Digital Asset Holdings was one of the first firms to really put blockchain on Wall Street’s radar. They did this by hiring ex-JPMorgan superstar banker Blythe Masters as chief executive officer in 2015. The firm focuses on blockchains built for select clients rather than for free to use by the public. Eric Saraniecki is a Digital Asset co-founder and and head of strategic initiatives. He’s also not a fan of the public/private distinction when it comes to blockchain. A former futures trader who lived through the change from trading in the pits to on a computer screen, he got into crypto early and says he’s lost far more Bitcoin over the years than he owns, including one time when he dropped some physical Casascius Bitcoin on Bondi Beach in Australia. He wanted to fly jets for the Air Force, hated being a kid and shares his honest opinions on where blockchain networks need to be be headed for the greatest success. You can check out more about Digital Asset Holdings here.

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Matt Leising: Let's get to the beginning. Where did you grow up? Where were you born?

Eric Saraniecki: I'm one of three boys born into my parents' house. My mother was one of those homebirth hippies <laugh>. I was born in the Northwest side of Chicago and then moved out to a suburb in my early grade school years in La Grange. I had phenomenal parents, I love them, but I hated being a child. I spent most of my time there just dying to get out.

ML: Where do you fit in among the three boys?

ES: I'm the oldest of three.

ML: How was that? Were you a good big brother?

ES: <Laugh> No, I think I was just a bad kid. I try to be a little bit objective about it, I just had – my first son was just born two months ago. And I'm recently reflecting and I've always kind of suspected I was a shit kid, but I'm sure I'll notice that it's even more true as I go through [fatherhood]. I was very uncomfortable. I always wanted to be an adult. I don't do well in scenarios where I don't have agency. Being a kid is just really, really tough. You can't do anything yourself, it drove me nuts.

ML: Did you find escapes for that in computers or video games or sports?

ES:  I played a lot of sports when I was a kid. But I mean, I just always wanted to work. [We were a] decidedly working class family. And as I started to get a little bit older I started going to work with my dad here and there.

ML: What did he do?

ES: We've had a food service company in the family for like 80 years. Catering. It's the worst business model. It's the only food business where people negotiate with you over price. It's brutal and you're working the worst days of the year.

ML: What kind of food were you guys making?

ES: Your classic, middle American stuff, fried chicken, roast beef, Mostaccioli, mashed potatoes. Good old Midwestern American food.

“As a kid, I thought 30, man, you’d be single, you’d have money, you’d be healthy. And you could do whatever the hell you wanted.”

ML: You don't hear that very often, as a kid somebody wanting to get to work. Was that in service of you wanting to have agency?

ES: Yeah, exactly. My joke has always been that I've been 30 since I was 12. I always wanted to be 30. My dream was to be 30.

ES: That was a sweet spot. As a kid, I thought 30, man, you'd be single, you'd have money, you'd be healthy. And you could do whatever the hell you wanted. That was what I thought. And in the meantime I was married <laugh> and I've been healthy, so I've been very lucky.

ML: Did you like school? Were you good in any particular subjects or were you just waiting to get out of there too?

ES: I was good at school, but I hated it. I would get physically ill walking to school. I just hated it. But I got straight As, a near perfect ACT. I took AP classes and got into the University of Chicago. School was always easy for me.

ML: There's not a lot of info on you on the Internet, but I was interested to see that you started trading commodities at DRW and then helped co-found Cumberland Mining back in 2011. Can you tell me a bit about that? What led you into futures trading?

ES: I applied to 32 colleges and 31 of them were Air Force/ROTC related and one of them was The Air Force Academy. My application year was [after] 9/11 and the applications went through the roof. They started disqualifying people for things. I had an allergy when I was a kid for a period of time. So I got disqualified to all forms of officer training. So then I was sitting there like, ‘well, I'm not going to the Air Force anymore. What's that last school that wasn't Air Force? And it was [the University of] Chicago.’

