How Castbox is Remaking the Podcast Industry. 

Renee Wang is the founder/CEO of Castbox, a leading innovator in the podcast and audio space. 

CastBox Renee Wang

What opportunities are you seeing in the podcast space?

By 2020, 30% of all broadband sessions will done without a screen. These activities are getting more and more popular and audio is one of the main channels for users to access information. This is a global trend. In particular, paid audio content is getting stronger. In China, before 2015, nobody was paying for audio content. Since 2016, it has grown quickly. For example, in 2017, $500 mil USD was spent on paid audio content. By 2019, that figure will be US$1 billion. There are similar signals coming from other countries too, including Korea and Japan. Paid content will create incentives for better content creation.

Looking back, you can see all the ways people have accessed information. People used to watch TV, now it’s Netflix. People used to read magazines, now it’s Instagram. People still listen to radio but this will be replaced by a more personalized and smarter platform like podcasts. Machine learning and natural language processing is also getting better at predictions so this will drive further adoption.

Castbox solves a big discovery problem by providing in-audio searches. How are you using machine learning to process the episodes?

The way it currently works is we transcribe all audio into text. We then add timestamps to every phrase and index all the text into a search engine. Then, using natural language processing, we figure out what the key words mean. For example, if you searched the term “blockchain”, it will tell you where in the episode they mentioned blockchain. It may not be the title or description, but we can show that it was mentioned at 52 min and 21 seconds into the episode.

However, in the future, this will change. I believe the best UI is no UI. Currently you still have to take a lot of actions on the screen. Once Google Assistant and Siri get smarter, we will be able to leverage such voice assistances to make a truly voice and audio only interface. You will simply talk to your device, whether that is a smart phone, smart speaker, or smart car. All the search will be done on the backend and we’ll deliver to you the best results. If you like the episode you’re listening to, you can let it keep playing. If not, you can skip it. Using your response, the machine will more intelligently serve more personalized results to you. I believe this will happen soon, especially when you look at how powerful Google’s new assistant is.

How long does the above process take and is it fully automated?

For a one hour episode, it takes about one hour and 10 minutes to do the whole analysis. It is fully automated.

Tell us about the vision you have for Castbox original content.

We are positioning ourselves as the Netflix for audio. However, the current strategy is not to do exclusive content. Rather, we are using an open distribution strategy and launch the content on all platforms. Because our original content is well both produced and interesting, it’s been getting a lot of listeners. One of our top shows, Don’t Mess by Christine Sydelko, was number 1 in the iTunes comedy category on the first day it launched. By reminding the users that the content is produced by Castbox, we are using the content as a way to attract them to our platform. we are confident that once users will see that great functions we have, they will stay with our podcast player. Also, because we are a platform, we also have the data on what content users like best. So we try to produce it tactically. We try to understand what kind of niches need to be filled. For example, we’ve noted that the majority of podcast listeners are males. So we are trying to target more female listeners to that they have more content too. This is important because females are more likely to share and comment. We’ve seen this across our original content, with 60–70% of our audience being female and the engagement rate is very high.

Being a global company with a global audience, are you targeting your listeners geographically?

Content is a very localized business. If you’re not localized enough, it’s very hard to make great content. Thankfully, we have very talented team members in the US so we can create great content for the US audience. At present, we’re making mainly English content, and we’re targeting the US because of its culture. Pop culture is very important in the US and by making content based around such culture, it can have a global audience. Also, by creating original content for the US audience, we have our own IP which we can license to turn it into a series. Making content for other markets is more difficult. For example, if we make content for Indonesia, it’s unlikely to have global reach. That being said, we do have a team in Korea and we are working with Korean publishers and producers to create content for them. We’re not doing too much in China because there are already three unicorn companies that are doing great work in the audio space. We don’t want to waste money or resources competing with them.

Revenue generation for podcasters has so far been limited to ads and donations through Patreon. Tell us how why you’ve launched a paywall service into Castbox.

Every day as a company we ask ourselves, ‘how can we help our creators make money?’ Because that is our only chance to grow bigger. The current situation has a few pain points. Creators in general are not being rewarded for their real contributions. Instead, the middle man takes most of the revenue. Look at Spotify where around 55–60% of revenue goes to the record companies and only 11% goes to the musicians. As a donation system, Patreon is great, but not a lot of users are on it and only 5% of them are willing to donate. Also, it’s centered in the US and internationally the percentage of donations is even smaller. When we think about the consumers, the users that do the sharing and engaging with comments also get nothing. It is unfair that they are not being rewarded for their contributions. I want to create really fair terms for all stakeholders. We just launched a paywall service in conjunction with Wonderyas the lead partner about three weeks ago. Although it’s still too early to see an uptick on subscriptions yet, we’re optimistic that this will help support the industry further.

