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Rafael Casas: [00:00:05] Welcome to Crypto with accountants powered by Bitwave, where we talk with technologists and crypto enthusiasts as we discuss current events in economy, politics, technology and digital assets with thought leaders from around the world. Hosted by Pat White and Rafael Casas. Today we have a fantastic guest and our dear friend Jared Klee. For those of you that don't know Jared, Jared is the founding director of Web3 Big Four Voce co-founded a blockchain based fintech startup and held multiple roles at IBM, including leading digital assets at IBM, Blockchain and founding IBM. Watson Risk and Compliance. You can find him on Twitter at Klee Beard and Publishing weekly at Finance, FinTech and Finance, kind of all over, all over social media with some amazing nuggets of information. Jared, so good to have you here. Thanks for joining us,

Jared Klee: [00:00:56] Rafael, Pat, so good to be here. Appreciate you hosting me.

Pat White: [00:00:59] Yeah, this should be really fun. It's a it's a great time to be talking about all the all the various things that you've had, your fingers in over the years. It's a good time to be talking about all of them. So what? Well, welcome. So, hey, we always like to start with these things Is is tell us a little bit about like how you got into Web3 in general. Like where what was your first foray into into all this craziness?

Jared Klee: [00:01:20] Well, it's my whole life's coming back around now because as as 2016, 2017, the ICO craze got going and so on, I was still deep in the AI world. If we go back to to that time, I was helping launch IBM Watson and was still writing. As we continue to build that out, we'll go deeper. That's now coming back around with OpenAI and Chatgpt. So I saw this Bitcoin thing happen. I saw the ICO on. You know what? I'm already up to my eyeballs in AI. I've got my hands full. Let me focus on that. Keep building that out. And slowly but surely it just kept hitting the news, kept hitting the news. I was like, okay, I'll pay a little bit of attention. Ended up down the rabbit hole. But now here I am, focused on crypto, focused on all this stuff, and the world comes back around and I'm struggling with the same thing again. Like I want to keep focus on crypto, but this stuff's real cool.

Pat White: [00:02:11] It's really cool. Well, I actually always really enjoy and this is maybe like morbid curiosity, but I always actually really do enjoy talking to people who worked on Watson about the current craze of AI. I mean, how how do you feel? I mean, is it does it like tear at your soul that IBM never quite got it right? Or was IBM just too early or was IBM always kind of vaporware? I mean, that's I know that's sort of a hard answer to question to answer, but it's I mean.

Jared Klee: [00:02:38] It's I mean, it's it's mixed emotions. So if you actually look at if you look under the covers, what IBM is doing today, they've actually done an enormous amount in and around AI from a research standpoint, from a commercialization. Certainly there are aspects of the Watson business I think got out a little ahead of itself. We go back to like the Bob Dylan commercial. Yes, I think that was the marketing was a little ahead of where the product was. What what blows my mind, Pat, is when I look at some of the stuff that was being developed, I mean, patent level back then, research paper back then. I remember sitting down with the research team, IBM Research up in upstate New York right after they had written the original paper for how to do summarization. And that was I mean, that was years in the making the work to get there. And now you sit there, you look at what Chatgpt spits out the time from what went from a paper to being realized as commercially available. Everybody can use it product. I mean, had you asked me then I would have bet decades before that made its way into the mainstream. It's unbelievable. The rate and pace at which stuff is now happening.

Pat White: [00:03:44] It is. I mean, it's and that's really the argument about AI is that it is going to go exponential here. And then the and then the robots are going to turn us all into paperclips. So it is a it is, of course, like a super interesting like part of all of it.

Jared Klee: [00:03:55] Depends on being clippy.

Pat White: [00:03:57] Yeah, I do. It is. Oh, gosh. It is so interesting because, I mean, one of the things I always wonder about Watson is if they if they hadn't focused on what they had been focused on, which was kind of health care and enterprise, if they had done more of a generalized language model, if they would have sort of gotten there a little bit faster than everybody else. But that's not really you know, it's there's this funny about IBM, like I have I have nothing against IBM. I've never worked there. So I don't have a lot of detail. But I do always worry when I see IBM getting into different spaces because they bring a lot of marketing muscle and it's very debatable, like the amount of like deep technical muscle they bring to certain spaces. They bring marketing, they bring research. But then like in terms of like products that get out the door and change the world. It's been a while since like IBM's had something really cool like that, so it always makes me a little bit nervous when I see them in different spaces and like blockchain was sort of like that.

Jared Klee: [00:04:49] If you go under the covers at IBM, it's hard to categorize it as a single company. So if you go look at every time you swipe a credit card, it's still hitting a mainframe. Every time you go book a flight, it's still hitting a mainframe deep down in the bowels. And when we talk about mainframes and we could just. Joke about them being 50 year old refrigerators that don't hold beer well. But if you actually go and look at the developments that have been happening on the mainframe, you have a four year cycle and what they're shipping from an encryption standpoint, from a processing standpoint, there's a reason it's still in the bowels of among your biggest enterprises in the world. It's for certain types of workloads. The things are really good. Yeah, that's true across an enormous chunk of the portfolio. So certainly a company at IBM's scale, we could poke and prod and find soft spots where it's like, okay, marking got out ahead. We lack innovation. If you look at the portfolio as a whole, if you go under the covers there, spots where the company is has been and remains the best in the world, bar none at what they do. Yeah. Now I think part of what's changed in the public domain is IBM's not consumer facing any respect to the word anymore. I mean the the ThinkPad my.

