Carlos Mercado_mixdown.mp3

Harpreet: [00:00:13] What's up, everybody, welcome to the artist of Data Science podcast today we've got a conversations episode where we get to hear from people who are doing interesting work, pursuing their dreams and adding value to the world inside their heads. See what makes them tick and hopefully walk away with a new perspective that will help us in our journey. So these episodes, as you know, are much less structured, far less formal than what you normally hear on the show. They're going to be raw, unedited unproduced, for the most part. Thanks for tuning in, and I would love to hear what you think about these episodes. Feel free to email me at the artists of data science at gmail.com with your thoughts. Our guest today is none other than our good friend, Carlos Mercado. Carlos has been on the show before on a full podcast episode, but also he's a regular part of our happy hours. Super excited to have him on the show. We're going to talk about his book that he wrote. That's all about blockchain, DeFi and some thoughts

Carlos: [00:01:23] And thoughts and decentralized finance economics. There you go.

Harpreet: [00:01:27] And we'll definitely put a link to the book in the show notes for that man. But man, let's dig right into a man. A lot of great stuff you're talking about in your book. I really, really enjoyed it. But first, let's just start start off by talking to us about how you got interested in blockchain in the first place.

Carlos: [00:01:43] Yes. I mean, I think everyone who is like our age was remembering like being in college or after college, hearing about bitcoin here, about this thing that was Sixth Sense. Now it's ten dollars just skyrocketing. You're like, Oh, I should buy some of that, but you didn't know how to do [00:02:00] it. I didn't even know the scams with like Mt. Gox and the like all these other scams coming out about how hard it is to get set up. You really didn't start hearing about blockchain and like non bitcoin coins, really. For me, until like twenty seventeen, it's kind of like the release of the major central exchanges like Coinbase being one of the biggest ones. They're going to IPO soon, probably about over a hundred bill. And I think that's underpriced, not financial wise. I got into blockchain, just hearing about that stuff and knowing about the history of economics. There's a concept called And Money from the Seventies, which is very blockchain similar. Jason, the idea being of like privatize money, iMessage stock serving as money. But to be honest, the blockchain part of the blockchain I really got interested in. I would say, like a year ago and like Summer of Twenty Twenty, a friend of mine who's been in the space, especially in NFTs and art and music and things like that, he was really getting me involved. We would read white papers about things like ample, which is an interesting decentralized stablecoin. And I was just getting into the economics of it all. It was like, Oh, wow, this is technology. And like all of our economic theory of Hayek and money like finally combined. And I was just like, I was super in it for the economics of it. I had no clue about like the finance side of it. I know people think economics and finance are the same. They're very different. But yeah, that was for me. I just like was hearing about it, and then I got really into the tokenomics and crypto economic papers coming out on different points.

Harpreet: [00:03:29] Yeah, man. Super, super fascinating stuff. So what was this thing? Heck, Ian Money, how do you spell that?

Carlos: [00:03:35] Yeah. So it's after a high, the famous economist HHI week, and he's the I don't think they call him the father of any of the movements, but his writing is very libertarian in the concept of like just like let markets work. And his idea was that instead of having a dollar like a government backed dollar, just let random corporations develop whatever they [00:04:00] want as a medium in exchange. And we'll see what the market does, which is interesting because almost like what if we treated corporate bonds as money? Like, what if I could just like, go to Walmart and pay Walmart stock to buy my Walmart goods? It's almost that kind of like interchange, but doing at scale so I could like buy. Amazon stopped with Walmart stock instead of using money in making.

Harpreet: [00:04:21] It's super interesting and yet excellent point here. We're going to talk a lot about all sorts of financial types of, I guess, finance strategies, but none of it should be taken as investment advice for you personally. So just that disclaimer

Carlos: [00:04:36] And let me get that big disclaimer, too. When you open the book, the first thing you see is not financial advice. I am not a CFA. I'm on a talent. I have no mechanism to understand your personal financial situation. My goal, which I say in the book, is to transfer my way of thinking to like a book so that you can understand how I think about this stuff in a sort of economics and finance so that you can make an intelligent decision of like what percent of my investment portfolio should they allocate to this crazy bitcoin nonsense?

Harpreet: [00:05:06] Yeah. That same disclaimer applies for me to not come after many people broke, please. So something you talked about in there. But first, let me ask this who who did you write this book for?

Carlos: [00:05:20] Yeah, so I was actually it's interesting. I was sitting there talking to Greg Kookie after the one of our office hours, and I was telling him about blockchain for A.I. because I was paper. I was reading about for five, and he was super interested. But he said he had no clue about anything and blockchain. And I was like, If I write something, will you like, read it and share it around all your little friends at Amazon? And he like, Yeah, yeah, send me something. So I just sat down and for four days straight, I just wrote everything that I knew about blockchain as simple as I could and why it was a big deal and how the money and the finance and economic parts are all. So I wrote it for Greg, but also and I ended up writing it for [00:06:00] me. Two, because it was a way to put it all on paper and like a linear order of reading so that I could revisit it and I can oh, if I had this in twenty fourteen or twenty twelve or twenty seventeen like it would have changed my life and hopefully I can. Someone can read this this year and not have that regret in twenty twenty five or twenty thirty or whatever.

Harpreet: [00:06:23] Yeah, man. Like writing is the best way to get clear on thinking. I think that's that's the huge benefit of writing your thoughts, how it makes you think a little bit more clearly about about stuff. So you're also talking about some like stablecoin. What the heck does that even mean?

Carlos: [00:06:38] Oh yeah. Ok, so here's the idea, right? There's a lot of stock out there, right? And stocks go up and down in price. There's also things called bonds. They also go down in price. One of the most stable bonds is the US Treasury bond. It gives you the right to some fraction of the interest payments paid to the U.S. national debt, and it's very, very low and interest rate. It's very, very stable and its value like it goes up like two percent, like a year at best. So it's like a stable. It's like literally doesn't change in value. And it's interesting because a lot of stock theory studies this stuff and they find they're going one hundred percent in stocks goes up and down like crazy. And it's it can be good for your portfolio to have a small portion at like a stable small amount of growth, like a Treasury bond or something like that. A stablecoin is very similar to that concept. It doesn't grow, necessarily. It's a percentage a year. Most stablecoins are attempting to be the U.S. one U.S. dollar on the crypto markets, and that's very good for de-risking, like getting out of crypto into the stablecoin without having to go all the way to cash in a bank account. You can risk while still being in the space and in the exchanges.

Harpreet: [00:07:55] So what is it that drives the price of the coins to go like super high and skyrocket? [00:08:00] What causes that to happen? Specifically stablecoins or or just, yeah, just all coins in general, right? Like what causes you interest to blow up?

Carlos: [00:08:07] So there's a few different types of stablecoins. There's some really interesting ones that use market dynamics to try to be stable, so they actually change their demand or they change their supplies. They increase and decrease supplies to hit a one dollar there. But to answer your question outside of staples like why do bitcoin go? Why does bitcoin go up? Why do the Ethereum go up? They all have their own individual technologies, and something I say a lot in the book is like, Don't worry too much about the coin. Don't worry about the bitcoin and the theory I'm like, focused on the underlying technology. And if you can see that underlying technology making an improvement to the global economy, and if you do think that, then figure out how you can be positioned to make investments into that technology and not that implementation of the technology. So I'm not saying go buy bitcoin. What I'm saying is like, understand why it's making such big waves in global finance and see if that technology can be part of your portfolio and doing our research, of course. So why do these things go up demand? I mean, the thing is, you know, we have a billion people in the United States.

Carlos: [00:09:12] About 20 percent of people are unbanked. You stretch that out. We're talking about 30 to 50 percent of the world being underbanked. You're going to hear about micro loans. All this stuff. Paypal, Facebook taking money now with Libra Coin, that was the whole thing. You'll find people interested in getting the global financial system more simplified, more democratized and into people's cell phones all over the world, including developing countries. So why is it growing? It's because it's it's working like people are experiencing this like easy flow of assets that they can transfer freely without needing to deal with central banks. And I think you should do with central banks. Pay your taxes, please, but it just smooths operations of money remittances. If you study remittances in the US economy, I believe about 80 billion dollars [00:10:00] is earned in the United States and then sent to people outside of the United States. So people, immigrants would come here. They work and send money back. That's massive industry. There's no reason it's costing ten dollars to send one hundred dollars. That's a huge disruption of opportunity for this technology. Why is it going up? Because there are inefficiencies that can be made efficient and it's happening right now.

