-sovereign identity, along with elements of reputation, can and arguably should have decentralized representations. We often refer to these as “digital twins,” where an NFT represents the state of the asset and offers control over it. Say you own a condo and want to airbnb it: you could enable someone to lease it through your NFT and set parameters like admission periods. One of the most interesting examples of real-world asset tokenization is the STBT, or Short-term Treasury Bill Token, which digitizes US treasury bonds. That asset is now available for use to collateralize stablecoins. We’ll likely see more tokens being traded for tokens, which could lead to increased bartering, as transactions could be made directly between tokens without the need for traditional currency intermediaries. In essence, it’s a shift toward “less money, more tokens”.

Prof. Peter Zemsky: In terms of geography, where do you see the hotspots of development? Obviously the US has been a powerhouse in tech, but as you’ve alluded to, the landscape is changing. How is activity spreading out globally? Additionally, if you find interesting places to engage with the tech community, particularly in 2024, where would those be?

Joe Lubin: The decentralization movement has been decentralized from its early days. It started relatively small with Bitcoin and gradually picked up steam until I became involved in early 2011. By 2012, numerous projects were exploring decentralized trust beyond just currency, as did Vitalik himself. This innovation was happening globally, from hacker squat houses in Romania to tech hubs in New York, London, and Paris. The Middle East initially lagged behind, Asia caught up later, followed by South America and Africa. Interestingly, some more technologically advanced places were slower to jump into our space. Silicon Valley is a prominent example of that: they were the masters of the universe, they were comfortable with their positions and didn’t fully engage with Bitcoin for a long period. The movement has definitely been decentralized overall and we must make sure it stays that way. We must be very vigilant.

Prof. Peter Zemsky: Your enthusiasm for decentralization seems unbowed!

Joe Lubin: Definitely. I’m an optimist and I think being optimistic makes sense even in times that seem confusing and dark. We are at the very dynamic end of a super cycle that spans 80 to 100 years. As I laid out in my books, I think four generations repeat themselves in a certain pattern. The first generation comes out of a difficult situation, comes up with a new insight and drives a new system of the world. The second generation builds on it and accelerates it. The third generation lives off of it and starts to find cracks and exploit things. Eventually, the world becomes so complicated and exploitable that it all crashes into a brick wall, and a new insight into the system of the world is needed. We are that fourth generation. The current monetary system is long in the tubes and needs a rescue. A new monetary regime needs to be developed. It just so happens that there is one that has been developed in the background. Its technology might end up being utilized by nation-states. If you’re a young person right now, it’s a confusing time but it is probably one of the best times to be around. The amount of growth is going to be astonishing. With this technology, I’m very confident that we will build a better system of the world.

¹ The distinction between money crypto and tech crypto was first made in a 2022 CoinDesk article by Bill Hughes which you can find here.

² To learn more about Tomo, you may refer to this Medium article published in late 2023 by the Tomo team.

³ More can be found on the concept of Progressive Onboarding in this Medium article written by Will Robinson.