Pat White: [00:05:59] First computer was a was a PC junior, which was an IBM. It was an IBM clone back in the day. So that was and that it's been a long time since someone's bought an IBM computer. I mean, it's been a long ass time since.

Jared Klee: [00:06:11] The retail the the thinkpads were spun out years ago. The the registers that you see at the supermarket years ago, IBM's just not consumer facing anymore. Yeah. So it becomes very difficult unless you're kind of in the bowels of say, a bank or of a hospital or of a booking system for Amtrak. It's very difficult to see where IBM is continuing to push the envelope. If you go live in these massive shops that are running some of the world's biggest businesses and some of the world's biggest consumer platforms, like the Amtrak booking system, then you start to see where that's when you start to see this stuff pushing. It's just living in a different part of the stack.

Pat White: [00:06:49] Super interesting. Well, so okay, so you so at IBM you you ended up on you started on AI but then you ended up on the on the the Hyperledger team like the blockchain Hyperledger team.

Jared Klee: [00:06:57] So I had IBM was I was there for a number of years for a number of so I helped a rather build the risk and compliance group there. So we were doing AI based stuff for banks on five continents dealing with regulatory compliance and anti-money laundering and so on. This is all in the wake of like Dodd-Frank and then zero eight, zero nine and the subsequent, we saw tens of billions of dollars fines for the banks and we started building the initial products to help banks, which, by the way.

Pat White: [00:07:27] Must be such a good such a good core base to then end up at VOUCH because we'll be talking about that later. But in terms of like a deep background risk and compliance management, great for then getting into the insurance space.

Jared Klee: [00:07:38] Yeah turned out didn't plan it that way. Turned out to be rather useful.

Pat White: [00:07:43] Just worked. But so did you. Did you end up on the on the blockchain team at IBM at all?

Jared Klee: [00:07:49] Eventually I did, I found. So I've worn a number of hats. I've been product, I've been sales, I've been corporate development, you name it, across a number of different groups. And actually I've found my way into the blockchain group. I was leading a chunk of corporate development of joint ventures and acquisitions and so on. We spun up a new vertical within within IBM. We pulled the blockchain business. What was then a research project out of research, stood it up as a new business unit. And then we started building out the Hyperledger Initiative along with the Linux Foundation and all the projects that got launched there. We started spinning up the various joint ventures and consortiums with Maersk, with Walmart, with others. So I actually came into that one. Interestingly, from the corporate development angle of helping stand up along as.

Pat White: [00:08:39] Well, because all of it was partnership stuff. Like there was obviously a little bit they were doing themselves working on Hyperledger Code like that, but all the big stuff IBM did, you know, the Maersk one is the one that I was thinking of was all very partner centric. Was all this like sort of how do you bring people together?

Jared Klee: [00:08:53] So the idea there so Hyperledger fabric, you're if we go all the way back in time in terms of language here was an enterprise permissioned network. So private permissioned network. So the way you would stand up one of those networks scale was go get a bunch of the people who would run the nodes and ultimately call it easy button your way to the transaction validation. So in order to get those going at scale, well, you needed a group of people to go start with. So that's all the partnership.

Pat White: [00:09:23] So tell me, I'm really curious in this. So has your SO from when you kind of were at IBM? A I'd love to hear about what you thought about some of the interesting projects back then and Hyperledger and then B I'd love to hear about if you're if how you think about public versus private blockchains has changed, has matured. Like do you think you hold like a contrarian view now? Because I think most people are not the biggest most people in like the crypto web3 space are not the biggest fans of private blockchains. But that's why I love getting interesting people to talk about this stuff. Like I'd love to hear like, Hey, what were the really cool projects you're working on that you're able to talk about? And B, how do you how do you now think about private blockchains versus public blockchains?

Jared Klee: [00:10:02] So I think it's helpful color. So I have built on top of fabric main net. Stellar burrow, and I'm probably missing a couple of others. So I've built on top of multiple chains. I don't have a horse in the race of saying one's good, one's bad, and we could have an interesting conversation about L1's versus El. Again, you're not going to get me picking sides here. I tend to work backwards. I'm not an engineer by background. I tend to work backwards from what is the problem I'm ultimately trying to solve and what is the useful set of tools to go solve the problem? So if I go look at a problem of I want to get a lot of people participating, let's say Nimble is actually doing really interesting things in the defi insurance. So Nimble is aggregating capital in a novel way. They're underwriting specific smart contracts against hacks and losses. There is a wonderful advantage in having the public permissionless chain underpinning that they've built on. They've built on top of ARB, and they're using that both to aggregate capital as well as to adjudicate the claims and ultimately pay them out. That's a wonderfully powerful model that no stack in a 2.0 world or private permissioned chain is going to be able to bring to the table. Yeah, but if I go look at a problem like let's say let's track the cap table of a hedge fund, if I want to go track that or the Maersk.

Pat White: [00:11:26] I mean, honestly, if you're able to talk at all about the Maersk. So because that one seemed like it honestly seemed like when I think about the history here, like it was one of the ones that seemed like the most appropriate use of a private blockchain and the most appropriate use of blockchain in general. And I was personally super sad when it when it spun down like, I'd love to hear your thoughts if you're able to talk about it again, Like you just tell us what you're able to talk about or not. But I'd love to hear about like, you know, what was really good about it and then what what kind of happened in some ways.