ES: And I was like, ‘what the hell am I going to do there?’ Everything else was aeronautical engineering, aerospace, that type of thing. And then Chicago's like, econ, What the hell am I going to do with an econ degree from Chicago? But I went on a visit. I got recruited by the football team, which is, I mean, it's not worth mentioning. It's the world's worst football team <laugh>, like D-3 nerd football.

ML: The football team at my college, the students voted to get rid of it my freshman year <laugh> UC Santa Barbara. It was just like, ‘yeah, there’s no more of that.’ Was it aeronautical engineering and that sort of thing that made you want to go the military school route in the first place?

ES: Yeah. I always wanted to fly. That was the thing, I really wanted to fly. I was lucky enough, the high school that I went to, we had flying lessons in high school.

ML: Wow.

ES: I was halfway to a pilot's license and I was really enjoying it. I got to go to the Air Force Academy one summer. I was all ready to go and I got bailed out. Can you imagine someone who loves agency going to a military academy? How stupid I was as a kid? So I got completely bailed out by this technicality and then at Chicago I met all these kindred spirits, really naturally smart people who were kind of like destructive and chaotic.

ML: Yeah, I have to say, as a safety school, the University of Chicago is no slouch.

ES: Yeah. I was really lucky. I would've never considered it without the football team approaching. I joined a fraternity there because the football team and the fraternity were tightly linked to each other. Within [the fraternity] there were a lot of them all going to Wall Street. It was almost like a funnel into Wall Street. It wasn't something that had ever really been on my radar.

ML: Is that to the New York Wall Street or the Chicago trading community?

ES: Generally speaking, that was before I would say the Chicago trading community was a really big thing. They were still looked at as being kind of chop shops. So coming out of Chicago, I got an offer from DRW thanks to some friends who went to DRW. It was an offer for almost no money and absolutely no clarity on bonus or progression or anything like that. You’d get offers from consulting firms, bulge bracket firms, it’s crystal clear exactly what’s to be expected.

ES: And I was just like, fuck it, man, this is going to be so much more fun. <laugh> My parents really did me a favor here, my parents were like, ‘well, what are you risking? If you get there and it's nothing, what does it matter?’

ML: Were you trading on the screen or were you still able to be down in the pits, like at The [Chicago] Board of Trade?

ES: I got to experience the coolest time in the world, which was the transition of the pits into electronic trading. I started in Chicago at DRW. When I took the offer I said, ‘if I'm not in New York in six months, I'm quitting.’ So I started in Chicago.

ES:  In 2005 I got to go into the Treasury pits at the CME. Recollection is always bad, but I remember electronic training started right around then. We started in the pit, pure arb and everything's hand signals. And then I remember side-by-side trading. They had the big electronic screen in the top of the pit and people were arbing [arbitrage trading] the pit versus the screens.

ES: And then I moved to New York and I went into the natural gas pits, natural gas options. And we were right in the middle of a hurricane. My first week in the pit Amaranth blew up [Amaranth was a huge energy hedge fund that lost $6.5 billion in natural gas trades]. I was present in New York City for the death of the pit local and there was that Amaranth blow up that week which was a wild experience.

ML: At Bloomberg News, I actually broke that story with a colleague, Kathy Burton, the Amaranth story. Six and a half billion dollars down the tubes. That story kind of broke the terminal at that point.

ES: You know, I didn't have a tech background at all, but being in that kind of mixture forced me to get tech smart. So, all of our trading systems, what we did, how we price stuff, we made markets, everything that we did for the desk that I ultimately started at DRW we built from scratch. We were some of the first to embed engineers on our desk within DRW.

“It may be odd for me to say given the position that I’m in, but I’ve always been a pure skeptic of the permissioned private blockchain space because it’s a mismatch in purpose.”

ML: How did you transition into the crypto part of Cumberland?

ES: Well, it's funny because I was thinking this the other day, just assuming you might ask something like that. And I honestly can't remember what put Bitcoin on my radar. I know that in 2011 I started trading crypto at the time that there was the Mt. Gox flash crash. So I remember that was roughly at the time that I started actually actively participating in the market. And, you know, active, I mean, come on back then people said you're going to go to jail for doing this. So it's like a few hundred dollars, but you feel like you're doing something super illicit. My favorite story of how we bought Bitcoin one time was I think Duane Reade had what we called a bat phone.

