Episode 327

Argent – The Self-Custody Crypto Bank

Itamar Lesuisse

Decentralized finance (DeFi) is continuing on its remarkable path to the broad adoption of permissionless financial services. While many people celebrated passing $1 billion locked in DeFi products at the start of February 2020, only a week later, an additional $200 million had entered the ecosystem.

DeFi products thus far have proven useful to early adopters with the resilience and knowhow required to navigate the often clunky user experience of Web 3.0. Companies like Argent are building the interface and user experience essential for the masses, with a vision to bring a billion people into the future of finance.

Itamar Lesuisse, Co-founder and CEO of Argent, joins us to discuss his vision of the future of DeFi, and the necessity to build products that enable intuitive, secure, and permissionless access to finance for anyone with a smartphone.

Topics discussed in the episode

  • Itamar’s background and journey to crypto
  • Creating a Web 3.0 product for mass adoption
  • Restoring a wallet with Argent Guardians
  • The DeFi products accessible in Argent today
  • Accommodating DeFi products on protocols other than Ethereum
  • Building a business model for wallet products
  • Who Argent’s users are, and the DeFi products they use
  • Solving mass adoption of crypto with a frictionless on- and off-ramp
  • Itamar’s vision of the future of DeFi and the role Argent will play

(7:55) Getting into Crypto and the development of Argent

(9:54) The inspiration for Argent’s user-experience

(15:15) Decentralized account recovery and Argent Guard

(22:10) Other features enabled, using a smart-contract wallet

(24:21) What’s available in Argent wallet, currently

(26:08) Evaluation criteria for adding dapps to Argent

(27:54) Legal implications of native dapp integration

(30:32) On integrating other networks with Argent

(33:21) Business models and the waitlist

(36:52) The mobile app store ecosystem

(40:43) The potential for integrating threshold signatures

(43:11) Argent Emergency Kit

(45:33) User analytics

(47:47) Trends in DeFi

(51:41) The mass adoption question

(56:02) On the difficulty of using hardware wallets

(1:01:40) Potential products to offer in the future

(1:04:10) Plans for 2020

Sebastien: We’re here today with Itamar Lesuisse, the founder of Argent. Argent is a great smart contract wallet for Ethereum, and has a lot of built in DeFi applications, but also includes some very useful social recovery features that we’ll talk about in this podcast. We met, the first time, I think it was at DAPP CON last year, we had a panel about user experience. One of the things that’s great about Argent, is that it’s got a really great UX. The onboarding is really seamless, and it’s a really polished application. So Itamar thanks for joining us today.

Itamar: Thanks, Sebastien, thanks for having me.

Sebastien: Let’s start with a bit of background. I believe this is not your first entrepreneurial endeavor. Tell us what you were doing before founding Argent?

Itamar: Yeah, so this is my third startup. I’m an engineer, I’ve worked in companies as Product Manager, I worked at Amazon, worked at Visa and Payment. I had a few startups. The last one was actually the largest mobile brain training application in the world, Peak. We had 60 million users and were running a very large subscription business.

Friederike: How did you move into crypto, what piqued your interest, and when did this happen?

Itamar: In 2016, we sold Peak to a very large book publisher. For the first time, I had a bit of free time and available cash. One of my unemployed team was telling me about this great platform. That was Ethereum. And actually Ether is the first crypto I bought. I knew about blockchain, as a technology, my two friends and co-founders here at Argent were talking a lot about blockchain, but I never really got what it was. When I bought my first ETH, I transferred it from an exchange to my hardware wallet, that’s when I really had this moment where I saw I know payments very well. I know how visa payment works. And now suddenly, I can move money in a trustless way with no middleman. So that really was the moment for me.

Friederike: But clearly, something wasn’t quite right because you’ve had the need to start Argent. So what exactly was missing? What exactly were you trying to build?

Itamar: So initially, we were fascinated by Ethereum because it was a platform on top of which we could build software. So we saw that as new, between mainframe, computer, servers, suddenly you had this new paradigm. We also knew that we love doing consumer products, two of the co-founder, John and I, came from the consumer world. After a bit of thinking it was clear it was not ready for that, because we felt the core experience of interacting with Ethereum wasn’t there. In terms of large numbers, we thought, could a billion people write down a seed phrase on a piece of paper? It was clear the answer was no. So we thought let’s solve that. That’s the biggest issue.

Sebastien: And, like I mentioned earlier, Argent has a really great onboarding experience. Where did you get the inspiration for what you wanted Argent to become and in terms of a user experience overall.

Itamar: Argent’s mission is quite simple. We want people to own control and benefit from their assets and identity. We started with some very clear constraints. We wanted an experience that was super easy, that would work for a billion people. We wanted an experience that was noncustodial, so people had to own it had to be in control. And we wanted an experience that was as safe as the safest. We wanted something for people that would replace their bank account, it had to be safe, and you needed that peace of mind. So we then started from that experience. So now the onboarding of Argent is not too different from joining WhatsApp, Telegram or other apps. We started from this constraint, looked at all the friction points to eliminate. The obvious one, seed phrase, we actually saw gas as a friction. So we looked at getting rid of that. Then, in everything when you interact with a DeFi protocol, doing an ERC20 Approve is also a friction point. So all of the steps, we saw them as friction points, we built first the UX we felt we should achieve, then we looked at what technology would allow us to achieve that. That’s how we became a smart contract wallet.

Sebastien: That’s interesting. I think we talked about this during the panel too, which was like, what comes first? Is it the UX that comes first? Or is it the technology that informs the UX because certain things simply aren’t possible yet? How do you balance that?