Jared Klee: [00:11:57] So unfortunately, the conclusion I, I left by the time that it got spun down. So actually I've little to no insights outside the public domain of of how it concluded the the if we go to why did we go after that problem why was it such a good problem to go after? And we can actually broaden that to even the shipping industry more general or rather trade more generally. We identified a problem alongside others that if you were trying to ship, say, mangoes from South Africa to New Jersey and quite literally from Joburg to Newark, it was we had this unbelievable chart. It's like 27 steps and parties that all needed to exchange information. And this, by the way, this had nothing to do with like payment. This had this was pieces of paper. These were PDFs that were physically being signed and they were being put into a manila envelope and they were being handed person to person and lined up. And is that right? They kind of like.

Pat White: [00:12:55] Basically took this you they kind of stuck with the mangoes the entire way. Like you just had this, like, the envelope. Yeah, that's exactly right.

Jared Klee: [00:13:01] We built the mango machine. That was it. We built the person. Um, it was it. It was A11 use case, but no. So it was a really good example of you had two fundamental problems in there. One was an interesting problem to solve, but at that time unsolvable. You wanted digital data. Great. Yeah, that's a really hard problem. Put that off to the side. But at its core, you had a workflow problem, which was your gazillions of dollars of goods that you would like to move relatively quickly and know who signed for them and who's responsible for them were being moved on paper. I know in theory they're on ships, but in reality they would only move as quickly as the pieces of paper moved with them. And you had to get the order of signatures. Exactly right. Among other things, think about the fraud problems that comes with. So the idea here was, can I move the workflow? Can I move the process of governing these goods on ships off of analog and into digital, even though wasn't actually digitizing the data? I was digitizing the process. And it's a great example of a blockchain where I can have the the wet signatures, I can have the guarantees of what came before me and who did it. And the permissioning of You've approved it, I've approved it. Et cetera. It was a really useful tool to orchestrate a workflow problem that we knew already existed.

Pat White: [00:14:29] Yeah, that's super, super interesting. Now, I guess.

Jared Klee: [00:14:34] Being on board.

Pat White: [00:14:35] Yeah. What ends up being the really hard question there is of course was so when, when that project kind of ultimately spun down like I guess the interesting question is, is that a problem that people really needed to solve? I mean, that's that's always the question because if you come at this stuff from a problem perspective, that always is the ultimate question is like, was that what needed to be solved? Do you do you think that the so A do you think there is a future? I know we're like we're totally not talking about vouch and all the insurance stuff and I apologize for that. But I like for me, I love supply chain as a use case for for crypto. It is it is one of my absolute favorite use cases and one of the things I've been dealing with like dealing with on like a personal emotional level is this idea that, you know, we've been sitting on this for ten years now and we've never had the we've never had a disruptive supply chain project change the nature of supply chain from crypto. Do you think that there's still like is that still a use case in the long term? Is it need to move away from kind of gathering from like workflow and gathering signatures and move towards more of the monetary side, like the actual transfer and flow of funds? Like what is it going to take for supply chain to really actually get disrupted by crypto or is it just never going to happen?

Jared Klee: [00:15:46] Pat My I asked the hard.

Pat White: [00:15:48] Questions, buddy.

Jared Klee: [00:15:50] My time frame for this stuff is measured in decades.

Pat White: [00:15:54] Yeah, it.

Jared Klee: [00:15:55] Would shock me if we take trillions of dollars of world trade and over years horizon make a meaningful impact and changing the way it's been done, given that it's been done the same way for hundreds of years, literally, we could narrow it in India trading ship and we're talking. Yeah, yeah. So it's really hard for me to look at and go, it didn't work in the first ten years, therefore throw it out the window. It's clearly going to fail. These are incrementally hard problems to solve, so you bite off pieces of it, you try it, and things can fail for any variety of reasons. Even if the core use case, even if the core assumption of what you're trying to solve is a problem, you did it. All right. If you've got the wrong people to the table, if you've got them to the table in the wrong order, if the financial model because you tried to market too quickly or you sold too slowly or you failed to get the regulatory approvals, you can kill something a thousand ways. Even though the core hypothesis is and what worked actually is still there and could be tried again and put to work. The one that always think cracks me up and probably many others is Pets.com was a terrible idea until 20 years later when it wasn't.

Pat White: [00:17:04] Yeah, up until. Until it wasn't. So you're so so you're still bullish. You're still bullish on supply chain.

Jared Klee: [00:17:09] I'm enormously bullish. But but over over an extraordinarily long time horizon, the one I'd put right in the same boat. We talk about financial your cross border cross cross remittances. Yeah when we talk about remittances and so on. That's been since day one of this industry and we still have not made meaningful inroads. Yeah, but the opportunity is there and we're still running a thousand experiments. Give give me a couple of decades. I'll take the upside on that bet every single time. I was just going to say that to your point, I think Walmart Canada was using blockchain technology.

Pat White: [00:17:44] To do they have a product.

Jared Klee: [00:17:46] On at one point? I don't know. Yeah, I think it was sometime last year. Yeah. But I don't know how well that's going, but I think they were one of the big ones to start it off.

Pat White: [00:17:54] Kicked off. Do you have an opinion Jared About About what? What? Like if there is one thing that will be the first, like real supply chain because like, I have not had a chance to really talk to someone who's an expert on this stuff, like, what's the first one that's really going to hit? Do you have any you have an opinion about that? The not not ten years out, the one like the 1 or 2 years out?

