Montana Blockchain Innovator: Leigh Drogen
"The implication of crypto is that Americans will end up saving a tremendous amount of money on the cost of every economic transaction they do – whether it's a lower interest rate you have to pay when you take out a loan, or a lower fee associated with buying that cup of coffee."
The following is an interview with Whitefish resident Leigh Drogen. Leigh is a General Partner and Chief Investment Officer with Starkiller Capital, an institutional investment management firm applying quantitative strategies to the digital asset space.
How did you get involved in crypto?
“I got involved in crypto back in 2013 when I bought a little bit of Bitcoin. I felt that in order to understand something you had to get your hands dirty and try it, so that’s what I did.”
“My original thesis on crypto was that it was just a math project as religion – basically that it had no actual use cases – but that thesis didn’t last long. In 2017, I began to get interested in Ethereum, which is the big smart contract blockchain. That is when I realized that crypto could have serious implications as an economic efficiency tool.”
“Shortly after, I began to do research with a friend in the hopes of developing models for investing in this space. Later, in October of 2021, I officially launched the firm Starkiller Capital.”
Starkiller Capital’s website says its core thesis is that “the most important paradigm shift crypto provides is the embedded incentive structures to bootstrap network effects inside of decentralized systems.” Could you discuss what exactly that means?
“To illustrate the bootstrap network effects inside of decentralized systems I like to point to a project called Hivemapper. Rather than taking Google’s approach of sending out their vehicle to map roads, on the Hivemapper network everyday people can install a dash cam and provide that service.”
“By doing this they have effectively built a decentralized mapping service, where hundreds of thousands of regular people driving their cars can provide a service for Hivemapper and in return get a piece of the equity of the hive mapper protocol.”
“To put it another way, our thesis is that crypto creates an incentive structure that encourages both the participation necessary for widespread adoption and liquidity necessary to make startups a reality.”
Why do you think crypto matters?
“The average American experiences this kind of inherent tax that they are paying every day, every month, every year, just for transacting in markets. Whether you are taking out a loan, getting a mortgage, using a credit card, or buying anything – you are paying this inherent tax on transacting.”
“For example, when you buy something with a credit card the merchant who sells you their product is paying a percentage to the credit card company for the right to use their network. Well, guess what? They’re not the ones paying that 2%, they pass the 2% along to you right in the cost of the goods and services.”
“Crypto at scale can solve this. With crypto, you don’t need to pay that intermediary that 2% because the underlying blockchain acts as the trusted intermediary. The implication of crypto is that Americans will end up saving a tremendous amount of money on the cost of every economic transaction they do – whether it’s a lower interest rate you have to pay when you take out a loan, or a lower fee associated with buying that cup of coffee.”
“You won’t have to pay Visa or JP Morgan to be the go-between your bank account and your merchant’s bank account. The money goes directly from your wallet to the merchant’s wallet without having all the costs in the middle.”
Based on your experience, what are some of the biggest challenges crypto entrepreneurs face at the state level?
“One of the biggest challenges at the state level comes from questions regarding the correct legal entity of decentralized protocols.”
“It’s very clear they are not traditional companies. There is no CEO of Bitcoin. The protocol is just a piece of code. Yet, it is also very clear that these protocols have economic interests and need the rights that corporations have. What is badly needed is clarity regarding the legal framework that properly fits Decentralized Autonomous Organizations (DAOs).”
“Montana is a great place for entrepreneurs, but without a clear legal framework for DAOs, I think entrepreneurs in decentralized projects might look elsewhere. If Montana wants to attract these entrepreneurs then we should consider following Wyoming’s lead and create a legal entity structure that actually fits what these protocols are.”
Based on your experience, what are some of the biggest challenges crypto entrepreneurs face at the federal level?
“It all comes down to securities laws. These securities laws were written about a hundred years ago for traditional corporations. The original goal of these laws was to prevent those working in corporations from being able to lie to investors or steal money.”
“The problem today is that crypto operates under a very different trust framework, one in which there isn’t an intermediary that can steal all the money or lie to the market. So these 100-year-old securities laws just don’t really work for today’s decentralized protocols.”
“We need people to push both Republicans and Democrats alike to get together and write some new securities laws so that well-intentioned entrepreneurs who want to build the future of the financial system can do it here in America.”