Itamar: So people see UX as design, my user interface in front of me. It’s not. The prototype we had in December 2017, which had no design which was ugly, which just one of my co-founders worked on, it already had that great UX, it was already a super safe model with a great recovery and all the abstraction you needed. So we started from that user experience. Recovery, for us, we do a parallel, with the mental model of your bank, you lose your wallet, you call someone that you trust, and you tell them look, I lost my wallets, freeze my card, send me a new one. So we looked at how can we reproduce that same mental model in this completely new space?

Friederike: I think it can’t be stressed enough. If you’re not on Argent, absolutely try it out. The onboarding experience is super slick, It’s a really polished product. Using it is more like using a web 2 application like n26, or Revolut banking app, rather than a web three product. So kudos to you guys for that. It’s really cool. What I wonder is how did you decide to make this a mobile wallet? Was that because your expertise was in mobile, or was that a conscious decision?

Itamar: Good question, it’s interesting to revisit how things happened. I don’t think we thought about it too much. First, we saw these little bespoke USB keys used to store crypto, these hardware wallets. Every piece of device that we own is being replaced, there’s no more camera, you don’t record things with a mic anymore, you use your phone, everything has been replaced with our phones. Why would we now have some bespoke hardware that is not our phone? It makes sense. It’s in my pocket. It’s actually quite a secure device compared to a laptop.

The second thing is if you just look at the entire world, and I think the mission of crypto that should also be anyone with a phone in their pocket can access a global, transparent, open system. A lot of many more billion people have a phone than have a desktop. So the phone is the most ubiquitous platform. And smartphones are taking a bigger and bigger chair. So the smartphone is the device that has that ubiquitous and global footprint, and takes more and more attention from people. That’s where we spend our time. So it was just a no brainer. And you mentioned n26, Revolut. Think about these platforms, they are actually mobile only for retail users.

Friederike: Mobile first, at least. They all have a website that you can interact with. But yeah, they’re very much mobile first.

Itamar: Revolut doesn’t, actually, for retail users. We have one for the business, but it’s really as extreme that some do not have, Monzo, in the UK doesn’t. I don’t know about N26, it just shut down from the UK, so I couldn’t test

Friederike: Oh, yeah, yeah, I had. So I’m an N26 user and I can show you. So they have a website version, it doesn’t have all the features of the app. But they do have that. Okay.

Sebastien: So let’s talk about the social recovery feature, which is what I think one of the really unique things about Argent. So with social recovery, essentially, the idea is that you as a user can rely on your network of people around you, or your close friends and surroundings to recover your wallet and do things like lock your wallet if you lost your phone, or surpass spending limits, things like this. This is a pretty unique concept. We don’t see this in banking apps or anything like that, because there’s always a third party. Do you think this is something that people generally feel comfortable with? What has been the reception to this idea of social recovery?

Itamar: So first, you’ll notice that Argent never talks about this as social recovery. But I think the term sticks more than delegated recovery, or guardians. We never saw it as it’s all about my friends’ security, my wallet. What we built was a framework that allowed a mental model similar to your bank. What do I do when I lose my wallet, in real life? I call some kind of entity that I trust, and that entity knows me, they can recognize me. I asked them to freeze my card and send me a new one, and it’s quite smooth. That’s really what we have created with delegated recovery.

At the end, a guardian in Argent can be any Ethereum address, it can be an EOA, a wallet, a smart contract, it can be a multi SIG, can be really anything. Then in the app, anyone could build a new Guardian service. So you have users that use Argent guard, which is really a custodian service that will hold keys. These keys do not have your funds. These keys do not have access to your money or to your assets. It’s a service you trust to trigger recovery. Others will use friends, family, and other human beings that have the Argent app. But you can also be your own Guardian, which is actually quite a popular use case. Many people will just use another device. It can be another phone, it can be a hardware wallet, can be Metamask can be anything that has an Ethereum address.

That’s really how we saw it from the start. So friends’ family, we see it as a use case, but I think a lot of people wouldn’t trust their partner or their friends for that. It’s also related to technical literacy. If you have very technical friends or partner you might trust them. We love the model ‘I use human beings as guardians’ but in some other use cases depending on everyone’s context they might prefer to be their own guardian, or to actually trust the third party. It’s quite common, because these third parties, whether its Argent, or others, cannot access your funds. So you have that peace of mind.

Friederike: Walk me through the process, say I lose my phone and I set up three guardians, so Argent Guardian service, my ledger and my friend. Now I lose my phone, what do I do to recover my account?

Itamar: You get on your phone, install the app, you put your user name and then, you mentioned three guardians, you will need a majority. So you will need two guardians to approve the recovery. Out of the three, if its Argent Guard, you will interact with us with two-factor authentication, and then the transaction will be fired. With your hardware wallet you will do it yourself. So you will go on your website and plug your wallet and sign this approval. If it’s your friend, you will literally talk to them, call them whatever channel you want, and tell them, Can you go to the Argent app and approve my recovery?

Friederike: Cool. In the meantime, say I have lost my phone. Can I also lock the account?

Itamar: Yes. If you believe someone could have access to it. The reality is that it’s extremely hard, I won’t say impossible, but if you had biometric encryption pin, it’s very unlikely someone will be able not only to unlock your phone, then to unlock Argent. But if you wanted indeed, you could go to a guardian, you don’t need a majority, you can go to a guardian ask them to put a freeze on your account. So if you have your wallet, you would do it yourself and put five days freeze to your account exactly like you would on Revolut, N26.