Harpreet: [00:10:22] And so when people talk about like blockchain and crypto, like, can we conflate those two? Like when I say crypto, does that just mean a coin or does crypto also refer to blockchain? It's a clear

Carlos: [00:10:33] Signal. So, so blockchain is a specific technology, and that's what blockchain is. Blockchain is immutable, record keeping, using typically decentralized partic nodes. And what you can get out of that is to read the first paragraph of the bitcoin paper does a really good job of explaining this, but like the internet has a double spend problem. Like if I want to buy something from 10 different websites, I have a hundred dollars in my bank account. It's very difficult for me to just say, Hey, I have the money in a bank account. Don't worry, let me buy 20 dollars of this 20 dollars or twenty dollars of this, because I can just spend that in multiple places and use the fact that it takes days for banks to really reconcile accounts and things like that digitally. So the double spend problem, what bitcoin ticked off was the idea that you could have incentives be aligned to computers such that they have a reason to have extremely rapid, extremely agreeable mechanisms to like record transactions. So like, I want to give you ten dollars in exchange for something. There's a system out there that benefits from me giving you that money in a way that it can't be changed. And that's very persistent memory wise. And that's the blockchain piece of it. So the blockchain is blocks that cannot be changed, strung together in a way cryptographically such that you can't like, you can't really do fraud.

Carlos: [00:11:58] And I'm not saying it's not impossible. [00:12:00] In the book, I detail how it's actually trivially easy to change an entire blockchain. The hard part is that it's almost impossible to change a single block so that immutability, that really fraud resistance, the fact that people are rewarded by participating in adding to the blockchain. The blockchain is a system of recording transactions. They don't have to be financial in nature. They can be information in nature. Who was told this information recently? We heard blockchain for papers. There's a lot of ideas out there and blockchain serving as metadata storage for like parameters and A.I. models. So we're not talking money at all. We're talking about an immutable record that says, Oh, this model was trained on this type of data with these parameters of this time period, and that's immutable and all this stuff. So there's a lot of stuff there in terms of like perfect quote unquote databases. That's not just money. The crypto side of it is the money side of it. It's a cryptographic asset. So because it's the blocks are cryptographically connected through hash function and stuff that I can transfer bits to you back and we know who has what money. So the crypto side is the money side. The blockchain stuff is the technology immutable record keeping?

Harpreet: [00:13:13] So why have blockchain? We have PayPal. Like what's what? Isn't PayPal doing all this stuff for me?

Carlos: [00:13:20] Yeah, so great question. So the difference is, and this is what we get into the and decentralized finance and DeFi. The idea is that you are a resilient system is a system that has that is not of like single points of failure, right? So I'm going to pick on the Federal Reserve for a bit here. Last month, at the time of reporting, there was a day in February. I think actually that a bunch of the Federal Reserve like banking systems, they were down for a day. So like banks were having trouble reconciling their accounts between themselves, between other banks, with the with the Fed. So people want to know this [00:14:00] because I study money in banking and college and economics. But like the banks are using the Federal Reserve like pretty much every night to meet reserve requirements, so they're borrowing money from the Fed and things like that. So in these centralized, massive systems have glitches. It causes a lot of problems. I mean, even we saw the Suez Canal. It's going to be outdated when you see when you hear this, but really a simple ship blocking billions of dollars in exchange. So the single points of failure are very risky. And what decentralized finance does is it incentivizes anonymous participants into a network such that you the fraud is reduced, but also that you don't need any one of them. Like you can have people tag in and tag out and not affect anything. So it's a resilient system to have decentralized. And we saw that with the Federal Reserve. I mean, we saw this. We see this all the time with technology companies just like going bust, losing Data.

Harpreet: [00:14:56] Yeah. So so let's back it up just a little bit before we go forward. So you're talking about how finance and economics are different. We're talking about money here. First, first, let's let's back up and talk about what is Finan?

Carlos: [00:15:09] Yeah. So let me start with economics in my head. Economics is making decisions under constraints. Typically in the context of money, but all. In the context of value in general, including like constraints that include you not feeling the constraints so like externalities and things like that, like pollution that can almost go together because someone's paying for that, someone has to breathe my bad air. So economics is a system of incentives and exchanges of value and generation of value under constraints. Finance is really the overarching system of money, and that includes creating money, giving it to people in exchange for goods, counting it, storing it, actually providing credit to people. So finance is like everything to do with money, and economics [00:16:00] is like making decisions about value under constraints. And they have obviously huge overlaps because making decisions under constraints applies to money. So there's financial economics, too, but that's how I think of finance in my head. Money side of it.

Harpreet: [00:16:16] Yeah, I like that. The distinction is very clear cut. So let's talk about money then. So what is money and like? Why does inflation or why should inflation affect how we think about money? Yeah.

Carlos: [00:16:30] So there's that classic definition of money. There's three definitions. Money is a medium of exchange. So if I have TVs but I want hamburgers, I'm just making joke stuff. Now I can do two things. I can go out and find the exact person who has hamburgers but wants TVs, which is very difficult to do. Or I could sell the TVs for something more liquid and then use that other, more liquid thing to trade out for hamburgers. That liquid thing being money most often, but it could also be something that's it could be very, very nice rocks. It could be anything that people accept. That's the of exchange is then unit of account, you can count money, you can have a dollar, ten dollars, you can have half a dollar that fraction part of it, that makes it a unit of account. You can count it. And the third one is a store of value, and I'm going to go ahead and kind of hold this off and just kind of deal with what inflation is really quick. So I bought a hamburger that's in the book, too. You could imagine an economy that's all hamburger based, right? So like I have, I work at McDonald's, I sell hamburgers, I get paid in hamburgers.

Carlos: [00:17:39] It's all I eat. Well, that's great and fine. But hamburgers spoil so I can get paid in hamburgers, but then I have to carry them around. I have to eat them before they go bad and when they go bad, they're gone. So what ends up happening naturally in this fake economy is you get burger coupons. Coupons. They last longer. They can crumple, they can rip. [00:18:00] I can lose them and get burned. They can still spoil. But at least they're, you know, they're sort of value. I can hold the coop. I can hold the burger for a long time now to get into. Money is money. Is those three things. Store value account, medium exchange. But generally speaking, things in any economy are going to go up in price over time. So why would hamper is go up in price over time? Naturally, you know, because that one millionth cow, you know, you have to feed it on once millionth packet of food. And to make that one millionth packet, you needed a lot of equipment to go from five hundred packages to a million packages a day or whatever. So costs go up, which leads to the price of goods going up. When efficiencies happen, prices go down.

Carlos: [00:18:45] What do you need to remember inflation? And I was going to say the opposite of inflation is called interest. Inflation is when the price of something goes up and you're mad about it and then interest or, well, we'll get to. Also investment investment is when the price of something goes up and you're happy about it. And I think that's the simplest way to think about it. Price go up. Mad inflation prices go up. Happy investment. So when your health, education, food, energy, when those prices go up, you're mad. But stock markets or the value of your home, when those things go up in price, they're happy. And that's the simplest method of defining the two. And how does that relate to money? Well, money constantly has to get made right because money's getting spoiled and there's going to be a mismatch of how much money is created, how much is destroyed. And generally, you're going to create more than it's destroyed. The amount of money out there is going to go up. And that means prices are going to go up because there's more money available for for things to take up that excess. So I'm kind of simplifying a ton of concepts like money creation processes. But yeah, I

Harpreet: [00:19:56] Also say another thing about money that's makes it so valuable [00:20:00] is just the fungibility rate like $1, $1. One dollar like we can change dollar bills. I mean, assuming you were telling

Carlos: [00:20:06] To Rick A and that account. Yeah.

Harpreet: [00:20:09] So like, what does all this stuff, man that you talking about with with money? What does any of this have to do with blockchain? And why are people going bonkers over blockchain?

