GRTiQ Podcast: 31 Alex Falko

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Alex Falko (00:24):

If you ask me, I cannot name you the second one, which do the same stuff which graph do. And for us it was like a no-brainer to launch graph [inaudible 00:00:32] notes because we are trying to get those solutions which we believe would be the essential part of the coming web tree wall.

Speaker 3 (00:40):

[inaudible 00:00:40] astronauts floating in the space of time. [inaudible 00:01:04].

Nick (01:10):

Welcome to the GRTiQ Podcast. Today I’m speaking with Alex Falko, co-founder and chief financial officer at Citadel.one and Indexer at The Graph. The Citadel.one Marketing team is very active within The Graph community, so it’s likely that you’ve already met members of the team. My conversation with Alex covers a wide range of topics from his opinion on the people of Russia’s current attitude and perspective on crypto, his background in the diamonds and gold business, his vision for the staking economy and its potential impact on the world and how Citadel.one aims to be much more than just an Indexer at The Graph. As always, we started the conversation by talking about Alex’s background.

Alex Falko (01:51):

I have a degree in law, I finished the Russian State State University back in 2005, but actually I always knew that I will never be a lawyer or it kind of related to the law. And what fascinated me all the time, it was more social science, like economics, like history. That’s why after graduating from the university I decided to change the area of my interest and I did a very unusual thing. I went to Africa and I had a kind of golds and diamonds business in there. And what fascinated me a lot, it was gold. And I read a lot of stuff about monetary history and gold’s role in it. And actually that’s how I got involved. I’m front running a bit, but that’s how I got involved in crypto.

(02:54):

Because I jumped into the space quite early, in 2013, and when I found out about Bitcoin, for me it was really a wow moment because it had a lot of in common with the concept of [inaudible 00:03:12]. And I understood it very, very, how to say, easy and quickly and I want to say thanks to Andreas [inaudible 00:03:20] who was the greatest popularizer of crypto back then. In 2013 I watched a couple of YouTube videos or podcasts with him and I believe I saw them all, and that’s how I got into the crypto space. And since then I’m big-time crypto guy. That’s my background.

Nick (03:46):

You’re joining me from Russia, and I’m always curious to learn what the attitude of people from where I’m interviewing my guests are towards crypto. So what are the attitudes of the people of Russia towards crypto right now?

Alex Falko (04:02):

Russia is a very, how to say, complicated country in a lot of meanings. Crypto is officially, it’s not forbidden but it’s not allowed in that case. The most we have in which you can explain how the things are going here in Russia is that we don’t have legal crypto exchange there. You have a Coinbase or Gemini in us or in then basically any other part of the world you can find a legal crypto exchange, and still in Russia we don’t have one. But it does not stop people from getting involved in crypto. And to be honest, people are very, very passionate about crypto in Russia. Everybody how to say from the people I’m connected to, everybody’s aware of crypto, everybody’s holding crypto, everybody’s making payments to everyone else, everybody’s talking NFTs.

(05:02):

And this thing which fascinates me about crypto in general, because people from all over the world from different how to call that, layers of society, it does not matter if they’re rich or just regular kind of guy, they’re very passionate about crypto. I believe that we have one of best crypto communities in Russia in general, regarding the community level. But on the government level, I believe Russian authorities, they’re very slow and proactive because they’re taking some steps only after they realize that they’re forced to do that. So that’s how I [inaudible 00:05:47] here in Russia.

Nick (05:47):

Your background in Africa and the diamond and gold business is very unique. I’ve never interviewed somebody with that background. And yet you had the exposure to gold and diamonds and then you got involved with crypto, and you went with Bitcoin presumably and crypto over gold and diamonds. So I guess my question is: what did you see in crypto and particularly Bitcoin that made you think, “I ought to get involved in that industry.”?