ES: You walk into Duane Reade into the back, there was a Western Union red phone on the wall. You just pick it up. Someone would answer, you'd give a fake name, like General George C. Marshall. And they'd say ‘how much money?’ And you’d say, ‘a thousand dollars.’ You'd hang up the phone, walk to the front desk, they'd print out a receipt and you give them a thousand dollars in cash. And then like three days later, it's wired to your accountant at Mt. Gox, which is on some fake email. The whole thing was such a mess back in the day. And you know, for what? A thousand dollars of exposure?

ML: What was Bitcoin trading at then? Do you remember?

ES: Well, the [Mt. Gox] crash was a penny now that I remember. I think I was able to pay something around there for some.

ML: Wow.

ES: Yeah. But all my friends say, ‘oh, you gotta be so rich.’ And it's like, listen, if you pay a dollar for something and everyone tells you you're insane, everyone tells you that you're going to go to jail or it's going to go to zero and it goes to $20? You sell it. <laugh> What are you doing not selling it at $20? So I paid my taxes on the things that I bought and sold in the early days.

ML: You were also probably blowing your profits on Silk Road at the time, I'm sure.

ES: I luckily did not have anything to do with Silk Road other than I did buy a lot of their tokens on the auction when I was at Cumberland.

ML: Those were the ones that got seized by the government?

ES: Yeah.

ML: Wow. What is that government auction like, when they're auctioning Bitcoin? Is it a blind auction and you just sort of put in a price?

ES: It's supposed to be, but like any other highly competent government labor they CC'd everybody, <laugh>

ML: Not BCC. CC?

ES: Not BCC, CC. I think I still have the spreadsheet of all the names. We tried to figure out who everybody was and what they bid, all that sort of stuff.

ES: There was a really active small community within DRW who would talk about it a lot. I wouldn't, because I always refused to talk about it because it was almost overwhelmingly misinformation. It just consistently bad, incorrect information.

ES: So I tried to avoid all those things, but one of the people [at DRW was] Mike Komaransky. Mike made a partner at DRW and I was lucky enough to convince him that we should try to convince Don [Wilson, founder of DRW] to start Cumberland. We put together a couple of business plans and we were able to manage to convince Don and then it got Cumberland off the ground. But that was a nightmare, in 2013, 2014. When the bank that serviced DRW found out it kicked DRW out the whole business and then found every DRW employee and kicked them out personal business [accounts] too. Like it was just, wow. It was so hard to do these things back then.

ML: The rumor, I guess, has always been that you guys did a lot of actual Bitcoin mining. That that's where the mining comes from in the name and that's how you got a lot of Bitcoin. Is that accurate?

ES: No. The only thing, there were some other partners involved in approving it and they were extremely allergic to the idea. And the only thing that had any traction with them was the concept of mining. So some of the early business plans were mining. And I think that that was kind of the thing that they all sort of agreed to. But something really interesting happened in 2014, which was a huge dislocation in price and hash power. Hash power just kept climbing and prices cratered. It was so objectively obvious that it was a bad deal to mine and you should just be buying. And that's ultimately what turned the corner for us.

ML: Was this the time when people made coins that represented Bitcoin? Like a physical coin? <laugh>

ES: Yeah. I think my claim to fame in the crypto market, if you're going to try to label me anything, is that I'm the guy who has lost crypto in every single possible way. <laugh> I've lost passwords, I've thrown out computers. I've totally forgotten where I put all the ETH [Ethereum] from the first day of the ETH sale. I lost physical Bitcoin on Bondi Beach because I used to walk around with Casascius coins I bought on E-Bay.

ES: We were out on the beach and I just, I don't know what happened to them, I lost 'em on the beach. I've lost Bitcoin in every possible way.