Carlos: [00:20:20] Yeah. So the history, right? So remember the global financial crisis in two thousand eight, I was preceded by a really large bubble and housing, but also some bubble and stock markets as well, especially after the dot com burst. After the dot com bubble, Amazon went down like 90 percent total, and now it's going to run ever since. So in the global financial crisis happened, around two thousand eight people were very fed up with financial systems. You can never occupy Wall Street movements. You can remember break up the banks. A lot of new legislation globally, even around, like separating investment banking from standard checking and savings banking to kind of limit this stuff. New legislation around mortgage lending and not allowing ninja low. No income, no job, no asset loans. So there's a huge financial meltdown. And right afterwards, you start hearing about this thing called bitcoin, which is the peer to peer digital system that would allow you to exchange bitcoins to other people in a way that cannot be double counted. So like when I give someone the bitcoin, I can't use that as like people want to give to someone else because of the blockchain. So the financial crisis leading to bitcoin, which require the development of blockchain to prevent the double spend problem for bitcoin, that's really the nexus of like, OK, this blockchain stuff is really, really useful for digital money, and it's also able to decentralize, which gets us out of this problem of relying on large banks, which can collapse like Bear Stearns. So, yeah, I mean, it has to be a buffer because it all started [00:22:00] together like it started to get financial system collapse.

Carlos: [00:22:02] Bitcoin, blockchain today. What does it have to do with? How does it all work together? We're going to see Block. Technologies like increase in use for a few reasons that, you know, the globalization part of it in the book, I talk about governance, which we'll get to. But also like NAFTA nonfungible tokens, this provides you a mechanism to have scarcity in an environment that isn't amenable to scarcity. So when I when you send me a copy of a PDF doesn't hurt your PDF at all. But scarcity itself is something that people want. People want things to be scarce so that they can value it, and that's what a non-fungible token does. It uses the blockchain to provide scarcity digital assets. So in terms of video games, for example, you know, I know I put a lot of room skip growing up. There's party hats. There's only so many party hats, right? And it was scarce because the company who ran a game made it scarce. If there was a way for me to just copy paste it from someone and put it on my head, I would have. But that scarcity created value this. What is it? What does it all have to do together? People in the digital world want things to be scarce, and blockchain enables you to make scarce digital things, and that is a massive, massive shift to how we need to think about digital technology. The keywords at Google, there are definitely web three metaverse, things like that.

Harpreet: [00:23:24] And you guys interested further, you know about NFTs and Ethereum and blockchain and things like that. Check out the interview I did with Jonathan Shontell should be the one right before this one. We go deep into blockchain. We'll talk about all that interesting stuff. I'm personally really captivated by Ethereum. I think Ethereum is like the future they've got. Like this whole concept of smart contracts. You can build games on Ethereum. There's like the dark forest, I think is the one game that is entirely built on Ethereum with this fascinating [00:24:00] stuff. So definitely go check out that interview I did with Jonathan to get more detail on that.

Carlos: [00:24:05] I'm not going to do that to you twice. So all the listeners go back to that previous one because I'm not going to go super into the blockchain side of things, and I'll let Jonathan do it. I think we talked about why people are bonkers about blockchain.

Harpreet: [00:24:16] Yeah, but why are people hating on it? Because I like some of the arguments that you you outlined about why people are hating on.

Carlos: [00:24:22] Yeah. So I mean, I think the there's good arguments against the stuff. It's Dutch tulips, it's a bubble. It's going to pop like, Yeah, dude. I mean, when HTP came out, everybody and their mom got like a domain name servers registry for their website. If you had dot com in your company name, you were like 40 percent more valuable overnight. So we had like I was like in the 90s. I remember, like, like we saw bubbles happen, but guess what? They popped, and the technology that was real outlasted bad implementations. We lost Pets.com. Now we have Chewy and Amazon, like the web, wasn't stupid just because, like a bunch of websites were stupid. And I think that's like. So I'm kind of talking back about the haters, but one of the good hater arguments. Oh, this is a bubble. Yeah. Yeah, yeah. Focus on the technology and the implementation. Nfts being right click save. That's funny. That's not digital scarcity. You misunderstand digital scarcity and why it's valuable. Look more into that. The other hate arguments like, Oh well, you know, this stuff's useless if countries ban it. You know, Nigeria and India are two of the most prominent ones that come to mind in terms of their efforts to ban this stuff. There was a senator in the Senate who's gotten pretty big online saying that bitcoin and blockchain are going to be the end of government.

Carlos: [00:25:44] That guy gets it. I think a lot of people have not picked that up yet, and I talk about governance in my book. The other two arguments besides, Oh, the government is going to ban it. It's too decentralized to ban. Governments are going to shut down the internet. This stuff's useless without the internet. That's a pretty good one. You know, if [00:26:00] you destroy the internet as we know it, bitcoin will suffer a lot. But again, it's not technically true. Bitcoin's like a technology. You could do bitcoin on a piece of paper if you want. You just need to custom hash functions and then you and one hundred friends could use it. Bitcoin methodology between whatever number of you. So that's not totally true. The biggest one I get is, Oh, you know, you know, if the power goes out, if there's a global collapse, the electricity system goes down, then you can't use this stuff. And if you're at that level of like, well, if this insane Black Swan Society dies happens, then it's useless. I agree, man. If electricity goes away, bitcoin, that will be the least of my problems. Like, I have way worth problems if I lose electricity for most of my life.

Carlos: [00:26:43] So, yeah, I mean, those are the common arguments. I think the bubble one and the government interference one are important to know. I think something that people don't realize as a really good argument is that most people don't like complex stuff. So I mean, that's my biggest hater argument is that like, oh yeah, like bitcoin itself is all cool or whatever. But really, what do people want? People want. Decentralized financial opportunity, and you can give them that without blockchain. And I think a very forward looking government can create, you know, publicly audited open source financial protocols that are not decentralized and give people financial opportunities for their people, regardless of their current standing finance. And they could definitely make this stuff not needed any more. Like, why do you want to spend like 50 dollars and Ethereum transactions? If you're a government central exchange for this stuff is free and it lets you invest in different technologies free and it's all centralized. But hey, you don't need to deal with bitcoin. You can deal with the dollar as a reserve currency this financial system, so the bigger the best argument is, is just that governments can try their best to do better, [00:28:00] and I hope that's true.

Harpreet: [00:28:02] I think China is probably an interesting case study for government interference with bitcoin, considering how they have blocked port eight three three three. And it's weird stuff is happening there. There's the episode I was listening to with the Tim Ferriss and Balaji Srinivasan collect. The title was the episode of everything where they go deep into essentially bitcoin and blockchain. But yeah, they're talking about China might have to have its own separate chain and, yeah, weird weirdness. Go check

Carlos: [00:28:31] That out. It's not too crazy. I mean, there's already forks of this stuff. So I mean, when we say it's decentralized, you really do want to think of like open source protocols. People talk all the time. These protocols, it was not be strange for someone to fork bitcoin. There's already bitcoin, ISV, Bitcoin Cash. There's already like things that require splitting of the communities. They are involved in the technologies. I would not be surprised to hear about independent Chinese blockchain. I think my argument about the hater argument that interestingly, I think China has done a good job and I say this because I'm pro-China. I think they've done a successful job in limiting the need for some of these decentralized technologies. You know, they have some of the most advanced 5G in the world. There's a singular app. I think WeeChat that is an entire ecosystem to their internet. I mean, you can order a cab and buy a pizza and buy a T-shirt and pay your rent all in one minute with the same application. So I mean, like, like I said, you know, governments can just meet all of these demands within a centralized interface, and they will succeed in limiting the adoption of some of these technologies. And maybe China will be a good use case example for that. And I don't say good as in a positive, I support it. I then good isn't successful.

Harpreet: [00:29:52] That's really, really interesting. Yeah. Thanks for. For talking about that. Let's get let's get into the the second half of our conversation here, talking about part two [00:30:00] of your book, which I found really insightful and interesting as someone myself who really has not been good with investing my money. Meaning it's just been sitting in a bank run. Mutual funds, probably not the best use of of all this money that that have got and just trying to educate myself on how to do investing better. I found part two of the book really insightful. And you know, it took a lot away from it. And again, remember people, this is not investment advice for you personally, individually. We're just we're just talking here. So let's start with talking about how you define retirement.