Sebastien: So this is an interesting scenario because I think there are many circumstances around which one could lose a device, and perhaps even lose many devices, right? So let’s just take the example of like you’re traveling, and you get your bag stolen and your bag has your laptop and your phone in it. I mean, personally, if that were to happen to me, I think I’d maybe know two people that I actually know their phone numbers off the top of my head. And those are not my guardians on Argent. I mean, of course, that’s a really extreme situation. And I think most people that find themselves in that situation would be pretty handicapped in their ability to communicate. Are there any scenarios that you’ve seen users actually going through the recovery process, where they found themselves in very extreme situations, and where they were able to leverage the Guardian feature to either freeze their accounts or recover their accounts in this time of emergency?

Itamar: Yeah, that happens more than you would think. Of course, we don’t see all of them. So it’s the people who contact us or sometimes tweet about it is people getting the device destroyed, so we saw a lot of that, they would trigger a recovery. 36 hours later they would have access to their wallet. This morning, actually someone I know is traveling the world got his phone stolen with quite a bit of crypto, and it was really seamless for him to get back access. It happens more often than we want.

It’s really about peace of mind. I hope you will never have to use your guardians. But it’s always good to know the day it happens. I think it’s important to create that very frictionless experience. It’s really about the stress level, if we can maintain that, if you have that peace of mind, you know you will get back access to your money. Some people contact support, especially at the early days, we were like, you know we do not have perfect flow everywhere and we tell people look, we can see at smart contract level you have guardians, everything will be fine. Your phone is destroyed. So no one has access to it, let’s go through it together. So we had to improve this experience, to create a peace of mind, and people know they would have access back to their funds.

Friederike: Social recovery is one of the features that is enabled by using a smart contract as a wallet. But there are others, right? So there’s things like batching transactions using meta transactions, and other more complex dApp interactions with it. Can you tell us a bit about that?

Itamar: Yeah, so very early on, when we started working, we didn’t know it would be called meta transaction. I think several teams, in parallel, were working on this idea. For us, the main reason was really the gas abstraction. We had an issue with the idea that you would have to top up some little gas station within your phone so that you can submit transactions, and that’s why we started to work with meta transaction and realized, let’s just get rid of the notion of gas, in the app and we’ll pay for it, we realize it’s small enough, and people shouldn’t have to worry about these little fees. In web2, we abstract the cost of our AWS servers or whatever other products we use, we thought let’s do the same. It started that way.

Then bit by bit, you just get excited by everything you can do. So you mentioned batch transaction, we were using it internally, orchestrating actions within the wallet. The fun use case where someone closing a CDP on Argent would automatically exchange Eth to DAI, in MKR, to Uniswap to pay for their CDP fees, and then close the cdp’s. All that would happen within one atomic transaction. So that was really, really fun. But what you can do also with that is, for example, get rid of the ERC20 Approve. We are starting to implement this where, do one action with Argent, buy or pool together a ticket, put money in Compound. And the two actions which are the ERC 20 approve, and the actual transaction opening of your account, will happen within the same atomic transaction. For us that’s a breakthrough in terms of user experience because you can abstract so many steps.

Friederike: Yeah, I totally agree. And basically, if you go to the wallet, you can actually use DeFi products natively out of the wallet and have it done in one click. Can you talk about the kind of things you can actually do out of the wallet?

Itamar: So, within the Argent wallet today. The first few dapps we got excited about integrating, we thought we should have a decentralized exchange in Argent. At the time, we felt Kyber, it was before all these dex existed, but Kyber early on had a very interesting model because it was so simple for users with the swap experience, and we didn’t want an order book in Argent. So we integrated Kyber and again, it’s exactly the same as exchanging currency in Revolut. You put your token amount, push a button done. That was the first integration we did.

Then came things like compound, we got very excited again because the offering was so simple. You put $100 in something and you will get interest back. I can explain that to anyone. So we thought okay, we can do compound in a way that is so seamless it will take five seconds to join. It will be way easier than opening a savings account in the current financial world. So Compound is integrated natively, the DSR, so similar offering to the maker DSR.

We also added the ability to open CDP. We’ll migrate now to a new modality, which is the maker vault, which is a more advanced use case, but we were just super excited because we could orchestrate and simplify like seven transactions into one, we thought we just have to do it because it’s really cool.

(26:08)

Sebastien: There’s so many other dapps that you could integrate into Argent. I’m sure that you’re already planning to integrate new ones, in versions to come, but how do you decide which dapps to integrate within Argent? Are there any evaluation criteria for making those decisions?

Itamar: Yeah, so we have been discussing that for a long, long, long time. There is, on one end, we want to simplify things for users to create very simple options. But we also realized, this DeFi world is so new. I mean, it’s amazing that we just passed the $1 billion bar in DeFi. It’s so new, no one knows what will happen next week, next month, next year. So the current direction is to be more open, to have much more DeFi protocols, and to really have as much transparency possible, making it clear that this is the protocol you interact with, that there are risks. And do not take too much of a hands on approach there in saying, okay, you are not allowed to… it’s your wallet, it’s your identity, you should be able to interact with any protocol. Of course, we might not prioritize something where we have a feeling that it’s a bit dodgy. And that’s very hard. What is that feeling? It can be related to who’s behind the project? etc. It might just be that we put a big red flag on this project. With this vision of being more open. That’s also why we have implemented Wallet Connect. Yes, we can improve experience by making things native into the app. But in any case, through Wallet Connect, or adoptions like that, you will be able to interact, in the future, with any dApp, it’s really up to you.