Alex Falko (06:15):

You are talking to an old Bitcoin, so for me it was a no-brainer. Simply out of the fact that in economy you can take basically anything in the world and you can put a framework on it. If something has three features, a store of value, a unit of account, and a means of transfer. And then [inaudible 00:06:36] features transferability, [inaudible 00:06:41]ability, it should be divisible, it should be tangible, transferable and unique. And you can take those kinds of framework and make something literally anything fits into this framework, then it’s money. And Bitcoin was the perfect example and everybody was talking about that and compared traditional [inaudible 00:07:05] system with gold. And gold was losing in terms of transferability and divisibility, but it was much more better as a store of value, et cetera. And Bitcoin, it has kind of the best out of two worlds. So when you found out this kind of assets, it was really amazing back then because again, it was like a time when you had just Bitcoin, even before Ethereum. And that fascinated me a lot, and I was immediately all in.

Nick (07:38):

You have a strong background in finance and wanted to ask you, you’re obviously the CFO for an Indexer, Citadel.one who operates at The Graph. But before we talk about your Indexer operations and your role at Citadel.one, I wanted to get your opinion on centralized finance versus decentralized finance. So how do you think about the difference between those two things and the impact decentralized finance can have in the world?

Alex Falko (08:04):

It’s another point why I’ve joined crypto. Actually, I believe all the governments in the world are awful in the meaning that they’re controlling your finance. And it’s about banking system in general, because you’re working hard to get some something and you need to save that. And of course the most obvious choice for regular guys to go and to put those money in the bank. But as we know from our history, contemporary history, there are a lot of examples when people cannot get what they earned. Greece is the best example. It’s happened to them back in 2014 or ’15, I don’t remember exactly. Cyprus is another example, and you can find a lot oof others like Israel and so on and so on. So your money, it’s not your money, and it’s for me, it’s just nonsense.

(09:02):

And that’s why I believe crypto in general, it allows the perfect opportunity to control your own money and the way you control your information right now. Before, I don’t know, check this suite, in the medieval ages, government controlled information, they had a monopoly, and eventually lost it to the printing press. So my idea is that today the same process is happening with crypto space when a monetary monopoly from governments on the money, it’s changing with crypto and actually it’s the technology which allowed this kind of trans [inaudible 00:09:45]. For sure, I believe that defies the future and eventually it’ll become even more, how to say, bigger than the legacy finance. I believe we can call that this way, legacy.

Nick (09:57):

Citadel.one as I mentioned is an Indexer at The Graph, but you do a lot more than just index. So what can you tell us about Citadel.one?

Alex Falko (10:05):

Thank you for your question. So Citadel, first of all, let me give you a small idea of how we grow up. We launched our first proof of stake network back in 2018 and it was Tether’s blockchain. Actually it was the first one which launched proof of stake. And so we almost immediately launched Tether’s note. It was more a kind of experiment back then because we understood that proof of stake is the next big thing to go. But actually as it happens you realize that the technology is here only after you [inaudible 00:10:44], it is here. So after that we launched some other networks and quite quickly we realized that the missing piece of infrastructure is a useful tool to manage all this stuff. Because if even today you will look at the crypto space, it’s very fragmented, meaning that you have, let’s call wallets for Ethereum compatible networks, Ethereum itself and DSC or like [inaudible 00:11:16] and so on and so on.

(11:18):

And so you have other type types of wallets for independent networks like Cosmos, you need Kepler. If you’re using Solana, you need solid or they have a [inaudible 00:11:29] wallet which is called Fantom, then you need another wallet solution called [inaudible 00:11:35], and so on and so on. And so for investor, it’s really difficult to keep track of all his assets. Because you should maintain some kind of Excel spreadsheet and try to understand what is going on there and it’s really inconvenient. So we decided that we may build something which will satisfy ourselves and we can make it a market product. So Citadel, coming to the very beginning of the question. I would describe Citadel as unusual product or project. And it consists of several key concepts. So first of all, we are validators and we are running about 20, 25 notes on various networks, proof of state networks. It’s one of our key concepts.