Carlos: [00:30:37] Yeah. So let me take a quick note on your bank mutual funds. Your the best use of your money is the use of your money that you're most comfortable with in the context of your risk preferences. So again, it's not financial advice. The goal is to help you understand new things so that you can incorporate into your risk profile your risk preferences, and you can align your investments to your risk profile preferences, which is ultimately the best thing you can do for your money. Because if you do things that are outside of your comfort zone, you will make mistakes. You don't want to do that. So how do you define retirement? So the second half of the book, you know, is my favorite too. I think I don't care much about different implementations of these technologies. I've never been one to care about that much stuff I like. I like money because I like freedom. So when people think of retirement, you know, the thing that comes to mind is in the United States, especially as being sixty five year eligible, Social Security, eligible for Medicare, eligible for different social services and things like that. And what does it mean? It means like you're not working. That's the classic definition of retirement. Historically speaking, that's actually an anomaly for multiple reasons. One the reason that the Medicare age is sixty five that's going to get my social justice I worked really quick is because the average life expectancy of black Americans was below sixty five until the mid 90s.

Carlos: [00:31:56] So that was like a massive way for the government to transfer black money to [00:32:00] others that are not black through government programs. And there's a lot of people in the wagon, the Social Security Act and its racist upbringing and all this stuff. I actually wrote a book for that separately. So why did I bring this up? Retirement to me is the final phase of your working life, and that does not mean you need to be old. Historically speaking, you know, eighteen hundreds and prior you worked until you couldn't and when you couldn't, you relied on charity and family. Retirement to me does not need to be old. It does not need to be needing charity or family. Retirement to me, is the final phase of your working life. I mean, I get on a lot of high horses for the France, sorry. There's this idea that like if you don't work, you're lazy or if you don't like produce, you're bad. There's historical reasons for that. If you look at historical records of how people think of societies. You'll read a lot about like. Young men and like kind of how young men as a part of society have really been something that needs to be controlled and suppressed in different societies.

Carlos: [00:33:06] Why is there a draft for those a lot of stuff, you know, six, 16 to twenty four year old men commit most crimes. Blah blah blah. Like a lot of society's structures are built around containing this very volatile group, and I'm bringing that up as a segue way into this. So people have these, these historical precedents, they have these ideas that if you're not producing and you're lazy, you're bad. And I get these arguments of people about the process of work ethic and like, I am not telling you to like. Work to save up a little bit of money and an APB, and Jesse never have to work again. That's not my goal. I'm not trying to tell you to quit being productive, whatever that means. I'm not trying to tell you to quit contributing to society. I'm telling you that if if you accept retirement as the final phase of your working life, well, what are the phases of a working life and kind of getting the next idea here? I talk about four different phases in a person's financial and [00:34:00] working life. When you're starting out a level one, your paycheck to paycheck like one emergency and you're completely broke. You don't have any freedom. You don't have any flexibility. You can't change jobs. It's too risky. You change jobs and the offer that gets moved two weeks for some administrative reason that could tank your finances.

Carlos: [00:34:20] You have, you don't have you can't take any risks. Level two, you have an emergency fund. You can withstand emergency so you can change jobs and miss a paycheck for that friction. You can get laid off and last a month or two. Level three, you're financially secure. You can send most emergencies. You can change jobs at will to be unemployed for a year. If you needed to take either taking a sabbatical or because you have very difficult economy locally with structural unemployment and you're not too worried about it. The Level four is what I want people to think of retirement as the retirement is not. You're sixty five and you're like, Oh, and you can't work anymore, like retirement needs to be. You are in the final phase of your working life, which means you are financially independent. And financially independent means that you have complete control over how you enter and exit the labor market, including possibly never again and living off passive income or savings. I want everybody to get out of this book that retirement is not something you do when you're old. It's just the final phase of your working life, and that means you're independent and that means freedom. Ok, that was a really long high.

Harpreet: [00:35:30] Sorry. I 100 percent agree with you, man. Like, the purpose of wealth is freedom, so you can do what you want with your time. You know, you don't have to rush to work if you don't want to work, want to. You don't have to sit in front of a computer all day if you don't want to. You don't want to feel like you're wasting away your entire life, grinding all your productive hours away in a soulless job that doesn't feel you like nobody wants to do that. So the purpose of wealth is freedom, so you could do more things that you enjoy doing with their time. [00:36:00] More creative things. 100 percent agree with you on that. I really, really liked how you broke down that those four different levels of financial independence, it was really, really cool to see it codified like that. So talk about portfolio allocation. What are a couple of? I mean, there's some concepts you talk about in your book, there's liquidity and correlation. What what do these things mean and can you maybe help us out an example?

Carlos: [00:36:30] Yes. Yes. Let me take a quick step back to the front section when we talk about financial independence. In the book, I just want to kind of put this out this out. This does not mean you get rich. That's not what I mean by that. What I mean by financial independence is that your needs in terms of your target life are met without needing to work. In my book, I detail this you know, their survival expenses, their discretionary expenses and their savings. You can generate income through your labor and you can generate income through passive income. You can become financially independent by making a ton of money that generates a top passive income. Or you can be financially independent by generating enough passive income and reducing your expenses enough to where those line up. So you can have a big box that matches up, or you can have two small box of that match up when I get through this in the book, too. So hearing that financial independence stuff, how do you become financially independent? You do it by saving and generating assets that generate income. So the classic way to think about that is with stocks, right? You buy a stock. What does that give you? It gives you an entitlement to a stream of payments called dividends. What's his name? Warren Buffett? He has millions of dollars in Coca-Cola stocks.

Carlos: [00:37:46] They pay two or three percent a year in dividends, so he gets two or three percent of his investment just handed to him for free just stuck to him as long as he spends less than that money. He's financially independent. All of his [00:38:00] expenditures can come out of that passive income. You don't need a lot of money to generate, like have to be financially independent, you don't need a ton of money to be financially free. One of the things I talk about in the book that this thing called the Trinity study. If you go on and read it, you'll hear on Reddit Financial Independence Fire and talk a lot about this study. The idea is that if you can save 20 five times your target lifestyle, that you can become financially independent. So if you want to have a thirty thousand a year lifestyle, you would need seven hundred fifty thousand dollars in assets. And that does not mean seventy hundred thousand dollars in cash put in the bank. It can be anything that's generating income such that four percent of your money seven thousand is coming to you annually to spend. So read that in the book Trinity study, read it or write a financial independence. Twenty five. All that stuff.

Carlos: [00:38:54] We don't need to be a billionaire. That's my point. Now. In the context of this generating passive income, to do this, you have to have an investment portfolio. You can't just dump all your money in the same place because it's going to cause a lot of swings. So let's start with the three vocabulary words to talk about the about liquidity, correlation and volatility. Liquidity is the ability to turn your investment into cash, and that's a spectrum. If I have a stock is very illiquid, I can sell that for cash. Then tell my broker to send it to my bank account and leave my bank account within a week. If I buy a house, it's not liquid. I mean, this market is kind of liquid ActionScript right now, but you have to sell the house. You have to close in the house, you've got to get all the paperwork done. Then you get the money in your bank account. It takes more time. Liquidity is the time for converting your investment into cash. And I only say cash because the medium exchange, it's really converting your cash into things that are easier to buy things with. So [00:40:00] things that are more wanted and traded. If everyone loves corn, maybe liquidity is fine, but how quickly you can sell your house for corn forever? Correlation is the idea that things that go up and down together are going to have a lot of swings.

Carlos: [00:40:14] So when I mentioned a seven hundred eighty thousand four percent a year, thirty thousand lifestyle. If that's the thousand is all in one type of asset and it's going up and down like crazy. One year it's a million dollars and next year, five hundred thousand dollars, you can't safely extract your four percent a year that you need to live your thirty thousand dollars target lifestyle. So the correlation means that you all of your money is going up and down together, and that's volatile. So my life quickly becomes a million five hundred thousand. That's the volatility, the value of all your assets is going up and down like crazy. And the correlation makes that worse. So I've said a lot of words here, so let me kind of loop back if investment is when things you own go up in price and you're happy houses, stocks, bonds, correlation is when those things go up and down together. If your stocks all go up and down together in your house always goes up and down. Together with your stocks, you're going to have a very volatile at the network. They're very volatile. Total value of money available to you. That's bad. And what you want your portfolio to do in general is have an appropriate mix of things that are not as correlated together, that have appropriate ranges of liquidity, maybe like a few houses, but also stocks.