You’ve recently integrated blockchain into Castbox for payments. How will this work?

We think blockchain can resolve some of the problems described earlier. We have integrated a digital wallet inside Castbox and, for certain podcasts, have opened the reward function. We finished all the development but have not activated because we want to get permission from the creators first. The way it will work is that all behaviors will be recorded in a smart contract. As the content is consumed, all stakeholders participating in that, including the content creator and the listener that shares or comments, receive a percentage of the revenue. We are still working on the tokenomics and incentive structure. We want to get this right and will be focused on implementing a framework for how listeners are rewarded for their tasks and creators for their value of content. Our token is called BOX, and it will be freely tradeable once we are listed on an exchange. It is an ERC20 token for now. We also plan to distribute BOX tokens as follows: 25% presale, 15% team, 30% ecosystem incentives, 20% foundation, and 10% partnerships. I don’t believe this should be a zero-sum game and I know that by opening this up, the whole content industry can boom.

Does Crypto = Dotcom?

The great challenge of bubbles is that they can really only be identified in hindsight.
— Tadas Viskanta

2017 has been a wild year for cryptos. As the year progressed and the price increased, so did the volume of those clamoring that we are in the midst of a bubble that is destined to end in tears and disappointment. Unfortunately, nobody knows. We certainly might be, but bubbles are notoriously difficult to spot when you’re in the midst of one. Yet, labelling an asset or market as a bubble is the easy and safe path because eventually, when correction day comes, the detractors will feel vindicated. The fact remains though that nobody keeps track of how many times these voices were wrong in calling a top and how much profit they missed along the way. It reminds me of the headlines we see each year claiming that this will be the year the stock market collapses — only for the market to continue ascending to new highs.

Yesterday, the Wall Street Journal published this article questioning whether Bitcoin was in bubble territory. The article came with the chart below showing the blistering pace that Bitcoin appreciated in 2017 alone. But I find the chart, and the thinking behind it, a little misleading. At first glance, it’s certainly startling and it looks like we’re all fools for holding a flaming bag of ****. However, when I compare the crypto frenzy with the dotcom bubble, there are a few important differentiators to think about.

  Chart credit:    Wall Street Journal   .

Chart credit: Wall Street Journal.

Global Investor Base

Firstly, the dotcom bubble was generally centered in the United States. Investors were either based here, or, if they were international, were sophisticated enough to have access to the US markets. The dotcom stocks were therefore supported by a smaller investor base with a smaller pool of capital relative to the global crypto market. Access to the market was easy in the US but was far more complex for international investors. Crypto assets can be purchased anywhere in the world (although in some jurisdictions, like China, they do require some hoops to jump through due to regulatory restrictions). This global base gives them a much larger pool of capital to draw from than the dotcom stocks had — meaning that this “bubble” has the potential to get much larger.

Dotcom Market Cap Dwarfs the Crypto Market Cap

Secondly, at the bubble’s peak, the dotcom market cap was worth roughly US$1.6 trillion in value. A hefty amount, which largely vaporized once the bubble burst. Comparing that to crypto assets, the current crypto market cap(at time of publication) is “only” US$300 billion, which is less than 1/5th the size of the dotcom bubble. Of that US$300 billion, Bitcoin represents about US$160 billion —just over 50% of all crypto assets being tracked. The chart above does not compare those metrics as it only shows the 2017 rate of change. That is an important indicator, but by looking at Bitcoin’s vertical yellow line in the chart, the reader is left to think that it is being valued at a greater level than the dotcom stocks were. If we want to compare apples to apples, Bitcoin would need to grow 10x to have an equal market cap. Now, the crypto asset market cap does not need to match the absolute dollar value of the dotcom market cap before the “bubble” bursts. But when you consider that crypto assets are accessible by an enormous global market (not just the US), most of whom are still skeptical, it makes me think that we probably have not yet reached the point of investor saturation. As such, there is probably a lot more capital due to flow into this new market.