Jared Klee: [00:18:13] First off, I think we I think we're all recognized hard problems and it's not our domain. It's like 20 domains just smashed into one of the problem of physically moving goods. Trade finance continues to me to be the place where you've probably got the most straightforward use case. It's also one where the number of banks that actually are big boys in the trade finance space is pretty small. It's tens, not hundreds, and even tens is overstating it. It's pretty much power law in terms of market share and how much work they're doing. That's a really good example. It's a broken space. We know it from a fraud standpoint. We know it from an anti-money laundering standpoint. We know it from a process standpoint. There's a huge upside there. And actually, if you look under the covers, we're already starting to see a number of the banks do meaningfully meaningful work, starting to move elements, not the entirety of trade finance, but elements of the paperwork, elements of the bank guarantees, rather the letters of credit all over. Love it. So that that would be a one where I expect that's a great call out.

Pat White: [00:19:17] Yeah, no, that's a great call because it's the it's the overlap of like it's, it's finance. I mean, you know, crypto is fundamentally it's a financial tool. So when finance sort of intersects with this stuff, which trade finance, I mean, obviously is a massive use case. That's, that's my also that's my theory too is that we'll see the biggest pick up there.

Jared Klee: [00:19:35] If we take if we take an analogous example. So so if we Israel has a private permission network, stood up for bank guarantees and the entire Israeli banking system now currently on that good example of the bank guarantees were all being done on paper. Ultimately it's just a wet signature. It says, Sure, I'll back this if something bad happens, which another bank needs to receive. So good example strong use case for private permission. Take it off paper, put it on digital. You're good. You just need a way of creating the guarantees. It seems crazy to me that you couldn't go and build a similar system for the letter of credit that you have for the bank guarantees. It just happens because it's international, not within one country. You've got many more parties that need to get on board. But again, that's not actually moving the funds. It's not actually moving the goods, it's not disrupting a process. All you're doing is taking a piece of paper and saying, well, if I gave you a digital copy instead. Yeah, to make it.

Pat White: [00:20:31] Easier for everyone to kind of engage.

Jared Klee: [00:20:32] 1 to 1 to bite.

Pat White: [00:20:34] Yeah, I love it. Okay, great. We've solved blockchain supply, so that's really good. Glad we got that out of the way. Well, no, so we we obviously know on the world hunger. Hey those two are related so you know you fix one, maybe we fix the other one. I mean, the next thing obviously we want to spend the majority of this time talking about insurance because that is your your, you know, what you are now doing. And it's a massively complex problem. I'll give a little bit of insight just from our perspective. We are, you know, full disclosure, like big waves of vouch customer. We originally went to a few different insurance companies because we you know, we have we have a SOC. We have we have to have for our enterprise clients, we have to have D.A. and a bunch of other professional insurance and things like that. So we have we have insurance that we have to carry as part of being a service provider in the financial services space. We went to 4 or 5 different companies that none of them would touch us, even though we're not really a web3 company. I mean, like we are, you know, we love Web3. We've got some cool, smart, contract based products and things like that. But at the end of the day, like we more than anything, we are an enterprise SaaS company that just sort of does a little bit of web3 stuff, which which still is shocking that we couldn't get coverage from a lot of places. I assume that that's why you guys and we found vouch and we were able to actually get insurance. Tell me about why you guys wanted to look at this industry and maybe talk a little about some of the complexities that come with insuring companies like ours.

Jared Klee: [00:21:56] So I had a startup before this. I exited said Startup and joined VOUCH specifically to come launch this practice. So I am to say to say it's my baby. I mean, I am. It is a problem. Pat. I used to be in your seat struggling to go get properly covered for what I was doing and couldn't find anyone. The handful of folks who I found who were considerate, didn't understand my business and was like, That needs to be solved. So we got excited because ultimately vouch for thousand plus clients backed by Redpoint, backed by index backed by Y Combinator. We are the preferred insurance provider for Y Combinator, a number of others. Why we do insurance for startups. That is our entire business. And it started as early stage companies. But today when I say startups, we ensure folks from napkin sketch through to pre IPO. So we get the life cycle. But more critically we get the fact that founders are going to continue to push the boundaries of what can be done. Well, that means they're going to take on novel risks that insurance hasn't considered underwriting before, But the role of insurance is after A founders put a good risk management program in place, they're still going to have residual risk left over. They're going to have things that they can't cover themselves against. And that is exactly what insurance should be doing, is stepping up and providing balance sheet that says, hey, you're not getting paid to take on that risk. You're still saddled with it after doing everything right, transfer it over to us. We'll pick it up for a small premium. Yeah. So when we look at.

Pat White: [00:23:41] No go. Go ahead. Go ahead.

Jared Klee: [00:23:43] When we look at what the crypto industry has done, when we've looked at the web3 industry has done built some amazing companies, built wave. Case in point, providing an enormously powerful service, doing everything right from a SOC standpoint. The services you're providing, the clients that you have are testament to. And nonetheless, saddled with what I would call traditional residual risk for the industry, there's a regulatory risk hanging over all of us of what is the SEC going to do next? What is going to be the legislation on Stablecoins? We don't know. So we know that there's a residual regulatory risk that we have to defend. There's risk novel to smart contracts. It's not covered under normal cyber stuff because cyber security, cyber insurance didn't consider the idea that we'd have these distributed systems where you can run programs. It was never considered. So it's a novel risk that's outside those bounds. The digital assets themselves mean we can go down the list, but it's a really good example of as founders continue to innovate, as they continue to build new domains and new companies in those domains, insurance has to keep pace with protecting against the residual risks that those founders take on and vouch has been at the forefront of that underwriting start ups. We're going to continue to be the forefront of that. As far as I'm considered, Web3 is the one right now, but give us another couple of years. If SpaceX takes off or what have you, takes off, I'm sure we're going to stand up another vertical to go tackle whatever comes next.

