In 2016, I was working at Hayman Capital in Dallas, Texas for my friend (then boss) Kyle Bass. A confluence of events occurred that year which ultimately led me to the conclusion that bitcoin would emerge as the world’s reserve currency, and it was these series of events which also fortified in my mind, whether or not you believe in fate, that you certainly create your luck.
I was asked to do diligence on a gold-backed payments platform, which made reference to “blockchain technology.” I was aware of bitcoin so I reached out to my life-long friend Will Cole who was one of my bitcoin “guys” at the time (the other being Brooks Dudley). I asked Will to look at the company’s website and see if it had anything to do with bitcoin. As fate (or luck) would have it, the company did not have anything to do with bitcoin but Will had a “gold guy.” That person turned out to be Saifedean Ammous, who later penned the Bitcoin Standard. Prior to this point in life, I was someone who would have told you that gold was a barbaric relic, a shiny rock with little use. Saif helped me understand monetary economics and helped me form an answer to the question ‘what is money?’ He helped me understand why gold was money, which was a necessary building block to then, with Saif’s help, developing my own framework as to why bitcoin was emerging as money.
In parallel, I was pursuing a path of research related to the traditional financial markets, specifically to form a view as to what the implications would be of the Federal Reserve withdrawing (or beginning to withdraw) the “emergency” liquidity it had supplied to the financial system during and in the years following the Great Financial Crisis. As I went down this rabbit hole in 2016, I came to the conclusion that the Fed would not be able to unwind its post-financial crisis QE and that it would have to print (or more accurately ‘digitally create’) more money than it ever had before. I figured out that printing trillions upon trillions of dollars was not just a possibility but a certainty. I also understood that it was a problem and that it would end very badly. A grand experiment that would logically conclude with the breakdown of the money that serves as the foundation of our economic system.
As I developed an understanding of why bitcoin has fundamental value – namely that it represents a form of money that cannot be printed (by anyone) – and as it became clear to me that central banks all over the world would resort to printing money as a means to prop-up hopelessly over-leveraged financial markets, I started to connect that my two paths of research were not just related but converging to one. I started to see that bitcoin was the solution to the problem of central banks endlessly creating money. A form of money that cannot be printed was very logically the answer to the problem of printing money. I also began to understand how bitcoin enforces its fixed supply of 21 million and why bitcoin could not be copied, both of which were critical to identifying bitcoin as the answer. As these views crystallized and as my conclusions became convictions, I decided that the best way I could spend my time professionally would be to work on the solution.
In 2017, I left Hayman to work on bitcoin, but not specifically with a single project in mind. I had concluded that bitcoin would be adopted by billions of people, for the primary value proposition of its fixed 21 million supply, and that if bitcoin was money, then the most important and critical service for any individual or business would be how to custody (or safekeep) bitcoin. My thinking followed the logic that i) bitcoin was an effective store of value because of its fixed supply, ii) bitcoin and its property of finite scarcity would not be an effective store of value if you could not reasonably and reliably secure it into the future and iii) everyone in the world was going to need bitcoin. Soon after leaving Hayman, I joined a dinner in Austin, Texas with a bunch of bitcoiners (maybe before the term was popularized) and notable to me was the fact that many of the attendees with a background in software development had just recently moved to Austin. I was born and raised in Austin and had been interested for years to make the move back. Operating with the mindset of wanting to work on bitcoin infrastructure and reading the first tea leaves that told me Austin would be a bitcoin hub, I decided to make the journey back home official; it was two birds with one stone.
Weeks after moving back, I had the good fortune of meeting the co-founders at Unchained Capital, Joe Kelly and Dhruv Bansal, which was based in Austin and had launched operations as a bitcoin-backed lender in 2017. Through common social circles, we developed an early friendship and had a series of conversations about bitcoin and the vision for Unchained. While we each looked at the world differently, we had each come to the conclusion that bitcoin custody was a critical foundation off of which to build all other services. As entrepreneurs, Joe and Dhruv recognized that if they were going to build a bitcoin-backed lending platform, they could not outsource custody because it was the most important piece of the value chain, both to borrowers and lending capital providers. From my perspective, if bitcoin was money and if everyone in the world was going to adopt bitcoin, then everyone was going to need a secure way to store it into the future.
While I was not looking for a job, and enjoying my time not having a job for the first time in my professional life, I suggested the idea of carving out the custody foundation Unchained had built as a standalone service. What was differentiated to me about Unchained’s approach was the idea of collaborative custody built on top of multisig. In the context of lending, Unchained was in the final stages of delivering a multi-institution custody model, where two independent institutions held a single key alongside a borrower with a third key. No single party was in control, all keys were cold-stored and the wallet coordination software was compatible with different hardware devices (i.e. different methods to sign bitcoin transactions), which eliminated single points of failure in a separate but important way. If this architecture could be commercialized in the context of standalone custody where individuals and businesses could hold bitcoin with the majority of keys, whereby bitcoin’s censorship resistant and permissionless properties could be preserved, I thought that would become the strongest and most resilient custody foundation to build on top of as a financial institution.