It’s the Reverse Bubble

Thirdly, most speculative bubbles in that chart were initially inflated by institutional investors. For example, the dotcom bubble did not start with your grandma funding pets.com. It started with venture capital checks that were written by some pretty bright people. This was then followed by the investment banks, hedge funds and private equity. Only after the startups went public (so that the institutional investors received liquidity on their investments), did retail investors get a bite of the apple.

With cryptos, this pattern is operating in reverse. What began as a grassroots movement of cypherpunks, enthusiasts and early adopters, was not treated seriously by institutions who dismissed it as a bubble and/or fraud. Their myopic outlook can probably be chalked up as another case of the innovators dilemma. However, the institutional investors are starting to stir, especially as they realize that the help on their Connecticut estates got better returns with Bitcoin this year than they did. In all fairness though, the financial infrastructure for the institutional entry is only now rolling out (CME futures in less than 2 weeks, Nasdaq futures soon after, and, hopefully soon, ETFs), and so the big money may only just be joining the party. This makes me think that either all those ivy league MBAs are either incredibly foolish as they start entering at levels their detracting peers claim to be the top of a bubble, or we’re in the early innings of something much bigger.

Just the Warmup

Taking all this into account, perhaps this monstrous run to $10,000 (the scale of which we probably won’t see again in our lifetimes) is just be round one. We probably won’t see 1,000% returns in 2018 and beyond, but if we get a more modest 100% gain from here, it still gets us to $20,000. Of course, it won’t rise in a straight line and there’ll be plenty of opportunities in the near term for pessimists to pat themselves on the back. But if over time the bullish case turns out to be right, then in a few years we may look at this period as just a little bump on an outrageous chart.

Disclaimer #1: This is not investment advice. Do your own due diligence.

Disclaimer #2: I currently hold bitcoin, as well as other crypto assets.

How ICOs Drive the Price of Ether

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Ether has recently been on a tear. After clearing the highs set this summer, it’s launched itself into the high 400's and may climb further still. I recently considered what role ICOs play in driving the price of Ether — whether higher or lower. 2017 has seen over US$3 billion invested in ICOs, with some raises totaling in the hundreds of millions. 2018 looks set to continue this trend, especially with the addition of more regulated ICOs, also known as ICO 2.0. This wave of cash sloshing its way into Ether can certainly play a role in moving the currency’s price.

This is because the majority of ICOs have been utilizing the ERC-20 token. This is a standardized token that sits on Ethereum allowing companies to piggy back off Ethereum’s blockchain and infrastructure when launching their token. It has been a tremendous innovation, creating a simple and relatively low cost way for startups to tokenize. One can also build on Bitcoin, Nxt and UBIQ, however Ethereum’s platform has seen the widest adoption and has become the default option for ICOs.

When investors participate in these ICOs, they first need to buy Ether. With sufficient scale, that increases demand and therefore contributes to driving the price of Ether higher. We saw this over the 2017 summer where Ether exploded 10x from about $40 to over $400 in under 2 months. Granted, some of that massive runup was due to pure speculation in Ether itself, both as a response to the price action, and also in anticipation of the massive ICO hauls that were due to come. However, hundreds of millions of dollars worth of Ether was being purchased to participate in the ICOs. This added to the supply/demand imbalance, contributing to the upward squeeze we witnessed.

The question then becomes, what role do the ICO startups themselves play in the price action? Upon successfully completing their ICO, they are flush with significant cryptocurrency holdings. If they liquidate some of their holdings into fiat currency, they will be selling Ether, thereby adding supply. They may choose to do this for any number of reasons, including:

  1. Having just hauled in 8–9 figures, they need to start getting to work — building out their product and network, marketing, and of course paying the founders. These expenses are largely paid for with fiat currency, requiring them to sell a portion of their holdings.
  2. If the price of Ether falls as part of regular volatility, they may add to supply by selling some of their holdings in order to protect their capital. Presumably the scale of such selling would rise if the “ICO bubble” (if that’s what we’re even in) pops.
  3. If the startup is struggling (or if they swindled their investors), the founders may bail, sell their holdings and move to the Bahamas. This is obviously a tail risk and is unlikely to occur with sufficient volume and on a sustained basis to move the price meaningfully.

These actions, amongst others, can suppress Ether’s upside by adding supply. Depending on the dynamics of Ether’s price rise, some startups may hold their positions because they expect them to be worth more in the future. Others, who lack conviction in a runup, may sell into it (to cover expenses etc) with the expectation that the price rise will fade.