Get yours while you can

ML: So what are these physical Bitcoins? Did it have the public address on it or something? Or what did it represent?

ES: Oh they were so cool. They were gold. They were physical gold coins with a hologram private key. So you could rip the hologram off the back and then basically hydrate a wallet with the information that was there.

ES: There's a few of them still unspent in the wild.

ML: And that's what you lost on the beach, those coins?

ES: I lost the coins.

ML: Did it have the wallet information on it still or just the coins?

ES: Oh yeah. They were live coins. I used to give people birthday cards. Like every year I’d give people a birthday card. Depending on what year it was, anywhere from one to 50 Bitcoin in the birthday card, the password and everything in there. And all my friends lost all their birthday cards. My buddy bought courtside Knick tickets to a game one night and he didn't want to go, and I went. I threw him a couple thousand Bitcoin to thank him for it. And he lost it in Mt. Gox. Every single possible way that crypto could be lost, I've had my hand in some way, shape or form involved in that.

ML: So have you lost more than you have?

ES: Oh yeah. By orders of magnitude <laugh>.

ML: This makes the Bitcoin pizza guy look like a schmuck.

ML: What was it about Bitcoin? Was it the technology or the kind of breakthrough as the first usable, electronic, blockchain-based currency? What attracted you to it?

ES: Being really frank, I mean, I recognized the utility of being able to do illicit things on the Internet with money. Not that I needed to do it, but I recognized the utility of that from an investment perspective. Looking way back on it and thinking about where we are today, the thing that's been consistent over the past decade in the crypto markets is how infectious and how fun it is to self-direct and self-own things again. Obviously it comes with the risk that I just described with having lost a lot of stuff, but I don't think we're explicitly aware of the fact that none of us own absolutely anything.

ES: You don't own a stock. You don't own a dollar in your bank account. You don't own anything. That means you can't direct it. You can't actually enjoy it. You don't get to actually participate in any of these ecosystems. ‘Hey, Mr. Bank, please do this for me, please, please list this new product that I really want to participate in, please.’ We've been beat into this box of there's the capital markets ecosystem, and you only get to look at it and you're not sophisticated enough to play in it.

ES: And the experience of getting to play again in these markets is really infectious. There's nothing really of value in NFTs today. It could mature into something much better. I think it's a really interesting idea. It's the 12th iteration of colored coins. It's not the first time I've seen it in the past decade, but I think it's just the constant rediscovery of how great it is to actually own the things that you're supposed to own and to be able to self direct things and to do what you find interesting.

ES: Plus the mystique of this highly weird, countercultural thing that's always just a fun thing to be a part of, too.

“Looking way back on it and thinking about where we are today, the thing that’s been consistent over the past decade in the crypto markets is how infectious and how fun it is to self-direct and self-own things again.”

ML: What did you think about when Ethereum came around?

ES:  We were all Bitcoin maximalists at the time. So we were quite bearish to the point where we were sitting on a lot of Bitcoin and I think we all individually did one Bitcoin worth of ETH purchases on day one.

ES:  I love the original idea of Ethereum. I don't necessarily love where it is today and what I mean by that is, I really like the original concept of highly programmable money.  And that’s, by the way, my first interpretation of what they were doing originally. I'm sure if you go and ask them, they'll say something totally different. Time is really bad on memory, but in my mind, what I understood it to be was really nicely programmable money. I really like that idea. As people are trying to use it as a general purpose platform I get a little bit nervous because there's a lot of highly specific design decisions that go all the way through the stack that I think are really good for programable money and not so good for just about everything else.

ES:  So I think it's an awesome thing. I'm really glad it exists. I'm really glad that I was wrong about it when it first came out. I think that things like ETH and everything else that's going on in the network add so much value from looking at things from a different perspective and trying to experiment in different ways.

ES: I'm pretty upset with all the hype and cliche and misinformation that exists in the space generically. I think that's just a really unfortunate reality.

ML: I think I can measure my mental health by how much Twitter I've consumed in a daily period. <laugh>

ML: Did you end up at Digital Asset from your experience with DRW. Don Wilson is obviously one of the founders, he goes back to one of the early creators of Digital Asset.

