Audio and transcript from the April 21st, 2022 installment of “Conversations with the Coop” with Diana Chen - Founder of The Rehash Podcast, the first community-driven podcast.

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[00:00:00] Justin Havins/Crypto Texan: Hello, everyone. Welcome to conversations with the co-op. This is where we source questions from the index co-op community to gain insights from today's leaders in crypto defy and website. I'm your host crypto Texan. And today on the show, we have Diana Chen, who is the host of the rehash podcast, which is the first community-driven podcast DAO actually also involved with paperclip DAO, Inc DAO kernel, and in previously of rabbit hole and unstopped. Diana. Thanks for being here on the show today.

[00:00:46] Diana Chen: Thanks so much for having me here. Things are going great today. How are you?

[00:00:50] Justin Havins/Crypto Texan: I'm doing great. We're just kind of getting settled into our new house, my fiance and I, and so this is my first time doing a podcast in this room. So I'm not really sure about the acoustics, but hopefully.

It works out in editing on the other side, but I just listed off congrats. Oh, thanks. Yeah. We're pretty stoked. I just listed off a long list of groups that you're working with or were formerly part of. And I kind of feel like you're on this Coupa troop, uh, trajectory. You've got like 13,000 followers now.

Like how long do you think until you get a hundred thousand followers on Twitter?

[00:01:26] Diana Chen: Oh, gosh, I have no idea. I just hit 10 K. So my brain isn't even at a hundred K or anywhere near there yet. It is cool though. It's been really cool to just like make friends on Twitter. That's something that I wasn't expecting at all.

When I. First started working on web three. That was probably the last thing I was expecting was to start working on web three and make a bunch of internet friends. But here we are, and it's been so much fun to just connect with people online and find like-minded folks from everywhere. So it's super cool.

And I'm just excited and feel really honored to have a platform, to be able to voice my thoughts and connect with people.

[00:02:08] Justin Havins/Crypto Texan: Yeah. And so how exactly did you get into this space? Like, what's your background, first of all, and then how did that background kind of drive you to the web three crypto space?

[00:02:18] Diana Chen: Yeah, so none of this is going to make any sense.

My background is in law. I started my career as an attorney practice for a little bit out of law school and did a real life rage quit and decided I wanted to go travel the world. Super responsible move bile at 26 year old lawyer. So I quit my job. I started traveling. I was like, okay, well, I have to figure out a way how to figure out a way to make money now to sustain myself financially, if I want to keep living this lifestyle.

So at that time, this was in early 2017. Like way before COVID ever happened. And back then, it wasn't super common to, to like work online or to work remote. Wasn't really a thing. And for me, coming from a legal background, which is super traditional, I knew there weren't any legal jobs that could be done remotely.

And I honestly had no idea how to go about finding a remote job or even which skillsets of mine could transfer over to other positions. Like I had no idea at the time. So. I thought, okay. Want to travel? I've always really enjoyed writing and I've always been good at writing. So why don't I start a travel blog now is the most rational thing that came to mind at that time.

So I started a travel blog and became a travel blogger for the next few years. Through that process. I realized that it is very difficult to make a full-time living as a blogger or a content creator of any kind in the web space. So I ended up finding this content marketing agency that was fully remote, and that would allow me to travel while still working at the same time.

So I ended up working there and. We were helping B2B businesses start podcasts. This was back in 2019 when a lot of businesses wanted to start podcasts as part of their content strategy. So that's what we were helping people do. And as part of that, I thought, well, I should probably start my own podcast to prove out to our clients and potential clients that I've done this before.

I know what I'm doing. And you can trust me to do this well for you and you can feel comfortable hiring us to help you start a podcast. So I started just a normal, like a web to startup podcast where I would bring people who worked at startups onto the podcast and have some drinks with them and chat about startups.

It had nothing to do with crypto or web three. And at this time, I didn't know anything about crypto or web three still. And then totally by chance, the CEO of unstoppable domains, Matt gold found my startup podcasts somehow and really liked it. And so he ended up hiring our agency to help him start a podcast for unstoppable.

And that was my first real exposure to crypto to like actually understanding what crypto is and what decentralization means and what people are actually trying to achieve with web three. And as soon as I actually started learning about it, like I was hooked. And so within about a month or two of working with Matt, he invited me to work at unstoppable full-time so you basically poached me.

And I was like, hell yeah, let's do it. Like, I still don't really know that much about crypto, but I feel like I know enough to know that this is going to be the future. So I took that leap and that is how I ended up in web.

[00:05:49] Justin Havins/Crypto Texan: I feel like that is such a unique story compared to all the other stories of people that I've interviewed.

Because I think typically you go through the rabbit hole and it's like, for me, it started with like in 2017, it was Bitcoin. And trying to figure that out and then. Alternative layer ones, which like in 2017, that was like light coin Bitcoin cash, and then Ethereum, and then define than NFTs and then dowels, et cetera, et cetera.

But yours didn't really go that way at all. It was more of, Hey, we have a podcast that we want to start and. You don't know anything about the space. And so do you want to do a podcast on it? There's that pretty much

[00:06:28] Diana Chen: it, that was pretty much it. Yeah. I warned you guys that this story was going to make absolutely no sense.

And it was just a lot of random bits that all came together at the right times. But yeah, it was like, I think from Matt's perspective when he hired me on it was. 'cause. I was like, Matt, you understand that? I don't know anything about crypto. Right. And you're asking me to host this podcast on crypto. And he was like, yes, I understand.

I think you can actually like ask the best questions from the perspective of other newcomers in the space. And I think that's exactly what ended up happening. Like for me, I'm like too scared to go back and listen to those first, like 10 or 20 episodes I recorded at unstoppable because I think it would just be so cringed for me to listen to that.

But I actually have gotten some of the best feedback on those initial episodes because people are like, you asked all the questions that I have and that I'm too scared to ask because they feel like dumb questions. And I sorta just like had no shame, put myself out there. Really dove into this whole like learning and public thing.

And people like that, like not a single person dams me and was like, you're such an idiot. Like what a dumb question that you asked on this podcast? No one said that all the feedback I got was quite the opposite. So that's why I'm really a big proponent of learning and public. I think the community is gracious and the community.

Like following your journey of learning and also want to jump on board and learn alongside you as well.

[00:08:05] Justin Havins/Crypto Texan: Yeah. I totally agree there. And I think another thing that's kind of interesting that I've noticed from doing the podcast is that if you, even if you ask a question that right after you ask it, you're like, that was so dumb and you're like, assume something incorrectly in your question.

And the guest then has to correct you and tell you why that question is wrong. Those sometimes. Yield the best in like more thoughtful thought out answers, I think. And so I think it is important. I think it's a great way to learn. Right. And it's also like you can take questions from your audience too and help your audience learn.

What do they want to learn from this experience as well? I think that's really cool. I think your journey is very unique. Yeah. Right. I think Stoney was an attorney or he was a lawyer too, before he got involved before he started right. I think

[00:08:55] Diana Chen: so there are a surprising number of ex lawyers in this space.

I feel like I keep meeting more and more of them. Like I just gave a talk at tacky on the other day and someone just followed up with me. From that talk. It was like, Hey, I also used to be a lawyer. I feel like there's like a lot of ex lawyers joining the space or already in this space. I don't know why.

I don't know what it is, but, but yeah, you're right. There's quite a few of us in here. Do you

[00:09:21] Justin Havins/Crypto Texan: feel like, just like the background of being a lawyer and the way that. I think maybe gives people a leg up in this space because I think, I don't really know cause I'm not a lawyer, but I feel like you really have to like read between the lines and in law, everything's kind of like black or white.

And in this space you're dealing with code, which is either same thing, kind of black and white. Since in that regard, do you feel like that kind of helps people in the space or do you think it might be something else?

[00:09:48] Diana Chen: Maybe that's part of it? I think, I think if you think about the types of lawyers who don't want to be a lawyer anymore, they probably have somewhat of like a rebellious personality or rebellious streak, or there's something about this very rigid, traditional age, old thing that they didn't love.

And crypto sort of offers an alternative to that. Crypto is kind of rebellious. It is like this new thing that goes against tradition and what we've been doing for decades. Maybe there's something there with just like this rebellious kind of personality and attitude and not being afraid to. Go to stray away from like the straight and narrow the norm, what people are used to and try out something new.

[00:10:36] Justin Havins/Crypto Texan: Yeah. Just like a break from the traditional norms. Yeah. That makes sense. And so, yeah, so you had the podcast, what initially really brought you in about the web three space? DAO's or was it NFTs, defy? What aspects of the web 3d space interested you the most at that point that really converted you? And then what about the space interests you the most?

Now, if it has changed at

[00:11:02] Diana Chen: all at that time, when I first started learning about crypto, the thing. That initially brought me down the rabbit hole into doing more research and learning more on my own was learning what decentralization could do for creators. Having come from a background of being a travel blogger, being in that world of trying to make it as a creator, I felt firsthand a lot of the pains of being.

Uh, creator in the web to world. And when I learned about this concept of the ownership economy, that web three would hypothetically offer, I think that was so attractive to me and also mind blowing to me at the same time. Like I think I just hadn't even entertained that there could be a different model.

Like realistically could be a different model. Than what we were seeing in the web to world where it's a numbers game, it's all about how much website traffic you have, how many followers you have on social media and less about the quality of those followers or the quality of those connections. And this whole, like if you guys have read legions 100 true fans, article this whole concept of being able to have just a hundred true fans, a very small number of fans of your work and.

To make a full-time income from that I think is really something that I don't want to say is like novel and web three. Like that concept also exists in certain areas of web two, but I think web three tooling really makes that concept a lot more feasible for people. So that was the initial thing that brought me down the rabbit hole and to learning more.

And when I first got into this space was also like in sort of the earlier parts of when NFTs started to boom. So NFTs were another thing that I thought was really. Interesting. And at first I thought it was interesting because I couldn't understand it. Like, I just didn't understand why people were so hyped about NFTs.

Like I wasn't somebody who grew up collecting baseball cards or collecting anything really. Like, I don't even have really any artwork or paintings in my house. So it was hard for me to understand like how people were paying so much money for these, like, yeah. I, for sure thought they were just JPEGs, like in the beginning of.

But that like, I think, because I couldn't understand what NFTs were that just like motivated me to learn more and more about it and talk to more people about it and hear different people. Explain what NFTs were until I could understand it. When then once I understood it, I was like even more hyped about it.

So I would say like creator economy stuff out of. That was what I was initially interested in today. I'm definitely still interested in those things, but a lot more so in doubts as well. And I don't think I even knew about DAOs when I first learned about crypto and web three, it wasn't until maybe six months or even a year later that I really started to learn more about Dallas, but I think.

DAO's now that pretty much all of my work in this space revolves around DAO's to some extent, I really just think that DAO's have so much potential to change the future of work. And that means the future of. Like how people can live, where today, especially in the Western world and the us where it's more of a capitalistic society, it's almost like people live to work instead of live to live like our lives revolve around work.

They don't revolve around living, which seems a bit counterintuitive that your life doesn't revolve around living. And it almost feels like a privilege to be able to say that my life doesn't revolve around work, that I don't have to work that much. I can go on hikes every day with my dog. I can go and enjoy the things that I like to enjoy and still live a comfortable life.

Like that feels like such a privilege. And I just think that that should have. Like that doesn't sit right with me. And I think Dallas have the potential to, to shift that narrative a little bit. I'm not saying DAO's will fix everything. There are a lot of other issues that are not related to Dallas, that Dallas can't fix, but I think it's a step in the right direction.

And I'm just excited to see how DAOs develop and how they can give people more opportunities to. To earn a living in like a fun way and in a way that still allows them the time and space and energy to live other parts of their lives.

[00:15:55] Justin Havins/Crypto Texan: Yeah, absolutely. I think DAOs are just such a fascinating new mechanism for human coordination and I guess like allocation of resources and capital, but I guess like, what is it in your mind?

I guess a community that's so important about DAO's or is it the ability to, I guess like the freedom of movement from a work standpoint where you can transition from doubt to doubt, if you wanted to, like, what is it about bows that you feel like provides that. Freedom for these types of individuals, like either right now or in the future.

Yeah, for

[00:16:30] Diana Chen: me, it's really that freedom of movement that I think is really key. And DAO's still have a ways to go in this department. I think there are the dowels that I'm seeing today, at least. Still have things to think about in terms of like, how do we best onboard people and also how do we best off-board people?

And that's one thing that I love about index and I always point people to index as one of the best places to. Onboard onto a DAO if you're brand new to the space, because you guys have such a good process for onboarding, I think more Dallas need to have a solid process for onboarding and for off-boarding.

And I think that balance is hard to find of letting people move freely from doubt to DAO while also making sure that the work is getting done within the DAO. So that's sort of TBD to see what structures are set up to ensure that balance. On the other side too. I think compensation is also another big question.

And this is something that I'm sort of experimenting with right now is. I've heard all sorts of different stories about some people trying to go full-time DAO and just not making a lot of money. Other people are saying they've been full-time DAO for essentially years. Like before we really even knew these were called DAOs or before, like people really understood what they were.

And they're making a great income. So I'm sort of experimenting with that myself right now, just to see some of the pros and cons, like some of the things that are good about Dallas right now, and some of the areas that need to be improved upon, but yeah, that freedom of movement and just that freedom of.

Being able to contribute in whatever way you can offer value in the moment, I think is really important instead of being locked into a position and saying, okay, like your content marketer. Now you just have to be a content marketer forever. You can say, like right now in this moment, maybe I'm a content marketer and I'm going to help you create your content strategy.

But maybe in three months where I can offer the most value is actually in building up your community or actually in something else. And I think the freedom of movement in that regard and your like, quote unquote job title or your role, like how you contribute is important as well. And I think like the other big thing too, a Dallas is that you don't have to.

Like your credentials don't matter as much, and you don't have to have gone to Harvard to be able to contribute to DAOs. As long as you have skills to contribute, that's really all that matters. And I think that really breaks down the barrier to entry of getting good jobs and the traditional web to space.

And now allows a lot more people to find meaningful work who maybe just didn't have the opportunity to go to a procedure school or come out of a prestigious company that everybody's heard of. Yeah. And I

[00:19:32] Justin Havins/Crypto Texan: think it's also pretty telling that a lot of contributors to DAOs just have the title contributor, right?

Like you might be a contributor with a focus on growth or a contributor with a focus on business development, but it's really just. At least from the index co-op standpoint, I've noticed is that yeah, you can focus on a certain pod is what we have, but you can contribute to all of the pods. Like you can contribute to business development and growth, and you're not just really siloed, which is also kind of freeing, right?

Like if you have good ideas from a business development standpoint, instead of just sharing those with the business development team, like why not just implement them yourself or, and maybe that it could just be like, Uh, mechanism of the fact that we're so early in trying to figure out how DAO's work, but I've kind of seen, like, not only the freedom to move between Dallas, but also the freedom and opportunities to move between different roles within the organization is also pretty fluid as well.

So I guess my next question is like, have you experienced that? And I guess, like, what are some of the more. I guess surprising lessons that you have learned by being involved in DAOs.

[00:20:44] Diana Chen: Yeah, I think one of the most surprising lessons for me from working in DAOs is learning about that balance between autonomy and guidance.

So learning about that balance of as a team lead or as a pod lead, or as like a leader of the doubt, How much guidance do you give the other contributors to accomplish the goals that you want to accomplish versus giving them the autonomy to create freely within their realm of expertise? I think that balance was, it took me a little bit to figure that out with.

Rabbit hole when I was trying to figure all of that out at rabbit hole. And I think in every doubt it's going to look different, but one of my learnings was that people actually crave a lot more guidance than I had initially thought. So I'm somebody who likes to have a lot of autonomy and independence in my work.

And I think I projected that on to everybody else and assumed that well, because I want to have all of this autonomy in my work that everyone else would as well. And I quickly found that to be not true at all. And I think the balance that I found at least within a rabbit hole was to provide people with guidance around what your goals are, what your values are.

And within that, then let them either you can co-create with them or let them create on their own. Yeah, I think that was probably one of the biggest. Challenges. And one of the biggest learnings that I had from working in a Dao, and I think it's important to, like, I know earlier, you're like, yeah, it's cool that everybody is just called a contributor.

And I totally agree with that. I do think that Dallas still need leaders like team leads. Like I think I tweeted at one point that like the only title is that should exist within Dallas are team leads and contributors. So you're either lead or contribute. And I think the reason for that for having leads is that you still need some sort of organization and some sort of structure to make sure that things are in fact getting done.

And that there's a point person too, because I think when you just are completely decentralized and let everybody have like, have a completely flat like organizational structure, I think that can be chaos. You and can either lead lead to people clashing with one another or just nobody speaking up, because it's kind of like when you're in a group setting, you're less likely to speak up than when you're on like a one-on-one call or a one-on-one meeting with somebody it's like that whole theory.

So yeah, like really just finding the balance between autonomy and guidance was a really big learning.

[00:23:28] Justin Havins/Crypto Texan: You obviously have experience cause you're involved in quite a few dowels enough fall down at least to include them in your Twitter bio, which I mean, in my mind, that means you're taking ownership of that contribution that you're making or that community that you're sharing with that DAO.

So let's kind of talk about these doubts. And maybe if you could kind of give us a background on like, how you got started, like how'd you get introduced to these organizations and then kind of, what's your role there now? So let's start with Colonel and I'm not exactly sure exactly what Colonel is. I know it's related to a get coin grant, but what is kernel and how'd you get involved with that?

[00:24:04] Diana Chen: Yeah. Colonel has this great little community within the good coin ecosystem where people can learn about web three together. So they have different cohorts. I think they're on COVID. Five or six now they call them blocks. So I was in Colonel block three last about a year ago was when I was in kernel.

And I think like, what I really like about Colonel is that they have this curriculum that they provide you with and it's open source. So actually anybody can go and look at this curriculum without being accepted into the program or anything. But once you're accepted into Colonel. You get to meet a group of other like-minded folks, other people who are trying to build and learn more in this space.

And it's just a great place to jam with other people about different ideas. You have to maybe join a project, find a co-founder or just like hanging around and learn is like totally fine as well. And one thing I love about Colonel and the way that they have written out their curriculum and the way that they teach things.

Is that they teach things from a very nuanced perspective. And so I think like one thing we see a lot on crypto Twitter and just online in general is that everyone likes to take these very extreme black and white views. And so then it's like, oh, you disagree with me. Like, then I'm going to argue with you.

And when in reality, most people. Most people's beliefs are somewhere in this gray area, like somewhere on the spectrum between the two opposite extremes. And I think Colonel does a really good job of helping you think through. Not everything is like all good and not all bad. Like not everything exists in binary.

And in fact, other than code, very few things in life exist in binary. And the Colonel curriculum does a really good job of sort of explaining some of those nuances and helping you to be more open-minded to other perspectives. And also think more critically about your own perspective.

[00:26:11] Justin Havins/Crypto Texan: Oh, that's interesting.

That sounds like a great initiative, a great project. And when did that get funded by G was that a good coin grants program or when did that get funded by get coin?

[00:26:20] Diana Chen: So it must have started probably like two years ago at this point. I know at one point they were talking about spinning out from get coin completely.

I don't know if they have done that yet or not. My involvement with Colonel now is like pretty fringe. Like I basically just offered to mentor a few people in each of the new Colonel blocks. So my involvement is pretty minimal nowadays, but I'm still a huge fan of the program and highly recommend anybody who's, especially like newer to this space.

Who's trying to learn more and really like dive in and get involved to check it out and maybe apply if it looks into.

[00:27:00] Justin Havins/Crypto Texan: That's awesome. All right, now let's move on to ink DAO. This is, this is a fun one. I'll let you explain it.

[00:27:07] Diana Chen: All right. So this was inked out, started from a ship post, which was actually very web three.

Basically. This was last fall, right before Massari Maine at the conference in New York city. I saw something on Twitter, like somebody who needed a photo of a girl with an ERC 7 21 tattoo, and I had retweeted it, or I had quote, tweeted it and said something like, who wants to get tattoos with me in New York next week?

This was like a week before Massari mania. And th this was a joke and I thought it was pretty clear that it was a joke, but some people latched onto it really hard. And when I was in New York from a, sorry, you may not, people were DME. Like, when are we doing this? Like, I know a great tattoo shop in Brooklyn that we should go to.

And then before I knew it, like this girl was like, okay, cool. Like I made an appointment for 10 people at this tattoo parlor and brother. At this date and time, see you all there. And even though like, it was in my mind, like obviously a joke when I tweeted this, like, since people jumped on it so hard, I felt like I couldn't back out since I had started this, all of this chaos.

So that's how inked out started. And somehow inked out has just continued to grow without really any effort on anyone's part. I think like the story of being Dell just like spread and it resonated with people and people were just curious and wanted to join. So anybody with an ERC sewn in 21 tattoo. Ken join, Inc.

DOE that's really the only requirement. And we have like the right font and. Like size and everything on the inked out Twitter. So you can literally just like, take that and bring it into a tattoo shop and be like, Hey, can you tattoo this on my body? And that's it. But it's turned out to be this really fun community with like such impeccable vibes.

Every time there's a big crypto conference, we'll always try to like, get a dinner together and meet up together and hanging out. And it's a lot of fun, but like very much not a DAO in like an official DAO in any sort of way, other than just the community of people who like to hang out with each other and

[00:29:29] Justin Havins/Crypto Texan: like tattoos.

Yeah. That's a fun one. Yeah. We are all somebodies ERC 7 21. Standard, I guess there you go. I love that. So do you have to provide proof of ink to join ink down even though it's pretty unofficial? I don't think y'all don't have a token or

[00:29:44] Diana Chen: anything. No, we don't have a token or anything. Yeah. You have to provide proof of eating, which typically is just a photo of your tattoo on your body.

Some people will send videos of them getting tattooed as well. We have a couple of people who, who are tattoo artists or who. Our artists of some kind and decided to tattoo themselves. So those are kind of cool videos. This the, we call them the self scratchers. We have a few of those. So it's really an eclectic bunch and people are located all over the world.

We have a bunch of people in Europe who are in inked out. It's yeah. It's open to anybody from anywhere around the world. Show, just show a tattoo parlor, that text file and get a tattooed on your body to show us proof of being.

[00:30:28] Justin Havins/Crypto Texan: That's fun. Okay. The next one I want to talk about, and I'm familiar with this one and that's paperclip DAO.

I love this concept. I think it's super fun. And I've thought about like getting involved with paperclip down a little bit, and I poked my head around the discord a little bit, but share with us what paperclip DAO is and kind of what's your involvement in that now?

[00:30:48] Diana Chen: Yeah. So paper-clipped out for anyone who doesn't know is basically an on chain version of the red paperclip experiment.

That blogger Kyle McDonald from back in 2005. If any of you remember that basically this blogger decided to trade. He had a red paperclip and he was like, I'm going to keep trading this paperclip until I trade up to a house. And it was just this crazy experiment. And he documented every trade that he made and every part of it and his blog, it's still online.

Like you can go Google it and read it. But the paper-clipped out is basically that experiment on chain. So we started with a paperclip NFT that like someone just made it's worth zero. And we were like, let's just keep trading this until. Who knows what we can get. Like for us, it wasn't a house. Like for us, it was like, we've always said our north star, like our house from the original experiment is maybe like an alien punk.

That would be super cool, but like, who really knows. And so we started this last summer when NFTs were really exploding a lot. And people were so hyped about it. We got like a board, a crypto pond, moon, cat, like all of those things pretty much right off the bat. The one that we're holding right now is N I K B, which is like a digital zone of pictorial inventorial sensibility, Mitchell Chan's project.

It's a whole other thing that you can go look up if you're interested, just like search for Mitchell channel on Twitter and look at his pages, but it's sort of like slowed down and. It's been dormant for a little bit, partly because don't have T market slowed down a lot, partly because one of our main members had a baby.

And so like, his life was obviously very busy, but it started as just a group of, I think there were 10 or so nine or 10 of us, my friend who was starting this like dams me one day and was like, Hey, starting a cool, like super secret DAO. Do you want to be part of. And I was like, yeah, for sure. Like whatever it is.

So that's how I got involved in paperclip. And it's been so much fun. Like paperclip has been, I think the most easy DAO to be a part of in the sense that I feel like the core members that started paperclip or just a bunch of really smart, talented, People who are all really good at what they did. And so when we launched, which happened.

Less than 48 hours after we got everyone together, everyone was just like, would just step up and like, knew what to do. So somebody was like, okay, I'll step up and write this blog post. So it was like, okay, I'll step up. And like tweet this thing. And there was never any question to it. It wasn't like, oh, what do we need next?

Like, who should do this? It was like, everyone always knew what had to be done next and someone would just stop step up and do it and do it really well. So that was really my first doubt experience and it set the bar really high for DAOs for me. And I think it may be skewed my perspective a little bit in the sense that if you have a small group of.

Really smart people who all really get along then, like, yeah, I think you can do anything. You can build anything you want, you can achieve anything you want. The reality is most DAO's, aren't set up this way. And so there are a lot more things you need to consider, but paperclip was just like so streamlined and operated so smoothly and was like, so functional, right from the

[00:34:28] Justin Havins/Crypto Texan: get-go.

Yeah. That's every time I talk to someone about that, that one's always a really fun one. So before we get into rehash, which is your newest podcast venture, I guess, are there any other DAOs that you're kind of looking at or any other details that you want to chill?

[00:34:43] Diana Chen: Right now? There are other doubts that I'm like more friendly involved in cabin.

DAO is one of them. I'm a huge fan of cabin day. I just think the people there are awesome and they really have their s**t together. If you go hop in their discord, you can check out their how well they're organized and check out their docs and you can easily see that for yourself. I'm also in joked owl, which is like a fun, another fun, little doubt that started as a joke, kind of like inked out, but really has grown to become something like quite serious.

They're trying to develop this whole protocol and everything, which is pretty cool to see. And then another sort of fun. One is Toby DAO. Toby is the name of my dog. I started minting these photos that I had of Toby as NFTs said that anybody who held a Toby out of ti could join Toby DAO. And it basically was just a fun group chat, similar to inkjet.

But we might actually be doing something with Toby down. Now I brought him to east Denver back in earlier this year and I made him this QR code dog tag. So, so there was a QR code on his dog tag. And if you scan it with your phone, it would lead you to this claim page where you could claim a Toby NFT and prove that you've met him in Berlin.

So a bunch of people met him in person in Denver. And one of the girls that met him there is really passionate about turning Toby DAO into something. So I just had a chat with her earlier today, and we were talking about creating more of a community around Toby DAO and even facilitating some rehoming efforts because now that we're coming out of.

COVID and people are kind of returning to their normal lives. Like a lot of the dogs that were adopted at the beginning of COVID, their owners are now traveling a lot or circumstances have changed and they can't keep their dogs and they're trying to rehome their dogs. And a lot of dogs are ending up in shelters and things like that.

So we're still like very early stages of thinking through that, but it's just been so far just been a fun community of dog lovers. And in the future, it might turn into something bigger.

[00:37:01] Justin Havins/Crypto Texan: That is the alpha leak that we had been looking for. Diana Toby DAO is going to the moon,

[00:37:10] Diana Chen: doge to the moon.

[00:37:13] Justin Havins/Crypto Texan: All right, let's talk about rehash.

This is a community owned. Not community owned maybe, but community driven, rather podcast DAO what's going on here.

[00:37:25] Diana Chen: Yeah. So rehash just launched a few weeks ago. The way I was thinking about this is I was thinking I'm really passionate about podcasting and I'm really passionate about Dallas. Why not combine the two I've been podcasting for the last year and.

All for different companies for different people. So I don't really have anything that I own in terms of those podcasts, even though I recorded about 150 episodes on crypto web three topics. So I thought, well, I should probably start my own podcast so that I have something to show for it and call my own over time as I jumped from one project to the next.

So that was part of it. And then the other part of it was I've been really wanting to build a community around. Media and content in web three. And I thought, well, why not combine the two and turn this podcast into a DAO. So with regards to the podcast itself, the DAO component is that Dell members will be able to nominate which guests get to come on the podcast.

They'll get to vote on the guests. They'll get. Offer suggestions for topics that are talked about on the podcast, we'll be able to really have a say in how the podcast is structured and what the podcast looks like long term. So that's sort of like with regards to the podcast itself, big picture though, for rehash DAO, I think there's so much more potential with rehash DAO than just this podcast and the way that I'm envisioning.

And ultimately this is going to be up to the community, but the way I'm sort of thinking about this is it would be so cool for rehash to grow into the. Premiere web three content and media brand, where any content related project in web three can spin out of rehash and be part of this ecosystem. So it'll be like, like, it could be like conversations with the co-op sponsored by rehash or something like that.

Whatever you want to call your project. And so in the future, what people will be able to do is there'll be able to submit proposals for projects that they want to launch within rehash. And so I can say for instance, that I want to launch a new video channel where I explain really complex DFI topics to somebody who knows nothing about finance.

And I think I'm the best person to do that because I have a background in finance. I've been working in this space for ages and I'm also a very good communicator and very good at breaking down really difficult concepts into easy to understand ways. And in order to launch this project, this new video channel, these are the resources that I need and it could be like, I need X number of E to launch it.

I need these human resources. So maybe I need like a video editor to edit my videos. I need a designer to design my visual assets for this video, et cetera, et cetera. And then you hit submit that to the DAO and the DAO would vote yes or no on whether we want to use the funds in our treasury for this project or not.

So that's like the term. Vision for rehashed out. I think it can be something like way bigger than just the podcast where in the future, you might envision that there's rehashed out. And then within rehashed out, there are all these little projects or little pods under rehash and the podcast now would just be one of those many projects that make up the rehash.

[00:41:01] Justin Havins/Crypto Texan: Interesting. So are you looking at doing newsletters potentially out of this as

[00:41:04] Diana Chen: well?

Fun out of here. Yeah. Like these, I see these as being independently run projects, but that all have this cohesive branding and community. So like, you can really leverage the rehash community to get your project off the ground. You can leverage rehash resources to make your project a reality. Things like that, but otherwise it would be like the people working on this specific project can operate pretty independently of like the people working on another project within rehash, for instance,

[00:41:43] Justin Havins/Crypto Texan: that makes sense.

That's really interesting. And so like, just in general, I guess, like how. How do you decentralize content like this? Like what does that mean to you?

[00:41:54] Diana Chen: Yeah, that's a great question. This is actually something I've thought about a lot and it's pretty much worth the on full time for the six months or so that I was at Robert.

And I think when you think about decentralizing content, you're dealing with all of the typical challenges of operating a Dao of just de-centralizing in general, plus all of the challenges of content. So like maintaining quality of content, maintaining consistency and posting things like that. When I think about de-centralizing content, I think that there are a couple of ways you can do this.

So the first way that I think works well is that you could have a small group. Elected content creators who are elected by the Dao. So you could say every season. So every quarter, for instance, like every few months you have a new set of writers who are elected to the DAO, a new set of video creators, a new set of like whatever content creators.

And that can switch up every three months. So during the nomination cycle, I can nominate myself. I can say, Hey, I'm Diana. I would love to be a writer for index. And this is why I love index. And this is why I think you should vote for me. And here are some links to my password. And then if I get voted on, then I agree to produce like X number of content, X number of pieces of content per month for the next three months.

And in exchange index would agree to pay me a stipend of X amount for every month for the next three months. So it's kind of like that agreement where the decentralized part of it happens. First it hap that part happens with the whole community of voting on who they want to see represent them. But then in order to maintain quality control, which is super important for content, do you have a smaller group of people actually be able to create the content and represent the brand publicly?

I think that's one way to do it. I think another way to do it is to. Let everybody write content. So if we're talking about written content, let anybody in the DAO submit written content, but then have another level of curators who are a smaller group of trusted content, people that you have within your Dao, how a smaller group of curators pick and choose which pieces of content actually make it onto the publication and out to the public as like representing your brand.

And I think that's sort of like, At least like that's the best way I've come up with to maintain quality within a decentralized environment when it comes to content. And the way that I see it playing out and rehash then is that which projects end up growing out of rehash will be determined by the larger DAO community.

So that part of it is completely decentralized. But then once we work on this, like we are electing on a few people, like we know who submitted the proposal, who wants to tackle this idea. And then also like who the people are that they want to bring onto their team. If they need other people's help to help this project become a reality.

[00:45:14] Justin Havins/Crypto Texan: Yeah. And I just wanna let you know, I've been a big fan of your podcast for a while we'll since you and I met it and they met last year and I think it was David that introduced us. And I was like, oh, fellow podcaster, you know, my podcast gets like maybe like 150 downloads or something like that. But yeah, I think, yeah, this is a very exciting next step for you in the, in the sense that you actually get to own your own.

Right. So I don't know. What does the future look like for you in your mind? Like, what is the, just like, if you look out, it's hard to say five years in crypto. So I'm going to say, if you look at a year, like where are you sitting right now with rehash and everything else that you're

[00:45:50] Diana Chen: doing? Yeah. So for me personally, since leaving rabbit hole, I sort of took a couple of weeks to figure out where like what my next move was going to be and where I saw myself next.

There are so many options. Like you can work full-time in this space, you can be full-time DAO. You can like, the options are endless. So I think for me the next year or so, I'm going to work on rehash and work part-time on other projects, like on like a, like a contract basis. So my first project that I'm going to be taking on and starting in a couple of weeks is going to be helping my friend ML Waldron build out her new company, wild, which is like a web three media company focused on women creators.

She's just, she's fantastic. And I think her vision for what she's trying to build is like completely aligned with my values. And so I'm excited to help her with that. I'm going to be helping her for the next three months or so, like, get that launched and come up with a marketing strategy, her community strategy or her content strategy in order to launch that.

I think that's sort of like the stage of businesses that I'm most passionate about and that I have the most fun working with. Is those really early stages where she's still pre launched, like she hasn't launched yet. And she's trying to come up with a good community strategy, a good content strategy so that she can launch successfully.

Like I love working at that stage and helping come up with a strategy for that. Outside of that, I'm going to be working on some DAOs as well. Like Kevin DAO is one that I've got my eye on and trying to get more involved in DAO house is another one that I've been connecting with the people there. And I think there's a lot of interesting ways that I can maybe contribute and help out there.

So the next year is just going to be sort of experimenting with this full-time DAO thing and seeing how that goes and really like, I'm super excited. I'm like, so, so excited because this is really like, all I've ever wanted in life is to be able to work on a few projects that I'm really interested in and work on it at the stage where I believe I can contribute the most value.

And then have like a non-awkward way of exiting and working on like the next project. And I think that's what I'm trying to set myself up for right now. And yeah, I love to like, I'm equally as curious to see where I end up in a year. And if this experiment goes well and. Yeah. I'd love to talk to myself one, one year into the future and know what that looks like.

[00:48:30] Justin Havins/Crypto Texan: Yeah. Well, like I said, the podcast is great and, or kind of running up on time here. So is there anything else that you want to touch on that maybe we haven't had a chance to quite yet?

[00:48:41] Diana Chen: One thing I've been thinking about a lot that I think is super important and really not talked about enough in this space is the importance of having clearly defined values in your DAO or your company or your project or organization or whatever it is you're working on.

I think it was shocking for me to find out that a lot of really big and well known projects in this space do not have values. Like if you ask them, what are your company values? Like no one would be able to tell you. And I think that's a really terrifying thing, but I think if you're thinking about building community and you're thinking about like really getting people to rally around.

Business your product, your Dao. I think the way to do that is to start with having very clearly defined values. And what that looks like is stating what your value is. Providing context for why you're thinking about that. Like, why you think that's important out of all of the, like thousands of values you could possibly have in the world.

Why are you choosing this as one of your core values? And then also explaining like explicitly laying out because we have this value, this is what that means. So if I say I hold this value, this. How that's going to impact my actions, my behaviors, and my decisions, and then everything that happens within your organization can ultimately go back to this core set of values to determine, should we take on this project or not?

Should we pivot in this way or not? Should we go about things this way or. You can always reference back to your core values to determine those things. And I also think that when you put your core values out into the world in a way that is very clear to understand that you'll naturally attract the right people with the right culture and the right vibes that you're looking for.

Into your organization. So that's a really quick and easy way to make sure that you're curating the right vibes in your doubt or your organization. And on top of that too, when you get your community that aligned with what you're trying to accomplish, then if a small thing goes wrong, there's like a small bug in your product.

Like some people lose some money, maybe your token price doesn't go up as much as people think. People in your community, won't just turn on you. They'll stick by, you stay by your side because they understand what you're ultimately trying to do versus people who don't understand that, then they're just in it for the speculation.

They're going to turn on you at the tiniest little mistake that you make or not even a mistake, like the tiniest decision you make, that they don't agree with. They're going to turn on you. And it only takes a few very vocal. Unhappy people in the community to like really sour the vibes around your brand and like the general feeling around your brand.

So for all of those reasons, I just think that everyone who runs a company or an organization or a project of any kind should, before they do anything else, sit down and write out like their core values and make sure they're very clearly defined.

[00:51:47] Justin Havins/Crypto Texan: Yeah, I completely agree there too. It's just not only clearly defined, but also just like, I just reinforced a lot too.

And I think the next co-op does a pretty good job at this for the most part. Like, obviously we're a DAO and this is a new human coordination tool that we're using. But I mean, if you come into any of our calls or any of our meetings that we have, like the very first slide on all of the. Meetings is what are our core values?

What do we believe? What's our mission statement and what are we trying to achieve as an organization and in this meeting specifically. And I think that's very helpful just to help align everyone. Else's expectations of the values of the organization. And yeah, I completely agree. Absolutely.

[00:52:30] Diana Chen: Yeah. A hundred percent index does an excellent job of this.

So great job guys. Thanks.

[00:52:35] Justin Havins/Crypto Texan: We appreciate that. Yeah. So before I close us out, Diana, where can people go to find out more about you and.

[00:52:45] Diana Chen: Yeah. So for me, you can follow me on Twitter at DDW Chen to same as my discord handle. And then for rehash, you can follow us on Twitter at rehash web three, and you should be able to find all the links to all of our podcasts and everything on.

[00:53:03] Justin Havins/Crypto Texan: Yep. And for everyone who is listening live, thank you for listening live. This episode is being recorded and we will get this out and published in about a week. Diana, thanks again for coming on the show. Appreciate having you.

[00:53:19] Diana Chen: Thanks so much for having me talk to you soon.

[00:53:21] Justin Havins/Crypto Texan: Alright. See you later. Bye everyone.

Bye .

Host: @Crypto_TexanMarketing Images: @crypto_diller_Producer: @0xMitzy

Audio and transcript from the April 14th, 2022 installment of “Conversations with the Coop” with Joseph Delong - Founder of Astaria, Former CTO of Sushi, and Former Ethereum core developer.

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

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Crypto_Texan: Hello, everyone. Welcome to conversations with the co-op. This is where we source questions from the index co-op community to gain insights from today's leaders in crypto and DeFi. I'm your host crypto Texan. And today on the show, we have Joseph DeLong who was an OG Ethereum and DeFi developer, and founder.

Joseph, how's it going? Thanks for being on the show with us today.

Joseph Delong: Thanks for having me. And it's really exciting to be a founder for the first time. Honestly, like I've always been kind of. In close proximity to early stage platforms. And I've never gotten to be like the dude that is helping found the platform, which is pretty cool.

Crypto_Texan: That is exciting. And another thing I forgot to mention another tag for you, or title is fellow Texan, which I love. There's a lot of great Texans in the Ethereum space in general, and you are one of them.

Joseph Delong: Ah, thanks. We have quite a bit of people in Dallas, a growing group in Austin and a little community in Houston.

And about nobody in San Antonio. For the most part, I would say most of the people who are here are traders by nature, maybe one other developer. So in the San Antonio area.

Crypto_Texan: It's interesting to see how. Texas is starting to become just a hub and just a very welcoming place for the, I guess, digital asset and blockchain space in general.

Are you kind of getting that sense of.

Joseph Delong: totally. I think part of it is, Texas is a super lenient and tax laws is like, you see a lot of people kind of leaving California New York right now. And what do those places have to offer is a lot, right? Like in proximity to capital like environment in California, in New York, it's like proximity to capital kind of being the center of everything.

It's very interesting. Just being tax advantaged with maybe slightly less attractive outdoor experiences in Texas is doing really well

Crypto_Texan: absolutely. I completely agree. That can be the part that Texas does lack a little bit. Is that. I don't really have an ocean front. We have a Gulf front, which is okay if you've ever been down there, but anyway enough about Texas for now, let's get started by just talking about your background.

I think you've got a very unique background that brought you to the space. Would you kind of just mind sharing, just tell us the story of who is Joseph.

Joseph Delong: Sure. Yes. I started when I was young, I kind of like didn't have any real direction and didn't really have much opportunity. So I kind of fumbled. I left the house when I was 18.

Pretty standard for the United States. And I kind of fumbled from like job to job, like just not really doing anything until I wound up landing in the air force, which was I think very beneficial for myself. Long-term and I was in the air force for four years. Did that got out? And went to college or using like GI bill, which is this basically scholarship for veterans to go to college, like a hold over from world war II.

And then I started working at a bank called USAA. It's like mainly served veterans and their families and I helped them start like a blockchain lab there. And then I was working on like it theories, some stuff for the bank. And then I met Johnny Ray, actually. Who's like the co-founder of LA.

At USAA, then we built a prototype, had the first east Denver for like in, it was very similar to like SETI at home for doing like big math problems like that sort of stuff. Big computation, distributed computation built that kind of on the first IPFS stock or first load PTP stack with a little bit of like theories.

Coordination for that stack. And then show that to Joe Lubin and try to get like acquired or invested by. The consensus and he didn't really like that, like the platform, but he liked us. And so he hired us to do the east to core development for consensus. We built the tech of client together in the world.

We both jumped out actually at the same time, like just by coincide. He jumped out to found element. I jumped out to work for dapper labs for a little bit, worked for dapper labs for a little bit. And then Maki asked me if I wanted to work at sushi. And so I worked at sushi for like approximately a year leaving in December of last year.

And after was like, like all sorts of like crazy and turmoil, like surrounding that. So I just kind of took a break for like a month, took my family to like Hawaii and Dubai in Egypt. We didn't like all the flux. Then, like I met Justin and we started working on Astaria, which is this capital efficient lending platform.

And he really liked the design and I really liked Justin. And so we, we kind of clicked and we started Astaria and we'd been like fundraising and building ever since.

Crypto_Texan: that is a really interesting background. And so you mentioned that when you were at the air force, you feel like that that provided a lot of, I guess, benefits for yourself.

Do you mean. Did it help you prepare for the blockchain crypto world? Or maybe just like helps you grow as a person? Like, can you elaborate on that a little bit?

Joseph Delong: totally. It was mostly like financial opportunity. This is like coming from a background where I was like extremely destined. The super poor, just living on a shoestring budget.

And then the air force comes along offering something like 35 K a year for me at that time. And in 2004, that was like crazy money, you know? And after that, I got the opportunity to go to college, which really wasn't available to me before financially and maturity wise.

And so after. Getting out of the air force, kind of have this opportunity to get educated and go do something with my life.

Crypto_Texan: And so you also mentioned at USAA that you helped them start up the blockchain lab over there. And I'm curious as to like around what year was that? And then did they already have a blockchain?

That was 2016? Okay. No, that's fine. 2015 and 2016.

Joseph Delong: They like started in, stopped at once during like a pump cycle. We started it on another pump

Crypto_Texan: and that was kind of like around the, if I remember, like that was around the time where people were saying blockchain, not Bitcoin. Right. Was that kind of the mentality?

Joseph Delong: That was totally the meme. And we got them moved so far along. Actually Hudson worked with me at USAA. That's where I met Hudson. I know him. He worked in the blockchain lab. He helped start it as well.

Crypto_Texan: Well, Hudson is a great Ethereum core developer or...is he's a developer. He led the all, all core devs call for quite a while.

Joseph Delong: He's a, he's a developer in that he's been educated in development, software development. He primarily does project management. And so he'll, he'll lead the all core dabs calls and did project management for all core devs.

Crypto_Texan: I think he was at flash bots too recently for awhile.

Joseph Delong: Or he was, he was there then now he's taking a break.

Crypto_Texan: It sounds like.... Well he, and he and I were actually like messaging the other day. I think we're going to grab a drink next week, but that's besides the point. That's interesting. It's just interesting that you and Hudson met at USAA, but I think that's just kind of how these stories unfold sometimes.

If you remember, like way back when from like an institutional standpoint, obviously USAA was interested in the blockchain space, blockchain technology. Can you think of any other organizations, institutions who were also looking into blockchain around that time?

Joseph Delong: USAA, EY, Ernst and young state farm Liberty mutual.

I don't remember like a bunch of insurance companies from city group.. A lot of like banks and insurance companies were interested in that. And a lot of them were doing like lots of interesting and experimental stuff, but this whole blockchain, not Bitcoin thing tainted the, the design space. Because in the essence of private blockchain is what's great as a coordination mechanism, right?

Like you got to consider to these fortune 500 companies are never talking to each other. They have no systems integration. Like we would do subrogation settlement, which is like repayments after an insurance loss. A bunch of different companies who would do all of that. You think we'd have like a computer system that we'd talk to get to it?

No, we did it all by mail. It was like internet packets that arrived by the mail. Cause they would immediately like scan them in and OCR all the data in. And then, then you start to like computerize, generate a check and then wrap and mail it back to the other companies. So like having fortune 500 companies like talk to each other or having connected systems.

Pretty interesting, but generally just like private blockchains are stupid. Like don't make any sense because if you know who your counterparty is, then a Paxos algorithm is just as effective. The real innovation in blockchains that really innovation of Bitcoin was trustless. Cause Byzantine General's problem had been solved for some time by knowing who he is.

Crypto_Texan:. That makes a lot of sense too. It's interesting to see too, probably from your perspective, cause you were involved in this so early on. That like just the attitude and how the attitude about blockchain and blockchain technology has evolved over time. Do you know if USA is still involved in that space at all

Joseph Delong: the insurance subrogation system that we started for them to basically put all their subrogation on chain, as I understand that is still moving along, but I bet that there are, I think of like, just generally the attitude has changed completely.

I think you can like how absurd. That Hayden got his bank account shut down by chase Manhattan, JP Morgan chase. Isn't like, is the primary lead investor in consensus. They are buying up Bitcoin like crazy. And they're like, oh, let's shut down. Like, Hey. And it's like personal bank account, like absurd, but like, that's kind of like some ways we've grown in some ways we haven't.

But I think about it. All the people who are kind of like, would be super negative in this space, but it's funny, like once the capital came kind of everybody shut up and they just became working for a regular company.

Crypto_Texan:. And I think a lot of the things that they are talking about, like just everything being on chain and having these protocols be decentralized.

So you don't have to rely on any. Centralized mechanism for control because when you do have centralized control, that is a centralized potential point of failure and that's a centralized risk. And I think I just kind of look at DAOs and protocols the way that they're operating now. And well the layer one is decentralized and the protocol might be decentralized.

I think maybe the teams working on those protocols are utilizing centralized services for coordination, like discord, for example, and get hub. You know, if those were to shut down I, I feel like there's a huge risk there. And do you, like, do you see that as risks for,, protocols in DAO communities or in like, what other risks do you feel like are out there that maybe aren't necessarily being addressed?

Joseph Delong: That's interesting.. I think,. Discord centralized services that you have to lean on are really problematic. I think generally the. DAO's people think of DAOs as people or a group of people. And I think that's probably the wrong way to think about it. I think Alice should be what you're calling the coordination tools.

DAO is not comprised to people. People are using a DAO or people are co-coordinating through a day. Cause those kind of puts finite constraints on what you can and can't do. But the reality of the world is that you're going to need much more latitude to operate. So say for instance, that index co-op wants to have a hosted front end.

Right. They're going to need to sign a contract, which means they're either going to need one person to be the sacrifice, to sign that contract, or they're going to need to set up a legal entity. And once you set up a legal entity, how does control of that legal entity flow? Is it flow like directly to the DAO because there's not a perfect analog to the DAO.

So like there's complications with that. Or you need to pay a vendor. The vendor wants to be paid. Regular money. Right? So you, now you need a bank account. What do you do? Somebody in your DAO and they're sexually harassing somebody else in the DAO. How do you kick them out? Right? They have like, let's say they have a bunch of the tokens.

Can you kick them out? There's is there a way to force them out? This is like, these are all of the like regular problems that are in the world that regular corporations deal with. DAOs, just aren't ready to deal with.

Crypto_Texan: I totally agree there. And I think another thing that you're kind of touching on is that I think we're starting to see the merging of these two worlds, right?

The traditional Meet-space world versus the decentralized blockchain world. And as those two worlds are converging, or you're kind of saying that like the lines are getting blurred on what we should do to move forward, right? Like you have. Does it form its own legal entity, which might go against some of the philosophy of sofa, like the hardcore OGs of the space.

So that you're seeing that, I guess it's, it's more of like a philosophical quandary, right? Is that what you're saying?

Joseph Delong: I think people see it as a philosophical quandary, but like in reality, we just have to deal with the realities of the world until. Like legal recognition of a DAO in the same way.

There's legal recognition of a corporation as an entity, an entity being like somebody who can act in the courts, somebody who can hold a bank account, like the corporate equivalent of person-hood, we just can't do it without the necessity of having some coordinating corporation.

Crypto_Texan: that makes sense.

And I think the type of person who is working in DAOs or working in web three in general is probably, maybe has a different mindset that someone that works in the web to traditional finance world. And you've, I'm sure you've done your fair share of hiring developers. So like what, what do you see as like the differences between those types of people?

Because you've worked with both at USAA and other jobs, what do you look for when you're hiring developers and what are some of the differences and similarities you see between those two worlds?

Joseph Delong: Sure. The design constraints for blockchain are much different than the design constraints for web to, for instance, I, everything has to be.

Design that the maximum attack that can happen on the system is a grief attacks where there could be a theft of funds or attacks where there could be breeding frozen funds or something like those are design constraints that you think about when you're building in web three, that you don't necessarily think about what you're building in web two, because you're like, okay, Messed up the database.

Let's just go roll back to our earlier copy. And that's fine because there's no money involved really. Or if there is money involved money that's controlled like a paper contracts and not by digital contracts. And this is a real issue. In the blockchain space. So very often you'll hire web to developers and they'll think, oh, let's remove all this like Byzantine fault tolerance stuff.

You know, it's taking up a lot of space or it's taking it's like, it's really labor intensive to deal with this like decentralization aspect. It's like that's, without that, there's nothing right. That's the core tenant. And it's just an ethos that you probably have too. You either get it or you don't.

Crypto_Texan: That's very interesting. Something you said, just like, so very plainly that I haven't really thought about is that basically digital contracts are a lot less forgiving than web 2 or TradFi contracts. And so do you see yourself having to retrain when you do hire people from web two and move them to web three, do you have to retrain them on just like what we perceive to be very basic web three things like the Byzantine generals problem or Byzantine fault tolerance is?

Joseph Delong: Luckily when people are leaving web 2, to come into web 3, they're kind of like into crypto a little bit already. So they have an idea of the principles, but if you're hiring somebody fresh out. You have to talk to them about what it is, why when you're hosting a front end, you can't keep a database of users. Right? Like why, when you're hosting a front end, that the greatest fail over has to be into a safe state where the user can access it.

Right. Like saying that we'll have a very sophisticated host with load balancing in et cetera. But the fail over is an IPFS front end that we is a static implementation of the same UI, right? Like, why did we have that is because we want the end user to always be able to. Access their funds are managed their fault in a decentralized manner.

Crypto_Texan: And when you were working in this space, I know that you have deployed on various various layer ones and layer twos and side chains. Did you feel like that each community in each side chain, each layer too had its own personality or a culture? Or did you feel like it was, it was pretty much the same.

Joseph Delong: They're totally different. I think. And then also the other consideration is that those people. Who are on that chain are very much like getting rewarded in the native currency. So like, say if you're on Avalanche or something, you'll be getting AVAX. And if you're on BSC, you'll be wanting to get like BNB.

And so they have like kind of a vested interest in there, but totally, like BSC is like this wild west of scam chains and. You know, optimum, arbitrary, or like if theory, some light polygon is like, this is probably like an old perception, but polygon was like the wild west for token farming, et cetera.

I think that's right. They each have their own little personality.

Crypto_Texan: Did you find that some teams for much easier and much more accommodating to work with than others? I'm not going to ask you to pick out specific chains, but what was that like and what, like other frustrations, like, do you run into when you're trying to coordinate.

Two different entities in the web three space.

Joseph Delong: Well, what two entities? You mean like the DAO and this chain you might be deploying to? Yes, yes, yes, exactly. Oh it's like we have a lot of latitude to do what you want and when you do, you're able to kind of make a lot of progress in coordinating with these other checks.

Polygon was amazing to work with. I really liked those guys and they were very interested in pushing up polygon. And so they gave lots of rewards for that to be given out to the users. And that was, that was pretty great actually. And they've had a very good kind of like business minded on what they were doing.

Crypto_Texan: Well, that's great to hear, obviously, something I kind of wanted to pick your brain on a little bit was just on the market making side of the DeFi space, because I think when you look at a protocol like uni swap V3 and the concentrated liquidity provision that it allows, I kind of see it as a platform for maybe professional market makers and maybe not so much for a retail and passive market makers.

So do you think that like the uni V2, X times Y equal cave forks have a place in the DeFi world? Long-term and if so, like how can those forks or those passive market makers, I guess if you will, how can they differentiate themselves from that capital efficiency that union SWAT B3 provides currently?

Joseph Delong: Like I think the jury is still out on B3 and a lot of ways I think the design is so good. Like I've come around to that over time. I think initially, like my impression was that it was not that interesting. Um, I think something like V3 on a platform like bento box will probably be the last design of iteration for AMMs for a long time, because the design is so haphazardly efficient and intelligent.

But V3 is like think 90% of the positions in V3 are still underwater. So that it's that great for liquidity providers is great for producing a price, but if it's not good for liquidity providers, long-term what are they going to do? They're going to walk away. And if you produce a really good price, actually efficient, what difference does that make if your liquidity providers are walking away because it's an unprofitable.

Crypto_Texan: That makes sense too. And yet when you say liquidity positions are underwater, Do do you mean they're out of range?

Joseph Delong: Oh, like they are in impermanent loss.

Crypto_Texan: Oh, impermanent loss.

Joseph Delong: And compare that to any of the two. I think part of that is to do with the path independence. And once you go above range, it's like, if you want to adjust to get back in range, that requires you to swap in the same pool that you were just in to adjust to range, which it turns your impermanent loss into a law.

To adjust your range. And so it's just not that profitable for LPs yet. I mean maybe, maybe long-term they becomes profitable, but right now it's not looking so.

Crypto_Texan: And I think it's also very interesting. I mean, there was this conversation for awhile about DeFi apps, possibly creating their own blockchains.

Like I know compounds hinted at this for a while, and I think there's some other protocols who have touched on it, but do you see there in the future being like a. And have a chain or a, or a uni swap chain, just app specific. Or do you think that conversation has kind of gone to the wayside in light of the multi chain universe?

Joseph Delong: I think Compound is like quietly, like swept that under the rug, the whole design of Ethereum and EVM compatible blockchains is composition is I have other contracts that I can interact with. I may see application specific roll-ups that would be interesting to kind of get at a gas efficiency gain, but application specific chains are relatively irrelevant because it is this scaling design.

That makes sense in conversation, but when you put it to paper, it doesn't make sense. Right. It's kind of the same argument of why don't we just raise the gas limit, right. Raise the gas limit to like 50 billion gas per block. Wouldn't that be great? it would be great because what, like we can't propagate blocks and you have huge like data availability issues.

And so like application specific chain is like I of the same decider. Like let's just scale by increasing block space. Right. It's just doesn't work. Right.

Crypto_Texan: Absolutely. And when you're talking about the app specific roll-ups would you not lose some composibility on those as well? You totally

Joseph Delong: would lose composability.

They would be designed in such a way. That would allow you to have like some sort of cross roll-up in between two roll-ups to maintain composition, which is like, you could do like some cross chain composability too. But like, I just don't see anything in that space for cross chain besides bridges. This is like, let me move the tokens from chain a to chain B and that's basically.

Crypto_Texan: And there are still just so many hurdles in the define ecosystem or that the DeFi ecosystem faces in gaining mass adoption. So I'm wondering, just like in your mind, like what are those hurdles to gaining that mass adoption and what are some solutions that you could just think about on how we can overcome some of those hurdles?

Joseph Delong: Okay. So there, I'd say a few major problems with the user experience that aren't really discussed. I had this opportunity to come to me one time. It's like, you can put your company's name on a former car and you can pay to do that or whatever. Right. But like, let's say that you do that. Okay. And let's say you're a unit swap.

Okay. And you put unit swap. Work on a formula one car April show up to uniswap.org. And they don't have an Ethereum wallet. Don't have any theory on them. Don't know how to pay gas and they can't pay gas. What are they going to do on your website? So

Crypto_Texan: I was on mute, but I was laughing over here because that is such a good point.

Joseph Delong: Right. So the first issue is, is wallets. Okay. So we need some wallet solutions that are like custodial or like pseudo custodial non-custodial kind of thing. Like these like hybrids. So that's the first thing we need to. Second thing we need to do is economic abstraction. These are gas relaying services that allow you to submit a transaction.

And pay for gas without having to have eat. So that's those, that's the second problem. And the third problem is, is on-boarding of funds is probably like aren't ranked or whatever. You probably need to do these in some order. That makes sense for the user, but like that on-boarding funds. And so I come to swapped out at work and I now have.

I need to get money into that wallet. Okay. So what I have to do right, right now, I have to go to like Coinbase where like back in or FTX or whatever, I have to go someplace in, by Ethereum with my credit card. And then while I'm there, why don't I just use that? Like, what's the point, right? Like sexist or like a hundred times faster.

They have, in some cases, better liquidity. They have professional market makers. I can transfer directly to my boot-camp. There's a lot of advantages just have that DEX is. And so those are the big ones, wallets on-boarding. Paying for gas in native currencies, economic abstraction. I mean, you really need those and somebody needs to develop those solutions.

That's kind of like old programmers, you say like, oh, wouldn't it be great. If I could search my computer for files, I'm looking for this specific file. They're like, oh, you can do that. Just go into the command line and type this and people like, no, I want to click a button and do that. I'm going to do it in my gooey.

And sure. There's a way to do it. But like for the average user, they're not going to know how to do that. They're not going to care how to do that. It's not like something they're interested in.

Crypto_Texan: How far out do you think we are on solving those UI/UX shortfalls that you just identified?

Joseph Delong: One person has to do it right one time and everybody else will follow.

I think that there has to be some white labeled service to do those three things. It'd be like 20% of what Coinbase is. Right. If you could like, and you could bundle that as like a white labeled, so. For adapts, like unit swap or curve, right. So that they can just integrate it into their front end. Any user could basically come to their, their UI and, and use it without having funds, on boarded, not having a wallet and not having the native token to pick asset.

Like that would be fantastic.

Crypto_Texan: Again, so many of these DeFi front ends are very, I guess, defined native friendly, but they're definitely not general retail friendly as well. So I can assume that. Once you have that type of integration, you're going to have to do a pretty big revamp of the entire front end or from a UX UI standpoint.

Would you agree to that?

Joseph Delong: Totally. I mean, curve is a good example that has like a really attractive front end. It does. Like, it depends on like what your like preference for is, but like, it's got a really beautiful for an end in terms of design, but like a really unfriendly UI in terms of user expects.

You know, you just want has a very good UI and a very solid user experience. And so I think if you added something like what I was just describing to you, the swamp front end right now, like people would be able to use it like

Crypto_Texan: today. And curve is who I was thinking of. So I'm glad you brought them back up.

That's who I was thinking of in that example. I understand

Joseph Delong: this stuff. I still barely can't like move the controls on Curve. I don't really, I look at it. And very slow to use it. Cause I don't always understand.

Crypto_Texan: Oh, interesting. I think another issue that people talk about in the space and this isn't really towards mass adoption or UX UI, but it's definitely like a community issue.

And that's like the token voting system just as it stands today. And there's obviously like different iterations with like locking and the VIII token model. But I don't know in your mind, like, what are some of the major shortfalls that you have seen on the governance side that we might not have a solution for yet, but definitely needs fine tuning.

And if you have any just general solutions, like feel free to throw those out as well, interested to hear. Well,

Joseph Delong: like how dumb is that? Like, like I have more tokens, therefore I know better that doesn't really make sense from a, if I have more tokens, I have more skin in the game. And so I'm less likely to make bad decisions is probably a good, good assumption, but I have more tokens.

Therefore, I more intelligent to voice my opinion about something is like probably not a good

Crypto_Texan: model. So what, what improvements do you think can be made on top of that?

Joseph Delong: Well, I think that you need kind of like a. Typical corporate structures is like with hierarchy and different stages of responsibility for each issue.

So a board of directors, a C-suite and then a hierarchy of like how you operate. Not saying that like, everything has to be exactly static and that someone who's a software developer, can't also be in the C-suite and nothing like that. But it's just, you need to have a clear design of hierarchy for decision-making because ultimately when you say that we're not going to have any hierarchy, it creates an opaque hierarchy of.

In the organization and what their capability is. So here's an easy example. Okay. We're a group of five people and we decide that we're going to form a DAO and we have one person who is like acting as the person, like the accounting. Right. And they're making determinations on whether we. The person like the accounting, right.

And they're making determinations on whether it be. Pay for something or don't pay for something the instant that they have that capability to control purse strings, there create some level of hierarchy, right? It's like hierarchies are not, do not have to be explicit. Hierarchies can be implicit.

Hierarchies are. And it's like, so tragically uncool to be of this like mindset, right? It's like we're all just going to work together and everything's going to be fine. That works great for teams that are like four or five people. And you start bringing in more people and you start scaling an organization, just the round trip, communication alone to make a decision literally impacted.

20 people imagine that you have to have 20 factorial conversations about something, hearing the voices of 20 people about it, a single decision you need to have kind of like areas of responsibility and a hierarchy to, um, move that up.

Crypto_Texan: I can see that. That makes sense. So that, that conversation is not just exhausting.

You feel like. It's impossible.

Joseph Delong: And it's like, it's tragically uncalled to be of this mindset. Right. It's just, I understand that. But my goal in the end is to have people do that and effectively coordinate in DAOs. I think that their people are lying to themselves, hoping that the last 20,000 years of human organization could be irrelevant because now we have a blockchain.

Crypto_Texan: I feel like I could stay on this conversation for pretty long time, but I also want to get to the protocol that you founded as well. So let's go ahead and transition over to that. Is it Austria? Is that how you pronounce this protocol? A-star. A-staria? Tell me about it.

What's going on with this project? What's it like to be a founder now? And just tell us a little bit about it.

Joseph Delong: So starry is econ capital efficient lending. And the way that we do that is by creating virtual tokens and lending those. So we have markets where people can cut down collateral and they're lending a virtual asset with their virtual asset.

It's then like kind of topically swapped for the real asset underlying. And we kind of came up with this idea as we were looking at isolated lending markets and thinking about isolated lending market has this real issue of illiquidity. So if every market has to have a permutation of every two pairs, which require, increases your capital requirements to say, oh, I need to lend on this, this and this market.

And that becomes really problematic. And the alternative to that is the, with the Aave Compound model, where you have to kind of white list to. And so I was like, okay, well, what happens if we lend the Canary token? Right? Like what if we lend a virtual currency? How does that change this design? And I think that helps us drive up liquidity in these isolated markets and allows us to lend to more.

Crypto_Texan:

And so how far along are y'all in the development of this project? I think you said your co-founders with Justin, is that correct?

Joseph Delong: Justin Bram. He's here by the way in the audience, we are, have been developing since, I guess, February we were working on our simulation. Of the protocol. So this is a simulation is an economic design where you can simulate real-world conditions.

So what we're doing is we're going and we're pulling old lending data from other protocols and feeding that into our simulator and seeing how our system would react and getting a determination on how capital efficient we think the system is in comparison to regular life.

Crypto_Texan: And how do you foresee this protocol being used from a comp composability aspect from, with other protocols?

Joseph Delong: I think for other protocols and users, they won't see any difference between this protocol and like, are, they are compound E real capital efficiency. Design is all under the hood and abstracted away from users and other protocols. So it would just say, okay, collateral borrow and get their underlying.

Crypto_Texan: Interesting, and so when I was kind of looking at the Twitter on this, I actually kind of thought this was a metaphors play at first, until I started digging a little deeper down. Do you have any projects that you, that you work on, like on the side, on the metaverse space, or do you have any favorite metaverse projects as

Joseph Delong: well?

My friend just launched this platform or this, um, this NFT series called based schools that I really like, it's actually my profile pictures. One of the basic. And I just think it's like really cool. And the developer did it for basically no payment and the artists did it for no payment. It's a free to mint thing.

If you've done anything in the base community over the last like year and a half. And you just get a base school and you meant it. And it's just neat. It's not like a sad money grab, like a lot of these, like PFP is on.

Crypto_Texan: So we're kind of running up on time. We've got about nine minutes left. is there anything that we haven't touched on that you want to touch on or address?

Joseph Delong: I dunno, like, as we were talking in the beginning, we were talking about polygon. I kind of wanted to talk about them and like what they're doing, I mean

Crypto_Texan: go for it. What are your thoughts on Polygon in general? I know you said they're great to work with, but what, I guess what's just your overall outlook and they're definitely spinning up like zk, roll-ups optimistic, Roll-ups like hybrid solutions. They've got the POS chain. They're doing Supernets now with polygon edge. What are your thoughts or are they spreading themselves too thin? Is this a good idea? Are they going to be the hub for all the scaling theories?

What are your thoughts?

Joseph Delong: I thought they started out as a meme like it was just like, MATIC right.

And I just thought, like, they have just such good business savvy on their end, but this just makes sense. And did just make sense there. They've kind of like when they had the opportunity to. Kind of like when they first started, it was nothing more than a meme, right. It's just like proof of stake, Ethereum with a high gas limit.

It's like, there's literally no design element. That's interesting in that, it's just like, okay, we have a high gas limit. Congratulations. Right? Like you can only scale that so far, but they let kind of meme that into existence by like their, I'd say like savvy use of their treasury by taking and incentivizing for dApps to come over.

Incentivizing their users on like, and then when they had this crazy treasury, they, I think they had like a $10 billion treasury at one point, they take that and they go, okay, we're going to buy it every zk team on the planet that isn't working on, something like that. We're going to make sure that we own every zk team, just like zk talent is like very hard to come by.

And like, it's just an extreme amount of business savvy that just like Ethereum can't operate on that kind of level because they're just not built that way. It's like Ethereum's operating a bizarre and, and polygons operating a cathedral. Very cool.

Crypto_Texan: I like that analogy too.. And there's not a lot of zk roll-ups that are being worked on right now.

Right. There's like, there's like Stark net, and then there's zk sync. And then you've got polygons, got a couple Hermes being one of them. I don't know, like what type of DeFi protocols do you feel like would want to utilize? The zk platform over like the POS chain or Ethereum main net, like what kind of projects do you feel like?

Just kind of gravitate towards that type of technology.

Joseph Delong: I think in the end optimistic roll-ups are a middle step towards zk optimistic. Roll-ups make zero sense if he can produce an EVM circuit. And so like the end game is for scaling is zk, right? Some coordinating chain with a. State machine that validates zk and submission of zk circuits to be like validated, like to finalize a state.

I think that's, that's the end game.

Crypto_Texan: Well, that's a hot take Joseph, especially right now with the, with the OP token airdropping to everybody.

Joseph Delong: I got some, I got some, like, I got like 3000.

Crypto_Texan: oh you beat me. I got like 2000, but that's okay. I'll take it's free money.

Joseph Delong: Did you get it for being like a multi-sig or something?

Crypto_Texan: I didn’t for that I'm actually not on any multi-sig. I don't think I want that responsibility, but DAO voting, I've bridged to optimism. I've bridged other chains on different wallets. I mean, it's just an accumulation of five or six wallets that I have for different purposes, which is a pain in the ass to manage, but it's fine.

Joseph Delong: I never went and used optimism. I got it for being a multi-center for sushi. And then what else did I get? I got it for giving to get coin grants, which I do like all the time, because I think like people are making dope stuff over.

Crypto_Texan: Absolutely. I mean, Once the ENS airdrop hit and I got those tokens.

I was like, man, I just need to go hop on and use every single protocol that does not have a token yet in hopes of getting one and it it's working.

Joseph Delong: So, and then a great, I like the ENS one, cause like ENS was such a sleeper. I mean, there was a time when I remember people. Tell me about ENS or people would talk about ENS and people would react like, oh, that's stupid.

Like, why would I want blah, blah, blah dot E right. It's doesn't even resolve to a domain then. Like, they're like, they have just taken in such a long-term vision on their protocol. And it's not like another side, like token drop money, grab kind of thing. They did it like after how many years? Like three, four years of development.

Crypto_Texan: totally. They were around for a long time and it's, I think it's very interesting to see. Every single retroactive airdrop that we're seeing, like you're seeing more and more sophisticated ways to incentivize the type of behavior that you want your token holders to have. Right. Optimism did a great job at it.

ENS did a great job of it. It's interesting to see like what's the, Arbitron one going to look like, you know what I guess behaviors are they going to incentivize their users through airdrops to do it's very,.

Joseph Delong: I'm so bearish on anything but retroactive airdrops I think like this, like yield farming is becoming broadly irrelevant because it's just like paying somebody to do something in the initial phases where you're kind of like spiking.

To attract liquidity to get like flywheel effects of the platform. That makes sense. But this like long-term emissions, like you see in sushi and with some other platforms, it's just like, you're paying somebody to do something and you might as well be like, but you're just paying them in your token instead.

And so like, people have made a business out of that like, oh, I'm LP for sushi because I'm getting this like these tokens or I'm LP for curved because I'm getting these tools. It's not really like how it was originally intended to kind of like create long-term alignment between the people who.

Providing services for the platform. It just kind of become this like farm and dump mechanism.

Crypto_Texan:. It really has. That's something the Index co-op has been pretty cognizant of is that we will utilize the yield farming for like, if we want to start up a uni V3. Cool. Well, it's kind of hard to do that, but you know, like if we want to get assets on polygon, we'll, it will incentivize that for a month or two.

Not for long, there's an un-incentivized TVL is metric that we track on our products. So that's something that we're kind of cognizant of as well. So in am I hearing,

Joseph Delong: I'm not sure if that metric is awesome on incentivized TVL. They're like needs to be a whole subcategory of like

Crypto_Texan: We focus on it.

DeFi Lama should totally do that. That's something we focus on for sure. Because we have people who are holding our products because they want that exposure to that token. Right. Or to that, to DeFi or to the metaverse specifically. So, or they think this is a good deal.

Joseph Delong: This is the most productive thing.

In my mind that I can do with my capital at this moment. Right. And like, there's something powerful in that, not like this idea of like, this is the most productive thing that I can do with my capital. So long as I'm getting a token, right? Like you can't wean them off of. Like over time. It's like, it just like habit for me.

. And it's like, I think the death spiral of a lot of projects.

Crypto_Texan: And just yield farming in general, when you have the, just yield, farming your token, it puts a lot of cell pressure, which hurts the investors in your protocol and the contributors in your protocol as well, which just seems like a net negative when you really long-term net negative when you really think about it.

Joseph Delong: you have to be, there has to be some sort of like ramp up on positions to like your rewards are some sort of log curve in starting up. So I am let's say I'm, I'm taking LPs and I'm staking those LPs. My rewards should be controlled on a log curve or an exponential curve over time.

There should be some incentive for me to stay longer rather than shorter.

Crypto_Texan: And it's hard to find that incentive structure right now, but I feel like kind of what you said earlier, it just takes one person to figure it out and do it.

Joseph Delong:

And then we've kind of unlocked that part of DeFi in crypto, I guess that's what AMM store man AMMs were like somebody. Like everybody was fooling around building like Xerox and like radar relay and like all these like early, no offense to them, by the way, amazing applications building those first like decentralized exchanges. And then they have like super thin liquidity and the markets crash all the time and they're highly interactive.

And somebody was like, Hey, what if we did this in the first design for AMMs like popped up there were just like an amazing and

Crypto_Texan: interesting. Like you said, props to those very early teams trying to build that. Cause they're building in the dark. Right. They had no idea what they were doing. I mean, they had an idea what they were doing.

They knew what they wanted to achieve. It's just, it's hard to write code on it's something so new and so innovative. But once it happened once. A million forks happen and then you just keep getting more and more improvement over time. So we're over time here. But one last question for you. What's next for Joseph Delong outside of your new protocol,

Joseph Delong: I'm building a house.

That's all. I've been building the house for a while now, but now in San Antonio be able to move in. We're going to be able to move in probably in like the next two, three months, which,

Crypto_Texan: oh man, I do love San Antonio. I think it's a very underrated city in Texas. I think a lot of people would disagree with me, but I love it out there.

I love the Pearl district. Love the Alamo and I just put in my two weeks notice at a traditional finance bank. That is headquartered in San Antonio. I don't want to say who it is, but you could probably guess so.

Joseph Delong: Oh man. I know exactly who it is.

Crypto_Texan: Well, Joseph, Thanks for coming on. This has been a real pleasure, always great to have a fellow Texan on the show.

So last word for you. Where can people go to find out more about you and I'm going to butcher this Astaria it's not actually. Astar-i-a. Sorry,

Joseph Delong: star a star. You get a lot of that. . . So on Joseph DeLong on Twitter and, Astaria XYZ also on Twitter, a S T a R I a

Crypto_Texan: Awesome. Joseph. Thanks for being on the show.

Those of y'all who are listening live and the discord. Thanks for listening. Live in the discord. This is being recorded, so we will get this mixed and edited and out to you in about a week. Joseph. Thanks again, sir. See you soon.

Host: @Crypto_TexanMarketing Images: @crypto_diller_Producer: @0xMitzy

Audio and transcript from the April 14th, 2022 installment of “Conversations with the Coop” with Caps - Founding Member of FloorDAO and Product at NFTX.

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

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Crypto Texan: All right. Hello, everyone. Welcome to Conversations with the Coop. This is where we source questions from the Index Coop community to gain insights from today's leaders in crypto and DeFi. I'm your host, Crypto Texan and on today's episode, we are joined by Caps, who is on the product team at NFTX and the co-founder of FloorDAO. Caps, thanks for being on the show with us today. How are things going in the NFT world?

Caps: Thanks for having me on. Things are going pretty well. Volatile as always, and volumes are up and down. But yeah, we are building in the MetaFi world now and it's an exciting place to be.

Crypto Texan: Yeah. And before we get into what MetaFi is, do you mind sharing with us your background and how did you find yourself in the DeFi and NFT space?

Caps: So, going back all the way to 2011 was when I first heard about Bitcoin, this was at the time where I was playing a lot of online poker. Poker was banned in the US, a famous, I think it was called Black Friday at the time, or Black Thursday I forget now. But yeah, online poker was banned in the US and that was around the same time that Bitcoin was coming to prominence, and made it clear that there was... Back then it was play money. It wasn't considered to be anything that would be of any major value. But it was like a bit of a sign that alternative money was being created. So, I had an interest in there, built some like Web2 businesses out around crypto. And then in 2016, got into Ethereum. Again, it's Web2 side only.

And then it wasn't until 2020 when yield farming started to go quote, unquote mainstream with compound that I got into DeFi. And then went through the whole of DeFi summer and up to the end of that year, just hugely immersed in all the new applications and things that were coming out, and just having experimenting and playing with those protocols. Then I stumbled across NFTX in February or January of 2021. What was really striking about NFTX was that DeFi summer had ended and the hype had died down, but then NFTX had come out with this product that was combining NFTs with DeFi. And yeah, super, super early in what I think is now becoming quite clearly a big, big trend. So, I've been at NFTX for last year as head of product, and then has spun out FloorDAO as well on that.

Crypto Texan: Yeah. It's interesting. You talk about Black Friday in poker, because I think I was in college when that happened and I was playing quite a bit of online poker at the time. What websites were you using for online poker back then?

Caps: Yeah, so that was PokerStars and Full Tilt, but mostly PokerStars.

Crypto Texan: Oh yeah. I remember Full Tilt. I was doing Ultimate Bet for a while too.

Caps: Yeah, I forget, was it Phil Hellmuth was a big Ultimate Bet guy?

Crypto Texan: Yeah, that's right. Yeah, he was, yeah. Oh, that's just interesting. Wow, that takes me back. Good times. Anyway, but yeah. So, you were on the product team at NFTX. So, what does that mean exactly to be on the product team? What's your day-to-day like there?

Caps: So, building out features, integrating the Web3 technical elements as well. So, interfacing with all the smart contracts that we've got deployed as in the NFTX protocol and improving UX, improving UI. And yeah, hooking up all the technical stuff and planning where we're going to go. For example, we're looking at a more specific MetaFi product right now, but yeah, day-to-day is working with UI and the dev teams to connect it all together. My background's also pretty technical having built a lot of websites in the past and also messed around with solidity quite a bit. So, it was a good spot for me to tie the technical smart contract side into the front ends and make it all work together nicely.

Crypto Texan: Yeah. And you've mentioned MetaFi twice. So what, what's your definition of MetaFi and is that just the intersection of the metaverse and DeFi or how would you define that?

Caps: So the need for MetaFi or a term that describes the kind of mix between NFTs and DeFi. So, I'd say up until NFTX launched, these two worlds were very separate. So, you had NFTs and you had DeFi, but there was absolutely no way you could start doing yield farming strategies with NFTs and there was nothing in DeFi that would be work with NFTs. So, there's a need for like a name, which is combining DeFi and NFTs, which we always just used to call just like DeFi plus NFTs. Now, I think there's GameFi is being used, but I think MetaFi, even if Facebook is trying to cover up the name Meta, I think, I think we do well to push hard on the MetaFi because it is basically turning metaverse assets into financial assets as well.

Crypto Texan: Yeah and NFTX is a pretty great example of that. I think the majority of the people at the Index Coop are familiar with NFTX as it is a constituent in our metaverse index index. But could you explain for the audience and probably those who might not be aware, what is NFTX and what is its importance and significance in the NFT metaverse space?

Caps: So NFTX makes illiquid JPEGs liquid again. So, what we do is the NFTX has... and it's permissionless, so anyone could create a vault in NFTX, but any NFT. So, let's take the punk vault, for instance, like Crypto Punk vault, anyone can deposit a Crypto Punk into the Crypto Punk vault and mint a Punk ERC20 token off the back of that. And that ERC20 token is then backed by any of the Crypto Punk NFTs are in the vault. So, you are pooling all these NFTs together that were previously non-fungible, and then you're minting a fungible token that's backed by those NFTs that are in the vault. For this reason though, it only works for floors. So, NFTX is for items only. We can pool these floor items together and create this fungible token because everything at the floor is considered to be equal or roughly equal value.

Yeah, the value can be roughly equal because there's a lot of value in minting the Punk token from depositing. So, people are quite willing to put... even if it's slightly above floor, they'll be quite happy to mint a Punk token by depositing their NFT into the NFT vault and they lose access to that particular NFT and instead, they have a claim on the vault, like a random NFT within the vault. So, it's not for using with assets that you really have some connection with, but it's just useful for any floor assets that you're not too attached to.

Crypto Texan: Okay. So essentially, NFTX takes non-fungible items like NFTs and makes them fungible by basically a token that is collateralized by a pool of that collections' floor-level NFTs. Is that fair to say?

Caps: Yeah, that's exactly right. And it unlocks a few things. So, NFTX is actually what we turn it into and it was originally like an index, where it was going to allow you to speculate on the value of Crypto Punks by having this Floor token that you could track. But now it's actually turned into a marketplace. So, that ERC20 Punk token can be burnt to redeem a specific Crypto Punk from the vault. So, if you see a Crypto Punk gets dropped into the vault and you actually think, "Okay, I'd quite like to take that out." You would buy the Punk token on Sushi and then burn that token to then redeem the NFT. What we do is rather than buying one Punk token to redeem one Crypto Punk NFT, you'd have to buy like 1.03 and that extra. .03, like 3% additional, goes to the LPs. So, the people that are actually providing liquidity to allow you to make that purchase of the 1.03 Punk, and that starts generating yield for people that put their Punks into the vaults. This of has this flywheel effect of the more volume that happens, the more fees that happens, the more LPs come into the pool and so on, and it just scales that way.