With a healthy ICO market, this added supply would most likely be offset by added demand from investors stepping in to either participate in ICOs or speculate with Ether. With significant ICO volume expected into 2018, starting with tZERO’s ICO in December 2017 (a potential US$500 million whopper that will be relying on ERC-20 tokens), Ether is unlikely to suffer a shortage of demand. In such an environment, the ICOs become a positive source of liquidity, provide market stability, and add to the upside momentum.

However, the inverse is also true, making ICOs a double edged sword. With a meaningful downturn, or if the “ICO bubble” pops, the panic will create a collective rush for the exit, including from ICO startups. Buy-side liquidity would be drained and the startups (for the sake of capital preservation) end up exacerbating the fear, resulting in a deeper and steeper dive.

Disclosure #1: At the time of publication, I hold positions in Ether.

Disclosure #2: This is not investment advice. Make up your own mind.

Why you should do a regulated ICO

If you thought 2017 was a wild year for ICOs, strap yourself in. 2018 is set to get more exciting as we’re going to see the true power of this financial innovation unleashed for startup and corporate fundraising. And, unlike 2017, it will come with legitimacy, transparency, and trust. While many of the 2017 ICOs were based on nothing more than the vapor and fluff of a white paper, the overwhelming trend for 2018 will be toward regulated security tokens (there are 30+ in the pipeline at Wilson Sonsini alone). For some companies, it represents a hard fork in startup and corporate fundraising and will change the size and frequency that companies will need to raise. I will outline how these regulated ICOs work as well as their wider potential impact.

THE ICO GAME PLAN THUS FAR

Thus far in ICO-land, most companies have been trying to define their tokens as a utility token in order to not be considered a security by triggering the Howey test tripwire, as reiterated by the SEC this past summer. However, in most cases the utility definition doesn’t fit and what’s being sold is in fact a security under the law. In life, I’m all for begging for forgiveness over asking for permission, but when it comes to being subject to a SEC enforcement action, you may not receive much forgiveness. The penalties are steep, ranging from fines, forced return of the capital raised, and even prison. A few ICOs have opted to be regulated (eg. Science) and, in most cases, have relied on the exemptions in Rule 506(c) of Regulation D (“Reg D”) which allows for an uncapped raise provided it’s limited to accredited investors. The problem with that approach is that you cannot raise from a broad enough base as those earning under $200,000 or with assets under $1,000,000 are locked out. This stifles the ICO’s financial innovation potential. Furthermore, Reg D security tokens are restricted securities and are subject to a minimum one-year lockup period, thereby suppressing their immediate liquidity. With the poor fit of Reg D, and the looming threat of regulation, some erroneously concluded that the ICO was therefore “doomed to fail”. That outlook is both uninformed and lacks vision.

HOW REG A+ CHANGES THIS

Enter Regulation A+ (“Reg A+”). Thus far it has been the lesser known cousin of Reg D. But that is going to change because this exemption, which was initially conceived to handle the more vanilla crowdfunding innovation of yesteryear, allows your company to raise up to $50,000,000 per year from accredited and non-accredited investors (see below) located anywhere in the world. Reg A+ security tokens have no lockups and are immediately tradeable (unless you include a contractual lockup). You are also not subject to advertising and solicitation restrictions, other than not lying and providing a few disclosures. This lets you blast your ICO marketing campaign through social media, podcasts, Reddit etc. Furthermore, Reg A+ has a novel feature called ‘testing the waters’ which permits you, while your offering is in the pre-qualification stage with the SEC, to market and promote the ICO in order to gauge investor sentiment. This differs from the current ICO pre-sale concept since you are prohibited from asking for or accepting any money. It does, however, allow you to lay the early groundwork for the campaign and energize your investor base. Reg A+ comes in two flavors: Tier 1 and Tier 2. Tier 1 is limited to raises up to $20,000,000 while Tier 2 allows raises up to $50,000,000. We’re going to focus on Tier 2 here, largely because it is exempt from US state blue-sky laws as well as caps on the number of participating non-accredited investors.

WHAT’S REQUIRED?

