Jan 2, 2019 · 50m · a16z
a16z Podcast | All About Stablecoins
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Host Sonal Chokshi, Maker CTO Andy Milenius, and a16z Crypto partner Jesse Walden discuss the design, monetary philosophy, and real-world utility of stablecoins and DAOs. They detail how Maker's DAI leverages smart contract escrows, formal verification, and dual-token governance to create a transparent, permissionless financial substrate for global commerce.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. The host holds 24.6% of the talking time here. How this is scored →
The host as informed peer 4.8 Guest teaching 5.0 Guest disagreement 1.3 The host pushing back 2.5
speaking balance: gold is the host, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 8:33 Rejecting consumer-first crypto expectations
Andy firmly rejects the industry tendency to rush toward consumer-facing applications, colorfully dismissing it as a temptation to have dessert before dinner instead of building developer infrastructure first.
Hardest push from the host ▶ 46:25 Pressing on DAO coordination failure pointsSonal directly challenges the idealist vision of remote decentralized organizations, asking a explicitly cynical question about community implosions and human friction without face-to-face contact.
Biggest teaching moment ▶ 30:10 Reframing software development as virtual hardware designAndy re-educates the hosts on smart contract development by explaining that unlike traditional web applications that move fast and break things, immutable blockchain contracts must be treated like microchip hardware engineering.
The host holds their own ▶ 48:56 Framing DAOs through classical organizational economicsSonal demonstrates profound domain expertise by linking the emergence of DAOs directly to Ronald Coase's foundational 1937 paper on firm transaction costs, Peter Drucker, and Toyota lean management.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The host as informed peer | Guest teaching | Guest disagreement | The host pushing back | Why |
|---|---|---|---|---|---|---|
| Debt as a Virtual Time Machine for Economic Growth | 5 | 4 | 1 | 2 | Andy introduces the historical perspective of debt as virtual ledger money. Sonal adds context by citing Yuval Harari's Sapiens and sharing a personal family anecdote to illustrate how credit drives economic growth. | |
| Digital Cash, Bitcoin, and Distinguishing Currency from Money | 4 | 5 | 1 | 2 | Andy differentiates between currency units and social monetary consensus. Sonal demonstrates knowledge of the original Bitcoin whitepaper subtitle and pokes fun at superficial blockchain hype. | |
| Developer Motivation for a Stable Medium of Exchange | 3 | 5 | 2 | 3 | Andy explains how early Ethereum developers realized a stable exchange medium was an essential prerequisite. Sonal pushes back against the developer-centric view, asking why non-technical users should care. | |
| Financial Inclusion, Global Trade, and Supply Chain Logistics | 5 | 5 | 1 | 3 | Sonal demands a concrete real-world scenario beyond abstract crypto promises. She draws analogies to technological leapfrogging in China while Andy details trade finance applications in global supply chains. | |
| DAI as a Chairlift Bridging Real-World Enterprise to Blockchain | 6 | 4 | 1 | 2 | Andy presents the chairlift metaphor for onboarding traditional enterprise platforms to blockchain state. Sonal enriches the discussion by contrasting strong-form versus weak-form technology trajectories. | |
| The Role of Traditional Banks in a Non-Jurisdictional World | 6 | 4 | 1 | 1 | Andy frames Maker as a non-jurisdictional layer for traditional banks. Sonal synthesizes this by drawing a clear parallel to historical open-source corporate funding consortiums. | |
| How DAI Works: Smart Contracts and Escrow Collateral | 3 | 5 | 1 | 3 | Andy outlines the mechanics of DAI escrow smart contracts. Sonal challenges the self-reinforcing flywheel model by questioning if it creates an unstable financial house of cards. | |
| Blockchain Transparency and Mitigating Systemic Financial Risk | 4 | 6 | 1 | 2 | Andy details how MKR governance token holders manage collateral risk and absorb bad debt through dilution. Sonal grounds the theoretical discussion by bringing up real-world banking scandals like Wells Fargo and referencing Nassim Taleb. | |
| Virtual Hardware Engineering and Mathematical Formal Verification | 7 | 6 | 2 | 3 | Andy reframes smart contract engineering as virtual hardware design requiring formal verification. Sonal exhibits high expertise by citing Leslie Lamport's Wired op-ed and counterarguments on contract incompleteness from MIT economists. | |
| Evaluating the Landscape: Fiat-Backed, Crypto, and Algorithmic Stablecoins | 3 | 6 | 1 | 2 | Andy and Jesse categorize the three major stablecoin archetypes: fiat-backed, crypto-collateralized, and algorithmic seigniorage shares. The exchange is purely educational and analytical. | |
| Quantifying Maker Traction and the Historic First DAO Vote | 7 | 5 | 2 | 4 | Sonal asks a sharp, cynical question regarding organizational implosion and remote work friction in DAOs. When Andy emphasizes leadership over naive decentralization, Sonal anchors the discussion in classical management theory including Ronald Coase's 1937 paper and Peter Drucker. |
Statements from this episode (23)
Milenius: Daily commerce over 5,000 years relied more on debt than gold
“In terms of the day-to-day lived experience of people's lives working with money over the last, you know, 5000 years, a lot of it actually hasn't been with gold currency in it. It's actually been with debt money.”