(12:25):

Then you may call us a wallet on the staking platform because we allow people to make some asset management on our platform to keep track of what’s going on with their portfolio. And it’s like a cross chain solution with advanced functionality like staking. So it’s like concept number two. Concept number three, we are in DAO, Decentralized Autonomous Organization, meaning that we have a coin which is based for now Binance Smart Chain, BSC-based. So this coin is rewarded for those who are delegated delegating on our notes and with our platform. So if you’re a stapler, it makes sense for you to come on Citadel, and you can actually delegate on any validator. We’re not limiting our users to delegating on our notes only. You’ll have full list in every network which we support. But if you will delegate some part of your funds on our notes, you’ll get an [inaudible 00:13:26] to open for that.

(13:28):

And in future we’ll introduce governance and in accordance with our tokens [inaudible 00:13:37]. As soon as we’re running notes, we have a real revenue stream because we’re charging the people for doing so, right? And according with our [inaudible 00:13:47], 50% of those fees go into the community pool. And actually each city stakers can create a kind of governance proposal and hold to get those funds back into their pocket. So we call it [inaudible 00:14:00] cashflow token, because in that sense [inaudible 00:14:02] it’s kind of a claim for a broader basket of crypto assets. So the third concept we’re at DAO. And finally we are launching extensions. What is extensions? I really like Web Pre in general because I believe it’s a cool kind of evolution of internet itself, but in many aspects it’s not very, how to say, useful technology. I believe that it’s the next step, but it should be, how to say, customized for a broader adoption.

(14:35):

And what we allow to do, because we’re completely non-custodial platform, we’re not holding private pieces of our users. You can compare us to Meta [inaudible 00:14:48] or any other noncustodial platform in that sense. What we’re doing, we’re integrating a lot of stuff inside of Citadel. So imagine you have one place where you can store your assets, keep track of your portfolio, you can make staking and other stuff. And actually you have pancakes swap, sushi swap, unis swap. Basically Osmosis is going to be our first showcase. You have everything integrated into one platform. So no need for you to jump between those surfing the internet and jump between sites and changing your wallets all the time. You have a kind of everything. So that’s concept number four. I believe that’s the best way to describe Citadel.one.

Nick (17:02):

Thank you for that overview. And I think that’ll be helpful for listeners. A lot of listeners who are active on the Discord or in The Graph’s Telegram and some of the different Graft community Telegram channels will be familiar with the Citadel.one team because you’ve got some pretty active members out there exchanging messages and communicating with members of the community. But I’d like to give you the opportunity to just tell us a little bit about Citadel.one’s Indexer operation at The Graph. Who’s the team working on it and what is it you’re focusing on?

Alex Falko (17:32):

Yeah, thank you. So we have quite a big team in terms of group space. We have more than 40 members in our team. But if we’ll talk about the core team, we have about five people as our core members. And that’s, how to say, who got involved in the project since the early beginning. And we had some transformations on the way, but these Core five members are from again, the start. And everyone in my opinion, a brilliant person and have a unique competence in his fields. So we have three main co-founders as you may see. It’s like me, Anton Pavluski is our EO, and Gregory Shamalov is our CTO. So that’s three core members. Then we have Dmitri [inaudible 00:18:27], who is our COO, and Serena [inaudible 00:18:27] who is our chief of marketing.

(18:30):

So that’s it. And you can see the rest of the team on our website. We have a lot of guys as our development team. We’ll talk about structure, we have a separate development teams for teams is our frontend, is our backend, is our networks team who is focused on adding networks constantly. We have a team which works on extension spots. And then we have a marketing team which has its own kind structure, but I think it’s not necessary to dive deeper into that.

Nick (19:03):

Citadel.one, as you mentioned earlier, it’s involved with between 20 and 25 different proof of state networks and The Graph just happens to be one of them. I’d love to get your opinion then based on your knowledge of the different networks in crypto space, what makes The Graph different and why your team decided to participate in the community.

