Ted Lanpher (YC 77), Co-founder of Pareto Network, P2P Financial Content Marketplace
Ted Lanpher is a founder and member of the Board of Trustees of Pareto Network, a blockchain-based platform which enables users to share, evaluate, and reward objective financial information through its Smart Contract system. Mr. Lanpher previously served as Executive Consultant to CUVIA Labs, providing strategic analysis to clients pertaining to blockchain and distributed ledger technology. He’s also founded a number of companies, including Hoodu, StellaPharma, and AirWays Medical Technologies. Mr. Lanpher graduated from Yale University with a degree in Administrative Sciences.
The Politic: Tell me a bit about how you got involved in the blockchain and/or cryptocurrency space!
Ted Lanpher: At Yale I was an Administrative Sciences undergraduate major. This was before the School of Management was formed, and that department morphed into the SOM. There were 20-25 people in my class in that major, so in those days, business, and even engineering majors, believe it or not, were considered less desirable and sort of mercenary. Now, it’s very different in terms of the number of people in these majors. But I’ve always been interested in organizational design, and as such, the new decentralized entities are to me an intriguing aspect of blockchain.
After graduation I went to business school back in my home state of Virginia. I went into the telecommunications industry, doing marketing for satellite communications, and moved to the West Coast. Then, after about five years, I made a complete transition into doing the first of a number of startups; the initial ones involved medical devices and medical software.
At this point, I’ve pretty much been involved in startups, or consulting with startups, for my entire career. A couple of ventures I worked in related to cybersecurity and payments, and back around 2015 or so, I started hearing about blockchain in the context of Bitcoin. It was interesting, but it was still very much on the fringe– something that was intriguing to computer scientists but not really mainstream.
Then, when the Ethereum blockchain came out, it looked like you could start to do more with blockchain technology because of its programmability. At that point, I did a deeper dive into the technology and realized that this was something very profound. I decided to work in the field and consulted on various enterprise blockchain use cases. This was around 2016. In 2017, I then got involved in cryptocurrencies and founded the Pareto Network, which did its initial coin offering in late-2017/early-2018. So, I’ve been immersed in the world of blockchain and cryptocurrencies for the last couple of years, after having dipped my toes in with the consulting.
To me, having moved down to Silicon Valley in the 80s, and having seen all the technology changes, including the internet and its impact, I view the blockchain and decentralized models as something profound – with a likely impact on the same order as the internet. Not to mention, I’ve been intrigued by the ability to do microtransactions and especially how that could have an impact on finance, for example, and the ability to do payments with very low transaction costs. The technology enables very different types of services and will have an impact around the world on financial inclusion. Just intellectually, there are very interesting aspects of blockchain and decentralized models.
The last couple of years, I’ve been really involved with the Pareto Network, which is an Ethereum-based token we’ve built out and launched as a service. That is a new way to incentivize people to share content, vet content, and reward content contributors. Its initial use cases relate to investment information, but it’s essentially designed to be useful with any type of information. What we call our “reference implementation” focuses on information for traders and financial investors in cryptocurrencies themselves, as well as equities and any other type of financial asset, but we’re also looking at parallel implementations of that network for applications in healthcare and other industries where it could incentivize the sharing of information.
What kind of content are people sharing on Pareto?
One of the use cases could be a trading situation where someone feels that a stock is overvalued or undervalued. The information could also relate to an option play which is desirable, the disclosure of a vulnerability in the code base for a cryptocurrency, or even longer-term fundamental analysis. Essentially, it’s actionable information for people who make investments or do trading.
At the core of Pareto Network is an Ethereum-based Smart Contract. The contributor of information places their content into that contract, and then token-holders get to see all the content in the network. If the token-holders feel that an item of information is valuable, they can reward the contributor in Pareto Rewards tokens. The smart contract aggregates the rewards from everyone who makes rewards, and then it disburses them directly to the content contributor. Ultimately, you end up with decentralized contribution, decentralized consumption and decentralized rewarding.
The other aspect to Pareto Network is that there’s a time value such that all the token-holders are ranked by an algorithm, a specific formula, and the higher-ranked token-holders receive access to any new content sooner; in that way, there’s a gamification whereby token-holders have an incentive to gain a higher rank. The way they do that is not only by owning tokens but also by spending a certain amount of tokens– giving them to contributors; if they’re generous and reward contributors, it supercharges their ranking.
The idea is to set up an economic incentive for them to consume information and also to reward the content contributors for their work. The reason we chose “Pareto” as the name is because of the “Pareto principle,” or the “80/20 Rule,” coined by the Italian economist Vilfredo Pareto in reference to how you find the most valuable or useful information. The kind of decentralized system we’ve created really wouldn’t be possible without a blockchain. It’s basically an information-discovery mechanism.
I know with sell-side firms, analysts tend to receive a rating for the value of their content. This seems like it could be a more robust way of determining those ratings.
We launched our network in 2018, and our Smart Contract for rewarding has just reached full feature. We’ve had discussions with hedge funds and crypto-hedge funds; they can’t really justify hiring a full-time analyst, but they’re interested in dedicating budgets to reward analysts through our mechanism. It could really be a new approach to research that’s made possible by the decentralized model. I wrote a Medium article a while back where I looked at the history of market research and investment research, following how it has evolved over time with technology.
First, there were monthly magazines like Barron’s, then the Wall Street Journal, and later investor newsletters. Then, back in the ‘70s, we had the first television show that talked about stocks. Later, when cable TV came out, there were the first cable financial news channels. Then, online trading and research was conducted through Bloomberg’s creation its eponymous terminal and online brokers began offering research to retail investors. More recently, you had Seeking Alpha and new types of information-sharing. Now, blockchain is just the latest technology platform which can deliver investment information; we believe that we’re pioneering how this latest generation of technology transforms market research and the sharing of investment information.