Pat White: [00:25:22] Yeah, well, I mean, I don't know how you I don't know how you insure against you. Just ask.

Jared Klee: [00:25:28] Chatgpt.

Pat White: [00:25:29] Yeah, I was going to say like, man, can I imagine some, like, tough, tough situations here?

Jared Klee: [00:25:35] That's like a really interesting like that you brought up I mean, you know, chat, chat and all that stuff. There's so much fear behind it, right? Like now everyone's all scared and and worried about jobs or just I mean, he got other things that that could be a people that are worried about it. But you know one of our good friends had Sage had class always says, you know, if you feel that AI is going to take your job, your job probably sucks. So I don't know. I wanted to get your I wanted to get your thought on that. Of what? Like some of the fears around all that stuff because you have so much in-depth experience in it. What do you think? Like is this overblown or is this actually on par of what people could potentially fear about? I think it's reasonable to be fearful. I think it's always overblown. The the same knife I use to cut up a steak can be used as a weapon and it doesn't tell you anything about whether or not a knife is good or bad.

Pat White: [00:26:28] Yeah, it is. It is a it is an interesting point on it. So what does tend to be the hardest part of insuring web3 companies? I mean, you guys I you know, there's it's hard exactly to think through it, but at the end of the day, like I think about some of the defi companies, it's you probably can't insure them or can you I mean you talk me through but like there was just that Euler hack and you know, $200 million evaporated. That's a real tough insurance position to be in if you're on the hook. So I don't know if you guys are insuring those types of things or if you are purely insuring, you know, like what we need, like D.A. and executive insurance and professional and stuff like that. Like talk me through about some of the complexities of, of Web3 in particular.

Jared Klee: [00:27:09] So I think let's get out ahead of the conclusion on this one. We did not insure against Euler. We did not we're not on the hook for that, like as far as I know, coming back around. So we insure companies specifically to the business that we're in. So we are underwriting bit wave, we're not underwriting the smart contract, that bit wave deploys.

Pat White: [00:27:30] Did you guys have to change your. Yeah, as you say, did you have to change your underwriting documents to be very clear about that.

Jared Klee: [00:27:38] No, no, no, no, no, no. It's an important nuance because we will cover so, so we have our web3 enhanced policies are actually a separate set of policies from the standard vouch ones. And what we did is we took our existing vouch directors and officers, cyber errors and omissions and crime, and we broadened them to go cover against those web3 specific risks. But at the end of the day, we're still insuring the company. So that's a meaningful statement. Like explain what I mean here. So if you come to us and you say, Hey, we're doing a wallet's great, we can insure the company. But at some point if you're doing it right, you're going to say, Hey, I've got hundreds of millions, I've got billions of dollars of value stored in those wallets. That's not a company statement. That is a species statement the same way as if you had a safe in your house with bajillions of dollars of stuff in it. You can insure the home, but the policy that goes in insures whatever's sitting in that safe is going to be specialized to cover against that that enormous risk out. Sized and fundamentally different risk profile than the house itself. Yeah.

Pat White: [00:28:48] Yeah. So you guys are really clear that you cover the company and those services, but not necessarily. Yeah, Smart contracts, the custodial custody assets.

Jared Klee: [00:28:58] So, so let's take it a step further. We will. So within our cyber policy, we do cover against smart contract vulnerabilities. We also have sublimits amount set aside that we can discretionary cover for loss of digital assets, both the companies and clients. But again, we're focused on ensuring the company so within VOUCH we have vouch Specialty, which is a brokerage arm. So we'll work with clients and say, Look, we'll cover the company. And as you're scaling up, we will write coverage for loss of digital assets up to low single million dollar limit. But at some point you're going to call me up and say, I've got $500 million worth of value. We got to go bigger. I'm going to work out what I'm going to go work through Vouch specialty. And in addition to your overall cyber program, in addition to your directors and officers program, we're going to go get a special policy to go cover the fact that you get 500 million bucks worth of stuff tied up over there and that needs to be protected in addition to the overall company. And we could talk about that. It'd be the same conversation. Media liability for Nfts like you're helping T-swift go launch her music as an NFT and you screw up her likeness. Like that's going to hurt a lot. That's different than the rest of the company. That is going to be, again, a specialized policy to go cover that type of exposure.

Pat White: [00:30:24] Yeah, super, super interesting and a good way to sort of for all of us to kind of keep it in mind is that there are there are like there are like carved out sections of these different insurance policies and things like that. So so let me ask you this question, though. Like as you guys think about vouch, how how are you thinking about vouch becoming and maybe you're not maybe you're just maybe you guys want to write the insurance, not worry about it. But like right now, it's, you know, you're sort of like us in that way, that bit wave in the way that's like an enterprise software. You guys are an insurance company. You dabble in Web3 or you advise Web3 or you help with reporting with Web3 like us, but you're not necessarily a hardcore web3 company. Do you guys spend time thinking about what you know? Do you want to go and actually do a smart contract based insurance? Looking at liquidity pools? Like have you thought about the future of insurance on Web3? I mean, I'm sure you have. I'm sure you have. Yeah. Tell me tell me what do you what do you think about it? Yeah.