Friederike: And then it wouldn’t necessarily be seen as an endorsement, as I would take the stance, it currently is, if it’s integrated into an Argent wallet. And I don’t think our users actually have the crypto expertise to say this is a good protocol. And on this one, I’m not so sure about the smart contract security. Do you see any legal problems coming up with integrating access to other dApps natively into your wallet? Is that something that you guys think about?

Itamar: We think about that, and that’s why we so far, we decided not to make an endorsement of this project in the sense, we could easily say, look, let’s have the DSR natively let’s just call it the Argent savings account. Let’s not let abstract all these things or make it automatic for your funds to go there. We said, look for the short to mid-term. It’s still a word we’re relatively crypto curious users. Let’s go step by step. Let’s make it very clear that you’re interacting with something that isn’t Argent, that is a third party, and partly because we wouldn’t want to have this legal responsibility there.

So legally we are taking the right step, our worries more are our users you know if you interact with a protocol and something goes very wrong, they will contact us. We seem to be one of the few companies with customer support, which sadly, it’s me. We just hired someone, so it’s getting better. My life is improving. But we have, one way or the other, a responsibility visa v our users so we will keep an eye on that and making sure, if we feel something is a very advanced feature that they might not want to use. Even things like CDP, our team is fantastic, but it’s a complex product. We live in that bubble and we think everyone understands everything. You have to realize that many users entering this space hear, for example, about the missing interest rate on DAI. So they buy ETH. They lock it in a CDP so that they can have DAI, and then they put that in Compound. Then they realize wait, I’m paying interest on the CDP. But then, again, trading compound, what’s the point? So we have to explain to them. No, you have to trade your ETH to DAI, you shouldn’t open this up. It’s not straightforward at all. So being very transparent, and explaining things as clearly as possible is definitely within our responsibility.

Sebastien: The fact that you’re using Ethereum smart contracts is interesting because it allows you to leverage a social recovery aspect and also integrate lots of different apps on Ethereum. But the DeFi space is growing, and it’s quite likely that in the future DeFi will also include apps on cosmos and on polka dot and other blockchains and of course, there’s the big guy in the room which is Bitcoin. What’s your approach here? How do you see Argent evolving in the future in this context? And do you think that at some point you’ll need to consider options to add other networks to Argent?

Itamar: So philosophically we think users in the future will not care, and will not know which blockchain you’re interacting with, so far as it should all be abstracted. We are very bullish on Ethereum. That’s where we see a ton of developer activity and this developer ecosystem is what brings this richness and all these new protocols. If there were some super valuable DeFi product available on the blockchain, then we would definitely consider it. We have ideas, we have plans, we have solutions for all these things. I think we are less excited about just listing all the blockchain one by one just to have their core token as speculative assets. It won’t last forever that you can have 100 assets, or thousand assets, that might all increase tenfold in value.

Bitcoin, of course, is different, I mean, it might not forever do this, but it might still be a very interesting store of value. And especially what I’m more excited about is maybe having Bitcoin play a role within DeFi on Ethereum. So I think there’s something quite interesting. We follow very closely tBTC that is launching very soon. And I think we’ll see some interesting stuff around that.

Sebastien: But how would you deal with the technical limitations for instance of being able to implement social recovery of a bitcoin wallet on Ethereum smart contract wallet, how would you deal with it?

Itamar: We wouldn’t implement, one on one, the exact same experience, but there are definitely things you can do. Our vision is around using Ethereum as the main operating system of your wallet. Where we are very interested is could we use the Ethereum identity as a way to recover then your Bitcoin wallet at a later stage. I am still more excited about tBTC. Which, first, is very easy for us, but also because that would allow Bitcoin to play a role within the DeFi ecosystem. And I would like to see that project grow. That’s where I want to see things going.

Friederike: Super interesting. Let’s switch gears a little bit. We’ve talked about other things that you’re currently offering and planning to offer. Let’s talk about your business model. You’re VC funded currently, and you’re paying for a lot of the expenses of your users. So you pay for the deployment of the wallet, for converting tokens, registering DNS address, and so on? So how do you envisage making money in the long run?

Itamar: Good question. I think, first we need a business model, we need to make money at some point, but it’s not because of us subsidizing gas. Subsidizing gas is cheap. The cost that Revolut and Monzo probably have many other elements, in the current financial system, which is so, so clunky, so bloated that you have all these additional costs. So this is not the main issue, it’s still way more expensive to buy laptops for our team than to pay for gas.

There’s a lot more coming into Argent. And so we have a lot of ideas. We will not implement monetization this year. We think there is much more growth to come into the space that we should first focus on that and remove all that friction. So there is much more DeFi protocol that would come, potentially all of them will come with Argent.

There are some straightforward ways that we could monetize in the future. One inspiration we can take from projects you mentioned, N26, Revolut is the idea of maybe having a premium subscription. So you could imagine premium features for above a sudden volume, pro users would pay a small subscription every month to get access to extra stuff. The key for us in the business model is to be super transparent. It’s not to go back into the issues of web two. If there is a business model, it should be transparent to the user what you’re paying for, and you’re paying for value. But I think also DeFi beyond that we could imagine creating new products, unified protocols on top of others. And there’s a lot of potential for making money. We’re looking at things like insurance on so you could imagine new financial projects built on top of the existing building blocks, as long as you can add value to users, there is a business model to be built.