Crypto Texan: Okay. So, the users are individuals that stake their NFT inside the vault, get the benefit of now having a fungible token and they also generate yield it on top of it. So, those are the two main benefits and can you purchase these minted tokens just on the open market, like Sushiswap or Uniswap?

Caps: Exactly. So, NFTX at the moment uses Sushi under the hood. So, you can just buy Punk tokens on Sushi, but we will move to Uniswap V3 eventually. So, you can start playing with concentrated liquidity strategies as well. One of the selling points as well around NFT X is the other side of this trade. So, the buying stuff is kind of cool, but you can buy assets that are listed anywhere quite easily with other markets, but with NFTX, you can also instantly sell. So, in the same way, it's kind of like the reverse flow. So, with selling, you would put your Crypto Punk into the vault, you'd mint your Punk token, and then you would sell that Punk token on Sushi straight away for the ETH. So, you have this access to instant selling and we recently introduced instant swapping as well, which works in a similar way.

Crypto Texan: Right, so that is nice because typically on an NFT marketplace in general, you do have to wait for a buyer. You set your price, you wait for a buyer. So how does NFTX determine what the floor price is of a Floor vault token?

Caps: So, that's in the same way that any token would have the price determined on Sushi. So, it's just the pool waiting, like 50/50 pool waiting just is being traded and that moves the spot price up and down. You have then the spreads of that price, so like the difference between the buy and the sell and that difference becomes smaller with the more liquidity that's added. So, if you get closer to the spot price, the deeper the liquidity goes, which allows for more trading and more volume and more fees for the LPs that are supporting all of this activity.

Crypto Texan: So, who are NFTX's competitors in this space? I know that there's Nifty Museum is one, but do you also... I guess if it's becoming a marketplace. Do you also see OpenSea and Lux as competitors as well? And then how do you feel like NFTX stacks up against those competitors?

Caps: We are a marketplace, but I don't think we consider ourselves first and foremost a marketplace. We are really a liquidity protocol. So, our key metric is around liquidity and if we can increase liquidity, which we just so happen to do by creating this marketplace function, because that drives fees and then helps to deepen that liquidity. But yeah, liquidity is our main thing and in terms of competitors, I believe NFT20 is the main one, and Nifty Museum, but I think the liquidity protocol that they've got is NFT20 and that's a similar thing. I haven't looked too much into them lately, but yeah, they have a similar idea of pooling floor assets and minting fungible tokens as well.

Crypto Texan: Yeah. But I would say that with the rise of NFT marketplace aggregators, like Gem.xyz And Genie, it does make NFTX feel more like a marketplace than, I guess a liquidity provider. But you feel like you're more of a liquidity provider than, than the former. So, I don't know, what kind of impact do you see aggregators, NFT marketplace aggregators, having on the space in general and NFTX as a protocol?

Caps: That's a really good question. Aggregators are part of the midterm plan that we had was looking at NFTX marketplace as like a proof concept and showing people that you could use NFTX liquidity to actually do marketplace activities and then the idea at that point would be, well we demonstrate the proof of concept and then aggregators will plug into our inventory. They don't need permission. This is the great thing of Web3 and all this composability is the Gem can just use our liquidity. We didn't know they were, they just built it out and plugged it in. These are huge volume drivers for NFTX. I don't have the numbers, but I keep a track, just like an anecdotal track, of everything that's happening in terms of activity in NFTX. I'd say half of the activity on the buy side is through Gem and there's is some through Genie as well, but predominantly Gem. These aggregative wars that are probably going to come, and they're ultimately offering a better experience than OpenSea, I think, these are going to drive significant volumes to us. So, LPs are going to really, really benefit from this kind of aggregator competition.

Crypto Texan: Yeah. As a liquidity protocol, I don't know. I guess my next question is, what is the importance of a liquid floor for an NFT project? What significance presents itself for a user that holds an NFT to get instant liquidity? What is the importance of that liquid floor?

Caps: Yeah, if you got a real liquid floor, then you know you can exit anytime and you'll be paid a pretty decent market rate. So, there's some comfort there knowing that there won't be a lack of liquidity, so you won't have an issue exiting. You'd also be able to swap your asset as well. So, you can have instant swaps if you want to like trade up, which is something we're going to introduce to NFTX. But if you want to trade up your asset, you could and also swap for other floors that you might prefer. There's some kind of nice effects there. And also you don't need to cut undercut the floor if you're trying to sell. Some people try and get instant sell OpenSea, so they'll to cut the floor and that's not healthy for the project really. So, it's good to have this kind of instant sale price.

Then you have composability, which is where MetaFi comes in. So, with the liquid and FTX vault you can then have a price oracle from Sushi, or from UV3 once we move with there and that price oracle will allow DeFi apps to use the token, because now they've got a reliable price feed to conduct liquidations and other things. So we're already seeing, for example right now, one of the benefits for Wizard, Forgotten Runes, is... they're now in RARI, so we've got enough liquidity in Wizard to create a price oracle, and the same goes for Punk as well. Users can now use their Wizard Floor token to borrow from RARI and they could then apply that you could borrow stable coins and do some farming strategies and they can actually deposit their staked Wizard, which is yield earning NFTX Wizard, and then borrow stable coins against your staked Wizard position and then you can earn additional yield on top. So, you have now these yield stacking abilities.

So, this is much more for the financial user. The average NFT user probably not so fussed about this, although I think they might find it more interesting in the future as there's more products built out. But yeah, composability is definitely a big one. Then finally, there's also Punk as money or Wizard as money, actually using these fractionalized NFTs for day-to-day payments in some way, or bonuses, or using them to incentivize work for a project. Wizards could start paying contributors in actual fractionalized floor Wizard tokens, which is kind of cool.

Crypto Texan: Yeah. Are there any projects doing that right now? And just looking conversely at the Ape token, that was dropped, all the Bored Ape Yacht Club, what are the benefits of using, I guess, a community token that's collateralized by the floor assets, versus air-dropping your own community token out of thin air?

Caps: Yeah, good question. There's probably a lot more tokenomics and flexibility you have around an Ape coin. You can mint as much as you like, you can distribute it in any kind of way you like, whereas if you're using the collateralized NFT coins, you have to have that collateral in the first place, then it's just a little bit less scalable in that sense, but there's a lot more reality to it, it's fully backed where maybe there's more speculation with just a minted coin like Ape. So yeah, I imagine it's more like the capsule efficiency of just being able to mint a coin and throw it up on the market.

Crypto Texan: I guess you have more of an opportunity to create your own Ponzinomics with one that you just mint out of thin air probably.

Caps: Yeah, for sure, for sure.

Crypto Texan: So let's talk about FloorDAO, which is built on top of NFTX composibility. What is FloorDAO, whose idea was FloorDAO? And was this created to address a need for NFTX specifically or the ecosystem in general? I just asked you like 10 questions, so take your time.

Caps: So, starting from the start, I guess, FloorDAO was an idea from a conversation at the pub back in June last year, which was more thinking, "Oh, how can we help build liquidity for NFTX?" We think we have this awesome product that honestly, the yield that could be generated, it's just stuff that people just won't know about. How can we showcase this and demonstrate it? Originally it was going to be a quite a simple... or some kind of just capital raise that would then go and acquire assets and put them into NFTX. And it kind of evolved from there around the time of Olympus with their bonding mechanism. FloorDAO took on that idea of a way to do continuous capital raising, but then continued down the path of, right, let's build a ... I guess yeah, to sum up FloorDAO's vision, it's basically building a treasury of yield-generating blue chip NFTs. So, making acquisitions of NFTs, like floor sweeps, putting them into NFTX, earning yield on those and then extending that to other collections. So, that's where FloorDAO is at now and how it's evolved. I forget the other question, Texan, if you don't mind jogging my memory?

Crypto Texan: Yeah. Was this kind of idea generated to address a specific need for NFTX, maybe around liquidity of certain NFT vaults? Or was it created more to just generate revenue for the DOA that you were creating? Or maybe both?

Caps: Yeah, it is both and the DOA... So the DOA is only owned, like 2%, is owned by NFTX because NFTX provided this 500 ETH loan to kickstart the floor liquidity, and then the rest is like 6% to the team and then like 1% to advisors. So, it was really important from the start that FloorDAO would be... it's not decentralized in the sense that there is multisigs involved currently, but at least the token distribution is heavily weighted towards community. So, like 91% is community. We didn't want it to be an NFTX tied thing. I don't think it can work and I think if you've got a goal of acquiring 100, 200 Crypto Punks, you can't have that treasury just sat with a handful of people.

So, the goal is very much to have this owned almost like a public good, but there's definitely other sides to it. And yeah, the Floor token holders also deciding, where should these assets be deployed? I think for now, the obvious plate is NFTX, and maybe there will be other strategies that come out that are higher yield generating, but they don't seem... we're still very early. So, who knows like where that goes, but yeah, it's not tied to FTX.

Crypto Texan: Okay, interesting. So, what is the process that FloorDAO goes through in choosing which collections to add that Floor liquidity to? I guess you're not really deciding which to add Floor liquidity to, you're choosing which floor, or which NFT Floor you want to sweep, in order to add to the treasury. So basically, how do you decide which projects receive the liquidity or which projects that you add to the DOA treasury?

Caps: Yeah. So, it's all voted on by Floor token holders. So the way it works is communities fill out like a research report, which is follows a particular framework that puts the case forward, does this NFT have the potential to generate significant yield for the FloorDAO treasury? Is there going to be high volumes for whatever reason? And is there potential capital growth, what might that look like and why, and how. Once that's been done, then there's a collection crew that reviews and just sense checks everything and after that, it all goes to vote. So right now, there's a vote up on Floor.xyz, and that vote is to decide on which NFT collection to put into the FloorDAO treasury next. So currently we've got Crypto Punks, Mutant Apes and Wizards. The next vote is at the moment, being a race between two emerging assets and there's a fair amount of backstory to this as well, but it's between Milady Maker and Tubby Cats. So, we're now seeing what we thought we might see, which is communities really seeing an opportunity here to direct the FloorDAO treasury into building liquidity for their collection, because of all the benefits that these projects understand from having that liquidity.

Crypto Texan: Okay, interesting. So, how are these communities, I guess, getting their name on the ballot? Well, I guess it's important to talk about the tokenomics of the Floor token as well, because you've got similar to how Olympus DAO operates, you've got the Floor token, and then you've got the sFloor, which is staked floor, and then you can wrap the staked floor into gFloor, which gives you governance or the ability to vote in governance proposals. So, are these NFT DOAs, or NFT communities acquiring gFloor in order to put their name on the ballot? Or what are they doing to make that happen?

Caps: Yeah, they are. So, in the very first instance, it was, it goes through this research report template and to review. After that, once they're actually up to vote. Yeah, anyone could buy the Floor token, stake it for gFloor and then vote. We did see that with Milady, that one of their core team was ... rallied their community around to kind of buy up Floor and vote and then dump Floor straight away afterwards. So, there was almost like a civil attack, kind of a semi governance attack, although very well-intentioned and lighthearted, I think, and like an indication as to the kind of dynamics we might see play out, but currently, you'd have to have gFloor and then moving forward as we move the floor protocol on chain, because a lot of the stuff is off chain at the moment, but once you move it on chain, then you have the buying vote kind of angle as well, which you see with Convex and Curve, if you're in the DeFi world.

Crypto Texan: So, just like there's the Curve wars and the Tokamak wars, there's the future potential for there to be Floor wars as well?

Caps: Yeah and I think probably much stronger and more, more exciting than maybe some of these others, because there's just so much passion behind a lot of these communities. The discord today in FloorDAO was just completely manic because Tubbies and Milady Maker were fighting it out for who might be next in the treasury. There's just so much more ... even if it's not more financially at stake, it's just more as a community, like you really want to see the success of your project and you're tied to that artwork. So, there is potential for some really heated and exciting votes in the future.

Crypto Texan: So, aren't people selling their gFloor votes, or bribes, I guess, is the term that's used in a DeFi space. Is that something that's happening right now in FloorDAO?

Caps: Not right now. We are looking at Redacted who launch their hidden hand bribing mechanism as another way to give utility to gFloor in that, other people can use, through you, use your gFloor to vote for a collection they want by paying you. So yeah, we're looking at that. I think we wanted to test the water to see how much demand there was for voting in these things. But clearly there would be some level of bribing because then it would mean that these collections don't need to actually maybe put up a big outlay for purchasing gFloor. They could just do a much more capital efficient bribe in that sense.

Crypto Texan: Yeah. Could you foresee a situation where let's say, Tubby Cats wins and you have that liquidity in your treasury now and you're generating revenue off of that. Could you foresee a situation where all the Tubby Cat communities, holders, they sell their gFloor and then now the gFloor holders remaining in the DAO say, "Okay, well they've old all their gFloor. Let's sell that Tubby Cat liquidity," and, I guess, redirect it somewhere else. Is that something that could happen in the future?

Caps: There's like a social contract here, which I was in the original vision. I guess it's always open to change, but I'm personally quite keen that this stays in place, which is that when a collection's added to FloorDAO, liquidity won't ever come out, it will only ever increase. So, liquidity for a collection that's in FloorDAO would just have its liquidity added to all the yields from NFTX will be compounded. We have this rough goal in mind of each collection needing to have a 0.5%, or at least under 1% price impact on a single purchase or sale. Once we get to that point, the yield that's being earned could start being sold or profit could be taken, but the liquidity that's there needs to stay there. That's the value of a FloorDAO asset, is one that's going to only get more liquid over time.

Crypto Texan: Yeah. So basically, once the Floor NFT collection is added to the treasury, that treasury is holding it to zero?

Caps: Yeah and I think that, yeah, Floor holders need to kind of recognize that and make these decisions based on long-term value rather than what might be a very fly by night trend, which is going to always happen. I mean, we start off with blue chips, so we have Punk and Mutant Apes, not necessarily blue chips, but ones that have gone through a bear cycle. They've experienced some pretty rough times and come out the other side, but then there's going to be some allocation that's going to have to be towards more like speculative plays and still in those in instances, it's all in and it' liquidity only goes up. There's no selling, there's no dumping of the token or anything like that.

Crypto Texan: Yeah. Can you imagine any, I guess, unforeseen implications of a non-blue chip NFT DAO or NFT community accumulating gFloor to add to their NFTX vault? I mean-

Caps: Like a full on governance attack?

Crypto Texan: Yes, yes.

Caps: Yeah. I haven't run the numbers exactly how much that would cost right now to go against some of the larger holders, which I know are extremely aligned with the longer term vision. So, you'd be talking about millions of dollars to make that play. While we have these social contracts in place and every asset that gets voted in gets a bonding pool and potentially gets swept, if something was like a real clear governance attack, you would have to be fully confident in the DOA actually executing those transactions and to spend millions of dollars on something that isn't on chain and deterministic, is just quite a ballsy play. So, I'm not sure if anyone would necessarily have that level of confidence to do that, but once we move on chain, then absolutely those... to stop any kind of governance attack really do need to be strong because at that point, it's completely out of anyone's hands and it's very much more adversarial.

Crypto Texan: Yeah, absolutely. I think you touched on this a little bit earlier, but just want to dig in a little bit on what does the current treasury make up look like? I think you said Punks, Mutant Apes, and wizards right now. Is that an accurate breakdown of the FloorDAO treasury? And then also, are those successful investments so far? What does that breakdown of the FloorDAO revenue stream looks like because of those investments?

Caps: Yeah. So, I'll have to of pull up some of the yield, but in terms of treasury makeup, yeah, we've got 7.5 million of Punk ETH liquidity, and then about 1.3 million of Wizard ETH liquidity, and then about 850K of Mutant Ape ETH liquidity, as well as some singles-sided, non-liquidity assets. So, maybe we could talk about it as well, but yeah, it's not just liquidity that earns interest. With NFTX at the start of the year, we introduced something called Inventory Staking. So you didn't need to take on the risk and the capital of providing ETH-paired liquidity. You can actually just stake Punk, and you can just stake Wizard, and you can earn a percentage of all the fees without any of the permanent loss risk or anything like that. So yeah, we have about 500K of Punk, just single-sided staked, and then 250K of Mutant Apes as well.

So, it's a bit of a mix, but we want to focus more heavily on liquidity. Then we also have our critical and liquidity of like the Floor WETH token as well, which is about like $6 million of liquidity there. So, that's the makeup of the treasury. In terms of yields, we've seen a lot of volume in the Wizard vault, everything that's been going on, they've got Beasts coming and they've got Warriors coming. Alexis Ohanian from Reddit recently announced, I think, some investment in Wizard, so there's been quite a lot volatility there.

In the last, I forget exactly how long it's been, I think it's been just over a month, or yeah, about a month. We've earned about 8.3 Wizard tokens from our liquidity. So, that's about, what is that at the current price? It's like 8.3 times 3,000. So yeah, that's currently about, I think, 80K or so on that 1.25 or 1.3 million of Wizard ETH liquidity, and that's in about a month. So, our run rate is like a 50% APY or 58% APY, or APR I should say, this is not compounding. So, if we get this right with, with collections that have significant yield at significant volume, then the yield can be extremely high because the fees on NFT trading is just inherently higher than on ERC20, like Uniswap trades.

Crypto Texan: Yeah. I can only imagine, with an NFTX Uniswap V3 integration, that less slippage for the vaults deeper liquidity and higher yields, that would only be better for the Floor DAO treasury too, correct?

Caps: Spot on, yeah. One thing I'm particularly excited about is the 1% fee from Uniswap V3. So yeah, we got concentrated liquidity strategies that we can apply, but unfortunately it isn't possible to stake concentrated positions in NFTX, at least not in our first version of this because it's extremely complex to try and do that. So, it's still a full range Uniswap V3 position, but we get the 1% fee and we also get the inbuilt price oracles as well. But the 1% fee would just mean that for something like Punk where there's much less NFTX vault activity, but there is a lot of trading activity. If we're earning like 1% fees, especially if we start looking at Punk getting involved in DeFi in the sense that it could be used to take out loans, so we have liquid liquidation volumes and we'd have volumes for re-balancing of index funds and that kind of thing, that 1% fee on Punk could be a really significant yield generator over time, especially given that we have like 25 Punks, I want to say. There's not a huge number of punks going around, so owning the Punks and owning the liquidity for Punks, right now may not seem like a crazy, great opportunity, but I have a feeling that in the years ahead that it could be a very important piece of liquidity to own as an asset.

Crypto Texan: Yeah, absolutely. I think another thing that we talked about earlier was FloorDAO's initial funding. You said that a large portion of it came from NFTX in a loan, but there's also 91% community ownership. I think the initial funding was through Copper, the Copper Launch protocol, correct? So you actually had this aFloor token initially, which you could then convert to Floor after the launch. I haven't heard a lot of a lot of projects that have gone through the Copper Launch protocol process, so I just wanted to get your take on what was that process like?

Caps: Yeah, it was really good. I mean, in terms of setup, I can't say. I wasn't privy to that, so I don't know exactly how smooth it is to set up, but basically it's a reverse Dutch auction, but the auction you can be bought and sold at any time. So, it's not like you buy in and that should a price. If you buy in, you can then sell again, during the duration of the auction. So, there's lots of trading activity that happens while the auction's going on and the price just falls over time and it increases. If there's lots of demand suddenly, then the price goes up, and if there's none, then it starts declining again. So yeah, very cool mechanism. What was really interesting as well is we didn't take any seed rounds. We didn't take on any investors. We had a core team from NFTX that was more than capable of building this thing out, but we did need liquidity to bootstrap. And rather than take on investment from someone that may want to exit at some point, the benefit of what we did with NFTX was we took a 500 ETH loan and paired that ETH with the aFloor token. So, there was like $3 million of liquidity just straight off the bat, and that allowed the sale to happen, then the loan, which was interest free, was paid back at the end of the auction.

Then as a result, NFTX got 2% allocation. That 2% is almost certainly never going to be sold because NFTX has a very strong interest in holding those tokens and directing governance. So, we've like got away with this bootstrapping of significant liquidity and size without having to take on any investment at all, so there's no like seed or anything that's got this 50X gain that they really need to exit at some point. So, I really hope we see more of that kind of thing moving forward.

Crypto Texan: Yeah, absolutely. I might need to get Copper Launch Protocol on the podcast, I think that would be a really interesting one, but that's just the side note. So, let's talk about FloorDAO and its comparisons to Olympus DAO, just the similarities and differences there, because I think on the surface without digging in, if you look at the Floor, sFloor, gFloor tokenomics, I think an outsider could just say, "Oh, this is just another OHM-Fork." So, in your opinion, what are the difference and similarities and why is FloorDAO different?

Caps: Yeah, that's a good question and a good criticism as well from a lot of people. So, first of all, like the reason for using Olympus was that they have a very cool bonding mechanism and we're using their V2 protocol and it is a great way of bootstrapping a treasury. That was the purpose of V2, of Olympus V2, that the fork that we did was to bootstrap the FloorDAO treasury. So, it's not like a long-term... we don't want to become the reserve currency of NFTs or anything like that. We are looking at it as a very midterm bootstrapping exercise, and then moving on from there you have VE models and just other interesting things that we can look at that involve vote locking and rewards and bribes and that kind of stuff.

So, that's the initial goal with the Olympus fork. And then in terms of how we differ, really the main difference is, well, first of all, we don't have insanely high APY as a lot of Olympus forks do, nothing inherently wrong about that as an initial launch, but we want to get as closer to what's sustainable in terms of what the treasury's actually earning. And that's like the next point, is that the yields that we earn with NFTs is way, way higher than what you might expect from a treasury that's just got ETH or a treasury that's just got stable coins. You might be getting like 15%, 20% with a stable coin strategy, with what we're doing with Wizard for example, it's a 58% yield over the last 30 days without even thinking about compounding at that point. Sorry, that's an APR, so that's extrapolate for the year, but the yields that we get on NFT treasury are much higher and that kind of can justify more the kind of reward rates that you get for staking floor. And then over time, phasing it out so that we're not doing these reward rates, and it's coming much more from the sustainable organic yield that's being earned through the strategies that we deploy.

Crypto Texan: Yeah. And Caps, why are the yields on these NFTX vaults so much higher for LPs than in other parts of DeFi?

Caps: So, every time someone sells into an NFTX vault, they pay like a 10% fee. That 10% fee is, it' fairly reasonable. You're getting instant liquidity on your sell. You might find OpenSea fees, being like 5% or so. So, that trade into the vault generates this 10% fee and then that fee then goes to LPs. That's quite sizable chunk on what is relatively small liquidity. When there's volatility and if the liquidity's large enough, then you can get lots of volume that generates enough fees that the APRs suddenly are really quite high. 58% is quite middle of the road for NFTX, you have like Tubbies and Miladies, which is like 300%, 600% right now there's no pool two, there's no governance token boosting that there's purely just yield from trading activity.

So, a big part is just that with NFTs, there are higher fees. You just don't get that kind of yield from trading other assets. So yeah, there's just a lot more to be earned as an LP, for LP-ing NFTs. And obviously, it's not without risk as well, but yeah, the rewards do help balance that out.

Crypto Texan: Yeah. You also mentioned that maybe the sFloor, gFloor tokenomics model is temporary, and you might move to a more of a VE floor model in the future potentially. So, are you saying that you might not use bonding in the future to drive NFTs and liquidity to the DAO's treasury? Or would you just use proceeds from other investments to deploy to other, I guess, LP positions in NFTX?

Caps: Yeah, so that's a good point. Bonding will likely remain for the foreseeable future, but the economics behind it will be more around handing over the bonding parameters and decision-making to token holders and then rewarding them for bonds that are successful and that sort of thing. So yeah, but I think bonding is going to remain as an important aspect of generating capital to then purchase these NFTs, or to just increase the treasury size, but it'll just be done in a different way that isn't just as simple as the Olympus V2 model is currently.

Crypto Texan: Yeah. With the Curve war comparisons that we've made related to FloorDAO, have you received any criticisms of, like we said, similar to an Olympus fork, that it's a Curve fork, or what are the differences there in your mind?

Caps: Yeah, we definitely got concerns from people that you don't want to have a Convex style DAO spin up and take full control of governance for Floor, or at least take like a really heavy stake in Floor and determine stuff that's out everyone's control. So, that's something that we're looking at with the tokenomics and the upgrade here, but it's so early on that, we're just exploring different architectures at this point. Even a VE model isn't necessary exactly how it's going to look, but just something that is different and adapts to what we've learned from everything that we've done the last few months.

Crypto Texan: Well, okay. Let me think here. Yeah, I guess, what are some other topics maybe that we haven't touched on during this conversation that you wanted to make sure to address about NFTX or FloorDAO?

Caps: I guess NFTX, maybe NFTX is a really low... because there's a lot happening in metier at the moment. There's a lot of borrowing and lending protocols that are coming out. I think with NFTX, I think there's probably a lack of understanding that NFTX has been able to power borrowing and lending for a really long time. So, the Punk token, for example, was in RARI maybe six months ago, and anyone who had Crypto Punk, a floor Crypto Punk could have minted it to NFTX and then borrowed stables against that Punk token from RARI. So, any vault that goes into NFTX is immediately capable of doing anything that DeFi apps are currently doing today. So, it is interesting to see what's happening, but yeah, it'd be great to see more integrations into just ERC20 vault tokens because those DeFi apps already exist and it's relatively trivial to add these NFTs into existing DeFi architecture.

Crypto Texan: Yeah. It almost makes it seem like in your example, that the Floor Punks maybe have a little bit more utility, then you're more rare, sought after Punk attributes. Would you say that's fair?

Caps: Yeah, yeah. It's much more efficient, so with a rare asset, you have to go through these like valuation models and stuff, which I know that people are working on and maybe there's a way of handling that at scale, but with Floors it's really easy. There's no permission. There's no review. You just, you just deposit your Floor and it's immediately financialized. So in that sense, definitely more utility. There's yield that you can have with it. I was saying before you could stake your Punk token and then borrow against that staked Punk token. So, you've now got two yield-generating strategies stacked together. For me, and I would say this, it's like all Floors in my mind should just be ... if you don't have like a particularly personal attachment to them, they should just be in NFTX at the moment, or in something, doing something to generate yield off the back of it because yeah, Floors are great. A perfect fit to be financialized, in my opinion.

Crypto Texan: Yeah, absolutely. God, that's so interesting to think about, I guess the next question is, are you familiar with the Index Coops upcoming new index product called the JPEG Index?

Caps: I am, yeah. Not hugely familiar with, but yeah, saw this a few months ago now.

Crypto Texan: Yeah. Well I'm supposed to ask how excited are you for JPEG? That came from one of our methodologists behind the JPEG, Joseph.

Caps: Ultra pumped. How many NFT vault tokens are in it?

Crypto Texan: Actually I think we only have one at the moment, and this is what's great. This is very helpful of what FloorDAO was doing, because it helps provide that liquidated because we don't want to run into a big issue on slippage if we have a large position in a specific NFTX token. I think Punk might be ... maybe XMON, is that one of the ...

Caps: No, it probably is Punk because that is the most liquid by quite a distance and that's fair, and that's one of the criticisms that we have is there is still risk with these. If it's not liquid enough, it might be liquid for a user, but it might not be liquid enough for an app that needs to have guarantees around availability of liquidity, or slippage, or whatever it might be.

Crypto Texan: Right and do you feel like FloorDAO is helping to provide that solution in for NFTX?

Caps: Yeah, that would be the hope is yeah, we reached... something like Wizard could get in there and be in your index because it's got deep enough liquidity. So I mean, if you guys ever had benchmarks as to what level of liquidity would be needed, that would be really helpful for us because a big part of what we're doing is trying to reach a point for each these collections that we add, is try to reach a point where they become very useful in DeFi. We don't want to get to some halfway house where they're they're liquid, but they're not liquid enough. We want to make sure that they get the full DeFi treatment.

Crypto Texan: Yeah, absolutely. That makes sense. Well, we'll make sure that y'all get connected if you're out already on that, but yeah, it looks like... and this is Alpha for those of you who are listening live because, I mean the index will be coming out soon. I will say, I can't say how soon, but this episode is being recorded. It'll probably get out next week, so I don't know, maybe it'll be out sometime around then. But what we have so far preliminary for underlying tokens is Punk, Whale, XMON, SOCKS, DOG, which I get is like the fractionalized Doge, I think is what that is.

Caps: Yep.

Crypto Texan: And then K21, ASH, and then Jenny, but the uJenny token and I'm not familiar with that project actually. But yeah, that's what it looks like so far. So another question that we like to ask our guests on this show is what are some other maybe lesser known, innovative DeFi, NFT, metaverse-related protocols that you are paying attention to, or you think are really interesting, that you think that other people should know about?

Caps: Yeah, that's actually a tough one. I'm head down so much for the last, well, year and a half that it's been a hard time paying attention. I went from like DeFi mania, just finding every new project, to really not being too familiar. I mean, obviously Sudoswap is one that is an interesting take. I really want to learn more about that. It sounds kind of like a V3, use for V3 for NFTs. That would be very interesting to hear about. There's obviously a big trend in borrowing and lending. So, I'm paying attention as to how viable is ERC-721 borrowing and lending with all the valuations that have to come with on with that versus, a Floor-based borrowing and lending platform. So yeah, all I know as well though, is that there are just constant DeFi meets NFT products coming out, Insert Finance is another one, that we've been speaking to and just for me, it seems clear that there's going to be a MetaFi summer, that's going to be the big trend this year anyway.

Crypto Texan: Yeah. Well, outside the cool cats, what are some other NFT projects that you really like?

Caps: Oh man, I have to open up my portfolio. Doodles, for sure, a fan of ... I mean, we got Wanderers, CrypToadz, more stuff from last year and going further back than that, I haven't paid too much attention, picked up recent ones, where I picked up Milady, just because they did such a monumental effort getting into FloorDAO discord and shielding their bags. It was great, so I've been picking up Miladies too, but yeah, again, my collecting and trading days are on hold for the time being while I just spent so much of my energy just building right now.

Crypto Texan: Yeah, and I completely understand. Yeah, when I ask the question about what are your favorite upcoming projects that people should be paying attention to, and if I have someone on the show, who's working on a project, who it's fresh out or they're about to launch, they usually say, "I have no idea. I've been working." So, that's how that goes. But anyway, yeah, we're up on time and out of questions, but Caps, thanks for being here with us today. Anything else you want to touch on before I close this out?

Caps: No, I think that's everything. You asked some great questions. So no, thanks for the chat.

Crypto Texan: Yeah, absolutely. Yeah. To everyone listening live in the discord. Thank you for listening live. This is being recorded and we will get this out to you in about a week. Caps, thanks again. Appreciate you coming on.

Caps: Cheers, take care.

Crypto Texan: Cheers.

Host: @Crypto_TexanAudio Engineer/Mixing: @LloveraFrankMarketing Images: @crypto_diller_Transcript: @0xMitzy / @Crypto_Texan

Audio and transcript from the April 7th, 2022 installment of “Conversations with the Coop” with ChainLinkGod - Community Ambassador at Chainlink.

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

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Crypto Texan: Hello, everyone. Welcome to Conversations with the Coop. This is where we source questions from the index coop community to gain insights from today's leaders in crypto and DeFi. I'm your host, Crypto Texan. And today on the show, we have ChainLinkGod, who's the community ambassador to Chainlink.

So ChainLinkGod or CLG, how's it going today? Are you having some bitcoin Miami FOMO?

ChainLinkGod: Yeah, a little bit. Unfortunately, I wasn't able to go but, otherwise, always having a good time link billing. So thanks for having me on.

Crypto Texan: You're pretty good at the link billing too, and just based on your Twitter following as well. I think you have like 130,000 followers now.

ChainLinkGod: Yeah, I have a little bit of experience educating people on Chainlink.

Crypto Texan: Well, good. And that's why you're here, too. So let's start with your background, CLG. How did you get into crypto, DeFi, and how did that road eventually lead you to Chainlink?

ChainLinkGod: Yeah, it's a good question. Essentially in 2018, early 2018, I was in the gaming community and I saw GPU prices basically skyrocketing. I looked into it, I saw this thing, crypto, which I knew about it. But it wasn't until I learned that you can run a program on your computer and money spits out that I really had to dive into it and understand what the hell this technology is.

So at the time, I was going to school for computer science. And so I really took a first-principles approach as to what crypto matters. And that went from Bitcoin over to Ethereum and really dove into the value of smart contracts, how the cryptography works, decentralized consensus, the social consensus. But ultimately, it just kept running into like, "Okay, it's great. But how do these contracts actually execute based on things in the real world?" How does it know what the price of a home is or who owns it or the price of an asset? I didn't really understand how that was being sold. And it really wasn't at the time.

It wasn't until I came across a forum thread on the business of finance board that I saw basically the enterprise strategy of Chainlink. And this was mid-2018. And so this was a year before Mainnet, before, basically, anyone had really heard of the project or really knew what the oracle problem was. And that was a deep link pill that just completely changed my view on the crypto ecosystem.

And so from that point on, I was basically fully linked pilled. And it was in 2019 when I started my Twitter account when the Chainlink crypto Twitter community was basically a few dozen frogs, maybe battling with the XRP community. But I kept answering people's questions about Chainlink and debunking the FUD and misinformation. And then I kind of specifically been taking a facts and logic first approach rather than just based on the motion and ad hominem attacks that a lot of people like to do, unfortunately, on Twitter.

And so I just ended up growing my following from there, became a Chainlink community ambassador, and now I'm basically helping just educate the community through different content streams and through these types of podcast conversations. So, yeah, that's been my journey. I actually dropped out of school about a year ago. And so I'm doing this full time now. So it's been quite the journey. And I'm very blessed that I have the following I do and so many people are interested in the vision of smart contracts as the superior form of digital agreement as a whole. So that's my background.

Crypto Texan: Yeah, I guess more of just a cultural question from the Chainlink community. What's the story behind your avatar? And what is the significance of frogs in the Chainlink community?

ChainLinkGod: Yeah, it's funny. I would say that there's the team and then there's the community. The team initially in 2017, 2018, they were just heads down building. The community itself, basically, the grassroots growth. By just people following on 4chan, the infamous 4chan on the business and finance biz board, they basically launched on the Chainlink and there wasn't really much information at the time. So they were basically digging for breadcrumbs.

And so the 4chan is fairly well known for their mimetic abilities. And so that's where a lot of the frog culture, the Pepe/Apu Apustaja type memery came from and that's where Chainlink community really got its roots. And so that mimetic approach just carried over to crypto Twitter, where a lot of the community is now. Now it's split across, that a lot of it is own crypto Twitter now, so the mimetic is just carried over.

And so that's why and the initial community was literally all frogs. It's a little more diversified now, but that mimetic energy is always carried forward and it's always been an effective signaling mechanism, I suppose, around Chainlink, but it's just like the power of mimetics, cannot be understated. So that's just carried on continuously.

Crypto Texan: Yeah. And so how did you get started? Did you just start tweeting threads about what you were learning about Chainlink on Twitter? Or were you on Reddit educating people? Or was it 4chan? How did you ... I mean, you had to have started somewhere to get to the point that you were today. So how did all that start?

ChainLinkGod: Yeah, I would say in early 2018, I used to use Reddit as the source of crypto news. But it was horrible, admittedly. There was just not much alpha. So I came across 4chan. And that's where a lot of the breadcrumbs I came across. That's where I have a lot of my initial knowledge about the scope and power of Chainlink, some of the different services that were being explored at that time.

It wasn't until really joining crypto Twitter in early 2019. I mean, that initially started as literally just like a shitposting account of joining in the mimetic fund. But I just kept continuously researching all the information that was available from the Chainlink team and just in the ecosystem. I was always continuously learning about smart contracts on the Ethereum ecosystem. DeFi was very, very early stages. I mean, I think it was around the time Compound & Uniswap launched. And I dove into using those protocols and saw how if DeFi were to expand, we really needed this oracle thing, which happened later that year.

And then just from there, I just read every public information and just tried to break down complex topics very simply to people. But that approach evolved over time where I improved how I would explain things to people, and people just formed around me as a schelling point about community education. So as I was educating people, I was also learning myself. So it's a two-pronged process. It's synergistic in that regard.

Crypto Texan: Yeah, I've talked about this with some other people on the show and just in general that that's where I got a lot of my information back in 2017, 2018 was cryptocurrency, Reddit. And I don't know if you've been on there lately, but it's so bad. It's just all shills and doom, I don't know. Have you been on it lately?

ChainLinkGod: Not in a while. But last time I checked, they were still stuck on the same 2017 era coins VeChain, Nano, XRP. I looked at it, I'm like, "Nope. No, thanks."

Crypto Texan: Yeah, that's how I am when I see people shilling VeChain. I haven't thought of VeChain in forever until you just said that. Yeah, that's interesting.

But, yeah, let's get back to Chainlink. So Chainlink has incredible product-market fit in just smart contract ecosystem in general. And I think that's because smart contracts are a great, innovative technology. But they do have their own shortfalls. And that's where Chainlink comes in. Can you just describe for us what are some of the shortfalls of smart contracts and what is Chainlink's role in addressing those shortfalls?

ChainLinkGod: Yeah, sure. So fundamentally, blockchains themselves are immutable ledgers. They get their security model by basically generating very strong consensus about the validity of transactions. So sending tokens, interacting with a smart contract with coded logic. But part of their security model is that they're isolated from the external world. So all you need to run a blockchain node is the historical data and staying in sync with the network. You don't have any other dependencies, which makes the ledger incredibly strong and immutable, but at the same time, it means these blockchains cannot connect to external data systems.

Meaning, if you have a smart contract, like a money market, and you need to know what the value of this collateral is, you can't actually go out to an exchange or any other data source to fetch that information. It's like an information void. And that applies to any type of data that exists in the real world. So whether data for insurance or randomness data or GPS location or just literally any type of data that doesn't exist already on the blockchain because the only data on the blockchain is data that was generated on blockchain, like account balances and transfers.

So what oracles are is an additional piece of infrastructure that acts to connect blockchains to the real world. So rather than just being able to create some tokens and swap some tokens around, now you can create smart contract applications that are triggered based on real-world data. So like I mentioned, that could be an insurance agreement based upon the weather conditions in a specific foreign land area.

So you can create parametric insurance. Or that could be a DeFi money market or a synthetic derivative smart contract that uses a price feed, which is the most popular use case of Chainlink oracles that allow you to basically use your tokens in much more powerful ways, generating decentralized algorithmic stable coins, borrowing and lending assets, leverage trading, these different types of financial primitives. The vast majority of them rely upon external data.

And so what Chainlink offers is not only a connection to the real world but a secure and reliable connection. So oracles themselves, like Chainlink, are decentralized across multiple layers in order to provide an extremely high-level guarantee that the data that you're consuming in your smart contract is accurate and will be delivered in a very reliable manner.

So fundamentally, if you don't have oracles, then you just can't fulfill the vast majority of smart contract use cases because most contracts need an input in order to execute an output. So I really think of blockchains and oracles as the two pieces that are required to actually create smart contracts. You can't just have one or the other, you really need to have both. And then now you can create actually useful applications on these decentralized infrastructure networks.

Crypto Texan: So in summary, what I'm getting is that blockchains basically live in their own isolated world where the only data available for the blockchain is that information that the blockchain has created or that lives on the blockchain already. And oracles basically bring outside information that doesn't live on the blockchain to the blockchain for the smart contracts to operate appropriately.

So I guess two questions that we have here is, one, how does Chainlink assure its own security? And then the second question would be, how does Chainlink assure the, I guess, accuracy of the data that is being provided to the smart contracts?

ChainLinkGod: Yes. So the answer to those questions are a little bit intertwined. So there's basically two fundamental methods and they're fairly similar to how blockchains are secured as well. The first is decentralization. So the same reason why blockchains are extremely immutable and censorship resistance is because you have multiple entities, independent entities, working together to come to consensus. And that's effectively how the Chainlink network works, where the Chainlink network isn't actually a single network. It's a framework where you can build decentralized oracle networks.

And so like the Ethereum to USD price feed on the Ethereum network is made up of 31 independent oracle nodes that come to consensus. And so that way, you would need a majority of those nodes to become corrupted in order to affect the price. And so in that way, you have this decentralized consensus.

The other aspect in terms of network security are the economic incentive. So the same reason why Bitcoin miners continued to be honest in mind and extend the chain is because they're getting paid in Bitcoin. And they don't want to devalue their Bitcoin or their ASIC miners by being malicious. So they perform honest work for the network in order to not basically crash the price by being malicious and doing network attack.

And it's the same thing on the Chainlink network, where node operators are getting paid in link tokens. And so they have an economic incentive to continue operating, honestly, because they want to continue earning revenue. They want to grow the revenue as the network expands. And they don't want to devalue their holdings in the infrastructure and all the time and investment that they put into the network. So it's a combination of the decentralization where no single entity actually controls the network and the economic incentive, where each individual entity has an incentive to be honest because it's more profitable to be honest than to be malicious.

So that's how like the networks themselves are secured. There's more nuances in terms of how a specific service is secured. But in terms of how does Chainlink generate accurate data, that comes down to how data is sourced and aggregated. So with a Chainlink, price feed is probably the best example. You have a collection of, let's say, 31 oracle nodes, each one of those oracle nodes are actually found in multiple data providers and aggregating the response. So that way, the network is not depending on a single data source. But each one of those data sources is actually a data aggregation firm like CoinGecko or Brave New Coin, CORE market cap, where they actually aggregate from multiple decentralized and centralized exchanges in order to generate a volume-weighted average price.

So at that point, you actually have multiple layers of aggregation. You have the data providers you fetch for many exchanges. You have the nodes that fetch for many data providers and then the networks which aggregate for many oracle nodes. So that way, any outliers, any flash crashes, any deviations are actually automatically filtered out through a multi-tier aggregation strategy.

So through all these combinations, that's how the Chainlink network has continued to run extremely reliably, even during extreme network congestion on the Ethereum network and even during extreme market volatility, which is usually when network congestion happens and more oracle updates are actually needed. So there's a lot more nuances and other approaches, but at the high level, those are the fundamental approaches taken.

Crypto Texan: Okay. Do you have any idea how many nodes are operating on the network currently?

ChainLinkGod: Yeah, so there's the nodes that have been security reviewed and have basically a time-tested history. And I believe that's around 50 to 60. And then running a node itself is inherently permissionless. So we see data providers like the Associated Press and AccuWeather, they actually launched their own Chainlink node in order to provide their own data on chain directly. So there's a lot of different types of nodes. But it's not like a blockchain where anybody could just spin up a node and then you just set and forget it and just let it run.

An oracle node is much more hands-on because you need to configure it, you need to monitor if the data sources are accurate, you need to monitor your UCaaS balance. So the Chainlink network's basically been honed in on the most reliable and the most secure infrastructure providers in the entire crypto ecosystem. So that's like Swisscom, Deutsche Telekom. That's a bunch of different proof of stake validator pools that already run blockchain infrastructure. So it's really about the quality of the nodes rather than the quantity because having more nodes isn't strictly better if there are a bunch of low-quality nodes.

Crypto Texan: Okay, yeah, I see what you mean there. And so if you do have a smart contract that's pulling data, I guess, from the AccuWeather Chainlink node, it feels not as decentralized, right, if there's only one node providing that information or there are multiple nodes providing that type of AccuWeather information.

ChainLinkGod: Yeah, you're right. It's a different model. Price feeds are decentralized, many nodes, many data sources. But there are some situations where if your conditions for settling your contract and you trust the AccuWeather data source, then the best person to give you that data is AccuWeather itself. So you can actually combine data from multiple, this kind of first-party oracle nodes together. But sometimes only a specific data provider actually has access to that information, like a AML and KYC provider, where they have a proprietary mechanism for determining identity.

There's only going to be one entity who has that data, meaning the entity who generates that data is the best person to deliver that data on chain. But Chainlink fundamentally supports both models. So if you need lots of data sources and you need a big decentralized network, you can deploy that on the Chainlink network. If you have a one-day trust, like an enterprise back-end system, then you can have these experience infrastructure providers run the node or you can have the data provider itself run the node. So it's really about choice and flexibility. It's up to what the user needs.

Crypto Texan: Yeah, I think the AccuWeather thing is very interesting. What types of smart contracts are currently pulling that information from AccuWeather? Or what other types of contracts or protocols do you see pulling that information from them in the future?

ChainLinkGod: I think the primary ... I mean, what AccuWeather provides is basically weather data around any specific geolocation in the world. And so the primary use case for that, from what I've seen, is parametric insurance agreements. So things like Arbol and things like Etherisc, where they provide parametric smart contract insurance, specifically crop insurance. That's a smart contract where a farmer can engage in agreements on the Ethereum network. And then when the settlement time comes, it can query the AccuWeather Chainlink node in order to settle that agreement and payout as needed.

So that's one of the primary use cases where if you trust AccuWeather as a data source, then you can have AccuWeather directly deliver that data to your smart contract to settlement. You can aggregate from multiple sources, like the node that's connected to the Google NOAA weather source, different weather data providers through existing Chainlink nodes, but I think that's the primary use case of this node.

Crypto Texan: Okay, yeah, that makes sense. And I'm just thinking back when you look at loan agreements for commercial banking, if there is an external data that needs to be pulled to determine something in that contract, it is specifically listed, right? It'll say the base rate as printed in the Wall Street Journal. So it's almost sourcing data from the Wall Street Journal to go into that contract.

And this seems very similar, right, on the insurance side that if you're entering into an insurance agreement on a protocol standpoint, like you said, with Arbol or Etherisc, then you would know that they are pulling that data, that information from AccuWeather. So it's like there is an agreement between those two parties, right? Do you see what I'm saying there?

ChainLinkGod: Right. It's essentially like a service level agreement, where you enter this agreement, you know exactly what's going to settle this agreement. And it's going to be this reputable data provider who already provides weather for the biggest companies in the world. They're not going to manipulate your small little contract. If you don't depend upon them, well, you know what source it's using, so you could choose to use a different contract. So it's all about the transparency there.

Crypto Texan: Yeah, that makes a lot of sense. So what other types of data feeds are out there on the Chainlink network that you feel like are very interesting? Obviously, price is a big one. And the verified randomness is another one. But what are some other interesting ones that other people might not know about?

ChainLinkGod: Yeah, there's a lot of different services on the Chainlink network and they're coming to different buckets. In terms of the data services, I would say the other one that people don't, I feel like, know enough about is proof of reserves. So that's essentially a data feed. But rather than financial market data, it gives you data on the backing of an on-chain token. So for example, Wrapped BTC has a proof of reserve feed that delivers on the Ethereum network how much Bitcoin is actually backing WBTC.

So that way, if you have a smart contract, you can actually verify that this wrapped token is backed by the tokens on another network that it says it is. And that same model can be employed for stable coins, like it already is for the TUSD TrustToken, where you can validate how much US dollars are actually backing this token as validated by a Chainlink oracle network. So that could provide an additional layer of security for your protocol and just greater transparency for users so they know what's actually backing these tokens based on on-chain data.

Kind of an interesting use case, things like the CelsiusX DeFi bridge from Ethereum to Polygon and it's also connected to Dogecoin and Cardano. That is a token bridge between chains but uses proof of reserves to actually verify before minting wrapped tokens that there actually is collateral backing those tokens. So proof of reserve acts as an additional layer of security or token bridges, essentially. But that's on the data feed side of thing.

Chain link oracle networks are not limited to just data. They can actually provide off-chain computation as well. So as you mentioned, that's verifiable randomness function, VRF, where you can get verifiable random numbers. Usually for NFT mints. But there's also things like keepers, where keepers is a decentralized network, which will automatically trigger smart contracts on your behalf because smart contracts don't actually execute themselves. You need somebody or something to ping and poke the contract to execute a function.

Keepers can basically monitor contracts if a liquidation needs to happen and automatically trigger that liquidation as needed. So you don't have to rely on a centralized server. You don't have to rely on a developer waking up at 1:00 a.m. at the night to trigger a rebase function on an algorithmic coin. So this is computation services that use the same exact nodes that already secure $60 billion in price feeds.

And I think something that hasn't been released yet but I'm extremely excited for is the Cross-Chain Interoperability Protocol or CCIP, which uses these Chainlink nodes in order to communicate and transmit data between one blockchain to another. So that secure infrastructure could be used to create token bridges but also be used to transmit data and tokens across chains. So you can have a cross-chain automated yield forming contract that will deposit your tokens into it, it'll be deposited into yield farms across the multi-chain ecosystem, automatically moving it to get the highest yield and returning it back to you on the chain you're already on when the yield sources are dry.

So I think that has a lot of potential and that cross-chain interoperability goes far beyond just data feeds. I think people think oracles is just about data. But really, it's about everything that a blockchain can't do. Chainlink could provide the off-chain infrastructure. So I think there's a lot of services that are very interesting that people should really look into.

Crypto Texan: Yeah, would you say arbitrage bots? Do they utilize Chainlink oracles as well or off-chain computation?

ChainLinkGod: I wouldn't say so much. I think arbitrage bots mostly run through flash bots and just work on AMM decentralized exchanges, which AMMs are one of the few smart contracts that don't need oracles because they're just a liquidity pool balanced by the market. But Chainlink price feeds are required by liquidation bots. So when you're liquidating a position or Aave or compound, you do need to depend upon what the response is from a Chainlink data feed.

And another service that's being developed by the Chainlink team is the fair sequencing services, which is a solution which aims to mitigate and minimize the detrimental effects of minor extractable values. So that's something that the team is working with Arbitrum in order to have a fair transaction ordering mechanism in order to minimize things like front running and sandwich attacks and value extraction from the ecosystem. So an inverse solution, it's minimizing NAV opportunities and value extraction from people.

Crypto Texan: Okay, what happens if there is a malicious node or a malicious actor in the network? How does the network defend against something like that? Is there slashing involved?

ChainLinkGod: So currently, in the network, if just a single or even a few nodes are malicious, it's not going to actually impact any data feeds because they already are made up of many entities. So realistically, they would get kicked out of the network because the users don't want to rely upon that node anymore. They will lose all their reputation and lose all future revenue. And protecting network as a whole is the implicit incentives that if a network is majority malicious, then they're basically going to collapse the value of the token to get paid in and then they hold.

That's the existing security model of the Chainlink network but an additional layer of security is explicit staking or the locking up of link by Chainlink nodes. And so that's something that's also under development where Chainlink oracle nodes within a network have to explicitly lock link in a contract. And if they deviate or the network as a whole deviates, then they lose those link tokens as an additional punishment for being malicious or deviating. And so that's something that will roll out over time in order for the Chainlink network to actually scale even further to greater amounts of total value secured than it does today.

Crypto Texan: Yeah. So what are Chainlink's main competitors in this space? I mean, I can think of banned protocol, the graph, API3 maybe. Who would you consider your main competitors in the space? And how are they different from Chainlink and what the Chainlink network does?

ChainLinkGod: I think that there's theoretical competitors and then there's the actual competitors, I think. In terms of price feeds, there isn't any real competitors, right? If you just look at the data and see the number of integrations in terms of banned, most banned users have already switched over to Chainlink or if they haven't, it's because Chainlink is still integrating that blockchain.

In terms of things like API3, they're still in the process of launching but are not necessarily offering anything substantially different than what Chainlink offers. I think that in terms of price feeds, the vast majority of the ecosystem already uses Chainlink price feeds. The only competitors exist on really networks for Chainlink price feeds haven't launched yet, where it's still being integrated like Solana and Terra. As Chainlink price feeds launched on those networks, with the time-tested security of Chainlink price feeds, I think we're going to see the same thing that we saw happen on other blockchains, where projects begin to shift over and use Chainlink price feeds.

I would say the most competitive space right now, which most people probably agree with, is the cross-chain operability space. So that space is a much more competitive where there's already established, already created bridges, though a lot of them continue to get exploited and hacked, especially recently. But that space is definitely much more competitive, much more different approaches just on token bridging.

What Chainlink already provides in terms of price feeds, there just isn't really that many realistic competitors in terms of adaption or even just in terms of network security or economies of scale. So that's my perspective.

Crypto Texan: Yeah, I think another thing that some protocols might implement from a price feed standpoint are T-WAPs or TWAP, I'm not really sure what that colloquial term is there. But can you explain what those are and why protocols would even utilize these versus Chainlink?

ChainLinkGod: Yeah, that's a good question. So what you're referring to is the time-weighted average price, which is summed up as being a TWAP. Basically, TWAP is when you use an on-chain decentralized exchange as your oracle. So let's say there's a liquidity pool on Uniswap. Theoretically, you could use the exchange rate on that pool as an oracle.

In reality, if you just divide the balances, you're very susceptible to flash loan attacks, which a lot of protocols got wrecked by that a couple of years ago when they were just taking the balances and dividing them on Uniswap. So decentralized exchanges started to offer a TWAP, which is basically the price of an asset weighted over a specific amount of time. And this is a solution which, on paper, sounds idealistic, but when you dive into it, a TWAP fundamentally is a lagging price indicator. Meaning, you basically have to choose between tamper resistance and accuracy where the longer you make the time sample.

So let's say you take the average price over an hour, that's going to be more tamper-resistant than the average price over 10 minutes. But it's going to be less fresh during volatility. So if the price moves significantly, it takes a long time for the price to actually catch up to that point.

I wrote an article on my blog, SmartContent, where I dive into a lot of the nuances of TWAP oracles. But fundamentally, they don't provide market coverage because you're only tracking a single version of a single DEX on a single blockchain with a single trading pair, which is not the same thing as the market-wide price that Chainlink tracks through a volume-weighted average price.

So a lot of protocols, not a lot but some protocols gravitate towards TWAP initially because they'll want to list very low liquidity tokens, tokens with very little liquidity where it's not necessarily safe to launch an oracle network at all. But people will integrate a TWAP oracle to support it in a money market. But because the asset is so low liquidity, the price ends up getting manipulated and the TWAP oracle misreports. And then the protocol gets exploited. So it doesn't matter the amount of liquidity that a TWAP oracle or a TWAP liquidity pool or TWAP oracle is being taken from, it's really not safe to use a TWAP in any conditions.

Chainlink price feed will always provide more accurate data because it tracks the whole market. And it's going to provide more fresh data because it's the current volume-weighted price, not the price over an average previous amount of time. So it's an unsafe design. But when there's not a Chainlink price feed, protocols that are trying to capture the market and support a lot of tokens will take on additional risk by listing these very risky assets with these very risky oracles, which is unfortunate. But the best solution is basically to integrate a Chainlink price feed when there's enough liquidity to support one safely.

Crypto Texan: Yeah, how would protocol ... If there is a low liquidity token that they want a price feed for, how would they try to get that get price feed implemented on the Chainlink network?

ChainLinkGod: Yeah. So realistically, when a price feed for a token is launched, projects begin to implement products around that token because the data is now available. So when a price feed is launched for a token that has very, very little liquidity, products start to be built around that feed. And then because there's just so little liquidity, the price could be easily pushed in one direction or another. The oracle network will accurately respond with a market-wide price. It's just that the market-wide price is very easy to push around.

So realistically, you don't even want to really use a token in a financial product that requires a price feed if there's not enough liquidity for it. Projects still need to push an initial source of price data. So sometimes what they'll do is they'll start with the TWAP oracle, they'll bootstrap liquidity for the token, protocol own liquidity or other liquidity incentivization mechanisms, which will then allow a Chainlink price feed to be safely launched. And then they can upgrade their system over time.

So TWAP can be a stepping stone to integrating a Chainlink price feed once there's more liquidity, but it shouldn't be the end-all be-all solution that you use forever in your protocol.

Crypto Texan: Yeah. I always keep thinking like ... I don't know where DeFi would be today if Chainlink didn't exist. And so it makes me feel like Chainlink is a money lego. But I definitely wouldn't consider a DeFi. And I don't think the majority of the Chainlink community does, too.

And there was such a long time when we had the DeFi Pulse Index and we didn't have the Data Economy Index out quite yet, that we had users and DPI holders constantly telling us to put Chainlink in the DeFi Pulse Index. So what are your thoughts there, is Chainlink DeFi? Is it Web3 infrastructure? How would you consider it?

ChainLinkGod: Yeah, I think my views have changed over time. I think that it's hard to discern it because Chainlink does power the vast majority of DeFi. But I really think of it more as infrastructure itself. It's a decentralized network. It's not necessarily an application, which is usually what DeFi is determined by. If you are a money market or you're a DEX, then you're an application and you live within the DeFi ecosystem. But Chainlink is not something used directly by [inaudible 00:34:39], rather it's used by DeFi protocols in order to create their products.

So I really think it's more about infrastructure. It's more akin to Ethereum and blockchains in terms of where it sits in the stack rather than the higher-level DeFi protocols or even the above aggregators, like Zapper and whatnot. So I think it's much more lower-level infrastructure that powers DeFi. But not just DeFi, also NFTs as well and traditional products and even domain names and different verticals that it's not just DeFi.

Crypto Texan: I meant to ask this earlier, but which layer one smart contract protocols does Chainlink provide data feeds for right now?

ChainLinkGod: So the full list is in the Chainlink docs, but it's about a dozen primary blockchains. So Ethereum, Polygon, BSC, Avalanche, Arbitrum, Optimism, Polygon, Starkware, Heco, Gnosis chain or xDai, and I think there's a couple other as well. But it's like a dozen of the primary blockchains. And I know that the next push is to get some of these more non-EVM chains supported like Terra and Solana, which will be significant pushes.

So the Chainlink network already supports the vast majority of the DeFi ecosystem, most of the top chains, but is always continuously expanding to support even greater number of blockchains to basically support developers wherever they want to build.

Crypto Texan: Yeah. So just given that oracles like Chainlink do serve those data feeds to many different blockchains, has the Chainlink community managed to remain more chain agnostic? Or do they still engage in some similar tribalism like the rest of crypto Twitter?

ChainLinkGod: I think there's a mixture of both. I think the vast majority of people who understand Chainlink understand the value of being chain agnostic, of being basically credibly neutral, where Chainlink doesn't pick a blockchain winner. It's going to support every blockchain. I think most people recognize that value. But at the same time, they may have a personal preference/bias or they personally really like using Avalanche, or they really like using Arbitrum or they really like using Solana or whatever.

I think those are compatible in terms of people have preferences and may not like the specific strategy of a specific blockchain. But at the same time, Chainlink is going to power the DeFi applications on that blockchain, which is great for them. So you may have a personal preference, but it doesn't matter what blockchain wins and gets the network effects. Or if it's super distributed in multi-chain or it all goes to one chain, those applications are going to be powered by Chainlink regardless.

So I think that there's much less tribalism about chains in the Chainlink ecosystem than other ecosystems. But at the same time, I think people will continue to prefer specific networks and debate them on their merits.

Crypto Texan: Yeah, I think the Index Coop, we've determined that the Web3 infrastructure, the data economy on the blockchain might be a little misunderstood by the general public and it definitely hasn't had the same push or the same notoriety as DeFi protocols have had or Metaverse, NFT projects have had.

Do you feel like that as well? And why would you think that that might be the case? And as I say all this, I think Chainlink might be in a league of its own because you do have the Chainlink marines that are very, very good reply guys on Twitter.

ChainLinkGod: Yeah, I think every community has its own niche that ends up getting filled over time. I think that the current crypto ecosystem, it gets stuck in specific trends, where it'd be like an L1 rotation thesis and then there'll be these new 10K profile picture NFT mints. But I think the underlying infrastructure and the products that actually meet a real demand in the long run will see the most significant network effects and the most adaption, regardless of what the current hype of the ecosystem is right now.

So I think if a protocol is focused on the long-term approach, they're more than likely going to succeed and went out than a protocol focused on short-term price action, short-term developments, short-term money printer schemes. So I think that every protocol has unique approach, but with a long-term oriented view, that's where you really stand out.

Crypto Texan: Yeah, I think one of those trends too right now is ZK technology. I feel like that seems to be a pretty big topic of conversation right now in the space and a pretty big narrative. What relationship or future do you think Chainlink has with ZK proof technology? And what do you think that might look like in the future?

ChainLinkGod: Yeah, there's two approaches there. In terms of when we talk about ZK Rollups, the Chainlink is already supplying data feeds to dYdX, which is a standalone ZK Rollup chain. And so any ZK Rollup that launches in the future, zkSync, StarkNet, that's going to be supported by Chainlink services. And so a ZK Rollup scale ecosystem, Chainlink will scale along with it because it could run at the native speed of every blockchain. So it'll continue to support those environments.

In terms of much more synergistic how Chainlink will use ZK knowledge, ZK proofs, is in terms of DECO, which is a privacy-preserving oracle solution where you're able to prove that a specific piece of data came from a specific source without actually revealing the data itself, just specific facts about the data. So you can prove that you're over the age of 18 or you're proved that you have at least X amount of dollars in your bank accounts without actually revealing that exact value.

So you can create things like credit scores, you can create things like privacy-preserving smart contracts, where it's executed based on real-world data, but that data is not actually revealed on-chain directly. So I think DECO will introduce a lot of enterprise-type use cases where they can have much more granular control over how their data is exposed and used. And so with privacy-preserving solutions like that, that introduces a whole another world of data that can be brought on-chain and use to execute smart contracts.

So that's a long-term push towards privacy. But I think ZK Rollups in terms of scalability with ZK Rollups in terms of privacy, like DECO, are really the two angles which will really push the ecosystem forward and which Chainlink will be deeply integrated, empowering both essentially.

Crypto Texan: Yeah, do you see a future ... And I think you touched on KYC a little bit earlier, but a future to where Chainlink oracles combined with ZK technology could provide that private KYC, I guess, need that people are looking for, right? If I were to go to Coinbase and say, "Hey, this is my address, ZK-KYC." They could say, "Yeah, this is an address that Crypto Texan holds and manages without having to give any additional information." Or they could just say, "Hey, this is an address that is KYC and is good to interact with other KYC protocols."

I know that goes against, I guess, the philosophy of a lot of decentralized finance. But do you see that being a future or a different avenue that Chainlink can go through?

ChainLinkGod: Yeah, in the ecosystem as a whole, we'll probably see, at least initially, a split between the purest existing, no KYC permissionless, anybody can interact with the protocol unstoppable. But a lot of enterprises just can't touch that. At least in the current regulatory framework, they can't. So I think we'll see a parallel and we're already seeing this with Aave Arc. There'll be a parallel ecosystem of more permissioned applications.

But in order to bridge the gap, I feel like, between those two ecosystems and just make both sides more accepting of DeFi in this new stage, the support enterprises is, like you said, a privacy-preserving KYC solution. And so I think that comes down to a decentralized identity protocol. And that's something that can be built upon DECO, where you can basically use existing servers and different websites you already have your account information on, like your bank account, a government database, or any of these other kinds of official records, your school database.

You can basically use those existing data sources in a backwards compatible manner to generate credentials in a privacy-preserving way, so that you can prove yourself to a protocol, you could prove yourself to Coinbase or a centralized entity that you are not a sanctioned individual and any other information that you need to be proven in a privacy-preserving way. That way, people can bridge between the enterprise DeFi and the more permissionless DeFi in a way that still preserves the identity controls that are unfortunately needed by enterprises but in a way that's more privacy-preserving so you don't just dox yourself every time you make a transaction.

So I think that's probably the most pragmatic solution in order to resolving this KYC issue is just do it in a privacy-preserving manner. But I think it's something that'll be built out over probably a couple of years to actually see a decentralized identity protocol built out and scaled up to support such an ecosystem. But I think it's probably the most pragmatic approach unless something on the regulatory front significantly changes in this regard.

Crypto Texan: Yeah, what do you feel like is next on the roadmap for Chainlink that people should be aware of? I know CCIP and staking. So let's touch on those two topics and then tell us what else gets you excited on the roadmap?

ChainLinkGod: Yeah, sure. So the first is with Chainlink staking. So that's one that people have been excited for a while. Sergey, the founder of Chainlink, explained in a video earlier this year that additional implementation is rolling out sometime in the next year. And so that will significantly boost the security of the Chainlink, plus enhance the network's economics where link tokens will basically be locked up and then earning yield from the user fees that these protocols generate. So that'll be a significant shift in the economics of the network and the security of the network.

CCIP will be a huge advancement in the cross-chain ecosystems, many applications, cross-chain smart contract use cases, will be enabled by that. And I think that'll be a significant revenue source as well for the network as a whole, which combined with staking is a significant boost for the growth of the network as a whole, I believe.

So those kind of two initiatives, new product and increased security and economics are pretty significant that I think people are underestimating its impact on the network that's coming. But I think beyond that as well, a big focus and shift for the Chainlink network as an additional vertical is an enterprise abstraction layer. So effectively, this provides a way for enterprises to integrate themselves with blockchains, read and write to smart contracts through a standardized middleware layer.

So rather than having to pick and choose a specific blockchain to integrating onboard developers for that chain and build that infrastructure, they could just integrate a Chainlink node or integrate with a Chainlink network or a Chainlink node, and then gain the ability to interact with any smart contract on any supported blockchain in a very easy to integrate and very fast-paced manner, which will simplify the onboarding of enterprises to the ecosystem. You don't have to take a blockchain winner. You just integrate Chainlink and now you're future-proofed against any blockchain that pops up in the future since it'll be supported by Chainlink.

So that support of enterprises, I feel like, will be a significant push forward for Chainlink because a lot of things in the ecosystem today are very DeFi Degen focused, which is great for that segment. But in order to really push the adaption of the space forward, we really need to onboard some larger institutions and the enterprises who move a little slower but have a significant amount of capital backing them that will boost the growth of the ecosystem significantly. So that's where I see things shifting but very excited to see all of these products start to roll out in the near future.

Crypto Texan: Yeah, that's fascinating. And you're also the co-author of SmartContent777 or I guess it's SmartContent777 on Twitter, or maybe just SmartContent in general. Do you just want to give us a little background on that, just a chance for you to show your own project as well?

ChainLinkGod: Yeah, absolutely. So SmartContent is a publication that I write for along with the Crypto Oracle on Twitter. We've written about a bunch of different topics about Chainlink. We've written about TWAP oracles. We have a whole thesis on Chainlink as part of the God Protocols. That sets everything into context in terms of why Chainlink matters and how it works. And we have these different types of just things focused specifically on the Chainlink network.

And so if you want to learn more about Chainlink, then I recommend checking out SmartContent as well as the Chainlink blog on the education section. There's a lot of good resources there to learn about Chainlink.

Crypto Texan: Yeah. Another thing I want to ask you is on the shill your own bags segment of this show, what other projects out there are catching your eye right now? It could be DeFi, Metaverse, NFTs, Web3 infrastructure side. But what do you think people should be paying attention to?

ChainLinkGod: There's, I feel like, an obvious answer and a not so obvious one. I think the obvious one is just Ethereum itself. It's not necessarily like a DeFi project application type but the combination of the merge lowering issuance, the increased burning of fees from EIP-1559, plus the rollout of Rollups, which will significantly increase network bandwidth. I think we'll turn Ether itself into one of the most strongest assets in the crypto ecosystem, where it's actually net deflationary and yet sustainable at these fee levels and becoming cheaper to use via Rollups.

So I think that combination is significantly powerful. I think more and more people are talking about it now much more so than a year ago, but I think that's one that should definitely not be slept on. And the other one is not necessarily any one project but just the curve wars in general. I've been watching for the past year but just convex & curve and now the FRAX & LUNA aspect of it is very interesting to watch the war for stable coin liquidity and how the economics of curve are being leveraged for like hundreds of millions of dollars in bribes for governance power is being distributed to stakers, to CVX stakers at an annualized rate, which is very interesting.

It remains to be seen which stable coin really wins out and if there's really a winner, or it's just a continuous battle. But I think there's something always interesting happening in the DeFi ecosystem. And I think right now, there's a big war for the throne to be decentralized stable coin, which is, it's very interesting to watch.

Crypto Texan: Yeah, that is very interesting to watch. Definitely. And I honestly thought you were going to throw something out there like Etherisc or Arbol or something. What about some protocols that are utilizing the Chainlink oracles that you feel are really interesting, like those two?

ChainLinkGod: That's a good question. Yeah. I think the one I've always been aligned with is Aave. So Aave, I mean, you might think it's simplistic, it's a money market. But they've always been an innovator and a pusher. They're the ones who really pushed out the popularity of flash loans. That wasn't really a thing before Aave. And they're just continuously expanding to new chains with new features for more capital efficiency. They're going more multi-chain and cross-chain where you can send your Aave deposits across networks.

You can effectively ... Aave is like a core money lego building block that sits within a lot of the yield generation and a lot of the borrowing power within the crypto ecosystem. And of course, from the very day one, Aave has been powered by Chainlink price feeds. So that was ... When Chainlink price feeds first rolled out, they were one of the first users back when they were ETHLend and nobody really heard about them. And now they're like a powerhouse in DeFi. The largest money markets continuously innovating, continuously just expanding the assets in a very safe manner compared to some other markets.

So in terms of Chainlink project, that one always stands out to me and Synthetix as well. They're focusing more on futures and synthetic assets. They're continuously moving to L2 and adding more assets there that are, of course, powered by Chainlink price feeds. I mean, at this point, there are hundreds of protocols powered by Chainlink, specifically with Chainlink price feeds across so many networks. So if you throw a dart at DefiLlama, it's probably going to be a protocol powered by Chainlink that is worth looking into at the very least.

Crypto Texan: Yeah, yeah, absolutely agree. Yeah, you throw that dart at DefiLlama and that protocol is going to be integrating Chainlink, most likely. Yeah, we're getting up to the end of our hour here. But are there any other topics that you and I haven't touched on that you want to talk about or address?

ChainLinkGod: I think that one general point of discussion I've seen is something that was brought up by Vitalik is, is the future of the ecosystem going to be multi-chain? Or is it going to be cross-chain? And I think that the argument for multi-chain is that it's like you don't have this interconnected risk effectively, where you have these individual isolated chains that have their own ecosystem, but there's not much communication or interaction between chains.

Theoretically, it's the most secure but it's the most limited, while the cross-chain ecosystem allows people to bridge between environments in order to create cross-chain smart contracts. But we've seen more fun in that regard of the Ronin bridge hack, the Wormhole bridge hack, the Poly Network bridge hack. There's been a lot of bridge hacks with billions of dollars lost. And so people have questioned the cross-chain thesis. But I think the reality is just, number one, we haven't seen a secure cross-chain Bridge, which is where I think Chainlink CCIP will come to absolve and resolve that issue, just like Chainlink price feeds did with oracle issues a couple of years ago.

And then the second, I think that there's just user demand for cross-chain. It's not going to go away. People want to bridge their tokens across environments. And I think that a lot of bridges just haven't really focused much on security. And with CCIP and with it having an anti-fraud network, with it having automatic monitoring for fraud, monitoring for malformed messages, that we'll begin to see a cross-chain ecosystem that looks very, very different than it does today.

So I think that's my recommendation for listeners is that twofold in terms of the cross-chain ecosystem is going to continue to grow. It's been multi-chain, but it's going to keep growing to be cross-chain and bridges aren't going to go away anytime soon.

And secondary, I think that oracles are fundamentally much more than data and it's much more than just price data. That's the clear product-market fit but oracles basically provide all the functionality that blockchains can't. So that's secure off-chain computation and that's cross-chain interoperability. And those will be significant opportunities for both developers and for the Chainlink network from the perspective of stakers and from the perspective of node operators who provide those services.

So I think that the ecosystem is going to continue to grow interconnected. And there was a point made earlier about people being tribalistic between chains. I think the reality is that you're going to have a preferred chain, but the reality is that everyone's going to have a different preferred chain. So if you want to really bootstrap the growth of your ecosystem, you need to become more connected with other ecosystems. So that's just a general point on multi-chain and cross-chain in general, but I think it's a worthwhile discussion point.

Crypto Texan: Yeah. And on that same subject, do you have any thoughts on Arbitrum Nitro or fully production-ready nodes on their devnet, the suite of services that they have, bridges and sequencing, sounds somewhat similar to Chainlink labs. Just wondering if you had any thoughts on that specifically.

ChainLinkGod: Yeah, I actually just saw that announcement earlier today. I haven't read through the article yet, but I definitely will. I will say that Arbitrum and Chainlink are working closely together on first sequencing services. So once FSS on the Chainlink network has rolled out, Arbitrum will be working very closely to decentralize our sequencer and use that to bootstrap transaction ordering guarantees.

So I'm definitely going to look more into Nitro. I know that's a big part in reducing costs for Arbitrum and making things more compatible and more efficient. But I think there will continue to be very significant synergies between Chainlink and Arbitrum.

Crypto Texan: Okay, so you don't really see that as a competitor then?

ChainLinkGod: No, I don't see Chainlink competing with any blockchain directly. Even if they offer some specific feature that Chainlink might, there's always going to be some feature that they don't offer, right? You may not need keepers for specific network, you may not need VRF for specific network, but there's going to be some service, some Chainlink service that they need, right?

So Chainlink will provide privacy to blockchains that don't have privacy. It'll provide scalability to blockchains that don't have scalability. It'll provide order fairness to chains that don't. So there's always going to be some infrastructure requirement that a blockchain will need. And most of the time, that's going to end up being filled by Chainlink oracle services.

Crypto Texan: All right, yeah. Makes sense to me. Yeah, I haven't really dug too deep on that either. That was a question we had in the chat. I just wanted to make sure we got that addressed. But that's interesting. Something I need to look into as well.

Well, CLG, ChainLinkGod, this has been a real pleasure. Big fan of the protocol. And it's obviously just a base layer foundation for what powers DeFi smart contracts and even the Metaverse. So I'll just say, to end this off, where can people go to find out more about you, Chainlink, and SmartContent?

ChainLinkGod: Yeah, absolutely. I think the primary place is to go to my Twitter account, which is just the same username @ChainLinkGod. On there, you can see links to SmartContent, my blog. You could see links to my podcast, the ChainLinkGod podcast, and you can see a link as the pinned tweet of a list I've compiled of all the best Chainlink resources, podcasts, videos, blogs, infographics. Everything you need, it's basically at the top of my profile Twitter. So that's what I recommend checking out.

Crypto Texan: Awesome. Well, everyone who's listening live in the Discord, thank you for listening live. This episode of Conversations with the Coop is being recorded. And so we will get this out in about a week. ChainLinkGod, thanks again. It's been a pleasure to have you on the show.

ChainLinkGod: Likewise. Thanks for having me on. Pleasure.

Crypto Texan: All right. Bye.

Host: @Crypto_TexanAudio Engineer/Mixing: @LloveraFrankMarketing Images: @crypto_diller_Transcript: @0xMitzy / @Crypto_Texan

Audio and transcript from the March 31th, 2022 installment of “Conversations with the Coop” with Amit Gajjala - Founder at Stader Labs.

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

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Crypto Texan: Okay. So all right. Hello everyone, welcome to Conversations with the Coop. This is where we source questions from the Index Coop community to gain insights from today's leaders in Crypto and DeFi. I'm your host Crypto Texan, and today we have Amit Gajjala, who's the founder of Stader Labs, and Stader Labs' goals is to bring the next billion into the staking ecosystem. Amit, I appreciate you being here with us today. How's everything going?

Amit Gajjala: Thanks a lot Texan. Firstly it's an honor to be here. So far it's been great. So quickly introducing myself, if that's okay.

Crypto Texan: Sure, absolutely. Yeah, I would love to get your background and just how did you get into the crypto space?

Amit Gajjala: Yeah, absolutely. So as you know, it's pretty apparent from the title, my name is Amit, and I've hailed from India, currently living in Bangalore. So it's a very interesting story how I got into crypto. So I am not a degen or I have not been in the space for a long time. But yeah, if you actually think about two years, it is a long time in crypto, but not as much as 10 years or five years. So let me quickly give a background about myself and then I will get into how I stumbled upon this space. So I am a management grad by academics, and I'm an engineer before I'm a management grad. Spent about 10-plus years working across strategy consulting firms in top startups in India.

And it was in about 2020 when I was very keen to start something up. And I was talking to one of my current partners and CTO, Sidhart. He and I go way back to our undergrad days. He's been a veteran in crypto. He's been in this space for more than seven, eight years now, he used to run his on mining farms and mining pool optimizers. So he inspired me to actually pay attention to this space and start investing and learning about the space towards the middle of 2020. That's how I got into this space. And ever since I've been just enamored by the amount of innovation that is happening in this space, and also the type of applications and infrastructure that is getting built in this space.

And it's about early 2021, is when we had about 20 ideas that we wanted to start in the crypto space. And those 20 ideas led us to look at one of the biggest possible market opportunity and underserved opportunity which is staking. We started looking at the space very seriously, decided that there are several trends that are very apparent to us. And it was very, very early stage back in 2021, and that showed us in this direction of starting Stader, where one of the dreams I had was enabling passive income opportunities/ Riskless passive income opportunities for more than 30% of the world population. As today, most of these people living in rural areas in Asia, India, and several other parts of the world lack safe access to good financial products, and that's where that vision of bringing onboard a billion users to staking took shape. And then we decided to build this staking infrastructure that powers this ambition of bringing a billion users onboard.

Crypto Texan: Yeah. So you obviously saw enough innovation in the crypto space that I guess gave you enough conviction to go into full time. But what was it exactly that gave you that conviction, that made you say, "I'm going to be an entrepreneur in this space."?

Amit Gajjala: Yeah. So I think I would say three major things that drove my conviction in this space. The first thing is the kind of innovation that is happening in this space as a result of the entire crypto space being open sourced and transparent. The second one was obviously the market opportunity is so huge that it's global from day one. There are no geographical boundaries. And the third one is the associated value that is inherent within the protocol. I just had a momentary realization that, "Wow, this is internet space signs on steroids."

Crypto Texan: Yeah, absolutely. Yeah. I totally agree with your sentiments there. So you and your co-founder decided that there are... It's interesting you say that because there are no geographical boundaries to the crypto space. But there can be I guess technical barriers to entry or technical personal limitations for individuals to get involved in the space. Is that what drove you to start Stader Labs? Well I guess it might even be a better idea to take a step back. So Stader Labs assists users with the difficult technical aspects of staking. So I think it might be a good idea. Can you just describe in your own words what is staking and why is staking necessary for the security of blockchain networks?

Amit Gajjala: Absolutely. So I think you had two levels of questions. One is how does Stader Labs help people effortlessly stake? And then taking a step back you said you wanted to also understand what is staking and why is it important for the ecosystem. That's-

Crypto Texan: Yeah. Sorry. I just feel like laying the ground level for just what is staking, why is it necessary for the blockchain networks, and then we can go into the technical aspects of that afterwards.

Amit Gajjala: Yeah, absolutely. So staking is for proof-of-stake networks what proof-of-work is for Bitcoin network. Right? So in the case of Bitcoin network, the consensus mechanism was solved by the miners. Solving a difficult mathematical problem by miners. So the innovation that proof-of-stake networks have built on top of proof-of-work was there is no need to solve a difficult mathematical problem. Instead, use the native tokens as a security mechanism, which is termed as staking in terminology. So for a validator or a node operator to participate in the propagation of network or block production, they need to stake the native tokens, like in case of Terra (LUNA), Solana (SOL). And they will be able to one, participate in block production, two also work with somebody who has added a block to the blockchain. So that's essentially proof-of-stake mechanism and staking.

Crypto Texan: Right. And then in the proof-of-work consensus mechanism, like you said, these computers are solving very, very complex math problems. And the first computer or node who solves that problem gets to propose the next block of transactions and they also receive the block reward. Right? So conversely on the proof-of-stake side, are proof of stake validator nodes solving complex math problems? And how do those networks determine who proposes the next block and who receives the block reward?

Amit Gajjala: Got you. So in proof-of-stake network, the nodes are actually not solving difficult math problems, like in case of a proof-of-work network. They're actually staking capital. In simple words they're actually taking capital and the probability of each of the node getting an opportunity to add a block is proportional to the amount of tokens that they have staked. Obviously there are several improvements over it like proof-of-history or randomized proof-of-stake for individual epochs et cetera. But at the heart of it, this is how proof-of-stake networks are currently solving for block production.

Crypto Texan: Right. So they're similar in the sense that I guess you do have to put up a lot of capital on a proof-of-work consensus blockchain, because you have to purchase a lot of equipment and it costs a lot of energy and electricity to run those nodes to solve the math problems to receive the reward for the next block and to propose the next block. So similarly on the proof-of-stake side, it is capital intensive, but I guess it feels like that there can be less barriers to entry, especially when you have an organization like Stader Labs who's here to assist with the staking. So let's talk about Stader Labs then. How does Stader Labs help I guess retail users, institutions, and other individuals in the crypto space with staking?