Alex Falko (19:25):

If you are working with a lot of networks, you can classify crypto space. At least that’s what we’re trying to do inside our team. And if you ask me, I believe we have Layer 1 protocols which is Bitcoin or Ethereum or basically Cardana, Solana, just any Layer 1 solution which allows a lot of depth to build on top of that. Then we have some kind of layer zero solution which are Cosmos and Polka Dot for sure. And then we have a middle layer. So Graph, it’s the example of a middle layer protocol solution, is kind of a protocol which connects everything and provides data for all those other layers. And again in physics we have glue-ons, it’s like a subatomic particles which glue all the stuff together. And the best possible comparison I can provide, it’s like The Graph is what is glue-ons for subatomic particles.

(20:29):

And of course it is different from other middle layer solutions such as Oracles. Link is the most popular one, then some others. But unlike them, Graph is providing a kind of decentralized APIs. And I believe it’s quite rare how to say network, because if you ask me, I cannot name you the second one which do the same stuff which graph do. And for us it was like a no-brainer to launch Graph Dixon notes because we’re trying to get those solutions which we believe would be the essential part of the coming web3 world. So Graph in my opinion is unique and very important in that sense.

Nick (21:16):

Well I love the analogy of glue. I’ve never had anyone use it before but it’s indeed true. So many of the guests have talked about how important The Graph is as a piece of infrastructure to just about everybody else participating in the crypto space. In your opinion Alex, how important is The Graph to fully realizing the potential of DeFi or even web3 for that matter?

Alex Falko (21:39):

Yeah, it’s another a great question. I can address the example of Citadel.one because actually what we do, we are running full notes and as a validator. And as long as we have a working platform, we are passing some data from that notes. But we are passing not all the data but let’s say balances and trading volumes, just some part of information, not like the all information from blockchains, but some databases would help them. But actually what Graph allows you to do, it allows you to create your own subgraph if you require some part of unique information. Perhaps if you can remember CryptoKitties, I like that as an example. Perhaps some a kind of application which allows my users to collect, read or do whatever with those kitties. And perhaps my users would like to know what kind kitties were born from November last year to January this year. And if you will try to find that information on Ethereum blockchain, you’ll have to go back block by block, checking those kind information and it’s really inconvenient.

(22:53):

But with The Graph I can create a subgraph and someone will take and index that information for me. And I’ll provide the instant answer to my users. They’ll be able to get that information very quickly by request. And I believe we’ll have a lot of, I don’t know, use cases for web free data [inaudible 00:23:19]. And we can do that in a centralized way because we cannot imagine all types of requests people will be requiring. And Graph is the best possible solution for that, because again, anybody can write the subgraph and deploy on the network and someone will take and index it and provide that kind of information. And in future I believe Citadel as well will, I don’t know, deploy its own subgraphs or use existing ones because we’ll have built in depth in Citadel. So we need that information because again we cannot do everything ourselves.

Nick (23:53):

Great answer and I appreciate you sharing your thoughts about that. So at The Graph, validators are called Indexers, but more broadly in the crypto space, an Indexer would be probably referred to as a validator. And I’m sure there’s some nuance there that I’m missing that makes those things different. But what are some of the challenges facing validators right now in the crypto space? And maybe even an additional follow up question of: what are some of the best opportunities?

Alex Falko (24:22):

That’s a tough one because the obvious big problem for the whole proof of stake space in general, it’s centralization, because I guess it’s in the people’s nature to vote for big guys, if you know what I mean, because it’s just a psychology. It’s totally fine. But what it creates, it creates a kind of disturbances. And I’ve read a report from Pigment I believe back in 2020 and if I can remember numbers more or less correctly, according to that report, top three exchanges such as Binance, some others, they controlled about 20% to 25%, basically every proof of state network. So it’s not the way to go because unlike in proof of work models, in proof of state, we need just 30% [inaudible 00:25:16] power to create kind of problems for the network. So the more decentralization we have the better. And it’s the problem not only for The Graph. And I know for sure that there are a lot of talks in Graph community right now about centralization. It’s the problem for the whole proof of stake space in general. Then I don’t know, I believe we are still very, very early in this space.