To be eligible under Reg A+, your company must be organized and operating in the United States or Canada (international subsidiaries are permitted). You also need to have the offering qualified by the SEC. And this is the catch. Although not as cumbersome and expensive as an IPO, qualifying will still require reporting, disclosures and audits. These include disclosures of the company, the offering, the material risks, distribution plans, use of proceeds, business operations, financial conditions, disclosures about directors, executives, and key employees, executive compensation, beneficial security information, related party transactions, two years of financial information, material contracts, agreements and corporate records. Your company must also be independently audited and be subject to ongoing reporting on an annual or biannual basis. As you can probably gather, it’s not exactly cheap (easily in the six-figures) and it will take about 2–3 months to clear the SEC (and longer if for some reason the SEC is not satisfied).

SHORT TERM PAIN, LONG TERM GAIN

Naturally, some have balked at what they consider to be onerous requirements, and intend to geofence their way into a large ICO. But I would propose that complying with Reg A+ is arguably a better path for many companies and the ICO ecosystem as a whole. Companies will not be able to create a scammy vapor-token by waving that mirage-like white paper that promises everything and delivers nothing. Reg A+ infuses trust and transparency, both of which are fundamental tenets of the blockchain.Furthermore, since most of the large economies (where in all practicality the vast majority of your ICO investor base resides) have either already, or soon plan to, regulate ICOs (and in some cases ban them completely), good luck raising enough from the remaining states. You need to play ball with the regulators since that opens up the broadest geography for your investor base.

Moreover, the math could be pretty damn good for your company. If it costs you roughly $500,000 in legal, audits, accounting, and marketing, to establish credibility, but in exchange you could get up to $50,000,000 in return, you’ve made 100x — all with no equity dilution, no hat-in-hand VC pitches, retaining your board seats, avoiding shareholder battles and activist investors, not being subject to the same quarterly earnings headache of a public company, and creating a token that could further rise in value (thereby improving the company’s overall valuation). That sounds like a pretty sweet deal.

IT’S A HARD FORK FOR STARTUP FUNDRAISING

And this is where the startup fundraising hard fork occurs. Many startups find themselves locked in the endless fundraising loop. As soon as your seed round closes, you are building in anticipation of your Series A. Once you hit that mark, you are looking out towards the Series B. One of the frequent things that executive teams complain about is how distracting and expensive (both in hard costs, opportunity costs and just sheer exhaustion) the months of wooing, pitching, negotiating and closing investment rounds are. With a sizeable Reg A+ raise, you could capture well into the 8-figures in a legal and transparent manner. It could set you up with a very long runway for your team to freely develop, innovate and scale your product. But since there are substantial costs associated with Reg A+ qualification, and the fact that the disclosures are quite detailed and broad (creating a high hurdle for vapor-tokens to receive qualification), early stage startups may be best positioned if they first raise a seed round that allows them to develop their product and cover the cost of qualifying.

And, as with all startups, an ICO does not get you out of having a real product, with a legitimate token, that serves an addressable market. You can’t just bolt a token onto your existing startup idea in the hope that you can cash in. The token must be organically woven into the fabric of the product so that it supports long term adoption and use. It is in both the company’s and investor’s interest for the demand and value of that token to rise. It won’t sustain if you have a phony token and your product stinks.

THE MISSING PIECE IS COMING

Lastly, security tokens do require some additional infrastructure and it looks like this is coming in 2018 too. One of the missing pieces is an exchange. I mentioned earlier that with Reg A+ you can raise from non-accredited investors. There is a small catch here. The amount the non-accredited investor contributes is limited to 10% of their annual income or their net worth, unless the token will be traded on a national security exchange. These are SEC and FINRA regulated exchanges that must be created specifically to trade regulated security tokens. These exchanges are on their way, with tZERO(largely owned by Overstock) being the first out of the gate. With the regulator’s blessing, trading your token on such exchanges will allow you to raise from non-accredited investors without income/net worth caps, will provide liquidity for the tokens, and will probably be the moment that ICOs go mainstream. From all accounts, this could be the beginning of something quite extraordinary, and very soon your Uber driver will not be gabbing about the price of Bitcoin, but about some ICO you haven’t yet heard of.

Blockchain will Change Real Estate Forever

An interview with REX co-founder, Stephen King, on bringing the blockchain to real estate and recovering from a bungled ICO.

Tell us about Rex and what inspired it.