Amit Gajjala: Yeah. Absolutely. So essentially let's take an average crypto token holder. How can he maximize his rewards obviously in a risk consistent manner. He can go and participate in any of the yield farming opportunities, or he can actually participate in staking. In order to stake, what does he have to do? He needs to go discover the right set of node operators and stake with those. Process the data around the performance of each of these node operators and obviously select the node and stake his capital. So we simplify that entire process by curating these nodes. When I say nodes, what I mean is validators. By curating these validators. And at the same time we also create buckets of these validators so that the risks associated with slashing, which is the main risk when you stake your assets on a proof-of-stake blockchain, the risks associated with slashing are minimized. Now coming to... Sorry. Did you want to interrupt?

Crypto Texan: No, no, no. No. You go ahead. That's fine.

Amit Gajjala: Got you. You also talked about how are we going to add value to institutions and enterprises in the future? So when it comes to institutions and enterprises, obviously majority of these institutions don't have access to any kind of staking solutions. So it has to be individual validator driven business development effort that goes into these institutions. Now we want to create an API type of a layer that connects all of these institutions and gives them access to all types of staking solutions that we are building for institutions. For example take an exchange like Coin Switch or Coin DCX in India. They don't have access to any type of staking across proof-of-stake networks. Now how can they offer these solutions? They can go partner with individual validator, or they can partner with a smart contract platform like Stader which is an aggregation staking across the proof-of-stake networks, and also gives value added solutions yield farming strategies on top of staking rewards or gives access to liquid staking solutions as well. So that's the whole idea, or that's the whole ecosystem of staking solutions that we are trying to build.

Crypto Texan: Okay. So who is your target market for the staking solutions? Is it individuals who are new to crypto? Is it degens or are you focused more on the institution or Dows I guess too.

Amit Gajjala: Got you. So in the short term we are primarily focused on the retail segment. These are the crypto retail segment, which is the degens and people who are reasonably familiar with, interact with crypto, and they already interact several DeFi protocols. So our target segment is that right now. And as we build more and more staking solutions across the blockchains, then we will actually target, the go-to market strategy will be for institutions and exchanges.

Crypto Texan: I guess which blockchains are you currently providing staking services for right now?

Amit Gajjala: Got you. So right now we are only present on Terra blockchain. We have launched our first product on Terra about three months ago. Have about 900 million of assets staked with us. And beyond that, currently we are expanding to four more blockchains, the likes of Polygon, Phantom, Solana, Hedera. In about four weeks time we would be present across all of these blockchains.

Crypto Texan: Yeah. And when I was looking at your website, I noticed you had Terra that was up and running. And then on the coming soon side had Near, Hedera, Ethereum, Cosmos, Solana. You said Polygon. I don't remember seeing that on there. But what about just thinking of some more popular proof-of-stake blockchains like Polkadot and Avalanche? Are those somewhere on roadmap or is there a specific reason why you're not focusing on those two specifically right now?

Amit Gajjala: Yeah, so our goal is to be present across at least the top 10 blockchains in about six to nine months from now. What I mentioned is just about a month to two from now.

Crypto Texan: Okay. And how do you measure the top 10 blockchains? Is that by market cap or is that by activity on the blockchain? How do you measure that metric?

Amit Gajjala: Yeah, it's a combination of three factors. The first two are the factors that are measurable currently. The third one is a potential that we see on each of the blockchains. So obviously the first two factors are the market cap or the value locked on the blockchain. Second one is the maturity of the DeFi ecosystem in terms of presence of several types of protocols like lending markets, dexes, options, and complex financial products like the yield farming worlds, et cetera. The third one is our view of how big each of these blockchains could be in the future. So these are the three factors apart from presence of existing players or partners that we can leverage. So these are the main factors that we have utilized to select the immediate entry blockchains.

Crypto Texan: Okay. And what are your thoughts about just the differences between proof-of-work and proof-of-stake, just in your general opinion. Which one do you feel is more secure than the other? Which one do you feel more is more decentralized and is more democratic to the process? I just wanted to get your opinions on that just in general.

Amit Gajjala: Got you. So it's basically actually going to a decentralized world, right? So obviously the higher the dispersion of capital across the node operators and higher the number of node operators, it is better for the entire ecosystem. From a security point of view also, and also from a decentralized view. So having said that, there are several blockchains that I definitely feel secure because I'm personally involved in those blockchains. And at the same time there are several blockchains that have taken adequate measures to decentralize their networks more and more like for example Terra, Solana, Avalanche and even Polygon to a certain extent. They're taking a lot of steps because I speak to the foundations in terms of decentralizing their blockchains a lot more than what they are currently.

Crypto Texan: And what about on Stader's state of decentralization? How does the organizational structure of Stader Labs look? Are you a corporation? Are you an LLC? Is it a Dow, just a protocol. How would you describe Stader Labs from an organizational and decentralization standpoint?

Amit Gajjala: Got you. So far as a centralized team, we just launched our token a couple of weeks ago. And the idea is to progressively decentralize by adding governance to the protocol. Right now it's just a protocol.

Crypto Texan: Okay. And where is that protocol house? I know you're active on the Terra blockchain, but I guess how does the mechanics of that work? So the token that you have is an ERC-20 token on Ethereum or is it on the Terra blockchain. So I guess where is the protocol's headquarters I guess is a way to put it. Is it on Ethereum and how does that work with staking on multiple blockchains as well?

Amit Gajjala: Got you. So it's obviously a very complex architecture that we are embarking on. If you ask us where is our headquarters, I will say we are a protocol that started in Terra and obviously a Terra native protocol. For the ease of exchange listing and multi chain staking, we have created our token as an EFC-20 token. Obviously the wrapped version of our token is also available.

Crypto Texan: I'm sorry, could you repeat that last part? I missed it.

Amit Gajjala: What I meant was our SD token is an ERC-20 token, and the wrapped version of SD token, which is WHSD is available on Terra.

Crypto Texan: Okay. So what role does the SD token play in the Stader ecosystem right now and what I guess more specific future implementations and responsibilities do you see for SD token holders?

Amit Gajjala: Yeah, I think SD token is going to be a critical token for our Stader ecosystem. There are four major utilities. The first one is obviously for the purpose of staking and governance. Right now this is the only feature that is available where SD token holders can A, state the tokens and get a portion of the protocol revenues as staking rewards. And in V2, what we are also planning to implement is a curve style tokenomics where XSD can be locked and VXSD holders can redirect the protocol fees across different blockchains, and also potentially decide the emissions for each of the blockchains. This is coming in the V2 of our tokenomics, which will be in a couple of weeks to a month.

Crypto Texan: Okay, that sounds really exciting.

Amit Gajjala: Beyond this. Sorry, go ahead.

Crypto Texan: Oh, I was just asking, how does Stader generate revenue for the protocol?

Amit Gajjala: Sure. So we actually charge a percentage of staking rewards as our fees. So we are already today making about 3 million of protocol fees within two or three months of launch.

Crypto Texan: That sounds pretty good Amit.

Amit Gajjala: Should I continue?

Crypto Texan: Oh yeah, sure. Go. Yeah, go. Sure.

Amit Gajjala: Yeah. So there are three more utilities for the Stader tokens. The second one is basically the validators in our stake pools and liquids staking pools. They will have to staked SD tokens to get preferential delegations for themselves. And the staked SD tokens will be used as potential insurance against any slashing events. That's a second utility. The third one is a more common utility, where SD tokens can be used to provide liquidity across taxes.

Crypto Texan: Okay, interesting. So you bring up a good point, which is you mentioned slashing. I guess what are the risks of staking? What risks can a retail user, what should they be aware of before they get involved in staking for a blockchain?

Amit Gajjala: So obviously slashing is one of the most important risk that can have a significant impact on the staked tokens. Beyond that one should be aware of the key metrics that determine the rewards generated by validators. Some of these key metrics in blockchains like Terra or up-time Oracle comets, and these key metrics vary across different blockchains. These are obviously the network metrics. There are also financial metrics like commissions, max change in commissions, et cetera, that have to also be kept in mind.

Crypto Texan: And how does data address those risks?

Amit Gajjala: Yeah, so we actually on whichever blockchains we expand to, we build a solution called know your validator, that tracks the performance of each of these validators and we constantly rebalance the validators based on the performance.

Crypto Texan: Okay. And how would you compare... I feel this staking sub-sector of the crypto industry is becoming more and more competitive, right? So we've got Stader Labs, Lido, we've got Rocket Pool and even centralized exchanges allow for staking. I think Coinbase, Gemini Binance. How would you say that Stader Labs differentiates itself from the competitors? Both decentralized and centralized competitors.

Amit Gajjala: Got you. So I think on the retail side, we are going to be present across multiple blockchains, and we are not... The decentralized players that you referred to are primarily liquid staking solutions. We are not limiting ourselves to liquid staking, we are addressing the whole pie of staking market. How we have addressed on Terra. We have three different solutions on Terra. One is enhanced staking pools, liquid staking, and also individual validators taking smart contracts. So we are building this core in infrastructure for staking modular smart contract infrastructure for staking. That can be customized for any consumer segment. For example our contracts can be applied on any kind of a centralized exchange where they can do a bunch of automations with the rewards. Automations include yield directions strategies with the rewards, or they can use the staking contract and issue liquids taking tokens on their own validators.

So this is the modularity that is interwoven into the Stader smart contract architecture. That is the main differentiation that we have. And beyond the retail segment, we are actively going to target institutions with our aggregated staking solutions that nobody seem to be targeting right now. The centralized exchanges that you mentioned, very few of them offer such deep set of products on top of staking. All they offer is validator staking. Very few of them offer and very few of them actually yield redirection strategies on top of staking rewards.

Crypto Texan: Okay. So you're saying the modularity of the Stader protocol is the true differentiator between these and your competitors?

Amit Gajjala: Yeah. Absolutely.

Crypto Texan: Right. So I guess when Stader is looking at validator nodes, well, let's talk about that. Do you select validator nodes that are already validating the blocks in these ecosystems? Let's use Terra as an example. Because there's plenty of validators out there already, and I'm not that familiar with the Terra ecosystem and how the staking works, but you nominate certain validators within that ecosystem? Well, I guess how does Stader Labs decide which validators to use when selecting for the staking process?

Amit Gajjala: So as I mentioned, we have built a product called Know Your Validator on Terra that continuously monitors the performance of the validators. And we use a monthly average performance to pick the top validators or to curate the top validators. And those validators go into our pools. And every month we actually rebalance these validators.

Crypto Texan: So could a user running their own validator node, is there any way to implement their own validator into the Stader protocol if they wanted to? Or is that not how this works?

Amit Gajjala: It's usually not how this works. As long as the user's validate node is performing up to the mark, we would obviously select his validator in the bucket.

Crypto Texan: Okay. Yeah. Thanks. Thanks for clarifying that. That was helpful. So which blockchains in your opinion have the easiest or simplest lowest barrier for users to stake their assets? And I guess what are some of the difficulties that some retail users can encounter when trying to stake on their own?

Amit Gajjala: So the main difficulties that I see to today are one, it's hard to find the right set of validators that are really good performing because it needs a significant amount of effort from the user to understand the metrics and also evaluate the metrics. That's one. Second one is the actual number of the things that they have to do after they stake their assets like claiming their rewards, restaking their rewards to earn compounding returns is also complex. Then the third one is now among the several set of opportunities like staking, simplified staking et cetera. How are they going to make a decision? And with the liquid staking tokens, what kind of yield farming opportunities do they actually choose and implement for themselves? So all these are difficulties that these users of crypto face today, and we actually plan to simplify and make all of these effortless using our solutions.

Crypto Texan: Yeah. What kind of returns should retail users anticipate to receive on various blockchains? How do those fluctuate and if one blockchain is yielding 3% to 4% staking rewards, and another one is yielding 15% to 20% staking rewards, how would a user decide which one is best for them? Because I think historically you would say that 3% to 4% staking yields versus a 15% to 20% staking yield, the 3% to 4% has less risk. And I guess just what would your advice be for users when they're trying to determine which protocols to stake on?

Amit Gajjala: Got you. I think staking is not an independent decision. The primary decision a user should make is which crypto tokens to actually hold. And then the secondary decision is actually where do they stake? Yeah. Whether they stake or do some other things yield farming, et cetera. Right. Those are the two sets of decisions that the user has to make. So I don't think it's the right thing to compare let's say Solana yielding 7% versus Terra yielding 10%. Because the first decision that the user needs to make is what tokens whether Solana or Terra that they need to hold. Does that answer your question?

Crypto Texan: Oh yes. Yes. It does answer my question. Absolutely. On that what would you say to critics of proof-of-stake who say that proof of stake is more of an equity position in the blockchain and can result in a cotillion effect in which those closest to the money are the first to get it. How would you respond to that criticism from a proof-of-stake standpoint?

Amit Gajjala: So I think it's a valid concern because it generates this vicious cycle of giving more and more rewards to people who already hold higher amount of POS tokens. So it is a valid concern, but I think it's not something that can't be solved. Because the way I see it is proof-of-stake is so young. It's just probably it has come to a reasonably good quality just in the last one to two years, I think it will undergo its own set of modifications and improvements before it is perfect.

Crypto Texan: Right. And I would also say that when you're comparing it to proof-of-work, proof-of-work is also very capital intensive. And I think there are further even more technical limitations for people from a proof-of-work standpoint as well. Neither is perfect, but in my opinion I feel like proof-of-work is great and it has its benefits in its own right and so is proof-of-stake. So which one will win out over time. It just depends. Obviously proof-of-stake is more energy efficient, which I don't know, is good and is a benefit to the ecosystem, and definitely from a PR standpoint on crypto as a whole, that stands to be a benefit as well. So yeah, I agree with what you said there. Another question we have here is Amit why the decision to start with the Terra blockchain over the other blockchains from a POS standpoint?

Amit Gajjala: I think we wanted to start across multiple blockchains at the same time. But obviously because we were very young back then and had very scanty amount of capital we had to prioritize. And while prioritizing we saw Terra ecosystem as one of the most interesting ecosystem system with high complexity of staking rewards coming in several different currencies as well as air drops in several different protocol tokens. And we felt that that was a problem worth solving for users. Hence we selected Terra as one of the first ecosystems to build on, and beyond that there are several other interesting dynamics that are going on with Terra because their vision is also to bring millions of users to crypto. And that is how they have built this savings protocol Anchor and then synthetic assets protocol and several other interesting protocols are also in the works. So these are the main things that really attracted us towards building on Terra first.

Crypto Texan: And Amit, as you look further down the Stader Labs roadmap, what are some of the key things on the road-map that gets you most excited about the future of Stader Labs?

Amit Gajjala: Oh, sure. Lots of things excite me about what we are building. So essentially what we are doing is we are expanding across several blockchains. As I mentioned earlier, we'll be launching our first product which is liquid staking solution across four blockchains, including Phantom, Hedera as well as Solana in a few weeks. And we also want to create several value adding solutions to the simplified staking solutions, as well as yield farming or degen vaults type of strategies on top of liquid staking solutions. What that means is we automate a lot of the yield farming like borrowing and then repeated borrowing to leveraged staking and also repeated borrowing and automating this borrowing as well as looping on top of these liquid staking solutions. So these are all the products that we have in the pipeline and that keeps us going and keeps us excited.

Crypto Texan: Absolutely. And I know we talked about the tokenomics of the SD token a little bit earlier, but I wanted to circle back on that because this is a token that will have quite a bit of utility. And I know you mentioned those before and one of those being the slashing insurance will be provided by the validators via the Stader tokens staked. Can you go into a little bit more detail about how the Stader tokens that are staked in the protocol are utilized for the slashing insurance and why that's important?

Amit Gajjala: Yeah. So the proof-of-stake matures and more and more validators come into the ecosystem, I think blockchains are going to get a lot more stricter with slashing. And when slashing becomes important, obviously the validators need to... We need to incentivize validators to perform well. And at the same time penalize barriers who are not performing well. So when they stake SD tokens, these SD tokens will be one of the key component that provide slashing insurance beyond any other third party slashing insurance we might take for the platform.

Crypto Texan: Okay. And you also mentioned that the SD token stakers, they also receive a portion of revenues that's generated by the protocol. I'm curious what percentage of the revenues are distributed to the SD token holders? And is that in the form of additional SD tokens or is that in the form of the rewards generated by I guess the blockchain stakers? I'm sorry, I'm trying to differentiate between Stader protocol stakers and then the blockchain stakers as well. So I guess really my question is what portion of revenues are anticipated by the SD token holders and what are those denominated in?

Amit Gajjala: It is actually paid in additional SD tokens.

Crypto Texan: Okay. Great. So you and I talked a little bit earlier before you hopped on and you're in India right now. So I think there is a pretty strong majority of the index coop and listeners of this podcast who are more in the European and the Americas, in the Western side. So just curious to get your opinions on what is the general sentiment of crypto and DeFi in India right now just from your perception?

Amit Gajjala: So I think there is a lot of positivity around crypto. Hundreds of entrepreneurs are beginning to look at the space and there are several protocols that are emerging out of India. So there is a huge movement towards building in crypto and a lot of amazing web 2.0 talent is actually entering the space. I think government has also taken several steps in the positive direction in terms of regulating crypto, as well as legitimizing crypto by adding taxation to crypto earnings and gains. So I think government is also warming up towards crypto. I think India will be in a few years from now we are probably going to be the crypto capital of the world.

Crypto Texan: Really, and that's so interesting because I feel for a long time, maybe two, three years ago, India was very anti-crypto. What changed in the government stance or just the general sentiment in your opinion?

Amit Gajjala: I think the government has realized the potential of the technology to massively transform seven industries and the amount of talent that is already building in this has also probably come as a big realization to the government.

Crypto Texan: Yeah. You just see maybe that governments they enter their own FOMO in a sense from a crypto stand point. And that's just hold the whole general macroeconomic thesis is that if one government creates laws that are too restrictive on crypto, that provides an opportunity for another government to maybe relax its laws a little bit and bring in that talent and bring in that potential revenue and tax revenue for this new space. So yeah, I saw that with India, but wanted to get your take as well. I don't know. Before we get into some other just general questions, is there else that you wanted to address about Stader Labs that maybe I haven't touched on quite yet?

Amit Gajjala: I think one of the important things is the team. We have amazing talent across that have onboarded from web 2.0. These are all the guys from all over of the world. I think I am proud of the team that we have built so far. Most of them are from the top universities, Ivy league equals in India and the US. So big thanks to the team as well as proud of them, proud of what we have achieved so far and excited about what we can build.

Crypto Texan: Yeah. So I ask this to everyone that comes on this show, but what other projects and protocols are out there right now that you think are doing something very interesting or something that you feel our listeners should be keeping their eye on?

Amit Gajjala: Sorry, there was a break. You were saying what other key protocols-

Crypto Texan: I was just saying what are some other projects in the crypto space that you feel people should be paying attention to? That you think are very interesting and are doing some new innovative things?

Amit Gajjala: Got you. I definitely think a lot of protocols are working at the conversions of CeFi and DeFi. Enabling both sides of the world. So that realm is quite interesting, especially some protocols building at the intersection of connecting real world users to crypto, giving them access to yield farming DeFi opportunities in a very user friendly way. That is going to be a big trend over the next five to 10 years. And beyond that I also really like some of the protocols that are building across the blockchains in the layer zero and bridges as well as layer zero. So these are the two areas that I'm really excited about.

Crypto Texan: Really. Specifically what are some of those layer zero protocols that you're mentioning?

Amit Gajjala: So there there's a protocol that is being built out of India which is trying to build a bridge across Near and almost all the other blockchains in a decentralized way. So that's super exciting for me. Beyond that, obviously I'm excited about THORchain and the way they natively enable swaps across the POS assets and across the different types of assets. In the second domain there are several protocols and projects in India like the likes of Flint, et cetera, which are enabling real world users to get access to several DeFi and yield farming opportunities.

Crypto Texan: Where can people go to find out more about you and Stader Labs?

Amit Gajjala: Yeah, sure. So basically I think I am good. We have covered most of the important areas. I just wanted to say thank you to all the audience who have tuned in today and listened to me and thanks a lot to you for hosting me here. In order to find more information about Stader Labs, you can go to our Twitter or join our Discord or Telegram, where we have about 60,000 members, strong community who are always talking about Stader and what's next in the product roadmap.

Crypto Texan: Great. Yeah. Amit, thanks for being on the show with us today. For those of you listening live in the Discord, thank you for listening live. This is being recorded and we'll be able to get this out in about a week. Amit, thanks again for being on the show today. Have a great weekend.

Amit Gajjala: Thank you very much. Thanks again for having me here.

Crypto Texan: All right. Bye everyone.

Amit Gajjala: All right. Thank you. Bye-bye.

Host: @Crypto_TexanAudio Engineer/Mixing: @LloveraFrankMarketing Images: @crypto_diller_Transcript: @0xMitzy / @Crypto_Texan

Audio and transcript from the March 17th, 2022 installment of “Conversations with the Coop” with Chris Blec - DeFi Educator, Consultant, and founder of DeFi Watch.

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Crypto Texan: All right. Hello, everyone. Welcome to Conversations with the Coop. This is where we source questions from the Index Coop Community to gain insights from today's leaders in crypto and DeFi. I'm your host Crypto Texan. And today on the show, we are joined by Chris Blec, who is a DeFi educator, consultant and the founder of DeFi Watch. Thanks for being here with us today, Chris, how are things?

Chris Blec: Thank you. Thanks for having me. Things have never been better.

Crypto Texan: That's good to hear, any particular reason why?

Chris Blec: No, I just always say that. I mean, in reality things have been better, things have been worse. It's okay. But you just want to hear positivity probably. So, we'll go with that.

Crypto Texan: Well, things just “are”, typically, right?

Chris Blec: Yeah. Things just pretty much are. It's raining here in Florida, wish it was sunny. But for all intents and purposes, it's a pretty damn good day.

Crypto Texan: Yeah. I completely agree with you there, but let's get started off on your background, Chris. What is your background? And then how did you get into crypto and DeFi?

Chris Blec: My background is, for a long time I worked as a marketing director, marketing lead. First for media companies, sports and media, actually, and then eventually for tech companies. I've always been sort of a tech geek. And since I was in college, I've been libertarian-minded as far as politics goes. So I discovered Bitcoin in 2015, but I didn't really get it. Like, I knew it was a spending tool and I was traveling in Asia, so it was really useful. But in 2017 it really clicked for me as far as how it could change the world. So that's, like went down the rabbit hole. It's been about five years since then. I got into it because of its potential geopolitical ramifications. So in 2017, not much was happening in that regard. But it's so weird to fast forward to now and to see everything that's going on with just all the governments of the world, starting to pay attention. And the president of El Salvador last night, like tweeting that Bitcoin is FU money in America, basically sucks.

So anyway, thinking back to those days and fast forwarding to now is kind of weird. But in 2019, discovered what was going on with DeFi, just sort of being born and got really excited, because it presented itself as a decentralized way to have financial services. So you don't have to use centralized exchanges and centralized tools. So that's when I started making a lot of videos, tutorial videos that on-boarded a lot of people into the space. And I like to credit myself and I think it's accurate, with on-boarding a lot of people in the early days, just with easy to understand videos and things like that about compound and about Aave and things like that. And then actually, late 2019 or early 2020 is when we sort of had the idea of Admin Keys become news to us.

And that was kind of a turning point for me because it's interesting with this space and maybe you've experienced the same thing. I'm not sure which direction you came from, but if you come from the Bitcoin side of things, you come with the understanding that blockchains are trustless and immutable and un-editable, which they are. I mean, not all, but Bitcoin and Ethereum are, for all intents and purposes, those things. But until you really understand how smart contracts work, you assume that they inherit those properties. And I came in, I knew smart contracts had alterable logic, but it didn't click for me what an Admin Key really was until like early 2020.

And at that moment I felt a little bit deceived by some of the development teams in the space because they never talked about this control that they had. And if they did, it was buried deep in their docs, they clearly didn't want anybody to know about it. So to me that was number one, most important thing that I wanted people to be aware of in the space is that, I thought this was way more decentralized than it actually was. And that's the most important information I think that people needed at that time. So I really started focus on sharing that.

And fast forward to today, it's like over two years of really just spreading that message. And the more I spread it, the more people want to hear it. The more people are kind of shocked by a lot of these things. And as long as people are surprised by hearing about these things, I want to continue to spread them and say them. And it's not because I want to help regulators or any governments, it's because I want to encourage DeFi developers to do better. I just don't believe in using blockchains for centrally controlled applications. It's a violation of the original reason blockchains were invented. So that's the really long winded version of how I got to here.

Crypto Texan: No, that's a great explanation. And that helps us with a pretty good base foundation. And yeah, I think if you look at your Twitter, you've gained a pretty great following, a pretty decent size following on Twitter. But with that, you've also in a sense kind of rubbed some people the wrong way. And I mean, I've talked to people on both sides of the coin. I personally am a big fan of your podcast and your tweets and just kind of going against the grain of all the hype that does come from the DeFi space. And it does have its pros and cons. I think you and I can both agree there, and it has its shortcomings as well. But I don't know, like what do you make of some of these adversarial, I guess, relationships that you've developed on Twitter and do you see yourself as abrasive, sometimes on Twitter, maybe intentionally? Or are you just out there just speaking your mind?

Chris Blec: Well, when it comes to DeFi, I put facts before emotions. And I think that the majority of at least the developers in this space come from a tech background where they're used to being in environments that embrace them and that make them feel valued and go out of their way to do so. And I worked with tech startups for years, so I know how that is. And I know it is important in a tech world to have a collaborative environment. And developers appreciate that, usually. I mean, it's different if you're talking about like the cipher punks of early Bitcoin, like it was a different story. But now we're dealing with like modern, 20 something developers in DeFi that are used to that collaborative environment that you might find at like a Google or an Apple or something like that.

But my take on it is a little bit different where, if you're working for a traditional tech company, you have a lot of oversight, you have a lot of red tape. Even at a startup, you have red tape that you have to cut through before your work can impact a consumer. And if you're a developing an application with other people and you have to go through X, Y, Z, especially if you're a FinTech app, in which case you have to deal with regulations, you have to deal with banks and security. You can't just go out and have an application where you can just steal all the money and run away to an island somewhere. So that's different in DeFi. In DeFi, you can, you can develop and deploy an application that can sort of encourage people to deposit millions and millions of dollars. And you can take that money, disappear anonymously, mix it, run off and never be heard from again.

So that changes the dynamic a little bit. So that's why to me, developers want to have a collaborative, friendly environment. But from the depositor's point of view, from the DeFi user's point of view, the number one most important thing to them is having the facts and having them in an unemotional, non-sugar coated way. Because as soon as you, the idea of sugarcoating things and saying them in a nice pleasant way, as soon as you go down that road, you're losing the intention of the fact, you're losing the actual fact itself. So what I do and what I've always done, which really irritates people is, I just say the fact. If a DeFi application gets exploited, like one did yesterday with Casio or whatever it was called, nobody, and this is a fact, this is not a fiction, this is not a lie, this is a fact. The fact is, nobody's more familiar with the vulnerabilities, the problems that might exist with the application and its code and its logic and its economics than the person who wrote it, than the person who built it.

So to me, when I see an exploit, suspect number one, unfortunately, in an unemotional world, which is where I try to live in this space. In an unemotional world where you don't put feelings first, where you put safety first, you always have to look at the developer as a suspect when it comes to an economic exploit. So that's just one example of a way that the development side of things, and a lot of users too, plenty of people think that my approach is, they say it ranges from just cold hearted to straight up lies, which is false. I don't lie. But to me it's logical when you're dealing in a space that has zero separation between user and developer. There's no safeguards, there's no regulators, there's no safety net at all, the vast majority of the time. So that's my take on it. And I'm unapologetic about it entirely.

Crypto Texan: Yeah. So it seems like previously, when you first found out about DeFi and decentralized finance, you thought, yeah, this is great. All these financial services that can be run on the blockchain without a centralized intermediary, no custody, but then it sounds like later you discovered that really some or a lot of these DeFi protocols are not as decentralized as most people think that they are. And so, I guess, in a perfect world, would you expect these DeFi protocols to be as decentralized as like Bitcoin or Ethereum is? Or is there any situation where you see that these protocols should have these Admin Keys that can make adjustments to the code? Or, I know you talk about multisigs a lot too. Do you feel like there is a time and place for this, or not?

Chris Blec: Sure. Yeah. I think that a lot of the applications that have multisigs need the multisig because of the way that they chose to develop the application and the complexity of the application and the lack of faith that the developer has in their own code, that's really what it boils down to. When there's a multisig, and the intent is to be able to fix problems as they come up, that means they're expecting problems. That means that they don't trust their own code to operate as intended. But at the same time, they're asking users a lot of times to trust the code. So there's a lot of hypocrisy when it comes to multisigs. But my point of view is this, there's no perfect decentralization. Even Bitcoin is not perfectly decentralized, but Bitcoin is the best we have in crypto. And I use that as a benchmark. So that's not to say that I think that every DeFi app should be as decentralized as Bitcoin or even as Ethereum's native layer, but it's a benchmark that I measure from. So how far away is it from here?

I don't think that that should determine whether or not something should exist. Like, I don't want to see like a regulatory body come into DeFi and just completely shut down multisig applications or Admin Key run things. What I want is for the facts to be made obvious to every single user so that they can make their own risk assessment about every DeFi application, so I participate in DeFi. I use applications that are run by DAOs, some have multisigs, but I recognize the risks that come with those points of centralization. I recognize the risks that come with, not knowing if a developer is acting in good faith. I look at the incentives that they may have to do bad things. I look at exterior attacks that could occur by whether it's like state actors or even like wrench attacks.

And then, I make my own risk assessment about how much I want to put into this thing. So something that's more decentralized, I might decide to put more money. And something that's less decent centralized, I might decide to put less. And by the way, that doesn't always even hold true because there are cases where some of the most decentralized applications are more risky because for that reason. Because the developer doesn't have a way to fix a bug as it comes up. A great example of this is liquidity. Liquidity is like an alternative to MakerDAO's as far as a decentralized stable coin. liquidity is more trustless than DAI. And the developers have no possible way to hack into that thing or even make changes if there's a problem. To me, that's a risk factor that I have to take into consideration as opposed to MakerDAO, which has a DAO, which has VC influence, which there's a lot of weird things going on with voting and stuff like that sometimes. But that centralization gives them the ability to fix bugs quickly as they come up. And they've had to do that in the past.

So, there's that customer service element that comes along with the upgrade ability and things like that. But my goal is not to shut anybody down. My goal is to educate users, and for projects to put all the facts out there for users to digest, so that they can make a proper risk assessment. And there's very few like maybe a very small handful of projects that are anywhere close to doing that today.

Crypto Texan: Well, that kind of leads into my next question, Chris, and that is, which projects do you feel like are doing it the right way? Whether it's, maybe it's the most decentralized DeFi application or whether they're doing the proper disclosures that you feel like that they should be doing on multi-sigs voting, those types of things. What are some of the more popular projects you feel like are getting it right?

Chris Blec: It depends on what we call getting it right. But I mean, I think in my perfect world, we would see entire ecosystem of trustless, immutable sort of primitives that are battle tested and that we have full faith and confidence in. Kind of like, Uniswap is a good example, the protocol, as a trustless immutable protocol, at least versions one through three are. I don't know what version four is going to look like. But they're trustless, immutable, they're battle tested. Billions of dollars has been entrusted to that code and it hasn't been hacked.

So that's my example of like what I would like all of DeFi to look like is like all of these less complex sort of primitives that then developers can maybe build upon. And this includes stable coins and liquidity is an example of a stablecoin that was built and deployed with the idea that we want to deploy something that cannot be altered. We don't want to have the ability to change this later. We want to have an ETH-backed stablecoin that works. That if regulators come at us and think that that's great. And when that's more battle tested with billions and billions of dollars and with massive Ethereum price fluctuations and stuff like that, LUSD could become just as important to this space as Uniswap is, I think. But it's not just about trustlessness, it's also about building tools in a way that's as decentralized as it can possibly be, even if it is very inconvenient for the developers. So a good example of this is, and I've been learning more about it lately is THORChain. THORChain is a very interesting project that allows trades across blockchains. So you can trade your Bitcoin for Ethereum natively. And THORChain sort of sits in the middle of that trade.

Chris Blec: Okay. Yeah. So, with THORChain you can swap across chains. And the reason I bring it up is because it's not completely decentralized, it's not completely trustless. It has a system where there's a couple hundred nodes that can do a lot of different things to the ecosystem that they've built. So you have to put your trust in the financial incentives that these nodes have to act with integrity. So to me, that's not my perfect trustless scenario, but I've looked at it close enough to know that it is as decentralized and as trustless as you can get while you're building that sort of a system. Does that make sense? So it's like, I want to see that effort from every DeFi project where it's as trustless as the technology will allow it to be. And we're not seeing that from the majority of DeFi applications.

Most of the DeFi applications we see today are retaining centralized power, either with a small part of the DAO or with a core development team, because they want to have quick upgrade ability. They want to have quick bug fixes, or sometimes they don't say the quiet parts out loud, but so that they retain that control so that they can comply with regulations when they arise, because they will arise. Regulators are coming and nobody wants to go to jail. So those are not good reasons to hold on to those powers. But we see that far too often in DeFi.

Crypto Texan: Yeah. I'm just kind of wondering along those lines like, if you were to give advice to a DeFi protocol who's just getting started and started writing code, what advice would you give? Like, what would be the Chris Blec road-map to DeFi protocol development? Like, what are the most important things that you would lay out for them?

Chris Blec: Well, it depends on what they're building. I mean, we see a lot of very complex applications that come up in DeFi. And when you build with a certain level of complexity, you can't let go of the centralized control because you know it's going to break. And you know that you don't even understand all the things that might happen with this thing. So my perfect DeFi world is a lot less interesting and a lot less sexy with a lot lower yields than the DeFi world that we have right now. So look at it this way, Bitcoin was built in 2009 initially, and had a very slow growth as far as growing the network of decentralized nodes and minors and users over many years, until before it really started to be valuable to a bigger audience.

And the idea with that growth cycle was that, the intention wasn't to launch Bitcoin and get like a million users on day one. The intention was to build a trustless, immutable primitive for a digital currency that would grow organically over a long period of time. Now there was really no other way for Satoshi to do it because there was nobody in 2009 that gave a crap about digital currency, really, no less like an immutable blockchain. So it might have been different if VCs were throwing money at Satoshi on day one, right? If Satoshi deployed Bitcoin and immediately was able to raise like $10 million from VCs to build a team, to build a company, we might have had a whole different situation. So he had the luxury of almost time not having that access. But that's the only real way that you can build fully decentralized applications, is to let them grow organically over time and to keep them simple and to keep their utility simple.

Now, that's obviously not happening in DeFi, and that's obviously not going to happen in DeFi because there's too much incentive to grow quickly. And there's too much incentive to build a business. A lot of people are coming here just to build a business. Which I see again as okay. Like I don't have any grand visions that Ethereum is going to turn into Bitcoin at any point and start to just sacrifice profit. So I think that my advice would be to decide early on, are you in this for the principal? Or are you in this for the profit? Because it's going to happen really quickly, where you have to make that decision. Like, am I going to sacrifice potential profit, my own personal well-being, potentially? Am I going to make sacrifices in order to put decentralization first? Or am I going to make decisions that are going to guarantee my safety from the law?

Am I going to make decisions that are going to guarantee the safety of my employees, of my company, so that we can ensure that we have a business ongoing and put those decisions, those of decentralization and then make decisions clear to your users? Because your users more often than not, think you're way more decentralized and think your thought process is more decentralized than it actually is. And that transparency is what I'm after. Like I'm not after, I'm not trying to tell people what to do. I'm trying to tell people, you got to be transparent because if you're not, you're going to have regulators banging your door down and ruining your life, because they're going to force you to comply with things that you don't want to comply with. And you're going to ultimately become a tool of the regulators as opposed to building an alternative system.

Crypto Texan: Yeah. And a little bit on the subject of regulation in the space. I know you're a very big privacy advocate as well. And I think when you look at Bitcoin, it's not really that private. Ethereum also, not that private. And I feel like even when you're using protocols like Tornado Cash on Ethereum or a mixer or a CoinJoin with Bitcoin, it's still not that incredibly private. So I want to get just your takes on a couple things. Like, do you see value in, I guess, like privacy protocols, like Aztec? Or privacy coins, like ZCash and Monero? And just kind of want to get your thoughts on privacy as a basic human right, in general.

Chris Blec: Absolutely, yeah. I see value in all of them. And the narrative's being built that privacy is really only needed by criminals and by drug dealers and terrorists and whatever. And my response to that is always, do you have a door on your bathroom? Do you want people to watch you when you're sitting on the toilet? No. Right? Unless you're a freak, which some of you guys might be, you don't want that. And that means you want privacy at some level. Do you have curtains on your windows? Yeah. You want privacy on some level? If you have a huge wad of cash and you're standing out in Times Square, do you kind of hide it, if you have to look at it? Yeah. You want privacy on some level. You don't want people peering into every aspect of your life, and everybody has a different threshold for what kind of privacy they want.

So this whole idea that privacy is not a right, is stupid. Unless you want to take all the curtains off your windows and take all the doors off your house. So there's too many people, especially in government, it's crazy. Like now they're saying like, we don't need privacy. Why do we need privacy? You read some of the stuff from the World Economic Forum, and they just want to eliminate privacy entirely. It's kind of crazy. So I think that privacy tools are not just used by criminals, they're used by people who don't want every single person on Ethereum, for instance, to look at their addresses and to know what they're up to. Like, that's not an illogical thing to want or to ask for. And we're in a battle. I mean, regulators are already talking about, you look at what's going on with like the FATF rules and stuff with the Swiss laws and stuff like that. They want to make it so that every self custody address that you have is registered basically with the government.

And eventually they might even want to eliminate the legality of self custody entirely so that any crypto you have is in a wallet that's on a centralized experience. So we're in a real battle. And we need to make sure that we protect those efforts to build good faith privacy tools, Aztec's a great example. And Tornado's a great example, too. In order to make sure that we don't lose everything when it comes to privacy, there's nobody listening to this that wants every single transaction that they conduct on Ethereum and in DeFi to be on the front page of a website or a newspaper or whatever, for whatever reason. There's nobody. Nobody would want a hundred percent of that. Nobody wants somebody, the entire world to see how much money they sent to their kid in college, or how much they're paying for this new car.

It's just, privacy is a right. And it should be respected as a right, but to varying degrees, obviously. So I think that all those applications you mentioned are important. I think that Bitcoin, there are applications like Whirlpool that use CoinJoin in a way that does enhance privacy and does give you the ability to sort of limit the footprints that you leave on the blockchain. And I don't think that there's anything wrong with that. And I think that anybody that bundles somebody like me, who just wants privacy, bundles me automatically with a terrorist is not arguing good faith at all.

Crypto Texan: Yeah. So what do you do to attain this digital privacy just in your day to day? Like, what tips do you have for individuals who would like that financial privacy, if they are operating in the digital asset space?

Chris Blec: So if we're limiting it to digital assets, I guess start with Ethereum. I think that it's absolutely reasonable and within your best interests to have Ethereum addresses that are not publicly associated with your identity. Now, this is not to say you should have an address that you don't pay taxes on, or that you don't act legally with. I'm just saying have addresses and conduct your activities in places that are not directly tied back to your identity. Tying your addresses back to your identity is simple if you don't use tools like Aztec or Tornado, or the other ones that are developing. So just even the smallest effort can help you go a long way in that regard.

So, that's number one. I mean, Ethereum lets you have an unlimited number of addresses. You can create one address every second until you die and you still won't even use, like won't make a dent in what's possible. So that's number one. And same with Bitcoin, there are options out there for you to create more privacy for yourself. And I suggest exploring all these tools like Samourai Wallet and Sparrow wallet and they use Whirlpool, which is a CoinJoin implementation. So I mean, as far as those go, yeah, it's about making sure that people that don't like you, can't follow everything that you're doing. It's about making sure that a centralized exchange that you might have bought crypto from, can't continue to monitor you after you leave that exchange.

Again, not because you want to hide from the government, that's not the ultimate goal here. The ultimate goal is to limit who has full access into your finances. And you don't know who's running that exchange. These exchanges are private businesses. Many of them that you use might not even be in the same country under the same rules as you are. So in those situations, especially you want to make sure that you have done whatever you can to break the links so that you're not continually monitored by a thousand different parties ongoing. And one other thing I just want to mention is, you need to keep in mind that steps that you take today, even when you're using things like Monero, that most of us agree are pretty strong as far as privacy goes and things that you can do today. Just because something's private today doesn't mean it's going to be private in five years or 10 years.

And odds are that technology is going to increase and in five years you might think, okay, well I'll just move to whatever the new privacy thing is. But that doesn't mean that somebody won't be able to look back and see all the things that you did, that you thought were private. And they were private at the time, but remember, blockchains are forever. So just having private accounts doesn't mean you should just act without morals, and without ethics, and in an illegal way. Because that behavior will become un-private at some point down the road. So I just want to throw that out there too, because too many people associate privacy with bad behavior. And I don't believe that that's a safe thing to do.

Crypto Texan: Yeah. And I wanted to get your thoughts, there is this VPN, this decentralized VPN called Orchid. Have you used that at all? Do you have any experience with that?

Chris Blec: No, I don't know anything about that.

Crypto Texan: Okay. Okay. Well I kind of want to move back over to the DeFi side and decentralization, but I appreciate your thoughts on privacy. I also think that's really important in this space and it's definitely something we don't have a whole lot of, currently, that we need more of.

Chris Blec: It's surely not respected in DeFi, at all. There are very, very, very few DeFi applications that are giving any thought to privacy, and it's too bad. But at the same time, other applications are coming up that could give us new ways to basically have like an add-on to any DeFi app, that where we could stay private. And I would love to see more development in this regard. There's an application being developed called Gearbox. That's interesting because it lets you have a wallet on Ethereum that instead of having to go out and leverage Ethereum on your own so that you have more Ethereum to do other stuff with, it allows you to have a leverage wallet entirely. And I won't do a good job of it, of giving it justice. But it basically lets you have a fully leveraged wallet that you can then use your leveraged proceeds to go out and to do other things in DeFi with.

So Aztec, for instance, is a layer two that is working on letting you hold your crypto assets on their layer two, but still utilize them privately in DeFi applications. So it's almost like an add-on, like an enhancement to the other applications that gives you the privacy that you might want. So more and more things like that are going to evolve. So, if you want to build those primitives that don't have privacy, there still might be ways that they can be used with privacy down the road.

Crypto Texan: Yeah. I completely agree. And I've heard a lot about Gearbox lately, but I haven't dug too deep in, but you're probably the third person who's mentioned it to me this week. So, that means I have to go look into it now.

Chris Blec: Yeah. It's not a privacy tool, I just brought it up as an example of a... I see them as like add-ons or plug-ins that allow you to have functionality in DeFi, based on what you choose. And Gearbox is basically like a leveraging tool that allows you to participate in a leveraged way without having to sort of jump through the hoops that you have to do today with cycling through MakerDAO vaults and things like that, in order to leverage for people who are super long on Ethereum, for instance.

Crypto Texan: Right. Yeah. Well actually I feel like I should show this now, but the Index Coop has a product as well. We've got our Ethereum 2xFLI product, which does the same thing. It automatically rebalances the leverage, so it kind of goes for a target of 2x ETH exposure. So, It's Index Coop podcast, got to throw that out there.

Chris Blec: Yeah. I think the difference there is that you have to, you can only utilize the token where it's supported. Right? So I think the idea with Gearbox is that you actually get native ETH that you can utilize. But don't hold me to that. I shouldn't be even speaking on it because I haven't done like full research on it.

Crypto Texan: Oh, okay. Interesting. Interesting. Yeah. I've got to look into that, for sure. But anyway, let's move back over to the centralization, the centralized tools. I think, you and I are in a somewhat similar boat in the sense that, I'm not like a huge fan of DAI. I love the MakerDAO protocol, one of the OG DeFi protocols. But, when I look at the collateral that is backing DAI, it's got USDC which is centralized. It's got USDT, which is centralized and maybe under collateralized as well. So DAI is decentralized, but it seems like it's collateralized by centralized stablecoins. Not all of it, I think it's like 60% though. And you've talked about liquidity as an alternative. Just wanted to see if you had like any opinions about DAI in the collateral makeup. And also if you can just touch on like USDC or USDT as well, from a decentralization standpoint.

Chris Blec: Well, I mean USDC and USDT are not decentralized at all. Right? They're just literal tokens backed by debt, that's held by Circle or Tether. So there's zero decentralization. There is a certain element of permissionlessness that they offer because you don't need to get permission to buy it, to sell it, to use it. That could change though, that could change down the road. And yeah, like last time I checked it was, I think you're right. Like 60% of the collateral backing DAI, that might have changed. I think I haven't checked it in a couple months, but it is a problem to me. I mean, I think that the idea of having centralized tokens backing a decentralized stablecoin is dangerous. Now there are mechanisms built into DAI that would give MakerDAO alternatives if there was any sort of attack by USDC, where they just freeze all the USDC and the vaults.

But I wouldn't want to be a part of that. Like, I don't want to be a part of an ecosystem where you might have that happen. And same with wrapped Bitcoin. Like most people don't understand that wrapped Bitcoin is a DAO. Wrapped Bitcoin is a very small DAO, or it's a multisig, basically, with I think it was 13 or so, DeFi related companies on the multisig. And the Bitcoin that's backing every WBTC token is held by BitGo, which is a centralized and regulated custodian. So that thing could be shut down in a heartbeat, which would freeze every WBTC token out there, it's fully within their power to do that. But people hold it as if, it's like holding Bitcoin on an exchange. Yeah, the exchange could also freeze your Bitcoin. It's the same kind of thing. The difference is it's in more jeopardy because a regulator would look at an exchange and know what to do. A regulator would look at wrapped Bitcoin and not know what to do, and would act out of fear with it. And give orders to it, to do things that could end up harming consumers.

So, when it comes to DAI, yeah, I mean, I don't think it's getting any better. I think, last I heard, parts of the DAO were looking into, how do we bring like real estate into this is collateral? How do we form a corporation in the Cayman islands that can sort of be the holding company for real estate, that would be used as collateral? And I'm just throwing stuff out. These aren't facts. I just remember hearing stuff. It's interesting with MakerDAO because they got rid of the foundation, now it's solely run by the DAO and by actually various groups operating within the DAO.

But it's interesting to watch is, that actually doesn't result in automatically moving in the right direction, as far as trustlessness goes. There's sub-units of that DAO that are actually putting time, energy and money into researching compliance, like KYC compliance. And what do we do if a regulator asked us to do this, what do we do if a regular asked us to do this? And their reasoning is that they want be ready if those requests come in, they don't want to be caught off guard. But when you have something as decentralized as MakerDAO, you're bound to have these small pockets pop up where you get these... Anybody can join the DAO, right? So why not have people who are in the mindset that we should have compliance, we should be ready to protect the value of the MKR token, if we get these type of requests.

So, that stuff is happening right now. That's why, again, like I said before, like DAI, I feel safe with it as far as holding it, using it, but from a governance point of view, I'm very nervous about it. And I like the fact that liquidity, for instance, has no governance, none at all. So it's from that point of view, it's an interesting thing to think about, but everybody's got to make their own risk assessments. I think most people would feel more comfortable using DAI over LUSD right now, because of those things. But, it's up for each person to decide.

Crypto Texan: Right. And also the liquidity of those stablecoins also plays a factor too. And the utility of them like. I can use USDC in a lot more DeFi applications than I can DAI, or USDT or LUSD, also. So I think that's kind of what it comes up against as well. So liquidity or liquid USD, they kind of went the Zora route where Zora just kind of like deploys code and it just operates in the blockchain forever. Is that the route that they went there, since you said there's no governance, so there's no governance token either?

Chris Blec: No, there's no governance at all. It's similar to how Uniswap V1 through three were deployed, where no real significant changes can be made to the code after it's been deployed. So if they want to deploy a new version, they have to get all the users to move to the new version. So unlike MakerDAO which has deployed new versions, but only in really significant cases, most of the time, you're just able to do upgrades and smaller iterative changes to the protocol.

Crypto Texan: Okay. Yeah. That makes sense. It's interesting to me and I guess that there is very two different situations on the same subject, but you talked about how you Uniswap is this pretty good prime example of a true decentralized finance application. And you've also been very outspoken about the DeFi Education Fund that went through Uniswap governance as well. Do you want to provide a little background on that for our listeners and just kind of explain what kind of concerns and reservations you have about that fund?

Chris Blec: Yeah, sure. So Uniswap launched their token, when was it now? When did they launch it? I don't remember actually, when they launched their token.

Crypto Texan: I feel like it was about a, was it like a year and a half ago? Maybe?

Chris Blec: Yeah, I guess it was. I guess it was late 2020, which was interesting at the time, because like I said, version one through three of Uniswap are all immutable, ungovernable smart contracts. Smart contract ecosystems, basically. So the question at the time was why do we need a governance token, if this thing can't be governed? Which was valid. But the governance token came anyway. And it was airdropped as everybody knows, hopefully some of you got the airdrop, back in the day. And so when it was airdropped, simultaneously, a treasury was formed, which is common with the new tokens. The airdrop portion goes to the founders, the VCs, and then a portion will go to treasury or some other fund for future development. And so a bunch, like a lot, went to a treasury.

And fast forward a few months later, and that treasury is worth billions, I believe. I believe it was worth a lot of money. So then in the Governance Forum questions start to rise like, wow, we should do something with this. All of a sudden, out of nowhere a proposal springs up from Harvard Law School who had enough voting power to propose something, which we didn't, I don't think we knew when the proposal came, where they got that voting power from. But they put a proposal out there that was very, very detailed about forming a lobbying committee of sorts, more like a steering committee for lobbying efforts for DeFi. And it wasn't only for Uniswap, it was for all of DeFi. And the idea was, we give this committee $40 million worth of DeFi at the time, of Uni, to do whatever they think is best for furthering the education of regulators, of governments, of anybody in the space who they think can affect future regulation.

And it had seven committee members named who were very specifically chosen by somebody who were all attorneys from very specific DeFi projects. There's one attorney from the World Economic Forum who was on there. So I immediately started asking a lot of questions because, A, this was a lot of money, B, this proposal was very specific, came out of nowhere. Didn't give users really a lot of say, as far as who was going to be on the committee, how the money would be used, what kind of accountability it would have to the Uni community after it was created. The idea was this $40 million worth of Uni would just go into a multisig controlled by these seven attorneys. And they were attorneys from like Compound and Uniswap itself and some other DeFi applications.

So none of the questions really got answered which was very concerning. And on my website, defiwatch.net, those letters are up there for people to check out. But it became apparent really quickly that most of this was coming from the whales, so to speak, of uni tokens. And the biggest whale of the whales is Andreessen Horowitz, the VC firm. And it turned out that they had delegated the Uni to Harvard Law School to be able to make this proposal. And also to a number, maybe dozens, of other university organizations, like-minded people in the space who ended up voting to get this thing pushed through with basically zero negotiation, zero compromise. And so the question after that was, who came up with these ideas? Who came up with this concept to have this sort of legal slush fund that Andreessen was so enthused about?

And that's never really been figured out entirely, but what we do know is that the proposal would've not been proposed, would've not been voted through and the people on the committee would not be there if it weren't for Andreessen's influence. So my takeaway, pure speculation still, but my takeaway is that this thing was put together as a way to further Andreessen's interests in the DeFi space. And to make sure that any regulation that comes up down the road has the influence of a committee like this, so that it favors the VCs. So that they remain safe in the space and so that they can have a committee like this $40 million worth of tokens without having to actually fund it themselves, and do it themselves as a venture capital firm.

So again, I don't have like firm evidence of any of this, but it's pretty clear if you look at the all the facts around it, that that's the most likely thing that happened. And to me, like we said before, Uniswap protocol, totally trustless, totally decentralized. Then you got Uniswap governance over here, creating a token that isn't really necessary. And then it's being used, and Uni holders are ultimately the ones that are paying for a fund like this through delusion, $40 million worth of Uni. So it was a lousy way to approach it. The questions never got answered. And I think that I still want to have conversations about this because it's so important to the future of the space.

Crypto Texan: Yeah. Didn't you have someone on your podcast who was a part of that DeFi fund organization, or am I remembering that incorrectly?

Chris Blec: Yeah. Yeah. I had Marc Boiron, who's the, he's now the General Council for dYdX. And we had a two or three hour conversation. And I'm really glad he did it. It was very frank and open. But I mean, basically the takeaway there was that he didn't even, I mean, what he said was that he didn't have the information as to who came up with the proposal, why he was even on the committee. He was asked by another committee member. So what I said to him on that podcast was, maybe you're so in it that you don't see what's going on, bigger picture. And to me, once you look at the bigger picture, you look at the delegations that were made by Andreessen to all these different universities, to all these different people in the space, that sort of think in the same way. And it's very clear that Andreessen would not delegate to me, because I'm not on their boat.

Like, I don't believe that VCs should have so much influence in this space. I don't believe this space should be sort of drawn into woke culture. I don't believe that Silicon Valley should be able to take over DeFi. So I'm not a delegate. Universities on the other hand are much more likely to be progressive minded and to think in the same way as a Silicon Valley firm. And there's other DeFi participants that also are on that boat too. So this isn't a political thing to me, this is like, should a big giant venture capital firm be able to sort of, in a non-transparent way, be able to take from a decentralized treasury, with the sole intent of furthering their own vision for the space, just because they have all of that money. And that's really what happened. I would have the same complaint if it was a different type of mindset that they were trying to further, but it's really clear that it was sort of an abuse of the idea of a decentralized governance mechanism. And I want more people to understand that so it doesn't happen again.

Crypto Texan: Yeah. And I think there's a lot of people in the space who believe that the token voting system is Definitely not the best system out there, but it's just the one that we have right now. And it's good to see teams, in my opinion, experimenting with different types of token voting or other types of governance that possibly could prevent something like this to happen in the future. Not that I personally feel like this was all that bad. I feel like that there is a lot of value in educating legislators and lobbying those legislators for the betterment of the crypto and DeFi space in general. But I can see how people including yourself, just kind of feel like the process in which this came about was probably not the best, maybe not the most transparent that it could have been.

Chris Blec: I think there's value in educating regulators as well. The question is, who's educating them? What are they educating them about? What are the incentives of those educators? Who's paying those educators? Do those educators have the incentive to put users interests over that of corporations? In this case, a hundred percent no. Everybody on that committee is getting paid by a DeFi company or organization or a venture capital firm. And we can't sit here and pretend that users and VCs are going to always have the same interests. We know they're not. We already know that. So the regulations that we ultimately see, are going to tilt in one way or the other. Those people on the DeFi Education Fund are not going to put users privacy ahead of the profits that a DeFi startup can make. Or ahead of the regulatory certainty that a VC can have that they're operating in a way that maximizes both profit and legal safety.

So that's my problem. My problem is that the people who are Defining and molding the regulations are incentivized to act against users. And they're taking the funding to do the work from the users. So they're taking from users in order to build regulations where users don't have a voice. So the right way to do this, would've been to have that committee represent non-corporate interests and to have some sort of accountability back to the users who funded this thing in the first place. But that's what I asked for. But there was no consideration given to that at all. This was a straight up corporate initiative that ultimately is going to work against users.

Crypto Texan: Could you ever have imagined in 2017 that we would be having these types of controversies in the crypto space?

Chris Blec: I mean, there were controversies back then too, but not on this scale. I mean, not as far as dealing directly with... Like I've had talks with people that are straight up with regulatory bodies or governments. So that's the kind of stuff where in 2017, like if you even heard one mention of Bitcoin on the news, you're like, "Oh, wow, did you hear that? I think they said, Bitcoin." And it's now, it's like every single day they're talking about crypto and they're talking about governments and how it's affecting Ukraine and stuff like that. So it's Definitely a different scene from back then. And imagine in another like five years, man, we're just seeing the tip of the iceberg right now. Like five, 10 years from now, this is going to be absolutely off the wall bonkers.

Crypto Texan: Yeah. It's the fact that we have Matt Damon doing crypto.com commercials kind of cracks me up, still. It's weird to think that we've, I mean, it is mainstream now. It's a niche in the mainstream, but it feels Definitely a lot more mainstream than what it felt like in 2017.

Chris Blec: It's mainstream until the next bear. Then everybody will forget about it again for a couple years. And then it'll, by the way, Matt Damon was the top signal if there ever was one. Right?

Crypto Texan: I totally agree with you. Absolutely. Well, Chris, this has been great. Like I said, I'm a fan of your podcast. For those listening, if you haven't checked out Chris's podcast, Proof of Decentralization, I highly recommend it. A lot of podcasts out in the space just do a whole lot of shilling, but he kind of digs in and asks some tougher questions that maybe people just don't want to, or are afraid to ask. So, Chris, we only have an hour on this and we're up on time, but just, where can people go to find out more about you and what you're working on?

Chris Blec: Just mostly on Twitter @ChrisBlec, B-L-E-C. And yeah, I have a couple websites out there, but most of what I'm putting out right now is there. And also wanted to just give a quick hello to Scott Lewis. He's got me on block for a long time now. So Hey, Scott. Hope all is well with you.

Crypto Texan: That's great. All right. Well, everyone who's listening live in the Discord, thank you for listening live. This is being recorded and we'll get this out in about a week. Chris, thanks again for coming on. Really appreciate it.

Chris Blec: Thank you.

Crypto Texan: All right. Have a good one.

Chris Blec: You too, man.

Host: @Crypto_TexanAudio Engineer/Mixing: @LloveraFrankMarketing Images: @crypto_diller_Transcript: @0xMitzy / @Crypto_Texan

Audio and transcript from the March 17th, 2022 installment of “Conversations with the Coop” with Mason Nystrom, a Senior Research Analyst at Messari.

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Crypto Texan: All right. Hello, everyone. Welcome to Conversations with the Coop. This is where we source questions from the Index Coop community to gain insights from today's leaders in crypto and DeFi.

I'm your host, Crypto Texan. And today on the show, we have Mason Nystrom, who is the senior research analyst at Messari Crypto. Mason, thanks for being here with us today. How's everything going?

Mason Nystrom: I'm great, Tex. Thanks for having me on.

Crypto Texan: Yeah, absolutely. We usually like to start these off with if you could just give us your background and how did you get into the crypto space?

Mason Nystrom: Yeah, absolutely. I feel like the saying goes, that everyone comes into crypto during a bull market. And so I entered in 2017. I was doing my MBA out in Hong Kong and really just wanted to start working. And so I started working for a local cryptocurrency exchange out there.

Like most people, loved the 2017 run up and even in 2018, when things came crashing down, I still knew I wanted to be in crypto for the foreseeable future. Came back to the states, joined Consensus where I was on their marketing team, did everything from content to a little bit of strategy work for a lot of their portfolio companies.

And then finally made my way towards Messari where I've been for over a year and a half now as their first Web3 analyst which means like Web3 infrastructure, social tokens NFTs and some of those more emerging trends.

Crypto Texan: Can you give us a little background on Messari as well? When did Messari get started and what void is it trying to fill in the crypto space?

Mason Nystrom: Yeah, absolutely. Messari was started in 2018. You can think of us as an intelligence platform for enthusiasts, professionals and institutions. We have a variety of products across research, across real time events monitoring as well as a governance platform where individuals can track a variety of different governance proposals in DAOs as well as vote directly from our platform. We're really trying to put together what the Bloomberg Terminal for crypto would look like.

Crypto Texan: Yeah. You also forgot to include awesome convention host because I was at Mainnet last year and I had an amazing time there. You were there too. I remember you were on one of the panels as well.

Mason Nystrom: Yes, Mainnet is our flagship conference last year was our first one and this year's is going to be back in New York and it's going to be bigger and better. I don't know if tickets are on sale yet, but I highly recommend everyone attend because it's definitely a very high signal conference. We custom curate the content to what we want. It's really just a really fun time.

Crypto Texan: Do you have a date for that, for the one this year?

Mason Nystrom: I don't off the top of my head. If we do, it'll be on our website though.

Crypto Texan: Okay. Okay. In your role as a senior research analyst at Messari, what does that role entail? What does a senior research analyst do?

Mason Nystrom: Yeah, so my specific role as research analyst involves looking into a variety of protocols within my coverage sector and creating reports based on sometimes quantitative analysis, sometimes qualitative analysis. And so for example, that could be analyzing the NFT market and aggregating data sources, whether it's on Dune or CryptoSlam! or somewhere else to look and see if there's any insights that can be drawn about the market or qualitative, which might be something like focusing on digital land and examining the bull and bear case for what that might look like.

Crypto Texan: Yeah. And I remember when I was getting into the crypto space around the same time as you, 2017, there weren't a whole lot of different sub-sectors of the crypto economy. It really just felt like payments blockchains or smart contract blockchains.

But really, just thinking back, those are the only two. What parts of the crypto space interest you the most or what is your research based on because now we've got DeFi, Layer 1s, Layer 2s, the Metaverse, Web3, DAOs, the data economy, crypto infrastructure. Where is most of your research done?

Mason Nystrom: Yeah. It's so fascinating to watch crypto expand and it really has gotten to the point where you're not able to focus on every single sector to any degree. And so I would say for the most part, I don't really touch let's call it like scalability, like L1s, L2s or DeFi. And I tend to focus more on either the Web3 infrastructure side or the consumer side.

And so the consumer side being NFTs, DAOs. And then from the Web3 infrastructure side, that could refer to file storage protocols or data layers or other types of... You can think of it like what would it take to rebuild the internet stack into decentralized protocols? So something like ENS or handshake might fall in there. That's how I look at the Web3 infrastructure component of it.

Crypto Texan: Okay. Let's just kind of get another broad view here and then we'll start honing in on some specifics, but how do you see crypto and the Metaverse I guess just from a broad macro sense right now? It feels like NFTs have gone through their own speculative bubble. Just where do you see all this right now, if you were to step back from a macro sense?

Mason Nystrom: Yeah. That's really a great question. I think that as the Metaverse is top of mind for a lot of people, the natural question is where does crypto fit into it? And so I think a really simplistic view is to look at the Metaverse as this front end layer where you have experiences, you have games, you have worlds that are AR, VR or even 2D.

When you talk about giving those worlds meaning, I think that you can quickly come to things like digital property rights, identity and these other types of primitives that we've grown accustomed to having in Web3. I view Web3 as this back-end infrastructure for the Metaverse. I think that it's going to take at least a decade for this to play out, but I do see them becoming more coupled over time.

Crypto Texan: I guess when you see people on Twitter saying, "Get a job in Web3. I love working in Web3." Should they really just be saying like, "Get a job working at a DAO." Because it feels like your definition of Web3 might be different from what a lot of other people's might be.

It sounds like you feel like it's more of just like the infrastructure, like Chainlink in the graph and Filecoin, I guess. What's your definition of Web3 and DAOs and the Metaverse just so we can kind of differentiate those three.

Mason Nystrom: Yeah, absolutely. I think this is... Terminology has become challenging. Whereas I used to refer to Web3 as just the infrastructure side, Web3 has been re-branded to mean crypto as a whole. And so that could include layer 1s, it could include DeFi.

While Web3 now encompasses all of that, I just view Web3 infrastructure as like a subset, which would be graph, chain link and those types of protocols. As far as DAOs, DAOs and NFTs goes, I think those are really just primitives of Web3. They can be applied to anything. An NFT is just a file standard. A DAO is similarly really hard to sub-sector because you have both like protocol DAOs, which might be something like Index, but you also have more social DAOs, which could be something like Friends with Benefits.

Crypto Texan: Yeah. I also feel like crypto has kind of been a unique place in the world right now. I think from a price section adoption standpoint, we're in a little bit of a bear market, but then when you look at some current events that are happening in the world, like with the Canadian trucker protest situation and Canada almost weaponizing the financial system against them and then like people in the Ukraine, there's been a lot of talk about Bitcoin's role there and maybe not so much Ethereum's role or other digital assets as much.

Do you feel like this is bringing the core, the first value proposition to the mainstream? Or are we just in this bubble on Twitter where we just say, "Bitcoin fixes this."

Mason Nystrom: I think it has been a watershed moment for some individuals. I think the Canadian trucker situation with closing bank accounts is pretty applicable to how most people don't realize the financial system can work against them.

I'll caveat with this, like I'm not a political strategist. And so this is all just a guess, but I think Bitcoin's role is becoming increasingly clear. It just represents this non-sovereign asset. Ethereum on the other hand potentially represents this credibly neutral monetary system. Because you have to have like over-collateralized loans right now in Ethereum, there's limits to what your average individuals going to use Ethereum for.

What I actually think is the most interesting midterm use case from a political perspective is stable coins. Because if you think of something like USDC or digital dollars, that's really such a much more interesting dynamic when you talk about increasing dollarization around the world or vice versa for any other type of country's currency. The potential added controls, the ability to audit a monetary supply, combine it with IP addresses and track payments. I don't think it's necessarily the solution that everyone thinks it might be. I think there's going to be potential political implications as well.

Crypto Texan: Would you consider yourself a maximalist in any way? Do you lean towards the Bitcoin side or the Ethereum side or are you just more of like a generalist in, I guess, a crypto maximalist?

Mason Nystrom: Yeah, I would say I'm agnostic in terms of chain. Obviously, I'm a researcher and so I try and follow the data. In some places, Ethereum obviously is large really dominant. But I think that Bitcoin has its place Ethereum and other L1s will compete for their role and whatever ends up providing the best user experience, the best solution is going to win out.

Crypto Texan: Do you think Bitcoin is a boomer coin? Do you think Ryan Selkis is a boomer because he loves Bitcoin so much?

Mason Nystrom: I don't think Ryan is a boomer. Ryan, I think, I would call him incredibly pragmatic. I think that BTC has largely become like, let's call it, the benchmark for crypto at this point and time, if you're looking at a portfolio.

That might even be like too generous and you might even say like for any type of fund, their benchmark might be like a 50/50 split portfolio of BTC and ETH. I'm under the impression that Bitcoin is never going to be a medium of exchange. Like it doesn't make sense to spend a deflationary asset and to be completely honest, in my opinion, I don't think Bitcoin needs to be anything more than just a non-sovereign asset. That to me is a good enough use case. I think that Bitcoin has its place in this world.

Crypto Texan: Well, and there are NFTs on Bitcoin as well. I think the Pepe cards or I forget what it is.

Mason Nystrom: Yes.

Crypto Texan: Do you have any familiarization with that since I guess your focus is more on the Metaverse NFT Web3 side? Because that's one of the big, I guess, things that people say against Bitcoin is that you can't really... It's not composable. You can't build on it. But people have been able to put NFTs on it. How does that work?

Mason Nystrom: Yeah. To be honest, I don't follow what's happening on Bitcoin as much from like the NFT side. It's just honestly, not as interesting as what's happening on Ethereum or other Layer 2s or other chains. I think that Bitcoin largely isn't going to find adoption there. And if it does, it might be giving up some sort of security guarantees or it just might not have anywhere near the user functionality convenience cost that people are going to grow accustomed to over time. While I admire a lot of people who are trying to build DeFi on Bitcoin, build NFTs on Bitcoin, I'm largely unconvinced that that will be a fruitful path.

Crypto Texan: Yeah. I totally agree with you there. I think the true value proposition of Bitcoin is not to be a place to store your NFTs or a place to do DeFi. It's just self-sovereign non-state money and a way for people well to opt out of the traditional financial system if they choose to do so.

But let's transition to a little bit more of your specialty and I'm focusing on the Messari 2022 thesis, which I'm a big fan of these thesis that come out every year. One of your main focuses or things that you're bullish on in 2022 and I'm just going to read these off here is modularity, NFT platforms, the Metaverse Index, which is an index coop product, a Web3 infrastructure pool, creator monetization, cosmos, data availability layers, ZK-Rollups, Coinbase, USDC, Metaverse infrastructure, governing tools and loyalty point exchanges.

We're going to touch on quite a few of these, but first, out of all those from the time that that was released to now, has anything changed, like stuff that maybe you were more bullish on at that time that you're less bullish on now or vice versa?

Mason Nystrom: That's a great question. I think I'm still largely bullish on most of these concepts. I think NFT platforms is going to be interesting just because there are a new slew of competitors that are coming out.

Like you have individual like call them specialized marketplaces for call it music. And then you also have aggregators that have emerged and stuff started doing considerable volume, like Gem and Genie. I think that I didn't expect that market to subset as quickly. And so I've started to reevaluate, where all that plays out. But for the most part, I think everything else, I'm still quite fascinated.

Crypto Texan: Yeah. Let's focus on the Metaverse now. Just conceptually, like what do you feel like Web3's role in the Metaverse is and what other types of Web3 infrastructure need to be built in order for the Metaverse to gain mass adoption?

Mason Nystrom: Yeah, I feel like the Metaverse has kind of been this re-branding of AR and VR and right now however, you want to define it, whether you want to look at interesting virtual worlds like The Sandbox and Decentraland or if you want to say that the meta versus happening more in the existing like Facebook-type realm, all of them are converging to the same point, which is they're going to try and issue tokens. They're going to try and add digital property rights to the assets. They're going to try and build user profiles. So call it identity amongst different wallet address says.

I view Web3 as providing a lot of that tooling and infrastructure for the Metaverse. I'm actually more interested in like the AR component over like VR. I just think it's like inherently more social and more interesting.

But if you think about it from how do we tokenize VR and AR assets, that's still fairly nascent. You have a couple of companies that are doing it. So you need infrastructure from that point of the perspective. If we want to build a Metaverse on a credited neutral tech stack, then you need everything from computation to storage to indexing to the name services.

I think all of those things are, are protocols are applications that are being built in crypto and we'll hopefully see more adoption and as the Metaverse built on that tech stack versus whatever Facebook creates.

Crypto Texan: Yeah. You said something I want you to elaborate on a little bit and that's that you feel like AR, you're a little bit more bullish on AR versus VR. Can you just elaborate on that a little bit as to why?

Mason Nystrom: Yeah, absolutely. This is just like a personal opinion. I grew up playing video games. I loved RuneScape as a kid. While I see the gaming world continuing, I think VR still obviously has a long ways to go before it gets to a point where people want to spend a significant portion of their time there on a daily basis.

AR to me is so much because you're just bringing that technology into the existing world. If you think of successful AR applications, whether it's like Pokémon GO or even Snapchat filters, there's such an interesting monetization perspective there, because I could totally see a world where Snapchat is just issuing filters as NFTs and you're just connecting that and that allows you to use the filter. And so different types of AR exists. Some are just from your phone and then others can be from different types of hardware. To me, that's just a more compelling vision of technology in the future than VR at this point in time.

Crypto Texan: Yeah. And something that I thought that I would see slow down and it has slowed down significantly to what it was about around this time last year was the profile pic NFTs. What are your thoughts on those? Have we reached the point yet to where enough is enough or are there going to be some blue chips that still maintain this value? We can also touch on the APE token for the Bored Ape Yacht Club that just dropped, but what is your general thoughts on NFTs as PFPs?

Mason Nystrom: Yeah. If you were to ask me this question when I first started Messari, I definitely would not have guessed that PFPs, avatar NFTs would've taken off as significantly as they did. I view these PFPs, these avatars as the equivalent of consumer new consumer brands. And so if you compare it to something like Supreme or Louis Vuitton, the key value that someone is providing is that social signaling that status good.

And so from that perspective, I think that you're going to get some PFPs that stick around, continue to be valuable. What Twitter did with allowing people to verify NFTs I think only further cements the value of them because it further ingrains this idea that this is unique, this is mine, I do own and I can showcase it.

As that continues, I think more and more just like we have tons of consumer brands, like they will continue to release those types of projects. But I do think we'll start to see a pretty big gap between those that are successful and those that are not.

Crypto Texan: Yeah. Another thing you mentioned in the 2020 thesis was the Metaverse Index. I'm also curious, what has your involvement been with Dark Forest Capital and AG who are the methodologists behind the Metaverse Index and what are your thoughts on indexing in general as a financial tool to help people diversify?

Mason Nystrom: Yeah. I've worked with Dark Forest and AG a little bit. My role to be completely honest has been fairly minor. Initially, I helped review the methodology and then I kind of have reoccurring meetings with them to review assets that might qualify for the index or to discuss what might be coming down the pipeline in terms of assets that are launching just to potentially get ahead of what the index might have to include.

I think they've done an incredible job with MVI and I'm really excited that Meta Portal, which is their new entity is also launching a gaming index called Game. I think that the MVI from its like first construction because it is methodology based was less appealing than it is today just because it's a Testament to how much the industry has grown.

I think for the most part, I would own every asset in MVI today based on its current makeup. I do think that that kind of just shows the power of indexing. If you were to ask me, if Axie would've done well last year, I thought it would, but I could not have predicted its success. I could not have predicted the success of The Sandbox and Decentraland.

And so an index just allows you to remove your own subjective judgment. And so I think that it's definitely a valuable tool in any investor's portfolio, especially those who just want broad exposure.

Crypto Texan: Yeah. You bring up an interesting point there. Do you feel like some of these Metaverse protocols, the tokens, do you feel like the protocol justifies the price of the token? Like Axie Infinity, I forget what it's market cap is right now, but imperative to like other assets within the space, it does seem a little high. I think you can say that with Illuvium too. I don't even think they have a working product out right now. Are you still as bullish on this space given the recent price action or what are your thoughts there?

Mason Nystrom: Yeah, so obviously none of this is financial advice. Just kind of get that caveat out of the way.

Crypto Texan: Yeah, absolutely.

Mason Nystrom: But a big criticism I've always had and continually have of crypto is that the valuations are astronomical compared to call it what is built at any given time. I think that there are a few reasons for this.

One is crypto is inherently speculative. And so you have a lot of capital that is just ready to enter the system. But I also think that in certain sectors or sub sectors, there's a lesser amount of real players of like competent teams from the onset. And so a premium gets applied to a lot of those protocols companies or assets.

I am someone who on my tombstone that will read like, "Fully diluted value matters." And I'm okay with not investing in something because I take the approach of a long term investor. And so I look at fully diluted value. I think that it matters if you're looking to invest in a long time horizon. I do think that to your point, some things are overvalued and it just takes time for the market to sort that out.

Crypto Texan: Yeah. I'd be willing to bet that the people who are in the Discord right now listening to this live and the people who are still interacting on Twitter, when gwei is low relative to what it's been the past two years, I'd be willing to bet that these are the people who are actually here for the longer term.

Maybe like in a bull market, it might be better to focus on just the valuation market cap based on the circulating supply, but in a bear market, when you're looking more long term, maybe focus more on the fully diluted valuation. Is that what you're saying? Or do you feel like you should just focus on it regardless if you have a long term investment horizon? Not financial advice.

Mason Nystrom: Yeah. My personal philosophy on investing is that you have to know what type of an investor you are. Everyone thinks that investing is just one game, but it's actually multiple games depending on the type of investor preference for.

And so if you're a short-term trader, you have to understand that game is much different than if you are a long-term investor. And so someone like a hedge fund is going to look at just a circulating supply versus like a venture fund with a five to 10 year lock-up.

The supply is irrelevant because liquidity doesn't come for a decade anyway. I tend to look at my portfolio construction on the later half in terms of like a long term investor, just because I find that that's more compelling to me rather than chasing the next trend.

Crypto Texan: Yeah. I agree. Speaking of the next trends, it's a good segue, I feel like we're starting to find all these new avenues and pipelines to onboard new users into the crypto space, which also helps alleviate some of these short term price dips.

I feel like people that came in during... Start doing a play to earn protocol or game, I feel like they're sticking around and they're paying a little bit more attention to people that would come them into the space just to speculate on the price of Dogecoin. I feel like first, it was just like non-state money was the thing that got people in here in cryptography. And then it evolved into DeFi, which got some of the finance bros involved in the space. And then it moved on to NFTs, which started to bring in the creator economy.

Do you have any speculation onto what is next? What is that next pipeline that's going to be built that will bring in the next generation or the next class of crypto users?

Mason Nystrom: That's a great question. My intuition is that NFTs are, let's call it the most consumer facing application of crypto that we've had. DeFi was interesting to a subset of people, smart contracts to a subset of people, Bitcoin to a subset of people. But NFTs are by and large, I think one what get the majority of users into crypto in the foreseeable future.

If we think of NFTs and their natural progression, their evolution, the first really breakout use case was art. The static image makes sense something static is going to be the easiest lift for an NFT. And then we are progressively getting more dynamic in terms of what NFTs can offer, but also how they can be incorporated into other types of applications.

And so I view that as one very fascinating adoption that will bring more people into the space. You've seen it with music NFTs. You'll probably see it with video, you'll see it with other types of content as well. Like the other aspects that I see as being fairly consumer friendly are obviously DAOs, social tokens.

You have platforms like JuiceboxDAO that were used for the Julian Assange NFT purchase donation as well as for Constitution DAO. That to me is just Kickstarter on steroids and crypto inherently enables anyone to fund anything. And so that to me is like a clear progression in terms of okay, we let anyone form a company. Now, we're just letting anyone kickstart their own project, whether it's going to be small or large. And so those are definitely two trends that I see continuing in the future.

There is from the more development side, a lot of infrastructure being built out that will potentially enable new applications on top of them as well.

Crypto Texan: Yeah. Let's talk about that infrastructure side too. What are some protocols or projects that you're looking at that are building out that infrastructure that's needed?

Mason Nystrom: Yeah. From the NFT side, I think you have financial infrastructure increasing NFT liquidity, to buy, sell exchange, I think is really important. As I mentioned previously, you have a lot of protocols that are marketplaces like NFTX, you have obviously art marketplaces like SuperRare and then the aggregator space that is making it easy to batch by and batch list on a variety of different platforms.

The other last piece of NFT infrastructure, that's really exciting is just indexing across a variety of blockchains. We're now at a point where Flow, Solana, Ethereum have billions in NFTs that have been traded cumulatively and how that plays out in terms of like what platform becomes dominant for NFTs or do certain platforms become more used for let's call it like more permissioned NFTs is also like a really interesting question that I don't necessarily have an answer to. I'll pause there and then we can get to the other type of infrastructure.

Crypto Texan: Okay. Sure. Yeah, you can keep going. That's fine.

Mason Nystrom: Okay, cool. From the other types of infrastructure and this might beat more from the like computation storage side of things, you have protocols, storage protocols like AWI, Filecoin which is built obviously, incentivized by IPFS and they're starting to have like their Layer 2 moments and ways to incentivize even further scalability there. So like Bundlr, for example, is a Layer 2 solution on top of AWI that has been fairly successful.

And then you have other existing protocols like Livepeer that have started to really come into their own once they had their 2020 stream flow upgrade which enabled GPU usage that really catalyzed a strong adoption for Livepeer from a transcoding services provider. And then additionally, you have other types of similar type of resource networks like Akash, for example, that allow CPU usage and are going to turn on GPUs, which I think are going to further catalyze adoption. Render Network is another example of like a network usage protocol that is important for rendering NFTs or images in the Metaverse or any virtual world.

Crypto Texan: Yeah. I think some protocols that you haven't touched on, when I think about data storage and I guess like indexing and some of this Web3 infrastructure is, along the chain link and the graph lines, is there a reason you didn't mention those or are they just like so popular it's not even worth mentioning?

Mason Nystrom: Yeah. I think that they're fairly... They're some of the most known protocols when it comes to like Web3 infrastructure, the graph is in a league of its own with indexing chain link obviously. It's fairly utilized. It's out of the box solutions for... It's a random number generator. It's Oracle services. It's fairly utilized. I think they've been around for a decent enough time that they're just more discussed.

Crypto Texan: And then like Livepeer is just like... It's so hilarious to me for some reason because I think I got airdropped some LPT tokens back in 2018 just randomly into some old Ethereum wallet that I hardly use anymore. And then it really came into its own last year and it... Does it really take that long from like, I guess 2018 to late 2021 to build up a product like that? Do you have any opinions on when is it too early to issue a token?

Mason Nystrom: Yeah, I definitely think for certain types of protocols, there's more technical risk. There's more timing that it just takes to build the solution. And so Livepeer is a perfect example where there's so much that they wanted to do. Part of it was limited by...