Friederike: I’m totally with you on that. You currently have a waitlist with around 1500 people who are waiting on getting Argent. If it’s not the cost of providing the service to them, why aren’t you letting them have one? So is there another reason for kind of keeping people on the waitlist?

Itamar: So I think today is a very valid question. In the very early days, Argent was not what it was today. It was not as polished it was still clunky. We did a lot of work on infrastructure to have to manage big fluctuation in gas price, making sure every transaction goes through, whatever happens to the network. We are getting actually very close to being able to remove it. But there are still some fundamental changes. If we just remove the waitlist right now, you would have to wait for a transaction to be mined in order to access the wallet because it’s a smart contract. We are finalizing our testing so that as a user, you download the app, 10 seconds later you’re in the wallet and you can send funds, it’s done. To make it really seamless. So there is no more big technical hurdle. We are finalizing that. We are very, very close to removing the waitlist. Yes.

Sebastien: So I want to talk about the general state of the wallet space a little bit, and more broadly, the state of crypto apps in the Mobile App ecosystem. There seems to be some kind of tension between the need and the desire for people to have an open ecosystem. And on the other hand, the app stores and specifically, the Apple App Store, which is a closed ecosystem, with very tight restrictions on what kind of apps can make it into the App Store. What’s your position on that? And Do you think that in the future apps like Argent should be open sourcing the application code, in addition to the smart contract which is already open-sourced? And how would one protect their core business if that were the case?

Itamar: Well, I think there are several points here. It’s running software on the closed platform. First, you can open transparency, as you say by open sourcing, but you are still running on a closed platform and then also the impact of having that walled garden on us and what type of feature we can launch.

Let’s talk first about the open sourcing. it’s been something we’ve been thinking about. So we have open-source, of course, the smart contract from day one, that was a no brainer. Some areas of our apps we have open-source, some libraries that we think other team could benefit from. But indeed, the entire app was not open source. The issue is, on iOS that even if you were to open-source, you couldn’t guarantee that’s what’s running on your phone. Once it goes through the app store, you have no idea if you’re downloading the same thing. On Android, it’s easier, you could download an APK directly. So it’s a different situation.

Our view from day one was that you shouldn’t trust the client. You shouldn’t trust our backend. If the smart contract, open-source, tested, audited, etc. If there’s full transparency on the smart contract, you’re secure, because anything that happens on the client actually would be reflected. So even if some dodgy client would send your funds to another address, with another wallet you might see on the screen an address but in fact, the funds go to another address. The Argent model is built so that even if that were to happen, your funds are protected because your daily limit that is visible at smart contract level, with a whitelist at smart contract level, would kick in and protect your phone.

So of course, we have an internal process to ensure strong security. But in fact, the smart contract is there as the last barrier. We’re actually much more open transparent than hardware wallets, you have no way to check what’s in your wallet, you have no idea. So on one hand, people talk about this walled garden, but the walled garden of that hardware wallet, you can’t really do security verification, it’s very hard to pick into your wallet and see what you have, actually is much more opaque than what the smart contract wallet would be. So this ensures security, transparency.

In terms of what can we do in the app store, there are limitations, we know the stories of I think Coinbase mentioned they might have to remove their dapp browser. We knew what we were getting in. We’ve worked with Apple for now, seven years, I believe. There are rules and you need unfortunately to play by these rules. I think there is hope for the crypto ecosystem. I think it started last year that Apple had crypto rules. So, maybe not yet the best but, at least there are crypto rules out there, they have acknowledged that crypto exists and it’s there to stay. So I think things will improve, and We’ll be able to get more flexibility. But of course, buying game assets using Eth is probably not something you will see next year because in-app purchase is the business of the App Store, and virtual goods have to be paid in a purchase.

Sebastien: I see some trends where it seems like Apple is going into the direction of allowing more crypto apps in the app store. Like for instance Pepo, our sponsor, was recently launched and uses a cryptocurrency as payment. Of course there’s no dadp browser there. What you can do with the cryptocurrency in the app is actually quite limited. But then we’re seeing apps like Metamask and Status is delayed, and it seems like there’s some blockage there to get the app pushed into the App Store. I hope that things will go the way they did in 2014. I think it was when, at some point, Apple decided, we’re gonna let people have bitcoin wallets in here because there’s no threat to our business model. If DeFi gets big enough that people using these apps, or there’s an opportunity cost that they’re losing out on, then maybe that’ll be a little bit harder push to get these apps through.

I want to get your thoughts on other wallets that have similar recovery schemes to that of Argent specifically like threshold signature based wallets. Do you see these as a strict alternative to smart contract wallets, are they strictly on different planets? Are there opportunities for these two technologies to augment each other in a way?

Itamar: Yeah, I think they sit at a different layer. We looked at threshold signatures. This was a lot of interesting work done in the past two years. This is a recovery of the key. While the smart contract wallet almost has some kind of bank account, I don’t like the word but a noncustodial bank account. And it gives you all these features, the ability to block transfer to a daily limit, to abstract gas, etc, etc.

Threshold signature doesn’t play a role on that layer, it plays really a role under pure recovery of your key of your account. When we looked at that, we had a wish list of what it had to achieve and we were just not happy with it. We’re missing some elements. It was noncustodial, but it’s not censorship resistant. So for us, that’s not really noncustodial. For us, noncustodial means I cannot access your funds, I cannot prevent you from accessing your funds.