Ultimately, Joe and Dhruv decided that this was a direction that they wished to take Unchained and approached me about joining the company to help shape the strategy and execute on the vision. I saw the opportunity as a chance to build a bitcoin company with a differentiated approach to custody in a city that was not only home but also a place destined to attract the best talent in bitcoin. After joining in the Fall of 2018, we launched Unchained’s custody solution in the Spring of 2019. Not surprisingly, the market of bitcoin holders was not quick to take our service. Custody and safekeeping of bitcoin is sacrosanct. While our approach to custody eliminated counterparty risk, adopting a new custody solution offered by a young startup was reasonably approached by our few early adopters with a healthy degree of diligence (and skepticism). Bitcoin is money; and when you are securing bitcoin, there are no higher stakes. If Twitter or any other software application goes down, you can come back a few minutes later and pick back up where you left off. In the security of bitcoin, custody has to work 100% of the time and always. There can be no critical failure that could leave you in the position of losing your bitcoin.
Trying to attract our first set of clients as early adopters was like watching paint dry. It was slow going and with some time on my hands trying to figure out how to strum up business, I decided to start writing about bitcoin. Having been inspired by my friends Marty Bent and Saifedean Ammous, I set out to publish a newsletter weekly, which I dubbed Gradually, Then Suddenly. Saif had written a book and Marty was writing daily; once per week seemed like a good compromise. Not knowing how it would evolve, I saw the value in sharing ideas and believed that I had something to add based on my own perspective and experiences. I was someone who was skeptical for a long time, having struggled with a lot of concepts around money in general but also with the technical aspects of bitcoin. I was also very rational-minded and on my own journey, needed a hyper-logical framework to begin to understand bitcoin as money. I thought by writing that I could help make bitcoin more accessible to people whose minds worked similarly to my own. If I could just write down my own thought process, that might help accelerate others through the same difficult questions.
What ultimately happened was that I was forced to distill my own thoughts and through that process, my own education and understanding of bitcoin hardened. After the first several blog posts, my weekly cadence slipped and I started writing in longer form on the first principles of bitcoin. Functionally, I did something very different than what I initially had set out to do, which was to write a weekly newsletter of sorts. While I did have a business goal in my mind, it was a rewarding process in its own right and a great way to pass the time in the early days trying to take our custody solution to market at Unchained, which was slowly adopted at first. We were doing anything we could to win early business, and I would often write at night and on weekends. Through the second half of 2019 and the first half of 2020, we began to win the support of a critical mass of clients and of many individuals in the bitcoin community, who valued private key ownership.
It really wasn’t until the second half of 2020 when adoption of our custody solution really started to pick up. As a small team, with a decided bitcoin grit and hustle, we had earned the status as a trusted partner to a segment of the market whose trust was hardest to earn. It was a brick-by-brick process and we did so principally by minimizing the trust that needed to be placed in a financial institution by building the foundation on clients holding private keys. But even still, developing trust as an institution was critical because clients were relying on our wallet coordination software, on Unchained as a key holder and on us as a firm to protect their privacy. It was a slow process and it took the entire team. At the time, we were also operating when the entire world was shut down, in an incredibly challenging and taxing environment. Just as we started to really gain traction from a platform perspective, I received a very well-timed email from Ross Stevens, co-founder of Stone Ridge Holdings and NYDIG.
I did not know Ross at the time, but he communicated in a short note that he had read my writing and that it was one of a number of resources that had helped reinforce his own understanding of bitcoin. Ross also shared that Stone Ridge would be making an announcement the next day; historically, Stone Ridge had a no-press policy but he thought it was important for that to change. Ross later elaborated on his thoughts regarding bitcoin in an incredibly well-penned and impactful shareholder letter that followed but in his initial personal note, he offered his help if there was anything he could ever do for either me or Unchained. In the weeks that followed, we developed an early friendship of our own and facilitated a number of conversations between our teams which ultimately led to NYDIG leading Unchained’s seed round and providing financing for our lending business and subsequently, NYDIG and Stone Ridge co-leading our Series A. The capital provided by a combination of Stone Ridge and NYDIG, among a number of other important partners including Ten31 and Trammell Venture Partners, unlocked an incredible amount of value for Unchained. It truly seeded us to begin to mature into a bonafide financial institution, funded by backers who believed in the importance of private key ownership.
Unchained transformed from a group of individuals with a vision for bitcoin custody into an institution. While Unchained has far more work ahead to accomplish our mission, we would not have the opportunity before us if not for the support of our early backers. Today, Unchained has a full suite of services, with custody, lending and trading as the core foundation. We have originated over $500 million in bitcoin-backed loans without incurring a loss on any loan to date, and we have helped facilitate the custody and transfer of billions of dollars worth of bitcoin. We have lent and developed an operating track record through the drawdown of 2018, the crash of 2020 and the recurring bouts of volatility in 2022; through the uncertainty, we have stayed focused and continued to execute, just recently having launched our trading feature which gives clients the ability to skip the exchange and buy bitcoin directly to cold storage controlled by their own keys. We have also built an incredible team, with a culture deeply rooted in bitcoin.