They had to build out staking contracts and the token economic design for Livepeer that operated on Ethereum. But then they also had to garner this massive network supply of people who wanted to provide transcoding services. That just takes time. I think you've seen that across the board for most of the infrastructure type protocols. They're not as easy to use yet as they need to be.

For example, like making file storage protocols easier to use is a massive undertaking. And so you have companies like Pinata, for example, which are a more centralized storage version that uses IPFS, but then you also have protocols that are these Web2.5 protocols that are bridging the gap. So like something like Filebase, lets you come to their website and they let you plug to any variety of decentralized file storage solution and make that process really easy for you.

So much time has been focused building these protocols that the usage part is kind of next and just takes time. To answer your second question on is there like two... Is there a correct time to release a token? I definitely think that there is... It's my personal belief that a lot of protocols, companies shoot themselves in the foot by releasing a token too early rather than building out a product and making sure that product has product more fit from a certain point, because then once you find product market fit, the flywheel that you can implement using a token, using those economic incentives is much better than just launching a token and giving rewards for a liquidity pool.

Crypto Texan: Yeah. Another one that you and I have talked about is Ceramic, which I believe you recently angel into Ceramic. Do you just want to give us like a little shill-your-bags moment and tell us like what is Ceramic and why do you feel like that's important to the space?

Mason Nystrom: Yeah. Absolutely. So Ceramic is a permissionless data layer that enables for composable data. And so on Ceramic, you can think of it as a Layer 1 for data. It's not necessarily a blockchain in what you can consider a blockchain, but the core use case is enabling for data composability.

The reason that that is important is because it allows anyone in a network to take that existing data and adapt or build applications using that data. If you compare that with today's web which data is incredibly silo-ed, you have Google and Facebook and Amazon who are all just replicating the same data sets that they can, but just closed to themselves means that data isn't accessible to anyone, it's not portable and the biggest detriment to that is limit innovation. Think of what makes Ethereum so wonderful is that anyone can build on top of any other protocol and there's no limit to what you need in order to start a new protocol. That is incredibly powerful when you talk about just creating that flywheel of new companies, new economic activity.

Crypto Texan: Yeah. I also want to backtrack a little bit because you also talked about social tokens and if you could just... Can you define for our audience what is your definition of social tokens? What are the different types and how do social tokens compare to NFTs or can NFTs also be social tokens in a way?

Mason Nystrom: Yeah, I don't know if there's a perfect definition any more of social tokens. I've tried to map it out as a token that represents an individual or community. I've classified it into social tokens that are individual social tokens. That could be someone like Kerman who issued his own social token. Community social tokens, which represent a community, which could be something like Friends with Benefits.

Membership is often like a key component of it. The third that I look at is social token platforms and that might be something like Rally, which enables other people to launch their own social tokens on top of it. But has the Rally token act as collateral for all the other social tokens. When you look at them compared to NFTs, they offer very similar use cases.

They've had a very more recent like competition in terms of should a creator issue a social token or should a creator issue an NFT? I largely think that NFTs are easier at this current juncture.

When you think of an individual issuing a social token, one of the hardest aspects is ensuring that you're providing like consistent value. For example, I'm under the personal belief that as I'm sure there's a lot of other people that most tokens will eventually have cash flows, but that's not really possible right now with a lot of social tokens. I think a lot of individuals opt for an NFT that just has a simpler business model.

Crypto Texan: Could a social token be like a music artist issues a social token and the owners of that token could potentially get a portion of the revenue generated by that artist? Is that a way that you could tie revenues to a token?

Mason Nystrom: Yeah, absolutely. I think that would be a great way to do it. It's just a lot of people are worried about securities, laws and rightfully so. You don't want to issue a security that is one. So a lot of individuals, whether they be artists, whether they be creators, whoever else have chosen to issue an NFT, because then you can add a royalty to it, which is just an easier business model and looks less like a security than a social token.

Crypto Texan: Yeah. I think another trend that's been happening in the NFT space is that OpenSea has been getting a lot more competition lately with NFTX, Nifty Museum, LooksRare and then even the Coinbase NFT market, if that ever comes out.

And then I think that's also been accelerated by those NFT aggregators, which you mentioned like Jam! and Genie. So are you bearish on OpenSea? If you could, would you short OpenSea or do you feel like they've got such a strong hold on that marketplace?

Mason Nystrom: I think they have a pretty strong hold on their marketplace at this point in time. That doesn't mean that a competitor can't emerge. If a competitor does emerge, I think it'll look something more like Jam! than it will like LooksRare, just given the dynamics. If you think about OpenSea, it has some aspect of it that provide really powerful modes that you don't really think about.

And so like one quick example is that there's a listing cost to putting anything up for auction on OpenSea. And that's a big point of friction because if you are even using an aggregator, that's going to let you list across multiple marketplaces, paying a fee to list on every marketplace is cost prohibitive. Either we need to get to this point where gas-less minting is common across the board or just a point where transaction costs are a lot lower and most of that moves to an L2.

I think that Coinbase FTX, they'll probably be decent competitors given their current juncture. They have a lot of users and at the end of the day, like that's really important when you're talking about NFT sales.

One potential way that a competitor could compete against OpenSea is as we get to this world where more NFTs start to look like securities, kind of pulling the unit off, we're going to list an asset. It might be a security, it might not be. But people are going to be able to trade it versus OpenSea which is probably going to face more regulatory scrutiny, given that it's an actual company.

Crypto Texan: Yeah, absolutely. Yeah. I totally agree with you there. Are you involved with any DAOs currently or? I can see a world where Messari would encourage you to be involved in a DAO to get that experience and see what's going on in the space, but it's also kind of having two jobs at the same time. I guess what has your involvement been in DAOs or do you even have time to participate in DAOs?

Mason Nystrom: Yeah. I would say that I've loosely participated, but for the most part, I don't have time to go deep enough and be too active of a member on any given DAO. Messari does encourage us to participate in let's call it like the crypto ecosystem, whether that's a DAO, whether that's some other type of organization.

For example, one of our former analyst, Ryan Watkins, he was a big contributor to Yearn Finance and even proposed their buyback solution. As crypto grows and Messari analysts become more specialized and have pretty ingrained thoughts and opinions, there, I think, will be a world where we're more active in some of these protocols.

Crypto Texan: We're getting a little bit closer to the end here, but what other hot takes do you have? Do you have any takes that you feel like is contrarian or goes against the grain of the general ecosystem that we haven't quite touched on yet?

Mason Nystrom: That's a good question. I guess one hot take that I've recently outlined is the bull and bear case of digital land. And I find when we're talking about like digitally scarce land that is own-able, I'm less convinced that is going to capture value in the long term for several reasons.

Kind of like a core assumption of that is that if you try to compare the network effects that physical land has, there's a lot of reasons that physical land is valuable whether it comes from like food, water, shelter or even if you think of like Silicon Valley as like a city network effect. You had the semiconductor industry which spawned the venture capital industry, which spawned the startup industry. All of that is pretty powerful in terms of a network effect versus if you look at virtual real estate, that doesn't really hold true or at least the network effect is far more limited in terms of it's based on experiences and social status. And so that's potentially one hot take.

Crypto Texan: Yeah. And that's interesting because I had Dark Forest and AG on a few weeks ago and this was a topic that we talked about as well. I think I remember reading a thread that you posted on Twitter. One of the points you made is virtual land doesn't need access to plumbing or water or it doesn't necessarily need walk-ability or need to be close to down town to have value, but true real estate does. Do you feel like you're just a bigger fan of protocols or projects that go with the infinite land strategy?

Mason Nystrom: Yeah, I think if you look at the existing games that have been super successful, whether it's like Minecraft, they're these user content networks where one of the key value propositions is that anyone can create anything and eventually they create memes, they create new game types, they create viral of moments that Twitch streamers want to stream them just doing something.

That dynamic is a lot harder in a world where land is scarce because if you can't just build anything, if you can't just create content, then you're limiting call it what consumers can do. And the experiences could still be there in digitally scarce land and that can still be valuable and exciting, but you do have constraints from potentially like what can be created from your users or other developers.

Crypto Texan: I'm wondering if that translates too to just digitally scarce items in general and I'm not talking about like Bitcoin or Ethereum, but more of like the NFT PFP space or thinking about Decentral Games, for their ice poker, you need to purchase this NFT, I guess, wearable for avatar so you can gain access into that poker room or you can delegate that to someone and they can play for you and you get a portion of that revenues. Do you feel like that translates at all and where does it and where does it not?

Mason Nystrom: I don't think that does translate. Let's take an example of a PFP. So something like Meebits is like a really interesting example because the Meebit is this 3D object that you can import into another game.

I think a more compelling model potentially. If you contrast it with Fortnite where they license digital avatars, digital skins from Marvel or whoever and bring it into their game, I think there's potentially a world where Marvel creates an Iron Man skin and they just let someone license that into any type of game.

And so you get this rather than selling something different to all these companies, you create this one collection that can then be used across a variety of applications. I think that's just a more compelling model for how something might play out. And you could see that being different with let's call it like non-crypto native IP versus crypto native IP. So like Marvel might be super-hesitant to let anyone incorporate their content, but someone like Bored Ape might be very pro, "Hey, if you just bring our avatars into your game, we're cool with that. Feel free to integrate it as you see fit."

Crypto Texan: Yeah. What are your thoughts on the future of play to earn like with Axie Infinity and Decentral Games? Is that going to run its course at some time or is this just a new paradigm that we're seeing in the crypto space and I guess just in work in general?

Mason Nystrom: Yeah. It's an interesting model, but in its current form, I think it's gotten over its ski tips. By that, I mean the play to earn feels very reminiscent of when the iPhone first came out and you had the app store and what you could buy was look emitted. And so everyone was like, "Cool, this lighter on my phone that I can light or the skateboard can flip."

And the types of early games and applications that came out were pay once and then you get access to the game and that's a fine model, but I do think the free to play model, that freemium model is generally better. If you look at play to earn, it's really right now pay to play to earn, because you have to put in hundreds to thousands of dollars up front to partake in anything.

I think we can move to a free to play to earn where there's some base level of the game that is free, that you can interact with, you can earn. And then there can be other types of upgrades. I think games have to really balance how they incorporate payments, because the last thing that any gamer wants is for something to be pay to play. A lot of times that's why you've seen games like Fortnite choose to monetize on the cosmetics rather than actual call it like game play.

Crypto Texan: Yeah. Okay. That's interesting. Can you think of any protocols that are doing the free to play to earn right now or building that out?

Mason Nystrom: I cannot, no. I think that it's so much easier to monetize right now if you're just a play to earn game. I think there are a lot of games that are going to be, call it in development for the next 12 to 24 months. And so if we do see a slow down in this particular monetization model of gaming, I think you could see them pivoting to different models. But so far, I haven't really seen anyone do that or at least none come to mind immediately.

Crypto Texan: Yeah. This has been a really fun conversation for me, because I feel like I've just kind of said, "What do you think about this protocol and this protocol?" And you just kind of give me your opinion, which typically when we do these, I'm interviewing like a co-founder and we're talking about one specific protocol.

This is fun. But on that note-

Mason Nystrom: Yeah. Likewise.

Crypto Texan: Yeah. I'm curious about like what other projects out there and this could be Metaverse or DeFi or, or like another Layer 1 or an L2, but what other projects out there should people be keeping their eye on? What are some really good teams out there building stuff that maybe people are not paying attention to?

Mason Nystrom: That's a good question. Obviously, I've spoken very highly of Ceramic. I think that's going to be very compelling as well as some of the potential applications that are going to develop on top of them.

I've mentioned a lot of the things that I find interesting from file storage to other types of applications. I'll say that I'm really excited for resource networks. How can people monetize like the Airbnb style? So there's this abundant resource that people aren't using and how can it be monetized? And so like GPUs are like a perfect example. Livepeer uses GPUs, Render uses GPUs, Akash will eventually use GPUs.

And so I think that's like a really compelling business model. That really excites me as well as just other types of infrastructure. I think that we've only just started looking at the types of liquidity infrastructure on the NFT side of things. And there's going to be a lot of different experiments over the next 12 months. I'm pretty actively watching that market as well.

Crypto Texan: Yeah, because my thought's been lately is that there's so many people focusing on Layer 2 and ZK-Rollups and that is definitely going to be the next big thing in my opinion, but I'm also starting to take a look elsewhere and say, "Okay, but what's after that?" I feel like it does keep going to the Web3 infrastructure or the data economy infrastructure, which is why I'm a little bit bullish on our data economy index, not to shell our products, but I am.

So I wouldn't say that if I wasn't. You're just confirming a lot of the things that I have been thinking lately. Yeah, I guess that's pretty much all the questions I have and we're running up on time right now, but is there anything else that we didn't touch on that you want to talk about specifically or in general?

Mason Nystrom: I just have a question for you. What has it been like working for a DAO because Index Coop is definitely one of, I want to say, like the more established DAOs of several different working groups, several different product lines. I'd love just to know what that experience has been like.

Crypto Texan: Yeah. Thanks for asking. I've been doing this for almost a year with the Index Coop and I've been in the space since 2017 and I do have a full-time traditional finance job, which is why I'm Crypto Texan and my PFP is a B*****d Punk instead of being a real name and my real picture. But I think it's been really interesting and I think it's just important to keep in mind that we are early in the sense that we're just trying to figure this out as we go and we're looking to other DAOs and other organizations and see how they run things well.

I think inherently you've got to pull stuff from the traditional legacy world to try to build what we are trying to build. I feel like the term DAO, decentralized autonomous organization can sometimes be a misnomer because it feels more like we're a company that's built on top of the blockchain, but with no like true legal standing anywhere. I guess like technically we would be considered like a general partnership in the United States, but we're all over the world.

I would say that I have felt like... I just feel like the type of person, the type of worker and the type of personality that DAOs attract is a very unique individual in the sense that... I learned this early on when I first started getting involved in the Coop. Asking, "What should I do?" Is a good way to get started, but a better way is to just do things.

Like you really have to be a self starter in a DAO and just keep moving along and chugging along and pushing the DAO your own way instead of having someone tell you how to push the DAO forward. I think if you go to a job interview, I think something that the job interviewer wants to hear you say is that you self-starter and you do things on your own.

I think that's great and I think everybody says that in every interview, whether they mean it or not, but in a DAO, you have to be that. Because if you're not, the flow of the work force is so fluid that someone's going to come in and take your spot. I don't know. Is that a good thing or a bad thing? I think it's great for the DAO when the organization is whole.

Is it good for that person? Well, maybe not. But the type of people that I work with at the Index Coop are just so laser focused, self-driven and that is the most rewarding part to me. Right now, it's something I do on the side. Well, I say I don't really... I can't really call it a part-time job because I do this way more than part-time, but I would call it very fulfilling and it's a good addition to what I do in the traditional finance world an it's something different in innovative too.

Because the landscape is always changing from a legal standpoint and from just an innovation standpoint. Luckily, in the bear market now, the news headlines have slowed down a little bit so I can catch up on things. But in general, those are my thoughts. I feel like I rambled on there for a little bit. I'm not used to people asking me questions on this.

Mason Nystrom: No, I appreciate the response. I think that's like... So many people, I think, so often are so euphoric about DAOs when I think that they still have a really long way to go and there are definitely, I think still a lot of existing pain points.

DAOs are really great at capital fundraising, but I think that they can definitely get better from an Ops perspective. When you mention being a self starter is really important, I wholeheartedly agree. I think that you need that in a DAO right now and I think the question is how can we then get to the point where you can have a multi-thousand person organization where not everyone is self-starter and you can introduce some hierarchy that might resemble a more traditional company, but that's, I guess, like a boomer take for another day.

Crypto Texan: Yeah. I think another thing that's really been interesting for me is when the Index Coop does face like some adversity internally. And how is that resolved and how are people working together to... I think it's just very important to have like core value and a mission and just keep referring back to that. And make sure that everything that we're doing is adhering to those core values in that mission and that's the best way I think, to get people aligned from just like a cultural and organizational standpoint. But I think another thing is like, just because someone wants to work for a DAO doesn't mean you have to let them work for a DAO.

We have people that come in all the time that say, "Hey, I want to join." And they don't really follow up. It goes back to that self-starter mentality, I guess. You really have to prove your worth in the space. I'm still rambling. We've gone over time.

But I think one of my favorite things is that when you do see someone pop up and say, "Hey, I'm interested. I want to start joining. I want to start contributing." And then you really see them start contributing. They're like leading calls, they're tweeting about the Index Coop, they're hosting Twitter Spaces. And just watching someone come from nowhere and just rise to the top of the organization, it's the coolest thing, man. It really is. I've seen that so many times and that's another part that's really fulfilling to me.

Mason Nystrom: No, definitely. I appreciate the insights and I agree that there's a lot of rewarding potential that can come from working for a DAO.

Crypto Texan: Yeah. Well, Mason, like I said, we're up on time, but I appreciate you coming on to the podcast with us. Everyone who's listening live, thank you for listening live. This is being recorded and we're going to get this out in about a week. Mason, again, I appreciate it. Thanks for coming on.

Mason Nystrom: Thanks so much, Tex. This has been a blast.

Crypto Texan: All right. Talk to you later.

Host: @Crypto_TexanAudio Engineer/Mixing: @LloveraFrankMarketing Images: @crypto_diller_Transcript: @0xMitzy / @Crypto_Texan

Audio and transcript from the March 10th, 2022 installment of “Conversations with the Coop” with co-founder Yenwen Feng or the Perpetual Protocol.

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

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Crypto Texan: Hello, everyone. Welcome to Conversations with the Coop. This is where we source questions from the Index Coop community to gain insights from today's leaders in crypto and DeFi. I'm your host, Crypto Texan, and today on the show, we have Yenwen Feng, who is the co-founder of Perpetual Protocol. Yenwen, it's great to have you here. How's everything going?

Yenwen Feng: Yeah, it's nice to be here. So yeah, everything's going well. Thanks for inviting me.

Crypto Texan: Yeah, absolutely. We're happy to have you, especially being a constituent of the GMI index that we have for the Bankless DeFi innovation index. But yeah, let's get started with, Yenwen, let's talk about you, your background and how did you get started in crypto and DeFi?

Yenwen Feng: Sure. I'm one of the Co-founder of Perpetual Protocol. We started working on Perpetual Protocol in 2020. Before that, I actually have my own startup since around 20 years ago, very long time ago. I've been working on different projects, like game, like FinTech projects. my co-founder and I, we fell in the crypto rabbit hole in 2017. At that time, like ICO booming and also CryptoKitties, that's really interesting. But after we dig in more, we actually found that trying to build a financial instrument on top of crypto is striking to us. I think in 2018 we work on decentralized option protocol. At that time, nobody called the whole decentralized finance DeFi yet.

So we work on that for a while but we actually failed because market crash and in the end we joined Binance, they have incubation at that time. So we joined that Binance incubator, still want to stay in crypto for a while and working on different projects. Then, like I said, 2020 we actually see Uniswap that's actually doing pretty well. So the whole AMM idea, I think that's really interesting. when I first I see Uniswap's white paper, I don't really think this is a new thing but in the end they actually got the traction and then I try to understanding like why people want to use AMM. Then we just go ahead and then want to, I mean build AMM on top of perpetual swap and other financial instrument.

We launched Perpetual Protocol in the end of 2020. I think the result so far are really good. I think we get around $36 billion trading volume last year, which is really amazing. considered that this is actually our first project. Yeah. We actually have a new the V2 Curie. We call it Curie, at that new construction of virtual AMM that. Actually we launched it December. So it's a total new design that's built on top of Uniswap V3. So it's really capital efficient and I think it's really cool. So yeah, please if you are interested in perpetual trading, please, give it a try or take a look.

Crypto Texan: Yeah. I think it might be a good idea too just for our listeners, if maybe you could back up a little bit and maybe explain what is perpetual trading and how does that compare to, I guess, just regular spot trading of the self custody assets on AMMs.

Yenwen Feng: Sure, of course. So perpetual swap is financial instrument that trade a lot on centralized chain. It actually get started by BitMEX in 2016. So this perpetual swab is a type of futures. the buyer and seller they can agree on the future price. Then when the time comes they will settle based on that set price. perpetual swap is actually an upgrade to this. So traditional futures, you have a, expiring day. So for example, people have in like weekly or quarterly or monthly futures, there are several market and then the futures will expire. But perpetual swap, it will not expire.

It's just the future that expires every day. So every day there is a funding payment try to offset upset, the difference between the strip price and also your price. At this end, the strip price we're using is just the market price. So that's just briefly how it works. I think it's a bit hard to really like explain this, but once you trade, you probably get the idea. So why you want to, trade using perpetual swap. one for the big reason is you want to get leverage. So because it's a future, you can actually leverage up. We are not really checking the underlying asset, like spot trading, like Uniswap. So we actually create this new concept called virtual AMM that.

So every time you want to trade perpetual swap, we actually create a virtual token that drop, a deposit in Uniswap contract. So you can actually have leverage. You can put in 100 USDC as collateral, and then you want to leverage up to five apps. Then we actually mean 500 USDC, virtual USDC, and then put that into Uniswap and then you can trade it. I think that's how it works then, yeah, the main reason is that you want to get leverage. You want to show an asset. Perpetual swap is public the most efficient way that you can get leverage.

Crypto Texan: Okay. What type of assets currently are available to trade on the Perpetual Protocol through the vAMM?

Yenwen Feng: Yeah, that's a good question. So we have around like 11 asset, all of them are tokens, so we have BTC, we have ETH market, we have other launch, we have Solana market. So just like the asset that people trade the most. So right now we have this scheme process, like compound, so people will, people vote, but we are actually we transcend to subtle structure. So people vote for another set of data. They actually, recommend the market. we actually keep, adding more market per week. Yeah. in general, just trading the popular tokens is our current goal. So you can shake most of the popular tokens.

Crypto Texan: Okay. I'm not as familiar with the concept of a virtual automated market maker. I know you mentioned Uniswap in there too. So is this similar to, I guess an Ethereum virtual machine, but it's almost like a Uniswap virtual machine that you're utilizing inside the Perpetual Protocol. Is that what it is? Or can you get into a little bit more detail about how all of that works?

Yenwen Feng: Sure, sure. So we are not really working on virtual machine. We actually build on top of Uniswap. So if you want to trade on Uniswap, like I want to swap USDC with ETH. So I have to prepare ETH token first. Of course, that's how Uniswap work. But if you look at perpetual swap, there is actually no underlying. People are just bet against the future price of that market. So we've actually figure out a way that we deposit. So every time a trader want to either, I mean loan or short opposition, we need virtual token, we use those virtual token. Those virtual token are USDC 20 token. We can actually deposit those virtual token into Uniswap and then swap it out. For example, if I want to swap USDC with ETH, I will deposit virtual ETH into the AMM and then get the virtual USDC out. So the virtual USDC is the triggers position. So that's actually how it works in Perpetual Protocol.

Crypto Texan: So it's more about just the composability. So you are building on top of Uniswap V2 right now, correct?

Yenwen Feng: Actually V3.

Crypto Texan: V3. Okay. Interesting.

Yenwen Feng: Yeah.

Crypto Texan: Is that with version two? Are y'all on version two right now of the protocol?

Yenwen Feng: Yes.

Crypto Texan: Okay.

Yenwen Feng: We are.

Crypto Texan: That just launched pretty recently too as well, didn't it?

Yenwen Feng: Yes. So it launched end of last year.

Crypto Texan: Okay. Yeah. So let's just walk through just an example. So let's say I want to make a bet that the price of Ethereum at the end of this month is going to be above 3000 USDC. What process would I go through in order to make that long bet against Ethereum?

Yenwen Feng: Sure. That's a good question. So it's actually just a Uniswap, so you have to go to our website. Okay, the first option is go to our website so you can launch the app. Then in the app, for example, you want to use perpetual swaps because you want to have leverage. So for example, you want to have two apps leverage. So you can actually deposit 100 USDC into our political, and then you can trade as you have 200 USDC. On the UI, it's will be like the centralized exchange. I think is between a Uniswap and centralized exchange. It's more like one inch right now. you can just go to a market, you want to trade, for example, ETH market, and then you want to get a long position, you just enter, I'm going to trade with 200 USDC, get a long position.

The 3 ETH is like $2500 right now. You can just go long and then you probably get maybe like 0.1 ETH position once you enter the trade, and then you can keep it for a while. Once ETH go up to 3000 USDC, then you can actually sell your position and then you got profit. So trading wise, is just trading on Uniswap or on other centralized chain. But underlying is more complicated there is virtual AMM, there's lots of different things.

Crypto Texan: Okay. What type of leverage can you take on Perpetual Protocol? Is there a limit? Is that hard coded into the protocol? Or does governance decide how leverage is determined in the protocol? What are those limitations and how does that work?

Yenwen Feng: Yeah, that's a good question. So it's actually cap at 10X right now. So for 100 USDC you put in, you can only trade 1000 USDC. It's not hard coded in the contract, it can be updated through the governance. We actually have a vote, like last year, not really a vote, just a signal that we want to actually increase that to 20X. But the community doesn't want, so we just keeping us 10X.

Crypto Texan: Interesting. Why would you feel like the community doesn't want to increase beyond 10X for a leverage governor right now?

Yenwen Feng: Yeah, because people feel that... I think normally, even professional traders, they don't trade like over 10X. most of the community leader, they feel that if we want to increase that they will be just a more retail corrupt. So it is actually better to keep it like 10X so that we accept that concern, so just keeping it 10X.

Crypto Texan: Okay. That makes sense. So maybe more of the reputation of Perpetual Protocol is the reason why the community doesn't want to increase that leverage governor, you think?

Yenwen Feng: Yes. Yeah. Yeah. I think so.

Crypto Texan: So where is this protocol located? Are y'all Ethereum based right now?

Yenwen Feng: Yes, we are. Ethereum based, but we are on layer two, so we are Optimism right now.

Crypto Texan: You're an Optimism. Okay, so I was reading that it was on... Are you on xDai or you were on xDai at one point in time, correct?

Yenwen Feng: Yeah. So our V1 is on xDai and then for the V2, we actually built it on top of that.

Crypto Texan: Okay, interesting. Yeah. So let's dig into that a little bit, because I feel like that could be an interesting conversation. So for V1, why did you choose to deploy onto xDai versus I don't know, another side chain or even Ethereum Mainnet also?

Yenwen Feng: Yeah, that's a great question. So V1 is actually deployed in 2020, I mean the end of 2020. I think that September... September 2020, we can launch the project. We actually want to launch a project, but because you know, there are lots of yield farming at that time. So the gas fee is actually pretty high. I mean like people are used to 100 gwei gas fee nowadays. But at that time it's just really high. So you place a trade, it cost you 100 USDC, or even more. So we don't think that's actually a good UX. So we actually don't launch it that time, we pull it back and then we start looking for layer two solutions. At that time, actually they are only two solutions that are viable solution to us.

One is a xDai, the other is Matic. So at xDai, they have been running for a long time. So it is PoA chain, so they have a faster block time. So it will be better. For Matic, when we work with them at that time, they actually just upgrade to the PoS architecture that they have right now. So it's pretty new, it's really exciting. they have some really interesting knowledge at that time. But in the end, I think our engineers are more familiar with a xDai and it has been running for much longer time. So we decide that we should deploy on xDai. We work on putting everything from Mainnet to xDai adding a bridge and adding some integration.

So that's the reason behind that we want to actually, use the xDai and instead of Mainnet. Yeah, one thing I want to add is, if we look at where we are right now, building on xDai actually give us a lot of advantage because the fee is much lower than is Mainnet. We actually cover the fees, they are actually much better UX. Also because the fee is much less, the traders or program traders, they can actually send me lots of orders to compete on the price. So that actually increase our trading value a lot. So I think that's just something we observe working on xDai.

Crypto Texan: Yeah. It's so interesting because I just don't hear about a lot of protocols or projects that deployed on xDai. I remember back in, I think it was mid 2019 is when xDai really came on my radar and I thought it was really interesting, but I just didn't see a whole lot of teams deploying on it. I guess it just took, as y'all said, y'all did it in 2020 when gwei on Mainnet would get up to $500 to $750 some days, it was just insane. So I can see how that's interesting, that puts y'all at a competitive advantage probably. But now with V2 you're on Optimism. Correct?

Yenwen Feng: Mm-hmm (affirmative).

Crypto Texan: Yeah, so now I'm interested, why did you choose Optimism instead of deploying on xDai again? I don't know, why did you choose Optimism over maybe Arbitrum or the Polygon PoS chain as well?

Yenwen Feng: Yeah, that's a great question. So the first thing is that our V2, because we built on topic of Uniswap V3, so we can only deploy on the place that has Uniswap V3. At the time we, working on a V2 is actually that's May, that's July the time-frame. Uniswap only deploy on Mainnet, Optimism and also Arbitrum. So that's those three places that we can go. We don't want to keep your Mainnet because of the gas that I mentioned. So the only two places that we can go is Optimism and Arbitrum. Because Optimism in the beginning, they have this whitelist, so with the whitelist projects that can go out Optimism. Yeah. Also the second thing, they have a lower guest for the contract.

I mean per contract, you actually have gas they meet. So how long can small contract be, and then the agreement is actually lower than the Mainnet. So we have to update our small contract to feed that limit. So it's a little bit harder for us. So because of this reason we want to go on Arbitrum first. So we actually work with Arbitrum team. We deploy Arbitrum, we launch a testing training complication on Arbitrum, which is actually doing really well. We got 2000 or 3000 traders coming in, trade and then just get a sense of how our V2 looks.

It actually went well, but in the last day, because there are more and more people coming in. We actually, not we, the gas prices of actually goes up a lot. So it's not what we expected because maybe a certain user is not really that much traffic. So we go back, we talked to a team and then found that they actually have a gas limit per maybe 10 or 15 minutes. That once you have many transactions, that more than a that limit, the gas price actually goes up. just like Mainnet. I think that's a protection system that, of course, I totally on understand. But I mentioned that in a xDai having more transaction, having less fees that people can trade more, is actually the key to our growth. So we really need to have a higher cap. Arbitrum, because this just V1 they launch, they are actually working on nitro, which is a V2. Probably launched, maybe in Q2 this year, but because we just want to deploy, we don't want to wait for another, maybe half year. So we decide that anyway, we go for it on Optimism.

Optimism at that time actually changed a lots of things. They launched their V2. So they don't have projects, it's actually 100% EVA equivalent to gas clients, so you don't need to change anything. So the porting is really fast and then we give you a try. We make sure that we can have as many transaction as we want, and then it passed. So in the end we launched on Optimism. Long story.

Crypto Texan: Oh, no. Yeah. It's really interesting though. You mentioned that you were in the Binance incubator when you were starting up a Perpetual Protocol. Did you ever look to Binance Smart Chain? Or did you ever feel any pressure from the BSC developers or community to deploy there? I know obviously Uniswap V3 isn't deployed there, but even for version one, what is it? Is it Pancake Swap is what they have over there. You could have built on top of that, possibly. Did you ever feel any pressure from them? Or why didn't you choose BSC at all?

Yenwen Feng: It's going to be recorded, right?

Crypto Texan: Yes. This is being recorded, yes.

Yenwen Feng: It's fine. definitely they ask. they apologize. to be on BSC, we were Asians, Chinese, Taiwanese, it's very different from Western. Lots times people feel that we should do things together. I don't know if you get that sense, but of course they ask. At that time, actually, that's an interesting thing. We actually have a lot of debate internally. At first, I don't want to do that. I think that it is still very strong, but BSC actually have a really great run the beginning of last year. So it got so many attentions and then I feel that I make a wrong decision.

But at the time we just launch our project, there are lots of things that we actually try to figure out. There are things that we think it works, but it actually doesn't work that well. So we are just busy fixing thing, so we don't have time to deploy. Actually after we missed that opportunities, but to be honest, if we look at that right now it's actually okay because BSC is doing really well, but I think it's more on the GameFi part. So there are several games that become really huge on BSC. But on DeFi it's actually not so well. So I do feel that different chain... The community of Solana community, they all have different needs, they get together because of different goals.

So I think for DeFi probably it's still better to stay with the ETH ecosystem. Yeah. That's just something I would say. Yeah. So ETH for the layer two, Arbitrum, I think after Nitro, we definitely want to give you a try. I think that would be a good place to deploy. Or Optimism, that's the trend we are on. So yeah, that's just what I think.

Crypto Texan: Yeah. You and I talked about this a little bit before we started recording, but yeah. when I interviewed Leo Chang over at Kareem, we talked about that as well. What are the differences that you see between the Western and the Eastern, I guess, crypto or Asian crypto culture. You touched on them a little bit, but what other things stick at in your mind? Right? Because me, I live in Texas and 99% of the people I follow on Twitter are Western crypto people. It might be a little bit a different for you since, obviously since you live in Taipei. But just from a cultural standpoint, what other differences do you see between those two crypto cultures, I guess?

Yenwen Feng: Yeah, that's a good question. I would say, Asian culture is more top down and then the Western culture is more bottom. So what I mean by that is that if you look at a centralized chain, most of the centralized chain are from China. They did a really great job on that. Like CZ, they launch a project in 2018. Actually it's 2017, sorry. Then he actually just push it. they work so hard, they acquire lots of users. That's actually, I think what Asian good at. So it just a top down, when people run apologizes, and then you just have everyone work on these things.

I think that's why most of the centralized chain are actually built by Chinese. But if we look at DeFi, they are not many DeFi projects are actually coming up from Asia. Of course, we have Luna, we have Terra, that's doing really, really well. That's actually a part of Asia. But after that you just get random, you have Ben Protocol, before you have perpetual, you have claim. But if you look at China, there's not many DeFi project. They should, because at the time they control over 50% of Bitcoin, they are so crypto native, right? But it's not the case. I do feel that it's just a culture difference. If we building a DeFi projects like you guys, you guys run an awesome community, you have to talk to people, build a community. learning what the community wants and then build the projects. I'm not saying that we are good at this, but at least we tried. But I think in Asia in general, we are not really good at this, so it's more culture difference, I think.

Crypto Texan: That's really interesting. Do you feel like, in a sense you're building against the grain of the culture in which you live by building this decentralized Perpetual Protocol?

Yenwen Feng: Actually, Taiwan is a little bit different. I'm from Taiwan so compared to China, we are more democratized or like Singapore. So I think that we are more open to ideas. So it is personally, I think that we just have more room to take... Even bigger Asia, their scale regional defense, I think a place, if we are more open. So I think that that's one of the reason that we I don't really feel I want to. It never occurred to me, I want to be a centralized chain, that's it?

I just want to build with the community. I want to run the community. I want to be decentralized. I do feel that maybe because the place I grow up, I don't know. Maybe because I actually I learned a lot from US entrepreneurship or scopes. I go to us a lot maybe because that, but that's just something I would say. So you chat with Leo, he was actually born in Taiwan, but he moved for the US for a long time. So I do feel that's actually benefit for his journey that trying to build a decentralized project.

Crypto Texan: Yeah. Okay. Yeah. That's really interesting. Yeah. We got a little bit off topic there, but this is just really fascinating conversation. Because I always wonder, it like, in the US, we listen to the Bankless podcast a lot, right? We've got David and Ryan in the US. But I always wonder, who's the David and Ryan of Asia, right? Is there a Bankless type podcast out there? I always wonder those things. I just feel like there could be this entire other crypto world that the Western crypto Twitter sphere just doesn't get exposed to. So it's always interesting to dig in on that a little bit. But yeah, let's get back into Perpetual Protocol. Another question that we have, and a question that we ask all of our guests about their protocol is, how does the protocol make money? What are the revenue drivers of Perpetual Protocol that drive, I guess, funds into the treasury?

Yenwen Feng: Yeah, that's a good question. So we are the decks, so we charge fees when you change. Actually right now, all the fees go to insurance fund, but we have a token called PERP. That's actually using GMI, but so you can stake that token and we are still working on the detail because we want to update the tokenomics a little bit. But in general that we want the stakers control the revenue. So either they want to distribute that or they want to put that into the insurance fund and then become more the protocol controlled value. That's also fine. But in general we got the fees, so the fees goes to a vote that controlled by the stakers.

Crypto Texan: What other benefits do you get for staking in the protocol? Yeah. How does staking work?

Yenwen Feng: So staking, we have in fashion. So if you stake, of course you can earn more PERP token. That's one thing. The second thing is that, I said, we actually want to distribute the revenue, the fees to the stakers. of course we need to get the consensus of all the stakers, launch a vote or anything. Or like I said, maybe they want to have something with Singapore become the protocol control value, and then deploy other way. But in general, we want to distribute that value to the skater.

Crypto Texan: Okay. In our fees, being the distributed right now to PERP stakers?

Yenwen Feng: No, not yet. So it's still in the insurance fund. Like I said, we actually want to update the tokenomics a little bit. Maybe after we update that we can launch a vote and then scout distribute or putting into a vote or anything that.

Crypto Texan: Okay. What are you looking to change about the tokenomics? Is it just the emissions rates? Or can you not get into all of that? Are we looking at a VE PERP token in the future?

Yenwen Feng: There are actually lots of suggestions from the community and yes, the token model is definitely something we are looking at right now. We are not going to change the emission rate, maybe. at least for now we are not going to do that. We have a reserve that we can use. Like I mentioned earlier, our staking model right now, we have this, a small problem of this is that the token holder is not really aligned with the traders or the recruit providers on our platform. Because you don't really need to have PERP token to trade or have PERP in order to earn rewards by crypto provision you actually create this difference. Some of the PERP token are owned by investor. So we actually want to change that.

We want to just create more alignment between the token holder and then the active participants on Perpetual Protocol. I think that's the thing that we want to do. So remodel definitely is one way to do this because once you got longer, you actually earn small fees. So the degree provide or traders, they might want to go the token longer. So yeah. So that's the direction we are heading to, but still discussing internally and also with the community about what's option we have.

Crypto Texan: Okay. Yeah. What type of parameters can be updated by governance voting in Perpetual Protocol?

Yenwen Feng: That's actually a good question. So right now we don't have an agreement on that. So a guide on that, because previously we don't really... Of course they are like I said before there is one time we want to update the leverage. Then also, every time we go into a new market before, we actually launch a vote. But I think that for tokenomics, it's more like a bigger topic. So it's not only updating the parameters, it will be a really huge update on most of the staking system. So it will be not only updating the parameters. Am I answer your questions?

Crypto Texan: No, yeah. No, yeah. You're answering it. Yes, you are.

Yenwen Feng: Okay, cool, cool, cool.

Crypto Texan: Another question I meant to ask a little bit earlier, so I'll just go ahead and ask it now. There's two other, I guess, parts of this protocol that make everything run smoothly and that's the insurance fund that the protocol has and then the clearing house as well. So I'm wondering if you can just go into a little bit of detail on what the insurance fund and the clearing house balances are, and why they are important to help the Perpetual Protocol operates.

Yenwen Feng: Sure. That's a great question. Okay, so for insurance fund, like I said, we actually put all the fees into insurance fund right now. Insurance fund is a vote that, for this perpetual trading system, most of the perpetual system, if you look at a centralized chain or decentralized ones, we all have insurance fund. It's because when the market become really volatile, so people can leverage, but once the price move very fast the person might not have enough collateral to cover that, and then we have to liquidate. But the liquidate are not always in profit, sometimes there are losses when we liquidate that position. So we need to have an insurance fund to cover that. So that's why we set that insurance fund. Right now, I think for V1, we have around $9 million insurance fund, that's really huge.

For V2, we have maybe $600,000, still growing. So goal is going as much as possible to cover the expected loss. That's for insurance fund. For the current house, it's the central component that we store all the collateral. So you deposit 100 USDC, actually, you go to the cleaning house. So if you look at the balance on our cleaning house, you can see that how much collateral will we have from the trader. Because it's a leverage system, so the collateral is, I think on V1, it's around $10 million, on V2 to $10 million as well. It's not large, but the trading volume, because you can leverage so the trading volume is much higher than other place.

Crypto Texan: Interesting. Do you still have a lot of users utilizing the V1 version of the protocol?

Yenwen Feng: Yes. Yeah. So we actually slowly are migrate them to V2. But they used to V1. Then we actually launch different market between V1 and V2. So it just a little bit different.

Crypto Texan: Okay. Okay. This is a very unique protocol and it's fascinating and I love what y'all are doing. Just wondering, who are some of your competitors? Or what are some similar protocols to Perpetual Protocol in the space right now? How does Perpetual Protocol differentiate itself from those competitors?

Yenwen Feng: Yeah. Great question. So we I think three different, I mean solutions that they want to take leverage. So the first of course, centralized chain. So we compete with finance, like FTX. They both have perpetual product, so lots of people using their solution, I think. For example, Binance that case, they are probably trading a 50X more than us, so definitely one of our competitors. Compared to them, of course, we are building the decentralized product. So it is trust laws, is permission laws, I think at that end, it's a better solution. So the second group is the Decks. So there is actually dYdX. So dYdX is an older book style. perpetual swap protocol, they operate on stock ware actually they have their own chance.

So it's all good book. So it will be hard to be composable, especially they have their own chain. So it's really hard to build on top of it. I think that's one of the disadvantage, but older book style chain, it's just the same centralized chain. Trader are more familiar with older book style. it changed, so I think that's just advantage and disadvantage going that route. The third group is more like a margin changing style projects. So for example, GMX, so they build on Arbitrum, they own unique designs and that's really cool. So they try to maintain a portfolio that's actually the same as triggers portfolio.

It's more a little bit margin checking. So you have a borrowing rate. But anyway, I think that it's just three different group of competitors. For us, we want to be, the first thing that we want to be more as composable as we can. So we build on top of Arbitrum or Optimism that we want to actually be composable with other the projects. So I think that's one of the good thing. Then it's a model, so everything is more predictable. So you want to get along with your position. You know that there will be a provider, like booking, they'll be quickly within that range. So you don't really need to take the good of the older book in order to figure out what's the best price for. You just take market holder maybe, but I think that's the advantage of AMM. So yeah, I think that's it.

Crypto Texan: So let's talk a little bit about just the multi chain in general. What are your thoughts about the different layer one chains? This doesn't have to be specific to Perpetual Protocol, just really your thoughts in general. All the different layer ones, how do you feel they compare to Ethereum? Do you feel there is going to be a multi chain future with this technology and where do you feel L2 tie in? So really, I guess what I'm asking is just your thoughts on the multi chain future and scalability in general as well.

Yenwen Feng: Yeah. Great question. Let's maybe talk about layer one first. I believe it will be a multi chain world in the future actually right now. So we have ETH, we have Sauna, we have Terra, we have lots of chain. All of them are doing really well. Personally, I do think one of these chains will take over 60% of the market share. The scale winner, not take, all winner, take most market. I believe ETH will be that one. So that's just what I think. But still, we mentioned this earlier that I think each of the chain have their own community, their own target. Just for example, BSC, they attract more can find projects there because I think just because of the community that's more retail. They want to maybe play to earn or something like that. Then Solana is more hardcore community, they want to trade so different community will go for a niche market like maybe game, maybe FT, maybe DeFi in the future. So yeah, I would say if still dominating the market the most, but of course, either the one will dominate each niche. Maybe DeFi.

So that's why I think for layer one, and for layer two, is I think the goal of the foundation is just have the way to do the transactions and in layer ones used for settlement. I believe there will be one for their tools, I do feel that they will be one chain winning all. So one chain maybe take a 70%, 80% of the market and then the rest doesn't really have that much of value. I do know which one maybe Arbitrum, maybe Optimism because it's still early or maybe zkSync. zkSync sounds very advanced. But actually, most of the Optimism, they roll up, like Arbitrum or Optimism they can also upgrade to ZK and improve greater. So actually it makes no difference. Yeah. So that's just what I think they ETH scale dominating and scale is mass models. I think.

Crypto Texan: So you feel a single layer one's going to take over 60% of the market share. Then from an L2 stand-

Yenwen Feng: Around there. Maybe 50%, 60% around there.

Crypto Texan: 50%, 60%.

Yenwen Feng: Yeah, but it's not 80% or 90% ETH right now. I think ETH still have 80% of the TVL.

Crypto Texan: Yeah. I think that's right. I think it does have about 80%, 90% of the smart contract layer or the smart contract TVL. I think you're right there. Did you say 70% to 80%?

Yenwen Feng: It'll go down.

Crypto Texan: 70% to 80% on the layer two side, you said?

Yenwen Feng: Oh yeah. So I would say, yeah, on there layer two there will be one chain dominate.

Crypto Texan: Interesting. Yeah, I don't think that's a theory that we've heard a whole lot either.

Yenwen Feng: How do I think?

Crypto Texan: Hmm?

Yenwen Feng: how do you think? Did you think that there will be one chain dominating like I said? Or you think there will be equally shares for all the layer one chain?

Crypto Texan: No, I think similar to what you said is I subscribe to the theory that Ethereum will be the global sediment layer for the strong majority of DeFi applications, right? Because when you're dealing with large amounts of money and net worth and value, you want to be on the most decentralized and secure chain possible. Regardless if it doesn't... Right? The layer one's not going to scale as much, but that's okay. Because you're sacrificing that scalability for security. I think that's why Ethereum will win out on the DeFi side. I think you're right. I think when it comes to NFTs, Blockchain, Gaming a little bit more maybe low risk, low value items, I think. Yeah. The BSCs, the Matics and maybe layer twos will win out on that. So yeah, that's pretty much what you said there. Just by maybe little differences there. Yeah. That's what I think. So what else are you looking at in the space? What other types of DeFi or metaverse protocols are you looking at that are catching your eye right now, that are just up and coming?

Yenwen Feng: Interesting question. I'm still spend most of my time in DeFi. there are actually a lot of new projects working on. We work with actually building on top of us, building all these structure products or new trading strategy on chain. I think that's actually pretty cool. Also, I don't know if you heard of Gearbox. I mentioned that we want to be a place that the people can take leverage. So perpetual swap contract is actually really good, if you want leverage, it's actually the most efficient way. But at the same time Gearbox, they actually created a way that you can actually share the leverage between the host, between Uniswap and Compound, or other things. So I think that's also really cool as well. So yeah. I know people talking about if DeFi 2.0 or something like that. But I think that it's actually going into another stage that they are actually many more projects trying to build on top of each others than before. So I think that's really exciting.

Crypto Texan: that's the best thing about DeFi in general, is the composability and people being able to build projects that are calling other protocol functions. That's where the true innovation lies. I think that's the DeFi 2.0 definition. Do you consider yourselves to be DeFi 2.0?

Yenwen Feng: I actually don't know. I don't know. I'm not sure. I think people actually project their expectation on 2.0. So somebody feel that the actually permissionless, somebody feel that it's protocol owns liquidity. I think we have a small bit solving. We are permissionless. We have some protocol control value. We have some other things, so I'm not sure if we are. But I do feel that the community is definitely more composable than before. If you actually good at the “ve” model, I think that's really fascinating. Curve have this poker model and then you can build come backs on top of it, and then you can actually build other projects on top of others tokenomics. I think that's really cool.

Crypto Texan: Yeah. When I interviewed Scoopy Trooples from Alchemix, he said that that was their strategy, was they wanted to be at the very top, right? They want to be at the very top of the stack, which I thought was an interesting thing to say. What were your thoughts on Andre leaving the DeFi in crypto space?

Yenwen Feng: That's actually created lots of impact, I think, because they were doing so well on Fantom. Andre is just a master brand. he keep pumping out lots of new things. I really liked the new ve, (3, 3) or Solidly tokenomics design, I think that's just not available, but I'm not really close to them. I talked to him several times, but not really close and yeah, it's really sad to see him actually leaving the space. Although I don't really think he actually left. he probably just tried to be enormous, I think.

Crypto Texan: Yeah, that was my theory too. I'm just like, "Can you really leave this space after you get started?" I don't know if you can. He probably just has a couple burner accounts that he is going to use on Twitter and he just wants to build and be a developer in the shadows. That's my theory. Conspiracy theory on that.

Yenwen Feng: Yeah. Actually, I totally agree. Yeah. I think we will see a really, really great, enormous coder in the near future.

Crypto Texan: And it's going to be him. Yeah.

Yenwen Feng: Nobody knows.

Crypto Texan: So, yeah. Is there anything else that you wanted to touch on that we didn't get a chance to talk about, Yenwen?

Yenwen Feng: Let me think. Sure. I do want to mention that we are actually working on a really cool feature, it's called Market Collateral. Right now most of the decks or centralized chains, if you want to trade a perpetual contract, most of the case you deposit the USDC or USDT. Then of course, the profit laws are denominated by USDC. With market collateral that we are building right now, it will be launch really soon. They actually enable you to deposit other token. For example, ETH or maybe Avalanche token, and then you can actually use that as collateral and trade against that. So one of the way you can do this is, you can do basic trade, you deposit ETH token, and then you show ETH. So you don't have market risk.

But you might earn funding payment if the funding is actually positive, so you can earn funding payment. So that's just one of the way that you can utilize ETH, but I think it's really cool. With this, we actually can have interest bearing tokens like USDC or cUSDC as collateral, which actually you can put a token that's actually earning interests on top of it, and also at the same time, you can use that as a collateral and a trade. So I think that's really cool feature.

Crypto Texan: Yeah. That sounds a great feature. That way your collateral can earn you money while it's earning you more money, I guess. Yeah. Earning money twice.

Yenwen Feng: Yeah. Yeah. Yeah.

Crypto Texan: Well variety is the spice of life. So I love that you're adding those new features, that sounds awesome.

Yenwen Feng: Cool.

Crypto Texan: Yenwen, this has been great, we're running up on time here a little bit, but yeah, why don't you just let everyone know where can people go to find out more about you and Perpetual Protocol?

Yenwen Feng: Sure. So you can find me on Twitter. My Twitter handle is @tempofeng, T-E-M-P-O F-E-N-G. If you want to get in touch with me, please just DM me. Our project is perp.com, P-E-R-P .com. You can go to our website, if you want to join community, they are linked to our core, linked to our telegram. If you have anything, feel free to just join the community and ask us there, happy to chat with you or provide any answers to your questions.

Crypto Texan: All right. Yenwen, thanks for sharing. What time is it over there, by the way?

Yenwen Feng: It's actually 10:00 in the morning.

Crypto Texan: 10:00 in the morning. All right. Well, Yenwen, it's 8:00 PM where I am, so I hope you have a great rest of your day. For everyone else listening live, this is being recorded and we will get this out in about a week. Have a great rest of your day, Yenwen and have a great weekend, everyone. Thanks again for coming on.

Yenwen Feng: Yeah. Thanks for having me. Yep. Take care.

Host: @Crypto_TexanAudio Engineer/Mixing: @LloveraFrankMarketing Images: @crypto_diller_Transcript: @0xMitzy / @Crypto_Texan

Audio and transcript from the March 3rd, 2022 installment of “Conversations with the Coop” with crypto journalist Laura Shin, the host of the Unchained podcast and author of the new published book “The Cryptopians: Idealism, Greed, Lies, and the Making of the First Big Cryptocurrency Craze”.

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Crypto Texan: Hello, everyone. Welcome to Conversations With The Coop. This is where we source questions from the Index Coop community to gain insights from today's leaders in crypto. I'm your host, Crypto Texan. Today, we have Laura Shin on this installment with Conversations With The Coop. Laura is the host of the Unchained podcast and author of the newly published book, The Cryptopians: Idealism, Greed, Lies, and the Making of the First Big Cryptocurrency Craze. Laura, thanks for being here with us today. How's it going?

Laura Shin: Oh, my God. I'm having the best week ever.

Crypto Texan: I know you've been pretty busy. I've seen you on Twitter. You're doing a lot of interviews. How's that going for you? Pretty hectic?

Laura Shin: Oh, my gosh. It's been hectic, but so wonderful. I went to London after my book was published the day after, and the day after I revealed who I believe the DAO attacker is, and I went to a conference at Chainalysis on Thursday, and so many people came up and said such lovely things, and I then went to a conference in Oxford the next day. I saw some crypto people in the UK, including some sources who helped me with the book, and I gave them and copies, and I was also able to actually see a number of personal friends who obviously I hadn't seen for years because of the pandemic.

Then one other thing that was really special was I had done study abroad in Oxford in college, and it is just a place that means so much to me. So to go back there right after a major life milestone to this place that just feels so close to my heart, literally, I walked around to all my old haunts, and I was actually crying a lot because, I don't know, it's hard to explain, just revisiting a place that just was so formative for you, and then going back at a time when you have had this major life accomplishment. It was very moving.

Then last night here in New York, I had my first official book reading and signing, and it was totally sold out and they were actually turning people away at the door because I think some people signed up with the Ethereum meetup and didn't realize they had to give their names to the Strand or pay the Strand or buy a book or whatever. So I mean, it was a ... Honestly, a lot of authors have a hard time kind of drumming up an audience for their book signings. So the fact that this was sold out was just, it was wonderful and a lot of people came up and said that they had been listening to the podcast for years. I mean, just overall, the whole thing, I just felt like I was glowing. So it's been really great.

Crypto Texan: Yeah. Well, yeah, definitely a whirlwind, I can imagine, and I'm one of those people who's been listening to your podcast for quite a long time as well back when it was Unconfirmed, I think is what it or you had two at one point, something like that.

Laura Shin: Yeah, exactly, exactly.

Crypto Texan: Yeah. So how did all of this get started, just your background and just how did you get into crypto in general?

Laura Shin: So I was covering personal finance for Forbes as a freelancer for a while, and I'd actually also been covering it for other outlets before then. I was frankly getting a little antsy just because when you cover personal finance, it's not a beat like crypto that changes all the time. It's a beat that probably hasn't changed very much for decades.

So I just was getting to the point where I really wanted it do something else because I need to have that challenge and I need to be learning. If something becomes too easy for me, I literally have zero desire to do it. So my editors said, "Well, we have this idea to do a Forbes Fin-tech 50 list. How about you head up the list with another reporter?"

So she and divided the list into subcategories and I took the subcategory of digital currencies, and I just became completely obsessed. I wrote a big feature about it for the magazine, and hilariously, people are going to laugh because it was so wrong. It was about how Wall Street and traditional financial services companies would use blockchain technology to make their offerings faster and more efficient.

Anyway, all I have to say is I got in in the 2015 era, and that's what people were saying. So if my sources are saying that and they know more about this world than I do supposedly, then that's what I was reporting. So I just truly fell down the rabbit hole and pretty much really didn't want to cover anything else but that.

Crypto Texan: Yeah, that's awesome. That was the idea way back then was the permission blockchains or enterprise blockchains, and that just, I don't know, just didn't really pan out, I guess. Do you have any idea why?

Laura Shin: No.

Crypto Texan: Why do you think that didn't pan out?

Laura Shin: I mean, there's so many reasons sense. I think people, well, a couple things. So people just really didn't understand the benefit of crypto assets and what benefits they provide and how beneficial they are. So there was dismissive attitude toward them, but the thing is that these legacy institutions, they just have a lot of inertia that keeps them from really disrupting themselves and really innovating, and they don't really have an incentive because to use blockchain technology, they would need to do it in this cooperative fashion, right? A blockchain is about numerous actors coming together and cooperating.

When you have these financial institutions that are used to competing with each other, I think it's just obviously a really difficult shift. Frankly, they already have thousands of workers who do things a totally different way. So I just feel like the incentives weren't there.

Then also, what we have seen time and again in these decentralized communities is that things move very fast in a decentralized space. I mean, well, they move fast and slow, which is a funny irony. Obviously, it's like how China can be top down and move very quickly, but then the US is just going to be better even if it takes a little bit longer because it's messier, but what we have seen with the crypto spaces that when things take off, they can take off very, very fast.

We saw this with the ICO craze. We've seen it with DeFi. We saw it with NFTs. We're seeing it with DAOs. It just happens over and over again. So yeah, I just feel like, frankly, so having intermediaries in a system that frankly was designed to remove intermediaries, it's just an oxymoron, and that's why these financial institutions trying to adopt blockchain technology just didn't work.

Crypto Texan: Yeah. That's an interesting way to put it, and that makes a lot of sense when you put it that way, putting those intermediaries there where the whole idea was to remove those in the first place. That actually helps make sense of that to me. So yeah, we'll get in the book here in a little bit, and I really love the journalistic approach that you took, very in-depth journalistic research, and part of that is the fact that you don't own any crypto or at least that has been the case historically. You've mentioned it on your podcast a few times.

Every once in a while, I'll see people on Twitter. I think Marty Bent said this a couple months ago that it's like, "How can you report on this space when you don't even hold or use the assets? So is that true that you don't own any crypto right now, and how would you respond to that criticism?

Laura Shin: So my business owns a little bit of Ether and Solana at the moment. My company bought the Ether to secure my ENS domain names, my .eth domain names. For anybody who knows anything about the crypto space, I have a ton of imposters that try to scam people out of money all the time on every single platform. So I felt the need to own those domain names and just keep anybody from scamming people with them.

Then I had Ether leftover. So obviously, I bought this, I forget, a year or two ago or whatever, but I had Ether leftover, and because of my book, I am going to be doing NFTs. So I will use the leftover ETH to create those NFTs. Then when I was thinking about doing this NFT, I did not know whether I would want to do it on a cheaper chain as well. So I just bought a few Solana at the time thinking that I might want to have that to create that NFTs there. Basically, that's it, but none of these are for personal investment.

When I was at Forbes, Forbes allows you to hold what you, sorry, to cover what you own as long as you disclose it. So at that time, they did own some Bitcoin in Ether, but then when I quit, it's so much more important to me to be able to write for any publication that I would want to write for. So I just decided, "Okay. So I'm not going to own anything now because I want to be able to write for any publication about crypto." That's so much more fun to me. I would so much rather do that than just get rich off of crypto doing nothing. It just would not be fulfilling to me in any way.

I've had people tweet at me about that. Some people say to me, "Have fun staying poor." It was like, "Wow! Do you really not understand? I am having the time of my life covering crypto. You cannot pay me enough money to not do it." You know what I mean? So I don't know. I just find it funny. I mean, granted, of course, I wish that a number of these publications I'd like to write for would say, "Oh, you can cover what you own. You would just need to disclose," like that Forbes policy, but if that's not going to happen, then fine. I'm not going to own it because I would rather write for them.

Crypto Texan: Yeah. Go ahead. I'm sorry.

Laura Shin: Oh, no. I was going to answer the other part of your question. So you can-

Crypto Texan: I was going to say, yeah, it just seems ironic in the sense that owning crypto is supposed to give people this personal freedom, but you're finding it with the publications that you write for that not owning crypto gives you more freedom to do what you want.

Laura Shin: Exactly. I mean, obviously, it's just me and my situation, but yeah, pretty much. Then for the other part about I can't write about it if I haven't used it, I mean, you've read my book. What's your opinion of that? Can I write about it if I haven't used it-

Crypto Texan: I mean, I listen-

Laura Shin: ... or if I don't use it on a regular basis?

Crypto Texan: I listen to your podcasts all the time, and I've read the book. Yeah. I mean, I obviously feel like those criticisms don't make any sense to me, but I'm just interested to see your response to those.

Laura Shin: Yeah. I mean, obviously, I could definitely do work where I would use it, and if that were the case, I would just use my company money to do it, and then not be trying to personally profit or anything. It would be just for the experiment, use whatever, $100,000 or whatever it might be or even, obviously, for some DeFi things I would need to use more than that to make it work out just financially because of the fees, but then I would just do it to write about it and not to be like, "Oh, I'm going to try to make 10,000 bucks doing this," or whatever. It's just going to be me doing it as an experiment to write about it, and then if there's any profit, I might donate it because I've noticed some other publications that have done experiments. They do things like that.

I can't remember which one this one's, but anyway, one of the journalistic publications that did something with NFTs did a donation to one of the big journalism groups that promotes freedom of speech and stuff like that. So that's a good idea. I don't know. I haven't really thought about it. Frankly, I definitely actually do want to do more experiments with crypto and write about it or make videos about it or whatever, but I've been so busy with the book and just doing my shows and just everything going on. So even though that is in the back of my head as something that it I'd like to do at some point, I just haven't had time yet.

So stay tuned. Maybe at some point you guys will find out about my experiments using crypto, and it might be highly entertaining for you all to realize like, "Oh, Laura's very knowledgeable about this, but use crypto because she has so not really been using it very much. She's at a much lower level than most of you." So you might find that entertaining.

Crypto Texan: I don't know, Laura. After reading the book, I feel like maybe you have a lot more, I guess, just street smarts in the crypto space than maybe some other people. I think you might be less likely to get rug pulled than most others. So yeah. Let's talk about the book. Is this your first book and why did you decide to write this book and was the anthology of Ethereum always intended to be the main idea for this book or did it start off as something else? You just said, "No, this is the real story here."

Laura Shin: Yes. So I have not written a book like this before. I've written a couple eBooks that were just published with Forbes, but this is my first real book that is coming out in stores with a traditional publisher and everything like that. Actually, my idea originally, and that is what the book became, but the scope of what I was thinking was very different.

So I started working on the proposal for the book in early 2018, and my idea was to explain how the 2017 ICO craze happened. I actually had a much bigger scope in mind that included how Coinbase was the major on-ramp to the crypto world from fiat because just getting money into the system I think was also part of it. So I actually did a ton of interviews with Coinbase people, and I even wrote a few chapters on Coinbase, but ultimately, I realized I had to just ditch all that stuff because I had too much material.

The book is 400 pages, and this is after I cut the Coinbase part out. So at a certain point, I was like, "Okay. The Ethereum part is really where it's at and it's more important and it's a story." So ultimately, I ended up just focusing on that half of it. So the book ends up being a three quarters of a history, three quarters of it is a history of Ethereum, and then at the end when the ICO craze is really going, then it branches out into some other areas, but yeah.

It's funny because I really wanted to describe how the ICO craze happened, but in order to do that, you have to give so much backstory that a huge percentage of the book is all the things that happened before the ICO craze happens at the very end.

Crypto Texan: Yeah. One of the things I noticed while reading the book is that you really don't pull any punches on this and there's not a lot of people who really come away looking great in this book from a Charles Hoskinson standpoint, Gavin Wood consensus, Ming. I guess Vitalik does come out somewhat unscathed. Although he-

Laura Shin: Yeah. He's the only one.

Crypto Texan: Yeah. He might be only one.

Laura Shin: Not literally the only one. Taylor Monahan I think looks pretty good, too.

Crypto Texan: Oh, yeah. I'm a big fan of hers and just hearing her parts in the book was really exciting. So I don't know. Were you ever worried about burning any bridges when you're just doing this tell all about these very key prominent figures in the crypto space?

Laura Shin: It was something I just felt that I couldn't let myself worry about because I was trying to write a document for the ages, a historical document, something that people 100 years from now would use to understand what Ethereum was and how crypto got started. I just felt like I can't write this in a way where I'm trying to protect my own access or I have any concerns about my own ability to do whatever because even if people stop talking to me, it's not like I can't cover what it is that they're doing. I may not be able to have them on my show, but I can have other people comment on them. I can still write about them as you know from the book, and just remind me, did you finish until the very end including the epilogue and everything?

Crypto Texan: Okay. So I have to admit, I'm on chapter 12. I didn't get to finish the whole thing.

Laura Shin: Okay. Okay. So you'll find out at the very end who didn't talk to me, but there are some people who they're all over the book, but they didn't talk to me. I obviously was still able to tell the story and obviously with the podcast, people like it when I can have a guest on that they want to hear from, but like I said, my primary goal really was to just write the best book I could write, and if I ever let my own concerns about getting access to people for the podcast interfere with that, I would've not been able to write as good a book as I believe that I did or that I hope that I did.

Frankly, also, that goal would interfered with what I said earlier about how I was trying to write a historical document, and I really wanted people 100 years from now to understand what it was that happened at this time. So just finding out the truth and presenting as accurate a picture as I could, that was my number one goal at all times, and I did not ever falter in that. I just always, always pursued that.

Crypto Texan: Yeah. I think you did a great job of doing that, and just still on the subject of Vitalik, he's such an interesting specimen, and he was so young when he founded Ethereum and it feels like the social network in a sense, but for crypto, and I'm just wondering, what are your personal opinions about Vitalik's leadership in the beginning and what he's grown into today? Do you see him as a crypto version of Mark Zuckerberg or just what are your thoughts on that?

Laura Shin: So Vitalik was 19 when he came up with the idea for Ethereum, and at that time, the Bitcoin price had just shot past $1,000 for the first time. A lot of people were feeling very flush. I think they suddenly were aware or really, actually, I mean, so this was before they knew that the price was going to deflate, right? They felt like, "Oh, we've made it. Now, we're ultra wealthy," whatever. These are people who probably owned Bitcoin when it was in the single digits or low two digits or whatever, and that meant that when he had this idea that seemed quite promising, he attracted a lot of opportunists and people who probably had pretty self-serving intentions right from the start. He was not the kind of person that was going to be well-equipped to deal with that.

He talked to me about how when he was young, he struggled with loneliness. There was a very, very, very long stretch of his childhood where he really did not have any friends. I mean, he told me that in junior high, he was shocked to find out that his schoolmates were going over to each other's houses on weekends and after school. I mean, it was a total shock to him. He didn't know that they were doing that, which think about it. I mean, he made it to junior high and somehow didn't realize that kids have play dates with each other and get together and hang out.

I mean, when he found that out, he not only was shocked, but he didn't even know how to enter that world. So at 19, I mean, granted he had a slightly different experience in high school. He finally found people who were more similar to him, but that environment, I visited that school, I saw those classes. I talked with the teacher there, the principal, and it really felt like a preschool that was for older kids. I think I said it had a preschool sense of, I forget, comfort and safety or whatever, and then a graduate school seminar sense of intellectual rigor. I can't remember the exact words I use, but it just had this feeling of, I can't remember how many students there were per class, but I think it was 50 students across all four grades or something. It was less than 20, I guess, per grade or I forget the exact numbers.

If anybody's read it more recently, maybe you can tell me, but again, that very cocoon-like atmosphere, it was not something that prepared him for the real world. So he did start college, but he dropped out after or not dropped out, I forget what this is called, but something at his school. They allow you to do work in the real world and alternate that with schooling, and he did that and used the time to travel the world and visit these Bitcoin communities.

Again, he's more in this one-on-one relationship with people and they were just Bitcoin nerds geeking out on Bitcoin and having fun with crypto. So once he had this idea for Ethereum, the kinds of people he was attracting were just different kinds of people that he really had never dealt with before.

So his "leadership skills" at the time were pretty much zero. A few different times, people did mention to me that his conception really was to not do a pre-mine and to just launch Ethereum like Satoshi, and he got talked out of it by one of the other co-founders, who many people would definitely that that person was very self-interested.

That definitely, I think, has affected the trajectory of Ethereum, obviously. We have a lot of people who definitely have a lot more Ether than they probably would deserve in any kind of rational system. It took a while for Vitalik to be able to assert himself, and even once that started happening years later, that only really started happening in a very roundabout way, which people will read about. I don't want to give too many spoilers, but let's just say I think sometimes when Vitalik started asserting himself and finally making decisions, it wasn't always necessarily that it was him even doing it.

I think he, again, was influenced by other people, but it was just people that he trusted better. So you'll read about that, and there are people who take issue with how he had structured his life by that point. So whether or not it really is better is probably up to question. I should also mention that my book ends in early 2018, in January 2018.

So I don't know about right now, obviously. Now, it's four years later. He might be quite different, but I do know some of the people who were talking to me when I was doing this reporting in 2019-2020. I think some of their comments also did apply to the period beyond 2018.

Crypto Texan: Yeah. I know who you're alluding to when you're talking about who may have been thinking-

Laura Shin: Because you're probably reading that part right now.

Crypto Texan: It's pretty great, but yeah. On that same subject, in this book, there is just so much in the sense of, just like you said, power hungry founders, lies, greed, something like authoritarianism, manipulation, both emotional manipulation as well as market manipulation, which ironically, all of this is just contrary to the initial idealism in which crypto, Bitcoin, Ethereum is trying to break away from. I just want to know about your revelations that you had about that just interesting contrast between this almost toxic nature of human power struggles versus the objective code that those same humans were writing. I don't know. Does this research that you've done change your views on just human nature in general, if at all?

Laura Shin: Yeah. I guess it does paint a slightly darker picture of things because obviously, most of the people that I deal with in my everyday life I would say of higher integrity. So yeah, learning about a lot of the stuff was pretty eye-opening.

One thing I would say was that I, frankly, I mean, I obviously was surprised by so many things. Let's just put it this way. The book proposal and the final book do not resemble each other because I did not know even 10% of what is in the book when I went to write it. One of the probably big things that I took away from the book that surprised me was the influence of whales. They're just there behind the scenes. They have a lot of power and it is disheartening given the way that blockchain technology is described in terms of its potential to democratize things.

At the same time that I was shocked by all this and a little bit disappointed, I also wouldn't say necessarily that it makes me think that it's impossible to use this technology to make things better. I just think things are so early. We need to still develop the technology further and hopefully make it even better and reduce the influence of whales, et cetera, because I personally think it's possible, but in the early days when things were new and there weren't a lot of systems put in place to prevent these kinds of situations, definitely we saw a lot of shenanigans and a lot of people throwing their weight around, but overall, I really would say that it actually hasn't necessarily made me less optimistic about crypto in general, which might be surprising to people, but it is the truth.

Crypto Texan: Yeah. I think when you look at Twitter and you listen to podcasts, the people in this space that we interact with on a daily basis do paint this just very beautiful picture of idealistically what crypto could do. I think it's important to take a step back and see that what your book revealed is that, yeah, greed and human nature are still there. We're just trying to code that greed out of the system if we can.

Laura Shin: Yeah. Keep working on it. Definitely needs improvement.

Crypto Texan: Yeah. It definitely, definitely does. So let's say if you were to hypothetically come out with a book about the beginning of Bitcoin similar to how you did with the beginning of Ethereum, which is basically what this book is about, and let's just say through your research you were to discover who Satoshi Nakamoto is. Would you publish that information or do you think the lines blur there between being a journalist and maybe protecting someone's identity?

Laura Shin: No, no, no, no. I would definitely, of course, publish their name. There's no question. I mean, if I had really, really strong evidence and felt confident in it, I would do so.

Crypto Texan: Similar to how you did the DAO attacker, right? Yeah. Let's talk about that. Did you just go into this saying, "I want to find out who the DAO attacker is," or did you just through your research just accidentally stumble upon some breadcrumbs and you just decided to see where they went? How did all this come about?

Laura Shin: Oh, no. I mean, of course, I was trying to figure it out. I spent so long on that. Oh, my gosh, you guys. I spent so much time on that and then hilariously. the way it all happened. So after I'd spent all this time, so what I did was at the time, there was an investigation that named some suspects. So what I did was I followed that lead out fully and I did all my homework and I researched all the ways in which what was really going on, why did these clues come together, et cetera, et cetera.

Then I interviewed and I wrote up that portion of the book just presenting all the reasons why they came under suspicion and then all their responses to me essentially, and that was basically what it was. So I didn't say anything conclusive. I just basically presented that I did the homework, I finished everything out, and here's what I found, and never said either way what I thought because I frankly just didn't even really know. I didn't have anything conclusive, but I just wanted to show these are the main suspects, but I researched it all and here's what I thought.

That was what was going to be in the book. So when you're finishing a book, it goes through what are called three final passes. The final passes are just meant to do all the last minute little changes. It's copy, editing, proofreading, and legal. Then the publisher will do all those things and they'll send it back to you. I had hired my own fact checker. So my fact checker and I would get the changes back and then be like, "oh, they made things slightly inaccurate with that change. We have to fix it," whatever, just making our tweaks, and then you do this in three rounds. With each round, it's supposed to be few and fewer changes.

Well, between the first and the second pass, Alex Van de Sande, who is of the people that was involved in rescuing the money, the remaining money in the DAO after the hack, reached out to me and he's Brazilian and he said, "Hey, back at the time of the DAO, the Brazilian Federal Police opened an investigation into the DAO and the DAO hack and also into me because I'm Brazilian and they don't know if I'm the hacker or not." He said, "I was thinking about commissioning a report to exonerate myself, and I know you're also looking into this. So would you want to look at that information?"

I said, "Yes."

So we shared the report and the company Coinfirm also gave them a discount and I credited them in the book. So Alex and I started looking at the information that we had and we mapped the cash-outs onto a schedule, and when I say cash-outs, what I mean is that because Ethereum had a hard forked, the attacker had Ethereum classic at this point. They did not have any ETH, and Ethereum classic just being a few months old was not something that they could easily use and actually turn into money. So they were using ShapeShift to try to convert it to Bitcoin.

The reason they wanted to convert it to Bitcoin was because Bitcoin is the most liquid of all the cryptos. It's the easiest to actually use and turn into money. So the reason they were using ShapeShift was because ShapeShift was an exchange, but it did not take customer identifying information. Since everybody knew whose coins those were, meaning they were the hackers, this person didn't want their name attached, right?

So they were using ShapeShift to convert to Bitcoin, and we saw that the cash-outs mapped onto an Asian morning to nighttime schedule. I was like, "Oh, hmm," because I had obtained a customer service email that they had sent to ShapeShift when they were preparing the attack, when they were getting all their ETH and DAO tokens into place in order to perform this attack on the DAO.

They'd actually sent three customer service emails, but some of them were super short like "Check order, please." Actually, I'm going to pull up the text of the slightly longer one. Okay. So this was their last message, which just was a little bit longer. From this, I definitely knew they were a fluent English speaker. So they wrote, "DAO tokens still missing. Should be this TX. Please send refund TX hash or DAO token. Thank you."

It's so hard to explain, but just reading that, "DAO tokens still missing," they didn't even ... So obviously, fluent, just normal fluent English would be, "My DAO tokens are still missing," but if you're going to put that in a shorthand, of course, you do it the way they did it, "DAO tokens still missing." You remove my, you remove are, right? So it's just another level of fluency. They're so fluent. They can even do shorthand in a perfectly good English way. Do you know what I'm saying?

Crypto Texan: Wow. Yeah.

Laura Shin: Yeah. So I just knew. I was like, "This is a fluent English speaker." Then when I saw the cash out tends were on this Asian morning to nighttime schedule. I was confused and also, the people I'd been investigating, they're all in Europe. There was one other suspect that Alex and I identified and they were in Russia. Also, we checked their social media posts and all their social media posts mapped onto a European morning to nighttime schedule.

So it was just like, "Okay. If they're tweeting at the time that this DAO attacker is it looks like they're sleeping for the cash outs, then it doesn't look like it's the same person."

So another company I worked with very extensively on a whole number of things was Chainalysis. So I sent some things to Chainalysis and I was like, "Oh, this was their main wallet they used on Bitcoin. Can you just look into this or that?" Oh, by the way, by the way, meanwhile, I'm supposed to turn in a second pass to this book. We had already delayed the publication date once because just all these little things were taking a little bit longer than we thought, and then on top of that, there's supply chain issues hitting book stuff.

So we're like, "You know what? Things would be just a little bit more comfortable if we could just push it." So we'd already pushed it from a November publication date to January. When I realized I had this new data that I really wanted to pursue, I thought, "Okay."

So the way I've written it so far where I named these people, but I do not say that they hacked it, I just say I finished out the one investigation that had any suspects and I interviewed them all and here's what they said, I mean, that's a perfectly fine way to do journalism. It's like I didn't accuse them anything, but at the same time, people know I did my homework and I checked everything out, but of course, I wanted to be able to look at this new information that I had.

So I did decide to ask the publisher if I could have more time and they were like, "No. We can't." They were like, "Are you crazy?" Then of course, a couple weeks later when Chainalysis told me they were able to de-mix and identify where those coins had been sent, and then I was able to, through another source, get more information on what happened to those coins and it led me to Toby Honish's identity, then, of course, when I went to my publisher, then they were like, "Oh, okay. Okay. Okay. Well, we'll push it again."

Anyway, so I'll just explain that part. So hopefully you saw the Forbes article, but I'll just explain this in case you haven't. So Shane also said these are the four exchanges, and I got a source to get information from one of those exchanges where the exchange that, "Okay. Those Bitcoins that were deposited were converted to Grin and then withdrawn to a Grin node called grin.toby.ai."

When we looked at the IP address hosting that, we saw these Bitcoin Lightning nodes, and we looked at a Bitcoin Lightning node explorer to find out out more about those nodes, and we saw one of the notes was named TenX. Of course, you Google TenX, you see that Toby is the CEO and co-founder.

By the way, so then through the fact checking, I was emailing him a lot. I initially asked for interviews, he didn't respond, and then I sent a bunch of fact checking, which was just I sent a Google Doc with all the things that were going to be said about him in the book. Then he wrote me back, "Your statement and conclusion is factually inaccurate," and then he offered to give me more details if I wanted, but when I immediately wrote him back and said, "Yes, I would like more details. Would you actually want to get on the phone?" he did not respond. I gave him the deadline multiple times, five different times, no response.

One other thing I was going to say about that was that what I sent to him was a Google Doc with the fact checking, and I'm pretty sure he's in Singapore. So it's roughly exactly half a day opposite of where I am. I remember that I had the Google Doc open after I sent it and I saw him open it, and he was in the document at the same time.

So I was like, "Oh, my God! Oh, my God! Oh, my God!" It was the middle of the night here and I literally could not sleep for another hour and a half after that because my adrenaline was just pumping, but anyway, so what I did see was that he used Toby AI as his alias on multiple, more. I think I counted 16 of them. It AngelList and BetaList, and Medium, and GitHub, and Reddit. I mean, just on and on and on.

Then later on, a week or two later, we got the email address that was used on that account, and it was the name of the exchange, @toby.ai, and then ultimately later on after that, I was able to also confirm with somebody who used to work with him that he used an email address that ended in @toby.ai.

So I felt the evidence was so strong. So a couple of other things. So I knew you haven't gotten to this part in the book so I'm going to spoil a tiny, tiny something for you, but it's not that big.

Crypto Texan: That's okay. That's okay. I can handle it.

Laura Shin: Okay. You'll see that the Forbes article just has so much more information and there's funny reasons for that because it was so late in the process with the book and because, well, mainly that. Also, book publishers, they're not used to breaking this kind of news and it's very difficult because you finish a book and then the book doesn't come out for months, right? So there were just numerous reasons why.

There's just a much smaller amount of information about it, but one of the reasons was that they said to me, "Look, we cannot make huge changes. So what we're going to do is just we're going to remove the part that you wrote before and you're going to have to insert a new section with this, and it has to be roughly the same number of words." They were like, "You cannot go over X amount of words."

It was funny reasons like even the fact that if I added pages to the book, then the size of the book jacket would change and they just couldn't have things like that happening because it was just too late. So that's why when you read the Forbes article there's just so much more in it, but also, I interviewed his co-founder at TenX, Julian Hosp, for the article in Forbes, but I did not interview him for the book.

The reason was I had looked and I saw that they had been working together already in June 2016 when the DAO attack happened, and even though they've had a falling out now, I was like, "If they had been accomplices at the time, then it just creates too many wild cards," because already, I was worried that what Toby publicly comes out and announces something before my book comes out, just ruining the news in my book or what if somebody else gets a hold of the book and ... There were just too many things that could go wrong because it was, I forget, four months or whatever in between when we finished and when the book was going to come out.

So ultimately, I decided to reach out before the Forbes article. So because they'd had this falling out, I had a pretty good feeling it's not going to be ... Even if they were accomplices, there's just something about, because I saw these videos that Julian Hosp made about Toby, and I just thought they're clearly not friends anymore, but still, I want to be careful.

So I literally bent. So the whole interview was three hours total, which by the way, that's just an insanely long interview, but the whole first two hours was me trying to figure out if he had been an accomplice or not, but I couldn't be too obvious about what I really was interested in. So I had to ask a whole bunch of questions, some of them related to what I was actually interested in, and then others that were not related to just throw him off the trail if he actually was hiding something in that regard.

Anyway, after the two hours, I satisfied myself that he probably wasn't an accomplice because it was just clear he was not a technical person. It was just very obvious. There were other things just when he told a story about how he got into crypto. He really wasn't into it until the latter half of 2016.

So anyway, there were just numerous things, but anyway, he was completely shocked ultimately when I realized why I actually had been reaching out. He did not believe me about Toby at all, actually, but then as he started to remember more things, then he was like, "Oh, yeah. Actually, I do remember that when I asked him about it. I remember he gave me better information that I'd been able to find anywhere else online," and then he sent me some emails that Toby had sent him around that time and different things.