Most of the model around threshold signature, would allow the providers to prevent you from accessing the fund. We were just not comfortable, we felt, let’s start with a smart contract wallet, we can always decide to add threshold signature on top of that maybe for recovery keys, but still not being able to prevent you from accessing your funds, which is why we launched the Argent emergency kit. If Argent disappears, the backend disappears, we can relay transaction, you can use your phone almost like a hardware wallet, you sign the transaction and then you use Metamask or Mycrypto to send a transaction that was really, really important for us, which was part of our decision to go in that direction.

Sebastien: Can you talk about that emergency kit? I wasn’t aware of that.

Itamar: One worry of early users, which is really fair, was the Argent disappear, our infrastructure. We relay transactions you signed them with your phone, and our backend takes that signature and sends it through the blockchain. That’s how we pay for gas. That’s what the meta transaction is. I don’t think the worry was Argent disappearing, we’re well funded. We will be there for many, many years. It’s more, the government comes in and freezes our servers or something like that, then you cannot make a transfer.

So early days, the answer to that was a bit clunky. If you have a hardware wallet or meta mask as a guardian, you can start the recovery by interacting with a smart contract. So philosophically, and technically, the model was non-custodial. But this is really clunky. I mean, to try with a smart contract. I wouldn’t know today in five minutes how to do it, I will need some help with some good documentation, it will take some time.

So what we did is the emergency kit, it’s live on iOS, and soon on Android, you open the app you say I want to send all my funds to that address. And instead of tapping the button, you push for 10 seconds, and suddenly you will have a window with the signed transaction. You copy and paste that, put it in any other wallet in the data field and you’re relaying your own transaction, a bit like you would do with a hardware wallet, your sign with the other wallet, but you send it with your laptop, you could do the same.

And for us, it was, again to the same philosophy of being fully noncustodial. And also putting ourselves in a situation where we cannot harm you. And that’s the same with your question on the closed ecosystem of Apple. Because the smart contracts are public, everything on chain, we cannot harm you. And again here, even if someone forces us to say no, you cannot let that person access their funds, we wouldn’t be able to do it.

Friederike: That’s actually super neat. I had no idea that existed so it’s like having like an inbuilt parity signer, but basically all the derivation parts, and so clear. I think that’s a super cool thing to have. Let me move on a bit to the DeFi space. Do you do analytics on your users? Do you know what they do within your wallet? And has this changed over the course of the last year or so? Because I mean, so many things have changed in DeFi.

Itamar: So our main analytic is actually on chain activity. That’s actually the most exciting and often we learn more from tweets, from other people. Like recently there have been some tweets on wallet activation. But we also have anonymous activity on, are people stuck in onboarding are people tapping compound and all that. Things like are they actually putting money on DAI, compound, on DSR, all of that is actually on chain activity. So it’s so transparent that it’s easy to track. Your question was is DeFi a big part of the activity or?

Friederike: Basically, has it changed a lot? The space is changing so quickly, right?

Itamar: I don’t think we are illustrative enough of the market. What happened to us, is we had a wallet where you could only, like any wallet that we saw was useless. You could only store send and receive, you couldn’t do anything with Argent. So obviously people would put some ETH in there and that’s it, because people don’t yet choose crypto for payment, the minute we launched compound, everything changed.

People would put $1 put it in Compound, pull it out of Compound, out of the wallet, they would test the full flow. Oh, it worked! It was easy, now I can put real money, and then you have people putting hundreds of thousands of dollar. So it really suddenly became that mix, this shift between is it cold or a hot wallet? Is it like my wallet for $50 or my ledger for 100 k? I think that it is blurred and people would certainly put a large amount of money, in a very large amount of money, because it was so simple to have it in Compound and earn interest. And at the same time, it’s in your pocket, at any time you can have the peace of mind, you know the money’s there.

Sebastien: What kind of bigger trends are you seeing in DeFi and are you seeing your users? Are you seeing the reflection of those trends in the way people using the app?

Itamar: Now there are many more protocols, and we see more people getting very curious about this new thing, it’s still an experimentation phase. Once we launch all these other protocols within Argent it will be quite interesting to see how user behave, right now it’s very limited. Savings is really the main use case.

In terms of trends, lending was a big trend. And to know you have more and more lending protocols, that thing is there to stay, the whole area of synthetics. I was listening, actually, to your interview of the Synthetix team, which was very interesting. I think it’s, again, it’s an experiment, and it will be very interesting to see how our users in Argent, now we have a bigger mix of less advanced users, people are just a bit curious. It will be interesting to see how they are, faced with more complex products. I’m a big fan of simple products, that’s a powerful concept that anyone can understand. For me any products that can really appeal to a wider part of the population, I find it quite interesting. But the savings account is probably the easiest to sell.

Sebastien: I think this is one of the things we had talked about during our panel was at the time, and I still do kind of, I was arguing that there aren’t very many non-crypto users in the crypto space. It’s mostly people who are either building on the technology or working on technology. And so it’s kind of like this bubble. What’s your user base like? I suppose it’s mostly crypto people, but are you seeing non crypto people just utilizing the app in order to benefit from these great interest rates they can gain by leveraging crypto and DeFi?

Itamar: I think people have, for a long time, say usability of crypto or scalability of crypto is not good enough. That’s why there’s no mass adoption. I think the hard truth is that’s not the reason. My mom can use Argent. It’s not more complex than N26. I should say my dad, I think my mom is even more technical. But my parents can use it and but they have no reason to use it. Savings interest rates are interesting, but I think the on ramp is still too clunky, not just in terms of user experience, but fees. When you put money from your bank account to N26 or when you put money to Robinhood you are not suddenly losing two 3% in fees. Moving money should be free.