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Russell and I met in November 2015 and were both heavily engaged in the Ethereum communities. I was trying to work on something in the commercial real estate sector, and he was working in the residential. We thought that Ethereum would be a great tool to reduce real estate transaction costs. However, it will probably take at least a couple of years for the infrastructure to mature. We came across another protocol called IPFS which we realized would change the way data was distributed. The IPFS protocol says this: There are millions of consumer laptops/computers in the world with unused storage and bandwidth. Let’s pool these resources together. We can pay users for unused storage while decentralizing the data. This will unravel the big data silos like google, Facebook, etc. An example would be if I send you an email using Gmail. Today, that email will go from my machine to Googles server then to your machine. IPFS says, lets have that email go directly from my machine to your machine (or the shortest possible route). By coupling that with Ethereum, we figured we can really bring costs down and open up real estate information on a global scale. By doing that, people can now have access to this information and build whatever they want. So we decided to kick things into gear in January 2016 and decentralize the way real estate information was being transmitted across the world.

We built out a proof of concept, which we presented at a conference in Newport and again at Shanghai. We met an angel investor there who gave us a small cash injection. We were able to take this data engine which we had built and begin to lay this application on top, which we call an MLS as it is analogous to what people know. That was all connected by June 2017 and we released the pre-alpha. We wanted to do that before the token sale so people could see the progress we had made.

What has the ICO experience been like?

Well, we got off to a rough start. We went out on Monday and had our token sale. Unfortunately, we realized about 21 minutes in, after we had raised about $1.33 million, that the money was going into a truncated address. Because we had to improvise on the way we launched the contracts, the address looked a lot like the address we used to store the funds on except for the last few digits. So that meant that those funds went into a dead address. We had put so much emphasis on not getting hacked that we didn’t pay enough attention to this small thing which cost us significantly.

We immediately launched a new address and continued to accrue funds. But the gravity of the situation became clear to us as we were not getting those funds out. We drained what little money we had on our business accounts, which we contributed. Also, because we had been in the Ethereum community for some time, we invested early and those returns were nice. We pulled the balance out of our personal accounts and made up the $1.33 million. We know the technology is going to work and so we see it as investing in ourselves.

Soon after we told the community what had happened, which we rightfully caught a lot of flak for. Over the next couple of days, we continued to get contributions. We also met with a number of major real estate groups, who were reacting much differently than the crypto community. They applauded us for our transparency and the way we handled things. One of our investors told us he had even more faith in us now and has since invested more. That was an odd twist of events but that worked out to our benefit.

We’re now up over $3 million in contributions. We’re recovering from that event and have about three weeks left with the token sale.

What was the benefit for Rex having an ICO?

The main benefit is that your future users are buying the tokens. Those that are going to use the products, assuming you’re selling a utility and not a security, are buying into you much like they would be buying into a Kickstarter campaign. The benefit for us was that we had a group of followers for the last 18 months who are in the real estate industry and deal with the many pains that REX can solve. It gave us the opportunity to allow them in. It also gives you a much wider audience. You can go to a venture fund or angel investor and get the funding in one place, which can be a good thing since there are fewer technical obstacles. However, with a token sale you’re raising from the entire world so you’re getting people from all over the place. We’ve gotten invaluable feedback through this process, including long emails about how things could be treated differently. If we had raised from Google Ventures, we’d have gotten a lot of advisors but those guys are quite busy.

Do the contributors get any rights with their tokens?

We modeled it on the Howey test and architected the token around that. There are no rights and that the tokens are solely a utility on the platform. They are used to access certain features, to help us scale by paying people to list, and can be used to exchange and trade data back and forth or to create profiles.

Tell us more about the product and how you’re solving the current pain points.

My dad is a developer and I had worked in the real estate industry for the last seven years. The biggest pain point for us was access to the data. It was costing us about $10,000 a year and we were only getting regional information. One of our missions is to unite all of the real estate databases around the world and lay a technical fabric on top of the blockchain so they could all communicate with each other. We had talked to major real estate firms, who have operations around the world, and whose databases have a difficult time communicating with each other. Our core mission was to create a decentralized database on how this could be connected. On top of that, we’re building an application that would allow for the individual broker or seller to upload their information. For doing so, they get REX rewards, the tokens. They use these tokens to either create profiles or to send them to an exchange and sell them for a fiat currency. For the firms, what we’re saying is the way that you operate your data today is you give it to a major portal provider so if someone comes to your website to search your listings, they’re looking at your data through your branded webpage. But on the backend it’s pulling that data from the portal provider. You’ve giving it away and that is your most valuable asset in our opinion.