So anyway, yeah, the whole thing, but again, it took me a long time to get comfortable because even though I only interviewed him a few days before the Forbes article came out, I also thought, "Oh, my gosh! If this goes bad, he could announce something before my article comes out and before my book comes out," and he has a big following. Anyway, so I was very cautious, but yeah, in the end, everything worked out really well. I feel like the evidence is so strong. People haven't really pressed back in any way. So I feel really good about it.

Crypto Texan: Yeah. That's been what I noticed about that, that news break is that I haven't seen anybody in the crypto space or anywhere at all really just push back and say, "No, you're wrong. Here's why," with the exception of the alleged DAO attacker who just told you, "No, that's wrong." What is the protocol? You send this fact check document to somebody and they say, "No, your conclusions are wrong." Are you just giving them opportunity to retort with other contradicting facts or what's the protocol there?

Laura Shin: Yeah. I mean, well, just getting that part, his denial, was really important, to let him say, let him have his say. I mean, you'll notice in my book. So I'm sure you're very well-aware there's many negative things that people said about other people, and you'll always see I have a response, at least if somebody gave me one, I'll have a response or I'll say, "Oh, they didn't talk to me," or whatever it might be.

So that's what we wanted. It's like you have to always give somebody an opportunity. You should never blindside somebody. I would've never published this without reaching out to him first. I mean, what if he had some really good explanation for why the money was sent to his Grin node or whatever. He didn't, but I should definitely give him his opportunity to give that denial, which I have published everywhere and also, yeah, to see everything.

What if there was just anything else that he wanted to dispute or make a comment on? Yeah. So we had to send him the fact checking for the Forbes article again because there was a lot more in that article, including the comments from his former co-founder, and then there was no response that time. It's just part the protocol. You always have to give a person the opportunity to respond and you have to do your best. Just sending one request for response is not, I mean, it's better than nothing, obviously, but I was using multiple email addresses. I mean, I was just trying so many ways.

Right now, he has this DeFi thing called Mimo Capital, and I went into the Mimo Discord and I messaged every single or maybe not every single, but multiple of the admins, and I was like, "Hey, can you put me in touch with him?" and then once they started responding, I was hounding them like, "Oh, when do you think I'll be able to talk to him?" or "Can you get me his email address?" or I was just, yeah, hounding them for a way to get in touch with him. So yeah, I mean, you just want to make your best effort. Like I said, you don't want to blindside people and you want to give them every opportunity to respond.

Crypto Texan: Yeah. So keep in mind, everyone, if Laura Shin comes into the Index Coop Discord saying, "Where's Crypto Texan? I really need to talk to him," I have left the country at that point.

Laura Shin: Well, leaving the country won't help you very much because there's this thing called the internet, but anyway.

Crypto Texan: Right. Yeah. That's true. That's true. So what other reactions have you received or I guess what are some of the more shocking reactions to you that you've received thus far from the personalities that you've portrayed in this book or of some of the details that you've uncovered? Because I know this industry people can be thin-skinned sometimes, but I'm just wondering. What are some of the more shocking reactions you've received?

Laura Shin: Well, most of them probably happened during the fact checking phase last summer. So at that time, definitely some of the people who had more negative things said about them, they were not happy with me. They weirdly thought that it was me saying these things and I'm like, "No, no, no, I got these from other people."

Somebody at, well, they're not at consensus anymore, but they must have talked to somebody who is, and they forwarded a message saying that in the consensus town hall, Joe told people that I have a gripe with him, which I was like, "Wait. Whoa! Did you read the book because it's all your employees and former employees who are saying these things not me?"

Some of the people during the fact checking phase got very testy with me. One of them in particular, and I know this, well, two. So two people did this and I know this is going to sound very weird, but I just felt like this is what they're doing. At the point when it got to a conversation where they were unhappy and really upset with what they were finding out, we were doing a video call and both of these people were walking around so that the video was very discombobulating for me to look at. For some reason, it's so hard to explain. I know this might sound silly, but I just thought, "Oh, they're trying to do that to intimidate me and just throw me off." I know that sounds weird, but it's just the sense that I got.

Anyway, yeah, it's hard. I get it. It's not nice to find out nasty things that other people said about you. One thing I will say is one of them was like, "Oh, you're just a Jerry Springer journalist, blah, blah, blah," and I was like, "Oh," and they acted like this is me and this is the kind of journalist I am, but there are multiple people in the book where nobody said anything negative about them.

So beyond Vitalik, I just remembered also Jeff or Kristof or Griff. I mean, there's actually multiple people where nobody said, "Oh, I had a bad experience with that person." Oh, by the way, so I'm going to have to go very, very shortly, but anyway. So I was a little bit like, "I don't think it's that I'm a Jerry Springer journalist. I think it's that you maybe lived a somewhat Jerry Springer-ish life, and this is what people are saying about you, but there are plenty people in the book where I actually didn't have to run a single negative thing that was said about them, by them because nobody had anything negative to say about them."

Crypto Texan: Right, and I think Hudson Jameson might be one of those people as well.

Laura Shin: Oh, yeah, yeah. There's multiple. There's multiple.

Crypto Texan: Well, and he's a Texas guy, so I got to do a shout out there to Hudson. All good remarks in the book, but yeah. Like you said, we are running up on time. So Laura, thanks for being on the show. I think the book is just an incredible asset to the crypto community as a whole and obviously, very well done. I highly recommend anyone who has not purchased the book, purchase it and read it because it's a great foundation to where we are today. Yeah. Laura, where can people will go to find out more about you, the book, and your podcast?

Laura Shin: So you can follow me on Twitter, @LauraShin. You can also check out laurashin.com. Go to unchainedpodcast.com. You can also follow the Unchained_Pod Twitter count. I have a couple different newsletters. There's one that comes out Monday through Friday, and that is on the unchainedpodcast.com website. I have another newsletter via Bulletin, and that comes out just a few times a month, but I've started a premium offering on it. I release videos that I do in preparation for Unchained ahead of time, essentially.

So you'll get to learn about a lot more up and coming projects if you join that because I have long done these kinds of interviews where I'm vetting things to go on the show, but I've just never actually released them until now. So that's it, the laurashin.bulletin.com email address.

Crypto Texan: Awesome. Well, thanks for sharing. Thanks for coming on the show. Everyone who's listening live, thank you for listening live. This is being recorded and we will get this podcast out in about a week. Have a great weekend, everyone. Laura, thanks again for being on this show. Really appreciate it.

Laura Shin: Yeah. Thanks for having me. This was fun.

Crypto Texan: Absolutely.

Laura Shin: Bye, everyone.

Crypto Texan: Bye.

Host: @Crypto_TexanAudio Engineer/Mixing: @LloveraFrankMarketing Images: @crypto_diller_Transcript: @0xMitzy / @Crypto_Texan

Audio and transcript from the February 24th, 2022 installment of “Conversations with the Coop” with Dark Forest Capital and AG, the methodologists behind the Metaverse Index and Co-Founders of MetaPortal.

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

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Crypto_Texan: Hello everyone. Welcome to conversations with the Coop. This is where we source questions from the Index Coop community to gain insights from today's leaders in DeFi, crypto and the metaverse. I'm your host Crypto Texan, and today I'm joined by Dark Forest Capital and AG, who are the co-founders of MetaPortal and the methodologists behind the Index Coop's Metaverse Index. Dark Forest, AG, thanks for coming on the show today. How are y'all doing?

Dark Forest: Yep. Very good. Thanks for having us.

AG: Yep. Pleasure to be here.

Crypto_Texan: Yeah. So let's get started with just some introduction, if y'all could just give us your name so we can associate the name of the voice for the recording. And just give us a little bit of background about how you got into crypto, DeFi and more specifically the metaverse.

Dark Forest: Yeah, I'll go first. So I'm Dark Forest Capital. My real name is Paul, but obviously created this sort of profile for myself now that I use on social media. I got into crypto full time around the crash back in March 2020. I was actually looking for something to do because my plan to become an airline pilot just been put on hold due to COVID. So I actually started trading stocks and crypto, and really just found that, there was a lot more interesting things going on in crypto and it was easier to understand how things traded.

So that led into DeFi summer, which led into speaking to people at the Index Coop which spiraled completely out of control into a full-time role at the Coop and actually launching the MVI. And then since then, managing the MVI contributing the Coop and then stepping away and trying to create something of our own, me and AG sort of spinning up Meta Portal into a brand in its own right. So really the last sort of 6 to 12 months have just been trying to grow that brand really. So yeah, that's it in a nutshell, I'd say.

AG: Yep. Yeah, happy to go next. So, yeah, I'm AG, I go by Verto, kind of on socials and Telegram, Twitter and so on. My professional background before crypto was in asset management in TradFi. I initially bought crypto in '17, but I was recently talking to someone and I used to work with after college and he actually recalled us having conversations about Bitcoin. And I was back in 2013, which I don't really recall. So I guess I was aware of crypto before '17. I bought it first in 2017, and then when everything went down during the bear market, I sort of went back to my regular job and started looking at crypto again in early 2020, sort of, as we went into COVID lock down, I had, working from home, you have quite a bit more time just because there's no one really looking over your shoulder. So you can do a job four hours, you're sort of done.

So I ended up having a bit more time on my hands and I started digging into crypto again and picking up freelance gigs to do writing for crypto sort of publications. And yeah, if you write, you have to do research and part of doing research is using these apps. So I remember using Maker and then Compound and a Balancer when they launched as quite active in the Balancer community, in the very beginning when they launched for a couple of months. And then slowly found my way to the Coop, which was very, indices made a lot of sense to me given, given the background. My sort of area in TradFi was asset management and fund management, which is basically indices, but actively managed.

So made a lot of sense. And the transition to sort of the metaverse really happened with the launch of the Metaverse Index. I think before we sort of launched the Index, I was aware of the concept mostly coming from the NFT side of things, but I haven't really invested in anything in metaverse or NFT related. And I was waiting for an index to do so, because I was like, I have no clue what to invest in and we need to do an index and then sort of in the process of researching and launching the index and then continuing on the path of publishing content and managing it and doing all of that, that's kind of how, I guess both of us got much deeper into the metaverse and what's happening there.

Crypto_Texan: Yeah. That's interesting. And so how did the two of you meet? Because it's obviously blossomed into this great friendship and I'm just curious, did y'all know each other before your contributions to the Index Coop?

Dark Forest: No, we didn't actually, it might look a great friendship on the surface but, no I love AG. We get on pretty well. It actually started because when AG joined the Coop, I ended up reading some of the things that he'd written under a blog that I don't know if he wants shared, but yeah, so he was sort of doing these general musings and I went and checked it out and found that he was writing all the things that I'd been thinking. And so the first time we had a chat, we kind of connected over that and put the world to rights over a video call really. And yeah, just haven't stopped since then.

Crypto_Texan: AG you have anything to add there?

AG: No, that about sounds sums it up.

Crypto_Texan: And so let's talk about how y'all started getting involved with the Index Coop and what's it like, I guess in your eyes, since you've been in the space and you've worked for a DAO for longer, what was it like starting out, working for the Index Coop DAO and then how did that change over time as you, I guess, decide somehow, you acquire these new and new responsibilities over time. Can you just kind of describe that process?

AG: Over for you, you should go?

Dark Forest: Yeah, so I mean, my personal experience was, I actually remember very vividly seeing OverAnalyzer put out a proposal on the forum at the very start of Index Coop. So that would've been October 2020 and thinking, because I had the idea for a Metaverse Index. I was like oh, this would be easy. I'll just slap that on the forum. And then away are we going? It sort of demonstrated my naivety as to how all these things work, but in terms of that sort of becoming a job and a role at a DAO, it just happened organically. And it was kind of being in the right place at the right time. So I feel pretty lucky to have come along at that point because actually the reason that I stuck around in the Coop discord was specifically because I came in as I did at that time with a lot of discords looking to get info around the token and whether I was going to trade it.

And what I found instead was a ton of people who were just super interested in how do we build structured products, using smart contracts that are beneficial for everybody around the world that has a mobile phone and an internet connection. And I thought that is pretty cool. And nobody cared about the token really. That's all they wanted to talk about. So I started to talk about as well, and that spiraled into conversations around governance, treasury management, organizing a DAO, organizing a globally dispersed set of contributors. So it kind of grew organically. And I think it depends what time you turn up, what stage in the formation of a DAO, you turn up as to what your experience will be, because it can be quite different. And I think if you get in early, it's much easier to basically just contribute and sort of get the ball rolling that way that you can do anything because there's so many gaps, you just need to spot one of them, go for it and you can kind of build your profile that way.

If you come into a more established DAO something like Maker, I'd imagine you've got to be pretty spot on with whatever it is that you are trying to do there because they're such bunch of experienced professionals that also understand DeFi at a very detailed level. So it becomes more difficult over time. But for me personally like I say, it was more of an organic process. Definitely wasn't the intention when I started contributing and conversing and putting proposals out there but that's how it ended up.

AG: Yeah. I would say that for me, the one very big moment was realizing that you can actually make a living doing this. I think that was mind blowing. To be honest, I think I was at the time I sort of joined Coop in, I think it was December or November 2020. I was doing a lot of freelance gigs on writing and strategy for crypto, some for stocks and bonds and so on and starting to work individual crypto projects. But it was all through freelancing platforms, right. It was sort of very much unstable and then realizing that you can actually come in and contribute to a DAO and make living from that, that was an eye-opening moment. And then I think on kind of how it was back then versus how I perceive it from the outside now is I think it's still, if you come in early, it's easier.

But I think that the amount of context that you need in terms of understanding the industry, understanding what has happened over the last two years, understanding what type of governance models and strategies have been tested, which ones have failed or not, I think you need much more context because when we started out in late 2020, those really only three or four months of context of history when it came to DAOs and now there's much more, I also think that complexity is much greater, right. If you think about the innovation of say Maker or Compound or Aave and the complexity of those protocols, they're not that complex.

But then if you think about what has happened and what types of protocols and what types of mechanisms and tokenomics have been released over the last 6 to 12 months, the level of complexity has exploded. So I think it's at least my perception that it's much more technical, much more challenging now, while at the same time, I feel there's more and more DAOs that are popping up, that all need contributors, but the level of people or the number of people that are actually available having enough context and understanding that number is limited. So I think a lot of DAO's actually struggling with talent, with recruiting the right people.

Crypto_Texan: Yeah. And I totally understand what you mean about how complex is Maker DAO or Uniswap. And it's almost like I think a lot of us crypto natives or DAO natives in the space sometimes, well, we can sometimes take for granted how innovative this technology can be sometimes. And I know new people to the space do as well, but when Uniswap first came out, that was such a huge problem solver for the space it's like, oh, I don't have to go on Binance or Coinbase to swap tokens. I can just do it here on the blockchain still. And you know, when I onboard new people to crypto and get them their own self custody wallet, they talk about how clunky it is and I'm just, I think, man, you have no idea what it was like two years ago.

So yeah. But another thing is, yeah, I think the thing that was kind of an aha moment to me was, when I actually got paid from the DAO's multisig and that was through impression mining where I submitted my first batch of impressions and I got paid 30 bucks or something and index tokens. And that it just became very, very real to me at that moment that this is just almost a new paradigm shift in the future of work potentially. But we'll move on. So we're going to be talking about the metaverse quite a bit on this call and I think it'd be a good idea if we could just get a sense of how the two of you define the metaverse and do you have the same opinion on your definition or do you have slightly different definitions of what the metaverse is?

Dark Forest: I'll go first just because it's easier. So that I've got more choices what I can say then.

AG: So I actually like your definition, so I'm just going to concur with whatever you say.

Dark Forest: Awesome. Okay. Well I hope my definition is still the same as the one that you like. But I think it's because I kind of had an idea of what all this was trending towards before it became, actually it wasn't really, before it came years and years ago, mark Zuckerberg made everybody at Facebook read snow crash. I remember that story sticking out to me because I was well I'm never going to read snow crash because I hate Facebook so much and I still haven't read it, but I know the term metaverse comes from that book. But for me, the metaverse arises through the blending of digital and physical realities and the hardware that we use, VR headset or haptic feedback gloves, or even just our mobile phones as that improves. I see that as, and borrowing slightly from Matthew Ball, here that's the boundary layer between these realities.

So as that gets better and smaller and higher quality and more immersive, that boundary layer actually reduces. So the meta versus the ability to go into basically a digital reality and not be bound by the laws of our physical reality. And you'll be able to jump in and out between physical and digital now in terms of what it looks within that digital realm. I think that's what most people in crypto and on Twitter spend their time arguing over, is there one metaverse or are they virtual worlds within the metaverse? So that's why I kind of to zoom out a bit and just define it as it's humans going digital effectively. And that's how I see it.

AG: Yeah. And I think if you sort of expand that a little bit right to open metaverse versus closed metaverse right. I think what Dark Forest described can be both right. You can have a closed metaverse, centralized metaverse, corporate metaverse, whatever you want to call it, but what we want to see it right is an open metaverse and that's where you get into blockchain and crypto and NFTs, as sort of ownership of virtual digital goods, it's owning your data, owning your identity, it's digital money, all of these things. So I think metaverse itself can be closed or open, but what makes it open is all the things that we are excited about.

Crypto_Texan: So the metaverse, is it a spectrum? Because I hear people say that really just the metaverse projects are the metaverse. And then there's people who say that you need to include, digital assets and currencies like Bitcoin and Ether. And then there's people who just say, if you're interacting on Twitter, you're in the metaverse or if you're on a Zoom or FaceTime call, that's the metaverse. So do you feel it's a spectrum or do you feel there is a hard line somewhere? Or have we just not done find that line of what is and what isn't necessarily the metaverse yet?

AG: Yeah, I would say that there's a gazillion definitions out there right? So obviously I think it's a spectrum and we don't really understand. We don't necessarily agree on what the actual definition is. For me personally, I think the spectrum comes from the level of immersion. So Twitter, for example, your level of immersion is very low, the same with perhaps Zoom. So for me, it is hard to see that as metaverse just because you're not, even though you do operate in a digital realm, you are not immersed in it. And so for me, that spectrum is immersion. And so the closer you get to full immersion, the closer you get to this full concept of a full vision of metaverse, but immersion is a spectrum. And I don't necessarily know where on that spectrum do we tilt into the metaverse. When does it become metaverse versus sort of the sort of 2D digital world in a way.

Dark Forest: I'd say it's a spectrum, sorry, mate. I say it's a spectrum as well, but less focused on immersion and more on... If you cast yourself forward a hundred years and you imagine historians talking about this revolution, this Renaissance, whatever you want to call it that we're going through, I think they would refer to the metaverse arising as we saw, personal computers with glass screens on them and AirPod earphones that you can carry around with you all day.

These things seem clunky now, but if you give us another 20 years, they're going to become more ingrained. So I think the metaverse is arising on that spectrum and we're going through it. But we are in the sort of early stages of the industrial revolution almost where we've got these big, steam powered clunky machines that are making loads and not it's almost like that, but, I think by the end of this current decade or next, we will look back at having to hold a piece of metal and glass in our hands to access the internet as extremely backward. I think that stuff will start to get integrated. So for me, it's more about the spectrum of how easily we can slip from one to the other.

Crypto_Texan: Yeah. That's, that's really interesting. And just thinking back at when the proposal came through the governance forum for the Metaverse Index, it was quite a bit before the explosion or bull run on the metaverse related tokens and before Facebook changed its name to Meta. And so I guess my next question is, how did you identify this opportunity? And you kind of touched on it a little bit, but, and also are y'all gamers historically? Yeah. Those two questions.

Dark Forest: Yeah. So it came because I was almost at the forefront of this change that was being accelerated by COVID. So I had gone from a career engineer who was then going to have the career as an airline pilot, and then suddenly that was up short and it's okay, I'm not going to do that. I'm going to sit in my mom's basement and trade crypto all day. And then I look around and I see other people getting drawn into this. And then I see older generations having to learn how to use Zoom and getting caught with their bands down on Zoom calls. And you see that we are actually being forced by what happened these, this confluence of events. I think the trend was already going in that direction. We are spending more and more of our daily lives online, but it was accelerated by COVID.

And so the opportunity to capture that trend through a financial product is really where that came from. It's very difficult to capture something that's moving so quickly like the metaverse space, the metaverse tokens, gaming tokens, NFTs, whatever it might be in crypto. So the idea of banging all of the top projects into an index was okay, this is a no-brainer because now anyone who's heard the term or is looking at this trend can capture it and getting exposure to it through a single token and it becomes simple. In terms of gaming, yes, lifelong console gamer. Started off with a Sega game gear and then Satan then PlayStation then went to the Xbox when local area network gaming came about. So I played a lot of Halo, a lot of FPS, first person shooters. And I'm still with Xbox today.

AG: Yeah. I think for me, it was, I started thinking about not necessarily metaverse as the term, but getting exposure to the NFT space somehow. Around the time we had the first NFT boom, which was right after DeFi summer right of 2020. And so when I came to the forum and saw the Metarverse Index proposal, I was like okay, I want this, I want exposure to the theme, but I didn't necessarily think about what exactly does it entail other than NFTs and some games, I was aware of Axie and Aavegotchi to some extent at that time.

So I think for me, it was more like, there's got to be a way to get exposure to this NFTs and gaming thematic. And that's what I thought metaverse was at the time. And then, yeah, with gaming, I think I've played a lot as a kid and growing up, but not for the last 15 years or so. I think Sega was a 16 bit, I think I had the 8 bit console before Sega. I forgot what it was called and then year of unreal tournament cone strike growing up. And then World of Warcraft a little bit here and there, but not much for the last 15 years or 12 years. And yeah, really enjoying getting back into it now. It's a lot of fun.

Crypto_Texan: Yeah. Let's change directions a little bit more to just the Metaverse Index specifically. And let's talk about the token inclusion methodology, and I know that y'all have different categories, virtual worlds, gaming. Can you just kind of touch on the methodology little bit and maybe just describe what types of categories you look for in this index?

AG: Yeah. So happy to cover that. So with any methodology, if you want to have an objective methodology, the better first step is how am I going to screen all of these tokens on CoinGecko for inclusion. I can't really manually go through 5,000 tokens and figure out what I'm going to put in. First off, it's subjective, second off, it's impossible to do time wise. So the very first step is figuring out how to screen things so that you end up with a feasible list of what can potentially go into the index that you can then research. So when we launched, we were using CoinGecko categories and we were screening for, I believe five categories at the time, which was NFTs, entertainment, gaming, VR, AR and music, so that's six.

I think that's what we're doing at the time. And then basically once you screen for that, you have a list of tokens, which probably somewhere between 50 and 100 and then we'd sort of go through them and we'd look at, is it an ERC 20 or not? Does it have DEX liquidity or not? When has it been released? And so that would allow us to filter some more tokens out. So we had a minimum market cap requirement, we had the token has to be live for at least three months and then we had a bit more subjective liquidity requirement as well. And so then sort of once you've screened through that, you look at what's left and you try to apply a bit of a fundamental overlay on top of that. So you look at the team, you look at the history of any incidents, you look at circulating supply, you look at vesting, are there any tokens, any cliffs that are going to hit the market, where you'll get diluted, is there a massive APY Staking program where if you're not participating?

All of these things. And then what's left is basically what you want to include. And for the MVI portfolio. Then going back to the categories, probably six or seven months after we launched the index, we've decided to change from CoinGecko categories to categories that we have developed. And that was basically around, we didn't want to be tied to categories. We are a little bit handicapped with that. And when the product started growing and hitting 30 and 50 million in AUM, that felt a hindrance really, something that might hold us back. So we've developed our own categories for the application layer of the metaverse and that's gaming, virtual worlds, marketplaces, I think extended reality, AI, machine learning, things like that, I think we have collectibles as well. And a few other things that I'm forgetting now, our platform's one of them, yep.

Crypto_Texan: And that's really why y'all eventually decided to start the Meta Portal brand, right? I mean, there was a time last year where the two of you started to scale back your contributions to the Index Coop, which was sad to see, to focus on Meta Portal, the Metaverse Index in other initiatives. But was the ability or the wanting to, I guess, define your own categories for the metaverse the primer for that move?

Dark Forest: No, not really. That was more of an outcome and trying to sort of take more control over our own destiny. Really. I think the main reasons for that move were we were stretched pretty thin trying to contribute at the Coop I, and manage a product to the best of both of those initiatives. So it made sense to focus on doing one. And I think with metaphor or we both enjoy writing AG does, and I do, but I think we to put our thoughts down. Occasionally we like the freedom of being able to sort of pursue things that we found. Interesting. So a AGs obviously gone off and he's got a scholarship, actually, scholarship. Now we got some advertisement partners on the sub stack. We're looking at what else at that time it was what else can we do with this?

It can become, the index can give us a nice income generator, but what can we do with that? And if we want an open metaverse and we want to be people who actually make this thing better and make steer the direction of how this thing grows, then we can become a part of that in our own right. With a brand basically. So that's where it came from really. And like I said, that specific thing, the categories was just a good idea to give us more control over what does and doesn't go in. So you imagine CoinGecko's job is pretty hard, the amount of new tokens they get every single day, they're just banging out these categories on them, not always with the most due diligence, whereas we can sit there and take our time and do the normal process that we do for every net token inclusion, which is speaking to the team, deep diving the tokenomics, making sure that the product is actually live audited, works, et cetera. So just give us more flexibility, but more control over our own destiny.

Crypto_Texan: And so what, can you just describe Meta Portal, I guess, in a little bit more depth, so what is this organization? Is it a DAO, is it a meat space company? Is it just a Twitter handle? The two of you in a Substack? How would you describe it?

Dark Forest: I think we don't know yet. It changes as we go, which is one of the exciting things about it. We first sort of kicked off the direction that we were going to go in over some lovely cocktails on a beach in Greece, back in August last year. And we set forth, here's what we're going to do for the next three months and I think we kind of achieved that. And then we tried to do the same again this year and we've ended up focusing slightly on different things, but we've sort of kept to the core of what we're trying to do, which is grow those revenue streams through index products and other initiatives. But I think that our ideas change quite often.

And so in terms of what Meta Portal is today, it's us and our community, hopefully a community of people that enjoy reading and hearing our thoughts. And we've had some good conversations in the discord with our community. And we've had people reach out and actually get more involved like the gaming newsletter, if anyone's seen that's, comes in part from a guy in our community called Daniel. So at the moment, it's just a way for us to engage with people who enjoy being in the metaverse, being part of this thing emerging and a way for us to share what we are up to with other people. Where that's going to go in the next three to six months like I say, it kind of changes. If you'd have asked us in August last year, it'd be completely different. Where it was in January it would be pretty different to where it is now. So I think we like to keep our options open and yeah, see where it leads us really.

Crypto_Texan: AG, you've got anything to add there.

Dark Forest: I wonder if we've lost him. His internet has been a bit doggy.

Crypto_Texan: Yeah, he was cutting out a little bit. That's okay. Well we'll just move forward then. Yeah, so I subscribe to the Meta Portal sub stack and listen to the podcast and yeah, y'all do put out some really great content. And I think one that I just read recently, and I feel this is becoming a major theme in the crypto space and that's the blockchain gaming or play to earn gaming and in game NFTs and Meta Portal put out a primer on, what are some valid criticisms in shortfalls of play to earn gaming, blockchain gaming, in game NFTs. Do you want to touch on that a little bit? What are some valid criticisms of that space? Because I feel there is a lot of push back that we hear and see from traditional gamers and I think Discord try to integrate NFTs and they got a lot of push back as well. Just curious to hear your thoughts on all of that.

AG: Can you hear me coming through okay?

Crypto_Texan: Yeah, we gotcha.

AG: All right. Yeah. So it's interesting, right? Because we do get crypto gaming and blockchain, in game NFTs does get a lot of push back from traditional gaming. And a lot of people in crypto tend to just be like, oh yeah, these guys just don't understand. And it's interesting because from looking at the space and researching gaming for a while now, quite often, it's not traditional gamers who don't understand, it's crypto gamers who don't and understand. So there are a lot of really sort of credible and valid criticism of crypto gaming. So first one is that, the quality is s**t. The quality of crypto games is not great. If you sort of try to compare it to traditional games, we are taking stepping back into 1990s, maybe 2000, so early 2000s for the quality of some of these games.

And crypto people then tend to say, oh yeah, but look at Illuvium and Star Atlas, and these guys are going to develop AAA quality games in the next three months or six months or whatever. And that's, we don't think that's going to happen. That's just not true. I don't have too many game dev friends, but I have a few and I've spoken to them and they tell me that it's literally impossible to deliver what Illuvium and Star Atlas are promising. For Star Atlas specifically, there is a game called Star Citizen, that is basically what Star Atlas wants to be. And those guys raised, I think up to 500 million and they've been building this game for seven years and it still doesn't work. So we think that the qualities is poor and it's going to take us some time to get better. So I think we need to be realistic about what crypto games are and will be for the foreseeable future. So that's number one, right?

Number two is the user experience is challenging. It's having to deal with crypto wallets, hopping between chains, figuring out how to cash out any awards, it's really challenging. So we are nowhere near kind of what mass adoption you are. I will look, and we are seeing some better implementations, but we still quite far off. Let's see, I think, because the games themselves, the quality of the games themselves is poor. A lot of teams are not really focusing on building a good game and building a fun game. They're focusing on the crypto economic loops and stretching that as far on the Ponzi, non-Ponzi range, stretching it as far as possible. So that's where, the GameFi term that's sort of what it is. It's sort of DeFi farming mechanics with visual overlay.

But crypto game themselves, the way we see it is video games. And so we've seen a lot of GameFi and that's not really gaming. I think valuations generally pretty high for lack of users and poor UX and poor quality of games. Distribution, I think a lot of people don't understand how hard distribution is. You can't really get a crypto game onto Apple store, Play store, it's really hard. Esteem said that they crypto games. Even if you do get a game onto Apple store, Play store, they take 30% of the revenue. That changes the economics for developers, for studios quite a bit. And there is a limit to how much you can distribute the game directly by having people download an app outside of an app store, whether it's on mobile or PC.

And yeah, the last one is around land. And there is this argument that there's, we don't necessarily need to mimic the qualities of land in the physical world, in the metaverse because digital land can be abundant, right? We don't have physical restrictions. And so there are a lot of examples of digital scar land leading to land crises and collapses of the digital real estate market in different work, virtual worlds or games. And it's valid that a lot of teams in crypto gaming do not know that and haven't studied those things. So those are some of the criticisms that we find to be really credible and really valid at the same time. There's still a lot of positives that in the long term, make crypto gaming sort of a big step up from what we have today.

Crypto_Texan: Yeah, wow. That's really interesting. What was the virtual world land crisis you were referring to? Is it something second life?

AG: There is an article really well written case study by this guy called Lars Doset, on Twitter. And so he's a game developer who sort of studied these things for quite a while, and I'm happy to drop it in the chat. I forgot exactly which world, but there was several worlds that had these sort of land crises and they tried to deal with them in different ways. Right. So his article not only covers the instances of land crises, but also what different teams try to do and what works and what doesn't. So he sort of talks about the land value tax or harbinger tax is a different variation of it, but some sort of a tax system to make sure that the land in games is used is actually utilized. So if people want to build something there's land for them to build it, and for that to happen, speculators need to pay the price of just holding and squatting on the land without actually doing anything with it. I'll drop the article in the chat.

Crypto_Texan: Yeah. That'd be great. And it's interesting. It's almost like these crypto games when you have scarce assets that you need to utilize within a game, it's almost they need to hire their own economist. Just for a micro economist for the game that they're developing is that... I think we talked to Ryan, from DG about that a little bit, but is that a trend that y'all are seeing in the space at all?

Dark Forest: Yeah. We spoke to Tim, from Sipher, did a podcast with him recently, and he mentioned that I think they have two economists game economists for their upcoming game. So yeah, it's becoming a pretty serious intersection of economics and game design that you have to think about these things and make sure that they work long. If you look at something like Axie, there's literally billions of dollars at stake and upwards of millions of players. So if you get it wrong, the consequences can be huge. And I think actually to go back to a point that AG made earlier, a lot of crypto game projects are almost either deliberately or just unintentionally, I don't know, they're just not, they don't seem to have taken an account of anything that's happened in traditional gaming over 20 years.

There's so much to learn, there's so much information, examples of things that have gone wrong. The land scarcity stuff is a great example, which is why I think Nifty Island is a great idea. It's literally playing the opposite, which is land is abundant go and make the most creative thing that you can. Land scarcity has been shown time and time again, to make a mess of things. And you get landlords and rent extraction, and it turns into a whale's game and it can ruin the experience. So to just build a game and do constant land sales like you see from Sand Box, I think it could land these projects in hot water and they have to be careful. And so yeah, that's where game economists come in, people who are experts in the design of the game themselves and have that understanding of economics and convert them both to work.

Crypto_Texan: Yeah. That's interesting. And okay, so we've talked about out some of the valid criticisms and shortfalls of crypto gaming play to earn gaming, but there are also obviously some ways in which this space is better than the traditional one, which is why you've been teasing this game index on Twitter. So let's talk about that a little bit. What are some ways in which you feel the play to earn gaming is better? And how did that push you to want to develop this game index token and maybe just talk about how is it different from the Metaverse Index? And also you guys have chosen to deploy this game index directly on token sets, as opposed to going the Index Coop governance route through that partnership. So I'll just let you talk through all those questions. I feel I just gave you a lot of questions, but I'll let you talk through those.

AG: Yeah. I can cover sort of what we see as benefits of sort of crypto gaming using blockchain and NFT tech for games. And then Dark Forest, can maybe talk about the game index and how it differs from MVI and why we've sort of decided to go through token sets directly. So on the benefits, the first one is the fact that blockchain and crypto games and using NFTs allow us to have open and trustless economies. So we all know that with gaming, there's always black markets, gray markets. Some of them are scam, some of them are horrible, it pushes a lot of this economic activity underground. And that just doesn't really make sense. So I think having an open economy is a massive advantage. And the fact that if that open economy runs on a public blockchain, then that economy itself is pretty trustless.

And with an open economy, players can monetize their time. If I've put in 20, 30, 50 hours into a game, maybe I won an NFT or two, I can sell it, I can monetize my time in a way, I can also exit the game. So let's say I spend $1000 buying Axies, I played for a couple of months and now I don't want to play the game anymore so I can go and sell them. So it's not sell at a certain cost as it is in traditional games. And so it's interesting because the traditional gaming developers, they can do this. They can do open economies, they just haven't really done so.

Another benefit of open economies that the prices are set by the market, which is the different from the developer controlling the pricing. So I think it's also worth pointing out that even though the economy itself is trustless, the games are often not trustless, because the developer still controls a lot of what's happening with the economy and controls what your character can do in games, through buffs, nerves, sinks, and other mechanisms. So you do kind of have to trust the developer, but the economy self is actually open and trustless.

The second benefit is the equity exposure. So basically token allows us to align incentives between gamers and the developer, as well as other participants in eco system, whether it's community or streamers or other sort of ecosystem participants and that's something that's not necessarily possible in the traditional gaming environment. I think one of the interesting ideas, and we hope that a lot of this sort of happens, is third party or community modes, often existing game that are funded with a token. Basically we know from the history of modes that they actually, sometimes they tend to bring a lot of value. We know modes that have been more popular than the actual game, we know modes that have been incorporated into the next installment of a game. So it's the ability to use the token to align incentives is really powerful. It's also mentioning that I think the equity exposure is probably needs to carry equity or something similar regulations. So I think there's a big risk of regulation in there.

I think governance is really interesting. I think they're good and bad things about governance, but the ability of the community to sort of contribute to the evolution of a game, to contribute to what is going to be the next expansion and in which direction can we take the story and things like that, I think it's really powerful ability to... And having tokens so NFTs that are verifiable gives us the ability to do that. Again, you could do that with a centralized system in a traditional game, it's just that the traditional game developers don't want to do it.

And the fourth benefit is really the difference in the monetization and the economic model. The way you monetize the crypto game is through the economic activity, which is why open economies are so important to this. And also if you think about marketing, for a AAA game, the marketing budget is often as big as the development budget. So we're talking 60, 80 million at a low end for both development and the marketing budget. So in crypto, you don't really need a marketing budget, because the token allows you to align incentive between the community and then the community has to push the game forward, has to push the marketing because they're financially invested in it. So we generally see that the economics of the crypto games are much better than the economics of traditional games and we think that's a huge benefit.

Crypto_Texan: Well, yeah, I can definitely see all the benefits there, yeah. It's just a matter of finding the common ground and merging between those criticisms and then the obvious criticisms of the crypto gaming space and then the obvious benefits and advantages and the alignment that the token incentives can create between developers and gamers. Yeah, that's really interesting. Yeah, Dark Forest, if you want to talk more about the game index, go for it.

Dark Forest: Yeah. So I think you asked about the differences to MVI and I think if we focus on the fundamental mandate for MVI, it was to capture life as in sort of social and business, or moving to take place in digital environments. And we recently updated that to specify that those environments should be powered by NFTs and blockchain. So MVI is kind of that broad, we've seen this trend, how do you capture it? And that's what's designed to go into MVI. Talked a little bit about the categories as well and how we see those different sectors of the metaverse. So I guess game is, okay, you're in the metaverse, what you're going to do. And gaming is currently the hot narrative, it's the hot sector. So you're going to do a lot of gaming. And as AG, has just pointed out, there's a ton of benefits to NFTs being involved in these games and basically the crypto aspect to it.

So game really is focusing on the traditional gaming is a growing sector, is going to be, or is predicted to be about $269 billion worth of an asset class or a sector by 2025. So there's tons of growth. It's been around for decades at this point and it was written off at the start and now there's even consideration for E-sports going into the Olympics. So the narrative on gaming in general has totally changed. So we're looking to capture that. So then you're in the metaverse, this is the top sector at the moment. So we're seeing billions and billions of dollars come in to NFT games, crypto games.

If you look at the numbers are pretty staggering to be honest, I think it was FTX that have raised a fund a couple of months back, that's $2 billion purely for gaming, mainly Solana focused of course, but there's money coming in. So even though there's a ton of rubbish, there's definitely going to be stuff that comes out of this that is good. So the sector itself is growing, money is coming to support it and while probably in the short term stuff has been over hyped. You're definitely seeing good things happening and projects making real products. So game really is, can you capture that part of the narrative? And do you know what really struck me was, listening to AG talk about all of the sort of hard truths and is kind of ironic that we've put that article out there a week before launching this product, because it basically FUDs the whole space and says, everything's overvalued and over hyped and actually we need to take a step back and consider what's really being built here.

But actually I think, I say the fundamentals are there, it's a growing space, there's money coming into support it. We are seeing innovations and real things being built. And of course, it's powered by self-sovereign ownership of your digital assets, which is an extremely powerful thing. So game, in terms of a portfolio, if you looked at it from a portfolio perspective, I think you look at it as a sort of supercharging your exposure to the metaverse. If you've already got MVI, maybe you would take up a 20 to 30% allocation in game, just to capture that. We've seen that the top performers within MVI have been gaming related. So we're talking, AXS, ILV they've all been up massively some inclusion.

So it just made sense to have a product that captures that. I mean, up until, even just recently, we've seen data that shows that gaming has stood up really well since the start of the year, and it's actually been the best performing sector. So yeah, it just seems like the time is right for that, but in terms of its differences, it's that narrow focus on a hot set within the broader metaverse. So that's how it differs from MVI. And then, yeah, the interesting question about why token sets and not with the Index Coop I guess, because we like doing things a hard way and we don't want to make it easy for ourselves, but the real thing is the Coop has a bit of one size fits all approach to feed splits, and rather than trying to shoehorn ourselves into that and sort of dealing with it in perpetuity, I think that we just want to see, is there something else that we can do?

And by the way, I want to make it clear that everything I say here, I have already discussed with Matthew Graham, probably other men members of Index Coop. We've had these kind of discussions so none of this should be new to anybody. But in terms of that fee split, I think the main benefit we see of working with Index Coop is that kind of re-balancing as a service, but where we are currently at, I think that's all that we're looking for the time being. So the fee split would have to be sort of flipped the other way around in order for that to be tenable for us. I mean, if you look at the numbers, if we take a hundred percent of the income from this product and we get it to 8 million, that's the same as the current fee split with MVI at 40 million. So there's a lot less pressure on us to grow it to a massive size, to have the same sort of levels of profitability.

And I want to say that, as I said, all of this stuff has been put across to various people at the Coop already. We haven't closed the door, I think there's always an option to work together and there are definitely things that the Coop can do that we can't. So perhaps in the future, it would be a case of having those discussions, but the door is always open and we came from the Coop, we understand how it works, what it does well, and it's just a case of falling onto something that works for both parties I think in terms of what it can be offered and what we have to give up in return.

Crypto_Texan: Well, we're kind of running up on time a little bit here actually we're over time, but yeah, I'm excited, I love the Metaverse Index, I love what y'all have done in your historical contributions to the Coop and getting to Coop to where it is today. Love the Meta Portal sub stack and podcasts, and very excited for the game index, which I think you said is launching next week. So like I said, now that we're over on time, the final question is where can people go to find out more about the two of you and Meta Portal?

Dark Forest: Yeah. So we're both on Twitter I am @DarkForestCap and Verto is @Verto0912. We have a website, not many people use it, Metaportal.wtf is our website and the probably best place to go now. It's a bit of a hub, it's got all of our product information, it'll soon have, if it doesn't already, no, it does have links to our get book. So you can find detailed information, contract addresses, et cetera. So we've got everything on there. I'd say start with the website. And as I say, we're both on Twitter and we've got all the links in our Twitter as well and recently opened our discord. So anybody is welcome.

Crypto_Texan: All right, guys. Well, I really appreciate you coming on the show today. Thanks to everyone who's listening live in the Index Coop discord. This is being recorded and we will get this out in about a week. Dark Forest Capital, AG, great to have y'all and have a great weekend and I'll see y'all next time.

Dark Forest: Awesome. Thank you.

AG: Thank you.

Host: @Crypto_TexanAudio Engineer/Mixing: @LloveraFrankMarketing Image: @crypto_diller_Transcript: @0xMitzy / @Crypto_Texan

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Crypto Texan: Hello everyone. Welcome to Conversations with the Coop. This is where we source questions from the Index Coop community to gain insights from today's leaders in crypto and DeFi. I'm your host Crypto Texan. And today on the show, we have Alexander Guy, who is in charge of Growth at Zerion. Alexander, thanks for being here with us today.

Alexander Guy: Thanks so much, Texan. I really appreciate it. And happy to be here.

Crypto Texan: Yeah. So let's just get started with your story Alexander, what's your background and how did you get into crypto and DeFi?

Alexander Guy: Good question. I imagine when you do these podcasts, you probably get a wide variety of answers, but I wonder if recently as more and more people have come into this space professionally, if you have more sort of like variance in the way this all starts out. For me, I very much have a Web 2 growth and marketing background. So I've worked in a number of different industries, a number of different stage of startup, but mainly in the tech Web 2 kind of space. I've been in that for about 10 years. And I guess like about a year and a half, two years ago, right when the world was coming to a standstill, I started getting into an NFT game called Sorare.

Having worked in like tech and kind of been around the space for a while, I was like aware of crypto and Ethereum and then Bitcoin. And I even read a little bit, read a few books about them, but I'd never really, I don't know, I guess this is like super naïve now, but like at the time I kind of viewed like crypto as almost like a sub-genre of all these like cool tech startups that were coming out at the time. So like similar to, I don't know, maybe like AI or something like that. It was like sort of a, in my head at the time, like a kind catchall term that sort of summed up a sub-genre of like the startup industry and space that I was in. But once I really started to get into Sorare, which if you don't know, it's a fantasy football game where like you buy cards that are NFTs, they have different Rares represented in the game, but then you compete for Ethereum and card prizes on a weekly basis.

And so like for me, this, I guess was like a sort of a light bulb kind of moment. On the cards themselves, you can see the Etherscan address. And so I click on this Etherscan address. I start looking into this. A really great friend of mine works at Ledger. And given that he was a somebody who I could turn to and talk to a lot about this, I started talking to him about Ethereum and NFTs and just getting more and more excited about the space. And from there, at least for me, I think this is probably true for a lot of people, especially new entrance into this, relatively new entrance into this space. Like NFTs in general, kind of acted as like a Trojan horse for me, where I was super excited by this. I started getting into some other Discords like God's Unchained and Forgotten Runes Wizard's Cult, and things like that.

So I started like really getting into NFTs and they were kind of like the root into, I guess, a more nuanced understanding, hopefully more nuanced understanding of crypto and Ethereum ecosystem, which obviously is represented in DeFi. And then I think another question that people ask me a lot is about the transition from Web 2 to Web 3. Basically once I had some NFT assets and I started thinking, in my collection, I guess, and I started buying Ethereum and participating in some of the more well-known DeFi protocols like Aave and Compound, and like thinking about out how to do like various yield farming techniques. I missed DeFi Summer, because I was sort of still lagging behind on the whole, like what's going on in DeFi space, but I started using Zerion pretty much once I had some assets that I needed to manage.

And after that I started sort of communicating with the team via Discord. And then in sort of about this time, last year, I saw that they were looking for a head of marketing and I just started interacting with the team on their Discord. And yeah, here I am. So it started with NFTs, ended up with DeFi, I guess is a good way to put it.

Crypto Texan: Yeah. And you're right. I have seen and heard of a bunch of different backgrounds of people who come into this space. And I think that's just because this space caters to a lot of different types of people, right? I mean, you've got your TradFi finance people that come into this space, you've got your Web 2 people who are more technologically savvy, and then you've got, more from an economic and philosophical background, right? From just like a macro sense, you get those people coming in, and now with NFTs, just as you said, I feel like that's brought in a whole different type of person into this space. And I think that's just going to continue to grow. So, I don't know. What do you think is the next type of person that's going to get brought into this space?

Alexander Guy: Well, first of all, it's a really good question. I'm sort of fascinated by the fact that the diverse groups of people that you named are kind of like all motivated by some version of the same philosophical point of view or maybe narrative, which is a lot about taking back control, correcting the wrongs of Web 2 in some ways and how user data and user personal information is exploited. And I think that that kind of narrative fits very nicely into a group of people who I think are starting to really sense the potential with this space. And that's like creators of any kind. I mean, music NFTs are still very much at like the beginning, I guess, but you see artists, photographers, musicians, like I say, increasingly realizing that NFTs offer them a way to not only reap more actual financial benefit, Spotify's recently come under a lot of fire for a number of reasons.

But obviously one of the ones I'm talking about is the actual model they have for paying their artists and NFTs obviously offer an immediate solution to that problem for musicians. But I think you see a lot of creators basically finding the confidence and the, I guess like the financial freedom through NFTs and crypto to actually launch their careers, which is fascinating to me. And you don't need, it's not like every NFT project needs to have some kind of thriving Discord with thousands of members or something like that. You see people just very humbly launching like a photography collection via Mirror and all of a sudden having enough money to actually make a career as a photographer and start getting going really in that space. And so for me, I think creators are certainly a key demographic of people that are starting to grasp like the power of what we're all so excited by.

I think probably very similarly, and this is not at all like a hot take. I just think like we're still so early in the, like the gaming kind of sector and like how gaming and the intersection of like an NFTs, crypto, digital assets in general interact within a game context. There's obviously so many different permutations that a game can take. It could be a fantasy sports game like I was talking about with Sorare or like a total immersive world, like Decentraland. But I still think that we're very, very early in that story and like gamers are really primed on mass to come into this space. At least that's how it feels to me. I think that's, again, like I said, not exactly the hottest take in the world, but it seems really relevant to me and I just like want to stress it because I feel like we're so early.

Crypto Texan: Yeah. I completely agree with you there. And we've seen a lot of push back too from the gaming space related in NFTs, but I think those are also the same people who are just against micro transactions in a video game in general. And I totally understand that, right? Like the people who just want to have a video game just to play beginning to end, without having to pay to 100% a game or to complete a game. And I understand that, but yeah, there's definitely other ties. I think it just, the blockchain space, has a way to develop a completely different type of game where you can't take ownership of assets. And it's not necessarily infringing on the legacy games that are still great and fun, but that can be a completely different conversation. But we are here to talk about Zerion. So you kind of touched on how you got to Zerion. So can you tell us what is Zerion and you're on the growth team, and just tell us what that role entails at Zerion as well.

Alexander Guy: Sure. Sure. So I'm head of Growth at Zerion. And I guess like the easiest way to think about Zerion is actually to kind of tell a story of the company and the product itself. Zerion started very much with a mission of sort of taking all these disparate and very spread out areas of like DeFi and the Ethereum ecosystem and trying to create like one single place where you could manage and see all of your assets. So across multiple wallets, across multiple networks or protocols, basically the vision was to create one central like, central is a tough word in this space, but that's really what it is. One place where you can view all of your assets and like see their performance over time. So basically the product is non-custodial. And the first thing that happened was we wanted to create, or the founders wanted to create a place where like somebody could just come in, connect their crypto wallet, and like immediately get insights into their portfolio.

So they built a number of really interesting features that I think helped along those sort of like taking control or understanding what's happening across your crypto footprint, for example, like a real-time profit and loss graph that shows like your portfolio over time and really detailed near real time push notifications and like alerts/history that allow you to like really see like, okay, that swap I did is like actually gone through. Oh yeah, I received some airdrop that I didn't know about. And that was kind of like the first stage, I guess, of Zerion. And that was in 2017, late 2017, 2018, which obviously was a tough time for the market. But quickly after that, the team realized that what we needed to do actually, like if you can see your portfolio, you obviously want to trade and like do things with it, do things with these assets.

So we added like simple swap functionality to start, which now has become kind of like a DEX aggregator of DEX aggregators. So right now, if you can execute swaps and trades via Zerion, and we have integrated with like some of the major DEXs out there, like 1inch, Uniswap, SushiSwap, Uniswap v3, 0x, basically what we do when you execute a trade through Zerion, we'll find, through all those DEX partners, we'll find the cheapest trade, like the cheapest option for whatever trade you want to do, and then like give you the option to choose that DEX. So basically it ensures that you can get the cheapest trade at any given time. Obviously, if you have rewards or your whatever, a PSP holder or a 1inch token holder, you can choose whichever network. So you don't have to choose the cheapest one, but we'll default to that kind of at the start.

And then, okay, so trading's there, you've got your whole portfolio history and everything about your DeFi assets mainly. Basically what we started then to think about was like how to incorporate NFTs into this story. And so recently we've added a number of different bits of functionality to sort of position your NFTs, just alongside your DeFi assets and your crypto portfolio. So once you connect your wallet, assuming you can also now see your NFTs there as well. We have the ability to filter by like floor price and last price. You can get an idea of like what your actual value of your NFTs are. You can see detailed attributes. We work with OpenSea and Rarible on the API side, to make sure that you have all the attribute data there. And you can also send them to different wallets.

And so that was kind of the, I guess like the most recent phase of Zerion, but the big focus for us over the last, let's say two, three months really, probably longer than that, but certainly in the public perception is we actually added support for six additional networks as opposed to just Ethereum. Previously in Zerion's history, we only supported Ethereum assets, but now we support assets across a total of seven networks. And that's soon going to go up to 10. So we're really trying to increase the, sort of the multi chain functionality and the multi chain use cases that you can experience with Zerion. I guess that's pretty clear about the product.

What we do on the growth team, what I'm trying to lead on the growth team is we want to try to figure out the, I guess, the best way to get both the brand of Zerion out into the, sort of into the space, particularly with a new crop of people, like a new addressable market that's been coming in over the last couple years, this would be the sort of NFT crowd. I think within the DeFi Degen sort of space, we have a pretty solid brand awareness. But within a lot of these new people into the space, we sort of are like, maybe not as well known yet. And so we're focused very much on driving brand awareness, kind of across to cover that cohort of users too. But we also are trying to figure out ways to build out true community and create value for the people that are already on the platform. We released our own NFT in July last year with the intent of trying to build out like a crop of loyal users.

And so we basically run a number of experiments across basically any marketing channel you can think of, any growth channel you can think of, including the product to try to drive engagement and really help users get the most out of Zerion.

Crypto Texan: Yeah. So what, and you touched on this a little bit, but what do you feel like is the true target market for Zerion? Like, are you all looking to onboard kind of the newer Web 3 users? Or are you trying to focus more on, I guess the DeFi degen, OG market?

Alexander Guy: I think a real like... I should have said this in the product description or sort of the product overview, but we are available right now on web, mobile, iOS and Android, and also along the macOS desktop, and a key focus of ours from the very beginning has been to like, sort of take like a very complicated, very, I don't know, difficult to understand world, which is like defying crypto sometimes, and try to make it like as easy to use and understand as possible. And so undoubtedly that USP, that experience that we deliver is really great for new people to this space. But we kind of like have this funny requirement, I guess, in that like, we can't get truly anybody new into this space right now, because we don't have a wallet.

So like to use Zerion, you have to connect your crypto wallet. So we already assume that somebody has interacted with the environment a little bit, that somebody has actually gone and developed some sort of idea about the types of assets and things they want to invest in on their own. So like basically we're solving this one problem of having them be able to view it all in one place and then do great things at afterwards. But quite soon, we're going to be able to look really at these, maybe not necessarily new, new, new, never heard of crypto, never thought about it before in their life. Sometimes I like to talk about them as advanced beginners. So like, they know what gas is, they're aware of like why it's hard to track all this stuff, they've had the experience of sending money to the wrong address and then losing it forever because you didn't switch the right network in MetaMask. These are like relatively advanced problems, but there still are probably early in their story.

So I'd say this advanced beginner crowd is probably like the easiest way to talk about it. Having said that, we've really invested for a long time in sort of like a, how do I say? Almost like a motivational message for the team, especially recently of trying to be able to deliver like, tracking and trading for any asset, any chain on any device. And this is clearly a message that experienced very, very, maybe not Degeny people, but certainly people who've been in this space for a while. It resonates with them because a huge problem is like, oh, that asset isn't there. Or, in MetaMask I can manually add it myself if it's not listed already and all these kinds of problems.

So I think that we probably are versatile enough to address a couple of different audiences, but I think for us, the focus of really great, simple user experience naturally yields us to addressing maybe a less Degeny, but still sort of dipping their toe in type of user. I mean, that's not like a user persona description that you're going to see in like many marketing or growth textbooks, I don't think. But that's kind of how I like to think about it.

Crypto Texan: Yeah. Well, the Web 3 crypto space is a very different space. So I think that's probably why you wouldn't see that in your traditional marketing growth textbooks. But do you think that you all will have plans to integrate your own wallet as well in the future onto the platform?

Alexander Guy: Well, we figured out some teasers about it. It's definitely in the works for us. I can't give away any deadline or really any features, but we're definitely working on it. It's an important step for us I think, because of the fact that what it allows us to do, as I mentioned, is like really target somebody who maybe isn't again, just starting out their crypto journey, but certainly to create an experience where someone can come right into Zerion, create their wallet and immediately get started. It removes that requirement for us to target somebody who's like already, I don't know, has a ledger, or is using WalletConnect or something like that. Like, we can like get around that now. And I think that's an important step for us.

I also think it's an important thing, like in terms of what our overall mission is, I don't think I've said this at the time, but we kind of like to think about ourselves as like mission control for Web 3. Like that's sort of like, I don't know, maybe that sounds like really spiny, but basically what I mean is that we believe that someone should be able to have everything within Web 3, like within their fingertips, if they're in Zerion. So like you should be able to look and explore different NFT collections, you should be able to then jump over and check out some of your favorite asset prices and how they're doing, you should be able watch wallets of famous or like relatively famous crypto people. Like, you should be able to do all that stuff within a few clicks in a really easy to use interface.

And so for us, the wallet really allows that whole story and vision to like kind of come full circle, I guess. And so, like I say, I can't give away any deadlines on dates or anything like that. Any developers on the call might kill me if I did, but it's definitely something we're working on. And it's important to our overall strategy going forward.

Crypto Texan: Yeah. And I feel like being a wallet or a wallet user interface for new entrants can also carry a lot of responsibility. And I'm just thinking about how many of those spam or malicious token that I've had sent to my wallet over the years, especially in low gas fee environments, like Binance Smart Chain or Polygon. And I think this is kind of where the Coinbase wallet falls short. And I think Coinbase wallet is almost becoming a wallet that a lot of users are using first because Coinbase is a name that they know and understand, but I think that's where it falls short in the sense that it does just kind of show all of those tokens that could be fraudulent or malicious, right? I don't know. I'm just wondering, is Zerion doing anything to help protect new investors in the space from scams like that, like on the education side or I guess on the UI, UX side as well?

Alexander Guy: I think it's a great question. And again, a problem, I think many people on this call have experienced before. And so for us, it's a huge priority for like trust, like for our users to be able to trust what they see and trust what's happening, whether that's the history, the transaction history that I mentioned earlier, or the tokens themselves that are listed there. Basically we introduced, I think it was like about a year ago, if I remember correctly. I'm a little soft on the actual dates, but we introduced about a year ago, the notion of like a blue check mark for assets. And basically once an asset that you see in Zerion is listed in at least three token lists, it will be like verified by us.

Basically that means that we can sort of validate that this isn't some kind of rug pool. This is a legitimate project and this is a token you can trust. So that kind of started, I guess, that whole journey towards making what people see in Zerion more trustworthy or like trust-able rather. Recently, we've added a number of different ways to hide, or like remove the sort of like small balance of tokens from your overall portfolio view. And this is again, towards like trying to restrict the idea that somebody could think there's some kind of token there that actually is either fraudulent or is some kind of scammy thing. And I think it's, for us, like a very important priority going forward to continue to find ways to make sure that users can remove them or report them.

I don't know if we have anything added other than like, on the actual like, not within the product itself or the UX, but we have a really active Discord group with some fantastic people on the support side. And when users report scammy tokens, we have a really great track record of like getting rid of them, doing everything we can to make sure that there's a way of communicating with our users, that this potentially is dangerous. And actually we... Like many, I think DeFi projects out there, we have scams, like people creating fake token claim pages for Zerion or yesterday, actually there was one that was like, claim some Zerion NFT, and these are like really convincing pages.

And so we've actually faced this ourselves. And we always try to be really great about communicating with people that this is not something that's coming from us. And it's a really important thing for us overall. And something that we, as I say, have experienced like kind of close to home, I guess, because people keep trying to create these ways to scam our users or anybody interested in Zerion, like out of their money, which is obviously terrible. I'd say that as we go and build out the wallet and figure out what that's going to be and look like at Zerion, the idea of figuring out more and more ways to make sure we're protecting users is pretty central to what we're doing.

Crypto Texan: Yeah. I've noticed that in my personal experience too, that one of the more difficult things when on-boarding a new person into Web 3 and crypto is telling them, "Hey, don't give out your private key to anybody or your word phrase. And if you're in a Discord, no one is ever going to DM you." Like, no one ever wants to give you free money. So don't believe it, right? It's like, one of my friends saw that I was tweeting about this new NFT project. And he was like, "I want to do this. I want to be part of the mint." And I was like, "Okay, join the Discord, do all this, set up your wallet." And then he reached out to me, he goes, "Hey, someone from the team reached out to me and they said for me to get on the white list, I have to send them my passphrase." And I was like, "No, God. No, please don't do that. Don't." I was like, "Stop." So, yeah. That's one of the toughest things, I think. That was just kind of a side note.

Alexander Guy: Oh, but it's so challenging, right? Because like, they're clearly... It's kind of like a, there's clearly, in this industry, so much that can be gained by being early, right? Like, we're so early. That sometimes I think bad actors can like take advantage of that urgency. And because people are trying to make sure that they're early to something, because obviously that's how they're going to get the biggest benefit, there's really like a, sort of a toxic kind of combination of things going on there that can make it really hard to spot a phony setup or something. I should say that like one feature I can talk about with the wallet because it's related to this whole passphrase idea.

So one of the things that I think is quite confusing, especially when you're just starting out in this space is like, okay, what is this thing and why am I not supposed to share it? Like, how do I share it, but also not store it anywhere? There's a lot of like, around the whole like creation of a crypto wallet. Like, I think a lot of things that, especially new people to this space are like really, maybe not put off by, but certainly like a little bit intimidated by, and what we've been trying to build on the mobile is almost like a little bit of like an educational tutorial about like what this passphrase thing is, what it means, what you should and should not do with it. And so it's almost like a little dialogue while we're creating the wallet. I think I actually tweeted out not too long ago, a little preview of that sort of first phase happening.

And basically what it does is it's like, this is your passphrase, you shouldn't share it with anybody ever. If you do, you could lose all your money. There's a lot of language that tries to, as you say, educate people to know how to handle this stuff. And the other thing we did, I think it might actually be getting like shortened a little bit, but what I had to do also was this idea of like making sure people actually write down their passphrase by like asking them to say like, okay, what was like the eighth word in your passphrase? Click it here. What was the third word? Click it here.

And if you don't click the right one, it's like, "Hey, go back and actually write this down because it seems like you didn't write it down." We may have shortened that process. I can't remember what the latest look and feel actually, how it actually functions, but we certainly have tried to build education around this concept into it, because if we ever do start attracting and trying to address like really, really new entrance to the space, it's important that there's this educational layer. Because as you say, it's really easy to get scammed.

Crypto Texan: Yeah. And some of the biggest anti crypto, anti Web 3 people on Twitter that I follow and you should follow because it's good to get those different opinions. One of the things they always say that I agree with is they say, no one wants to remember 12 to 24 words to get access to their money. And I'm just like, "Yeah, they're right." That's... Right?

Alexander Guy: They're probably right.

Crypto Texan: Anyway, so let's kind of do some comparisons right now just for people who aren't that familiar with Zerion, like how would you compare Zerion to MetaMask? Like, how do you all differentiate yourselves from competitors like MetaMask or like the urgent wallet as well?

Alexander Guy: Sure. So on the MetaMask side for us, the mobile app and the mobile user experience, it's a major differentiator for us. We started, I guess we were one of the first DeFi apps with a mobile presence at all. Certainly one that's across multiple app stores. And in general, the user experience that we have there is like, I really think that we have an excellence iOS engineer in particular, but our Android team is fantastic as well. And what they've done is really tried to make this like a super, super smooth, really pleasant place to be. And I think that like anybody who's used the MetaMask mobile app, there's a lot of great things about it, but I think that the user experience side, the look and feel, like how it feels to be there is pretty challenging.

On the website, I think one of the most frustrating and sort of confusing things about MetaMask is like, when you're trying to do things across multiple chains and you're constantly having to change networks or you're trying to execute a transaction and you forgot to change the network because you were on Mainnet and now you're on Optimism, and so like, what Zerion... Like, basically we don't force you to change your network when you're in the web app, until you actually have to do something. So you can like browse, go around and everything like that, all you want without changing network. And it's only when you actually go to execute a transaction that you might need to change your network with us. And that's kind of like, I don't know, I'm mentioning a lot about user experience and usability, but that's like clearly a place that we're trying to differentiate.

We think that as new people get into this space, the level of user experience that's going to be demanded is going to be higher because there'll be less tolerance for sort of like a funky or confusing, or just generally broken user experience. And so for us, that's like, I think a really big differentiator. I think another one... First of all, the way that MetaMask prices their swaps is pretty aggressive, I think. And Zerion, for a while now has not charged on Mainnet. Like, we don't charge any additional fees on top. This is something that... We surveyed our users recently and most people thought we were taking some kind of additional fee for all this DEX aggregation stuff I was talking about before, and we don't actually take any fees on Ethereum and Mainnet.

And so I think that the fee piece is important because it, obviously like when you're already executing a transaction that costs, however much it costs with gas, to then ask users to pay like almost 1% of their transaction again, it's like pretty aggressive. And I think it's an important place for us. So on the Mainnet side we're not doing that kind of exploitation. I guess the other thing that's really important too, that I think is very related to like what people are going to increasingly look to do, I don't think that in the future people are going to care so much which network they're using something on, or they're doing something on, they're just going to do the cheapest, fastest thing possible. And I think with MetaMask, it's just still very hard to get a clear, complete view of what my portfolio actually looks like.

And Zerion allows you through multiple wallets, you can have like a whole portfolio of you. So you can see the total of your footprint across multiple wallets, like in end networks. And it makes it very easy to get an actual representation of what's going on. So I guess like, user experience, pricing, in general, like exploitation, I'd say, and then also the fact that it's just a little bit easier to get a clear view of what's going on. And I guess I should definitely talk about NFTs because I think that the way that we're approaching NFT collections and NFT, like how people look at, use, manipulate and track their collections is like really important. Because I think when you use a lot of major wallets out there, it's kind of hard to like really actually get a pleasant view of your NFTs. I think Rainbow wallet has done a decent job of this, but beyond that, the way that people look at and view their NFT collections is still pretty broken. And we've tried to invest a lot of time in making that experience a really enjoyable one.

Crypto Texan: Yeah. And Alexander, you mentioned about not taking fees on top of the swap feature. So how does Zerion make money? Like, how is Zerion monetizing this platform?

Alexander Guy: Currently, it is through like slippage, which I guess you could say is like a... Slippage is how we're doing it currently. I think that is relatively limited in terms of the amount that we're able to collect from that. So it's not exactly like making anybody millionaires, like the way that you see MetaMask and others providing financial statements, but slippage has been the way that we've made money so far.

Crypto Texan: Okay. And are there any plans maybe to create a Fiat to crypto on-ramp on Zerion? Because I think that's just such a huge unlock for people just to not have to go through a centralized exchange and then send it to a wallet. Do you all have any plans there and where's that on the road map?

Alexander Guy: So we have integrated partnered with Ramp Network and MoonPay. And so you can already on-ramp through... I'm a really big fan of Ramp Network. I think they're great. And the MoonPay team as well has really been fantastic with us. So we currently work with Ramp and MoonPay. So if you're on the web app, there's a little icon in the top right corner of your screen. It says buy crypto and you have a couple different options and you pick the one which works for you. And then you can go up to the races. In terms of building our own on-ramping, I don't think that's on the road map. I think that the Ramp team's doing a good enough job that we can probably, and MoonPay are doing a good enough job that we can keep working with those teams.

But I totally agree with you that like, especially for like a newer audience, like the fact that they don't have to do all that hassle, that is kind of a, as I say, like a little bit off-putting for someone who isn't familiar with the space, is really important. And so like for us, we've had that future. I guess as soon as we, when I think about it, as soon as we added the true swap functionality, we also were trying to figure out how to on-ramp into crypto via Zerion. So you can do that right now. And I've actually done it a bunch of times, including when I was first getting started with the product.

Crypto Texan: Yeah. And I don't know if you know this or not, but does MoonPay or Ramp Network, do they allow for Fiat to Polygon directly? Because that was a big thing that Dharma had for a while. And then Dharma just kind of like fooled everyone by getting acquired.

Alexander Guy: I can't remember if Ramp has Polygon-

Crypto Texan: Yeah. That's-

Alexander Guy: No, they have.

Crypto Texan: Okay.

Alexander Guy: They don't have polygon. But I don't know. I bet you they're working on it because you're totally right, that the sort of absence now of Dharma in the space in the wake of OpenSea acquisition kind of leaves a gap for that. I'm not sure about MoonPay. I wouldn't want to speak out of turn on MoonPay.

Crypto Texan: Okay. And yeah, let's talk about NFTs a little more and just kind of thinking of NFTs more as financial assets or how they operate along, I guess crypto assets or DeFi in general, how is Zerion viewing that? And do you see any potential or are there any protocols out there that you all are looking at that could maybe allow someone to use their NFT as collateral to take out a loan or, I don't know, just broadly in general, what are your thoughts there?

Alexander Guy: So I think that there's... I think Chris Dixon said this, that like crypto is math-backed currency. And I think that like a, actually a pretty great way to think about NFTs is to think about them as like community-backed currency. Because there's clear... Whether it's a game or just a profile picture project, there's clear evidence that the community sees legitimate value in these things, pretty much across the board. And so we kind of look at them and I think anybody who's been a collector of anything really kind of sees NFTs along those same lines, I guess. And so for me, I think it's important... Like, one of the reasons why we wanted to give someone a complete 360 view of their entire crypto footprint or like their Web 3 footprint was like, I personally don't draw many lines between the DeFi assets or the DeFi tokens that I buy and the NFTs that are in my collection.

In fact, the gaming industry is a great example of how those things are often very, very blended together with like... I mean, I own like some Decentraland tokens, and then they... Obviously I could buy Decentraland NFTs within the space as well, and then go and play the game and earn more MANA. And so I think that the... There was this belief when NFT started emerging was that they were very, very different and distinct than like your DeFi portfolio, right? And I think that's one reason why it's been hard for wallets or for portfolio trackers like us to sort of display those things simultaneously. But I think that increasingly it's just becoming clear that people treat them as like one and the same and like people want to have, I don't know, it's kind of like the real nature, the true nature of a crypto wallet, right?

Like, you want it to have everything, you want it to have your Sorare card collection, you want it to have your ENS domain, you want it to have obviously all your DeFi tokens and things like that. And you kind of just want to carry it around with you. And I think that the fact that NFTs have clearly emerged as a powerful financial force, now of course, it seems obvious, but I think there's been some... I think there was this idea that they were like two separate spaces and the convergence of these over the last, like year or so, I guess in particular has really been exciting to see. So like, we've sort of taken that approach at Zerion just to say, you should be able to look at these things pretty much within a few clicks of each other to get an idea of how much you actually have held up or have locked into the crypto space.

In terms of like the collateral side of things, I think that that kind of use case is only going to become more popular. We aren't currently working with, I don't know, I shouldn't say that because our integrations team is pretty active about exploring different relationships with different protocols and stuff. But I just think that finding ways to actually physically, or maybe not physically, but literally bring NFTs into sort of like the "financial space" of Web 3 is just going to become more and more common, because you could see the value of these things, not just stabilizing, but often just steadily growing in the same way that any asset or any token would.

And so the fact that you can't use a... I see somebody on this call, the fact that you can't use an mfer as a collateral is sort of crazy, right? Because it's an asset that clearly appreciates. And so I think that probably the hard thing right now is figuring out which project and how to value them I guess over time, that it seems like such an obvious use case to me that increasingly there will be people and companies and protocols trying to explore this challenge.

Crypto Texan: Yeah. And even in the real world, I work at a bank and we've definitely done loans where we've taken fine art as collateral for the loan, right? So just based on that, I've seen this happen in person, right? And it feels like it's just inevitable on the DeFi, NFT integration side.

Alexander Guy: And I agree. There's actually also like, I think even beyond the, I don't know if there's a bank or a protocol out there, it seems like just a really, really smart business decision to start doing this because the brand equity that some of these projects, like I see also a World of Women on this call, and the brand equity that World of Women has would bring so much by way of press and publicity and also just like interest from that community if like all of a sudden somebody was like, "Oh yeah, by the way, you can put your World of Women up for collateral here."

I just think that it's just a really good business decision because these can communities move towards the ways that they can utilize the NFTs that they own. I think like Bored Apes and the fact that you retain commercial rights is obviously one way that the use cases of these NFTs emerges and evolves, but obviously the fact that maybe like World of Women can act as a collateral asset would be like really, really exciting. And clearly there should be protocols looking to explore this. I'm sure there are, I'm just not familiar with any off top of my head.

Crypto Texan: Yeah. I'm not familiar with any either. So when the Zerion app is valuing the NFTs that are in the wallet, are you all utilizing the OpenSea floor price? Or how are you all valuing those?

Alexander Guy: It depends. We use both OpenSea and Rarible depending on what the asset is and which one is more accurate, but we basically have pretty good relationships with both of their teams to make sure that information is up to date and accurate. And actually what we're really trying to figure out right now, I can give away a little bit on our NFTs road map. We're also really, really, really trying to put Rarity into this because like anybody who collects NFTs knows that there's like clearly a Rarity multiplier that happens if you have one of the most... The traits are the rarest, like if you're in the top whatever, thousand or, the rarer your NFT is, the more valuable it is, of course, which right now the floor pricing and even the last price doesn't do a great job of predicting.

And so we're really trying to explore different ways to add Rarity rankings and Rarity into the overall price or the overall value that you're seeing for your NFTs. I think we're not too far away from that. And so that's probably going to come out within the next couple months. Our team's pretty excited by that one. It's just a matter, I think of prioritization, which is a common refrain. I think at the Zerion team, we're trying to ship fast. But the Rarity concept and like having that factor into the valuation is something that's coming shortly.

Crypto Texan: Yeah. I totally agree. I mean, it's inevitable. So there are a lot of Web 3 wallets in the space and also protocol similar to, or apps similar to what you all do. And we've all heard about the curve wars, but what about the wallet wars? Wallet wars, is that a thing?

Alexander Guy: It's definitely a thing. I think that there's actually a number of people talking about... I think this is actually a term that's been used that, the wallet wars. I think that maybe, it was Ric.eth wrote about this in relation to like the browser wars recently, I think, and that was his analog, was like thinking about browsers and wallets. I think that's a comparable, like a good comparison, mainly because there's a lot of people fighting even to define what a crypto wallet is. There's a lot of misinterpretation. Like, Zerion currently, in its current form is not a wallet, but I have seen and heard people multiple times at events, at conferences, in demos and things like that, refer to us as a wallet.

And so like, how is it possible that the first step with Zerion is to connect your wallet, that people would then go and call us a wallet? And so I think that there's... Currently a lot of what the wallet wars, if we can call it that, are about is actually even like defining what a crypto wallet should be and could be. Clearly, there's a lot of people that are trying to go down this sort of social route, where like adding in social features, following, and this sort of thing. I think that's clearly something that we're thinking about at Zerion in terms of what the Zerion wallet becomes, but I think that's probably, I don't know, I think that's a little limiting in and of itself.

I think that there's a lot about like openness and interconnect-ability or like inter-connectivity with wallets that needs to be there. Like, you need to be able to... One of the best things about MetaMask that everybody knows is like, "Oh, I'm on a new dApp, connect my MetaMask wallet and I can go and use this dApp." So like any wallet has to have that piece kind of figured out too. I also made the analogy earlier talking about this idea of like a crypto backpack, like a wallet is your crypto backpack. And I think that's really sort of very important to this sort of like next wave of the wallet wars as well, which is like, you can't leave stuff behind, like it really has to contain everything that is part of what makes you you in this Web 3 environment. And I think that's where a lot of current wallets either struggle or put up barriers, right?

Because like, I mean, even with MetaMask, as big as they are, you have to manually add networks and tokens all the time. You don't want have to do that. You just want to be able to get going and use it. You want to be able to make sure that there's peace of mind. And like, I know. I put it in my backpack, right? Like, is it there? I think most people have sort of had that like, that stress after they've done a transaction or done something, that's super specific, but when they've executed a transaction in crypto, it's like, "Did it happen? Did I do it right? Oh my God, why is it taking so long? What's going on? Why isn't it there? I don't see my money. It disappeared." All these sort of like anxiety filled moments that probably many of the people listening have experienced. And I think that wallets have to do a much better job of like easing those kind of anxieties. And I think that just adding social features or social aspects to wallet alone, it doesn't do a good enough job of that. There's got to be more there.

Inter-connectivity is one of them. I think the completeness and the idea of having everything accessible to you in one location is also really appealing. And then I think the social aspect as well, because part of the appeal of NFTs in this emerging world that we all are in is the fact that it's a lot about forging your own identity, this new identity for yourself. It's the reason why Crypto Texan can be Crypto Texan. And you should be able to bring all of what that means completely under your control with you at all times. And that to me has got to be a key piece of the, sort of winning the wallet wars. I don't know, we're still defining what that means at Zerion. And I think that's okay. But for us, it's a lot about sort of combining those three elements, I think. The completeness, the fact that every everything is at your disposal, the fact that it's open, and then also that there's like, I guess some social elements added in as well.

Crypto Texan: Yeah. And I've been guilty on this call of calling Zerion a wallet. And I know that it's not, but you look at the website and the app, and it's so smooth and it has the feel of a wallet, right? But-

Alexander Guy: It does, right?

Crypto Texan: ... but I'm connecting my MetaMask, which is my actual wallet to the app. But then I think maybe, I don't know if you agree with this, but I feel like maybe a pretty good Web 2 or analog comparison would be like you're... I mean, you are like an aggregator of DeFi and Web 3 applications, right? So you're kind of bringing all those to the surface, almost like Google search, right? Because you've got the deep web, which is... And what Google search shows you is really just like 1% of what the internet actually is, of what the web is. And that's what you all are doing. You all are kind of digging into the depths of the blockchain to bring the most legit DeFi protocols for people to interact with. Is that a good way to put it?

Alexander Guy: Yeah. I think that's a really clear and pretty good description. The other thing I should say, and this I know is going to happen with the Zerion wallet, it's like, we don't, I don't know, we don't need people who may create a wallet with Zerion to get rid of all their other wallets, if that makes sense. Like, we don't need you to make Zerion the only wallet that you have. The reality is that there are multiple, many reasons why someone would have many wallets and we don't really want that to go away. So, like I mentioned before that you can currently track all of your wallets in one portfolio over view, sort of as like one giant portfolio over view, and that's going to continue to be the case when we have our Zerion wallet, it just kind of is going to act as like a, I don't know, we've talked about the term of like wallet aggregator.

It's not a particularly sexy term and I don't think you'll see it in our copy, but it's a good description, I think of like what we're trying to go for, which is basically like, we want you to be able to experience this Web 3 world the way you want to experience it. And if that means that you move every asset you have into the Zerion wallet and like make that your default wallet, fine. But otherwise, you don't have to do that. And so like, we sort of want this experience in the way that the wallets work, as you say, kind of is like an aggregator concept so that you can basically just make the right decisions for you and make the most of intelligent decisions for what you want to do.

And so I think that the Google comparison is an interesting one. We talk a lot about Google. I don't know, we've also sort of talked about the notion of like Zerion as a browser, right? Because in theory, you can access anything within this Web 3 space. And that's kind of key to what we're trying decide. We ultimately have shied away from that sort of terminology, because we don't think it actually encompasses all of what we want to try to do. But I think that a good way to think about Zerion is like, we want to try to aggregate a lot of services on one place while protecting user privacy and opening up like options. We talk a lot about like exploration and discovery, right? We want our users to be able to explore Web 3 and really, really, really do that in an easy way, while also kind of, I guess, like choosing their own adventures.

We don't want people to sort of have to make sacrifices or compromises where there shouldn't be. So like, the way that you set up your crypto footprint, whether that's with 10 wallets, a hundred wallets or one, that's kind of up to you and we want to enable that. So it's more about discovery and exploration, I think, than like, I don't know, defining one set of user experiences and saying, "That's what we're going to do." We really want to make it like a playground maybe is a good way to put it. Good analogy.

Crypto Texan: Yeah. And when you all are looking at L2 and other side chains, or just other chains in general to implement, are you all looking solely at EVM compatible? Or are you all looking outside the Ethereum universe?

Alexander Guy: Currently, we have prioritized EVMs. So right now we support tracking and trading for, let's see if I can get them all right. Gnosis chain, Avalanche, Optimism, Arbitrum, Binance and Polygon and obviously Ethereum, but we are currently exploring a couple of non-EVM chains. So like, I don't want to give away the barn, but like we're definitely exploring Solana and integrating Solana, which is going to be a big deal for us, I think. And I think we're also open to the idea, I don't know, I mean, it's not one in our road map, but like Tezos for the NFT side is like really interesting.

We're looking at a number of different chains and I think that we've prioritized EVM for very important reasons, but I don't think that's... We sort of want to adapt to what the market is telling us, right? If there's tons and tons of users and tons and tons of volume on a specific chain, we don't want to ignore it because it's not EVM, but it's been the way we've prioritized so far. And I think it was the right decision, but now I think we're probably opening it up a little bit. Although beyond Solana, I don't have any hot takes.

Crypto Texan: Yeah. That's interesting. Yeah. The Tezos ecosystem is just kind of, from an NFT perspective is really just its own kind of thing. And I've noticed that a lot more recently than... I probably should have been paying attention sooner, but. I also want to know a little off topic, what protocols or projects are out there right now that you've just been kind of keeping your eye on that you think are innovative or really interesting?