Nick (25:43):

Well I want to go back to something you said earlier. And you’re right it is a topic of conversation within The Graph community right now, this idea of keeping stake decentralized. And as an Indexer, you know have an important perspective on this issue. So I guess I’d like to ask you: are you, as an Indexer at The Graph, concerned about keeping stake decentralized? And if you are, what are some of the ways you think of proposing how to make sure that happens?

Alex Falko (26:12):

We are quite a small Indexer for the moment. We have a lot of ideas how to change that. And one of them is integrating Graph into Citadel. We will do that this year. And from our experiences, as soon as we are adding something into the platform, it gives us a lot of value. But it’s not about us, it’s about decentralizing the space in general. And I know that’s big indexes, like Figment, like P2P, they’re talking about it. We had previous experience in Cosmo’s ecosystem. And guys I’m sorry I cannot remember that right now, but they are quite a big indexes in Cosmo’s ecosystem. And they redelegated part of their stakes to the other smaller indexes. That’s the way to go. But again, it’s freedom of choice for those who are participating in the ecosystem. If you would ask my own example, we’re the biggest note in secret network right now.

(27:10):

And actually what we decided to do, we decided to raise our fee just to encourage people to delegate on other notes. It’s a kind of more open market mechanism, if you, like the pure economy. People may consider what is cheaper or what is more profitable for them, so it’s another way to go. Because again, in crypto space, people are not realizing they’re dealing with real valuable asset, because it’s a coin, you have an idea that it has a kind of economic value, but again you’re more flexible in terms of delegating when you’re trying to understand how much you will get from this index set and that index set. Today people they will go rather with the name, which they know, like a big guy, and they’ll earn less rather than, in their opinion, they’ll take additional risk and delegate on someone who they do not know very well but earn more.

(28:13):

I think the future market will come to some average fee we have on a bonds market. Because the best example for me, I would compare proof of stake space with the bond markets because it’s a kind of fixed income markets if you would look from the perspective of an asset. Because in bonds it’s like a dollar or euro or some other fiat currency, but in proof of stake the base assets is like the coin itself [inaudible 00:28:45]. And you’ll make the math and understand that you can earn more tier than delegating another index set.

Nick (29:26):

Alex, I always like to ask Indexers for their opinion and counsel to listeners who want to delegate with Indexers how they should go about the process. Because it’s one thing to learn or try to understand which Indexers you should delegate your GRT to by reading Twitter posts or going online, but it’s a lot more interesting and I think also valuable to hear it from the perspective of Indexers. So what is your advice to Delegators when it comes to choosing an Indexer?

Alex Falko (29:55):

Yeah, okay, first of all, I would consider query [inaudible 00:30:01] cards. I would consider how much I would get as a Delegator, because after all it’s a matter of money or income and you should consider risks for sure. So as I told before, the main obstacle here in my opinion is pure psychological one, because people are more comfortable with the names which they know something about. And usually those are quite a big names. But in any case, I would consider the pure math and say at least I would split my delegations in several batches and delegates on the basket of indexes rather than on a single name. That’s point number one.

(30:48):

Then I would consider what value does this index add to the project in general. How is it involved in the community life? How well is it voting for various kind of proposals rights? The engagement in general, if we can make that as a metric which we can measure, then I would measure that, and take that into my creation as well. That’s point number two and it’s point number three. Perhaps it’s some kind of personal preferences or whatever.

Nick (31:24):

So as somebody who has chosen a career and even started a company that really functions in the staking economy, what’s your long-term view of how the staking economy and all these networks will have in the world?