ES: There was a meeting that Don, Yuval [Rooz, Digital Asset co-founder] and myself had where we talked about one of our mandates at Cumberland was not just to trade, but to invest in or build things that would increase the ecosystem. At the time, and frankly still today, the Bitcoin ecosystem is kind of broken from a participant standpoint. It has no capital markets infrastructure. It has inverse leverage. If you want to trade on multiple exchanges you're fully collateralized at multiple exchanges. People call it an arb, which is such bullshit. It's not a fucking arb, it's a credit trade. You've got full counterparty risk and depository risk. It's a credit trade. Maybe it's not such a big deal today. But in 2013 and 2014 I was sending money to the CEO's personal bank account in all sorts of weird jurisdictions.

ES: That was a real credit trade back in the day. But you know, there's no clearing and settlement infrastructure across exchanges. Arb means price, you know, like pure price, no risk. Right? So we really wanted to start something that would've alleviated a lot of our problems at Cumberland, which is a clearing and settlement system for Bitcoin. And that was the original genesis. So we came out of that meeting, we agreed to get going with that. Don was like, ‘okay, let's do this’ and put a little bit of money behind it. And then Yuval and I ended up doing the bulk of the work.

ML: You guys at Digital Asset are focused on the enterprise sector in blockchain. In the past I thought that might be where we would see the first breakthrough. Everyone talks about the killer app, and because I felt certain industries had so much to gain that you might see something come out of that from a private blockchain or permissioned blockchain. That doesn't seem it have happened. I'm wondering where you fall now on the distinction between permissioned and permissionless and private and public blockchains and how they're coexisting.

ES: Yeah. I mean, this is on the record. I'm going to have to be careful <laugh>, but it may be odd for me to say given the position that I'm in, but I've always been a pure skeptic of the permissioned private blockchain space because it's a mismatch in purpose. Maybe that's not articulated correctly, but these blockchains are about building networks. And then to say, ‘great, I'm going to build a walled garden with limited participation and limited use beyond what I've dictated’ might be a good way to build a product. It might be a reasonable way to build the start of a platform, but it's definitely not a way to build a network. And so I don't mind that people wanted to be careful about it, to experiment in safe ways, find ways to do it, but I only have a problem when that's where it ends.

A recent assessment of Digital Asset’s project with ASX

ES: If the mental journey ends at I'm watching this app in my private, walled garden, I don't know that that has tremendous value above and beyond what they could have otherwise done. If it is this app and this walled garden are the very first step on a long journey towards a global network, then that to me is fundamentally different. So we've been lucky enough with the customers that we've won, that we have the strategic buy in from the top down about these things being the entry point into something much bigger.

ES: They've really bought into something that we've not spoken publicly a lot about because it's going to take time to really mature, to develop and turn into something meaningful. But we've always had this vision of a big interconnected ecosystem of assets. The only thing that I kind of take issue with in your question, just because of the framing, is that I don't really believe in this kind of dichotomy, this false dichotomy, of public/private permissioned/permissionless.

ES: I understand that this is a new abstract idea, but we have this really great experience that already exists, that we already understand, of a network of data and it's the Internet. I have my own node. It's a browser. I'm connected to one Internet, not thousands of internets. I can discover anything on the Internet, but that's where my permissionless ends, right? The developer of whatever deployed that app or that ecosystem that I'm trying to access dictates the rules of my entrance, right? So I can go to chase.com. I can discover there's an application on chase.com. I don't get to see everybody's bank account.

ES: I think that the real thing that's going to win is one globally interconnected system where we're not asking anyone to sacrifice the sovereignty of the decision making, of how their application behaves in that network. It'll be public in some respects and it'll be private in others. It'll be permissionless in some respects, it'll be permissioned in others. The technology needs to support that sort of heterogeneity within an ecosystem. Because again, we've got this really great case study in how that worked for the Internet and for data. So we just need to try to find that Internet experience, but for value.