Carlos: [00:41:38] Don't be all in all your eggs in one basket, and it's not too volatile because if it's going up and down like crazy. Let me give you the example I'll give you the book people one hundred dollars. And it goes down 20 percent. We have 80 dollars to get back to one hundred dollars. You have to go up twenty five percent from 80 dollars to a hundred dollars. So volatility [00:42:00] is how you actually need to do better to catch up when you do worse. So going from one hundred to eighties minus 20 percent, going back is twenty five percent. And that's how volatility hurts you because you have to do better just to get back where you were. So these three keywords are really important in thinking about your portfolio because you want things to be. You want somethings to be liquid and something not to be liquid because generally illiquid things they they get, they gain more. That's the general idea, like the price you pay for the liquidity that doesn't grow as much. These are kind of very general concept and like risk and reward. But. Anyway. Yes.

Harpreet: [00:42:40] Yeah, that was fantastic. I absolutely love that, so you talk about, you know, if you've got one hundred dollars drop by 20 percent, that goes to 80 to get back up to one hundred and need to jump up by twenty five percent. Is this what loss aversion is all about? Like, can you can you describe this concept? Is that why losing money hurts us because it takes so much more effort to get it back? Or am I completely missed the mark here?

Carlos: [00:43:03] Oh, I mean, so the I think loss aversion can play like, you know that what we find in the behavioral economics and psychology literature is that people would rather on a coin flip, for example. Oh, hey, has you got one hundred dollars tails? You lose a hundred dollars? Well, we find out is if you ask people how much they want to pay to play that game, people won't play it because the risk of one hundred losing a hundred is more than the potential benefit of gaining one hundred. That's a mental thing that people have. And so what you do in experiments with people in behavioral economist do is they like, shrink it a little bit, then OK, OK, how much would you pay to play this game heads? I'll give you one hundred dollars tails. One of those ninety dollars. How much do you put up with that game? Well, the perfectly rational economist person, you know, Homo rationalist, whatever, they would pay an infinite amount of money to play that they'd be like, Oh, that's like printing money. Like I would pay five or six or [00:44:00] seven or eight dollars, nine dollars, ninety nine cents to play that because I on average, I benefit some amount of money. But we find out that people who are less ever since most people, they avoid those games even when the odds are in their favor. So yeah, that's what loss aversion it's like. The a little bit of rationality, how like pain hurts us more than like pleasure helps us.

Harpreet: [00:44:21] So how much would you play this game? Heads. I win. Tlc lose.

Carlos: [00:44:27] Oh, OK. So I gained one hundred and tails I lose X. I would pay a dollar to play that game for like, I guess, like ninety four dollars in loss or something like that. You're losing, you're

Harpreet: [00:44:43] Losing every time, right? Heads I win, tails you lose. So no matter

Carlos: [00:44:50] What paper that game,

Harpreet: [00:44:51] So I just. Decentralized finance, then what the heck does this have to do? So you know what? What's the average person want from finance and how can decentralized finance be useful for them?

Carlos: [00:45:05] Yeah, thank you. So this is I think this is like the crux of the book that I want to get to everybody. If you live in a nice country, it's safe, you generally trust the government, your bank accounts, FDIC insured your 401ks and the best stocks in the world. You know you have no concerns that like someone just going to rob your bank and you'll lose your money. And like, what do you need this stuff for, right? Who cares, like, does it buy the Amazon stock when you're good? The vast majority of the world doesn't live that life. The vast majority of it doesn't have that privilege. Like, you know, they they can't do that. They can't trust that their money will be in the bank when they go back the next month. They can't trust that they are paying for stock and it's actually their stock. They they can't trust even having cash in their wallets because they are where [00:46:00] they're going to get robbed. So what do they do? They have digital monies and their cell phone, and then when their cell phone gets robbed, they remember the password on their heads. When they get another cell phone, they can access their money. They find ways to like, hack themselves into finance and digital assets because they have to live that life. But the vast majority of the world doesn't have that. The rest doesn't have good governance. You know what is governance? Governance is we didn't touch on this in the whole.

Carlos: [00:46:25] This is the lot in the book is governance. But governance is the idea that, you know, Hey, the government, who's making my money, who's printing the money isn't going to print too much of it. I'm not going to get a Zimbabwe one hundred trillion dollar bill. I'm not going to go to Venezuela. You know, that's part of the government's don't print too much money, keep inflation in check. Don't make everything go up in price all the time because I'll go crazy if, like my bread hits ten dollars, that's one of the catalysts of the Arab Spring. Actually, it's really interesting study on economics and social political turmoil. What's the other part? It's a good governance is trustworthy markets like the United States today. There are lemon laws. If I go to buy a car, they're not legally allowed to sell me a car. That's so bad I can't even drive it home. Another country, you want to buy a car from someone you're lucky if it works the next day because they got a rig to turn on just so you can get home with it. Also, there is like the trust and markets. There is the inflation in terms of good governance. What happens when someone steals your stuff? They rip you off, right? You want to go to the police and you want to say, Hey, this guy, like we had an agreement, he's going to pay me one hundred dollars. I lent him eighty nine dollars a year ago and he won't pay me back.

Carlos: [00:47:32] You want the government to use their monopoly of force to use their like courts to enforce your contracts. So good governance is slow, steady inflation, trustworthy markets with information, symmetry and, you know, contracts that are actually being enforced. If you live in a nice country with all those things, maybe you don't need this stuff. But the vast majority rule doesn't have that. And with decentralized finance does is it gives you algorithmic enforcement of contracts. The contract, [00:48:00] this is where you've got to listen to the previous podcasts. Smart contracts, they're algorithmically enforced crypto laws. Essentially a smart contract says if you if these conditions are met, this happens if you send a dollar to this account, they'll send you a dollar back two days later, plus the interest paid from lending to this other contract. So you have no concerns about contract enforcement, smart contracts and decentralized finance that are completely public and audited. I can go look at the code for anything to put on Ethereum right now. I think I think that's true. The vast majority of things. So, you know, it's publicly available. Anyone can audit these protocols and make sure that all everyone has the same information that's all available right there on the blockchain. And then sort of inflation, the coins themselves are competing for each other. So coins that didn't float like crazy aren't going to buy them like there's a market to the currencies themselves.

Carlos: [00:48:52] So the currencies that get bought at a high level in general are more trustworthy, quote unquote, because the market is better than as efficient market hypothesis. It's not actually very true, but it's important to Google it. So, yeah, I mean, the average person globally really needs this stuff. And this is not just, you know, North Korea, like failed. Whatever stuff this is like in Argentina, they have capital control limits. You cannot charge your money for too many U.S. dollars because they know that everyone wants to give dollars is a major problem. All of Latin and South America, they're very concerned about capital exchange and foreign exchange markets. So they enforce laws that don't let you have dollars. So you're stuck with with currency, with assets you don't want. Decentralized finance can help those people, too. You can get them out of these situations of like they don't want to be in. They don't want to have limits on how much they can trade one asset for another. So, yeah, I mean, you can look in a black market, currencies, the bolivar, the common one to look into. But I think if you are privileged and you don't ever think about governance and that your markets are trustworthy and you're bank accounts insured and your contracts will be enforced, yeah, you're probably [00:50:00] not going to care about this stuff. But the vast majority of people in the world don't live that life, and this is be a major benefit for them.

Harpreet: [00:50:07] Yeah, absolutely, man. Especially in those countries where inflation inflation is just rampant. Yep, definitely going to be helpful there. So let's talk about some traits of a good portfolio. We talked about, you know, we talked about the correlation volatility.