Alex Falko (31:43):

Right now from my personal experience, everybody, at least in Russia, is trying to be a miner. Everybody holds some kind of piece of hardware on their balcony, in their garage, just whatever, and everybody’s trying to mine bitcoin, right? Today it’s kind of, I don’t know, a movement, but I believe that we are too early in the crypto space right now and the broader world, the people in general, they are not realizing that proof of stake is so much more better than in the fact that than the proof of work mining. Because it allows you to hold the asset exposure and to get something out of that asset exposure with just your laptop and a software solution. It’s much more effective than buying some piece of software or hardware like video cards or Asics for mining Bitcoin, because in that case your asset exposure is the hardware itself. It’s not like the base asset as Bitcoin. And then only you are getting your income in bitcoins, which you’re trying to convert into fiat currency or old Bitcoin, I don’t know.

(33:01):

But in case of proof of state networks, your basic asset exposure is the liquid asset, because you can undelegate it quite quickly. Even 20, 28 days is you have in Graph. It’s much more faster than I would try to sell my hardware, which I’m using for mining. And especially if the market is bad, I need to uninstall that to find the buyer to sell it somewhere, it will take forever. But here you can unstake and sell almost immediately. So my idea is that the world is do not understand what is taking for now. And we’ll eventually come to that understanding. And after we will come to that, another thing which I’m expecting, I’m expecting the whole bunch of fixed income funds, if we’re talking about the big guys or big names. They will jump into the space because in a legacy finance, everybody loves fixed income.

(34:10):

Because the fixed income market, it’s one of the biggest, if not the biggest market in the world. And again, it’s just the question of getting used to an asset and getting used to its volatility because what prevents a lot of people and a lot of entities right now, it’s volatility. But everybody is starting to understand that if you’re living in the crypto space where cycles are much more faster than in the real or legacy world, it’s a normal thing. And perhaps some funds will start to get exposure to proof of stake assets as well.

Nick (34:47):

You brought up fixed income, and I think that’s a really good point. No one’s ever made that point on the podcast before, about how maybe some of the Goliaths in the legacy financial world in the fixed income space will get involved. Do you have more to say on that topic?

Alex Falko (35:02):

I can give you the different angle of view. It’s a really cool one in my opinion because if you would check right now the boomers, right, it’s like the most, how to say… It’s a lot of people because they’re boomers because of a baby boom, and they hold the majority of assets. But they’re starting to pass away and there transferring those assets to the next generation. It’s a natural process. And don’t remember where I saw that, but the estimation is at about 20 trillion in assets will be transferred from baby boomers to the next generations in the coming decades. So what we are about to witness or what we are all already witnessing, it’s a younger generations of people are getting some assets which they can expose somewhere. And those people, they’re very different from their parents or grandparents.

(36:07):

And crypto space in general, it’s a way to go by default. Because all my friends who are not very involved in economy or not very involved in crypto, they do not hold any other assets. They have their home as an asset if you can call that this way, but they do not hold any stocks, any bonds, nothing else, but everybody holds crypto. It’s kind of like a phenomenon nowadays. And if we’ll check that transferring or transfer process in general, a lot of people are about to get a lot of money and they will invest them somewhere.

(36:47):

And again, if we have tons of a demand from a lot of people on something I believe that’s corresponding financial products, they’re going to be created by the very same companies which providing a fixed income legacy exposure nowadays. And even today we can see a lot of names like Fidelity, like BlackRock, whatever, they’re creating crypto departments, they’re starting to provide crypto services to their customers. So after all, it’s about demand. And if we will witness like a huge wave of demand for fixed income, proof of stake assets, I believe that’s we will have an offer from those legacy institutions.

Nick (37:35):

Alex, you’ve been so generous with your time. If people want to learn more about you or the things that you’re doing at Citadel.one, what’s the best way to do it?

Alex Falko (37:42):

The best way is to go to our website and to try our platform immediately. Because on the top of the website you can see a platform button, you can click that and it’s a regular onboarding process. You need to write down your seat phrase, if you choose that option, or you can connect your ledger device. And then you’re good to go. You can try staking, you can check our interface, you can try a lot of stuff which are coming later on this year. That’s the best way.