That’s really interesting. I think people often wonder whether the information they’re receiving, particularly in the financial sector, is actually valuable. Could you also use the technology to track the way trades are influenced by particular content and compensate that content accordingly?
We actually are going to implement a way to track the results of a given trading recommendation and what the result would have been. I don’t know if there’s a way to know what level of trading the people do using information from our network, per se, but there will be a way to show, “This trading idea was disclosed, and here’s what it would have earned for someone who put $1,000 or $10,000 into that trade.”
That’s because we’re standardizing the asset identities so that there can be some retrospective look at particular recommendations. We think this will help people evaluate the strength of any given content-provider. The providers can be anonymous or they can identify themselves; some of them would rather remain anonymous and others would have no problem identifying themselves. That’s a new aspect of the technology, along with it being a global system open to pretty much anybody.
How do you prevent insider information from being exchanged on the platform?
There’s an agreement that requires people not to disclose confidential or material nonpublic information. Just like the management of SeekingAlpha, or any other online publication, we can’t censor content-providers; we have to rely upon them to comply with regulations.
What I’ve also learned is that insider information applies to equities but doesn’t necessarily apply to commodities and other categories of assets. For instance, if someone’s aware that the price of tea in China is going to change because of some event that’s happening, that could theoretically be considered insider information, but it’s not sanctioned the same way that equities with respect to non-public information.
Very cool! Who’s working with you on the project?
My co-founder Eric Lamison-White is a young computer scientist that I met here in the Bay Area. He’s got a computer science and trading background, and I’ve got more of a business background, so we’ve collaborated nicely in developing Pareto Network. Of course, we’ve also had advisors and a development team contributing to the project. It’s been a lot of fun and really interesting.
We’re really just getting started with the platform; now that we’ve built it out, the next stage is to enable onboarding of people who aren’t at all crypto-savvy, meaning they aren’t really comfortable using a crypto wallet and managing private keys and such. That’s where the blockchain needs to go in order to achieve mainstream adoption; it needs easy on-boarding, and it needs to put cryptocurrency “under the hood” so that the user interface is something a person without a lot of technical knowhow or understand of cryptography can use– just as they do with any other service.
Will content providers be able to make a living?
After Pareto Network scales up, we expect people to be able to make a living using our platform. There are some other crypto-projects like Steemit, where they share information and get rewarded, but that’s typically only a few cents; Pareto Network is designed so that there’s no real limit. If you have really valuable information, then you should be able to get rewarded for that to the extent where you’re able to either supplement a significant portion of your income or even use this as your primary income stream. Many of our users are retail investors, but a number of them are crypto hedge funds. Over time, we expect larger hedge funds and financial institutions to start accessing our platform once we get more content that addresses their interests.
We don’t take a commission or a cut out of the rewards. There are some transaction costs and some mechanisms for “staking.” When a content-contributor posts something, they initially need to stake a small amount of currency, which they’ll ultimately get back again when the collect their rewards. That’s a kind of anti-spam mechanism. The idea is that this is basically an autonomous platform that will continue to operate, and there’s no limit as to what someone contributes, how much they can make, or how much they can spend.
That’s a really cool idea to use staking as an anti-spam mechanism. By extension, does it also work as an anti-BS mechanism, too?
If the information is clearly useless or just promoting something, then you’re probably not going to get a lot of rewards. That’s the idea of the “80/20 Rule”– to identify people who are providing valuable content. They’re going to rack up more rewards and followers. So, that’s the idea of creating a marketplace of information, and having some real dollars, or some real value, that can be gained.
Are there any competitors in the space yet?
There’s nothing exactly like Pareto. There are some other blockchain services which provide portfolio management strategies, but that’s a different model. We’re kind of pioneering this use case; it’s a pretty unique system.
So is Pareto Network basically analogous to Steemit except in the restricted domain of finance?
In some ways, but I don’t think Steemit has this kind of algorithm where people compete for ranking and priority of access to information. That’s one of the essential differentiators of Pareto, not to mention the Smart Contract at its heart.
There’s another blockchain project that’s focused on rewards called Basic Attention Token. It uses the Brave browser, and it’s actually one of the most significant blockchain projects because it addresses some widespread privacy issues. While you’re served a lot of ads while browsing using Safari or Chrome, the Brave browser is designed so that you can actually decide whether to see those adds in the first place. If you agree to see them, you get rewarded through these Basic Attention Tokens, and the rewards are also shared with the hosting website. In that way, the project addresses the whole ad-technology realm. There are a lot of ways to use decentralized technology to incentivize people to either consume content or contribute content.
Switching it up real quick– any thoughts on Yale’s future in the crypto/blockchain space?
I’ve been involved in a number blockchain events at Stanford. The Business School does have a blockchain course, a short two-week course, and material on cryptography is covered in the Computer Science department. Even at Stanford, the blockchain environment is only in its early days. I think Yale’s business school should start preparing students to understand the models that can be created around decentralization, because I think this is a pretty fundamental shift in the way organizations can be designed.
Any final words for our readers?
I believe we’re still in the early days of understanding decentralized business models. Having studied organizational design way back at Yale, I think decentralized business models made possible by blockchain are something that really offer a lot of value and are worth studying. They represent a fundamental shift in how organizations can be structured, and will spawn novel approaches that we are just beginning to perceive.