Alexander Guy: So I'm not going to lie. My interests lately have been very NFT-focused. I don't know. It kind of like got sucked back into that, the thing that brought me here in the first place. There are a number of different NFT projects that are emerging, like I would call them like in like the mystical realm. So like, obviously Crypto Coven is, when I say that, probably the one that people think about the first, but there's this really awesome NFT project that I've been interacting with called The Well Collective, it hasn't even released the NFTs yet, but they're going to shortly. The minting is shortly. And basically it's like Tarot Cards. So like, I wouldn't consider myself a particularly superstitious or spiritual person, but the kind of story, the founder, who's a pretty famous-ish artist. The art that they've been working on in general, I think it's just really, really cool. And I love the idea of thinking about like wild out of the box NFT use cases and then like figuring out how that can be applied in the digital and blockchain kind of environment.

So The Well Collective is a pretty interesting one. You could check it out. I really like what they're working on. On the protocol side of things, I have been really interested, maybe it's because... So I'm Paris-based and maybe this is because these guys are French, but the Angle Protocol, I don't know if you've heard about these guys. They're still a little under the radar, I feel like, but, I don't know. Maybe their Discord is active enough that they're not even... I'm not like breaking any alpha to you all, but I think that Angle Protocol is basically... They're trying to do like stable coins, but like linked to the Euro to like oversimplify what they're working on.

And I think that they're pretty cool. Like, they're really trying to do a lot around this over-collateralization as well, which I think is increasingly something that people are caring about. Angle is pretty cool. I like them. And their team is really strong and encourage people to at least check out what they're working on their project. I guess like just one really, really quick NFT one that I can shout out one more time, is the people at Catalog. So Catalog is a music NFT, kind of like auction house, for lack of a better term, but basically musicians post their songs or publish their songs as NFTs, and then people bid on them and can buy them. And in the meantime, you can listen to all the artists in the sort of like, I guess in the short term and I've been trying, they're pretty expensive, but I've been trying to gear up to actually buy my first music NFT.

Because I, I think I mentioned before that, I just really think that the idea of really rewarding a creator who's put a lot into a specific work of art or in this case, music is just really like, I love that concept. And on Catalog, one of the things they can do really well is the artist will like write a lot about what they were thinking about when they were creating this piece of music or what was inspiring them or, all this kind of stuff. And you get a sense that you're almost having a real conversation with an artist, which is really fantastic kind of in this age of like endless streaming on Spotify and other things. I don't want to pick on Spotify because it's great at product, but I think that I really enjoy the fact that with Catalog, I can feel like I'm developing a relationship with these artists, even if I'm not buying them yet.

Crypto Texan: Yeah. It really does kind of create like a more personal relationship between the listener and the artist, which I think is very unique to this space right now. And yeah, I always just like to give the guests a chance to show just some kind of random projects that they've been looking at because there's always so much going on in the space, it's impossible to keep track. So just hearing about the Angle Protocol, I've never heard of that. So I'll definitely be looking into that one.

Alexander Guy: Yeah. I'll send you the link to their Discord. I think that they've got some people behind it who are like pretty big deal people, which is good always when you're looking at a protocol or like a project in general, but it's not the only criteria. I don't know. I'll think about some more maybe, that seem exciting. I should say, just to shout out one, it's not really a project, it's a community. I don't know if people know Lito Coen, but he leads project called Crypto Testers, which is a website, it's a Discord channel, it's a, basically a media platform. And their whole goal is to educate people about DeFi and Web 3 and crypto. And I just think he does a fantastic job of creating content, or it's not just him, but the whole community does a great job of creating content to sort of educate.

And I very much believe that we're still at the stage where, especially if we believe that a lot of us are advanced beginners, as I think I mentioned before, it's like finding high quality, good content for free, that teaches you how to do and how to think about all this stuff, is still kind of challenging. And the Crypto Testers team does a great job. So I just want to shout them out too.

Crypto Texan: Yeah. That sound like one definitely worth checking out as well. Well, Alexander, we're up on time. So I'll just kind of let you say where can people go to find out more about you and Zerion?

Alexander Guy: Sure. So me, I'm pretty active on Twitter. You can find me @AlexanderGuy19, G-U-Y, and then just the number 19. Happy to interact, send me a DM, be happy to chat and answer any questions. Zerion, I really want to encourage you to head to app.zerion.io. You can connect your wallet, or in fact, if you don't want to connect your wallet right away, you can connect like any wallet or ENS address that you know and you can start watching some whales and see what they're buying. So head to app.zerion.io and connect your wallet and get started.

Crypto Texan: Well, Alexander, this has been great. I'm a big fan of Zerion. And when I first... It's just one more side note, the first time I connected my wallet to Zerion, I discovered an LP position that I had just completely forgot about. So that was a nice little surprising two grand that I found. So appreciate the protocol.

Alexander Guy: It's actually, I don't want to extend the conversation, but it's actually a pretty common story where like, "Oh yeah, I connected my wallet to Zerion and I immediately saw all this money that I had." It's I think another drawback of some of the other wallets out there, but it's not an uncommon story. So I'm glad you found a... It's like the digital equivalent of like finding a $20 bill on your pants or something like that.

Crypto Texan: Yeah. That's pretty much it. Yeah, exactly. All right. Yeah. Well, this has been great. Thanks to everyone in the audience who's listening live. Alexander, thanks for coming on the show. This is being recorded, and so we'll get this mixed and then sent out here in about a week. Have a great rest of your-

Alexander Guy: Thank you very much.

Crypto Texan: Yep. I appreciate, Alexander. Have a good one.

Alexander Guy: You too. Bye-bye.

Host: @Crypto_Texan Audio Engineer/Mixing: @LloveraFrankMarketing Image: @crypto_diller_Transcript: @0xMitzy / @Crypto_Texan

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Crypto Texan:

Hello, everyone. Welcome to Conversations with the Coop. This is where we source questions from the Index Coop community to gain insights from today's leaders in Crypto and DeFi. I'm your host Crypto Texan, and today we have Scoopy Trooples, the Co-founder of the Alchemix protocol with us here today. Scoopy, thanks for being here with us.

Scoopy Trooples:

Thanks for having me.

Crypto Texan:

Absolutely. So Scoopy, let's just get started with your background. And how did you get into crypto?

Scoopy Trooples:

So my background was, I was in a completely different field before I even knew what crypto was. I had been doing that for a number of years, I don't want to get into exactly what it was. I'll just say I was in the education field. But I won't go into much detail about that. I got into bitcoin around 2016 and fell down the rabbit hole, as you know, it was customary to do. I really started geeking out about it and reading everything I possibly could and absorbing as much information and that naturally led me to Ethereum and participating in ICOs and things like that. And I think by the end of 2017, everything was pumping at that point, but I was just obsessed with it. That's all I could think about day and night.

Scoopy Trooples:

It was crypto and the immense potential of it. And I started playing around with dApps at that time like CryptoKitties, and a few other things really started coming out, because that's when MetaMask was launched and you could actually do things without using the Miss browser. And I just became really enamored with it and I was imagining all the possible possibilities, mobile money and smart contracts. And I decided to take a leap of faith and quit my job in the education field and learn how to program because I wanted to be part of building out Ethereum and Web3 and things like that. And so beginning 2018, beginning of 2018, I started learning how to code and a little over two years later I was approached by one of my friends in the space, and he had an idea for an app to build. He's like, "Can you make me a front end?" And then one thing led to another and it turned into Alchemix.

Crypto Texan:

Wow. So were you involved in any other crypto related projects before you became involved in Alchemix?

Scoopy Trooples:

Just hanging out in discord and talking Game Theory and Design with different friends in the space for a number of times, and lots of designs to make things but they all fizzled out until Alchemix came along.

Crypto Texan:

Okay, and I want to talk about names for a second. Why did you choose the name Scoopy Trooples and why was the protocol named Alchemix? Just wondering if there's any significance behind those names.

Scoopy Trooples:

When I first made a Twitter handle, my normal handle that I use other places was not available. And so I was just thinking about what name could I use, and I had a Dungeons and Dragons character I made one time and its name was Scooby Trooples. I decided to just go ahead and use that name. It seemed like it was pretty good. A lot of people like to have fun with my name. I know David Hoffman from Bankless, he always says like, he's just like saying it out loud then he'll just like laugh to himself as he says it. I like the name. It's just duck, and know it's too late to change it.

Crypto Texan:

Yes, it's definitely too late now. I was listening to the Gabriel Haines podcast that you were on not that long ago and I think he said, "Is it Scoops or Scooper?" And you said, "It's neither one of those. I don't know what you're talking about." I thought that was really funny.

Scoopy Trooples:

Gabriel's a troll. The first time I did a podcast with him he introduced me as Shooby Trooples. Ever since then it's been a running gag for him to see my name wrong.

Crypto Texan:

I love that. We had him on this show once and he was a great time. Love Gabriel and love his Twitter also. But let's get into an Alchemix a little bit. So you talked to me about-

Scoopy Trooples:

I can talk about something for Alchemix if you want.

Crypto Texan:

Yes. I forgot about that. Yes, go ahead.

Scoopy Trooples:

We were called CheeseFi because the original iteration of Alchemix was a lot different than what it is now. And the idea was that you would have the derivative that would then be used like a token to be used in games like in DeFi and stuff. And that naturally made me think like, "It's like one of those Chuck E. Cheese tokens because they have their own ... You put in your quarters at Chuck E. Cheese and then they give you their own tokens for their arcades, and you have to use those tokens in their arcades. So I was like, "This is just like a Chuck E. Cheese token. And it's like, "CheeseFi, DeFi, CheeseFi. That's pretty cool." And then YAM came out and Sushi came out, and all the terrible things with the food coins and the million derivative clones came out were like, "No. We shouldn't be a food coin at this point."

Scoopy Trooples:

And the app itself had changed quite a bit. And one of the contracts that we had was called the Transmitter. And we were like, "Wow." Because it kind of like changes one thing for another, transmits it to a different coin, that's our pick stability module. And we're like, "Let's do something alchemy themed then." And we were thinking about it. And it's alchemy, and they're synthetic tokens. And then one day in the shower, it's just like, "Eureka! It's Alchemix." Then I just ran up to the teams like, "It's alchemists, guys. It's Alchemix." And then like a week later, "Okay. Yes, it's Alchemix."

Crypto Texan:

So it's kind of a combination of alchemy and Synthetix, I guess.

Scoopy Trooples:

Yes.

Crypto Texan:

That's clever. Does Kain know this? Does Kain know that you stole this from him?

Scoopy Trooples:

I don't know if he knows it. But he should be happy because in our alETH LP pool, we have sETH in there. We've been giving Alchemix rewards basically to the Synthetix ecosystem for a little while now. So Kain should be happy with us.

Crypto Texan:

Yes, I'm sure that he is. So what went into... You kind of talked about it a little bit. You were CheeseFi and I remember CheeseFi if I think back to two years ago...

Scoopy Trooples:

Yes. I was teasing a bit at the time, like a little less than two years ago, I was teasing about it quite a bit.

Crypto Texan:

Yeah, What went into founding Alchemix? How did you identify this need in the market?

Scoopy Trooples:

It was a lot of experimentation. So the original idea for CheeseFi is having this yield derivative where you can get your future yield now. And that was something that we thought was really powerful and was something we wanted to explore. And the CheeseFi model, essentially, how it worked is you would deposit Dai or another Stablecoin and then you would choose to lock it between 10 and 100 days. And then, based on how many days you liked, and how many stable coins you deposited, you would get this Cheese token in return. And then the contract would then put all those stable coins into these sources of yield and then use that yield to buy the Cheese token off the market.

Scoopy Trooples:

And this was being composed with Uniswap and things like that, and yearn and Idle financing. We did a lot of research and a lot of modeling on it and learned about Sandwich attacks and MEV and everything like that. We just realized that this model would get destroyed by MEV bots, and we thought it would be a bad idea to do it in the long run. It would just not be good for anybody. So we went back to the drawing board. And we modeled so many different things at so many different designs until we finally got to this one that was for Alchemix, and everybody on our team just really liked it. We decided to go forward with it.

Crypto Texan:

You felt like that idea fit the culture of what you were trying to do, or what do you mean by that?

Scoopy Trooples:

Well, it harnesses the whole idea of getting your future yield up front. But we turn that into a CDP system with a stable coin is that trying to make a fancy yield derivative out of it. And I think that the simplicity of that makes it really accessible. There's other products in the market that try to do derivatives with yield, like something like an APY or an element and things like that. They're good projects in their own right but they're limited in the users who will adopt it because it requires a lot of savvy just to be able to use the platform and know how to trade these derivatives. Whereas ours is like, "Hey, you're sticking your money, and you can borrow from your future yield now. And it's like stable and a Stablecoin." So I think it just made a lot more sense to do it that way for the end user, at least.

Crypto Texan:

Yes, that makes sense. And let's try to get a little more higher level and just a background on what Alchemix is. I think the meme for Alchemix is self repaying loans, which you've kind of touched on a little bit, but I was just wondering if you could just give like a high level and then just kind of dig into that meme a little bit.

Scoopy Trooples:

Yes. So the way that Alchemix works is that you deposit Dai into Alchemix. So this is just for alUSD. You deposit Dai into Alchemix and then Alchemix will then batch all the Dai that has been deposited over the last couple days and put that into yearn. And it will be earning yield this entire time while your deposit is in there. And then once you have a deposit you can then borrow off of it like a CDP system, like MakerDAO. And since it's a stable to stable asset, so you're using a stable coin to borrow a stable coin essentially, we don't need to have liquidations in our system. The system assumes that Dai equals $1 for the purposes of the system. In the meantime, if you borrow alUSD, you have debt then at that point, right? So you're borrowing your future yield from yourself. Then that yearn, all that interest is coming from yearn actually is used to pay off your debt.

Scoopy Trooples:

So that's where the self repaying loan happens. So if the interest rate is like 10% and you took out a max loan, which is 50%, LTV, the expected payoff or repayment date would be five years after you take that loan. Now in Alchemix you're not locked into that position, you can repay your debt at any time and you can use our alUSD or Dai to do that, or you can even use your own collateral and liquidate yourself. So the only liquidations in Alchemix are done by users onto themselves as a way to get exit, or to pay off their debt so they can withdraw the rest of their collateral.

Scoopy Trooples:

And then there's all this money that's going towards repaying debt, at least when it's used in Dai, that's through yield harvest or when people repay in Dai, that goes into our Peg Stability module, which is our transmitter, where you can deposit alUSD and then get dive one to one for it. Although it does take a lot longer. It's like a slower drip. And that's on purpose. But the guarantee is always there that if alUSD ever de-pegs from the markets, you can always put it in the transmitter and get one to one for it.

Crypto Texan:

So I guess the transmitter is essentially how alUSD maintains its peg to a dollar, correct?

Scoopy Trooples:

It's one of the mechanisms. Yes.

Crypto Texan:

Okay. And I'm wondering, a couple of questions on that. So if I have Dai and I deposit it and I don't borrow against it in Alchemix, it's still being batched to the yearn protocol and earning interests, correct?

Scoopy Trooples:

So what happens in that scenario is your principal does not grow, but you'll be getting an alUSD credit for when you deposit into there. So let's say you put in 100,000 and you don't borrow anything and you wait like a month and then you come back a month later and you see that you have like, instead of being able to borrow 50,000, you can now borrow like 53,000 or something like that. So if you borrow just that amount that was your credit, then that's basically no debt at all. You would just be able to take that out, and then trade it freely or convert it in the transmitter.

Crypto Texan:

Okay. Yeah, that makes sense. And so I'm wondering if you're assuming Dai has a $1 value for simplicity sake in the protocol, why is the max borrowing amount against that Dai 50%? Why would it not be higher than that?

Scoopy Trooples:

That was done because if somebody can borrow more than 50%, or basically when somebody borrows, they can do a loop where they can borrow alUSD, sell it for Dai then put it back into Alchemix, borrow more from that and repeat the process and again and again. At 50% LTV, the max leverage they can get is 2x. If we did like 66% LTV, that would be 3x. So it's basically like the inverse of the fraction there. It's like how much leverage you can have. So if it was like 75% LTV, you could leverage 4x, if it was 90%, you can leverage 9x, et cetera. And the idea behind limiting this number was that if a lot of people use that strategy, it's essentially going to benefit the early users of it to the detriment of new entrants into Alchemix because it could result in a depegging if too many people do it.

Scoopy Trooples:

... and some aspects of loan repayment times that we want to be cognizant of and if somebody puts in $100,000 in borrows 90,000 off of it, even with a high interest rate that's going to take a long time to pay off. So also keeping that in mind.

Crypto Texan:

Right. So these loans are 0% interest, but the interest received from the collateral that you post goes towards repaying the loan. Are there any terms? Are there any maturity dates of these loans?

Scoopy Trooples:

No. There's no lockups, no minimum time at all. You could get in, borrow some alUSD, be in there for a day, a week, however long you want to repay, and then get out, or wait for your debt to be paid off and get out. It was really flexible, and that's I think one of the big powers of Alchemix where as opposed to these structured yield derivatives that are out there. Because they always have some time component to them, whereas Alchemix... It doesn't. It's very flexible.

Crypto Texan:

That's incredible, actually. So you said one of the ways that alUSD maintains this Peg is through this transmitter where you can deposit the alUSD and get Dai back. What other mechanisms are in place to, I guess, assist in maintaining that Peg?

Scoopy Trooples:

That's the core Peg Stability module that we have, using people's interest payments as a Peg Stability, or feeding the Peg Stability module through debt repayments. Another one is if alUSD goes under the Peg, then there's strong incentive to buy it off the market to repay your loan on a discount. We recently saw that actually defend the Abracadabra MIM Peg. It was slipping. It almost, I think, got down to like 97 cents. But since it was such a discount for people to pay off their loans at that point, they started buying it, and then that raised the price of it back to like 99 point something cents. So that's one Peg Stability mechanism. And that's something that all CDP platforms have. And then the other one that we have is just typical DeFi stuff where we incentivize liquidity and that helps.

Scoopy Trooples:

Having deeper pools helps. You have more stability on the Peg, and more utility because somebody... It's theoretic that somebody could go into Alchemix right now, borrow 10 million alUSD, and then swap that to USDC and maybe pay the four basis points curve trading fee, and then whatever tiny little bit amount of slippage there is on curve. But basically you could borrow $10 million and swap it for like $9.9999 million on curve. So that's, I think, pretty enticing.

Crypto Texan:

Yes, that makes sense too. And so, I guess, what other assets are available to borrow and lend on the Alchemix protocol. I know y'all are about to release v2 of the protocol, and I think that's going to add some additional collateral types. Just what are those collateral types, and if you want to just kind of touch on v2, that'd be great.

Scoopy Trooples:

So in version one of Alchemix, we have an alUSD and alETH product. alUSD only takes Dai and uses the yearn strategy for it and alETH only takes ETH, and then also uses the yearn strategy for that. That's where we're at right now. Very soon, we're going to be launching v2. And v2 is going to allow for multi-collateral deposits into Alchemix, and also more strategy selection as well. So, right now, people can only put in Dai and then that automatically goes to yearn, whereas in v2 we know that we're going to be launching with Dai, USDC and USDT. We'd be looking at other decentralized stable coins as well. But right now, I think just for launch, we're going to keep it simple with the three curve assets.

Scoopy Trooples:

The launch is also only going to have yearn, but we have AAVE and compound strategies that are under audit actually right now, and we hope to get those out sometime in March or April. So that will open up strategies to yearn and compound but also anything that shares the same kind of design patterns as A tokens or C tokens. So imagine something like Rari Fuse that would become compatible with Alchemix. And for A tokens, something like Staked ETH, Lido Staked ETH would also become available in Alchemix because of that. So those are going to be some really big upgrades that we're looking forward to releasing shortly after v2 launch. So, one of the cool things about v2 is you can have different collateral and different strategies, and you can kind of build your own yield aggregator that way.

Scoopy Trooples:

And the neat thing is that if you have multiple collateral and multiple strategies, you don't have a vault for every single one of them. There's going to be one volt for alUSD, one volt for alETH and one volt for any other AL token we might have in the future as well. So if you put in Dai USDC, USDT and some other coins, and they all have different strategies, you would be able to borrow off of the grand total of what you have deposited. It would be like a composite. If that makes sense.

Crypto Texan:

Yes, that does make sense. So how did y'all decide for v2 from a composability standpoint? How did you decide to incorporate AAVE, compound, and yearn? I guess you're already doing yearn with v1. But what took place in that decision process?

Scoopy Trooples:

Well, we decided to focus on those two strategies immediately because they would have big payoffs beyond the yearn or beyond the AAVE and compound ecosystems, because them being trailblazers, a lot of other protocols have copied them or used their design patterns. So by selecting the strategies to go with and to implement, it opens up a lot more strategies than just AAVE and compound. And so we thought that would be the most bang for our buck when we had this looming audit engagement ahead of us.

Scoopy Trooples:

So we thought that was the best use of resources at the moment. Also working on a curve LP strategy as well. So all the different Curve LPs like FRAX curve or like MIM curve. Not alUSD curve, but I don't think we'd take alUSD as collateral. But hose types of pools and those LP tokens will eventually become collateral types on Alchemix, which will allow us to look into convex strategies. And I think there's also going to be another protocol built on top of convex and we should be in a position to be able to get on top of that as well.

Crypto Texan:

This sounds like the most DeFi 2.0 protocol of all the DeFi 2.0 protocols, because it sounds like y'all are just incorporating and building on top of everything.

Scoopy Trooples:

That's the goal. We want to be the top stack of DeFi. So whatever protocols are out there that you really like that offer good yields for stable coins or other assets, we want to be able to implement them in Alchemix because like, yes, it's good to be in those protocols but wouldn't it also be good to be in this protocol but also have CDP functionality on top of it? And that's where we're going with it?

Crypto Texan:

Yes, that makes sense. To have that- Go ahead.

Scoopy Trooples:

Why would you be in convex if you can be in Alchemix, get the same yield as convex, but also be able to borrow off of it. I think that's powerful.

Crypto Texan:

Right. And you also talks about incorporating Lido Staked ETH. So is alstETH? Is that a potential token in the future?

Scoopy Trooples:

It would just be alETH, because it's multi-collateral. Especially once the merge happens and the state transitions happen on ETH2, stETH is essentially the same thing as ETH at that point, because you can swap between the two of them with a very little delay. So anytime that the stETH price slips or goes under that of ETH, the arbitrage is there and it's going to be re-balanced. So for all intents and purposes, we think that it is a good enough asset.

Crypto Texan:

Yes, that makes sense. Yes, it would just be alETH with the multi-collateral aspect of it. Other reasons you chose... You already have Dai but then also incorporating USDC and USDT, is that because of the Curve pool that's there?

Scoopy Trooples:

It's because it's the largest total addressable market that there is. More people hold USDC and USDT than any other stable coin out there. And so we can address a huge amount of people in DeFi by having those assets. There's also a lot of trust with USDC, much less than Tether, but I'm of the opinion that if Tether blows up, all of DeFi is going to blow up anyway, so it's kind of impossible to avoid it. So...

Crypto Texan:

Do you think Tether is the biggest risk to DeFi right now?

Scoopy Trooples:

Yes and no. I almost feel like if Tether just comes out and says, "Hey, we don't even have $1 in our treasury. Haha." That it'll probably still trade at $1 for a while, just because so many people use it like that because of the insane efficiency of Curve. It'll probably take a while for it to depeg, even if it's being persecuted by the law or whatever. I don't think Tether is going to implode. There's so much financial interest behind it. It might get rolled into something else in the future, but I think that if the SEC or some other agency goes after them, they're going to do a lot more harm than good.

Crypto Texan:

Yes, that makes sense. And what does keep you up at night from a macro perspective related to DeFi? What is the biggest risk to DeFi as a whole right now, in your opinion?

Scoopy Trooples:

It would have to do like, if basically, if Congress were to make a law that's saying like, stable coins are illegal or something like that. That would be like a major blow, but other things like that I feel like there's enough regulatory arbitrage that you can get around a lot of these things. And it's also pretty apparent that the SEC is imploding right now. So I don't know. Especially with government agencies, if the change comes directly from them and not Congress, then it can be challenged, overruled, and going to court. And then there'll be years and years and years of litigation before there's a resolution. So I think we're fine for the next at least few years. I think even then a few years from now, society will be in a place that I think is a lot more accepting of crypto.

Crypto Texan:

Yes, I tend to agree with you there. You also mentioned about potentially adding more stable coins in the future. What do you think are some of those perspective stable coins that could be implemented into the Alchemix protocol?

Scoopy Trooples:

Off the top of my head, probably the most attractive would be FRAX. I think of all of the decentralized stable coins not named Dai, it has probably the greatest chance of success at this point. And I don't know if that's because of adoption per se, but more so of mechanism design and protocol design. Because at FRAX, they have these really cool system, it's called an Algorithmic Market Operator, an AMO for short. And these AMOs basically, the whole point of them is to increase the liquidity and depth of FRAX, as long as it does not impact the price of FRAX negatively. They define that the minimum pay for FRAX is 99.8 US cents per FRAX, measured in USDC. And so they have a Curve convex AMO strategy where they can single side mint FRAX into the pool, as long as it doesn't make the price of FRAX under 99.8 cents.

Scoopy Trooples:

Then they take that LP that they just thought for depositing FRAX and then it put that into Convex to farm with. So they've been doing this for a while and amassing convex tokens and curve tokens, all the while growing and growing and growing. I think they own like $1.3-1.4 billion worth of LP and the FRAX three curve pool in their AMO. And as a result, I think they're now the largest holder of CVX, at least the largest DAO holder of CVX at this point. For the people who are not super in tuned with the curve wars, CVX is used as a proxy to vote on the curve gauges. And the curve gauges are a system that directs rewards to different LPs and curves. So the more CB curve that you hold, the more you can direct curve and CVX rewards to your protocol. And since they have such a huge treasure trove of it and they own so much liquidity, they're in a very good position.

Scoopy Trooples:

The cool thing about the AMO is that they can use it to expand quite a bit. But if for some reason FRAX starts dumping and its Peg suffers, they can just withdraw the FRAX single sided from their AMO and burn it to rebalance it and bring it back to its Peg. And since it's so deep and they own all of that, I really think it's going to be... I can't imagine a situation where FRAX depegs. That's, I know, a long answer, but I think fracks is really cool in that regard. Also, Sam is a really cool guy. We talk quite a bit and them being able to... If we can accept FRAX, they can actually build an AMO strategy into Alchemix and then deposit a bunch of FRAX into Alchemix or alUSD with it, and then use that in our own like D3 pool. So we are in a pool with FRAX and FEI, and so they can integrate their AMO stuff into Alchemix essentially, and to the benefit of each protocol.

Scoopy Trooples:

I think that's really cool. Other coins on my radar would be alUSD and FEI and I like both of those for different reasons. I think alUSD is like the purest representation of what MakerDAO was trying to do. So only using ETH as collateral. It's very decentralized, not even the front end is hosted by the protocol or team. So I think that's really a good one. The only problem with LUSD is that, while it does have a mean average of $1, it does fluctuate quite a bit in that range. I've seen it go down as low as 98 cents and as high as $1.03. If we accepted alUSD, we would probably just limit the amounts of deposits into our strategies because the alUSD essentially takes on an aggregate of all the different collateral for it, if that makes sense.

Crypto Texan:

Yes, it does. And I'm surprised that you haven't said RAI, or Reflexes RAI in there. Is there a reason for that?

Scoopy Trooples:

RAI just can't work with alUSD because we only do mirrored assets. So only Stable coins, dollar Peg stable coins can work with alUSD.

Crypto Texan:

Oh, that's right. And RAI finds its own Peg, which is like $3.04 right now or something like that, I think.

Scoopy Trooples:

I love RAI, I think it's cool. I've talked to the developers over there and I really think what they're making is cool. The system that they have is really well thought out. I definitely hold some RAI. I don't put my all my eggs in one basket. But it just wouldn't work without alUSD. The other one FEI, I like FEI because they're very similar to FRAX in that they have the minting mechanism for it is controlled by the protocol, and they have a lot of protocols and liquidity and value. But most of their backing is in Ethereum, right? So they have the best asset that is backing it. So it's very decentralized in that way as far as like a collateral standpoint. And also like Joey and even the very team and stuff like that, they're all just really awesome and they're really good builders and super smart. So I think those coins would all make a lot of sense to add to Alchemix, we were thinking about MIM and Abracadabra, adding that.

Scoopy Trooples:

But with the recent drama behind every Sifu-gate and all this other stuff, I think it's a little bit more prudent to take a wait and see approach to see how that all plays out before we would entertain adding that. And then UST is another coin that I think a lot of people would want. But I'm very hesitant to employ a cross chain strategy that would take advantage of like the anchor yields and stuff, just because of all the things that can go wrong in a cross chain application. That's where we are with FRAX, FEI, alUSD kind of being the front runners for decentralized stable coins for right now. And then everything else is basically up to our community which ones will be accept. So we'll have to consult them to see what they want, analyze our risks and then let them decide.

Crypto Texan:

And you mentioned the MIM Abracadabra Sifu incident and I feel like Anons have been getting a little bit more heat lately in the space, at least on Twitter. And I just kind of wanted to get your take on your Anon and just wondering do you feel the need or do you want to be anonymous? I don't know, what does it mean to be an anonymous co founder in this space to you?

Scoopy Trooples:

I'm not trying to hide anything other than the fact that I really just like my privacy. I don't want people targeting me or treating me differently because they perceive me as wealthy or anything like that. Most of my close friends don't even know that I'm doing Alchemix or anything like that. A lot of my family doesn't know that I'm doing Alchemix. So I'm very, very private in that regard. I really just want to blend in and just not be disturbed and build in peace. That's kind of my philosophy behind it. Whereas, I think the general perception about Anons, I think it's kind of silly. I understand why there is that perception, and I think it's very disheartening to see some of these people on Twitter really trying to drive against Anons and disparage them and things like that.

Scoopy Trooples:

And just generally, the kind of new culture that's starting to form up in there, where it's like this, I don't want to say cancel culture, but it feels very much like that in the past week or so. It's kind of disheartening to see that, especially with the people like Brantley even though what he said was disgusting, the way he's treated people over the years has not been and he's also been a great builder. So I'm very conflicted about all this stuff. And I think that those same people who are trying to insult Bradley and stuff like that are also the people who we're trying to disparage Anons. And I mean, if that's the way it's going, that's the way it's going. But I think for Anons, the best thing that we can do now is try to be above the board, increase transparency, and prove it to people that that narrative is BS.

Crypto Texan:

Do you feel like I guess Sifu, and Daniel over there at Abracadabra. Do you feel like they had maybe too much power over that multisig and that may have ultimately been their downfall? I mean, I do see that as crypt-

Scoopy Trooples:

I mean, Danielle was doxed. And I think definitely, if you're going to have protocol making huge movements with funds and things like that, that yes, you should have a multisig. You can do that with a multisig easily. You get to know you're safe. You get at least a two of three to make sure that person is not going to be running off the funds. It's probably better to have a four of seven or something like that instead. It's really easy to set it up. You can set up a multisig and get everybody in there in a matter of minutes. There's no excuse not to.

Crypto Texan:

Yeah I was just kind of thinking of... I don't know, do you follow Chris Blec at all on Twitter?

Scoopy Trooples:

I know who Chris is. I don't follow him though. I've had some number of dicey encounters with him. So let's leave it at that.

Crypto Texan:

Yes, he's very anti multisig. I'm just interested to hear your perspective and your takes on on all of these topics.

Scoopy Trooples:

Full automation and trustlessness is the dream and the desire. I would have viewed a multisig as a temporary crutch. And, people might think that's a bad statement, but when you think about it, crutches help you walk, right? And I think until all these systems can be automated and stuff like that, that it's fine as a transitory thing for DAOs to use, as long as the DAOs are respecting the will of the token holders and they're not going off and doing rogue things and they're very much adhering to the authorization of what the DAO says, then I think that that's fine. Better yet you can use like a Compound governator contract or even SafeSnap, and then that'll be an extra level of trustlessness that you can add to governance multisigs.

Crypto Texan:

Interesting. Well, we'll change gears here away from those topics. You were speaking about the curve wars earlier. I've also noticed that Alchemix has a relationship now with a Tokemak. So I guess you all are involved in the curve wars too. Is that fair to say?

Scoopy Trooples:

Well, that's the Tokemak wars, man. That's a different battlefield.

Crypto Texan:

Yes, that is the Tokemak wars. Yes. Can you explain what that is?

Scoopy Trooples:

Okay. So, Tokemak is a protocol that aims to be a decentralized market maker. So right now for indexes, their automatic market makers, you have to put in two sides of collateral and Uniswap, equally distributed, so 50-50 ETH and something else, for example. And then it uses a very, very simple algorithm to provide liquidity and conduct trades and everything. Whereas, Tokemak is trying to abstract all that away for the end user. So you would just deposit whatever coin that you have. It could be ETH, they have a bunch of different stable coins, including alUSD. They have a bunch of other DeFi tokens Alchemix, FRAX, Synthetix, Sushi, and a bunch of others as well. And so you would deposit any of those assets single sided into Tokemak. Then Tokemak has integrations into multiple different DEXs in DeFi, including Curve, Uniswap v2, SushiSwap, Balancer and I think they're going to have 0x soon and the list is only going to grow and grow and grow.

Scoopy Trooples:

Then basically, you have all these different pools with all these different tokens that are deposited into them. Then the token holders can then determine where these go, what DEXs that these assets go into. So if a lot of people voted for Alchemix to be on let's say Balancer they would pair ALCX with ETH on Balancer and then supply liquidity because they have both ALCX and ETH. So it basically abstracts everything away and then also since like, TOKE is very much similar to ve-curve or CVX in the way that it can direct emissions. So, this has two facets to it. One is that if you stake your TOKE on one of these reactors one of these pools of capital, that boosts the rewards, the TOKE rewards for depositing. So if I deposit ALCX then I can earn TOKE. And the more TOKE that votes for ALCX, the more TOKE you get per ALCX that is deposited into Tokemak. And the second layer of it is that the TOKE that's voted for there can actually direct which DEXs it goes to.

Scoopy Trooples:

So that way, they can direct liquidity. And they have sort of like this overflow pool as well. So when you're adding liquidity to a protocol and stuff like that, there is kind of like a Goldilocks zone of the right amount of liquidity. If you have too little, then the trades are going to suffer too much suffered slippage from illiquidity, and if there's too much liquidity, then there's not going to be any volatility or price action and then that's going to be very unattractive to traders. So you have to get the sweet spot where there's enough liquidity that can facilitate trades of all sizes but also allow for there to be some volatility as well.

Scoopy Trooples:

So it's important not to over or under incentivize. So they had these kind of overflow pools so there's like when you deposit ALCX you get a receipt token back called tALCX, and it takes one week to unstake from Tokemak with the T asset. But they're going to have curve pools that are stable with the canonical asset, and then the T assets, for example, tALCX, ALCX on curve. So that is going to help people get in and out of the T tokens faster and make them more composable. But at the same time, if too much liquidity is getting directed to SushiSwap, or Uniswap, or the other DEXs and stuff like that, you can actually vote to put it into this kind of overflow pool, which then kind of sidelines it but in a way without any potential for a permanent loss. So I think it's pretty cool in that regard.

Crypto Texan:

Yes, it sounds like you're being very strategic about partnerships in how you utilize your treasury as well. What does the treasury makeup look like of Alchemix and how diversified is the treasury right now?

Scoopy Trooples:

It's getting more and more diversified by the day. So let me take a look at Zapper real quick. And I'll look at our operational. So we have like a big treasure trove of ALCX tokens that the DAO controls, and those are largely out of circulation. At the moment, they're basically only used to facilitate external farms. But even then that amount in the treasury gets replenished through our own staking contract that we have because if we're going to say, "We need 2000 ALCX to go to the SushiSwap Onsen and pool, basically, we're going to make it so that we will get 2000 ALCX and rewards for that period from our other staking contract and that will go to replenish the DAO. So we have ALCX in there and quite a bit. A lot of that's reserved for like bug bounties and also it could be for future ecosystem development stuff. But aside from that, we've been very actively trying to acquire protocol owned liquidity and other assets and diversifying our treasury.

Scoopy Trooples:

So it's not just ALCX. Let me take a look at this. So we have about 180,000 CVX tokens, which is roughly $5 million at this point, and CVX helps us direct liquidity to get rewards on various curve pools that we have. We have 130,000 TOKE tokens, so that's roughly around $5 million, and that helps us direct liquidity on Tokemak. We have a decent amounts of CVX curve because we've had LP in Convex for a while. So our LP positions in there are alUSD3 curve and the alETH factory pool as well. And we have between those two around $9 million in liquidity that is vertical owned and staking in Convex. Then we also have our own pool too like ETH, Alchemix, SushiSwap, and we own around four and a half million dollars of that LP, which is roughly I think, 6% or 7% of our entire SushiSwap market. So we've been diversifying quite a bit and that's helping our bottom line quite a bit as well. But also more strategically, is the acquisition of CVX and TOKE because that will ultimately allow us to maintain or grow liquidity in the face of our dis-inflationary emissions.

Crypto Texan:

It sounds like y'all are one of the more diversified treasuries that I've come across just talking on this show. I don't know, I think that says a lot just about the protocol as a going concern, and just the stability that you can provide into the future. I know we got started a little late. Did you have a hard stop at the hour or can you go for like one or two more questions?

Scoopy Trooples:

I'm fine, we're good.

Crypto Texan:

Okay. Well, so my next question, I guess, related to the treasury is what other protocol specific revenue drivers does Alchemix have? How does the protocol specifically drive revenue into the treasury?

Scoopy Trooples:

We have two ways right now. We have a third I'll talk about in a second. So first is whenever there is a yield harvest that goes on in the Alchemix system which is used for like debt repayments, 10% of that is taxed by the protocol and that goes towards protocol revenue. The majority of that is used to... Not the majority but about half of that is used for operational things like paying some contractors, audit costs, and infrastructure costs and stuff like that. And then the rest that we have that's like kind of surplus that we just roll that over into our protocol and liquidity and add LP to our pools because we get Dai and we get ETH, so we just throw that into our LP so we can increase the depth and then farm with it so we can have those be productive.

Scoopy Trooples:

So that's one area that we're earning. The other one is Olympus Pro, where we are selling ALCX bonds in order to raise different funds. That's how we're getting our SushiSwap liquidity. We have a modest amount of Dai and ETH that we are acquiring that way to add liquidity for our alUSD and our ETH products. And then we are aggressively acquiring CVX this way, and we just started trying to get some TOKE this way as well. So that's how we're mainly diversifying our treasury, instead of actually just like selling ALCX on the open market. I think that might be really spooky and also it would have to be done in big chunks, whereas Olympus Pro is like a very slow drip and it also presents a lot of opportunities for people who are aligned in our ecosystem.

Scoopy Trooples:

So we like Olympus Pro for those reasons. And as far as TOKE goes, when we got our pair reactor with Tokemak, we did a $3 million DAO token swap. And since then, we've been using Tokemak and directing our liquidity and sticking with it. Our treasury also deposited ALCX into Tokemak, so we hold some tALCX. We have a tALCX staking pool on Alchemix where normally if you hold tALCX, you would get TOKE rewards, but we worked it out with Tokemak where if somebody deposits the tALCX into our staking contract, that our DAO will end up getting that TOKE rewards and in exchange stakers will get more ALCX. We've been able to amass a lot of Tokemak because of these efforts.

Crypto Texan:

Yes, absolutely. From a governance standpoint, I think I was reading that y'all are going to kind of switch up the tokenomics a little bit. Are y'all gonna implement a like a “ve” Alchemix token? How does governance work and how do you see that changing in the future?

Scoopy Trooples:

Right now, governance is done through snapshot and multi Sig, and basically any kind of ALCX in your wallet, or in a staking contracts, or in the LPs, all count towards governance. So we have different scripts that calculate how much ALCX you have in various places, and that's your voting total. Going forward, we will have a more full fledged DAO with on chain governance and all that fun stuff. And we're more or less done our specification for the DAO now and development is underway in earnest. And, yes, we're gonna have a modified ve-curve, tokenomics system. I don't want to get into all of the details, but it's going to address like the one concern that I have or at least most of the concerns I have about ve-curve and the V tokenomics system. Which is kind of like making somebody a prisoner.

Scoopy Trooples:

I really hate that, like, you have to lock for four years. And it gets more and more painful as you're investing continues in the ve-curve system. Because your voting power goes down linearly over time, and then also your rewards and other things like that. So once you're in, it's very hard to stomach through the process of getting out, because there's so much lost opportunity cost in the process. So I really don't like that about it. So in order to rectify that, there are two things that we're going to do in Alchemix. One is kind of taking a page from Andres book and turn those into NF T positions. So, people can transfer their V power to other people through swapping NFTs. And then the other one is a rage quit function where you can exit at any time and take a penalty based on how much time you have left locked for your V tokens and then whatever penalty is there, that will then get fed to the other V token holders.

Crypto Texan:

Okay, interesting. The index Coop we've been playing around with different types of governance ideas and which one works best for our DAO and yes, it's interesting to hear y'all’s strategy there and kind of the process pros and cons, which you think of all those different types of governance strategies.

Scoopy Trooples:

Yes, I think the gauge system though, is probably the most brilliant of it all. And I understand that the need to have like locked tokens to align incentives is there as well. We're actually planning to have two gauges in Alchemix. One for directing liquidity and like emissions and stuff, and then the other one would be for directing boosted yield. So right now in Alchemix, our transmitter module has close to 200 million Dai in it and that's all in yearn. And then all the interest earned from that Peg stability module is actually used to boost our users yield for their Dai deposits in Alchemix. So that's why at yearn right now, for a Dai it says it's like 3% on their website, when you go to Alchemix, it's like I think six or 7%, is because we are able to boost the yield because of our additional principal in the transmitter. In version two, we're going to be upgrading the transmitter quite a bit. Right now, it only deploys this yearn strategy and it's kind of dumb.

Scoopy Trooples:

It makes money for the protocol and increases like the yield for users, but it doesn't always align well with us and what we want to do. So we're actually going to be kind of borrowing some ideas from FRAX and make sort of like a pseudo-AMO using our Peg stability module, or at least the bounce in it. And that will basically allow us to take that 190 million Dai and just put it into our main liquidity pool single sided, because you can do single side deposits on Curve. if we do that, then the pool is going to be very heavy Dai, USDC, USDT, and very light alUSD which will create a premium, and then that'll drive a lot of TVL to Alchemix just to try to arb that away. So that's certainly good. And then when we have this, if alUSD starts slipping and it's Peg and since we own so much of the LP, we can just single site withdraw alUSD from there to balance it.

Scoopy Trooples:

So it's going to be a big enhancement. And furthermore, if we have all that LP, if we put in our transmitter balances in there, we would own literally like half of the LP for it. And then we could put that in Convex, and then use that to acquire more Convex as a protocol. Then we can take a cut or take some amount of CVX and Curve that we get from farming it and use that for boosted yield in our system. Since version two is going to have multi collateral multi strategy we can do is boost individual strategies with a gauge using this extra yield from this transmitter strategy. And so that'll be really cool. So imagine you can get like an extra 5% on your deposits.

Scoopy Trooples:

If somebody get max vote, so you get the max allocation on there, and then that's going to be really attractive I think for especially yield aggregators and other protocols that have ALCX, because then they're going to be able to have say in how much rewards get allocated to their platform, essentially. And that could be a way for them to boost their own TVL. you have choices, and one of them gets all the boosted yield and the other ones don't, that one with the boosted deal is going to be a lot more attractive.

Crypto Texan:

It really just fascinates me how sophisticated some of these treasury management strategies are developing in the DeFi world. I feel you see this more in the quote unquote, DeFi 2.0 protocols, than you do I guess in the blue chip, or the OG DeFi 1.0 protocols? Do you have any theory as to why that might be?

Scoopy Trooples:

I think, a lot of these like, the blue chip and stuff like that, they've kind of been grandfathered into a lot of different things. For example, Dai, they don't have liquidity incentives for Dai, and yet it's super liquid. And that's because Curve made the three Curve token. So it's Dai, USDC, USDT, and then all these other protocols who want to establish pegs for their stable coins use three curve as like and curve as a proxy in order to do that. In the process, they're giving tons of liquidity to Tether, to USDC and to Dai and incentivizing that. So they have that, we were early, a lot of them did ICOs, so they also have flushed treasuries already from when they got all their ETH at like $100 back in 2017.

Scoopy Trooples:

So, you look at something like Gnosis for example, they have a bigger treasury than Olympus DAO, but their market cap is tiny compared to their treasury and stuff like that. So, what need do they have to be more efficient with their capital, right? Whereas I think with these new protocols, since we're not getting these advantages of being grandfathered in, and kind of the benefit of the doubt and stuff like that, we have to be very much more cognizant of the sustainability of the protocols. It kind of dawned on me last summer that if Alchemix is going to continue at its current rate, that liquidity would not be sustainable. It's because of mercenary farmers and things like that.

Scoopy Trooples:

And so that's why we started moving towards getting these kind of liquidity as a service tokens like Tokemak and CVX, E curve, and also trying to acquire protocol own liquidity for the protocol as well. And also now this new AMO strategy that we are developing. We don't want to build some like flash in the pan, this is good for like a year or two, and then it's time to dump it and move on to the new protocol type of thing. We want to hold it so Alchemix is going to be relevant and a player for well over a decade, if not longer. And in order to do that, we had to really address the sustainability problem of veal farming. So that's why we're going the route that we're going as far as being aggressive in acquiring protocol and liquidity.

Crypto Texan:

Well, you've kind of painted that in a different color that I haven't really thought about it before, and that makes a lot of sense. So Scoopy, I've got one more question for you and then I'll let you go. We ask this of pretty much everybody that comes on the show. What other projects are you looking at right now that maybe you haven't mentioned yet in this conversation that's really catching your eye lately?

Scoopy Trooples:

Let's see. I mean, I'll try to show something new, I guess. You know, I think everyone knows I'm pretty partial to the Curve and Tokemak ecosystems. But there's a new lending protocol that's going to be coming out, slash stable coin protocol. It's called Silo. I think that's going to be something that's going to be pretty cool. I think that's being built on Arbitrum if I'm not mistaken. They're kind of similar to what Rari Fuse is doing. It's like a permissionless lending protocol. I think that's really cool. And there's one that I really like, it's very unknown, very little known is called Babylon Finance. Basically, it's like a build your own index or yield aggregator application.

Scoopy Trooples:

So you can select what tokens go in and what strategies go in. Then, basically make your own, yearn essentially, or yearn pool. And it can be something stable like only number go up assets, or it can be like an index something more aligned with what you guys are doing. But then it's completely made by their own users and stuff like that. So I think that's really cool. I really like permissionless systems at the end of the day, where people can use it as a design space to build on or do their own thing on it. And that's also why I like Rari Fuse a lot as well.

Crypto Texan:

Yes, we like the Rari guys quite a bit too. That's another really solid protocol. Well, Scoopy, thanks for the alpha and thanks for coming on the show today. Everyone in the audience who's listening live, thank you for listening live. This is being recorded. So we'll get this out and published in about a week. Scoopy, final word. Where can people go to find out more about you and Alchemix?

Scoopy Trooples:

Yes, so you can find me on Twitter, Scoopy Trooples. That's S-C-U-P-Y T-R-O-O-P-L-E-S. Scupy Trooples. I hang out on Discord in the Alchemix Discord quite a bit too. You can go to the Alchemix Discord. You can find the Alchemix Twitter and then there's a Discord link there or website and join our community there if you are interested in using Alchemix or trying out v2 when it comes out very soon and you want to learn more then yes, please come to our Discord. We have tons of very helpful people who will help you learn anything that you need to know to get started.

Crypto Texan:

Awesome. Well, Scoopy, thanks again for being on the show out here for conversations with the Coop and the Index Coop Discord, and I'll see you out there on Twitter. Thanks again.

Scoopy Trooples:

Thanks for having me.

Host: @Crypto_Texan

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Crypto Texan: Hello, everyone. Welcome to Conversations with the Coop. This is where we source questions from the Index Coop Community, to gain insights from today's leaders in crypto and DeFi. I'm your host Crypto Texan, and today we have Evgeny Gaevoy from Wintermute with us today. Evgeny, thanks for being here with us today. How's every thing going?

Evgeny Gaevoy: Yeah. Everything is great. Thanks for having me.

Crypto Texan: Yeah. Absolutely. We're excited. So let's just go ahead and get started by just your background, and how did you get into crypto?

Evgeny Gaevoy: Yeah, sounds good. I think my journey into crypto is pretty much intertwined with my Wintermute journey, but basically, my background is in traditional finance. So, I was at Optiver, one of the largest global market makers and TradFi for about 10 years building the ETF market making desk. And, to me, basically if you're in TradFi for about 10 years, at some point you realize how convoluted and how legacy their tech stack is for... Well, and it's trading related, really. And, as a market maker, you see even more of it. You see, I know, all those custodians, settlements, agents, clearers. It's basically all legacy tech, it all contributes to this two, three days settlement for stocks, and so, there are so many examples of inefficiencies on the government level as well, and you need to find your way around it, which is really annoying, because all you want is to make markets efficient and make money for your company. But it also... You cannot help but think, is there a different way to do it? And so, at some point, I stumbled upon blockchain, and I think, for me, the initial thinking was, "Sounds like a great technology." I don't really care about the crypto aspect of it, because I know, what the hell is Bitcoin saying? So I just focused on the enterprise blockchain initially in my, I don't know, internal research, which sounds really horrible, but yeah, that's how I started.

And I think it was back in 2015 or something. So I was really, really late already by that moment, but I didn't really touch anything crypto until I actually left Optiver back in 2017. I actually started to have a lot of spare time to look what I want to do next, and I also started to invest in the crypto first, bought some Bitcoins, and created account on Kraken, found out that there are other cryptos as well, started doing some training for myself, a bit of that, a bit of that, and eventually I thought, it actually make... With my experience in market making, it just makes sense to start the market making firm and crypto instead. So, I teamed up with other two acceptable guys, and we created with Wintermute with the ideas that, yeah, we just want to make a market that will be providing liquidity on all the centralized exchanges, DeFi was not the same back then in 2017, and same time it'll be doing it in, well, in a decent way, like no pump and dump schemes, nothing about, I don't know, creating fake volumes for projects. Basically doing proper, saying that we would not get into jail in traditional finance, but also something that was quite in line with our values.

And basically, somewhere along this journey, over the last five years, I basically learned a lot more about how this stuff operates, and it grew in me. It basically grew inside of me from the speculative angle that, all those tokens move a lot, it's so much volatility, it's so nice to make money of it, to actually appreciating the blockchain technology, to actually, on the philosophical level, even appreciating decentralization as a value, and as a way of doing things in this world, opposed to current centralized state basically.

Crypto Texan: In 2015, you were getting into the enterprise blockchain solutions, and I remember when I was getting into the space in 2017, that that was still a pretty hot topic, the private blockchains, or the enterprise blockchains. And I'm just wondering if you had any opinions as to why, I don't know, that space hasn't really panned out like a lot of people thought that it would, and I don't know why it's not just that effective of a solution compared to the public blockchains.

Evgeny Gaevoy: Yeah, I was saying my guess would be, is just inertia inside those big corporations that were pushing it, because, obviously, it's a great alternative to what's already build, but in order to change things, in order to move to the blockchain, in a lot of those examples, so many processes would have to be changed inside those corporations, for example, that I don't think there was enough buy-in internally in most of them, that would be my guess, at least. I was never involved in any of those initiatives, because, well, likely I was not part of this massive corporations ever, but that would be my guess, is just not enough buy-in, just too much inertia, and I think a lot of push back from people who would be displaced by this potentially.

Crypto Texan: Okay. That makes sense. So, let's move over to Wintermute, and you touched on this a little bit when you were discussing your background, but can you just tell us what is Wintermute, what is the purpose and its importance in the ecosystem?

Evgeny Gaevoy: Basically, for the past four-and-a-half years, we made the journey from relatively small market participants. So, we had maybe $3 million worth of assets in the beginning of 2020, for example, and now, basically grew, pretty much, 1000-fold to this year, and we grew from just the market makers that want to make some money, to a pretty significant part of the DeFi ecosystem, pretty significant part of CeFi ecosystem. We are trading on all the main major centralized exchanges, we are trading on all the major DeFi protocols. We support DyDx back in 2019, and we were one of the first major market makers to do that. And, in general, our philosophy is, we want to support decentralization as much as possible, and it's not just about, I don't know, blockchain in principle, it's basically about not going behind one layer 1, for example. We are not, I don't know, Ethereum Maxi or Solana Maxi.

It also means that we are not backing any particular protocol. We are not, I don't know... We are good friends with DyDx, but we will also be good friends with Mango, for example, and Solana, or whatever, as our third protocol, for example. Our values, in general, is basically making sure that there are enough similar protocols out there, and it's basically what drives, well, our values, but it also what drives our... Basically, that's what differentiates us as well from others, because we spend so much time on integrations, so much time on connecting to different liquidity pools, that we differentiate ourselves from other market makers in that way. So, it makes sense for us to actually support, basically, let 1000 flowers bloom basically kind of strategy. And the same goes for our venture business, which we started last year as well. So we did over 16 investments so far since beginning of last year. And it's the similar kind of philosophies that we...

You would often see venture funds size not investing in competitors, or just spraying and praying, like, "We are doing something else." That's what we're saying, that basically we are making sure that we invest across the whole space, in the teams that do make sense from a team perspective, from technology perspective, but, again, we don't back any one L1, or any one protocol, or anyone Drift's protocol, lending protocol. We actually want to support as many as possible.

Crypto Texan: And can you also describe for the audience just what market making is in its most basic form?

Evgeny Gaevoy: Yeah, I would say in the most basic form, it's providing bits and offers. If you imagine order book, the bits and offers you will see in this order book are most likely provided by market makers, and that's basically the core of the business, basically market makers providing bits and offers, and effectively making money from the spread on the exchange minus the cost. So, our business is doing thousands or millions actually, transactions on a daily basis, and capturing the spreads, and basically manages the results and risk.

Crypto Texan: And, another question I have is just, what do you feel like are the most major differences on being a market maker for a centralized exchange versus an AMM, and what challenges and hurdles do you have on both sides of that?

Evgeny Gaevoy: Yeah. I'm still getting warm to the idea of AMMs in general, when they appeared back in DeFi Summer. Well, I mean, they appeared slightly before that, but in general, when Uniswap started blooming back in 2020, I have to admit, I was super skeptical, and the success took me very much by surprise, because market making business is very difficult. There are, I don't know, so many different parameters you need to manage, because you cannot... And Uniswap, the initial version was making it rather simple. You have this very simple formula, you provide liquidity, and you basically... There's a market maker around the CR rate scores that is basically defined for you by the market forces. I think there's Uniswap V3, it does changes a bit. So, it's basically becomes a bit more complex. We're not super big fans of market making in AMMs at this stage with normal Uniswap, simply because that it's very much kept inefficient. With Uniswap V3, it's primarily around gas costs. So, it is just not feasible for us to do it properly on the main net, for example. It does change on others. So we are currently experimented with that, but in general, yes, I think you do see that's, I think, the bottom line.

Evgeny Gaevoy: The main challenge is, I think there are not enough parameters still to play around with. So, Uniswap V3, we have three different fee schedules we can adopt, for example, but that's pretty much it. I think, at some point, it'll get more and more complex, but then I would also question, if it gets more complex, then why not just run a normal order book. But that has been my opinion for the past two years, and all while those AMMs have been quite successful businesses in terms of how much, how many... Well, how much liquidity is there, how much fees they collect as well? So, I guess time will tell. Maybe they'll become advanced enough for us to participate properly, and I'll be proven wrong.

Crypto Texan: I think that's a good point, is that when you do look at it, the bid-ask model is probably the most efficient form of market making and trading, and AMMs are just objectively inefficient, but it's really just because the limitations of the code, and the limitations of, I guess, just the economic of the blockchain. Would you agree with that statement?

Evgeny Gaevoy: Yeah, pretty much. Yeah. Economics of blockchain makes a big difference, especially on AMMs like SushiSwap, we have extra benefit of receiving, well, extra rewards. So, we do provide liquidity in some protocols that are just up and starting, for example, I know, one of the more recent examples in that is Angle, for example, we were provided... We seeded liquidity on AMMs for launch of the token. So we do that for... It does make sense to seed liquidity for the initial launch, it doesn't really make sense for us to provide liquidity afterwards with the current model.

Crypto Texan: Okay. That's helpful. So, I guess on that note, what does your typical client look like? When you have a protocol, or an organization that is looking for seed liquidity, how does that benefit them, and what's just your typical makeup of that type of client?

Evgeny Gaevoy: Yeah, I think typical project is primarily looking at getting listed on centralized exchanges. That's usually number one priority for most of them. I would say with this, with growth of DeFi, the last couple of years, I don't think it should necessarily be a super big priority for most of the projects. I think it's much more important to focus on product itself and focus on technology, because once it's successful, once you have enough TVL, for example, in your protocol, centralized exchanges will just list you automatically, but in general, in terms of what we offer is, it does become a bit easier to get listed on centralized exchanges. We also provide liquidity.... Well, we also see liquidity in AMMs, for example, for starters, we are one of the largest, well, if not the largest market maker on RFQ aggregators, like 1inch, or Matcha, ParaSwap. So, we do provide a lot of liquidity there as well, and we generally try to be even more helpful, well, basically with Interop, we're also trying to support as many index products as possible on liquidity side of things. So this is more of a example of us trying to deliver much more values than a normal market maker would.

In that regard, we are trying to be helpful on OTC front, where we also manage projects treasury, so basically provide liquidity for... Well, basically for selling the tokens or selling tokens of employees, for example. So, we are basically, the idea for us is to be engaged with the protocol as much as possible. It's not really interesting for us just to get a loan, and I don't know, get at least on centralized exchange. It's just not enough for us in terms of value that accrues to us and to the project.

Crypto Texan: That makes sense. You said that a lot of protocols, or DAOs will look to you to, I guess, get assistance in being listed on the centralized exchange, is that because of the network that Wintermute has, or is it also that CEXs are looking for certain liquidity requirements, or market making requirements before it's listed on a centralized exchange?

Evgeny Gaevoy: Yeah, CEX is typically need at least one, sometimes two market makers to just list protocol. Some of them have their own market makers. It's not necessarily the practice that we like, but that's the reality we live in, but any investor in exchange, they typically don't have in-house market makers, so they would rely on one or usually two market makers to support the listing on the listing date, because if the project lists and there are no bits and offers... Well, maybe there are bits, but if there are offers, it's not going to be a very successful launch. So, they often come to us and introduce projects to us that are going to list, and basically also, it's much easier, I think, for projects that they're already in advanced talks with exchange to mention, "We have a market maker behind us."

Crypto Texan: Okay. That's helpful. I feel like Wintermute was just, from an institutional standpoint, when it comes to DeFi, was just very early compared to other firms that are similar to yours. What did you and Wintermute see in DeFi so early, that perhaps others did not?

Evgeny Gaevoy: Well, quite honestly, I think it was more, well, part a gamble, and part just part of driven by values again, because to me, already by 2019, I was already a lot down the rabbit hole in terms of understanding how blockchain works and how it can change the world potentially. So, it was just really interesting for me to dive into it and actually kick start liquidity and protocols that really needed it. So I think it was, quite honestly, on one hand, value driven, on other hands... Also, I think, the calculation also was that if we can jump in earlier, we would have a pretty good moat compared to anyone who would come in later, which proved true last year and the year before as well.

Crypto Texan: I'm also thinking just with the recent price action that we've been seeing, and there's talks of a bear market. Does the role or importance of a market maker change in a bear market versus a bull market? I would assume that there are probably higher demands for Wintermute's services in a bear market, maybe opposed to a bull market. I'm just wondering, is there any differences there, if you could just add some color to that?

Evgeny Gaevoy: Yeah. In general, I think the demand is much higher, because... Well, demand might be relatively same, but supply is lower, I would say. I would say it's also a big consideration, because a lot of market makers that were profitable in a bull market with really high amount of volatility everywhere, might not necessarily be profitable in the bear market, whereas if volumes are lows, there is no retail anywhere, and you just need to survive and just focus on the most liquid past probably. And so, being big enough, and being able to support liquidity in the pasts that are not necessarily going to be profitable for the next few months, that's something only a handful of big market makers can afford to do.

Crypto Texan: Okay. That makes sense. And let's talk about the Index Coop and Wintermute. Can you just describe for everybody the relationship between Wintermute and Index Coop, if there is one already? And then you already touched on, what challenges are there in providing liquidity for Index Coop, both the products that we have, our index funds, as well as our native Index token?

Evgeny Gaevoy: Yeah, sure. I think I'll start from afar actually. So, basically, back to my TradFi experience. So, what I was doing at Optiver was market making ETFs. So in general, this team of indexes, team of market making is very close to my heart. I would say, back at Optiver, market making ETFs is a very difficult business. There are a lot of small things you need to take into account, like starting a risk protections for different stocks, finishing risk managing your inventory, managing any risks from running exposures and individual stocks, for example. And a lot of this complexity is shared with DeFi index product, and basically, early last year, started to look into the space, because I said, market making ETF is something I pretty much made my career on back in the days, and what are the products being out there? So I heard about DPI, I heard about a few others, so I started researching into the space, and basically I found roughly four biggest projects, Index Coop being one of them, obviously the largest one. And I basically appeared with the same focus on decentralization, with the same focus on that we don't want, really, to back one protocol, but we actually want to back the whole space.

We started approaching all of those protocols, so we started with... I think we started with PowerPool initially, then we approached Indexed, we approached PieDAO, and finally we approached you guys as well. And the deal we made with, basically, all four protocols was pretty much the same where we would market make the governance token, so, Index, in your case, but on top of that, the main value-add from our side would be to market make the Index products as they get listed on centralized exchanges. So now the biggest challenge last year was, on one hand, there was not enough traction in most of those index products, concluding in it... DPI got listed on KuCoin, but that was pretty much the only centralized listing that we've seen. In terms of other hands, I think in DeFi community in general, there was still a prevalence of opinions that you can make much more money by aping one or two tokens that you really believe in, and since everything was going up, this view got reinforced and people had that you don't really need to diversify. I think after this bear market, this view might change, but we'll see. Hopefully it will be.

I think another thing was that most of the centralized exchanges on top of it, they still don't have a good idea about basically whether those index products are securities or not. So we had quite some discussions with all the key centralized exchanges, and most of them are just saying, "It sounds really interesting to list those products, but we just don't know if they're securities, and I don't know, SEC will come after us," for example. And so, that bit was not super successful, and basically, instead of continuing to push centralized exchanges to list those products, which did not really get much traction, we decided to focus on making those products more successful on DeFi side of things. So, for example, last year we supported launch of data on Index Coop site, and in generalizing what we're going to focus on, is basically support liquidity of Index products on DeFi with an idea that if it grows a TVL large enough, if it grows a trading volume large enough, they might get interested enough for the centralized exchanges to reconsider the listing that.

Crypto Texan: There seems to be a big difference, at least from a perceived regulatory stand point of the retail-oriented centralized exchanges like Coinbase, but there's also the institutional side of this as well, where you have Coinbase institutional, which DPI is listed there, and also BitGo as well. Can you just talk through the differences of why the institutional custody side is more willing to adopt those products versus the retail side?

Evgeny Gaevoy: I think on the custody side, it's relatively easy, because it's only RC20, it's listings the tokens on custody side doesn't necessarily expose them to any regulatory risks, because, basically, if they sell those products to institutions, I think it's a much smaller regulatory risk, because then institutions are, I don't know, less certified investors, they can buy pretty much whatever they want. While for retail, if you sell securities to retail, you need to have a proper license for this in most countries. So, that's basically the main reason, I think.

Crypto Texan: So, what advice would you give the contributors at the Index Coop? What do you feel like, what steps do we need to take to move forward to potentially get to a centralized exchange listing?

Evgeny Gaevoy: I would say focusing on institutional adoption would be one good pass. We would be super interested, in general, in partnering on that side, because OTC business is a very important direction for us in general, and it's also much easier for us, just on the infrastructure side. It's much easier for us to, if a client comes and wants to buy $10 million worth of DPI or data, it's much easier for us to do it, because it's a delayed settlement, because they don't need it right away, unlike if we traded on aggregator, for example. So we have, I don't know, few hours to get those components, move them from centralized exchanges to DeFi, means DPI, and deliver to the client. And it also basically...

Most of those institutional clients, they will do rather big tickets, which means that TVL will grow, and if TVL grows, it will make those products much more visible, and once they're visible, again, they go catch attention of centralized exchanges, because all those centralized exchanges, they want to attract the same institutional flows that's buying those products OTC, so they will inevitably then list them because they want to attract this flow, and they want those institutionals to actually trade on the exchange instead of doing it via OTC desk, or with remit, for example.

Crypto Texan: Absolutely. That's helpful too. So, Wintermute has obviously been very successful in this space, this very niche space, what do you attribute to Wintermute's success, and how have you been able to differentiate yourself from organizations that do things similar in this space?

Evgeny Gaevoy: I think the key thing for us was, we are just trying to be helpful as much as possible. So, I think we're just very friendly in general, to a lot of protocols we engage with, to a lot of projects that we engage with, because we have a very much long term view on most of those protocols, and about the space in general. And that really differentiates us against much more mercenary type market makers, a lot of them out there who just focus on shorter term gains, for example. For us, it's much more important to build our brands, to build our name, and just to make sure that everyone knows us, not because we are, I don't know, the biggest market maker in DeFi, but also because people see us as a, basically part of the ecosystem, not just a market maker who wants to make a lot of money there.

Crypto Texan: We're also interested to know your thoughts on, there are these automated Uniswap V3 liquidity managers like Visor Finance, which is now Gamma Strategies, and G-UNI. What are your thoughts on those? What are some risks and limitations that should be taking into consideration when trying... If an organization is trying to decide, "Should we try to use this automated V3 liquidity manager, or someone like Wintermute?"

Evgeny Gaevoy: I think they can be used in conjunction, because we are not necessarily super thrilled about foreign liquidity even on Uni V3. So I think providing liquidity via those parties, it's still better than trying to manage liquidity on your own. I'm not super familiar with how they operate, but the way I can imagine they operator is, they have some kind of internal Oracle or pricing that basically keeps moving those bands as the market moves, which is still much more efficient than just have heavy liquidity being a sitting duck, basically. Because, part of our business, and we're not hiding it, part of our business is providing liquidity, but another important part of the business is taking liquidity as well, and we take a lot of liquidity from Uniswap, or Uniswap, both V2 and V3, because, I don't know, if there is a big buyer on Binance, for example, in one of the DeFi tokens, and there is a lot of liquidity on Uniswap, we'll take it.

And so, if you have a partner that can basically move liquidity out of harm's way, that's much more efficient than just not manage it at all by yourself. I think, going forward, once we get more comfortable with Uni V3, we can also provide this kind of service in terms of liquidity provision. So we'll start competing with those guys, but I think it's still better than us and to use them, for sure.

Crypto Texan: I mean, one of the benefits, obviously, of Uni V3, and you're right, it's just, they've got price oracles that move the bands. That's exactly what they do. But one of the risk of Uni V3 is, there is just this... A much greater risk of impermanent loss when you've got more of those concentrated liquidity pools, versus Uni V2. So, if you were to get more involved in that part of the business, would you focus more on V3 regardless of the higher risk of permanent loss, or would you focus more on a V2 strategy, do you think, with less permanent loss, but also less fees associated driven to the bottom line? I just want to get your thoughts on both of those, and where do you think you all would fit in?

Evgeny Gaevoy: Yeah, I would say, there are some more interesting AMM constructs out there, for example, there is a CowSwap, despite the fun name. The idea is actually really interesting, because, well, you have basically liquidity being provided in a passive way, but also on top of that, you have solvers who can basically provide liquidity on demand. And I think that's actually a much more interesting model to explore, because it's takes the best of both worlds, because it has the passive aspect of it, but it also has a more active aspect of more active market makers stepping in when liquidity is really needed. So, I think you'll just see a lot more innovation in the space, and Uni V3 is much more concentrated, so it's much more risky, but it also means that it's also so more liquid for the end user, because if you think about multi-arbitrageurs, that actually people who want to buy index products, for example, for sure, in the Uni V3 would be much more interesting for them.

And if you're looking at, for example, DPI/ETH pair, it's not so much of a risk to market maker, even if it's Uni V3, because those two products are so much correlated, for example.

Crypto Texan: And I think IDEX has that hybrid liquidity model. Are you familiar with that at all?

Evgeny Gaevoy: Not with IDEX, no. It's just so much happening in the space, it's not always possible to keep track of everything.

Crypto Texan: I understand. Well, what are some, I guess, stereotypical, or just strange assumptions that someone would make about a crypto native market maker that are just completely false, or just complete out of left field that you've experienced in your time?

Evgeny Gaevoy: Oh, I think the main thing I got spammed with messages quite often, is that we manipulate the markets. That's the most common one. So, it's basically people see that we are selling them Uniswap, for example, and they think that we are dumping and trying to bring the price down, but all it means that we are buying Coinbase or Binance and selling on DeFi. So, that's all you can read and do it, but, in general, this assumption that a lot of market makers are making money by manipulating things, that's something we still need to fight, this perception. I still see it on... Because we do participate in the governance on quite a few protocols, so there's still a misconceptions that we need to fight a lot. I think another quite common one is, and that's a bit more interesting to explore, is basically that we are basically facilitating bad OTC flow. Well, one was just literally from a few days ago was, there's a SiFu funds, for example. Basically what happens is, we trade on Matcha or 1inch or ParaSwap, against somebody who... For example, against the hacker who stole some money from some poor guy on Binance, for example. And then this poor guy texts me on... Well, DMs me on Twitter and says, "Return me my money, because the hacker did it via Wintermute."

And then I need to explain it actually went through Matcha, there's nothing we can do about it, because we cannot identify every single bad actor who just stole money from Binance, because it's literally impossible. And with SiFu, for example, it was also not possible, because even the chain analytics software that we use to see activities, it would not mark his wallets as suspicious, for example. So, again, there is really nothing we can do about it. So, that's an interesting challenge we face on RFQ side of things, on aggregator side of things, and DeFi, that often the deal... We basically trade with counter party who can be considered malicious or actually malicious, and it's quite impossible for us to filter those out, because it's the same. If you provide liquidity on Uniswap, and the hacker trades through Uniswap, then you trade it against the hacker, and you have no way to avoid that. And I think the way we want to... I think one important way to understand why it's not... I wouldn't say not a big deal, but smaller problems than it actually is, is, let's say somebody converts ETH to USDC via us on Matcha, they still need to convert this USDC to dollars somewhere.

So, it's not like we help them to move money away, it's actually much more complex than, because they still need to access those Fiat trails somewhere else to cash out. And that's where they will get into trouble properly, because if they, for example, start on-boarding with us as a OTC fronts, we'll do proper KYC/AML with them, and we'll basically tell, "We're not going to trade with you, because you're probably a bad guy." Those two are the most common.

Crypto Texan: Interesting. I didn't realize you all got mixed up in that SiFu debacle a little bit. Did you all receive a lot of push back or flak from that?

Evgeny Gaevoy: I mean, yeah, somebody wrote a thread on Twitter, I had to respond to it, and I think it ended up like I was able to explain how we operate quite nicely, but it just something that pops up every now and then. I think it's a curse of being a big firm in general, that you just get a lot more thought about your activities and what you do, and a lot of people are just trying to make conspiracies here about what we are doing all the time, I think. And, the bigger we are, the more people will try to, I don't know, connect the dots that are not actually there.

Crypto Texan: I guess we can stay on the same topic of, I guess, exploits or hacks, and do you have any opinions or hot takes on the most recent 320 million, however much it was, Wormhole exploit, and does Wintermute provide any liquidity, or seed any liquidity on any multi-chain bridges?

Evgeny Gaevoy: Yeah, bridges is a really interesting theme in general. We were not really affected by the Wormhole hack. There was a way it works in Solana, there are two Ethereums there. So there is one that's provided by FTX pretty much, and there is one that's provided by Wormhole. We didn't really touch the Wormhole one, because it doesn't trade that much. So I think people primarily use it to move value across chains, and basically to deposit it in lending protocols. My perspective is, bridging is tough, and I think that's the take you can read on Twitter a lot these days. Bridging is properly tough, especially if you want to make it in a decentralized way. So I think the more successful bridges, the more the bridges that you don't expect to fail are pretty much has a centralized exchanges like FTX or Binance, or basically, the protocols that are behind the stable coins like Tether or Circle, and those are the bridges you don't really expect to fail, and also the bridges that much less likely to do something malicious so bad, because they have a pretty big business behind it.

But decentralized bridges, we've engaged with quite a few protocols. We were integrated with Solar chain for a while when they were transiting. We actually invested into CreDA. So those guys are doing something different in that regard, but we just know it's very difficult, and, well, I think everyone wrote Vitalik's comments from a month ago recently as well. So, I pretty much agree with them, and I think with bridging the main, the only benefit from bridging really is moving value. Nobody really needs to trade Ethereum on Solana, because if you want to trade Ethereum and Solana, you might as well just trade Ethereum perks in Solana. So it's all about moving value. So, I think in the long run, it will be whether somebody can figure out this, a proper decentralized way of storing value, well, like Wormhole does, or people will just resort to centralized places like centralized exchanges or Circles or Tethers of this world to do the bridging for them. I think that that's what it will end up with.

Crypto Texan: Wait. So were you saying that you feel like Wormhole is a decentralized bridge?

Evgeny Gaevoy: Yeah, Wormhole is a... I think that it is properly decentralized bridge. It is still has a connection to a very much centralized entity jump, but the nature of it is very much decentralized, because there is no KYC/AML when you move assets across. You can do it in a totally anonymous way, which is basically what decentralization is about for me as well. So, yeah, Wormhole is properly decentralized. In this case, they had a bug, it got exploited, which is very unfortunate, quite sad really, but I think that's an unfortunate reality of building this new system, because it's just really hard.

Crypto Texan: I think it feels like, too, that, one of the major themes for 2022 in crypto is layer 2, and I guess, side chains as well, and with that, you've got to use multi-chain bridges. And so, if it's the year of layer 2 2022, it's probably going to be the year of cross-chain bridge hacks as well. Just my thoughts on that. But, in your opinion, what are some other important themes that investors should be paying attention to in the crypto space in 2022?

Evgeny Gaevoy: I think plumbing in general, whether it's bridges, whether it's, I don't know, all the software around DAOs, or around gaming, for example, or around NFTs. That's probably the most exciting stuff that's going to be there. There are a lot of exciting companies, in general, operating around that. So, as a venture investing firm, we are actually much more excited about those companies that operates on the sideline that are actually powering the whole thing, rather than, I don't know, focus on certain, I don't know, trading protocol, or for example, I don't know, the NFT project, a new game, for example. So I think this stuff that powers everything, that's the most interesting on the investment side for us.

Crypto Texan: And when you say assets that are powering everything, are you talking along the Chainlink, The Graph, Ocean Protocol, Numerai, or are you talking more about REN protocol, THORChain, things like that?

Evgeny Gaevoy: I think more the latter. So, more like the latter, because Oracles is still... I think it will be, not necessarily a crowded space, but you already have a link obviously, but you have, I don't know, you have quite a few new ones up and coming. You have a piece on Solana, you have... I think it's going to be quite an interesting battle between those, but for us, it's much more about the latter, looking at companies that actually doing something that's... Well, something that can be composable with other protocols basically.

Crypto Texan: And you also touched on NFTs as well, and NFTs are just inherently illiquid assets. Do you all have any Metaverse or NFT related plays, or do you all provide any liquidity for NFTs, maybe through an NFTX Vault or a Nifty Museum vault, or what are you all's thoughts there, and do you all have any plans for that?

Evgeny Gaevoy: We're looking at NFTX, for example. We haven't done anything with it just quite openly and honestly, but I think NFTX is a really interesting model to basically bring liquidity, and basically make NFTs more fungible. We quite like that. But I think the extent to which we will be involved in NFTX system will be much larger in general. We are looking at how to price the biggest collections, for example, how to price fair trades, so it's much more akin to quant trading to a degree, because you need to build rather sophisticated models to be able to price those. But it's not really about market making more and more often, but it's much more about market taking really, because you need to be able to see the opportunity and snap it before anyone else. That's how it works.

Crypto Texan: Okay. That's interesting. Thanks. And so, on your Twitter profile, you describe yourself as a libertarian in doubt. What does that mean?

Evgeny Gaevoy: I think it means that, in the most basic sense, that nothing is black and white. It would be awesome if we have a perfect, I don't know, libertarian system where everything is free and everything, but ultimately, just the world is way too complex to say, I don't know, we should have perfect, I don't know, libertarian state, or we should have a perfect communist state. It's just, either of those extremes is just not going to work, because I don't know, because of human nature, because any system would simplify things way too much, but also, I don't know, talking about hacks, for example, I was firmly in a coders law team, I would say a year ago, but looking at those hacks often very closely, because some of those were protocols we were really close with, either as an investor, or just teaming up with them, it's really clear that sometimes you get hacked, and it's not really arbitrage, it's just proper person stealing money from other people, and from libertarian perspective, code is law, too bad, everything goes, but from...

Once you understand that it's literally normal people that lose money in it, that's basically, I don't know, developer communities that getting destroyed, and so having to find what to do next, it's not that simple basically. And I think this whole seems that the world is more complicated than the extreme views that we can think, that's why I'm libertarian in doubt now, because it's just much more complex.

Crypto Texan: That makes sense, because I think it is a gray area in some parts, because the code does allow for that type of exploit to exist. So in that sense, it's like those are the parameters for the environment, for the game that you're playing, the parameters for the game that you're getting into when you're interacting with that protocol. And then, at the same time, it is theft of other... You're taking something that doesn't belong to you, and it goes outside the scope and the spirit of the code that was written. That makes sense to me. Where do you feel like these libertarian views came from?

Evgeny Gaevoy: That's a very deep question. I think it's, in general... Well, okay, I think it's primarily just a function of environments, for me personally, because I grew up in early '90s in Russia. My father was one of the early entrepreneurs after the collapse of Soviet Union, and he was initially quite successful. Later on, not so, but basically I grew up with those ideas of communism doesn't work, and suddenly have all this freedom, and people can just make... Well, they can make whatever... Basically you have your own faith. So, if you put enough effort into things, you can accomplish pretty much everything. And then, afterwards, I started studying in a, basically, university called Higher School of Economics, which was also super libertarian. I don't know, I started reading Ayn Rands, and, I don't know, it all cascaded to me being pretty much hardcore libertarian, I would say three, four years ago, already. So, I think my whole life shaped me in this way.

Crypto Texan: Ayn Rand is a pretty thick book. That's probably one of the largest books I've read, I would say.

Evgeny Gaevoy: Yeah, and really horribly written as well from literature point of view. I actually like Fountainhead much more as a... Well, as a piece of literature, I would say.

Crypto Texan: Oh, I haven't read that one yet. Okay. So, we've got about six minutes left. I don't know, what projects out there are catching your eye? What teams are building in this little bear market right now that you feel people should be paying attention to?

Evgeny Gaevoy: I think I'll revert to my initial statement that we're not really... We are doing a lot of investment in the space, but we are not really looking to back one protocol or one team. So, I'd really don't want to name names, partially because I really don't like to talk, I don't know, talk up our bags, partially because, I really think there's this value of decentralization, value of what's interesting out there is just much bigger than any single team we work with. I could think praises about DyDx, for example, but there are a lot of really interesting teams, other teams out there that I work with equally, talk a lot of nice things about. So I think, for me, it's much more thematic, and I would say, I could say about things that would excite me in general to do, for example, I was not super excited about gaming stuff last year, for example, because, well, as a gamer, I actually tested quite a few of them. I think the ones that I liked the most was Dark Forest, but it's just so hard to play it properly without doing some coding on top to automate things. So it wasn't... And it was still time sync, so I couldn't really dedicate myself that much to it, but I tried Taxi and I didn't really like it, and I tried other games, and they were just, I don't know, not proper games.

You go to your iPhone and you download the random game, and it would be better than anything we have on blockchain now. So, what would excite me would be actually a proper gaming studio, maybe in the studio, coming with already ready products, and making a game out of it on blockchain, and basically Wintermute, I know, for example, market making in-game assets, or market making NFTs. Well, basically finding some proper game, and actually support it in liquidity front. That would super, I think, for us, and for me as a gamer as well.