Jared Klee: [00:31:18] So there are there are a couple aspects of this and I think critical is let's let's focus on vouch for all walk run of what we're doing here and then we can talk bigger picture. When I think about where vouchers come into the table, we are one of just a handful and within the US regulated and writing across all lines. To the best of my knowledge, we're the only insurance company actually insuring web3 companies and that is an enormous step forward for us. It's an enormous step forward for the industry. So that even getting that out the door, when you think about from a regulatory approval standpoint, you think about working with our our reinsurers, you think about earning the trust of a of an industry that was that is was and will continue to be an enormous amount of work where where I see us going we'll call it short to medium term is on chain credentials. I love this idea of verifiable credentials. So I know bit wave today meets contractual obligations for its customers to be insured among other obligations right now that's that more more often than not in an enterprise scenario is going to be at a point of contract, maybe a once a year audit. Let's go and check that you're actually complying with the SLAs, the service level agreements we put in place that ideally should be part of an API call, which is have the on chain credentials prove to me that you have whatever the coverages are. I would extend this to the cyber controls and the like as well. Prove to me that you remain in compliance with this. That's third party on chain attestation that the state of the world hasn't changed. That should be queryable every single time you're interacting with that enterprise. Yeah, that we have a we have a large role to play participating in that. We're probably not going to go create the infrastructure for verifiable credentials generally, but it's a place where would love us to participate. You want to be one of the testers?

Pat White: [00:33:21] Yeah, I mean, because we think about it a lot too, which is in terms of financial reporting. So do you have we have SOC reports like you want to have an attest on the chain about your SOC reports, you want to have an ADD test about your coverage for insurance purposes. You want to have an ADD test for your financial audits. All that kind of stuff will eventually end up on chain. Yeah, great, great use case here. And you guys are and you guys are thinking about that. I love it. So that'll be. That'll be. Awesome when we kind of get there. And there's it's a good point that we don't there isn't really a good broker or centralized broker. No one's doing the verifiable credentials for businesses yet. There's a lot of people poking around. People are looking at it, a lot of people trying to do this for individuals. But it's like all things in the enterprise side, it's a little bit lagging behind in crypto. That's, you know, that's where we play and we love it. But it's, you know, you tend to see defi happens from individuals first well before you get, you know, factoring in trade and trade financing on the business side. So great. Well what about so and then what's what's the next step after that? So that's sort of the that's sort of the attestation part, which I think is a great use case for all of this. What's the next step after that for voucher?

Jared Klee: [00:34:26] I'm not sure yet that that will be an enormous leap forward for us and for the industry. And we're we're we're talking months and years at that point of of work to grow what we've done, inevitably what I would call the incremental building out additional lines, continuing to enhance what we do, the types of coverages, the media liability being a really good example. It's one where we now have multiple clients who are in and around the NFT based music space in various capacities, whether they've got the AI based music, the purely virtual artist behind it, where they've got live artists, where they're doing live artists. Metaverse combined with physical music, where it's an enormous space and rapidly growing, there is a new risk surface that's emerging alongside that that traditional policies don't cover. Today. The media liability immediately comes to mind because ultimately an artist's their likeness and how it's portrayed is clearly one of the most valuable things that you are handling. But when we broaden that to consider all the way, things can go wrong between the point in time where music is created through to people participating in consuming, it's at home, on their computer, collectively, online or collectively in person. It's a wild risk surface that we simply haven't taken gone deep enough to understand. What are those again? Residual risks where insurance should be coming to the table? Yes, that's.

Pat White: [00:35:54] Sort of pushing the boundary on new well, and even like I'd even bring up the Euler contract is a really good example. The Euler hack is a good example, which is like someone's going to sue them. I mean, like at the end of the day, if there's a business like if there's a business there, you're going to get sued for some sort of I mean, we don't have malpractice in smart contract world, but like someone's going to get sued and then that will that there will be created a A there at some point will be case law around insurance when you like release smart contracts into the wild.

Jared Klee: [00:36:23] So it's not it's not malpractice. But we do have errors and omissions today. Yeah. And Arizona mentions at a very high level is you said you do something, you either did it and screwed it up or you didn't do it. And your customers, your users, your clients suffered financial harm. Yeah. And it's if you're putting code out into the wild. Yes, we already have this from the open source world. Even if you open sourced it, you retain residual liability for whether or not the code worked as intended, especially if you're delivering it directly. We know you do. And when you see large cases ignored specifics. But when you see large cases like what Robinhood with GameStop, oftentimes those types of big blow ups where a whole system comes offline, where you say, hey, you can trade any time you want and then you can't. Oftentimes you'll see those manifest as errors and omissions challenges down the road.

Pat White: [00:37:18] Man, I'll never forget that's the most pandemic thing that we all did was just lose our goddamn minds over GameStop. Oh, I'll never forget it. It was. That was like the most fun five days I think I've had in the last, like ten years. Even like my buddies, like, all like all my buddies who don't even care about any of this stuff. We're suddenly getting into it and buying GameStop and whatever the BlackBerry and shit like, just absolute, absolute. That was so much fun.

Rafael Casas: [00:37:41] One thing I was going to say, we have a lot of a lot of accountants that, you know, listen to this podcast. Obviously. How should they be talking to their clients about this? You know, about someone like Vouch, How do they what's what's some advice you can give to them?

Pat White: [00:37:52] Yeah, accountants, CFOs like people on the finance team thinking about the the risk factor here.

Jared Klee: [00:37:57] So the way I think about it is any founder, web3 space or otherwise needs to go assemble a financial operating system for their company. And that's going to manifest as, Hey, I need to go solve tax problems, I need to solve accounting problems, I need to solve finance problems, I need to solve insurance problems. I need to I need to solve in the crypto space securing the assets. If it's client assets, securing client assets, I need to get my reporting done. And that reporting may be for finance, but it may be different if I have a regulatory infrastructure, if I'm operating in the regulated space now, I have my policy procedure control environment that I need to go build out to go satisfy a certain set of regulatory obligations. If I'm international now, I've got multiple versions of that and. And I've got a coordination problem across all of them. We can layer on further. We can go down the legal route. We could go down the in-house versus outside counsel. Collectively you have an operating system for the company. Insurance has a critical role to play in. We benefit enormously when our clients are on bit wave because first off, we know that it's one less way they're going to screw themselves up because they're going to have their their tax finance accounting in better shape than they would otherwise.