On REX, we’ll give you the piece of hardware that’s the size of an iPhone. It will be preloaded with REX, IPFS and Ethereum node. All that means is that you’re going to have all your information on there and will be able to download any market in the world. If you want China, India, the Philippines, you can download it. You maintain control over your data and you can pull in whatever information you want on this system. You can’t do that on the current system.

Where we’d like to get to, once the technical infrastructure develops, is the transaction component, such as escrow services, tokenizing actual assets and leases. It’s the longer term goal but not our core focus right now. Our current focus is just uniting and assembling the database.

What is the incentive structure for contributing data?

For every listing a user uploads, they get 15 REX. They can use the REX to access certain features, or they can sell it on an exchange. We’re trying to scale by saying that nobody really owns this information, it is a global data pool. Whether you are a real estate broker or whether you’re simply someone in New York that knows the real estate market well, you can create certain applications on REX and monetize them. For example, let’s say you know the downtown New York office market really well and you’re coming across 10–15 deals that are going to close and go under contract. For our default feed, there is only so much crap that we can weed out. Real estate will always be a local business to some extent. But you know that office market really well so you start going through the open database and throw out the bad listings. You start to promote your feed. Since you’re doing a good job, word gets around and people start to subscribe to your feed. You now have a following of 10,000 users, to whom you can promote listings or advertise. And you’re compensated in REX. We don’t take a piece of that. We’re building out this decentralized ecosystem so the data is better for everybody. Those that contribute value are actually paid for the work that they put in.

How does the user verification system work?

It’ll be very hard to build a good reputation on REX, but when you do so, you’re not going to want to throw it away in order to game the listing contract. You’ll make more money doing good than bad. If you post a listing, it goes into a two-week arbitration process. During that time, anybody has access to these listings. Anybody in the world can flag the listing, at which point in goes into a second arbitration process where, at first, we’ll have to verify manually whether that listing exists or not. We’re looking into eventually pooling the wisdom of the crowd through prediction markets so we don’t have to do this manually. In order for someone to flag your listing, they’ll have to pay to do it and put a deposit down. If it is a real listing, the person that flagged it loses that money and you get your listing reward. If you flip the table, and you were trying to get the listing reward by uploading a piece of spam, and the guy that flagged you was legit, then it would be verified that you uploaded a spam listing. Your reputation goes down significantly, you lose the listing reward and the deposit you put down to upload the listing, and the guy that flagged you gets the reward.

What legal hurdles are you running into scaling the product?

One of the legal hurdles that we initially have is ensuring that the data actually belongs to the people that upload it. We have this system called ‘proof of approval’ where we will use a combination of technologies including machine learning to prevent people from dumping data from Zillow or other online resources into REX. The system will scrape it out right away because we respect their ownership of the information. So that has been one hurdle.

In terms of scaling, what has been difficult but where we are finding a solution is with the arbitration process. How do we scale that and tell which properties are legit and which aren’t? Initially we’re going to use human capital to do that (both internal and through bounty programs) but with a combination of techniques/technologies introduced through prediction markets we can decentralize these processes.

On the transaction side, every property that gets uploaded into REX gets its own unique hash. We figure that one day that will be a good genesis hash to be that property’s title. We’re getting the data so we might as well document it as an unverified genesis digital title. Eventually we believe municipalities will use the blockchain to document title. There you run into a lot of obstacles having to go to municipalities and every country is different. We’re staying away from that right now and we’re just focusing on a few specific cities in China, Australia and the United States.

Given the complexity of the title transfer process, how do you plan to integrate REX into that world?

We’re trying to build out an ecosystem for more applications. We’re talking to different companies and applications that could integrate with REX and sit on top of it. Any money that they generate we don’t touch. We’d direct our users, for example, to the bank that deals with crypto lending, or the title company that can facilitate the transaction.

How does REX serve the earlier stages in the transaction, such as negotiations, disclosures, inspections etc.

For those we’re just going to offer boilerplate architecture similar to how someone would checkout on Amazon. Everybody would be able to see the smart contract in real time and who has to do what. If there are changes you’d relaunch the new contract on the chain. We’re not sure how involved we’re going to get with that. We’re going to offer the architecture, the guidance and then work with individual attorneys, brokers and regulators with how to introduce this new technology in a way that would work for everybody.

We’re not experts in everything nor do we want to be. We just want to ignite the spark to open the door for innovation in real estate globally so that the transaction process is cheaper and more efficient for everybody.

Have you found receptivity to differ across the three markets?