Carlos: [00:50:24] What else does this trip? Yeah. So I'm not going to out financial advice. But in general, there is a lot of conversations by economists about cyclical and counter-cyclical policy. So here's the idea. If you look at the United States, what you see a lot of is booms and busts. So there's like, oh, like, oh, railroads, everyone buy railroad stocks. Railroads are going to change the world. Well, you don't need miles and miles of railroad, all right next to each other. They can just share the tracks. So what ends up happening is these crazy booms. And then the investment goes bust. And then all these people who have the investment are rushing to exchange their worthless stuff for more liquid things. So you get bank runs a panic. Eighteen thirty seven being one of the more famous bank runs in the United States specifically. So booms and busts are a natural part of economics. People are going to buy some stuff. They're going to find out that they bought on some shaky things because information is not perfect. They're going to know less than others all this stuff. Then it's going to come in a big crash. If you look into the Federal Reserve's goals and even FDIC goals in the United States, we really do seek to have a great moderation. We want our booms to be less booming so that our busts are less busted. We want to see the economy grow steadily. But when we do a little too much, it doesn't hurt us too much on the back end. And 2008 is really harm to us COVID 19, but it really harmed a lot of those ideas.

Carlos: [00:51:56] But even even knowing that the history is borne out [00:52:00] like since the mid early nineteen hundreds in the new age of economic policy, especially Keynesian economics, having policies that are cyclical and counter cyclical have effectively suppressed booms from being to boom and bust from being divested. It has worked. This is an objective like you just look at the numbers, essentially. Now, some economists worry that government stimulus has delays. It takes 18 months for certain bills to pass through the federal government, so that means it takes a long time for money to flow. And, you know, governments will want to stimulate the economy in bad times, but because of these structural delays and policy, they end up pumping money when the economy is already good. And then you get a boom, you're booms. So sometimes there's these policy issues that can really inflate this stuff. That's why it's good for things to be automated, like unemployment insurance when the economy is bad. Tons of people get on unemployment insurance. It's all automated. They'll get paid. The insurance, it's called insurance, they'll get paid the money. So money will flow into the economy and things will be kind of less bad than it could be. Now how does this relate to a portfolio? You will have opportunities to invest in things that are themselves cyclical and counter-cyclical. So when you invest in real estate, that's probably cyclical, right? Like if people are buying homes, the money is going. It's going to look great, like your house, it's going to go up. But when people aren't really buying homes and there's desperate sellers, they make runs on the real estate market.

Carlos: [00:53:26] They start underpricing their homes and suddenly, you know, you have something that's very cyclical investment as volatility. You don't want that. What are counter-cyclical things, you know, things that generally do really well in recessions and they tend not to do as well in booms? This is kind of hard to think about offset my head, but you know, energy is a very common stable thing. People invest in a funny joke. I was interviewing for storage from the assistant manager of a storage place, and they're like, Yeah, we're the ultimate recession proof business. When it's booming, people buy to [00:54:00] hoard their extra stuff. And when it's a recession, no one wants to get rid of their stuff. So when they downsize their homes, they get a storage unit. And I was like, Oh, this is like totally countercyclical. That's super interesting. So there's a kind of simple opportunity and you want your portfolio to not have a lot of volatility. And the way to do that is to have things that are cyclical and also counter-cyclical so that you're kind of getting that washout effect. You're not booming too much. You're not busting too much. That way, you're one hundred doesn't become 80 because that's a twenty five percent jump to get back to where you were. Whereas if you're one hundred and ninety, that's only like an 11 percent get back where you were. So that's where you really want to, like, have a steady growth, and that's where the fun, foundational ideas of a good portfolio. Yeah, dude. Ranch man,

Harpreet: [00:54:44] That's great, Man said. I love economics. I love microeconomics a little bit more than the macro stuff. So this is interesting to to hear, and I know that everybody listening is is loving this as well. So let's just real quickly. Let's let's talk about a couple of high level strategies that you talked about in the book. This is do one of the high level strategies. And then let's move into this this concept of how to pick a protocol like what do you look at and when you're picking a protocol? Let's start off with this, though, like holding on for dear life. Like what the heck? What is this?

Carlos: [00:55:17] Yes, I detail six different strategies in the book. I'm not going to go into all of them. People have stocks. They know about stocks. They have money. They know about lending, they know about trading and lending. That's pretty normal. Holding on for dear life is a joke that came out of some of the first bitcoin booms. It was like, if you believe you hold and you never sell. I'm not. I think this strategy is a little funny. I talk about it because I think it's interesting. But most cryptographic assets like bitcoin and stuff, they're not paying you a stream of income. So I'm going to do this fast. Coca-cola pays dividends, so you get money every month, essentially, or every quarter or whatever. Google does not pay dividends. So [00:56:00] when you hold Google, they're not paying you for holding Google. You don't have any dividend streams, but they reinvest all that money into their business ideas that if you hold Google for dear life, even when it's bad, it'll come back up and boom again. The issue with this is that gains that gains aren't made until you sell, right? So like watching things go up and down like crazy is fun. There's this whole idea of going around about investment as entertainment.

Carlos: [00:56:27] You can read more articles about this stuff, too, but that's what holding on for dear life is. You hold it even when it's bad and even when it's good because it eventually it'll turn out better and then you'll sell it when you actually need to sell it. When you're old and retired, I'm not going to go into the other strategies, but the things you want to look into in the book are an obvious one lending and getting paid interest as a way to kind of get dividends out of this kind of liquidity pools. That's a whole thing. Hopefully, Jonathan talks about it. A previous podcast episode that I haven't heard, and the most important one just kind of give you a second one is using it like money like this doesn't meant to be used as money. So if you have like you're trying to buy something with Litecoin through PayPal, buy something with it. You know, if you want to use Basic Attention Token to pay people on brave browser to watch your advertisements, pay them using basic attention token like the stuff is a type of money and it can be used for money. Ok, I promise I wouldn't do all six.

Harpreet: [00:57:27] So yeah, no, that's perfect. I'll definitely include a link to the book that you guys can purchase. Go support Carlos Man. Go buy that book. Or if you're cheap, just

Carlos: [00:57:35] Like Infinix Zero.

Harpreet: [00:57:36] Yeah. So protocoles, what the heck is a protocol and which one are you in particular most excited about for the near future?

Carlos: [00:57:47] Yeah, so that's very. But I will tell you my disclosure. So protocols are I'm kind of I makes a lot of words, right? Technology implementation, crypto asset, cryptocurrency, all this stuff coins all this. The point is [00:58:00] that these are investments and their investments and underlying technology, which I call protocols in the book. So I look at these investment opportunities based on a few different frameworks. I want to make sure I understand the mechanics of what they're doing. If it's if it's a certificate of deposit, that's a common banking thing, so if it's a decentralized version of a common banking thing, that's kind of a green flag for me, that's good. I'm like, Oh, I get that like people already value that. People want that. So having it in decentralized finance is probably going to be kind of useful because it already exists in centralized finance. There's other mechanics that don't make any sense. It's like, Yeah, give us you buy one hundred of our tokens, then you give it back to us and then we'll give you two hundred of our tokens. And you can give that back to us and we'll give you four hundred of our tokens, like that's a Ponzi scheme. There's a lot of schemes out there.

Harpreet: [00:58:54] Ship coins?

Carlos: [00:58:56] Yes. Yeah, I mean, some shit coins are just like not they're not actual scams, like they're scams and the shit coins and all coins. And there's the main coins. But like, yeah, there's a complete scams out there. So be careful. Other protocols, other ways I protocols, you know, there's a common beast like a venture capital phrase platforms, not products. In the book, I say that, and then I immediately cite something that says that framework is trash and why. So I read both of those. But really, you know, like Airbnb started out as a way to get people to like rent hoteling space from each other. And now it's a platform of it's a tourist platform. You can get housing through an Airbnb. And at the same time, getting a curated experience from people on that platform. So products often become platforms, and wanting to invest in a platform is can be smart when you don't necessarily want to invest in products on a platform because you don't know that much about those products. And the obvious answer there is like Ethereum. Ethereum is the backbone of the entire [01:00:00] decentralized finance system right now because it runs smart contracts. So owning a theory is owning the is owning the gasoline, the oil of the system. If you know anything about oil energy stocks, they tend to do well, but nothing. And then the third framework that I think about is like, is it solving a problem? It's like there's going to be very interesting protocols out there that are solving interesting problems. And I suppose some LinkedIn today.