Jared Klee: [00:39:13] I would expect the same if you are a CPA who's advising if you're a CFO who's working with. That de-risking the company is in the best interest of any service provider who's helping and it should be tying into the overall program. So when we work with our clients, we like to think of ourselves in a small way as a risk advisor first and insurance second. Because while we like bringing on new clients, our goal ultimately is to support those clients for many, many, many years to come. And we do better and we know they do better if they continue to exist and thrive for many, many, many years to come. And oftentimes what that means is figure out how to not do dumb things. And not doing dumb things often means bring in a partner, bring in a service provider who can help offload something that's not your core competency but is critical to the operating the company. And insurance, certainly in the crypto world has been absent and it's one that is now available and a little a little biased I would highly recommend becomes part of the operating system for any Web3 startup.

Pat White: [00:40:20] Yeah, absolutely. Absolutely. Um, well, great. So I guess the last question we talked very briefly about kind of like the future for VOUCH. What about I mean, just take off your vouch hat, like step aside. This is not speaking as a company. What do you think is the future of Web3 insurance in general? We mentioned Nimble doing some cool stuff around around protocol level insurance. Do you think we're going to start to see, you know, credit default swaps like those types of instruments that are very, very targeted insurance? Do you think we'll see more general things like, I don't know, life insurance or anything like that on chain? I mean, what what do you think What do you think is the future since you do have this sort of a deep expertise around this?

Jared Klee: [00:40:57] So abstracting a little bit away from individual use cases because give me a long enough time horizon, I'll probably just say yes to all of the above on possible use. I think what I'm still wrapping my head around and it's becoming more evident and will continue to evolve over time. Where is it that true? Defi based true onchain activity has a material advantage over a multi hundred year business that, let's be honest, for all of our complaints about how traditional insurance normally works slow. It's boring, it's expensive, etcetera, it works pretty damn well. That's why it's continue to stick around and be valuable. So the question is what is it that Defi brings to the table where it has a material advantage over the traditional model? First off, capital aggregation is enormously powerful. We've seen so many examples on that. But the idea that you can use Defi to go create a risk pool. On the customer side, capital pool on the on the investor side to go allocate capital and to and to protect against capital. That's fascinating. And I think that has a material advantage over traditional insurers.

Pat White: [00:42:12] And that's I was going to say, that's certainly influences insurance long term. The idea of changing the nature of of capital requirements is a really, really interesting way to think about this, because I love the I love this idea of, you know, a CDSs is a really good example of this because it is it's two people making a bet, right? So it's someone who feels very strongly about the directionality of a stock or whatever it is. It's making a bet with somebody else and insurance. That is essentially what insurance is, although it's slightly I mean, that's a that's a bit of a simplification, but it is a bet about the likelihood of something happening at a certain point. And so this idea of creating pools where people are buying into that bet on one side or the other, creating a public market for that, that type of of gamble is incredibly powerful. I mean, it's hard to imagine that not happening in the near term. So that's that's really more of this move. Like in all this stuff the Defi facilitates, it's a move from a middleman doing the work and a large institution backing it to more peer to peer kind of market driven positions, market driven bets, market driven, you know, analysis of the individuals, basically.

Jared Klee: [00:43:19] Absolutely. The second place I would look in addition to that, Pat, I would look at on chain governance again. So the idea that you could have claims adjudication as code, their use cases, whatever Thomas is doing on the digital asset side is a good example here. Whenever are what you would place Lloyd's for your big cold wallet insurance your your multi hundred million dollar your multi billion dollar programs that sit behind Coinbase and Anchorage and so on. When you go look at those programs, those need to generally pay out real fast because there is no scenario where you trigger that program and it's not a life or death event for the insured. So those are programs where a traditional paper based let's get on the phone, let's review it. That may not be fast enough from a payout perspective to save the company. If you look at FDIC, we can talk about what happened in the banking sector, but in a handful of days, really in a handful of hours, we went from failed banking institution to people being notified that their deposits would be. Properly protected, as is federal per the federal guidelines and then money back in their pockets. That is the speed at which it had to move to guarantee the system. Yeah. There is an enormous advantage for defi for specific use cases of that type of rapid payout where it's how do we de-risk the overall system and how do we ensure the company survives what would otherwise be a catastrophic event?

Pat White: [00:45:00] Yeah, it is. It was oh gosh, I'm so torn over it because obviously, like, you know, like like vouch itself is part of the the fundamental ecosystem. I mean, it sort of creates this really interesting point where like, because Wish.com obviously referred all their customers to SVB, and that creates a very interesting single point of failure that I think we're also kind of wrapping our heads around. But it was very interesting. I mean, obviously, you know, Yellen comes out and says, oh, we're not going to bail them out and then essentially does do a bailout, but not in so many words. I mean, obviously, that's a little bit that's a little bit flip. But it was really interesting that that, you know, this idea that, you know, you can't let 40,000 companies that employ 10 million plus people not have access to funds. Right. You just you can't do that as a as a country. And so it was inevitable that they were going to get bailed out In some ways. There was going to be some sort of movement there because, again, it would have just been a disaster if you suddenly had 100 if you suddenly had 10 million people plus, I don't even know how many what the total number of people is unable to to get paid the next week.