We’re talking to one of the biggest brokerages in China. They actually reached out to us. They’re keen on the blockchain technology and see a lot of value in what we’re putting together. We’ve had similar feedback from Australia too. The United States was difficult at first, more so because people didn’t understand the technology. In the last 3–4 months, with Ethereum being in the spotlight, it has changed tremendously.

From Failure to Victory. Team New Zealand’s Startup Lessons.

 © Richard Hodder

© Richard Hodder

First they ignore you. Then they laugh at you. Then you win.

That’s Gandhi’s quote.

And I thought it fit quite well with how the formerly-defeated Team New Zealand out-innovated the mighty Team USA in the 2017 America’s Cup. Their story is packed with lessons that apply to your startup.
 
The quick backstory. After losing the 2013 America’s Cup in one of sport’s greatest ever comebacks (read more on that ‘miracle’ or ‘gut-punch’, depending your bias), Team New Zealand was on its back. The loss amplified internal divisions, unleashed a merciless press, and jeopardized the backing of important sponsors, the New Zealand public, and the New Zealand government. From the ashes of defeat, the team went through an introspective period. Without the funding that Oracle’s billionaire founder Larry Ellison pumped into Team USA, it was forced to trim the fat and find its edge, otherwise it was lights out. To say they were behind the development curve is an understatement. While the other syndicates were already on the water testing their boats, Team New Zealand was still figuring out if it was in the game. By the time they got their boat out, they were 18 months behind their competitors.

However, during that time, they weren’t idle. They sought out unconventional experts on LinkedIn to join the ranks, especially from fields like hydraulics and aerodynamics, and they paid particular attention to those without yachting experience. By recruiting some outsiders, they were able to nurture fresh ideas and, as skipper Glenn Ashby stated, to “throw the ball out as far as we possibly can, and run after it really hard.” Of the many ideas that percolated through this process, one stood out as revolutionary. Rather than relying on burly-armed grinders (the default method of all teams), they recruited Olympic medalist cyclists, installed bike stations, and went with leg power. The theory was that leg power would beat arm power. That obvious, yet hidden, fact evaded every team in the 150+ years of this sailing competition. Not only was the thinking right, but they discovered that by having their arms free, the cyclists were able to operate other equipment on board.
 
Game changer.

As Gandhi had it, Team New Zealand was initially ridiculed for its approach. There was plenty of skepticism, especially from the incumbent Team USAwhich, having been in the privileged position of victor for the past decade, stuck to the tested formula that led it there. However, just weeks before the competition started, Team USA realized the superior power that the cyclists brought to Team New Zealand. Unfortunately, the best they could do in such short time was add a single bike station to their boat. It was too little too late, and Team New Zealand powered to a 7–1 redemptive victory.
 
Of the many lessons to unpack from this saga, here are a few that stood out to me that apply to entrepreneurs and businesses at all stages.

  1. A posture of humility and curiosity, coupled with deep introspection, is necessary to consider one’s strengths and weaknesses. There must be a continuous quest of inquiry into assumptions whereby our own status quo paradigm is deconstructed. The examination must go beyond just recognizable weaknesses, but also into perceived strengths, which may just be a weakness in disguise. For example, you can get ever bigger, stronger, and faster sailors to work those grinders, but you’re still not going to beat the pedal power on the other boat.
  2. Don’t think that your large funding round, the patronage of your VC’s, or that great partnership with the Fortune 100 company gives you breathing room. We’re in era where access to technology is flattening at an accelerating rate. A smaller and scrappier team, forced into a do-or-die corner, can sail in and out-innovate you.
  3. Conversely, if you’re the one with limited resources, use that to your advantage. I sometimes hear clients lamenting that if only they closed a higher round they would have more resources to increase their odds. Yes, the runway is longer with more cash. But it can also provide a false sense of security. Work with what you have, find a better way to do things, test it, and deploy.
  4. Be aware that previous conclusions can shut you off from alternative and new ideas. This is what Charlie Munger, in his famous Harvard speech on human misjudgment, calls the “Commitment and Consistency Tendency”. Find ways to test the veracity of what you think is true.
  5. Consider non-linear hiring of experts from different industries who, along with their core expertise, bring fresh thinking to the problem. Even in tech, there is the trap of stodgy tunnel vision. Hiring those with complimentary skills from outside the traditional channels can expand your team’s vision and help rethink assumptions.