Crypto Texan: I think it's been so interesting to see all the push back from gamers about having NFTs implemented or integrated into the games that they play, but I'm thinking, all these games that are on the blockchain, Decentraland, Axie Infinity, I don't know, once they reach the point where they can implement the mobile aspect... Actually, I think Axie is on mobile, now that I think about it. And I know I can think of two projects right now, Decentral Games, we had Ryan on the podcast a few weeks ago, and he said that they're working on a mobile app, and I think that's going to be huge for them. And then Xone, X-O-N-E, is another one that is, I think, about to release their mobile app for their... They've got land sales and it's a metaverse play as well.

And I think it's just so much less restrictive when you have a mobile app for your NFT related blockchain game. And I think that is going to be a huge unlock for the space, once that happens.

Evgeny Gaevoy: Oh yeah. Yeah. Totally agree. Yeah.

Crypto Texan: Well, it looks like we're up on time here. Evgeny, I really appreciate you coming on the show, and I'll just give you the final word, and just let you tell everyone where can they go to find out more about you and Wintermute?

Evgeny Gaevoy: Yeah, sure. Well, about Wintermute, the easiest way to go is our website. It's literally wintermute.com. So it's very easy to find, but, in general, I should post a lot on Twitter. Well, maybe I could do even more now, but that's definitely a proper place to get familiar with, I don't know, my views and what I think about this space, but in general, more for Index Coop, we're just really excited to support you guys to continue supporting you guys. And I think it's been a tough year last year in terms of just not enough growth, I guess, in those Index products, but we are very much determined to continue supporting you guys. We're very, very much determined to make the space successful, and to continue educate, well, general population why, I don't know, why it makes sense to diversify, why it makes sense to index your investments. So, from that perspective, we're really determined to make this year successful for both of our companies.

Crypto Texan: And we appreciate the relationship too. I mean, I think... I agree with what you said there, people are starting to wake up to the power of these crypto native index funds, and we've got listings on BitGo, and Coinbase Institutional now, and I think the partnership that Wintermute and Index Coop have together, and just the team that we have in place at Index, and how we just... We never stop building, we never stop growing, and, I don't know, it's very bullish for me, personally, but also I'm a contributor, so I'm supposed to be bullish.

But anyway, thanks to everyone who's listening live in the Discord. This being recorded, and so, we will get this mixed and edited, and we will get this out sometime next week. Have a great weekend, everyone. Thanks again, Evgeny, for being on the show. All right. See you all next time. Bye.

Evgeny Gaevoy: Thanks for having me. Bye-bye.

Host: @Crypto_Texan

Audio Engineer/Mixing: @LloveraFrank

Marketing Image: @crypto_diller_

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Crypto Texan: Hello everyone, welcome to Conversations with the Co-op. This is where we source questions from the Index Co-op community to gain insights from today's leaders in crypto and DeFi. I'm your host Crypto Texan, and on this week's episode we have Teddy Woodward from Notional Finance with us here today. Thanks for being here with us today Teddy, how's everything going? 

Teddy: Everything is going great. Thanks for having me. 

Crypto Texan: Yeah, absolutely excited to have you on. So we usually just like to start off with your background, and how did you get into crypto and decentralized finance? 

Teddy: Yes, sure. So I started my career as an interest rate swap trader at Barclays Investment Bank. So I started my career in very traditional finance. I worked in London, in Canary Wharf, if anybody's familiar with that. I worked there for about four years before leaving, I think early 2018 so basically right around the peak of the last cycle, I left that job because, you know, to be honest, I didn't really like working for a bank. I liked trading and doing all that stuff, but I didn't really like working for a bank, so I left that job to trade crypto for a family office in LA in 2018 and then stuck around there for about 18 months. 

And while I was doing that, I think DeFi was basically just starting. So, you know, I don't think Compound was even live yet at that time. And I was really interested in DeFi right away. Like right from the beginning, I thought it was, you know, it seemed to me that it was the actual realization of what crypto can do, because at the time, I was trading on centralized exchanges like Binance and BitMEX and all that stuff. And you know, basically as far as I could tell, it was the same as what we do in traditional finance, it was just a lot worse. 

It was effectively exactly the same, except the exchanges, like technology was just way worse. The market was a lot less efficient, and the exchanges just were super risky from just a counterparty perspective, like the Bitfinex kind of situation and obviously Quadriga and all that stuff. So it seemed to me that like, okay what I was doing was crypto, but not really, I felt, and it seemed to me that DeFi was how crypto is actually going to change finance. 

And so I was interested in DeFi from very early on, but at that time, the space was so small that there was no way that I felt I could get involved on a professional basis just because it was too small. And then kind of towards the end of 2019, Compound was really starting to show some success, which was cool because I think at that time it was basically Compound and Maker were basically like the only two things in all of crypto that showed any success at all. And it seemed to me that it proved that DeFi could do something. And I wanted to stay in crypto and I always wanted to start a company, and the success of Compound felt to me like it was the real start of an interest rate market, and I thought it was really cool. 

And basically, I thought, you know, the next logical step for the space was going to be the ability to lend and borrow at fixed rates of interest. So it just seemed to me like DeFi is going to be a big thing. This is a big opportunity in DeFi, and it's completely non-existent at that time, and so, basically I left my job and moved to San Francisco, where I met my co-founder at a hackathon, and then we started Notional together full-time in January 2020. Yes, and that's how it started. 

Crypto Texan: Yeah and you bring up a lot of good points there. I remember back in the 2017 ICO craze, you know, I was aping into a bunch of ICOs that I didn't do any research on back then, but that's when I first got into the space. And yeah, you had to go to Binance to find these tokens, if they were available and if they just happened to be listed on Binance. And then it was like, you got to send your ether to Binance and then do the trade, you might not even be able to withdraw those new tokens to your wallet. And yeah, that's not really decentralized finance. 

I mean, you can basically back then, it was like you could send bitcoin to another address, that's decentralized, you can send ether to another address, that's decentralized. And then, yeah, once Uniswap came around and it's like, oh, I can just do this swap on chain using a smart contract and not have to worry about having Binance custody my assets, which like you said, is a huge counterparty risk, which is one of the main things that we're trying to get away from in DeFi, is that counterparty risk. And saying all this, reiterating this because I think we want to touch on this a little bit more when we talk a little bit more about Notional. 

But yeah, so you met your co-founder and y'all decided that you're going to start a fixed rate borrowing and lending protocol platform. I guess, where did you see a need for that in the market? And I guess what kind of inspired the founding of this protocol? 

Teddy: Yeah, that's a good question, so I would say that, you know what inspired the founding was just kind of like... So actually, both Jeff and I both had the same idea. So I think about it from my perspective, as you know, I had the idea, but also actually, incidentally, so did Jeff. When we met each other, we met at a hackathon and we both came with the same idea, which is pretty cool. But I think, you know, when I say, when you talk about was there a need, I think it was at that time it was very much like a gut level decision that, like it was a big bet on DeFi and just a bet that fixed rates were going to be important because I think if you're honest, at that time DeFi was like max $200 million in assets, you know, max like through all of DeFi. So it's like, was there really a need for anything? Based on that amount of traction, it's not clear. 

So, you know, I think every– if you're doing something in DeFi at that time, you were really taking a risk that anybody was going to care about DeFi at all beyond this very, very small group of people that did. So yes, I mean, I just felt that, coming from my background I just felt it was inevitable because, you know, in general, like when you look at lending markets, whether it's in centralized crypto markets or it's in traditional finance, you're almost always getting fixed rates of interest. 

And that's just generally because in the absence of technological constraints, people choose fixed rates because they just generally prefer fixed rates, because they want to know exactly how much interest they're going to earn or exactly how much they'll have to pay. Like if you just say, you know, if you have both options available to you in general, what you see is that people generally prefer fixed rates. And so I felt that if there was going to be a DeFi space at all, there was going to be a need for this. So yes, that's kind of how I thought about it. 

Crypto Texan: Yeah, that makes sense, and yeah, I think another reason that people do want fixed rates, it's just like from a forecasting and budgeting standpoint, right? Like if I'm going to borrow to purchase a house, I'm going to want that to be a fixed rate because that little movement in that interest rate, in a variable rate on a mortgage can affect your loan payment, sometimes hundreds of dollars, which could affect your budgeting. And I think a lot of companies and retail individuals like that aspect, but I think, and there's other interest rate types of protocols that are popping up or fixed interest types of features that we're seeing in DeFi. So I guess my next question is, you know, how does Notional work and how does Notional differentiate itself from some of the other fixed rate actors that are out there? 

Teddy: Yeah, that's a good question. So I'll give you a quick technical overview here. So the core concept in Notional is what we call fcash, and fcash is a lot like a zero coupon bond in that it is defined by a currency type and a maturity date. So for example, March 1st, 2022, USDC. That is an fcash token, and it is redeemable for one USDC, on its maturity date, March 1st, 2022. So you can think about that as representing USDC at a specific point in the future. And the way we enable fixed rate lending and borrowing is by allowing you to trade between USDC today and USDC in the future. And you think as a lender, what you're doing is you are selling your USDC today and you're buying a fixed amount of USDC in the future. And the exchange rate at which you trade between USDC today and USDC on March 1st implies a fixed interest rate over that period of time. 

So just to give you an example, if you're a lender, you want to lend 100 USDC, let's say you come to Notional, you sell your 100 USDC and you get back 101 March USDC in return. So what that means is that you know on March 1st, you're going to have 101 USDC. So you will have made 1 USDC in interest over two months, so that's a six percent annual return. Does that make sense? 

Crypto Texan: Yeah, that does make sense, okay and so basically, if I take my 100 USDC and I lend it on the Notional platform, I then receive a 101 March 1st, 2022 USDC, which at that point I can claim on that date for 101 USDC, or I could trade that on the open market. And is there a secondary market already for this fcash? 

Teddy: Yeah, yeah. So first of all, that's absolutely right. You did a good job of explaining that. So what I would say is that Notional operates liquidity pools where there's one liquidity pool for each maturity. So we'll have a liquidity pool that's kind of like a Uniswap pool where we have USDC on one side and March 1st USDC on the other side. So actually, when you're lending, what you're doing is you're putting your USDC into this liquidity pool and you're taking out March USDC in return. And then any time prior to maturity, you can go do the opposite. You can take your March first USDC and go put it back into that pool and get some USDC back in return. Yeah so that's kind of like, you know, a mental model of how it actually works. 

Crypto Texan: Yeah, that definitely makes sense. And so why the name fcash? Is there any significance behind the "f" before the cash? 

Teddy: Yeah, so actually, we started out by calling it future cash. We started calling it future cash, and then our lawyers advised us to not call it future cash because they felt that the word future was just too much. Like, I don't know, it was risky because they thought maybe it might look like a future or something, so we changed it to fcash. 

Crypto Texan: Okay yeah, that makes sense. And so who are your target users? Are you looking for retail users to utilize this protocol? Are you looking for DAOs or more crypto native institutions, like who are y'all targeting here? 

Teddy: Yeah that's a good question, so I would say that it depends. On Ethereum L1, we are not looking for retail users to use Notional directly because of its high fees. So if you want to use Notional with a relatively small dollar amount, right now because Notional currently only exists on Ethereum, it doesn't really make financial sense for you to do that. Now having said that, we are pursuing an L2 strategy where we're going to have instances of Notional on different L2s and I think that pain point will be eased significantly. So I would say that the users kind of depend on what chain we're talking about. 

I think that on Ethereum L1, a lot of the users are basically, so basically right now it's very high dollar amounts on average. So I think the last time I checked, the average dollar amount per active account on Notional was something like, you know, a million dollars, maybe maybe $800k. So it's a pretty large dollar amount. And I think a lot of these people are, it's pretty whale heavy, so we have funds and just people with a lot of crypto. And I think that we are, so we launched Notional V2 in November and after going through the initial work that was related to the launch, we really tried to focus on protocol partnerships because I think that is, in my opinion, it's the future of being a DeFi protocol on Ethereum L1. 

I think that ultimately what you're going to see is that the users on Ethereum L1 are going to be high dollar value accounts, so like big funds for one, it's going to be DAOs for two, although I think that to date that is more promising than reality. And then number three, it's going to be protocol partnerships, right? So something like what we're building with Index, right, with this fixed product where the idea is that there's one big product that interacts with Notional directly, and then, you know, the end users enter that product in a much cheaper and more passive fashion. And all the complexity, all the management is pushed on to the protocol. 

And I think we're seeing that, you know, Index is one example of that. Another example of that is our upcoming integration with Yearn. So Yearn is going to be lending on Notional in their USDC and DAI vaults, and we're really excited to get that going. But it's just another example of the protocol being the main interaction with Notional on Ethereum L1 and then the users   interacting with this partner protocol. Does that make sense? 

Crypto Texan: Yeah, that definitely does. It sounds like you've got a lot of irons in the fire, too, which is exciting from a business development standpoint as well. I want to touch on something you said related to your average wallet size, or the average user is utilizing about 800,000 or million dollars and if that's your average, I mean, it definitely feels like more of a whale or institutional related protocol. But do you feel that way? And I guess the other question I have is what is your TVL right now with those types of averages? 

Teddy: Yeah sure man, so I think, you know I haven't looked at that average figure lately, and it might not be correct, but the last time somebody brought this up and threw out that number and it feels directionally correct. And right now we have something on the order of $350 million in TVL and I think we have something like 600 or 650 active users. So I guess that works out to, you know, maybe half a million dollars. So it's gone down a little bit, but it's still quite large. As for an average capital per user. I think, and you know to be honest with you, I think it makes sense, just from the fact that like Ethereum gas fees are so large and in the context of a lending protocol, you really need to be using large dollar amounts or it just doesn't make sense. 

I think it's slightly different if you're talking about a trading protocol. Let's say you want to buy $10,000 worth of ether, a $100 or $200 fee to do that isn't that much, right? Because you know, you're probably buying your ether and you're expecting to make 3x or something on it, right? But if you're talking about, you want to lend your $10000 for six months at a 9% interest rate, your total expected profit is like $450 right? So that gas fee is a huge pain. And so as a lending protocol, I think that the necessary dollar amount for it to make sense on Ethereum L1 is really quite high. 

Crypto Texan: Yeah, I understand that, and another thing you touched on was you felt like DAOs getting involved with Notional is probably more of a promise than a reality. And I think we've felt that as well from the Index Co-op. You know, I think we're starting to develop more products that are maybe DAO treasury oriented, like this fixed product that we'll get into in this partnership with Notional. But also there's PAY that we're working on, which is like a DeFi aggregated stablecoin yield product, and we're hoping that that might attract more DAO treasuries. But why do you feel like it's been more promise than execution, like why do you feel like DAOs would rather hold their native token in their treasury, which seems crazy to me. 

Teddy: Yeah, you know, that's a good question. I think just the number one thing here is that people sometimes get-- alright so I think lately there have been people that are talking a lot about this, but I think a lot of people still don't know that most DAOs hold almost all of their assets in their native token. So I think that the number of DAOs that hold stablecoins is really quite small. And even the DAOs that do hold stablecoins, the amount of stablecoins they hold is also very small relative to their total assets. So I think like, you know, the reality is that there just actually isn't very much stablecoin capital in DAOS, so there's not a lot of stuff to actually manage. That's the reality here. 

And there won't be, I guess, until these DAOs decide to raise money. And I think like, as for why people haven't done that or that these DAOs haven't done that, it's hard for me to speculate. I could imagine that maybe their token holders don't want them to raise money because if they raise money, then they're selling a bunch of tokens. I could, you know, I would say that after having our token live now for three months and experiencing what a lot of people in DeFi are like from a governance standpoint, I could see that very easily being the reason why DAOs have decided not to diversify. I can see there being a lot of grassroots backlash from the idea of dumping a whole bunch of supply on the market. You know, maybe that's it, I don't know. 

Crypto Texan: Yeah I think you're right, at the Index Co-op we did diversify our treasury. We've got, I think, a few, well this happened like, I think three and then six months back, but we ended up getting about $8 million in USDC. So we've got that in our treasury. And we feel pretty safe and secure having that in there, and I feel like we're pretty lucky that we were able to implement at least some sort of treasury diversification strategy just to assist in this bear market, at least. And maybe that's part of it. Maybe it's because I mean, DAOs are, when it comes to it the majority of DAOs have only come to fruition, like in the past few months or a year during the bull market, right. 

And so maybe I don't know, everyone's just so used to token number going up in treasury, getting bigger because of that. And I think now maybe that we've experienced these highs and lows in the bear markets that maybe we'll start to see future implementation of more strategic DAO treasury management in the future. Or at least, I hope so. And that's kind of what the Index Co-op and I think y'all are betting on a little bit too. But another thing, let's talk about the governance of the Notional Finance protocol. How is it governed? I know that you have a token. How involved is the community? Are you governed through token governance? How does all of that work? 

Teddy: Yeah so first of all, you know, well done on the diversification and as you're saying, you guys are one of the few. So, you know, well done. And I think you are probably right, you know, there's a lot of bias. Like everybody sees the number going up, nobody wants to sell because everybody thinks it's going to infinity. But I think you're right, that as we go forward and as like, these DAOs need cash to continue operating, we'll probably see more treasury diversification, I think it'll probably just take time, as you might expect. 

So then Notional governance. So Notional has a governance token, a native token, the NOTE and right now, we're in the process of decentralizing. So again, we launched Notional V2 along with our NOTE token a little under three months ago. So we're kind of in the process of decentralizing right now. Notional is owned by a multi-sig at the moment, so it is not actually owned by the governance contract on chain, although we are in the process of moving to that. And you know, we want to involve the community as much as we can. And so far that's been via votes on Snapshot that we execute. So that's been kind of how we've done it so far. 

Another thing with the NOTE token, we're actually pretty soon here going to be implementing a staking module and that is based off the feedback of the community the first couple of months since launch. And what that's going to do is it's going to give us both additional insurance for users on the platform. So kind of like Aave's safety module, if you're familiar with that. People are going to be able to stake their NOTE, provide insurance to the users on the protocol. So in the event of any hack, their funds will be used to recapitalize the protocol, but in return they will get an explicit share of the Notional protocol revenue, so Notional protocol is to use the revenue that it generates or use, you know, a portion of the revenue that it generates to buy back NOTEs and give that NOTE directly to those who have staked NOTE. So it's basically a way for token holders to directly experience the upside of the protocol success while also strengthening the protocol by providing insurance to users on the platform. Yeah so we're hoping to push that, have that live running next month. 

Crypto Texan: Okay that's really interesting, and did you say Aave does this as well? 

Teddy: Yeah that's right, so Aave, it's called the safety module, and it's pretty similar in design to us. The way it works is like you take your Aave and you can stake it into the safety module and you stake it as like an 80/20 Balancer LP liquidity. So it's also actually providing liquidity at the same time. And basically the safety module is like a first line, or maybe it's the last line of defense, but it is some line of defense against a hacking or an insolvency. So, you know, I think  Aave has some sort of protocol reserves just like Notional. And the idea is that, you know, in the event of a hack or in the event of a protocol insolvency, Notional is going to use its own reserves to make sure that lenders are whole. But in the event that our reserves aren't good enough, the people that stake in this module provide an extra layer of backstopping to users who have put their capital on the platform. 

Crypto Texan: And is there a timeframe for the lockup period for the NOTE token in that safety module? 

Teddy: Yeah so you can redeem whenever you want, but you'll be subject to a cool down period of, we haven't finalized it, I think it's going to be 14 days. 

Crypto Texan: Okay yeah, that's really interesting, yeah. It's always, you know, everyone wants staking, everyone who wants to use their token to generate additional yield. And that's something that the Index Co-op kind of prides itself on is that, you know, we have a lot of un-incentivized TVL. And I think that can say a lot about your protocol as well. And it's hard and we're working with the tokenomics of the Index token as well. It's difficult to create an incentive structure that aligns both holders, users, contributors, all the stakeholders of the protocol, DAO, organization however you want to call it. 

So yeah, that's really interesting. I kind of like that model that y'all are looking at there. So let's talk about the treasury a little bit more. What revenue drivers do y'all have to the treasury? Do y'all charge a fee against, you know, people who are borrowing at a fixed rate? Or how does, or do you take a little bit of interest on top? How are y'all generating revenue for the protocol? 

Teddy: Yeah so first of all, to your comment about the staking module and tokenomics more generally, I totally understand what you're talking about. I think it's very hard to design a tokenomics plan that really works well. And a lot of the reason I think it's difficult is that oftentimes the people that are the loudest are, you know, I don't want to say they're the ones you should listen to the least. But like, if you're just listening to the people in the community, you might not be hearing all sides, you know? 

And so I think it's something we really wanted to stress. We wanted to make sure that when you're staking your NOTE, you're providing value. You know, it's not just a way of earning more NOTE. We really wanted to make sure that it was providing more value to the system as a whole. We really wanted to make that true. Yeah so that was just one thing. 

And then as for Notional protocol revenue, basically we generate revenue in two ways. So the first is a straight up transaction fee on any time someone borrows or lends. We take a small fee on any of those transactions, so that's one revenue stream. The other revenue stream comes from Notional's integration with Compound. So basically right now, it was a big upgrade in Notional V2, we are integrated with Compound so that basically liquidity providers on Notional put in C tokens instead of the underlying token. So that enables them to earn compound interest at the same time as they're earning liquidity fees on Notional. So it really increases their returns, which is really important for Notional. And an effect of that is that Notional earns a lot of comp incentives because essentially right now, our entire TVL is sitting on Compound. So Notional the protocol is earning a lot of comp incentives because of that, we are actually, if you look at Compound, Notional is the single largest lender on Compound, which is kind of an interesting statistic, but it's true. 

Crypto Texan: Yeah, that is interesting. And have y'all looked at maybe diversifying the protocols you'll use for the composability? I mean, have you looked at  Aave as well, in almost like an aggregator sort of way, look to see where, I don't know, which interest rate benefits the borrower and the user best? 

Teddy: Yeah yeah we have I mean, we started out with Compound because what we wanted to prioritize more than anything was security. And we felt at the time we designed Notional V2, that Compound was the gold standard in terms of protocol security. We felt confident that they weren't going to list the collateral assets that we would think is too risky, and we just like, you know, Compound doesn't change a lot, which in some ways makes it really good to build on because you can just be very confident that it's going to be stable. So that's why we selected Compound. 

Now, having said that, we are currently in the process of upgrading the system to allow, or to support Aave as well. So we're going to be able to integrate with Aave in the same way that we integrate with Compound, and that's going to be really important because it's going to allow us to go to L2. So because one of the things about Compound is that it is only on Ethereum L1, so it's not on Polygon, it's not on Arbitrum, it's not anywhere else. So integrating with Aave is going to allow us to be on L2, which is really important. And then going forward, we might also at some point look at integrating Yearn in a similar way, although we have not decided whether or not we're going to do that. But we're considering it. 

Crypto Texan: Yeah that's always puzzled me a little bit about Compound, is to just why it's only on mainnet, and I guess they do have the Compound Treasury, which is for institutions, and maybe that's becoming more of a focus for them now. And then just comparing that to Aave, Aave is almost on, you know, they're on Avalanche and Polygon, and they're I think they're working on Arbitrum or Optimism as well, don't quote me on that. I don't know, it's just interesting to see those two different sides. And obviously, Compound has less assets listed from an interest rate market standpoint on their protocol. Okay, something I'm trying to get my head around here. Well, I don't know, did you have something you wanted to say right there? 

Teddy: Oh yeah I just want to like, I think it's actually just kind of interesting. So we started designing Notional V2 like a long time ago because everything in crypto, it's like the time between when you start designing it and when it's launched in production is so long, because it takes a long time to figure out the design and then build it and then test it and then audit it like just the whole process takes so long. So when we started designing it, Compound was firmly in the lead, and then by the time we launched and kind of to your point, like Compound hasn't been very aggressive in growing beyond Ethereum or enlisting other assets. And you know, I think we really, you've really seen Aave just grabbing market share and and it's like we were, it was too late for us to change until now. So I don't know, it's just kind of an interesting thing. 

Crypto Texan: Yeah, it really is. But like you said, you know, Compound rarely changes, it doesn't have a lot of assets, which also makes it less risky and it's still well-respected from a security standpoint. But yeah like you said, that's what you want. If you're building your protocol to call functions on the Compound protocol, that's kind of what you're looking for though, right? So it makes perfect sense. But yeah, anyway, we'll move on. 

So something I'm trying to get my head around is that when the users, when the people who are borrowing right, the borrowers on the Notional protocol, they're borrowing at a fixed rate and that fixed rate is going to have a maturity date or that loan is going to have a maturity date. Does it automatically pay back, or what happens if a borrower doesn't pay back their debt by the maturity date? 

Teddy: Yeah, that's a good question, so what happens is that the borrower can, so once they hit maturity, the debt is going to start accruing interest at a variable rate. So if you haven't paid back by maturity, your debt will start accruing interest at a variable rate, which is actually equal to the Compound supply rate. 

Now what can also happen after maturity is that you can be rolled forward okay, so this is a little bit of a tricky concept. So what's going to happen is, you know, let's say you've taken out a loan and it's due on March 25th. Okay so March 25th rolls around, you owe $100 to the protocol on March 25th, but you haven't paid it back. And then on March 25th, you still owe $100. What can happen now is once you're past maturity, you can become eligible for settlement. So what that means is that a third party can forcibly extend your loan to the next maturity. So essentially, a third party can force you to extend your loan to June, right. 

So now your debt has been rolled forward to the next maturity at a small penalty to the market rate for that maturity. So if after your debt has matured, let's say the June interest rate is 7%, somebody can roll you forward and your loan will be extended at a 2.5% penalty to that rate. So you will be paying 9.5% until June. So basically, if you don't do anything, you can get rolled forward, and that's fine. But there's like a little penalty that, it's an incentive for the person to roll you forward and kind of a deterrent so that, you know, to try and get you to roll forward yourself. 

Crypto Texan: Okay yeah, and that's something that's always kind of difficult for me, at least to wrap my head around is actually having maturity dates where, you know, the user actually has to go in, pay back the loan themselves. I mean, what happens if someone just never pays back the loan that they borrowed? 

Teddy: Eventually, you'll get liquidated. 

Crypto Texan: Ah that's right, because there's collateral, right, this isn't unsecured. Of course. 

Teddy: Yeah, so basically, you just keep on accruing interest. It's the same as like, it's the same as Compound, right? It's like if you put in $200 dollars of Ethereum and you borrow $100, eventually you're going to keep paying interest on that hundred dollars. And then eventually, the amount you owe is going to be more than the minimum collateralization and you can be liquidated. 

Crypto Texan: Are these partial liquidations or is it just a full liquidation of the collateral? 

Teddy: So it's going to be a partial liquidation, the way it works in Notional is that if you are eligible for liquidation, a liquidator can purchase 40% of your collateral and they can purchase more if you're super underwater. But the default amount of your collateral that they can purchase is 40%. 

Crypto Texan: Okay, and is there a second rate for or is there like a secondary market for, I guess, debt that has extended past the maturity? Well, I guess it all is owed back to the protocol. But you did mention a third party could execute the extension, so who would these third parties be in that case? 

Teddy: Yeah so the third party, basically the way the settlement action works is it's kind of like a liquidation. So the way it works is that, you know, again so it's March, you haven't paid your debt. The next liquidity pool now matures in June. Okay, so there's an active liquidity pool for June. So what the settler can do is the settler can lend to you at a penalty rate to the market rate on that liquidity pool. So basically, what happens and sorry if this is too complicated, but the settler will give you cash and then it's going to take positive fcash from you. And then it's going to lend to you at like 9.5% and then it will execute an arbitrage trade against the June maturity. 

So the way it works in practice is that the settler, you know, flash loans, so borrows a bunch of USDC, lends to you and then immediately goes and sells that fcash on the June maturity and pockets are spread. So that 250 basis point penalty is the incentive for the settler to do that. So it works kind of like a liquidation. 

Crypto Texan: That makes perfect sense to me, actually. And this is a fascinating protocol, I love this. And so what I want to talk about now is that there was a recent post in the Index Co-op's governance forum about launching a fixed income product suite with the ticker symbol fixed. And that is a partnership, a potential partnership should it be approved through governance between the Index Co-op and Notional. So I'm wondering if we can dig in a little bit and if you could provide a little background on what this potential new product could be through this partnership? 

Teddy: Yeah so I think fixed is going to be really interesting, you know, the first thing I'd say is that as you can see in this discussion, Notional is a pretty sophisticated protocol, right? Like, I think having these maturity dates just introduces a layer of complexity and sophistication that is just more complicated than something like a Compound, right. So for people to use Notional, it requires a lot of engagement, right, in a couple of ways. 

So one, you have to understand how this new way of borrowing and lending works, right? Things are just different with fixed rates, and then you also have to periodically roll your loan right in the same way that, you know what we were just talking about with borrowers getting their debt rolled forward. So if you're a lender, you know, let's say you lend to March. Well, then once March happens, you're going to want to continue to earn interest, right? So you'd want to roll your loan forward, but the problem with that is that it costs gas to roll your loan forward. And you also have to remember to do it, so it takes a lot of engagement from the user. And I think what's really, really cool about fixed is that it just abstracts all that away. 

So basically for the end user, all they have to do is just buy a token on Uniswap, which is now the easiest thing you could possibly do. And they don't have to roll their loan forward, they don't have to pay the gas cost of maintaining this position, it all happens for them. So it just makes it really, really easy and it gives them a really easy way to access the high and stable returns that exist on Notional. And I think that's really cool because basically right now, Notional has really high interest rates relative to other DeFi protocols. So right now, our interest rates are in the 9.5% range, which is really, really attractive for lenders in the context of something like 2.5% or 3% on Aave right? 

But the tricky part is that you've got to figure out how this works on Notional and you've got to do all the stuff that I just talked about. So I think that fixed products give people a super easy way to access that return without having to, you know, understand all the nuances and remember to come back every three months and all that stuff. So I think it's going to be a really cool product, and I'm really excited. 

Crypto Texan: Yeah, so the way I'm understanding it is that this proposed product basically outsources the expertise that you would need to manage these fixed rate positions on your own and just tokenizes them. And that is managed by the smart contract and the methodologists behind that, is that correct? 

Teddy: Yep, that's right. And I think that that is really the model that's going to be successful here in DeFi going forward. You know, it's like you have the protocol to handle all the sophistication because again Notional is kind of a sophisticated protocol and like Index Coop and the methodologists at Index Coop, you can manage all that complexity and make sure that you get the most out of it. And so you don't have to do any of that yourself. 

Crypto Texan: Yeah wow this is really fascinating. So on the Notional protocol, I mean, what we're looking at from this fixed product suite standpoint, we're looking at USDC short term or long term, DAI short term or long term. Same thing with WBTC and Ethereum, short term or long term. Like what would be the difference between these products outside of the base asset? You know, what benefits would someone have from purchasing a USDC short term fixed product versus a USDC long term fixed product? 

Teddy: Well, that's a good question. So I think, you know, right now there is the difference in the base asset, like what you talked about. Now as for the difference between short term or long term, I think the idea is that we're going to start with the short term just because it's the simplest one to bring to market. But I think that as we go forward, what I would expect to see is, now this might not necessarily be true, but what I expect to see is that the longer term product would actually have a higher yield than the shorter term product right? 

And that's basically because in general in finance, and this isn't true yet in Notional, I think Notional still needs to mature a little bit, but in general in finance, you see what's called an upward sloping yield curve. And what that means is that the interest rate for a shorter maturity is usually less than the interest rate for a longer maturity. So for example, if you're lending for six months, you might expect to receive a lower interest rate than if you're lending for a year. And that's usually how it works, and the reason for that is because as a lender, you're giving out more optionality when you lend for a longer period of time. 

And so usually people require a higher return to lend for longer periods of time. And so what I would expect to see going forward is that the longer term fund would have a higher yield than the shorter term fund. That's what I would expect to see. Now it's crypto, so reality doesn't always meet expectations, but that would be the reason why you'd buy one maturity term over the other. 

Crypto Texan: Right, yeah, we are kind of in a very unique interest rate environment where, you know, we have this inverted yield curve and we have for the past several years, right? But I mean, I think it's starting to flatten out and maybe curve back to some normalcy, kind of like you said. But I could also foresee a situation where possibly in the crypto space, maybe it remains inverted because there is, you know, uncertainty can play a factor in interest rates as well, and there is a lot of regulatory uncertainty as well as uncertainty around volatility that, maybe I don't know, it's possible in my mind at least that yield curve could continue to stay inverted in the crypto space versus the traditional finance space. Do you foresee anything like that or am I just completely wrong in thinking that that could happen? 

Teddy: So first of all, you're definitely not wrong. And what you've seen so far at Notional is that, so our yield curves are inverted right now. So the shorter term maturities are higher than the longer term ones. So that's already true. Now maybe it'll stay that way, maybe it'll change, I don't know. But so far the reason that that's been true is generally because the people that have borrowed on Notional have preferred a shorter term, and they've been willing to pay higher interest rates at shorter terms than they have in the longer term. So, you know, that means an inverted yield curve, which is kind of interesting. 

And I think that as Notional kind of gets more adoption and as we see these integrations that we're talking about come online, I think that could change things because I think that, from some of the integrating partners that we're speaking to, their lending interest is more on a short term basis. So I think what you could see is that again, as these integrations come online, we get more short term lending interest, which pushes the short term part of the curve down. But that might not necessarily happen, so yeah, I think it's totally possible that the yield curve stays inverted and like the best opportunities for lenders are on the short end of the curve. That's definitely possible, yeah. 

Crypto Texan: Yeah and just one other question, because we're kind of running up on time here. What other assets do y'all, I mean right now, it's my understanding you have USDC, DAI, BTC and ETH available to borrow and lend. Are there any others that I'm missing and do you foresee a future where you have additional assets to borrow and lend? Or are you looking for more of the highly liquid, safe, secure from a crypto standpoint, types of assets? 

Teddy: Yeah so I think that a big goal of ours in the next couple of months is going to be to increase the assets on Notional. So as you said, right now we've got four assets in total, we've got ETH, Bitcoin, USDC, and DAI. And yeah, we are going to onboard more collateral types and also different lendable and borrowable currencies. So I think that what I'm excited about is listing other stablecoins to lend and borrow. So I think that, you know, something like DEI or RAI, I think it'd be really interesting stuff. 

And, you know, we've spoken with those two teams and think that there could be some cool use cases to come out of that. So I think that we're just looking forward to broadening the scope of Notional to just encompass more users and use cases and all that stuff. But to be honest, we've been working really hard on what we have to do right now and so we haven't been able to add additional assets at this time, but that's definitely coming. 

Crypto Texan: Awesome, well Teddy, this has been a fascinating conversation for me, and I have a traditional finance background as well, and I've done my fair share of interest rate swaps back in the day or recently, actually. So yeah, this has been a great conversation. Before we let you go, why don't you just let the audience in those who are listening to the recording know where we can go to find out more about you, Teddy, and Notional Finance. 

Teddy: If you want to learn more about Notional, you can visit our website. That's Notional (dot) finance. You can also follow us on Twitter @NotionalFinance, or you can follow me on Twitter, I am @teddywoodward. 

Crypto Texan: Alright, thanks to everyone who's listening live in the audience, this is being recorded, so we'll get the transcript up and going and we will publish this next week. Everyone have a great weekend. And Teddy, thanks again for coming on the show and talking to us today. 

Teddy: Yeah, thanks a lot for having me. Great questions, it was fun.

Crypto Texan: Yeah, absolutely. Alright have a good weekend, everyone, bye. 

Teddy: Bye.

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Transcript: @qjuniperus

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Crypto Texan: Hello, everyone. Welcome to Conversations with the Co-op. This is where we source questions from the Index Co-op community to gain insights from today's leaders in crypto and DeFi. I'm your host Crypto Texan, and on this episode we have Alex Salnikov, who is the Head of Product and co-founder of Rarible. Alex, thank you for being here with us today. 

Alex: Thank you for inviting me over. 

Crypto Texan: Yeah, absolutely. So we usually like to start these off with just giving us a little bit of your background and how you got into crypto. 

Alex: That's a nice story. So, you can hear me alright? 

Crypto Texan: Yes we can hear you just fine, absolutely. 

Alex: Okay yeah, that's a fun story, actually. So I had been studying in the university, just like my first or second grade, and there was a project known back then that basically provided you with fiat on ramp and off ramp to crypto. Back then, like it was 2012 and me and my friend, we met together when I did some crazy viral project during my first year in university, and we decided, well, this sounds exciting, we should build something. That project earned like a million dollars in a year, and that was like an absolutely mind blowing sum of value for me back then. 

And we thought we also want to have a million dollars, and by the way, let's read all that's out about crypto. So I dug up and I read the Bitcoin whitepaper, and it absolutely blew my mind. The notion of decentralization, interstate money, all of the things that we know that came from there. And I'm a technical person, and I had this instant realization in my mind that with that technology, I am the only person who can control my money. And I came from this country, which isn't really often... respects all the rights and stuff like that. That's why this specific idea of being sovereign about how you interact with your own funds with your own assets, it was very comforting that like, I knew that I'm an IT guy, I can write that script that will make a transaction. And even if I know, even if I lose my wallet, they can go to another wallet. 

All these ideas, they've been just super fitting to me. I studied at one of the best economic universities, that's why I understood the tokenomics, the inflation, and just all the ideas landed super smoothly. And I basically never left the space. I almost haven't seen people who left this place actually, almost everyone who has joined this group never leaves. 

Crypto Texan: Yeah, that's very true. So crypto was very interesting to you because not only do you have a technical coding IT background and a finance and economics background, but you also come from a country where the respect for, I guess, personal assets was not necessarily there. Which country was that exactly? 

Alex: That's Russia. So just during the last 30, 40 years in Russia, there were a couple of minor reforms that basically denominated money, made all sorts of weird stuff with money and people generally don't trust banks in Russia. They go out and on the day of their paycheck, they cash it out completely because, oh, we don't trust this bank. Well, obviously it's not the same anymore, but still this idea of, oh yeah, I'd better do it myself. Yeah, it was really flourishing. 

Crypto Texan: Yeah, that makes sense. And do you live in Russia now? Where is your hometown now? 

Alex: Well, starting as of two days ago, it's the United States. 

Crypto Texan: Wow, that's great news. So you'll be living in Miami full time?

Alex: Well, probably between Miami and New York. 

Crypto Texan: Oh, that's exciting. Welcome to the states, Alex. That's good news. So what, I guess going back to Russia like, what is the general sentiment of cryptocurrency and DeFi and NFTs in Russia? 

Alex: It's a very interesting question. So I think that the general sentiment is the following. So first of all, an Ex-Soviet Union country has just a brilliant IT industry and universities, schools just one of the best in the world. Maybe even the best, people study mathematics, physics all the time. That's why all sorts of IT guys, they absolutely love crypto because it's almost like the technocratic wing of IT guys over the finance guys right. Now we are doing finance, not you – that's what IT guys think. 

And overall, this makes this whole thing very, very appealing to the whole IT crowd. On the other hand, there are a lot of regulatory issues and the country has always been strict on controlling flows of capital. You can't just send the money abroad and from abroad. That's why there has always been this tension of, okay, what can we do? So as for now, it is allowed to hold assets, transfer assets, but not exchange them inside the country and not to use as legal tender. 

Crypto Texan: Wow yeah, and you've got a really fascinating background, Alex, and thanks for sharing all that. So I guess my next question is, let's talk about Rarible and just explain for our audience, for those who might not be familiar, know what is Rarible and what does the Rarible Protocol do? 

Alex: Okay, so Rarible started a little bit more than two years ago, and on the idea stage exactly 2.5 years ago. So during all this time being in crypto, I've been mostly doing financial projects, doing exchange or a trading role. But we did marvelous technical pieces like a million trades per second matching engine written in some low level programming language that allows you to do short sales and leverages. So this concept of liquidity and stuff like that is super familiar for me. 

And we've been always doing that, and at some point we thought, why are we doing all that boring stuff? It's like 0.1 percent APY. And was this something fun? And basically, what was fun back then was NFTs, right? It was 2019, not a lot of people were still in the NFT space, but what I realized is that every wallet had NFT support, right? Trust Wallet, MetaMask, it was always this type of collectibles, which was kind of empty and in every wallet and a lot of infrastructure was built, marketplaces and I saw that, well, NFTs are really consumer friendly because like, yvBTC-CRV pool, right - how do you explain that to somebody? 

While NFTs are okay, it's just an item. You have it in your wallet just like a card. Look at it, it's like right here, plain and simple. Also, like in 2017 and 2018, it was still a little bit hard to use blockchain. And I don't know if you remember the Mist Wallet where you needed to download 200 gigabytes of data to your computer to use the smart contract, stuff like that. So that's how– sorry for the long intro, but that's how Rarible was born. Basically, we thought, okay, there is a lot of infrastructure, but there is not so many NFTs and we came up with a platform that allows you to create NFTs and brought this like free spirit more or less with us because being that many years in the space, it's kind of in the DNA. 

So there were a couple of platforms like SuperRare back then, but you needed to verify yourself right to start creating NFTs. So we thought, why don't we just allow it to anyone? So we came up with just a simple form, upload your picture, name, and description and connect your wallet and hit the mint button. And also, of course, let's assign a price now, and there was just a simple one page feed that you can still see on Rarible if you scroll down everything right? There was just one simple feed without any filters - here's all the items that are on sale. 

And so at first we were basically mostly a minting platform, and then over time we evolved into a full featured marketplace. We indexed all NFTs that exist on Ethereum, every collection, every NFT, made them available for sale. We introduced royalties. We introduced filters, introduced refresh, leaderboards, stuff like that. So basically evolved into the full feature secondary marketplace. 

And then we, and that was basically maybe 1.5 years after we all started. And then we thought, okay, we spend that much time to actually create something useful, something meaningful, a marketplace, and we see a lot of other people are doing their own NFT projects. And it's really hard– you need to build an indexer, you need to build the smart contract. That's why we took these two parts – the smart contract layer and the indexing layer, and we spun them off of the marketplace into its own separate product, Rarible Protocol that you can build an NFT project on top of. 

So it's basically the infrastructure that would allow you to create your own NFT marketplace in like two or three months instead of two years, right? Well, that obviously depends on where it goes – if you want to sell any NFT, you need the full Ethereum indexer, that would be fairly hard. And also we realized at some point– we launched the token, the governance token on the platform, and we realized that at some point that it's actually quite hard to govern the frontend business. And that's why we separated a protocol and made it neutral. 

So there’s very little things that you can actually change on the protocol in terms of, like, the protocol shows every NFT without the blacklist feature that we have on the front end. So it's like a very, very neutral, open source infrastructure layer that is built with all these community principles day zero, right? Open source, smart contract, community governance and a complete set of crypto rules that we all know and follow. That was a long answer. 

Crypto Texan: No, it was a great answer, thank you very much. And I feel like, you know, when you're in the crypto space, especially two and a half years ago when you started Rarible, it takes a lot of conviction to take an idea and put forth a lot of your time, effort and resources into creating a protocol just based off the idea. But you were able to do that with other co-founders. And I'm just curious to what was the relationship that you had with your other co-founders prior to founding Rarible? Like, where did y'all meet, how to y'all interact? What is that relationship like today? 

Alex: Oh, thank you for questioning that, I always love personal questions. They sometimes feel deeper than technical. So there were like more or less four people at the start of this whole idea. There was me, Alexei, the CEO of Rarible, Eugene, the CTO, and Ilya, the head of design. So four of us were just sitting in a café in the summer, a Chinese cuisine café and we came up with that idea. 

So prior to that, we met with Alexei in 2017 during the bull market when everyone was doing their own ERC-20 tokens and we collaborated on the platform that allows you to issue ERC-20 tokens. And so for everyone who wants to issue tokens, you can kind of feel the rhyme with the NFT issuance. And I was just amazed by the technology level that the guys brought. It was super reliable and super cheap actually at the developing cost. And the guys even wrote some parts of the smart contracts in assembler, in some very, very low level language that allowed them to optimize it heavily. So I was just blown away by the technical level. And basically since then, we just kept talking with Alexei about, oh what about this in space, what about this in space? And eventually that ended up being a project together. 

While with Ilya, we were working for several years before he was doing all the designs for all the projects that I did in crypto for almost like five years after we met with him. He previously worked at Yandex. It's like a big Russian tech company, big tech in Russia, basically Google. He shipped projects to tens of millions of people on his job. So he's a really, really talented designer. The first time he created the logo for us and I fell in love with everything that he does. 

And the CTO, Eugene, he worked with Alexei for probably 10 years before, so it was kind of like me and Ilya and Alexei and Eugene joined forces. Eugene is like a brilliant physician, he represented his country in the world physics contest, and Alexei studied physics at school, and actually received one of the top marks on the state exam on physics. So I don't know, it kind of felt the same vibe together, and our relationship is just perfect now. We are all enjoying this and this is super fun. 

Crypto Texan: Yeah, I just think it's interesting to hear what the relationship was like, you know, prior to the founding of protocols. And, you know, just kind of how all that formed and came together. But I think it's fair to say that especially compared to the rest of the general NFT market, that you were pretty early to NFTs. And so I'm curious too, why did you have this conviction in NFTs so early on? And what was your first NFT to purchase? 

Alex: My first NFT to purchase? So my first thing, it's still my wallet, actually. You hardly can say that it's a real NFT, but that's actually partially related to why I had this conviction. So when we brainstormed an idea about the NFT issuance and the marketplace tool, we all came home and we created a couple NFTs just without minting tools and Ilya, the head of design, he created a beautiful NFT of a skateboard deck that had an AR symbol on it. 

So you can, like, point your phone on it and it would show you something, I don't remember what. And so it basically felt like a very tangible thing. This is a skateboard deck, it has really, really solid strokes around it. So you almost feel like this is an item that belongs to you, like a physical sense of ownership when you have it in your wallet. And he created that, he sold it to me and I sold it back to him, and he sold it back to me, and the mere joy and fun of this process,  it was tangible how emotionally cool and fun and sticky that is. So basically we flipped NFTs and we loved it, and that's why we built the platform. 

Crypto Texan: That's really cool. Yeah, that makes sense. And so your role, Alex, at Rarible is the head of product. Can you give us a little background into what it means to be the head of product at Rarible? And just kind of what your day to day looks like? 

Alex: My day to day is like heavily changing actually over these two years. So first I was just head of product and the only product manager on the team. And for the first whole year of the Rarible experience, I was basically the person who worked with the set of engineers and I was constantly on Twitter. I was researching this phase, okay what should we do, talking to the users, talking to the community, okay guys just pour all the feedback into me and we will build something cool for you. So getting the user feedback, digesting it and coming up with the idea to get what are the future that we should build and then managing the team to actually build them. 

Managing the team of engineers is mostly, okay we have a daily call, right? We will all go to this call, we discuss things, and then the next day with what we have built, and every week, there is a plan. So it's a fairly standard process. I'm pretty sure a lot of you know that if you ever been in the engineering company or done some projects yourself. So that was my day to day job for a long time, and I really enjoyed that. 

And then we basically scaled that. So we went from one product team to six product teams, and more or less now you can only start to see the results of that stuff. So all the first half of 2021 we spent on scaling the team, we have a lot of engineers, a lot of product managers now, and being head of product means mostly interacting with product managers and lately my role changed again. So we welcomed Nass Diba, the VP Product, from Aave who previously worked at Dharma as a really senior manager, to work with the other product managers. So mostly what I've been doing now is researching and setting up the strategy – what would be a good idea to build because I'm still constantly on Twitter, talking to people, talking to the guys, and understanding what we should do. 

Crypto Texan: Yeah, and is some of the feedback that you're getting from the community DAO related? Because I know we have the Rarible Protocol and we've got the interface that sits on top of it and then you've got the token as well. But is there a DAO for the Rarible Protocol? And are there any plans of going through DAOification? 

Alex Oh yeah, there is a DAO of the protocol and there is a separate Twitter handle. You can find it on Twitter, it's like @raribledao. It's a really vibrant community of like 2,000 people that are doing marketing, that are doing business development, that are making grants to people who build on top of the protocol. So it's a very, very nascent and innovative group of people. We feel like the DAO currently today is like, you know, Google X. There are a lot of innovative people, a lot of young and hungry minds that are just crunching ideas and stuff like that. 

Crypto Texan: Okay, and what are in your mind some of the major hurdles that you have experienced, the DAO has experienced by just having a DAO in general? I guess like from an organizational structure standpoint or just the ability to get things done, what are some of the struggles that y'all have experienced personally? 

Alex Well so the DAO is the first experience that we had with DAOs, initially when we just launched all this. So there was a lot of activity in DAO from the creator side and the instant feedback and experience was, okay it is really, really hard to try to align everyone on some difficult economics rules or something like that, so people don't really want to vote. And sometimes when they vote, it's like not a very opinionated vote. That's why we started to restructure this all, moving the DAO and token mostly to the protocol side, not to the creator and marketplace front end side. 

And then there was this understanding that, okay it's too hard to actually employ people into the DAO. A lot of them need some benefits, that they want to be employed officially at some company, and DAOs rarely can do that. And when they are employed, they need to vote on their employment. And a lot of people feel insecure about this when that happens with the vote, rather than like with some interview process. 

And scaling the DAO and bringing really, really experienced people is really hard. In DAOs we feel like there is a lot of fresh energy, a lot of young people, and most of them are almost seeking their first or second or third job opportunity in the DAO because they feel like this is the future of organizations. So if you try to scale the organization and you need to hire some very senior managers, a lot of them are like, require more and more benefits and feel a little bit unstructured and weird when they operate in the DAO environment. 

Basically, DAOs for today are really good if you need to make some democratic investment decisions like what should be in the index or where we should invest, while just actually delivering a product is still much harder in the DAO environment, just in the traditional way that centralized, centrally managed style organization. You have a manager that tries to manage the effectiveness of the company, put tasks, enjoy accountability, embrace accountability and stuff like that. So that was fairly unstructured, but I know maybe some of that resonated. 

Crypto Texan: No yeah, it definitely resonated. And you know, I think DAOs are such a new and nascent type of way to organize labor and organize human coordination that, you know, I think it's just natural that we're going to run into issues like that. We've obviously run into our own issues at the Index Co-op. I say obviously, because everyone obviously runs into their own type of scaling issues when it comes from talent management organization coordination, cooperation from a DAO. But I'm curious about, so Alex what about you and your co-founders as far as a compensation standpoint? So are y'all compensated by the DAO or are you compensated from an organization that manages the front end? 

Alex: We are compensated from the organization that manages the front end. 

Crypto Texan: Okay, I was just curious about that. And so what is the main driver for the Rarible DAO's treasury and the Rarible organization who manages the front end's treasury as well? Like, how does the Rarible Protocol make money and distribute that to, I guess, the stakeholders? 

Alex: Well, this is a very, very good question. So one of the best things about the protocol is, and one of the most innovative things that I personally just love that we did, is the fact that when you run the front end that works on top of the protocol, you are actually adding your own front end fees on top of the protocol fees. So there is some baseline protocol fee, which is currently zero. And the protocol empowers the front end that runs on top of that. So whoever brings the listing or the buyer to the protocol, they add their own fee to the order. 

So imagine that you run a minting service through which people are creating NFTs and put them on sale, something like Koko NFT does, and then somebody else-- and it's working on top of the protocol, and somebody else is running the storefront business when they curate top 10 collections or artists every day and present them in a curated way on their own website so that people who come there and know that this is the quality projects. So if this second business would curate something that the first business, that your business created to the protocol, then both of these businesses would receive front end fees. One of them would receive front end fees for bringing the sale, the listing, and another one would receive the front end fee for bringing in the buyer. 

So there is a shared order book. Everyone is looking in the same space of listings and purchase tests. You can filter that the way you want and whoever you brought to the same space, you got the fees from that. So that might hint to you how this all is set up. So the current DAO Treasury consists of $RARI only. So the protocol does not generate fees at the moment and DAO is distributing this $RARI treasury to people who build on top of the protocol just to incentivize people, to align them into the common governance model. And front end earn fees and Rarible (dot) com is one of the customers of the protocol, actually, and it has no preferences. It's an equal customer as anybody else charges its own front end fees to its own private corporation. 

Crypto Texan: Okay, yeah, that's actually very helpful, yeah. And so what, I mean, how does Rarible differentiate itself from the competition? There seems to be a lot of competition popping up recently. And what in your mind sets Rarible apart from the rest of the crowd? 

Alex: Well, obviously the first part is that we are not only a marketplace, but we are a marketplace and protocol, which is highly attractive for developers. And we have a token which makes the community really a stakeholder in this whole stuff. And that's why the community is really incentivized to send people to Rarible, like if among all the other things, equal, right? If it doesn't matter where you want to trade, you want to trade where your bags are. And recently, we just implemented this OpenSea orders mirroring. So whenever you come to Rarible you can actually see anything that's available both on Rarible and OpenSea. So you have all the same supply, even better, even bigger - you have both Rarible and Opensea supply.

And the second point would be that we are multichain. We are the first marketplace that actually went to multiple L1s. We support Flow and Tezos blockchains, and soon we will add Solana and Polygon, this has already been announced, they're working on it. So it's a kind of one stop shop for everyone in NFTs. At first, you come, you create your own NFT, then you get bigger on the marketplace, you start trading and flipping, and then you grow and you create your own project based on Rarible Protocol. Obviously Rarible Protocol on Flow, and then Tezos is also available for developers to build on top. Yes, and this same will be for other chains. 

So imagine this is kind of, okay there are a ton of NFTs everywhere across different chains, across different marketplaces, and you can find them all on Rarible under one umbrella and they're one unified thing. And the biggest and best part of that is that community is at stake. You can realize it's not like just you pumping someone else's stuff when you use it. 

Crypto Texan: Okay, and when you're bringing in the orders, I guess what's available for sale on OpenSea, that kind of seems like you're taking on an NFT aggregator role. So I guess my next question is, do you plan on implementing any other protocols like, I know NFTX? Maybe you could query their NFT vaults that they have? Are there any plans to do that? 

Alex: Oh yeah, actually interesting. So the next one in the pipeline would be probably integrating CryptoPunks marketplace orders to Rarible, just out of the whole due respect to the OG community, right. And I very much love this idea about integrating NFTX. So yeah, you're right, it is sort of an aggregation strategy in addition to the marketplace strategy. 

Crypto Texan: Right because I was playing around the other day and I got on the Genie XYZ protocol just to see what it was like. And I noticed that it was not only pulling OpenSea, but it was also pulling NFTX. And I kind of just had this "aha" moment about NFT aggregators and what that future could potentially look like. So I was just wondering what y'alls plans were for implementing other things like that. 

But I also want to talk about OpenSea a little bit more, obviously, because it is your main competitor as Rarible. What are your views on OpenSea in general? What is OpenSea doing right and what are some of the major shortfalls that you feel like users have with interacting with OpenSea? 

Alex: Yeah so OpenSea are great guys. They've been around in this space for longer than anyone else. They actually created that infrastructure that was there that allowed every wallet to have this collectible tab, like half of the wallets use their API. And I think the main– so kudos to the team. They are like, absolutely made a lot of effort and spent a lot of time out of their lives to make NFTs a real thing. So we respect the team completely. 

And obviously, what they are doing right is doing all that, keeping the liquidity of the marketplace big, making these discovery efforts, like all these collectibles. We were relatively late to the party, to the PFP trend. We were mostly like, okay art as a marketplace of art based on individual creators, while the collectibles being like the OpenSea bread for several years. All these things as for, like reveal the metadata, refresh the metadata field, order by trade, all that stuff was basically invented by OpenSea, and they did, right. 

So one of the biggest downsides of all that is they are a fairly centralized company. And it's like the Coinbase model, you don't have the custody of the funds. Of course, they don't custody the funds and that's a step away from the Binance, Coinbase models. But overall, it's still a quite centralized company and very, very much not community based. And maybe a little bit slow too, lately and since they have so much like responsibility to actually support everything that they've already done, so it's not that we see a lot of stuff there. 

They promised multichain like Tezos maybe a year ago, we were able to to get there, they weren't. So I think they're doing a lot of things right. And obviously, some of the things are not super great. One of the latest examples would be these orders, when we started to pull up OpenSea orders, there was a big drama on Twitter that some people were able to buy assets below the floor price. That's because some of the orders weren't actually canceled on-chain, they're just hidden from the front end. So stuff like that maybe shows that the guys are really underwater with supporting all the great things that they've done. 

Crypto Texan: Yeah, I remember hearing about that drama on Twitter as well. And yeah, that's unfortunate. But yeah, I mean, I think that's also part of not being open sourced, you know, with your protocol because if you're open sourced, you can see everything on chain and all bugs can be found with the more eyes that are on the open source protocol, which is where I think y'all benefit there as well. And you know, we've talked about other side chains, but what about layer two like Arbitrum, Optimism, zkSync, Starkware? Where does the future lie, what does the future look like for Rarible on the layer two front? 

Alex: So we've researched a lot of information about layer twos just a while ago, actually maybe 1.5 years ago. And surprisingly, there are much more NFTs in layer ones than in layer twos. Once the layer twos are targeting like DeFi applications, so Arbitrum, Optimism what you would see there would be mostly DeFi apps and every-- so the Arbitrum, Optimism, and Phantom, I guess they are all optimistic rollups and the technology itself relies on these watchtowers that they need to monitor the situation when you withdraw funds from this rollup. And that architecturally imposes some limitations that you need to wait for, like seven days until you can withdraw the asset or any other long period of time. So not nearly instant. 

I feel like this is a big downside for NFTs specifically because for DeFi, you can actually not wait seven days, but somebody can use it and you can act as a liquidity provider and that person can give you his own money and wait for seven days himself instead of you waiting. That's always not possible with NFTs, there's only one NFT of that kind. Somebody can only give you his NFT while he waits for your NFT to come. So I'm not sure, although on the other hand, somebody can argue that you don't really want to move NFTs really often from layer two to layer one. They will mostly leave inside layer two. 

So layer two, generally not there yet. The only one that is there in terms of NFTs is Polygon, which we're integrating, and I'm super, super curious about ZK-rollups which is actually like the next technology that will come after optimistic rollups. The Starkware team, StarkNet, zkSync team are doing a great job in this realm. So it's still early for layer twos, but we're constantly looking at that. 

Crypto Texan: Right, because I think that there are a lot of people in the space who foresee a future where possibly Ethereum is mainly just a settlement chain for L2s in sidechains. And I think a lot of people are starting to speculate and figure out, you know, what does that mean for NFTs that are on mainnet, that are on the layer one? If the base layer mainnet does become too gas intensive for regular retail users to operate, what happens to the NFTs that are on layer ones? 

And that's kind of why I was getting at that layer two question is, you know, is there a way to move those from mainnet up to a layer two to make the gas fee less intensive because I feel like NFTs are a very retail centric product where, you know, if you have DeFi protocols on mainnet, probably not as bad, right? You can use institutions or major whales or players using that. But for NFTs, it's a little different. Now what are your thoughts on all that? 

Alex: Well, of course, you can move NFTs from layer one to layer two to chip in the gas prices, they would get locked on the layer one. They would be minted as new NFTs on layer two. You can do that today with Polygon. You can move your CryptoPunks to Polygon and enjoy the almost nearly zero fees on transacting inside Polygon. And then you can move it back and you will get your own CryptoPunks back. That's already possible, and that's what will happen with NFTs really, if Ethereum becomes too expensive and too gas heavy. 

Now we are coming to this Ethereum 2.0 stage when Ethereum is making more and more progress and probably will even deploy the beacon and chain with cross-chain environments until 2022, right. So the merge can happen until 2022 - well until the end of the year 2022. And that will simplify things because you won't spend money on mining anymore, right? So eventually, I think the gas prices long term on Ethereum will be relatively as they are now. So maybe they won't get too much more expensive than this, Ethereum will optimize, and that's why the throughput will rise. And on the side chains it will be lower, but on the mainnet that it will be the same. That would be my bet. 

Crypto Texan: Okay, another question I have is just what are some exciting developments and trends that you are seeing in the NFT space? I know play-to-earn is very big right now, music NFTs are starting to come into their own, photography, ticketing for concerts and events, more PFPs, PFPs will never end apparently. What's exciting to you on the horizon? 

Alex: It's a very, very good question. So what's personally exciting to me is actually this whole concept of composability. We achieved something incredible in the DeFi space. You can take a million dollars worth of loan in seconds, right? If you have appreciated assets, if you have assets that are appraised, if somebody knows how much your asset costs, you can get the loan against it in seconds. So the fractionalization, the financialization of NFTs, for example, the purchase finance. 

So imagine a mortgage for Bored Apes. You can't buy your Bored Ape now, but what you can do, you can make a down payment. And then this Bored Ape would be held in custody and you would pay some small amount of money for 10 years for this Bored Ape. And then it will become yours. And meanwhile, you can use it as your PFP on Twitter. How awesome is that? 

And then at some point in time, we can connect real world assets. So once we solve this like legal issues and you can represent your house as an NFT, you would be able to take a mortgage for your house in seconds rather than in weeks as it works now. So something like that is really fascinating to me. This is like real deep development in innovation, allowing insurance's automation of capital in regards with the NFT. And the biggest thing that we need to do is to find a way to price NFTs. So as soon as we can price an NFT on a chain, there can be an explosion of all these financial instruments. This is very exciting. 

And on the other hand, in the traditional world, I think what's exciting to me is just the notion of we all buy a lot of physical items and a lot of these physical items, they don't have any physical utility. They are mostly like intellectual utility. Imagine you bought a Star Wars toy for your children. They don't have to be physical at all, they can be purely digital. So digital fashion, digital toys, digital goods, just converting half of the current e-commerce into the digital e-commerce, which is truly independent and open and neutral, is another big thing that fascinates me. 

Crypto Texan: Yeah, that's really exciting. I'm also curious as to what other protocols outside of the Rarible ecosystem, from a metaverse standpoint what other protocols and projects have you been paying attention to that's catching your eye lately. Or in DeFi protocols too, for that matter, if you have some of those as well. 

Alex: Yeah so the purchase finance protocols, the NFT lending and borrowing Union protocol is a nice one. There is Upshot, it's an NFT pricing protocol. So stuff like that really is something that I keep following. And on the other hand, in DeFi, I think we are coming to this moment when all the giant protocols like Aave and Compound are actually becoming institutional, almost like governing great big projects when the large institution can go there and borrow money. So like 26 billion dollars TVL on Aave. Aave Arc, that is like a more centralized version, corporate version of Aave. I think this is just, I know we've all been dreaming about that in 2011 and the coin just started, we've been dreaming about making it legal tender. We've been dreaming about governments adopting bitcoin, putting that in the balance sheet. And I'm just really fascinated how fast this happens after like 2017, when there were empty grounds on all of these realms. 

Crypto Texan: Are you still there, Alex? 

Alex: Yep, yep, I'm still here. You still hear me? Maybe I cut it off a little. 

Crypto Texan: Yeah, I think you might have cut off a little, but that's ok. Yeah, I completely agree with you. Yeah, I think it's really interesting to see the strides that both Compound and Aave have been able to make with Aave Arc and Compound Treasury. And it's going to be very interesting to see how those two products that are getting developed evolve over time and interesting to see, you know, which institutions are actually going to be using those DeFi protocols. The KYC-ed DeFi, which kind of do you not feel like that kind of goes against the ethos of crypto in a way? 

Alex: I don't think at all, actually. So the ethos of crypto is decentralization, and I don't think it's necessarily against interacting with the government. So if the United States, China, and all the sovereign countries that we have in the world would all interact with the same blockchain, right? With Bitcoin, for example, it would be the perfect decentralization because the same concepts of game theory would apply. None of them can cheat the other and it works at any rate like that. 

And I have been thinking about it for a while, actually. And that might be an unpopular position, but I feel like the real innovation in blockchain happened, like there are two core things. The first one was actually getting a wallet into the user's hands. And what that means is that every user that uses blockchain now has a digital signature. The true– and digital signature is called one of the greatest inventions of the 21st– probably not 21st, probably 20th century, right in mathematics. So you give a digital signature into every person's hands, and then the blockchain is merely a database that stores these digital signatures in a consistent way. 

So even if you imagine if you keep all the same systems as they work today, but you put them on a blockchain, you put court on the blockchain, you put banks on the blockchain, you put compliance on the blockchain, but would just make this utilizing digital signature. If somebody needs to sign in court to release your funds, then the system will still be much, much better than they exist now. Even if we keep all the same things, it does go without saying that we will innovate and create better systems. So even if we keep the current system, it will be even better. Not sure if that's clear. 

Crypto Texan: No, I completely agree with you, Alex, and that's just a question that I ask because, you know, you kind of just see people on Twitter say things that are related to Aave Arc and Compound Treasury. So it's just kind of good to get other people's thoughts on that when they're not just trying to, you know, tweet to get interactions from people. 

Yeah, so we're running up on time. I got a few more questions left for you, Alex. So at Index Co-op we have a product called the Metaverse Index. I'm sure you're familiar with it. And the $RARI token is included in the Metaverse Index. Well first of all, I'll ask, do you own any $MVI, the Metaverse token? And regardless, what protocols would you like to see included in the Metaverse Index that aren't already? 

Alex: Oh, it's a very, very good question. First of all, I probably do not own any Metaverse Index and that's a pity. I'm a big fan of DPI, actually. Whenever any of my friends just ask where I should put my money in crypto if I don't know anything, like five years ago I was answering bitcoin. Two years ago, I was answering Ethereum. Now I'm answering DPI. It's a very, very big and exciting thing. So Metaverse would probably be my next year's answer to every one of my friends that don't know where to put their money in a more or less like a safe way. 

As for the projects, it's surprising that not many metaverses have their tokens. I don't even know why, obviously NFT marketplaces are the big stuff in the metaverse, like Decentraland or I'm a huge fan of digital land. That was one of my best, my best flips, actually. The CryptoVox digital land and I think every metaverse that has the native token should be there. And personally, I think maybe, maybe there will be a time when you will be able to make NFTs part of that index. 

Crypto Texan: Yeah, that's one of the things that we're working on. And I think the methodologist for that index is Joseph and he was in here earlier, I don't know if he's still there. But we're working on what we're calling the JPEG Index, and kind of leveraging the technology of Nifty Museum and NFTX right, because that kind of creates liquidity pools for these basically illiquid assets that are NFTs. 

And so we're working through the engineering constraints on that. There's issues related to slippage that kind of come into play, too. But that is something that we are working on from an engineering standpoint and plan on releasing sometime this year. So we're really looking forward to that. That's one of the products that I'm most excited about in the Index Coop's pipeline for this year. So, yeah, it looks like we're pretty much up on time here, Alex. So I'll just give you the final word, the call to action. Where can people go to find out more about you and Rarible? 

Alex: Follow me on Twitter, of course, it's my personal page, @insider0x. And of course, @rarible and @raribledao would be handles that you want to follow on Twitter as well. I'm mostly active there on Twitter, and my call to action would be just, you know, do hard things and have fun. That's a very fulfilling type of living, when you do hard things and have fun. 

Crypto Texan: I think that's great advice, and thanks again, Alex, for coming on the show. Thanks to everyone who's listening live in the Discord. This is being recorded, so we'll ship this off to get a transcript and get it mixed by my audio engineer. And we'll see y'all next week. Have a good weekend. Thanks again for coming on, Alex. 

Alex: Thank you so much. 

Crypto Texan: Alright, bye. 

Alex: Bye.

Host: @Crypto_Texan

Audio Engineer/Mixing: @LloveraFrank

Marketing Image: @crypto_diller_

Transcript: @qjuniperus

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Crypto Texan: Hello, everyone. Welcome to Conversations with the Co-op. This is where we source questions from the Index Co-op community to get insights from today's leaders in crypto. I'm your host Crypto Texan, and today we have Ryan, who is the chief operating officer of Decentral Games with us on the show today. Ryan, thanks again for being here with us today. 

Ryan: Yeah, of course. Thanks for having me. 

Crypto Texan: And before we get into Decentral Games, Decentraland, and ICE Poker specifically, can you tell us a little bit about your background and how you got into crypto and how you ended up working at Decentral Games? 

Ryan: Yeah, for sure. So, I was really lucky to have a younger brother then working in the space, going back to like 2017, and he really convinced me about Ethereum, like, I don't know summer/fall 2017. Back then I was doing the whole yield farming thing. Decentraland launched in 2018, and some people who are pretty active in that community were again close friends with the two Decentral Games founders, Scott and Miles. At this point, they were like 22, just graduated from UCLA. 

So I was hearing about it there, I remember using Decentraland in early 2018 when there were like a couple hundred users a month, but wasn't super involved at that point. I was working at Amazon in Seattle, doing partnerships and worked there for about five years in the books business. So it was just sort of a hobby, an investment interest. Then sort of fast forward to like 2019 I moved to L.A. working on some other things with Credit Karma, again doing like, finance is my background it's actually game theory. 

And so then I was just around Decentral Games a little bit at that point, advising on stuff, hearing about it, and made the jump full time about a year ago. So I think like a lot of folks who are in the space now, it feels like a lifetime, but it really hasn't been that long. Last January, I was working full time for a Web2 company, and Decentral Games the token launched December 2020. The first games were December 2020 and I can give more background about Decentral Games and the history there too. 

Crypto Texan: Yeah, but one of the questions I want to ask is, were you doing this as just kind of a side hustle, a side gig at first? And what really convinced you to move all in? I guess, so to speak. 

Ryan: Yes, I think it was first like just viewing it as an investment, then started participating a little bit as the more side interest for a couple of years, and then seeing Scott and Miles and how they were getting this thing off the ground building games in 2020 because they go way back and a lot of credit to them being the founders here. Like they built the Maddock building, Finance building, DEX Tavern in Decentraland back in 2019. 

That's how they made a lot of the initial contacts and then got some grants to make games on Polygon. So they were the first to design, I would say, non-custodial gambling games where, there's no depositing of funds – the funds remain in your wallet, you're signing an EIP-712 signature to interact with the smart contract that's behind the games. And with that, that was something of a side hustle for them. And it wasn't until they raised money to build what was the first product, a crypto casino, that it became clear probably to myself and others that there was really something here. 

And I think from that point, from when they launched to when I came on full-time, was only like a month or two. And so I went from advising first as the brother, to more like day-to-day and working with the team. Now I'm much more interested in this. And at that point in my life where I was not married, didn't have any kids, ETH was going up, I was doing okay. I was like, this is the time to make the jump and go for it in Web3. 

Crypto Texan: Yeah, that makes sense. And I think it would be helpful just for those who are not familiar, if you could just give a little bit of background on what Decentraland is because you can't really have Decentral Games without Decentraland since that they're, they have this very symbiotic relationship. So can you just give a little background on Decentraland, and then maybe touch on Decentral Games and how that came about and how those two interact with each other. 

Ryan: Yeah, for sure. So Decentraland was arguably the first crypto metaverse to launch. Was almost exactly four years ago, January 2018, with 90,000 parcels of land. And at that point, they were just auctioning off land, it was almost like just a tradable NFT asset. I remember land was $50 or $100 bucks at the time, and it was super cheap. 

They started rolling out NFTs that were wearables. Anyone could design their own items in the game and then sell them on the Decentraland marketplace. Small businesses like Meshroom, Polygonal Mind, and then sort of the first iteration of Decentral Games popped up in late 2018 and started building buildings. So it's all Unity-based. People are building 3D assets that are buildings selling them to each other. Art galleries were a big use case, I remember seeing lots of Cryptokitties art galleries. I think nowadays, we're all sort of familiar with seeing like on-cyber sort of galleries or Cryptovoxels and all of that. But that was going on in Decentraland three years ago. 

But a year or two in there really weren't any games or experiences beyond like, we're all going to get together and stream music. We're all going to get together and have a chat room in Decentraland. So I'm thinking back and then people started developing games. And I think from developing games to all the interest in the metaverse in the middle of last year, Decentraland went from 20,000 monthly actives at the beginning of this year-- or beginning of last year, to more like half a million monthly actives the end of last year. 

So that's a bit of an overview about Decentral where you actually own the land, you own the assets, you have deployment rights over the land to build buildings, you can stream music videos in. And Decentral Games then emerged as we have the most daily active users within Decentraland, but as a builder of games on the Polygon network in Decentraland. 

Crypto Texan: Yeah, and so, so that's how this works, right? So the Decentral Games DAO, because it is a DAO, correct? Decentral Games DAO purchases the Decentraland and then builds on top of it. And then I guess within whatever you're building, you can write additional code or write new protocols that create these, I guess, roulette blackjack-type games like, what are just a little more detail and just kind of the nuances there? 

Ryan: Yeah, for sure, I could give some nuance there, with the caveat that I am not a developer - I'm more operations, finance side. But yes, people have built mini golf games or car racing games stuff. The first ones that were released, they did like a little lottery machine. They had a slot machine. So we did a slot machine, blackjack and roulette and sort of iterated on that, both with free play tokens and then supporting MANA, DAI, and ETH bets on those machines and then the Decentral Games DAO receives the proceeds of those games. 

And it's interesting because we're really on like version 3 of the business model for the DAO. Like the first idea that we had was that people would buy NFTs that represented tables, parcels of land, within these casinos. And as far as we know, Decentral Games was the first to do a passive income NFT. So the idea would be that you would buy a parcel of land within the casino and you would get half of the revenue that the game generated and those things sold for a couple of ETH back when ETH was two or three hundred dollars. 

And then after that, we launched the DG token in December. The DG DAO, so those were sort of like symbiotic ideas where the other part of the revenue would go to this DAO Treasury. If you go to Decentral (dot) Games, you can see on the DAO page, the assets there, and then really for like the first half of 2021, the DAO was generating two or three hundred thousand dollars a month, sort of, from the games hosting, I would say four or five events a week with like NFT artists, musicians. 

We partnered with Atari to do a building for them, hosted like Dillon Francis and and other artists to come and do musical events, things like that. And then those funds, the DAO votes on how to allocate them, and for example, like a year ago, Decentral Games was purchasing MVI and pairing it with ETH and earning Index tokens at a rate of APY back then was triple digits. And became close with some of the folks that Index Coop there. 

But the main use of funds so far has been to purchase more land. That panned out really well. We expanded our holdings of Decentraland land from about 100 to about 1000 parcels of Decentraland land and then over time used the proceeds from the casinos to supply liquidity to our tokens and then ultimately, to support the launch of ICE Poker, which is really like 100% main focus at the moment is our play-to-earn ecosystem that launched in October. 

Crypto Texan: Right, and so yeah, it sounds like y'all have a very active treasury management strategy for the Decentral Games DAO in the sense that you do own this, Decentraland metaverse lands, right these ERC-721 tokens. And is that, are you holding those for future potential builds? Are you holding those just to speculate on the potential future value of the land? 

And another question I have is you've got, like you said, you've got the MVI, which is the Metaverse Index token, which is an Index Co-op product in your treasury, and you've activated some intrinsic productivity with that from liquidity provision. Who, how are these investment decisions decided? Is this pretty centralized in the sense that you're the chief operating officer and you kind of handle operations and finance? Or are these strategic investments voted on by the Decentral Games DAO? So, yeah, how does all that work? 

Ryan: So the treasury is completely managed by the DAO. You go to Snapshot (slash) Decentral Games, you can see, I think just over 100 DAO proposals over the last year, super active. We have, I think about 350 people voted on the last DAO proposal. But to your point, it is true that like a lot of other projects, many of the proposals are coming from the team. So, I can think of a lot of examples where the team was proposing these sort of things, and the community was supporting those or people from the community were proposing ideas for allocations of funds and, but anything that involves the use of the DAO's treasury needs to be, needs to go through a DAO vote. And we use Snapshot for that, which is not on-chain voting, but I don't know if people are familiar with Snapshot . You get votes based on how many DG tokens you have. 

Crypto Texan: Right, I think the majority of people in this audience are familiar with Snapshot voting, probably. But I think one of the most important things when it comes to Decentral Games is how you're able to incorporate the odds for each game on the blockchain, right, where you can publish the smart contracts on-chain. And then when it comes to the odds, like I can see the math behind the numbers of how each card is drawn or the probability of how my chances work in blackjack, which is, I feel like it's a pretty good metaphor to what we're trying to build just in a greater sense on the crypto scale, right? 

Because if you think about going to Las Vegas and how do you ensure that the odds at the casino are fair in Las Vegas and they've got the Nevada Gaming Commission, which is a regulatory entity that comes in and says, okay, this is fair. This is what certain casinos are allowed to do to ensure fairness, right? And that's really the whole thing behind blockchain and decentralization is that if you have all of the odds published on chain and people can go on chain and verify those odds, you don't really need that regulatory body there anymore, right? If you can audit the smart contracts. Is that, I don't know – do you kind of see that metaphor? And I don't know, how do y'all incorporate the odds for each game on the blockchain? And is there a way for, I don't know, just Joe Schmo to go in there and verify the odds for themselves? 

Ryan: Yeah so I know we use chain link VRF for randomness, but beyond that, I couldn't speak to exactly how it works. I would, I can come back and direct you guys to like the GitHub repository. But just not the right person to speak to exactly how that technically works in the blockchain. But I do think like the aspect of the games being on chain and it being non-custodial where you're interacting with these smart contracts, they're audited. That is really important and innovative. 

Crypto Texan: Right. 

Ryan: In terms– yeah go on. 

Crypto Texan: Well I was just saying like, I think there's like a social aspect to it as well in the sense that like I'm not a developer, I can't go to the GitHub repository and verify that these are similar odds to what would be happening in a Las Vegas casino in the meatspace. But there are a lot of people who can verify that, and if the social layers on Twitter there would be, I guess, a lot of commotion if it came out that these were not accurate odds that were being portrayed in the casino. And so I think if you don't have that technical background, there is that social aspect that provides comfort or I guess, security to the players within the games. 

But let's move on a little bit more because right now, Decentral Games is currently only in Decentraland. And I'm just curious to know, do you see a future for Decentral Games that moves beyond Decentraland? Or maybe like Sandbox or Nifty Island or some other metaverse? Are there any long term, short term plans for that, that you're aware of? 

Ryan: Yeah that's a great question and takes me back to, I mean, you asked about why we've accumulated so much land in Decentraland as well. We're using about, I think we've built on more parcels than anyone else, we're using like 400 out of 1,000 parcels so it's not like we, or just accumulated it for purely investment reasons, like it was smart that we bought land at 500 bucks and now it's $13,000 a parcel, it would be way more expensive to accumulate land at this point versus a year ago. And probably the same is true of other metaverses. 

In terms of expanding, we are not actively looking at other existing metaverses. There's really nothing in life that would support the sort of gaming that we're doing. Like that's, I know Sandbox is now an alpha, but they don't have a scripting language to make these sorts of games, and the Sand SDK is pretty restrictive. It's kind of like, could you develop a poker table in Roblox or in Minecraft? 

It's like, I do think that Sandbox will come along over the course of this year and probably add features for developers. But as far as we know, the last we looked, you can't really develop games of this complexity elsewhere, perhaps in Somnium Space. Looks like that's Unity based and has a sort of scripting language, but it hasn't been a priority just yet. In fact, a little bit of what I wanted to talk about was the transition from gambling as a use case to play-to-earn, because we have, we routinely have 1000+ people at our events, but never really broke like a 100 150 people doing crypto gameplay over the course of the last year. 

And so even with Decentraland going up substantially, it wasn't a super popular use case. It was sort of like whales contributing the majority of the profits to the treasury, whereas with ICE poker, which is a play-to-earn ecosystem we can talk about, we grew to 4000 daily active users over the course of two and a half months. So it's just far outstripped the potential there of the gambling space, both from an active users and revenue perspective we can get into, and we do think that as we approach during peak hours close to 1000 concurrence. 

Like 24/7 we have no less than 500 concurrent players playing ICE Poker and it's up to 1000, that Decentraland right now was struggling when they did the Samsung event to support three to four thousand concurrent users, and we worked closely with them as they, you can imagine, expanded their capacity to support these sort of concurrence, which is expensive as required. 

But we do see a risk, that as we look to grow ICE Poker on the order of 10x over the next four or five months, that we want to build a browser-based mobile version of the game for a couple of reasons. Also that part of the core audience for play-to-earn when you look at Axie Infinity being one of the majority use cases here, 90% of the audience is playing mobile. And that we could do, sort of simpler onboarding for the came directly through our site, on a browser-based mobile version versus Decentraland, which is you need some pretty substantial hardware to run it really effectively. 