If you make the math, the onramp to DAI, offramp from DAI, then your interest rate starts to be much, much less interesting. The math doesn’t add up. That’s probably the last bit that we need to solve. We need a frictionless on ramp to stable coin that is free to users, it cannot cost. That was for us, almost an experiment at the start, but that’s why we launched in the US, with onramp through bank transfer with zero fees. That’s how the, for us, we subsidize the on ramp. But we felt that’s really the only way that we can get more people to try it. We haven’t yet implemented the off-ramp. Once you have both ways, with no fees, then I think you can start talking to less crypto savvy people.

Right now our audience is at ease, probably, in an exchange, a lot of them, but they’ve never gone beyond. We have Metamask users. We have all these types of users. We also have people for whom going to Metamask is one step further. They see that more as a developer tool, they want the simplicity of the centralized exchange. But for more advanced use cases, like for example, I mean, DeFi savings, etc.

Sebastien: We still haven’t cracked this mass adoption question. For me, I feel like the apps that are most interesting, and that I would like to see adopted, are the self sovereignty apps. So things like Status, or SIA, where essentially you leverage blockchain to improve your privacy, and these are things that people can actually use. Whereas DeFi, some financial use case, some would argue that the underlying value isn’t really there. But I guess we’ll see how that develops.

Friederike: I also have a question as to this. So do you see the frictionless on an off ramp as the thing that will solve the mass adoption problem, because where crypto comes from ideologically is more than self sovereign idea that Sebastiaan just talked about, right? So basically, it wasn’t about the couple of percentage points you can get more than on US dollar holdings or something. I would also argue economically, that as soon as there is a large influx of previously non crypto money, this discrepancy in the money market percentage rates is going to go away by and large. Do you think it’s going to be like a quick boon where basically a couple of months million people more flow in and basically everything DeFi kind of goes away or do you think it’s going to be a real paradigm shift?

Itamar: I agree with a lot of what you just said actually. First, crypto mass adoption is not a binary thing. There won’t be like a pre-mass adoption, and post-mass adoption, they are like an energy wall. Each time you pass one of these wall of friction you will get to the next one, and will gradually grow. So on-ramp off-ramp very slick will get more people in DeFi they’ll be curious, they will put dollar they don’t need to speculate anymore. And suddenly they can get a high interest rate.

Indeed, there is not enough a trader in the world because for compound to work you, you need both sides. You need people who want to do margin trading, leverage, and therefore they will borrow. You don’t have enough in the world to create this great this interest rate. One caveat on that, is if you start growing the type of assets, I mean margin trading exists in the traditional stock market. The difference is I don’t get that money, the broker gets, or whatever app you use for that.

Here, we need to see the value in having removed all the middleman. Through Compound I interact directly with this trader. But indeed the interest rate would crash, if everyone needs DIA suddenly, might be changed on the DSR rates, etc. You’re right, it will lower, but certainly you will get a new wave of people fundamentally getting a financial system that is open-source permissionless is mind blowing. So for me it’s there to stay.

That’s one. There is a lot of exciting stuff happening now. This is amazingly exciting stuff. The fact that the team of three developers can suddenly build on your financial product, and it might not be compound and these are getting to a billion people. They will get to some people and then other projects will get more and more. So I think there’s fundamentally something fascinating there.

In our mission, we talked about assets and identity. So I couldn’t agree more that now this notion of finding a use case where you have self sovereign identities what we can do. Interacting with dapps through Wallet Connect is an element of that, at the end, you have that thing in your pocket that allows you to own your money, own your identity, and decide who can access what data.

This will take time because again, we’ll need to find a use case that will need to find specific apps that user wants to use, will not get straight away a big web2, like Reddit, allowing logon with web3 app. I think it will first be dapps bit by bit that might draw a user base and hopefully we can then move on to other. It might be that we start with gaming, a good game attracting a hundred million users is possible. And then from there, you have 100 million people with sets of brand identity and they want to use it on Twitch and Sony’s twitch we feel pressure to use that. Bit by bit it could expand, so we need to start somewhere.

Sebastien: Yeah. And we haven’t even mentioned the fact that you can also have collectibles within Argent. This is where there’s perhaps some interactions with the gaming space. I want to ask you another thing, you mentioned earlier about people using hardware wallet and testing Argent with small amounts of money and progressively putting larger amounts of money in it. I love Argent as a product, I use Argent, I use it other mobile wallets as well. But there’s something about it that I feel very reluctant even though I know that it’s secure. And I know that there’s a social recovery. I feel reluctant to put all my crypto in there. I’m still somewhat attached to my hardware wallet. Maybe it’s because I’ve been in the space for a long time. And that’s just the way we did it back then. But are you seeing people’s mental model shift and trusting their mobile wallet to whole like, a significant amount of their crypto holdings are people a little bit reluctant to moving their funds there?

Itamar: So first, we don’t always know where they come from. In your case you have already made the investment, not in terms of money, but creating that setup with a hardware wallet. You have set up your opsec in a way that you know, you probably seeded in a very secure way, so you made that investment. I have no problem with you using a hardware wallet, it’s just not something that a billion people can do in a secure way.

You have to realize that in most wallet, I mean, the biggest storage of seed phrase is camera roll, that’s where people store seed phrase. If it’s a phone wallet, they take a screenshot. Hardware wallet, in some way because so clunky, to save these 24 words, they cannot take a screenshot and that’s good news, but then the seed phrase is in their desk. A hardware wallet with your seed phrase is just visible on your desk, or on a post, it is not secure. Not because of the hardware, because that’s where the phrase is.