Carlos: [01:00:29] This is a decentralized autonomous organization that I'm part of. Actually, I volunteered to run their LinkedIn page to be cool. It's called Pi Dao, so PI Decentralized Autonomous Organization, it's a bunch of people who just opt in to supporting the group, and it's completely decentralized. So like people will, they'll buy the governance token DOH. And what they do with that DOH is they use it to vote on proposals. I've made proposals I've lived in on other proposals. It's literally a bunch of randoms all over the world coming up with ideas of how to grow this company together without anyone being like the boss, really? Obviously, people who have more of the governance token will have more sway over proposals because they can. They have more votes. And it's obviously like development teams who are running the group and there's like the originators of the group and the founders. There's obviously some structure there around like who owns what? But the idea is that like, anyone can just join in and contribute leave. They're done contributing, they can invest in their products. And what Pi Dao does, which I think is really cool, is that they are kind of the visionaries, in my opinion, on the global side of decentralized finance. How do you get people all over the world to have wealth creation strategies that do not require them to have a lot of money? So what that does is they have mechanisms for people who pool their money together here in Etherium and then they will pool it through them together and then they will buy lots [01:02:00] of other coins.

Carlos: [01:02:02] Bitcoin swaps, token sushi swaps, token linked away like all other tokens, so you can pool some money together to buy an index fund to create index funds together that saves you transaction costs. It also gives you single coin access to a bunch of underlying assets. They now have indexes in nonfungible tokens for entertainment, for video games. All these other tokens technologies. So through this one DAO, which I'm becoming a lot more invested in both financially and time wise, was like a member is getting these indexes out there to the world so that people can have simple, low transaction cost mechanisms to have a diversified crypto portfolio all in one go. And the cool thing is that they also have PhD findings people who are generating strategies for the underlying assets. So this token we're going to lend these tokens won't put in a liquidity pool. These tokens, I'm going to do this. These figures are just going to hold and do nothing with them and their proposals. They recommend different mechanisms for yield generating opportunities with these assets. And then the community votes on them. And if they vote yes, then these new things get created. They get incentivized. And it's like community wealth building through index funds and pooling transaction costs. And it's very like it's very much how development economics talks about group economics and how it talks about, like, localize the economic growth. So I just think they're way ahead and I'm super invested. So massive disclosure and not financial advice.

Harpreet: [01:03:36] Yeah, definitely not financial advice. Just because we're doing stuff doesn't mean you shouldn't. But I, for one, am going to be looking at this pie Dow a little bit closer. This sounds like a really, really cool idea. I'm liking it already. Some definite peek into it a bit more

Carlos: [01:03:51] Into the discord like pie dashboard pie Dow. Their documents are very thorough. The community is really great. Generally, [01:04:00] there's tons of these deals out there. This is my talk with Greg about actually, you know, he was interested in and like, Oh, you know, what would it look like for a startup that really works on supply chain problems and stuff? And I was like, You don't have to do that and like, let's show you that they're already Dow's out there. There are communities interested in solving these problems together, and all you have to do is join the discord by some of their tokens left on their proposals, contribute on proposals and talk to people. And you will help them build something bigger and you'll own a piece of the pie. You'll own their token. And also matching decentralized autonomous work a major future way of working people should definitely include.

Harpreet: [01:04:40] Yeah. Absolutely. Yes. Let's start to wrap it up here, man. So let's do my standard last question. Then we'll go into random around the random around here is going to be a little bit different because it's going to be, you know, we're interested in hearing about a lot of the activity that you've been up to on the on the interview circuit you've been interviewing with a lot of Big Tech companies. So if you want to talk about that a little bit, share your experience. I know that the audience would love that, but it's one hundred years in the future. What do you want to be remembered for?

Carlos: [01:05:10] I want to be remembered for having helped people in general answer. But I want to help people realize that they can go up the financial independence ladder. And maybe that's not everybody. There are real structural barriers to becoming financially independent, especially governance. That's a major obstacle that an individual can't control. But if there's something that I tell you here that gets you involved in something that generates some kind of passive income for you, and you can use that to change your job or like, go on one vacation or something. I think I've done a good job. I just want people to realize that they have more and more control and options than they think, although it does require risk. I mean, I just want to help people. That's why, you know? And so I've got so much public health care, which we haven't talked about this.

Harpreet: [01:06:00] Yeah, [01:06:00] we've got to talk about that at some point, but yeah, you've been you've been doing some awesome stuff. This book is awesome. I really enjoyed reading it, guys. Check it out. I will include a link to the book in the show notes, and definitely will be shot in the surgery or happy hours and all that stuff as well. But yeah, man, so let's get into the random round, which in this case can be a little bit different. And you have you talk about some of your interviewing experience. Maybe you want to just talk about where you've been interviewing what it's been like.

Carlos: [01:06:28] So something I'm going to throw out there really quick, it's like people tend to think that if you're interviewing, you're like ready to chop up my job, it's really cool. I just think it's best practice to understand your value in the market, generally speaking. So I interview regularly even with competitors and stuff. I want to know my value in the market, and I want to understand whether people are doing what other problems are working on because it helps me with my own current clients to understand what the market needs and stuff like that. So I don't think interviewing is a bad word. I just want it out there. Don't change jobs any time soon. I just think like it's important thing to do. Absolutely, absolutely. Yeah, I mean, I interviewed with Facebook, but the location was a problem. They really wanted to get people who are interested in going to Menlo Park, even though it's a D.C. role. That was really interesting. It was with the Instagram team and there was a lot of discussion about product and how you think about generating metrics from interactions on their products. So I talked a lot about like I do a lot of network analysis in my current role. So I talked to them about, you know, like I think a lot about people, the negative effects of social media and how these products can actually kind of erase that stigma. They can do better in, you know, building better networks between people and incentivizing people to talk to each other and really getting social media to do good.

Carlos: [01:07:42] That's kind of my big pitch for them at Instagram, which is, you know, I understand networks and I think there's something here to spin this around in terms negative perceptions of Twitter. The product case study was classic a b testing with caveats. I don't know why I bombed that. That was weird. I mean, I [01:08:00] think I bombed it because I don't like to model prematurely. Like, I really dislike most modeling. I don't want to get data and throw it into like linear regression or random force or decision trees prematurely. Because I think when you do that, it's like. Data driven and data driving are like two different things like you can't let the data drive everything because that's how you end up in like black swan scenarios or like random luck scenario. So I try really hard to like write a lot about how I thought about the problem and why it shows like the tests that I used to do like, you know, to understand them as label distributions and how I visualize the problem, why I took out outliers in the context. That's something that's like 16 hours of work and they just completely email me back, like never mind by like, I was like, Dang, I wouldn't have done this if I didn't even. He told me I was going to do a presentation, so like I had planned it all for a presentation. And so that was really not fun.

Harpreet: [01:08:54] Something similar kind of happened to me when I was interviewing for some, for some role, and it was essentially the same thing. I was really trying to showcase. My thought process. Like Here is, I am a clear thinker. Look how clearly I'm thinking through this problem and laying out my entire cognitive process for you to see how I'm going from point A to point B, which ultimately end just like the coding framework, which was on point is completely automated. This press of a button it would run, which Michael was so clean. Yeah, yeah, yeah. And I ended up just I went to their website, figured out how it was that they do their thing and then reverse engineered it in a way and bake that into my solution. And they didn't like that. They don't like the fact that I researched the company to see how they do things and let that inform what I do. But at the end of the day, I could only try a couple of different algorithms and just did the simplest ones possible. And yeah,

Carlos: [01:09:50] But I feel base case studies, and when I was LinkedIn, that one's weird. I'm actually still in it. They just they had an internal hire. I passed [01:10:00] both interviews. That one was crazy because it was a skill test, so I was like, I was all over LinkedIn like, how do I see people again? And I was like grinding, like I was grinding hacker rank. You send me like skill learning videos. I was watching everything on SQL. I learned my skill skill. I postgresql the nuance differences between them. I was grinding and I still bombed the SQL interview, but not bad enough to where I didn't understand. I couldn't do self joins with CTE without execution, so I had to do it entirely by hand from memory. And I couldn't like run code to make sure that my CTE was correct. Yeah, I hate being unable to run code during a live interview.