Pat White: [00:46:05] So it makes a really good point that like you, if you think about that in the more general abstract of like how do we how do you create more systems that support that kind of speed to resolution? Defi Does it I mean, it is, you know, instant draw, instant withdrawals for things like insurance claims. We saw from nimble the the minute that forgot they had one, they had one really big claim. I forget who it was at this point. They had one really big claim and it was like over six hours. They got it, got agitated, voted on, settled and everyone had access to their funds. So yeah, it's an interesting it's a it's a really interesting point on top of all of that. Well any any I know we're we're wrapping up getting towards the top of the hour here what else besides insurance? What else gets you excited about Web3 these days?

Jared Klee: [00:46:47] I am so wildly bullish on the decentralized identity space, the on chain credentials. We have a we have one of our clients heirloom that's just beginning to do this for a number of the big universities. And the idea that the next time somebody applies for a job, rather than having to call up their university, their college and say, hey, send me the transcript, prove I went here, prove my GPA. The idea that I could do that with an on chain credentials and then you go the next level down like, okay, great. Thank you. Good to know you went there. Prove to me that you took the SATs. Great. Prove to me what your GPA is. The idea that you can have the line item, the individual data element permissioning read only access to prove that something is there. If you combine that with zero knowledge proofs, now you've got something unbelievably powerful where you can demonstrate the fact of who you are. You're back to owning your identity without actually needing to disclose the underlying data. Leave it out there in the world with all the vulnerabilities that come with it. That, to me mean when we talk about this from a banking standpoint, we talk about this from a government standpoint. We talk about it from a health care record standpoint that is giving decades that among the many, many exciting things happening in the world of crypto is one where go that that is probably world changing for all of us.

Pat White: [00:48:14] Yeah yeah it is one I'm really excited about. It's funny we haven't, you know, there's been a few people that have taken runs at it, you know, a few different companies have taken runs at, at Onchain Diplomas and things like that. We haven't seen it pick up yet. I mean, even like MIT was or Harvard or MIT, one of those guys issued their diplomas on chain. We haven't seen it pick up yet. I wonder I wonder what it will take. It's it's another one of those like kind of like long term things of like there's a big ecosystem that has to build up around it in terms of me as, as someone applying to a job, like I have to have a place that I'm going to go and look up their credentials that I trust. It can't just be some random ass website. Like it has to be like something that I actually believe in to double check their their creds and all that kind of stuff. And then so there's there's ecosystem be built up yet around this this this part of it but oh my God for applying for for loans and all this other stuff like there's there are some really amazing stuff that could be coming down the pike here or even like doing your, your taxes. I mean, I know we don't talk about it too much, but the idea of getting some of that your W-2 data onto a permissioned or xqd blockchain somewhere so that you can actually one click is, you know, one click do all your taxes as opposed to whatever the the very difficult process it is today. You know go through that so.

Jared Klee: [00:49:34] Even take the taxes when we think about what what bit wave might eventually build in this space if we change the regulations with Dodd-Frank so that as folks are applying for mortgages in order to get rid of your your what were they called, ninja loans where you had none of the paperwork behind it? Applicants for loans are now required for mortgages are now required to submit 25 or plus or minus different financial data points. But it's not just saying I have an income and here's my bank amount. It's here's the actual PDF from Chase from Bank of America with the statement. It's saying, Here's my actual tax return. First off, that's created this unbelievable paperwork crisis for the entire mortgage industry to go store it, verify it, update it. I mean, God, it's like we're taking a massive step back. Pieces of that have been solved by the Plaid of the world to do the token based authorization so I can go read, ignore the data access problems there for a moment. But when we think about the breadth of information I want to bring to the table the idea that I could have my tax returns on chain so that they're consumable and I could provide them read only access to to my loan provider, that's huge. Yeah. If I can now do that and have that travel with me across my whole financial profile, that is enormously powerful.

Pat White: [00:51:03] Well, we do. I mean, even we spend a lot of time thinking about like today, I would say it's fair to say today that crypto has made accounting more difficult in the short term because we're still everyone's still getting their their feet underneath them. Things like digital identity, things like on chain add tests and on chain commitments of tax reports. All of these things are going to start to slowly move that needle to the point where, in fact, this is this is in fact a really exciting world that we are living in. And and like basically tools like bit wave are doing 95, 98% of the stuff all automatically and you just click a couple of buttons at the other side of it. We really we really start to get away from the old old school world of very heavy handed accounting. That has to happen every day. So it is it's super interesting. Well, awesome. Jared This was a delight, man. This was really, really, really fun. I love I love talking about the supply chain stuff. I know we probably spent way too much time on that, but it's something that I'm personally pretty passionate about. It's been fun learning about the insurance industry here. Really appreciate your time. So thank you so much for coming on that.

Jared Klee: [00:52:08] Rafael Thank you so much for having me on. Thank you for being a wonderful client. Thank you for being a wonderful partner. This has been enormously good fun. And I should.

Pat White: [00:52:18] Mention we'll be seeing you guys. We'll we'll be at the so bit wave is hosting the Enterprise Digital Asset Summit. That is April 25th in Austin. We will vouch we'll vouch will be there. So if you are interested in continuing this conversation at all, please find them. Come and find them. It'll be really fun. And it's you know, the Enterprise Virtual Summit is going to be all about this type of stuff, just this new web3 world. How do we push all of the various, all the various balls that we're all rolling uphill? How do we move them all forward a little bit? So thank you so much, Jared. Really appreciate it, buddy. Cheers.