So first thing, people end up very insecure. You need to be very careful in suggesting to people to use hardware wallet if they are not trained, or savvy enough to use it, and not everyone should be. We should create software’s and tools and make it very easy.

We see users as I say, with more than $100,000 on Argent, people putting maybe $200,000 depends on the week would be the highest part of the sweet spot. We’re not a tool for millions, in the sense, often when it’s millions you need to access policy, belongs to a fund, they need a base on the amount you would use a tool like Multis. If it’s a million dollar that needs to move you need a CEO, if it’s a smaller amount you need two mid level people, I don’t know, it’s a different setup.

We’ll see people putting more money, I think, with time. You know we will do what we can, of course. We have a team now working on formal verification, with part of the wallet, small parts being formally verified. More and more coverage will come, and then doing additional dates by different teams. And then more and more funds will come into the wallet, more trust will come with that. So it’s just a new model that people are not used to. But inherently, I think for many people, it is a more secure option. If you look at the full big picture of the hardware they use their opsec etc. It becomes a more secure option.

Sebastien: Maybe I need to review my opsec. You mentioned a couple of things there that kind of light bulbs…

Itamar: I can see on the back of the seed phrase there on your…

:laughter:

Sebastien: I don’t have it on a post it, but for a lot of people entering the space, maybe. I think this is a thing that if you were around when you still had to buy an air gapped laptop and put armory on it, there’s this kind of notion that’s the only way to store your keys. But maybe people that have come into this space later that didn’t know that time in crypto are perhaps more comfortable. It could also be a generational thing I don’t know.

Itamar: Just to be clear, I love my hardware wallet. I have a hardware wallet. In the team, we use them sometimes as guardians, they are a good device to store a key. I don’t need to write the seed because I can lose it, because I have other Guardians. It’s a different use case for us. They are a great device for people that know how to use them.

Friederike: The problem with hardware wallet is also that you have to trust that they are still working five years, right? Ideally you will need them but I mean, even if you have the seed phrase somewhere and your Trezor is not recognized by your computer anymore. You still have to find out how you actually go from the seed phrase to the private key. And I think that’s something that you don’t necessarily want to have to do.

Itamar: I think we will hear many horror stories. Hardware wallets will fail, like any electronic, we all know. They do not last 10-15 years, none of the phones or TVs, everything is little bits of plastic that will pop out. We see wallets everyday being reset, and we need to put back the seed. Then people will realize that ink also doesn’t last, and that that piece of paper that they had with ink, is not readable anymore, or that it got wet or they will have no clue where it is.

Friederike: Crypto steel is where it’s at.

Itamar: Exactly. Some people who feel the same way will have a vault at home. Most people don’t have that and we’re putting cash under the pillow before banks were there. And I hope we’re not ending up in a space where people will put seed phrase under the mattress.

Sebastien: Back in my day, we kept our seed phrase under our mattress. ‘I can do this in the future sometime’.

Argent is kind of like, I see it as like a crypto custody or self custody crypto bank. And I wonder if you also see it this way and if you envisage a future where Argent and others apps like Argent, start also developing their own DeFi products and services. Like a bank does, right? Because the business model here in DeFi, just generally, the business models I think are hard. If you guys are able to capture a lot of the business models that revolve around DeFi, whether that’s like issuing your own synthetic assets or offering staking services or something like that, you can build an ecosystem within Argent, where it’s kind of like your one stop shop for all your DeFi needs. Is that this the direction where you’re seeing things or how do you see the future here?

Itamar: All that makes sense. Yes, you could. Now you have the users that are there in your app, you could offer them access to a new protocol that you have built. I think there are several things to think about here. First, if we end up in a world where every wallet is a walled garden with their own protocol, we probably failed. I don’t think we can be smart and creative enough to come up with all the best protocol ideas in the world.

Sebastien: That’s a bit how it is. You can move funds from one wallet to another, but I can’t port my Argent smart contract to another wallet right?

Itamar: Or in the future we’ll be able to interact with more and more. I would say all protocols, they don’t need to be built by Argent. You can use the compound savings, the DSR savings, doesn’t need to be the Argent savings. So if we create something where you can only interact with my protocols on my Argent layer two, is very attractive, I’m sure, as a business, but that thing is probably not what will bring the most value to users.

Yes, there might be a day where we say okay, we need that feature. There is a need, what’s the best way to deliver that need? In a permission-less world is different I can physically integrate compound DSR, we felt that was the best way to fulfill that need. Maybe one day we’ll see a need is not fulfilled well enough by existing protocol, and build it internally. I think open access to a global ecosystem is really what we’re excited about. So could we build protocols? Yes. Would we end up in a world where that’s the only thing you can do in the wallet? Definitely not.

Friederike: Last question. What do you hope to achieve by the end of 2020?

Itamar: Three big things we want to deliver, might be sooner than the end of 2020. We want to deliver, first, on removing that waitlist. So that’s happening soon. More DeFi, we’ve been very clear that Argent should be the place where you can access all of defi. So we are working right now on making this happen. That’s probably one of our top priorities. The third one and that’s a bit more related to your point of identity. We still want to do much more work on solving dapp onboarding. So you will see, towards the second half of the year, more projects around really solving how people interact with dapps, and especially onboarding.

Friederike: Thank you so much for coming on. I’m looking forward to what will happen so fast, you know over the course of the next year.

Itamar: Thanks for having me was very awesome.

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