Harpreet: [01:10:43] That's the hardest part to me about SQL. Is you. I mean, there are like, I mean, Azure Data studio is nice. They now support Postgres, but they have like a built in notebook for SQL. So you can do ripple loops inside of a inside of a notebook to see how your query is outputting Data. Yeah, I need that. I can't. I need that to. It's hard for me, like, like stored in working memory and conceptualize, Okay, I take this table and I do this to it. And then this is what it looks like. And then, OK, now I've got to do this.

Carlos: [01:11:15] I just need to confirm, like I need to confirm that my key is not being weird with columns I meant to and stuff like, Yeah. Anyway, so that was rough. But I got through and I'm at the final interview PhD LinkedIn. But they said that they hired internally, but they want me to interview for like an economic position, said I was originally content experience. So we'll see you back. I'll do the third interview. Amazon two interviews I got through off personality, I think, and they tested them in our code, which was great. Like ACR stuff, I always ace our code. But they the third interview saying it was six people in eight hours on a Friday afternoon. I don't know why, so I set this up this way. And it was just grueling. It [01:12:00] was like no matter how much you knew, they knew more and they were not rude about it, they're actually really nice about it. But like, it didn't matter how deep, like how deep I got into models and why I chose one model of the other. They understood all those models that I used and the better versions and the alternatives, and they wanted to make sure I knew that I chose my model in context of constraints and other options. And that's not how it works, like in consulting, you don't get to like, play around with 10 different options. You have a viable option that you can explain, well, maybe one or two alternatives and then you pick the one that the client understands and the one that you can implement the soonest with the least risk and minimally viable expected value. And you implement that one as fast as you can and as good as you can, you don't get to play around. So that always hurts because I don't do I don't get to play around with modeling very much. So that was really hard to get derailed.

Harpreet: [01:13:00] Yeah. Do you feel comfortable talking about like a particular example

Carlos: [01:13:03] From from that? Yeah. So this one curve we were talking about, so the way they work because they asked behavioral questions in the context. So they tell me about a time like you disagreed with the. So the client decision on our project and how you committed your disagreement and blah blah blah. So the last really interesting good behavioral questions, and then they'll just grill you. So one thing I said is, Oh, you know, I used this one. I use Lasso for feature selection on this project. I chose the lasso because it was a pretty interpretable way to get these highly correlated things, like to select between them. And I had these functions available, and the client was aware of these things as to what alternatives I considered. I was like, Oh, you know, I had considered random forest and judging things based on variable importance. But the clients, you know, they're not fans of indeterminate models, they [01:14:00] need everything to be deterministic. So the idea that the force could output different things based on its random permutations wasn't wasn't amenable to them. And then I can tell you about how they were like, Oh, this is a decision tree determinant. And I was like, No, this is not determinate, blah blah blah. Okay, how come decision trees aren't all the same doing the same Data input? And I was like recursive partitioning takes subsets of the data and then I forgotten about, I forgot have forgotten that random forest uses bagging and bootstrapping like it's like they would just take you as deep as the math could go until you, like, started getting a little flimsy and once started asking me about like why trees within an ensemble random forest are non determinant. And also, like, don't return the same trees. Prior to pruning, I was like, Oh, they have.

Harpreet: [01:14:59] I don't even know if I can answer that one.

Carlos: [01:15:01] And the thing is, like, I had a research is after two. So I was just like, Dang. And it's just they get you there so casually. They're like, very casual about like, let's get that even deeper. Let's dove in deeper dove and deeper dove on deeper. Know talking about late interior allocation and trying to explain how ngram co-occurrence is how the marginal probabilities are assessed as opposed to, as opposed to further its effects arises. The words talking about like how co-occurrence and marginal probabilities differ mathematically from how factorization is done. Just like, dude, I don't actually know how Bhavesh arises. Like, I don't actually know

Harpreet: [01:15:44] That's the type of shit that makes me not like a data scientist. My question is like that. I'm like, Fuck man, can't you read a math book for that? And like, get it on demand like, why do I need to memorize all of this? I don't

Carlos: [01:15:55] Know. But they they were really good about making you feel like it's [01:16:00] OK. If you can answer this, as long as you're confident in what you do understand. So like, I was making mistakes, I was kind of going outside of my comfort zone and being like, Yeah, I think my understanding is that, you know, blah blah blah blah. Like, it uses like preset models that have relationships between words, you know, connecting the word finance to budget with the word net. I kind of started making stuff up. Which is what you do in consulting and you do not do it in an Amazon review. So that was really hard and out of this case study with which I really only heard it about because Mark was I talked to Mark randomly and he was like, God, come work with me. And I was like, OK, that sounds awesome. But this case study is about a rapid turnaround analysis. Like no modeling, no machine learning, which I like. I really think machine learning is overdone. In a lot of cases, it's about literature. So it's like linear, mixed effect modeling in the context of understanding product usage. And it was chaotic. I mean, like there was survey data. You didn't know the questions of the survey data, which makes it useless. Like you give me a data set with columns x one x two x three.

Carlos: [01:17:09] I'm saying, send it back to you like I like. I fundamentally disagree. The concept of trying to analyze data that you don't understand the features of. I think it's just foundationally bad. So I mean, they did do the column names and then I started, I was mining it and all this stuff and generating like all these like visuals are really cool, like violin plots with box plots overlaid on top of them talking about like the differences between these things. And then when I started trying to do, I did like cross validated universe isn't race like predictive power score. I was using linear, mixed effect models with different random and fixed effects for like gender, age and things like that and geography. And it was a nightmare because nothing worked. Nothing predicted anything. I are square. We're like zero point zero for the small star squares I've ever seen. And I was like, OK, this is actually similar to Data [01:18:00] and is entirely from wearing a uniform, just like a normal distribution. Oh, of course, they can pursue anything. It's actually all noise. So my whole case study is just like, I thought this, I found these patterns upon testing. It's pure noise. Yeah. And that's OK. That happens sometimes because it happens. It happens. Does not have to work. Your data could just not explain the situation that's entirely possible. Yeah.

Harpreet: [01:18:24] Yeah, I think that's an important point for people. Just because you have data does not mean that it is predictive in any way, shape or form

Carlos: [01:18:31] When you get an R score of zero point zero zero one. Just close them

Harpreet: [01:18:35] Up. And well, thank you so much for sharing your experiences with all the various interviews you've been going on. So what are you currently reading right now?

Carlos: [01:18:45] I'm reading this book Blockchain Chicken Farm. It's about this person who goes to rural China and details how we have an incorrect perception that technology and medicine activity go together in that, like urban space is more technologically advanced and like cities are more advanced than rural places and really just completely flipping that upside its head like blockchain. Chicken Farm is the name of the book, and it's about like 5G penetration in China and how these rural areas are some of the most technologically advanced and casually advanced in terms of how farmers are trading, using blockchain and stuff like that. The really interesting not very far into it, but it's really cool.

Harpreet: [01:19:28] Yeah, let's do just two questions from the random question generator. Real quick. I'll definitely check out that blockchain chicken farm book. All right. So first question up. What is one of your favorite smells?

Carlos: [01:19:40] Oh, there's a candle like tobacco in the water. I like really old school like office candles like things that smell like brown, I guess.

Harpreet: [01:19:48] Yeah, dude. Like I, I love candles like I fucking love candles and I love tobacco scented candles like about it. I don't smoke. But like tobacco candles, they don't even smell like smoke. [01:20:00] They just smell like nice. But then I literally was like, Dude, I am burning money actually burning.

Carlos: [01:20:05] Like, Oh no, it's worth it's burning money. It's about burning happiness. Yeah. Yes, that's the capital of sweat.

Harpreet: [01:20:15] Ok, what's what's something you wish you figured out sooner?

Carlos: [01:20:18] Oh, bitcoin. I mean, like, I'm not allowed to say anything else. How to hold a thousand bitcoins for 10 bucks in two thousand eleven? Yeah, it wouldn't be on this far right now. I don't know where I be there.

Harpreet: [01:20:34] All right. Well, Carlos, thanks again for coming out to the show. I appreciate having you here. Appreciate seeing you around the happy hours, man. Thank you so much for being here and super excited for for this book and hopefully come back on at some point when you write the second one.

Carlos: [01:20:48] Oh, I might have to write one on NFTs and stuff. I'm I would do that. But yeah, man, super cool to hang out as always, and I'll see you at the office tomorrow.