Milenius: Debt acts as a time machine pulling future value into present
“Debt money is very interesting because it allows you to sort of see into the future, right? If you have a good expectation of what's going to happen in the future, and you want to access that value right now, you can issue debt against it. So I think of debt a…”
Milenius: Bitcoin behaves as digital gold and improves on physical gold
“Bitcoin, as we've seen, how it's behaved in the wild, it behaves a lot like digital gold, and it's definitely an improvement on physical gold”
Milenius: Currency refers to units, while money is a collective social agreement
“Currency and money are actually different. It's a subtle distinction, right? Currency are units. These are the things that we can or can't use as money as we want to, but money is much more like a symbol. It's a collective understanding.”
Milenius: Stablecoins are simply a rebranding of traditional money
“If you really think about it, a stable coin is just a rebranding of money. Because it just works the same way as money, and money is a very interesting feature in the sense that when you use it, you don't really think about the fact that it's stable. The whole…”
Milenius: The cryptocurrency industry skews young, with many in first jobs
“The cryptocurrency industry skews very young, right? So for a lot of people, this is their first job ever.”
Milenius: Stablecoins will leapfrog legacy financial infrastructure in developing markets
“I think that the reason that stablecoins matter is actually very related to the reason that blockchains matter, which is that because it has so many implications for other applications, I think will be a really interesting like skip level technology, similar t…”
Walden: DApps require stablecoin stability to scale to millions of users
“Well, in order for decentralized applications, which are deployed on top of blockchains to reach millions and millions of users, the experience needs to rival that of, you know, a traditional web two startup. And, you know, in most parts of the world, we have …”
Milenius: Traditional banks will continue to exist alongside Maker
“I think that banks will continue to do that and Maker basically has no dog in that fight because we don't exist in any single country.”
Milenius: Blockchains enable traditional banks to become transnational actors
“Seeing it as this emergent, accessible space, I think, is really, really compelling for not only banks, but, like, tons of different finance companies and different enterprises in general to suddenly become these transnational actors that they weren't before, …”
Milenius: Diversified asset pools protect DAI against single-asset failures
“And so, one of the really, really important details about DAI is this idea that there's a lot of different types of assets. So you can imagine supply chain invoices, you can imagine, like, commodities like gold, you can imagine pure cryptocurrencies like Ether…”
Walden: Stablecoins create a flywheel of tokenization and stability
“That's really cool because there's this flywheel where Dive has already sort of improved the user experience of today's early applications on the blockchain, and, you know, that in turn fosters adoption of those applications, and increased adoption in turn lea…”
Milenius: Transparency and open source will stabilize blockchain credit long term
“And so I think that the transparency, the auditability, and the open source ethos is what is going to be its most regulating or stable sort of influence over the long term, because if there's any funny business, you can't get away with it, right?”
Milenius: Maker mints MKR to cover bad debt during collateral crashes
“In the case where one of the collaterals that they accept to be issued against, if they ever make a mistake, and that collateral loses all of its value overnight, then all of the die that was issued against it needs value to be backing it. And so what happens …”
Milenius: Effective governance will make MKR increasingly scarce over time
“If the MKR holders do a good job, then we can expect MKR to become more scarce over time.”
Milenius: Smart contracts function like virtual hardware due to immutability
“One of the most interesting ways that smart contracts are different from traditional software engineering is that they actually have the characteristics of virtual hardware.”
Milenius: Maker is Ethereum's first formally verified non-trivial application
“We are very proud to be the first application to be launched on the Ethereum blockchain that is formally verified. There have been experiments with this up to this point. This is the first non-trivial application that will be launched that will have these guar…”
Walden: Maker will accept real-world assets like gold and real estate
“Maker's sort of a wrapper for all these other asset types, so fiat-backed stablecoins are one type of asset, but there will be others, gold and, you know, real estate, et cetera.”
Walden: Algorithmic stablecoins lack collateral and rely solely on market belief
“What's critical here is, like, there's no collateral backing this. There's nothing behind it. It's just people's belief that it will stabilize itself based on this adjusting supply and demand.”
Milenius: Around 1M new DAI enter circulation weekly
“Something like about a million new DAI come into circulation every week as people lock up ether and issue against it, which is so cool.”
Milenius: Purely self-centered participation prevents successful DAO coordination
“If everybody comes at this from, like, some kind of hyper-rational, self-centered, I'm only in it for myself, mentality. Then they'll just never coordinate. They'll never cooperate, you know, and they'll never put aside their differences and do the hard work o…”
Milenius: DAOs require fluid, contextual leadership rather than no leadership
“Part of our experience of growing up has been to not be afraid of leadership. Leadership is so big. With humans, whether they're coordinating on mass scales, on micro scales, or anything in between, you know, we've really learned that a good leader is worth ev…”