ML: And how are things going at Digital Asset along those lines? I know you have been writing your own language and have updates coming. Can you tell me where you stand with that?

ES: Everything’s going great. We've been on a long journey. It's hard to build this type of technology. You know, languages are not invented overnight. Really good protocols are not invented overnight. We've had the benefit of being able to develop these things side by side with people using it in very demanding ways. So things have improved a lot over the years and continue to get a lot better over time.

ES: I'm really proud. Again, it’s strange to say for a company that's almost eight years old, but we’re very much near the beginning of our journey, and I feel very equipped to make a meaningful difference.

ML: I think one of your more high-profile customers is ASX and the Australian stock exchange. How's that project going?

ES:  It's going great. I know there's a lot of noise about it going slow and delays and all sorts of stuff. But you're taking an entire nation’s stock market and moving it into a brand new ecosystem. It's a 30-year-old system. Even understanding what it exactly does takes some time, right? And then let alone what do we want to change and why? I'll go back to agency. ASX doesn't have perfect agency, they need to do this within the context of making sure that their participants understand and are happy and are taken care of. And that the regulator is as well. If they could just kind of do whatever they thought was the best thing to do, it would be done a lot quicker, but it's really important to make sure that you bring everybody along and their input is accounted for.

ES:  It's the world's slowest consensus process, but it is an important one to run nonetheless. And I think they're doing a great job of it. The one thing I really want to talk about is Chess [the current clearing and settlement system used by the Australian Stock Exchange] because nobody knows this. It's really important. It has one of the best account design structures in the world. That's super wonky, really annoying, but in Chess you have name on register. Meaning anyone who holds a stock in Chess can have it in their own name, which is unbelievable.

ES:  The right thing is the owner owns it in their name, so they're protected against any depository risk. Intermediaries are servicers on top of that. That's actually been ironically the design of Chess forever. We're just being able to refresh it and show what that can mean in the technology.

ML: When you were talking about not owning stocks before I was thinking of the DTCC system. I can't remember the name of their unit, but it's in ‘street name,’ right?

ES: Yeah. Cede & Co. Cede & Co. owns it.

ML: Yeah, Cede & Co. But you're saying the difference in Australia with ASX is that if I own stock there, it would be in my name.

ES: It can be, it doesn't have to be, not all are, but if you choose, there's lots of protections for you and doing it that way.

ML: What worries you about crypto? Is there something that you think could happen that could really set it back or do you think the genie's out of the bottle and it's going to continue no matter what happens?

ES: I would say that for some use cases, the genie’s out of the bottle. I think crypto as an alternative asset volatility play that people like to speculate on and enjoy from a financial participation standpoint, I think that genie’s out of the bottle. It's pretty clear that has utility, that has value, people enjoy things along those lines. In terms of it being a true currency, a true payment rail, a true platform for new financial instruments, I would say that that's still a very young experiment.

ES: I bought Bitcoin. I never thought it was a good payment vehicle. The credit card is the best payment vehicle that could ever exist. I take zero risk in the transaction as the consumer. It's amazing. You're telling me I have to use a bearer instrument to buy something? I assume the risk of holding my money and the risk of the transaction? Terrible, terrible purchase experience. So I don't really buy it for payments. Settlements, maybe? Generally speaking, I think a speculative, volatile asset, yes. You know, what is gold? You know the others still very TBD.

ML: Well, Eric, this has been great. I really appreciate the time, it was a really fun conversation. If you ever find any of that Bitcoin that you lost, you could send it my way. That'd be great. <Laugh>

ML: I like to ask the people I speak to for these interviews if you could recommend someone in crypto who you admire that you'd like to know more about that I could try to reach out to for an interview.

ES:  I really like the CEO of Anchorage. I have only had a couple interactions with him. But I find that he's a lot more levelheaded about the reality of what he's doing and the decisions he's making and the space that he’s in. He's more matter of fact about it. He's not a big hype man.

ES:  Nathan McCulley. He’s the CEO and co-founder.

ML: Okay, great. Thank you.