While we have an incredibly strong foundation and have been validated based on the most important guiding principles, with a focus exclusively on bitcoin and in our approach to custody, we have admittedly made mistakes along the way. In hindsight, we did not sufficiently plan for the sustained drawdown in price over the past twelve months. Despite having weathered every storm without incurring a loan loss, we expanded the team quicker than we otherwise would have had we better accounted for the current market environment, which resulted in the need to cut headcount by approximately 15% announced earlier today. This is disappointing to me personally and something for which I among the rest of the executive team take complete ownership over; to our impacted team members, I am as responsible as anyone and will work to support each of you however I can, whether in bitcoin or otherwise.
As reinforcement for our clients, we developed our platform to eliminate counterparty risk both in the context of our loans and custody solution and we did that for very intentional reasons. I myself am a client and would not be if that were not the case. Dating back to at least June of 2020, net bitcoin has been added to our platform in each and every month through all the market volatility and that in my view would not be the case if our clients were exposed to the counterparty risk of Unchained, especially given the recent wave of counterparty failures. Ensuring the security of client bitcoin is our most important of responsibilities and our approach to custody and legal structure is what has always ensured that client funds are never at risk. Even still, our business is impacted by the price of bitcoin because price is a function of adoption. With a sustained, albeit temporary, slowdown in adoption, we have grown slower than we expected and as a financial institution, the prudent stance is to be conservative. While we are lucky to be well-capitalized and just recently completed an equity raise led by Ten31, it was important that we take the conservative measures to reduce costs to ensure that Unchained can weather all future storms that may come, in the collective interest of our investors, clients and employees.
Coinciding with the cost reductions, it also created a logical opportunity for me to take a step back from my day-to-day management responsibilities. The last four plus years have been the most rewarding of my professional career but I have rarely been able to pause and come up for air. Thankfully, I am not leaving Unchained and instead, I am in the process of transitioning to a role on the Board of Directors, pending standard and formal shareholder approval. This is also not something that is sudden but rather something I have been discussing with the Board, our executive team and founders as a possibility over the past year. The idea of joining the Board was a path we mutually crafted more recently, which would allow me to continue to guide Unchained in the areas I am most impactful today. I also would not have felt confident in this path if not for the team that we have built company-wide and specifically the team which I have helped to lead, including but not limited to Phil Geiger, Cam Stromme, Trey Sellers and Michael Tanguma who each are already strong leaders in their own right within the company.
In my new role, I will be afforded time personally to work on a few projects which are incredibly important to me, including finishing the book version of Gradually, Then Suddenly as well as executing on the vision of the Bitcoin Commons in Austin. As an incoming director, I will also continue to guide the company strategy, help in the capital raising needs of the business and interface with key clients and partners. I am beyond grateful to the team for affording me this opportunity to step back (while also leaning in) and for the confidence of Joe Kelly and Dhruv Bansal as founders as well as our investors in entrusting me with this important role.
A few years ago, I sent a letter to a number of our clients and key stakeholders explaining a vision for Unchained as playing the long game and that bitcoin was the longest of games. In that letter, I also took the opportunity to explain the concept of a Texas hedge, which as legend has it originated on the floor of the Chicago trading pits. To my surprise, very few people had ever heard of the Texas hedge so in closing I am sharing it again here because I believe it most aptly describes my own personal philosophy as it relates to bitcoin. See, the Texas hedge is not a hedge at all. Instead, it is the act of doubling down when you know you are right. As it applies to my own journey, practically all of my personal savings is secured in bitcoin, the only financial asset I own is stock in the bitcoin company I have helped to build (and will continue to build) and all of my thoughts and writings about bitcoin are on the internet for all to see and judge. Bitcoin is the most important innovation that any of us could know in our lifetime and in my view, it is not a risk. It is also a project I look forward to continuing to work on, through Unchained and beyond. I may be stepping back from my day-to-day management responsibilities but I am Texas hedged. And proud to be so. Sharing below the origin story of the Texas hedge, as it may help many of you better explain your own behavior to family and friends and for everyone that may sleep more soundly knowing there’s part Texan in every bitcoiner.
The earliest known reference comes from James Gilbert, a former TransMarket Group floor clerk, who relayed the following to Trader Magazine in 2006:
“I was a runner at the time. And I see this guy signal to buy 500 futures. Big futures. And I know he just bought calls. So I yell – hey, you are backwards on your hedge! And he looks me square in the face with these eyes of cobalt, not an ounce of joviality in his veins. He says ‘Boy – I’m from Texas. We don’t hedge when we’re right in Texas. We double-down, son.’ The whole pit must’ve heard him, because from that moment on, any time any trader mistakenly hedged backwards, they would say ‘I TEXASED’ and the whole trading crowd would point and laugh. Everybody but Bill, from Texas. He would just stare, with those piercing cobalt eyes.”