And then there's the question of whether you need to onboard into the Decentral Games ecosystem, which in ICE Poker means either purchasing a wearable or receiving delegation to a wearable within our Discord to play the game and onboarding to Decentraland. So I think before we would look to expand the offering into other virtual worlds, we would try and say can we get this sort of potential that we're able to get at the moment within Decentraland and then concurrently be growing our in-house mobile browser based version of the game as well, because it's a risk to our business if Decentraland can't grow at the speed that we're growing daily actives. 

Crypto Texan: Have y'all run into any bandwidth issues when it comes to the amount of users that are interacting with Decentral Games?

Ryan: So in terms of, I would say, generally not yet. A couple of weeks ago, there was that issue with MATIC being super congested that was causing a lot of issues for us and everyone else built on MATIC. But we haven't tapped, we haven't hit the upper limit, really, of concurrent users in Decentraland just yet. We're doing okay there. 

Crypto Texan: Yeah, so let's transition more to play-to-earn. Let's talk about ICE Poker, how did this idea come to be? Was it, I think I read somewhere that maybe it was an acquisition or maybe a merger of another protocol. Can you just give us a little background on what ICE Poker is and how it became such a big part of the Decentral Games ecosystem? 

Ryan: Yeah, not a merger or acquisition built 100% in house, and we had the advantage. Let me, let me take a step back. I mean, we knew about Axie. I think a lot of people in the gaming space have known about Axie for a long time, but between May 2020 and August 2020, maybe September, they grew from ten thousand daily actives to two million daily actives over about four months. And as we're now seeing, that was good and bad for them to grow that quickly. But they just really broke into global consciousness over the summer. 

And we had been focusing our development since Q1 of 2020, since we launched blackjack and roulette in the previous December on getting poker right, which was a pretty hard problem. It's a game where you're actively playing against other players, a bit more complicated and as we were getting close to wrapping up poker, we said, what if this was-- like, what would this look like as a play-to-earn ecosystem that was modeled closely after sort of the Axie style dynamics? 

So, within Axie Infinity, you need to get three Axies in order to play the game and then the more Axies you have, the higher level they are. You can do more quests, I think up to 12. You can battle other players and things like that. Within our ecosystem, you need an ICE wearable in order to play ICE Poker, which is just poker with some challenges that I can talk about. And then you can earn ICE, so players are earning between $20 and $100 a day playing ICE Poker at the moment. The price of ICE is relatively high. And they complete challenges which earn them experience points, and need experience points to upgrade the wearables' levels one through five. As you upgrade them, you can earn more ICE. 

But unlike Axie, we didn't do a breeding model. So the reason Axie was able to grow so quickly is that the supply of Axies can inflate exponentially. Two Axies can make seven more Axies. Those seven can be, make forty more and so on as you pair them. Gets more expensive to breed, but there's a marketplace for Axies and as the demand for them shot out, people are able to breed and create quite a bit more. Whereas in our ecosystem, people mint the wearables during mints like the one that's going to happen in 30 minutes. And so we have a lot more control over the supply - the DAO does, I should say, around the pricing and release schedule of these wearables to meet the demand. 

And then within Axie, most of the game is really around this breeding component, so no offense to the Axie game itself, but it's the exact same game every single time you're playing it. The really interesting part is making smart decisions about which Axies to breed with which other ones to make exactly the right Axie you need to do x, y, or z. We don't have that, like complexity around the metagame. It's like a given wearable upgrades to a level two, three, four, or five that just looks slightly different. The hat changes color or appearance, something like that, but the game itself is much more skill based. 

So you're playing poker with 2-5 other people, and the main determinant of how much ICE you earn is you start with 3,000 chips at the beginning of the day, and then it's like if you're in the top 5% of performers around chips, you get substantially more ICE than if you're in the bottom 5% and like every percentile going up and down, that's a major determinant of how much ICE you're earning, so the game is a little different each time, and it's skill based around playing poker. But it's not gambling because you can come into our Discord, receive delegation to a wearable, play poker with the chips each day, and you can only make money. So free to play, play-to-earn is one component of it. 

And the other one, of course, is the sort of guild component where people accumulate wearables in order to delegate them out for a 70/30 split to the player and that produces passive income to the people delegating the wearables. There's a lot there -- oh, pause, but that was really the pivot from gambling to play. 

Crypto Texan: Yeah, thanks for that, Ryan. And yeah, that was a lot there, but I think what I'll do, I'll just kind of share my experience with Decentral Games in a way to kind of summarize a lot of what you're saying. So I do have two wearables and I have delegated both of those wearables out to two individuals that live in the Philippines because, and the reason they're so willing to do this and grind three to four hours a day playing poker is because the amount of money that they make grinding it out on poker with my wearable is more than the average wage in the Philippines. So there's a huge benefit for them to do so. And in return, I get 30% of the ICE that they grind out, ICE being the native token for ICE Poker. 

But another thing that being involved in Decentral Games has really helped me with is that it gives me a really great way to explain to people who are not involved in crypto the true opportunities that non-fungible tokens can provide. Because I've had people ask me, they say, I don't get this whole NFT thing, and I would say like, well I own some and they're like, I don't get it. And what they're seeing is just like the very popular mainstream part of NFTs, which are, the Bored Apes in the profile pictures that people spend millions of dollars on. 

But when I tell them, yeah, so I have an NFT that is a wearable for my avatar in a game that grants me access to an exclusive poker room in the metaverse, okay, and then I tell them that I own that wearable. I own that NFT and I can sell it if I want to, I can use it to gain access to that poker room, or I can delegate the benefits of that NFT to someone else, okay, I keep it pretty simple. I say, I delegate it to someone who wants to play and I get 30% of their winnings. 

Like you said, there's more nuanced things than that. It's not just like 30% of their winnings, it's 30% of the earnings they receive based on the achievements that they hit within the game. But it really just opens up their eyes and they think, oh, well, yeah, I would do that - where do I buy one? And these are people that don't even have a MetaMask set up yet. So I think these play-to-earn games are a huge opportunity just to open up people's eyes to what the potential for this type of technology can do. 

And I don't know, there is just so much potential here, and I think, like you talked about earlier, the moving from desktop only to mobile could be a very huge potential unlock for Decentral Games because I think having a desktop, a desktop only game is a little bit more restrictive, I think. And so outside of moving from desktop to mobile, what other things are y'all doing at Decentral Games, I guess, to attract demand for new players. 

Ryan: Yeah, for sure, and appreciate the story there. Definitely see a lot of demand for players, so, or  I should say a lot of demand from players. In fact, I would flip the question a little bit, because at the moment, play-to-earn is really attractive for players. We've seen ecosystems spring up and get to 10 to 30,000 active players over the course of a few weeks and then generally crash to zero over the course of a month or two. 

I could think of a ton of examples that launched over the summer and fall, where Axie Infinity has a lot of staying power. But things like CryptoMines, they're the first iteration of a Wolf game, others that crashed really quickly. We're actually not very focused on how we attract players to the play-to-earn ecosystem, which is probably a surprising answer. Like we could have grown this substantially faster than we have from 0 to 4,000 players over the course of about three months, and the reason for that is that that explosive growth-- there's couple of other reasons I can speak to why I think that Decentral Games should fit in that Axie category as like a sustainable play-to-earn ecosystem. We've only been living three months, we have a little longer to prove it. 

It's more about, we're focused on designing a fun game people want to continue playing, like would people play poker if the rewards were lower than they are now? And an ecosystem, an economy that is sustainable, where there are reasons for people to reinvest in that ecosystem beyond just making more money immediately tomorrow, right. Like a lot of the mechanisms that these games developed that have come out recently are like, stake token to get 1.5x more token in a week or stake NFT item to inflate item where I put item in staking for three days, and then I get two items out at the end of that. 

So deliberately we built in mechanisms where, when you upgrade an item, you take level one to level two, but that level one is burned. And we, the second sync that we have, Jiho at Axie often talks about faucets and syncs for the play-to-earn tokens. So the sync would be, like even at the scale we're at now, we're paying out about $140,000 a day in ICE token. That's 1.2 million, 1.4, 1.2 millions ICE at 12 or 13 cents, something like that. 

And so how is that sustainable? And the answer is that about 50% of that ICE that goes out gets reinvested into upgrading the wearables as it's combined with XP. And there are guilds, could say small businesses almost, that are interested in accumulating these higher level wearables have a lot of delegates 10, 20 of them. And the numbers are set up in such a way that they're accumulating these experience points to upgrade wearables at a faster rate than they're earning ICE. So the owner of the NFT gets all of the experience points because they're the one who can upgrade it, but only 30% of the ICE. 

So we see people who have many delegates going out on the open market on QuickSwap and actually buying ICE. So how do you generate a sustainable source of demand both for people to earn ICE and burn it to upgrade items, but also for people to buy ICE? Upgrade wearables within their guild? And then thirdly, we often do mints done to, in ICE that took quite a bit off the open market. 

So two and a half months in, we watch these numbers very closely at a high level, about half of the ICE that's gone out has come back in the form of burning or upgrading, and then another around 30% was bought up for the purpose of doing an ICE mint. And then that up burned by the DAO and then another roughly 20% got bought up by these sort of guilds or speculators in order to-- this was ICE that wasn't earned, but was purchased to then upgrade wearables. 

So watching very closely that like nothing is free, basically. You can't just pay out six figures a day indefinitely if you don't have money coming back into the ecosystem, reinvesting into it. So I would say the focus is more so on getting those ratios right, the incentives right, both within the poker game itself and in this metagame of upgrading the items. So I think that if we minted 10,000 more items, they would sell out and we would find 10,000 new players fairly quickly. But a lot of these ratios would get really imbalanced quickly. So part of why Axie I think was able to succeed is that they had this like two or three year runway, and it took them two years to grow to 10,000 daily actives. A lot of these games are getting there in 10 days and then collapsing because they'd have to design the economy, right? 

Crypto Texan: And is that part of the reason why Decentral Games is doing these NFT mints like twice a month, is to monitor those ratios of how much ICE is going in and how much ICE is going out? Or is that or is there another reason for that? 

Ryan: Yeah, exactly. We're, we have 4,500 items in circulation this month, we'll release about 4,500 items, which is like a comparable month over month growth to last month. So yeah, that's exactly right. We're closely monitoring these things, and I think we have plenty of player demand. Look, the demand is going to be there from players to make, on average, $30-40 a day. I would say that the sort of middle 50 percentile, percentiles, are making that like $30 or $40 a day range. The demand is going to be there. 

We're seeing the demand to buy these items on OpenSea, the floor is like about an ETH for the items on secondary. But I want to make sure that continues to be the case, that there is more demand and supply of the items so that the items retain their value and that ICE in roughly equals ICE out, so that ICE is retaining its value. ICE is the, ICE has had some volatility, the play-to-earn token, but it's the same price today as it was two months ago. So it's been much more stable than any other play-to-earn token. 

Crypto Texan: Yeah, from a price action standpoint, I've noticed that it usually hovers around 10 to 15 cents, maybe goes up to 20 when there's high demand, when you're using ICE to mint the NFTs. But what, is there a roadmap to how many NFT wearables Decentral Games will mint for this, for ICE Poker? Like is there a target number of NFTs by the end of year or in the next three, five years? What goes into that decision process? 

Ryan: So, I think three to five years is too far out to think about exactly how many users I think we would have. 

Crypto Texan: Right.

Ryan: Yeah three or five years is hard. In a year we've said that our targets are about 200,000 by the end of this year, probably pretty ambitious. And that we're looking at about 20,000 by April of this year. So they grow from about 4,500 to 20,000 over the next three months or so. And then at that point, I think we would know more about what the potential growth is within Decentraland. Hopefully, by April, we have a beta version of the mobile experience, potentially sooner. It's being worked on in the background. 

And then I can sort of imagine that we would have, getting really in the weeds about the items, you would have NFTs that worked for the Metaverse and worked for mobile and then you would have mobile only NFTs that were perhaps cheaper and have lower rewards. And I can imagine rolling out faster to mobile than we have to the metaverse, so maybe by the end of this year, we have like 50,000 people playing in the metaverse and 150,000 people playing on mobile. But I would say it is, I would be wary of anyone in the crypto space trying to forecast out a year. It's tough. A year ago, our business model was completely different, our focus six months ago was very different than it is today. 

Crypto Texan: Yeah absolutely, but I think it says a lot about the DAO and the organization, and that you have the ability and the willingness to pivot where you see trends in the industry or opportunities elsewhere in a similar subsector. And so you're talking about potentially there will be mobile only or mobile compatible NFT wearables versus maybe desktop only or desktop compatible wearables. 

That kind of goes into one of my questions where some of these NFT wearables for ICE Poker have, they're a 1/100 NFT wearable versus, I think a lot of the other ones who have come out, or the past two or three mints recently have been 1/250 type of wearable. So do you see any advantages in the future or are there any advantages now of owning a 1/100 NFT wearable versus a 1/50 NFT wearable? And I'm assuming, like later on down the road, there'll be like a 1/500 or a 1/1000, is that maybe where the mobile compatibility might play in or what kind of advantages are there currently? 

Ryan: Yeah, that's a super interesting question. So we did four sets that were 1/100, there are five items per set, so that's 500 x 4, 2000. And then we've done two mints of 1/250, which is 1,250 each, that's how you get to this 4,500. So we have like 2,000 items that were 100 count each and 2,500 that are 250. We've seen that the market just values the rare wearables more, like it's kind of like in NFTs, that maybe there's nothing special about the gold ape or the, trying to think of another example, really whatever, really rare. There's not like a per se additional utility to have like a zombie CryptoPunk other than it demonstrates that you were in the ecosystem early or that it is just rare, like flexing, so to speak, like rare metaverse clothes has been a thing in Decentraland for years. We're seeing that pick up like RTKFT's sale to Nike, Bored Apes and Adidas, along with Pixel Vault. 

But there have also been like, I can't answer the question exactly what we'll do with like bonuses around these, because it's an open question the, in the community where someone outside the team did propose that we say that the mining, the-- sorry the earnings bonuses change based on the rarity of the wearable. There hasn't been a proposal around that yet, but you could imagine that the 1/100 wearables earn ICE at a 20% higher rate than the 1/1000 wearables. So that's not decided, that's something that was proposed sort of informally so far. So that could be something that happens, but I would say that the OpenSea floor on the wearables is 1 ETH, but the floor on the first collection, the ICE suit, is 3.5 ETH. They earned ICE at exactly the same rate as all the rest, but people value the first collection at 3.5x, I think just due to the rarity of it and it being first. 

Crypto Texan: Yeah, so maybe the value there is a combination of utility and clout, I guess, which when it comes to like the profile picture, I mean it's a combination of that, right. Like the Bored Apes, there is certain utility that you get with owning a Bored Ape, but it's mainly clout at the end of the day. So I understand that that's where probably a lot of the premium for a lot of these NFTs come from. 

So what about other poker related games for ICE Poker? So I love poker, I love to play poker. But right now, the main game of choice or the only game of choice in ICE Poker is no limit Texas Hold'em. And I was wondering if there's anything on the roadmap or any discussion about implementing games like Omaha, seven-card stud. Maybe even like, I don't know, 5-card draw, just some other poker games. Or, and outside of that, currently all of the tables are six-handed, right. So do you think there's any potential or discussion to expand it to like a standard nine-handed poker table? 

Ryan: That's interesting, so right now yeah, you can play with a minimum of three at a table or up to six. I would say right now the development focus is on assigned seating to prevent collusion within the game, and that's been a really contentious issue within the community, because we would like it to be a social experience, but then also I think as a poker player, if you're playing with someone else at the table and you guys know each other's cards, that's an enormous advantage over everyone else and a big problem. 

So that's actually probably the biggest gameplay problem that we're trying to solve right now is complaints that collusion is taking place, and we did just launch this in late October, so two and a half months ago, and we are, there's always little improvements that can be made to the existing game and making it smoother. We recently updated the blinds by a vote. We've got the cards dealing faster. A lot of UI changes are going on. To answer your question, I think that that's a really interesting idea to offer. We've thought about offering different blinds at different tables because there are some people who want to play a faster paced game with higher blinds, and people who want to play with lower blinds. 

Implementing a different game like the seven-card stud or Omaha, I think wouldn't be too hard and is probably a good idea there. There have also been questions about whether our other games like blackjack and roulette would be brought into the ICE ecosystem. I think the answer there is probably not because the game needs to be player against player, sort of social in that respect. I think it's not clear how roulette exactly fits into that, plus roulette is just an EV negative game, so in general, you would see players losing over time. We could say that you could bet your chips and that would count towards your multiplier on these other games. 

And then, we hope to see other games experience like what Axie talks about all the time is that the reason they've spent so much development focus on the Ronin chain is that now they have 2.7 million users with funds on Ronin, who are familiar with the ecosystem using Ronin exchange and SLP, and that they want other developers to develop games within that ecosystem and build on Ronin. 

I can imagine that, whether it's by partnership or acquisition, like as we get this ecosystem off the ground, it'll be great to see the DAO have other games being brought in, but it's just really early. There isn't a comparable level of development game arguably within Decentraland just yet to partner with, it's like a social game of this kind. But definitely see the vision being beyond people buying a wearable, and that just allows you to play Hold'em poker being like the end game of the play-to-earn economy and ecosystem. 

Crypto Texan: Yeah, and maybe another question we had was, outside play-to-earn, where it really is just peer-to-peer gambling against another person right now it's just like a very different version of poker, the way ICE Poker is set up. And do you see a future where you can actually sit down and play like a cash table, like with your ether or MANA tokens against other players? Or maybe just like a true poker tournament in the traditional sense? Do you see anything like that taking place? 

Ryan: I don't want to get too far out ahead of what the DAO has voted on here, but at the moment. So it's like a bit of alpha for people listening here, like it's really hard to build these cash games on these truly decentralized chains. People are trying to do it on ETH, and they got blown out of the water by ETH fees. We used to pay 1/10th of one cent on MATIC fees, now it's more like 5 or 10 cents. So still profitable, but coming up against the edge and probably the way to build sustainable on-chain crypto gains is to build your own sidechain like Axie has done, which just isn't a development focus for us. 

And when you look at the amount of transactions that like on chain poker requires, it wouldn't be, with where MATIC fees are now, it probably would not be profitable for the DG DAO to host on chain, on MATIC network poker. Whereas ICE Poker has been hugely profitable for the DAO and hugely profitable for players and investors so far, so it's just been, the focus has been on the ICE ecosystem versus on chain, on MATIC gambling, where, I'll give you an example, so it's noncustodial, to be in these smart contracts. It costs about 5 cents to do a transaction. You place a bet, that's a transaction, at the end there's a second transaction which sends the funds to the DG DAO treasury or sends them to you, plus the 2x. So that's about 10 cents. 

The house edge on blackjack is about 1%, it's like 0.7, let's say 1% for simplicity. So if you're betting $10, then you're expected losses are 10 cents. And the transaction costs are 10 cents. Now, our average bet sizes are larger, 20 or 30 dollars, but it used to be that this was a trivial percentage of the bets, and now it's more like a third to half of them. And we see this becoming more of an issue. So I'm being as transparent as possible that I don't think it makes a ton of sense to focus on the crypto gambling side, and in terms of revenue to the DAO, this month, I would expect the crypto casino side to make the DAO about $300,000 and for ICE Poker to do about $6 million of revenue. It's not a focus.

Crypto Texan: Right yeah, that no, that makes perfect sense, yeah, no I appreciate you answering that so candidly and we're running up on time here, Ryan and I've really appreciate, really appreciate you coming on and talking to us about this really exciting project. Obviously, I'm involved, so I like it. Is there anything else that you wanted to touch on that maybe didn't get a chance to touch on? 

Ryan: The one other thing I would note is that we recently released field management tools that are comparable to what YGG and Merit Circle are trying to do around Axie. So we were the first game to put delegation into the experience itself, so we actually have trustless splitting of that 70/30. Huge problem with Axies, people finding delegates to play for them for a month and then just not paying them at the end of that, because it's a trust-based delegation. And so the guilds are trying to solve for that. The guilds take a 10% fee. 

We've built like, many guild management tools and delegation into the experience. I posted in the General for what this looks like, if you have many items and you're trying to keep track of how your players are performing. And so we think that this, it protects players, it allows people managing their guild to see the data. To not spend a bunch of time like digging through on chain data, and will hopefully lead to better gameplay as it weeds out the people who are not playing as well. 

So like you, you have to be, I think, pretty into the sort of play-to-earn space to see why this is important. But Merit Circle and YGG are both over a billion dollar, fully diluted valuation projects where like, the majority's case is like this problem that shouldn't exist in the first place. And frankly, this took us like a couple of weeks to roll out, seeing that this was the problem. So I would, if you're in the audience and you're thinking about rolling out like a play-to-earn game or ecosystem or you're in one now like, those games should really be building it into the experience itself, rather than having like a third party extracting 10% of the ecosystem value to solve this problem for you. That's my throwing shade at the guild management tools that exist third party. 

Crypto Texan: Well yeah, and I've checked out the guild management tools that Decentral Games has on its website right now and it's great. It's very helpful because previously I was just having the people that I've delegated to, send me screenshots of their progress every day. And then I would just have to go back and check to make sure that that is actually what happened on chain, and this is a much simpler, easier way to do it as well. So are you delegating any wearables, Ryan? 

Ryan: Yes I am. I've minted several times and have bought quite a few on secondary, and I think it's important for, we fair launched them, so everyone on the team has had to either mint or buy them on secondary. We've also done no partnerships, but we did no OTC deals or something like that, so I had to buy all of them. And I think it's important that the team delegates at least a couple so that they can, and hops into play from time to time so that we like to understand the player experience and the delegator experience. 

Crypto Texan: Right, and that's part of the thing that I've kind of tussled with a little bit is, I've got two wearables. I don't really have the time to play and I want to make these assets active. So I've delegated them. But at the same time, I want to play too, and so, yeah, I'm going to try to mint another one today. And yeah, we're right here at time. It's minting time in Decentral Games. So why don't you just tell people where they can learn more about you and Decentral Games? 

Ryan: Yeah, absolutely, so I would say hop into the Decentral Games Discord. If you follow us on Twitter - @DecentralGames. Hop into the Discord, go to Decentral (dot) Games. Are probably some great resources there. Trying to think, what else? Resources like, we've got our white paper for ICE Poker at ICE (dot) Decentral (dot) Games. And, but I would say, like just joining the community via keeping up with us on Twitter. Joining the Discord, seeing what's going on there, you'll keep up the pace of announcements. And then if you're trying to get involved in all things metaverse and gaming, like start coming to some Decentraland events and Decentral Games events. 

Crypto Texan: Yeah, absolutely. Well, Ryan, thanks again for being on the show with us here today. This is being recorded, so we'll get this out in about a week and everyone else have a great weekend. Thanks again, Ryan. Really appreciate it. 

Ryan: Appreciate you as well, thanks for everyone who listened. 

Crypto Texan: Alright, bye everybody. 

Host: @Crypto_Texan

Audio Engineer/Mixing: @LloveraFrank

Marketing Image: @crypto_diller_

Transcript: @qjuniperus

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RSS feed for Apple Podcasts: Link hereCrypto Texan: Hello, everyone. Welcome to Conversations with the Co-op. This is where we source questions from the Index Co-op community to gain insights from today's leaders in crypto and DeFi. I'm your host Crypto Texan, and on this installment of Conversations with the Co-op, we have Dr. Karl Kreder, who is the CEO of GridPlus and a core contributor to the Phonon DAO. We also think that Justin Leroux will be joining us shortly as well. But thanks for being here today, Dr. Karl. How are you doing today? 

Dr. Karl: I'm doing great, thanks for having me. A fun start to the new year.

Crypto Texan: Yeah, yeah. The price action is a great start to the new year. Absolutely. But let's just start off with some introductions. So why don't you tell us, Dr. Karl, just a little bit about your background and how you got into crypto. 

Dr. Karl: So I got into crypto back in 2012. I actually heard about it on NPR, or as I like to say, the "nipper." Back in 2011, they did a story on people buying drugs on Silk Road, and I obviously got interested just from the monetary aspect of it. 

At the time, though, I wanted to buy some and the only way I could buy it was some convoluted process of getting like a phone card using cash and converting that to an Okpay card, somehow redeeming that on Mt. Gox for like a coupon to buy bitcoin. So I waited till 2012 to do it, and I ended up buying my first bitcoins from Charlie Schrem's, from Charlie Schrem's company. I think it was, I'm trying to remember the name of it, actually. Wasn't, BitPay is still around, but anyway, it was Charlie Shrem's old company, and you had to go use cash at Walgreens and use a Western Union to get your bitcoin, so that was like my first bitcoin. 

So my background though is that I'm an engineer by training and I figured this out actually in 2012, I just started my doctorate at University of Texas in engineering. So I was very interested and kind of lurked in the space, but there wasn't really much you could do at that time, if you didn't have a secondary means to support yourself. 

So I did my degree, graduated and then I went to work for ConsenSys and I worked for ConsenSys for a year, then formed the spin-out GridPlus, and I've been working on GridPlus ever since. My focus at GridPlus has always been trying to make crypto easier for people to self custodian and use. 

So I've always been working on sort of like a hardware wallet set of solutions, which is really the loudest one at this point, as well as SafeCards. Yeah, that's a little bit about my background. One of the things that happened, though, is when we were working on the SafeCards, and SafeCards for people that don't know, are effectively using a smart card to create a pin protected seed phrase. 

So if you think about the logistics of actually storing a seed phrase securely at a somewhat adversarial environment, I mean right now, I think most people find it pretty easy because it's basically just being stored in an obscure way. But as crypto becomes more and more ubiquitous, I think seed phrases are going to become more and more targeted, which is to make storing them harder. Certainly in plain text on paper. 

So the cool part about the SafeCards is it's effectively like a plaintext seed, except it's protected by a pin so you can just leave it on your desk and not worry about it. We actually sell SafeCards that have 10 ETH on them, so if anyone thinks they can break the security around a SafeCard, they can go to GridPlus.io and buy SafeCards with 10 ETH on them and see if they can get the 10 ETH off. 

But so those are SafeCards. So one of the things that I kind of figured out with SafeCards, though, is they have some unique properties with them, specifically regarding something called a physically unclonable function. And the concept of a physically unclonable function is that SafeCard can never be copied, right? And that's one sort of key piece that goes into crypto that we talk about, as not being able to do a double spend. So I realized that not being able to do a double spend and not being able to copy a physical, unique thing were an interrelated concept. And that triggered me to start thinking about how that could be used and that's how Phonon was born. 

Crypto Texan: Yeah okay, that's interesting, I didn't realize you went to the University of Texas, are you a native Texan as well? 

Dr. Karl: So I've been in Texas since '08. Yeah, I moved down here for my first job after college. 

Crypto Texan: Okay, I'm assuming the Austin area because that seems to be where a lot of Web3 people are in Texas. 

Dr. Karl: Yeah, so I actually started it out in San Antonio, and then I moved up for my degree in '12, well my graduate degree in 2012. And then I've been here ever since. 

Crypto Texan: Yeah, well I'm in the Dallas area, actually, and I think Delong formerly from Sushi is out there in San Antonio as well. But now that's besides the point. I feel like a lot of times with the kind of crypto OGs like yourself that got started, in 2012, it's either they got started off either being a Bitcoin core dev, working at Coinbase or going the ConsenSys route and you went the ConsenSys route and you said that GridPlus kind of spun out of ConsenSys. 

So maybe just provide a little more color on that background. Can you give us a little background on ConsenSys and how GridPlus came to be from forming and then spinning out of ConsenSys? How does that program work? 

Dr. Karl: So we were actually the first company to spin out of ConsenSys, so it was slightly a novel thing, obviously when we did it. But effectively the three of us had an idea. I thought it could be a good opportunity and then we just talked to Joe and worked out a way to spin out the organization. 

ConsenSys is always interesting because they've always referred to themselves as a mesh, not a company. And they've evolved significantly since 2017, so there's actually a more distinct formalization now, so they actually have like ConsenSys software, which is more of like a separate corporate entity from ConsenSys Mesh, which is more like an incubator type entity now. 

So those things weren't distinct and didn't exist back in '17. But now they do so, the process that a company would go through is they would pitch an idea to Mesh right and potentially be brought into the Mesh, and that would act as an incubator with some degree of funding and support around it to get them started. So again, I'm not super familiar with how it works now, but that's my understanding. 

Crypto Texan: You being the CEO of GridPlus, what's it like being a hardware focused company in the crypto space, which I feel like at least recently, crypto has been a lot more software heavy, I guess. Just kind of want to get your take on that in general, and then we'll move into Phonon. 

Dr. Karl: Well, fundamentally, I think that crypto and a lot of the UX problems around crypto can only be solved by hardware. And I really don't see a way that software can solve all these problems, so ad GridPlus the goal is to create and maintain decentralized systems, right? If everyone just keeps their crypto on Coinbase, we don't actually have a decentralized money system. 

We have potentially decentralized or replaced the Federal Reserve and monetary policy, but you're just replacing JP Morgan with Coinbase, and you're going to see the same brand-seeking behavior over time by definition, right? So to kind of keep things as free, peer-to-peer money, you have to enable people to keep assets themselves, and that's really the focus of GridPlus. 

In terms of being a hardware manufacturer in the space and just hardware generally is much harder than software. So there's a lot of things and dependencies that we can't directly control, and those have been exacerbated with COVID, right? So our lead times get higher, shipping rates go up. So it's a lot more difficult to execute successfully than a software strictly play. 

Crypto Texan: Yeah, absolutely, and yeah, with Coinbase being the custodian for a lot of retail digital assets and I guess there is security there with Coinbase being a custodian, right? And then you have protocols, or not protocols, but hot wallets like Coinbase Wallet and MetaMask, and there's, I guess, just a lack of security. And I think security is something that we want to touch on as well in this conversation. So I don't know, do you have a hot wallet personally? Like, what's your view on those or are you 100% hardware all the time? 

Dr. Karl: So I still have hot wallets, but they're really just like legacy, and there's not enough in the wallets that, the only reason I still have any assets, not on a hardware wallet is because I've been too busy to deal with it, and it's not the highest priority in my life. But any of my meaningful assets that I have that are just like some random coin that I bought way back when. Everything with meaningful value is on a hardware wallet and it's on a Lattice. And every day that I use crypto and every transaction that I do, I use a lot of support, so.

Crypto Texan: I probably could have guessed that your assets were on a Lattice. 

Dr. Karl: Yeah, I mean, the problem is once you get SafeCards, they're like crack. Because they're just so much better than seed phrases, and they're so much easier to use and they're so much easier to replicate and back up and store, that like once you've done it once you're going to keep doing it, right. 

And the other thing that's great about it, too, is it's super easy to keep like segregated funds, so you can have money for your company on a set of SafeCards on a separate seed. And then you can have some personal crypto over here, and then you can have crypto for your family over there. And those are all separate sets of cards and seed phrases, like once you start using SafeCards, they're pretty addicting and you're going to end up with like 20 or 30 of them. 

So I mean, the analog there is right, like people would have a bunch of ledgers and they would have a bunch of seed phrases written down somewhere. But the cool part is like, you just have these SafeCards -- again much easier to store, much easier to replicate backup, much easier to use, right? So like when I want to use a SafeCard, I just plug it into my Lattice and I pin in and I'm hot, right? I'm ready to go. Whereas if I had a seed phrase and it’s like 20 words to restore a seed phrase on the ledger, right? So like, that's not an easy methodology to use. So they're just super convenient, super fast if you're managing any set of monies of any amount. 

Crypto Texan: Yeah, absolutely, and yeah, you mentioned Ledger, and so, yeah, when I think of hardware wallets in the crypto space, I think the GridPlus Lattice, Trezor, and then the Ledger are probably the top three that I think of. How do you view your competition and like, how do you differentiate yourself between those other two competitors? And I don't know, like where do you see the opportunity for GridPlus in the future to kind of gain some more market share, just in your opinion as the CEO? 

Dr. Karl: I mean, for us right now, our biggest issue with gaining market share is just production. So, right, we're just working on getting more throughput and productive capacity. That's really like our bottleneck. I think within the sort of high end whale community, the funds and any very native Web3 people, right, a lot of them know about the Lattice and a lot of them use it already. 

if you're talking about differentiation, I mean, this is like the difference between a horse drawn wagon and a car right? There really isn't any comparison between a little USB dongle and a Lattice, right? A Lattice is sort of an always on sort of Web3 terminal, like a Bloomberg terminal would be to the stock exchange, right? Compared to like a little security USB dongle that you have. 

So like, I don't think they're comparable in use. I don't think they're comparable in scope. I don't think they're comparable in security, right? One of the big issues with Web3 is that Trezor and Ledger weren't really designed and haven't really changed for Web3. So one of the problems that you face is when you interact with a contract, you need to verify what you sign. There's two ways that you could lose money in crypto. One is somebody gets your seed phrase for your private keys and they just take all your money. That's why you have a hardware wallet. 

But the thing the hardware wallet also has to do for you is allow you to verify what you're signing on the hardware wallet, right. So when you look at Web3, even like a simple Uniswap transaction, it's going to be several hundred bytes of data that you're going to have to verify. And Ledger doesn't have a way to present that because of the small screen. Nor can they present that in any sort of marked up or human readable form. 

So like on the Lattice, if you do Uniswap swap transaction, you can load an ABI pack, and it parses out that data payload into a human readable form, and then you can also use what we call address tags to tag the different addresses that are used either a contract address or an asset address or if I do Uniswap, I can tag the contract router as Uniswap V3. I can tag my USDC as "USDC" and I could tag wrapped ether as "wETH." And then when I go to confirm it, it just says, oh, you're doing a Uniswap exact output for USDC from wETH in these amounts, and it's super easy to read and confirm, right? 

So that is essential to maintaining security when you're interacting with Web3 contracts. And we've seen two hacks last year showing that the hackers are moving into the space of hacking people that have hardware wallets that are forcing people to blind sign right. One hack was Hugh Karp earlier in the year, and then the second hack more recently was Badger DAO, and that was quite a bit of money. So I mean, as people interact with Web3 more, and there's more and more value against it, they have to realize that they can't blind sign and they have to have a wallet that allows them to confirm what they're signing. 

Crypto Texan: Yeah, the blind signing aspect of the Ledger Metamask connection has always been kind of a, has made me a little apprehensive as well, so I definitely get where you're coming from there. And yeah, the Badger hack that was, yeah, that was a pretty bad one. And, we've got Badger in our DeFi Pulse Index as well, so we are obviously staying pretty close to that situation. 

But yeah, it's unfortunate and it's just important, especially with new people in the space to stress that security, because it's, this is a very new and nascent space and there's a lot changing on a day and it's just different, right? This isn't like someone robbing a bank and your funds are secure there. It's very different. It's self-sovereign, and it adds a little more responsibility to the users as well. I think that's important to stress. But let's kind of get into Phonon DAO. 

Dr. Karl: Well–

Crypto Texan: Go ahead. 

Dr. Karl: Before we hop there, I just want to say, right, so like a Ledger is great if you're doing a simple EOA transfer right, from one account to another. But the second you're blind signing and you're not confirming what you're signing, the only thing that is saving you is the fact that the majority of hackers aren't targeting that yet. But they clearly are starting to, so that, at that point, relative to your take, when you're making a signature, it's security is like it's Kabuki theater, right? It's the TSA. It's a security talisman that you like, hanging around your neck to make you feel good about what you're doing, but it's not actually providing anything for you the second you blind sign.

Crypto Texan: Right, so what would you say, when you're interacting with a smart contract, what are the best practices to go through? 

Dr. Karl: So

Crypto Texan: Just use a Lattice. Is that it? 

Dr. Karl: Well, yeah, I mean, the reason that they do blind signing is because it's close to impossible to get confirmations done on a Ledger because your data payloads are in hex code, right. So the first thing that you have to do is you have to take that hex code and you have to use an ABI or you have to support EIP-712 to be able to represent that hex code in a meaningful way that's human readable, right? All it is, is just bytes to begin with. 

So if you're like on a Ledger and you're just seeing like a string of bytes go across, you would have to like, write down the string of bytes, you then have to like, go manually look up the ABI, you'd have to figure out how to parse that set of hex strings. So you then would end up doing some conversions and some indian flips looking at the different fields and then confirming them against what you think they are, right? 

But with a Lattice, if you go through that process, like I said, if you load the ABI pack and you load up address tags, then you're simply confirming, what am I doing, Uniswap swapped for exact, for this asset, for that asset, to this destination wallet and this amount, right? So then that's something that anybody can really confirm. But you need to get away from just signing hex blobs to actually confirming what those hex blobs are, and that's really one of the things that the Lattice brings to bear, so. 

Crypto Texan: Yeah, and I think that's a, I think we can start to transition to Phonon DAO in that sense in that, I've heard about Phonon DAO a couple of times, one on the Into the Ether podcast with, Eric Conner and Sassano. And I've heard Sassano talk about it on The Daily Gwei a bit, too. And that's a way to allow for peer-to-peer transfers of digital assets off-chain. So I just kind of want to, kind of get your sense - what was the idea behind this? Like, what's the history of Phonon DAO? And why do you feel like an innovation like this is important to the space? 

Dr. Karl: Okay, so let me answer the second question first. The reason that I think something like Phonon is important is because I am not a Bitcoin maximalist, I'm not an Ethereum maximalist, but I am a crypto maximalist, so I am convinced that cryptocurrency or crypto-like systems will be our money in the future. Really, period. 

So what we have to do is we have to build systems that allow everybody to have access to crypto and be able to use crypto for all things. And ideally we want to do that in a way in which it remains sort of decentralized and uncontrolled. So layer one solutions, right? We all know about the gas fees and whatnot. And from a technical standpoint, layer one solutions can scale, but they're going to run into a network constrained upper limit at a point that sort of balances sharding of state and throughput. 

So sort of reasonable estimations of what that limit might be for, like a layer one are going to be maybe 7000 TPS. So if you can get to say 7000 TPS, that's great, and that does a lot, but that still doesn't create a system that can replace money as we know it today. So we're going to need another set of systems to do that. 

And Phonon is super interesting because it allows for off-chain transfers of assets between Phonon cards. It scales linearly with the number of participants. So if there were 7.9 billion Phonon cards in the world, you could do 7.9 billion transactions/second. And I think we're going to need something like that to make up the gap between 7000 transactions/second on layer one to everybody in the world using crypto. So that's the second answer - why do we need something like that? 

The first answer, what the history was, is Phonon was an idea that I had. I kind of mentioned this a little bit earlier based on understanding some of the characteristics of the SafeCards when we were working on those, specifically the fact that you wouldn't be able to replicate the SafeCards. So I knew that that could help basically create a system where you could guarantee the enforcement of double spends without having to have a centralized ledger or ConsenSys mechanism. And so that was kind of the genesis of the idea of Phonon. And I'll just give the TLDR; of Phonon here now that we're talking about it. 

So Phonon is a hardware enforced off-chain layer zero scaling solution for any crypto asset. So it effectively lets people deposit something into a Phonon compatible chip, so that could be a smart card, that could be a SIM card, that could be an eSIM that could be interfaced with a computer via a HID reader that could be interfaced with a smartphone with an NFC connection, that could be a card at a point of sale terminal with an NFC connection, that could be a smartphone that has a natively embedded eSIM that's been flashed with the Phonon applet. 

But using any one of those interfaces, they'll be able to take something from a chain, they'll be able to trade it entirely and privately off-chain at no fees, an infinite number of times between any of the other Phonon cards. And then they'll subsequently be able to redeem it back to chain at a future point if they so desire. So that's kind of what Phonon does. 

Crypto Texan: Yeah, I'm going to try to ask, I feel like this is such a very novel idea. Or maybe not a novel idea, I think people have had this idea, but you and Phonon DAO and GridPlus are actually implementing this idea. Well, actually first, I'll ask, what is the relationship between GridPlus and Phonon DAO? I think that could give us a little bit of background as well. 

Dr. Karl: So the idea here is we came up with this idea at GridPlus and we were originally looking at it to solve a problem that we were trying to solve, which was how do you do kind of streaming payments or microtransactions? This is potentially very interesting for a lot of different things, not just microtransactions. I think Phonon is applicable to creating interoperable swaps between any blockchain. I think it's useful for sort of in-person peer-to-peer payments using smartphones that don't even require network connectivity. And I also think it's good for microtransactions. 

So it spans a large amount of potential applications and spaces, and so GridPlus develops the Phonon applet. We've developed a CLI, we've developed sort of like a backend, we call it Ripple. We've developed a mock, so when we've released that and the idea is we've built something that we think is becoming close to akin to a native cryptographic sort of protocol, right, it transcends blockchains, it transcends any asset and  transcends any single protocol so in of itself you think of it as a protocol, right? 

So GridPlus has developed the basic framework, and the DAO is formed to help build additional services and applications on top of that framework. So GridPlus is still intimately involved in developing tooling and helping the DAO get established and hopefully the first few applications developed. But it's much more of a protocol. I mean, you can think of it as a layer one, but it's a layer zero in that you need a disinterest, like not a singular corporate entity sort of pushing the use and development and adoption of that protocol. And that's really the purpose of the Phonon DAO. 

Crypto Texan: So just make sure I understand this, Phonon DAO's purpose is to build applications on top of the Phonon protocol, am I understanding that correctly? 

Dr. Karl: Yeah. To build applications and to also build value-added services and to help facilitate other people to build applications, that's correct. 

Crypto Texan: Okay yeah, and you, you're describing the Phonon protocol as a layer zero. And I'm trying to think of other protocols that market themselves as such, Polkadot is one that I can think of who markets themselves as a layer zero. Can you kind of go into like the differences because it feels like two very different definitions of layer zero there? 

Dr. Karl: Yeah. So I would say I'm not intimately familiar with all specific implementations of people marketing themselves as layer zeros. The ones that I have looked at, I would argue that they're not actually layers zeros. The reason we're calling it layer zero is because the Phonon protocol does not have dependencies upon the blockchain protocol. So the only thing a Phonon protocol has to– the Phonon protocol has to support, to support a blockchain is the same signing curve. 

So there's effectively three signing curves that exist, K, R, and Edwards, and if you support those three signing curves, you support every blockchain. So the topology of the stack, if you think about what is dependent on what, Phonon would be below, not above, the layer ones. Other things that are playing themselves as layer zeros have some protocol specific connectors that have to be built on top of the protocol specific constructs that exist in the layer ones to connect them together. So they're marketing themselves as a layer zero but if you drew a technical stack, they're clearly a layer two, whereas Phonon is literally a layer zero because the only thing that we really understand is key pairs, and that's it. 

Crypto Texan: Okay, and yeah, that makes sense, and maybe it just comes to this is such a new space. There needs to be some sort of redefinition of these terms, right? Because I can see how both of these could be considered a layer zero in some sense. Maybe a better term for something would be like a sub, just call it sub layer one because maybe not necessarily layer zero and maybe not a layer two, but something in between. But I don't know if that's just me kind of rambling there, just something I think about. But yeah thanks, that's helpful. 

Dr. Karl: Right I mean, traditionally when you look at the tech stacks and you say, like what's on top of what, it is done based off what has a dependency on what, right. So our dependency is really like cryptography. It's not anything specific to Ethereum or Bitcoin or Solana. We don't even understand the base protocol, the, so there's different parts, right? And I kind of mentioned them earlier. But when I say the protocol, and effectively just referring to the Phonon applet. 

So the Phonon protocol and the Phonon applet has no understanding of any blockchain. Like it doesn't know what Ethereum is, it doesn't know what Bitcoin is, it doesn't know what a sat is, it doesn't know what a GWEI is. It doesn't know anything. It doesn't, and it can't, right? 

Because it's a highly constrained environment that has no guarantees on having good information about the world. So like, it can't make a decision about what a Bitcoin is versus what an Ether is versus what ETC is, right. Like all of that is like a subjective thing that you would have to have a node and you'd have to be connected to the internet and understand what generalized social consensus is to like, come up with an idea, right? The cards themselves don't understand any of that, all they understand is that they have a key pair and they can atomically swap those key pairs. That's like all the cards understand, all they need to understand. 

Crypto Texan: Right so that's what's going on under the hood of these Phonon cards, right, is just an exchanging of private keys. Is that correct? 

Dr. Karl: Yeah, that's correct. So the process for creating a Phonon is you would tell your Phonon client that you want your card to create a new Phonon, it would pop out a public key. The client would turn that public key into an address for what asset you want to send money to, so that public key can be turned into a Bitcoin address or an Ether address or a Solana address doesn't matter. You then send money or an asset to that, so it could be Ether, it could be USDC, it could be an NFT, doesn't matter, to that address. 

You then load the metadata describing what that asset is. So a Phonon is fundamentally metadata and a key pair. And then the Phonon card will enforce the uniqueness of the existence of that private key and the atomic swap of that private key between other people in the network. And then and that process can happen an infinite number of times, so I could send you some money, you could send Justin some money, Justin could send it to Alex, and then Alex could then withdraw it. When you withdraw a Phonon, you're exporting the key pair, which makes it no longer exchangeable in the network. But now it becomes visible and usable back on a layer one. 

Crypto Texan: Okay, and is there a point in time where I guess these transactions, these exchanging of key, private keys, I guess batch back to the layer one or, I guess, I guess they don't have to. Okay yeah I'll let you explain.

Dr. Karl: Correct, so they don't have to, right. So like if you export a private key and that private key represents a bitcoin that effectively is just another entry in a UTXO wallet, right? So you could just add that private key to your wallet and the wallet would just do its normal thing. And that's the end of it. 

In Ethereum, and how we use Ethereum with accounts, there may be an argument, not that you need to reaggregate that key in some way to make it usable, but to make it convenient to use you may then aggregate it into one of your used accounts, right? But there's no implicit requirement to do a redeem on chain, because once you have the private key in your possession, you have the use of that asset on chain and you doing a transaction is just making it more convenient for you to hold that asset. 

Crypto Texan: Okay. 

Dr. Karl: You see what I'm saying? 

Crypto Texan: Yes, yes, I do. 

Dr. Karl: So in an account model you probably would want to reaggregate it into your account, so there would be an on chain sort of redemption. 

Crypto Texan: Right, that's right because Ethereum has the account model and then Bitcoin has the UTXO model for managing the ledger, right? 

Dr. Karl: Yeah. Right. 

Crypto Texan: Okay and so, yeah, just kind of thinking through like a real world example and I can see, I mean, obviously, there's so many benefits to this. But let's say, me and my friend grab dinner. He pays for it and I decide, yeah, I'll just send you some sats with my Phonon card. Is it that simple? Or, how do these Phonon cards communicate? And is it, can I do just any arbitrary number of my choosing or, I don't know, if you're exchanging private keys, do these private keys have to be preloaded with specific amounts or how does that work? 

Dr. Karl: So in the alpha version of Phonon, each Phonon is representative of an on-chain asset. There are potentially ways that we can extend this to make them divisible off-chain, but that hasn't yet been added. So if you were going to say pay in the alpha format, everything that is a Phonon should be thought of as a UTXO, and it's similar to UTXO treatment on Bitcoin. So if you wanted to pay your friend 35 bucks because he picked up dinner and you wanted to pay for your half, what you would likely do is send him 4 Phonons, right. 

Maybe you would have 3 Phonons for $10 in one wallet, so you would just pull your wallet up. The wallet could do sort of the extractions that a Coin wallet can do so you don't need to go and specifically pick your Phonons, you would just say, I want to save this guy 35 bucks and the wallet would figure out how to make that happen in the most efficient way, right.

Crypto Texan: Right, yes, I can see that, yes, I can see how it would work.

Dr. Karl: So ideally what it would look like so if you have a smartphone that's been built within the last three years, that's one of the nicer ones like a Pixel 3 or greater, an iPhone 10 or greater, like a Samsung s20 or greater, we think we can actually deploy Phonon as an app store download to your phone and provision the applet to the micro SIM as part of– or the eSIM as part of the process. So what it would look like from a user standpoint, is you would just have an app on your phone, he would request 35 USDC from you, that would generate a QR code, you would scan it with your app and then confirm and send it. 

Crypto Texan: Wow. So I feel like there's just a lot of basic questions that are coming up because this is, it feels like such a novel implementation of this idea. And I think two of the things I'm thinking of– one of them you touched on a little bit, but I'm thinking of counterparty risk. 

Like just a way of knowing that the sender of the Phonons didn't keep a copy of the private key somehow to steal the assets back. And then I guess that, like a double spend problem with which you said you've solved but, so these cards only transact with, I guess, other GridPlus cards or other Phonon cards?

Dr. Karl: So, so there is, there's two things that have to happen to make sure the whole system works. The cards need to be running Phonon code and the cards need to have the property of being unclonable. And if they have those two properties, you can guarantee that the person can't retain a private key and that the keys can't exist in new places and that the assets in the cards can't be duplicated, right? 

So as long as those two things are met, sort of all of the guarantees can be met. So somebody has to attest to those two guarantees. So initially, that could be say, GridPlus. So we manufacture the cards, so we're like, okay, these are NXB cards, they have these physically unclonable functions, we've confirmed that from the manufacturer and also through the security chain that happens with the manufacturer. 

And then we're going to put the Phonon code onto it and then we're going to issue a certificate. And that certificate is effectively attesting to those two properties. Now when I go and I want to receive a Phonon from another card, I'm only going to receive Phonons from certificates which I trust. So initially in the alpha version of this, it would just be GridPlus, so only GridPlus certs would be trusted between cards. 

But you could envision a scenario where another manufacturer comes in, maybe that's Status, maybe that's Ledger, maybe that Samsung, maybe that's Apple. And then if we say, okay well we can establish that we mutually trust each other in this certification process, then you would freely be able to transact between a GridPlus applet and a Status applet and the Samsung applet using the same guarantees. It's just a different set of manufacturers certifying that guarantee. 

Crypto Texan: Okay, yeah, that makes sense, and so with the Phonon DAO, there's also the Phonon token now, and I think GridPlus has a token as well. So I want to talk about what are the use cases for the Phonon token? And I guess like, is there any relationship between the GridPlus token and the Phonon token? And I don't know, just kind of what is the purpose of the token within the DAO. 

Dr. Karl: So the GridPlus token can be converted to the Phonon token, so that's one thing. The point of the token in the DAO is to create, it's a governance token first and foremost, but it's also a token that's used to create incentives as well as revenue. Generating things by providing services to the protocol layer, right. 

So in the very basic form of I want to send you a Phonon and it's for dinner, so there's not like, significant amount of money or significant counterparty risk here, right, your friend, when you're saying I'm willing to pay you this $35 USDC, his client would go and it would look up that that is indeed $35 of USDC before you actually send it to him, right. So he doesn't have to, he could just take your word for it too, right. But he needs to at least believe that you're not trying to screw him or just verify that you're not trying, you're not going to screw him by doing a read to an Etherscan or Infura or whatnot. 

So that's one level. However, if you do something that has significantly more money and has significantly less trusted parties, you need to start having mechanisms for making sure that transactions complete, specifically swaps and that there's recourse if it goes bad, right? So the issue that you have with the swap, which is one of the more interesting use cases because with swaps, they can basically tie together every asset on every blockchain, meaning with just a Phonon card, you could swap any asset for any other asset on any blockchain, right? 

So you could think about a simple use case making a DEX, but a DEX that transcends any crypto asset in existence, right? So instead of just being Uniswap in ERC-20s and whatnot, it's Ether, it's Bitcoin, it's Binance, it's Solana, it's Cardano, it's everything. So that's what you can do with it. The problem, though, that you have with the swap is that we can't guarantee completion because somebody has to go first, right. Somebody will always have to send, the first half of the transaction before the second half is sent. 

And so there's this problem that the cards themselves can't enforce the understanding of completion, either through a network loss of connectivity or through someone nefariously trying to, like cut off a transaction. So we could partially answer that question with the protocol through something that we call a conditional transfer or conditional swap, wherein prior to the first person sending money, the second person basically provides a signed agreement to what we're going to swap and then their card will only accept the first half of the agreement. The first part of the send, after it has sent the second half. 

And if that were to happen, we've made it so that you could do untrusted swaps between parties, and no one would ever economically benefit in this process. We've got it down to what we'd call a griefing attack. Now the problem, though, is it's still a griefing attack. So what the DAO can do is create a smart contract layer above it. It says in this swap scenario, if this transaction doesn't complete, the first party actually has a proof that we agreed to this transaction and they initiated the first half. You could then have the cards guild effectively swap. 

So if each card put one Ether up against doing swaps into that smart contract, these parties could swap one Ether and always know that if the transaction didn't complete, they could go to the smart contract and be like, hey, I have evidence that this card tried to or didn't complete the transaction, therefore, I would like to receive a portion of their guild. Obviously the party, the other party would also be able to contend that and basically say, oh no, I completed my half of the transaction, here's that receipt. But that receipt would effectively provide the money to the first person. 

The cool part about the guilding process, though, is if we say only guild our cards to one ETH, we could still trade 100 ETH, we could still swap 100 ETH worth of assets. We would just do it one ETH at a time, right, so we'd stream 100 ETH, 1 ETH at a time. And if either one of the parties sort of breaks the agreement on any one of those transactions, we would just stop and then go and adjudicate it with a smart contract. So there's a number of secondary services that start to make sense as you come up with more complicated applications that you'd want to build and provide to the protocol from the DAO. And those would be revenue generating services. 

Crypto Texan: I mean, do you foresee users using this for 100 ETH transactions, or should this be, I don't know, kind of like the cash in your back pocket type of metaphor. And– 

Dr. Karl: It depends, it depends. 

Crypto Texan: Okay. 

Dr. Karl: So it depends on the use case and it depends on the alternative, right? So I think if everything in the world were perfect, the only use case that this would collapse into would be cash in like microtransactions. However, I don't think that the world is perfect, and I think there's a lot of unmet need for higher value transactions cross-chain. And so I think I will get used to that. 

So, and everything is like a relative, a relative risk and friction trade-off, right, so like if you go and you look at CMC and you look on the top 100 assets, there's probably 40 assets up there that I can't easily get access to as somebody in the US, those are assets I'd like to get access to. So Phonon would actually facilitate liquidity against any pair with no gatekeepers. So I would be able to obtain access to those pairs regardless if I can get access to those on a centralized exchange or not. So people would use it for 100 ETH transactions because the other option is like going to hotbit (dot) io and setting up a non-KYC’d or like account with a fake name, using a VPN and putting 100 ETH into that, which is not a very good option. So, yeah.

Crypto Texan: Yeah, I can yeah, and I've got probably 100 more questions that I could ask you on this, but I've got to get to a few of just like more of the macro related questions here before we run up on time. I think the first one I want to ask here is just building on the Phonon network right? I mean, there's a DAO who is charged with, I guess, building applications and services on top of the Phonon network. And I'm just curious what would you recommend or what would you like to see the DAO, I guess, kind of target first or spearhead first in terms of applications to add on top of the protocol. 

Dr. Karl: So there's a plethora of applications. If I were going to say which is the easiest in terms of a distribution model that has the sort of smallest barrier to getting critical mass to kind of work, I would argue that it would be something like facilitating cross-chain swaps, so like a DEX. And the reason for that is, right, if we just deploy Phonon making capabilities to the existing Lattice user base, that would be sufficient to create enough sort of liquidity in quite a few pairs. 

And then anyone else that just wants to come in and run a take, just has to either download the phone applet or get a card and hook up to the computer, whatever it is, and they can easily start using that system. So I think that's the lowest barrier of adoption to getting things going. But obviously, there's a lot of more applications like P2P cash. I mean, really Phonon is most akin to cash, like in every way. So when you said it's like cash in your back pocket, the physical properties of Phonon and how it's used and how it's traded and everything is most akin to having literal bills. So, I think that is its killer use case. 

But to make that work, you have to have some sort of critical mass, at least in a geography, to make it useful. I think the other applications to start out, though, would be in the microtransaction space. So in the microtransaction space, you could actually do some really cool stuff like creating incentivized Tor alternatives wherein you actually pay in a streaming sort of way for the bandwidth that you use. And if you do that, you'd actually incentivize a lot more exit nodes to exist and if a lot more exit nodes exist, you're actually going to get a much higher, provable degree of security than you do currently with Tor. So, yeah.

Crypto Texan: Wow, I am a big proponent of that. I think I've been tweeting for four years about why aren't these Tor nodes compensated somehow for running this network or running exit nodes, right? I think that's very important as well. And you and I could–

Dr. Karl: Right, so like you could make it, because like if you know how Tor works, usually you get a route and you use that route for a predefined period of time. Right. So, you could basically make a bunch of Phonons that are worth like 10 cents at this point, add the 10 cents like to your exit node as you're creating the tunnel. So it creates a very easy mechanism to add payment to a system like that. 

Crypto Texan: Well, that might just be the solution that I've been looking for for a while. I thought Zcash could be an interesting use case for that. Even like Lightning Network to some degree, but I feel like this is probably the ultimate solution to that Tor exit node issue that I've kind of seen. And I've got one more question for you and we're running up tight on time. So if you don't feel like you have time to answer this, that's fine, I understand. 

But just seeing Phonon network a scaling solution to blockchains in general, I just kind of want to get your general take on scaling and maybe more Ethereum focus, because that seems to be like the most hotly debated topic right now, is Ethereum scaling. Where do you see, I guess, the future of blockchain scaling? Is it the optimistic ZK rollups? Is it more quasi-sidechain related like Polygon? Is it a Phonon layer zero? Like, I don't know, where do you see this going in the next five years, if you can predict that? 

Dr. Karl: So I think that there are reasonable scaling solutions that can be had to take layer ones into up to 10,000 TPS. I think that you're going to need that to keep these things decentralized. I don't think that creating L2 or rollups is going to be a tenable solution in the long term because of sort of how things silo and you kind of, there's still trust and there's issue about tragedy of the commons and economics and paying back to layer one. There's a lot of issues with a number of topologies in layer two. So personally, I think that people are going to figure out how to scale proof of work layer ones with EVM compatibility to 10,000 TPS. And I think that's what the future is going to be. 

Crypto Texan: Yeah, thanks for your insights on that. This has been a fascinating conversation. I'm really excited about this project and I really appreciate you coming on the show and sharing your insights with the Index Co-operative. And yeah, just where can people go to find out more about you and Phonon DAO? 

Dr. Karl: Yeah, so if they want to find out about Phonon, they can go to phonon.network, they can check out our blog there. They can check out the GitHub pages and they can start developing apps that are using Phonon. If they want to find more about me, they can go to gridplus.io and then go to the blog at GridPlus and they can see a lot of my thoughts and writings about some of this. Some of these questions go back quite a ways. So, yeah, hey, I really appreciate you having me on and giving me the opportunity to share about Phonon. 

Crypto Texan: Yeah, I appreciate it, too. Thanks for coming on. I saw a question earlier. Yes, this is being recorded, and we'll probably get this out in about a week. I hope everyone has a great weekend. And thanks again, Dr. Karl, for being here with us.  

Dr. Karl: Yep, thanks so much, guys. 

Crypto Texan: All right, bye.

Host: @Crypto_Texan

Audio Engineer/Mixing: @LloveraFrank

Marketing Image: @crypto_diller_

Transcript: @qjuniperus

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Crypto Texan: Hello everyone, welcome to Conversations with the Co-op. This is where we source questions from the Index Co-op community to gain insights from today's leaders in crypto and DeFi. Today we have with us crypto Twitter's fearless leader, Gabriel Haines. Gabriel, thanks for being here with us today. 

Gabriel: Thank you for having me, Crypto Texan, you gave me high praise there. 

Crypto Texan: Well, you know, I think one of your more recent claims to fame has been these Twitter videos that you've been putting out which people just love. But first, let's kind of get started on just your background and, you know, just tell us a little bit about yourself. How did you get into crypto and DeFi? What did you do pre crypto? 

Gabriel: So pre crypto, I was also making content. I was actually doing hummus videos, so if you go on my YouTube channel and scroll all the way back, you can see me go to various hummus places in and around Tel Aviv. And I would do a review. I would say this hummus tastes good. It has this good accompaniment, all different, all these criteria. So definitely check that out if you're interested in hummus. 

But I got into crypto early 2020. Because of the crash, there was a big crash, as we all remember, the Covid crash and the government said they're going to start printing money. And I remembered from my past that Bitcoin was kind of a solution to this problem. So I started to dive deep into Bitcoin and learn everything I could learn about it. And at some point, as you're learning Bitcoin, you realize that there's other things going on. There's Ethereum, there's all these other different apps on Ethereum. But the more I dove into it, I realized that a lot of activity and a lot of the innovation was happening on Ethereum. 

And so I started to just, very deeply research it, use all the apps I could. And one of the key things I did was start to make videos, tutorials like explanations, content about what these apps were doing. So that also people could understand them a little bit better, but also so that I could learn because through the content creation, you have to have some sort of foundational understanding. And also, if you make a mistake, people are very quick to tell you. So that is how I got into crypto and what I started doing when I got involved. 

Crypto Texan: So what are some of the early apps that you were working on for those YouTube videos, like what were some of the early apps that were catching your eye that you decided to make videos about?

Gabriel: The first app was YFI. The first crypto video I did was just an explanation of YFI, how it came to be, a background of the project, it started with the Earn protocol and then it transformed into the yield aggregators. And this was at the time when the YFI token was really, really hot. Blue Kirby was at his powers, full powers. So yeah, that got me really excited. I feel like at the time YFI had a lot of energy, there's a lot of excitement about it. And yeah, so that's what got me started. 

Crypto Texan: And then you've started to, well then you did a podcast too for a while, right, or are you still doing that podcast?

Gabriel: I took a break, I had a baby two months ago, so I haven't really been able to. I don't have the time to set everything up and take an hour to talk to someone. And it's too much work. But I will get back to it. 

Crypto Texan: Well, that's good. For the record, I was a fan of that podcast and I haven't seen any updates from it come across my, you know, Apple podcast feed in a while. So, you know, I kind of asked that question for my own benefit there. But I guess like just I don't know, like what made you want to start doing a podcast and throughout that podcast, who are some of your favorite guests that you had on? 

Gabriel: So I was actually started to do interviews before crypto, I would try to, I had always kind of wanted to start a podcast. I was always a big fan of podcasts, and I always thought that I probably could do a podcast if I wanted to, and I thought it might be fun. So I started, you know, just my friends, or whoever I thought would be interested to speak to me. So that was pre crypto– actually, this is a fun fact, at the first crypto trial, the first crypto guest I had on the podcast, the first crypto podcast episode was with Over Analyser. So there you go. 

And yeah, I've been able to meet so many good people through the podcast. Loomdart, for example, is one that really comes to mind, just to hear him speak his thought processes, things that he thinks about. That was a great conversation. Had a great conversation with Fiskantes a couple of times. The one with Zeus from Olympus DAO was pretty good. Those are the ones that I'm thinking of right now. 

Crypto Texan: I had no idea that Over Analyser was your first crypto related podcast. He is a well, in my opinion, Over Analyser is a legend in the Index Co-op community. Wow, that's really interesting, I'm gonna have to go back and listen to that one. One of my favorite ones that you did was the one with Alex Gusman from NFTX, and just kind of hearing his perspective on the Metaverse and NFTs. I thought that was really interesting. 

Gabriel: Yeah, that was a great one, that was kind of, I believe that was December of last year. That was right before NFTs really started to take hold. And yeah, that was a great conversation. 

Crypto Texan: Yeah, yeah, it was really interesting to hear his insights on that. And so I guess recently you've kind of transitioned just from a well, you're doing a lot of stuff in the content creating space that we'll get to. But some of the more popular ones have been just these Twitter videos that you've been doing. I guess just like kind of just some meta crypto Twitter videos and then also you kind of get a little political on some. And you know, my favorite video that you have out there is the one where you're calling out Gary Gensler and Senator Warren. That one kind of went viral a little bit. So I'm just curious, where did the inspiration for some of these videos come from? 

Gabriel: It's really interesting that you picked that one because I did an interview with CoinDesk yesterday and they also showed that clip before we did the interview. And, that is not like one of my more popular videos. I've had, like some of the videos, gone way more than that, but I think that it's interesting because that video is the most serious one that actually has a message that to people in crypto especially resonates with. 

And you know, that message is that the institutions are failing us, you're getting vaxxed, you have to do all these things, you're getting told what to do. A lot of people don't like that, and that's kind of the core ethos of Bitcoin, is this idea that, what is it, the Prime Minister is bailing out the banks, that, you know, the government doesn't need to control your money. You can make your own decisions, you can have self-custody. So that particular video, I think, is just expressing some of those thoughts that many people in crypto have.

Crypto Texan: Yeah, and I think you're right, it's worth noting that 98% of those videos that you're producing are not necessarily politically related or politically motivated, but you do have this very unique way. I guess just like the voice you use and the way you project your voice, you can take a very serious topic and in like a kind of a tongue-in-cheek way, kind of, you've got this way of portraying it as, hey this is something very serious that needs to be said, and I'm just kidding but also, I'm not kidding and you should take this seriously, right? I think that's a very tough line to draw, and I don't think a lot of people can do that. But you've got this almost crypto Twitter general tone to your voice to rally the people. 

One of your other videos was, I laughed so hard when you were like, you know, Christmas is over, it's time to stop shilling your shitcoins to your grandparents. And I don't know man, it's just great content. But then you also, you know, you call out other Twitter personalities in these videos as well. So I don't know, do you want to talk about some of those personalities you call out? You know, are you being serious? Are you joking? And do you have any crypto Twitter adversaries? 

Gabriel: I don't think, I have no crypto Twitter adversaries, but famously I, famously, all of crypto Twitter knows my bout with Crypto Messiah. That was really fun. Yeah, that one was pretty fun because he was actually playing along, where most people on crypto Twitter are not actually willing to make videos of themselves, you know, saying ridiculous things or doing ridiculous things. He was willing to go the extra mile. And I think that gave me a lot of motivation to just go crazier and crazier. 

But one video that I think is interesting is the, where I called out Banteg for looking at cartoon boobies. I think that is pretty, it's pretty funny because people have this interesting expectation of finance. It's got to be a suit, you got to have, you got to be buttoned up. And Banteg, you know, he's kind of breaking that mold and also, you know, DegenSpartan has been sharing hentai for a long time, but it's like, who are you to tell someone what porn to watch or what to do? It's, so it's like taking a look at that, that situation and seeing how people react. I mean, so it's yeah. 

Crypto Texan: Yeah, absolutely. And I think that's just part of the crypto and decentralized finance metaverse ethos is that it is anti-establishment, right? I mean, we've got billion dollar protocols called Sushi, right? And you know, AAVE, a ghost, you know, and so crypto is a place where, you know, the code is taken very seriously. But the people behind the code, they don't have to be suit and tie, like you're saying. And they can, you know, post these waifu pictures on Twitter. 

And you know, it really doesn't matter because they should be judged by the products they're producing and the content they produce and not necessarily who they are or what they want to do in their free time or their hobbies, right? So, yeah, I totally get that. And in the same vein of, you know, on the Gary Gensler and Senator Warren post that you did. And, you know, the anti-establishment kind of ethos in Twitter, in crypto Twitter and crypto in general, like, where do you think this lack of institutional and lack of government trust comes from? Just your thoughts. 

Gabriel: Oh, well, the lack of trust, I mean, I think that people have a sense that they're being shortchanged on many things, even if they can't necessarily say what they're being shortchanged on. I think that the government, you know, they're, the system of government we have is kind of broken. And when you elect someone to run a country or run a state, whatever it is, this person has their own self-interests, and it's not in a bad way. Every person has their own self-interest. You have to make sure that you know, you're fed, that you're in good health, your family's in good health. You wanna take care of your friends, and that is just a natural way for humans to be. 

And when you know you have people in power for so long that they don't necessarily remember their mission, or maybe they never had a mission. But the thing is, the incentives are in such a way that they're not going to succeed, and it's not going to benefit the people at large. It's going to benefit them and their friends. And again, I'm not trying to blame them for this, but I think that is just how the system is set up. So what I don't know, I don't even remember the question, but I'm not a big fan of the government. 

Crypto Texan: Yeah, the question was just where do you feel like that lack of institutional and government trust came from? I don't know if you wanted to continue to elaborate, if you felt like you, you got that one covered. 

Gabriel: No, I just think that people, like inflation, like you could take this idea of inflation, right? People don't necessarily know what it means technically or economically, what it means to print money and causing inflation. But at the end of the day, they go to the grocery store and they see that wow, things are more expensive now for some reason. And that feeling of, you know, being left behind or not being taken care of, I think, is what caused it. 

Crypto Texan: Yeah, and you make a really good point too, that I mean, anytime someone's saying something on Twitter or on a podcast or on the television, they've got some incentives behind what they're saying, right? It's like, what is the purpose? Everyone's shilling their own bags in one way or another. Some are just very blatant about it, and some are, I get a little inconspicuous about it, but you know, it's like when I'm on Twitter and I'm tweeting about the DeFi Pulse Index and the Metaverse Index and the Index token, it's because I, you know, I am a contributor to Index right or any other just random projects that I happen to be involved with right now. 

It's because I have an interest in that, and I also find myself sometimes, you know, it's like, OK, I need to tweet about other projects that I'm not necessarily invested in to maybe make myself appear more reliable. And but there's a self-interest there too, it's because I still want to appear like I'm not being biased by talking about other protocols, right? I think that when it really comes down to it, just humans, the way humans work is, we're all shilling our own bags in one way or another. And I think that crypto is a way that you can hardcode those incentives to not be that way. And that's, and I'm sure you agree, why I think, you know, web3 and crypto is inevitable. And what are your thoughts like, why do you think that crypto in web3 is inevitable Gabriel? 

Gabriel: Well, what you are saying, it's not that I don't think that it's necessarily you can hard code the incentives, but you can, the incentives can be a lot more transparent. And that's the key thing. So as long as people know what's going on, like you have in your bio I'm sure Index contributor, right. It's not a secret. And I think that is the key. 

But we can take this idea of incentives out of crypto. We've seen this on TV all the time on CNN. They're saying, you know, take the vaccine, take the vaccine. And at the end of the day, they're sponsored by Pfizer. So you can see, why are they talking about the vaccine? They're shilling their bags. They're getting money from this right? So, web3 cuts out a lot of the middlemen, so it makes processing a lot faster, a lot cheaper and can create these open incentives so people actually know what people are holding. Now not necessarily, there's ways to hide it. But generally speaking, people know how to find what others' incentives are. 

And you know, we've seen this in the government. I forgot who it was, Elizabeth, Nancy Pelosi or Elizabeth Warren. One of them said we should be able to trade stocks because it's a free market. Well, you know, she's creating bills to promote the companies that she's invested in. I mean, obviously, there's something going wrong here, right? So, you know TradFi, the TradFi system is very, very slow, corrupt in many places. It's not been innovated upon and that's where crypto comes in. 

Crypto Texan: Yeah, absolutely. And so I don't know, I think, you know, just kind of looking back on this year, you know, all of 2021, it's been a hell of a year for crypto and this is the last podcast I'm doing before the new year. So I think it's important to kind of take a look back. And Gabriel, you just happen to be the one on this podcast that we're going to look back at. What were some of the key points that you feel like really pushed crypto to the main stage this year? I can think of a few things, but I just kind of wanted to get your take on what were some of the bigger stories that really propelled web3 to be where it is today, going into 2022? 

Gabriel: Well, Elon was a big shill this year. You talked a lot about crypto, and that was only this year. I think at the end of last, like last year, he wasn't really. He had mentioned it, but this year he went full force. And I think that makes a big difference. But I mean, it's just a compounding of things, I think that the technology is improving, that now we have different L1s that are very fast, so you have good competition that actually works. People can deploy apps cheaply, so you can actually, you know, have users on different chains, experiment different things. And of course, inflation plays a big role in that. People don't necessarily, you know, want to hold dollars or they recognize that dollars are not the best way to store your wealth. So, yeah, those are some of the things. 

Crypto Texan: Yeah, yeah, Elon was a huge shill for Bitcoin and DOGE, which are two very interesting ones to be shills about, but you also talked about, you know, the importance of other L1s popping up and being fast and effective. What other L1s are you experimenting with outside of Ethereum? I know you're very involved with Ethereum, but just like what other protocols are you looking at? 

Gabriel: I mean. I mean, it's just like AVAX, Arbitrum, Polygon, those are some of the ones I use. I mean, it's not, there's not one other specific one that I think is like a massive breakthrough. I mean, they're all kind of the same, but just the ability to deploy something cheaply and to have transactions cheaply. It helps progress. 

Crypto Texan: Yeah, so are you on the side of, or I'll just ask you the question this way. Do you feel like Ethereum has “abandoned” its users? 

Gabriel: No, I don't even know what that means. You'll still want to use Ethereum, that's why the fees are high, so. That's just, that's just Zhu talking about his bag, I don't know what that was.

Crypto Texan: Yeah, right, exactly what we were just talking about, right? Yeah, that's yeah, that's him just talking his bag. 

Gabriel: Yeah. Yeah I mean, and he completely ignores, you know, scaling solutions which work, Arbitrum works very well. Or Optimism works very well. Zk works well. I mean, there's limited amount of apps up there, but I mean, the ones that do, they work. So slowly but surely, I think that people will migrate, there'll be some, I don't know how you're going to attract users. Maybe there'll be some like huge incentive programs to pull people over there. But over time, you know, naturally, people are going to migrate to the best solutions for them. 

And if you're a hardcore DeFi app that you know needs max security, then you probably deploy on Ethereum. But if you're like some NFT wool game, you don't need to be, you know, you can take some, some lesser security measures. 

Crypto Texan: Yeah, absolutely. I think, you know, like you said, incentives are really what's going to drive people to layer twos, right? I mean, AVAX had Avalanche rush, which just exploded their growth, right? I think it just has to come down to Arbitrum and Optimism issuing a token. And people just throw all their assets onto those layer twos to take advantage of those incentives. 

Gabriel: Yeah, absolutely. 

Crypto Texan: Yeah. So let's talk about some of the other projects that you've been involved in lately. Let's start with, is it "clip-to-DAO" or "clipto-DAO”?

Gabriel: “Clipto.” 

Crypto Texan: OK, "clipto-DAO." OK, so what is CliptoDAO and how did this idea come about? 

Gabriel: Well, very simply, it's a crypto version of Cameo, so you'll be able to request personalized content from your favorite creator, pay in crypto, obviously, and then you will receive the content as an NFT. Which you could do with NFTs, you know what you can do with those. So that's the idea. It came about because I was doing these short form videos and there was a lot of people asking me if I could go on Cameo. And so I signed up, but Cameo didn't reply. 

So that's kind of the classic crypto story. Your bank account shuts you down, Paypal doesn't let you open the account, so you've got to go the crypto route. So I basically put together, basically, a plea to CT explaining the idea, telling people what I wanted for me personally, I thought it would be cool if this product existed for me. You know, I'd be happy to get paid in crypto and give people NFTs. 

So there were enough people that actually got interested in this idea, and we got into Discord and started working. And the devs have really worked their asses off the last two weeks to make something happen, and we are very, very close to launch. I saw the test website today, the test website looks great, so I'm very excited about that. And we're going to be having a launch party in the Williamsburg Hotel in New York on January 3rd at 7:00. I don't know if anyone in the audience is in New York, but you're more than invited to come. So, yeah, so that's what I'm working on right now. 

Crypto Texan: Yeah, it sounds like a great idea. Yeah, you're right, that is kind of the story of crypto, is you’re going to get shut out by web2 for whatever reason, and the solution is, well, if I can't use this web2 platform, I guess I'll just build my own web3 platform. So is this going to be launched on Polygon or Ethereum? What're y'all looking at from that standpoint. 

Gabriel: Right now, we're learning Polygon. Like I said, cheap fees, easy, cheaper to deploy, also you know, I want to test it out who knows, maybe this product is not very exciting for people and nobody wants to use it. So we got to, we got to try it somewhere. I could definitely see a reason to deploy on mainnet, and I wanted to deploy basically on every chain, in a V2 in the later version, but we got to start somewhere. 

Crypto Texan: Yeah so what, obviously, you being a Twitter personality, are going to be offering up your services on CliptoDAO, but what other personalities have reached out, if you can say yet, to contribute? 

Gabriel: Yeah. I mean, we got Udi Wertheimer and Have Fun Staying Poor, he said he would be on the platform. We got Spottie WiFi, and said he would be on the platform. We got to Bob Burnquist, who is a professional skater from the Tony Hawk era, he's going to be on the platform. We got Terrence Boyd. He's a professional soccer player, he said he'd be interested to be on the platform. So those are some of the people. I mean, right now it's, I feel like until it's deployed and there's actually people there, then you never know. But those are some people that said they'd be interested. 

Crypto Texan: Wow Bob Burnquist, that's a name I haven't thought of since I was playing Tony Hawk on Nintendo 64. So but it's interesting, it's great to see that there's individuals who are interested that are outside of the crypto space, right? Anything that we can do to bring more people into the space, like something like CliptoDAO, I think, is a huge positive for the space. 

Gabriel: Well, Bob, so Bob is actually, he sells NFTs. So he's a little bit familiar, and he actually created the first CliptoDAO, Mysselium, one of the people that was helping build the project commissioned him. So actually, you can, he did a shout out for the EtherRock holders on Christmas, check out that video, I guess I can, it's on the CliptoDAO Twitter if you want to check that out. 

Crypto Texan: I'll definitely be checking that one out. Oh, that's interesting, I didn't know that Bob Burnquist was doing NFTs. I need to go, I need to go look. Great, I'm going to have to spend some ETH on NFTs now. 

Gabriel: He's on Tezos, he's on Tezos, XTZ. So I haven't bought one of those NTFs but I believe it's there.

Crypto Texan: Okay I'm gonna have to, I don't know if I'll spend the time to figure out Tezos necessarily, but we'll see. So what else are you working on? CRE8R DAO is one, correct? What's going on there? 

Gabriel: Yeah, CRE8R DAO, this is basically a marketing DAO I helped start maybe six months ago at this point. It's basically just helping projects do content marketing. So we have a bunch of content creators, graphic designers, article writers, editors, whatever, whatever it is, and we create content for these different projects within DeFi, NFT projects, stuff like that. So it's been very successful. I mean, I think they, I think we've distributed, I don't know exactly how much, but $750,000 I think, directly to creators. 

So that means that the protocol pays the DAO and the DAO distributes those funds directly to the creators to get paid for doing that work. So I think that's pretty cool. And we are very close to launching our token. We had a sale, I guess, a month ago or something, and the token should I guess it will be deployed next month. But that's pretty exciting. 

Crypto Texan: Yeah, that is exciting. Is that token going to be deployed on Polygon as well? That kind of seems to be your focus lately. 

Gabriel: No, it's actually, it's kind of a complex token, so the token I believe is going to be deployed on mainnet, it's called Brick. And then actually, you'll be airdropped tokens on different chains, depending on who the clients are, because the token is going to be kind of like an OHM token. So what's going to happen is that part of the support that creators are going to provide is going to be able to provide liquidity for these clients. 

So if a client pays us, we'll actually take a portion of that and basically create a liquidity black hole for them, in addition to the additional content that we're creating. So the token is going to be deployed on various chains, but it's kind of like you get, you hold the token on mainnet and then you get the benefits on the other chain. So I think the first chain that it's going to be deployed on is Phantom, actually, because we're working with SpiritSwap.

Crypto Texan: Wow, that was not the answer that I expected, Gabriel. So this isn't just an OHM fork disguised as a marketing creator economy DAO. 

Gabriel: Well, I mean, when we started, I mean, the fork thing wasn't even a question like it wasn't even really even a trend, but I think it is interesting to be able to help clients actually secure liquidity because that is a big challenge for people. And it also creates an alignment between the CRE8R DAO and the client, because now if you're a creator and you've earned some creative tokens for  working on these various projects, you are incentivized to continually create content for those projects because you, kind of by proxy, have exposure to them. So it's an interesting model, like I don't know if it's going to work. It's kind of experimental, but we'll see. I think it has some benefits. 

Crypto Texan: Yeah, I can definitely see the benefits in having that alignment as well. Yeah, this sounds like a pretty exciting project. And I don't know I think it's just kind of, I don't know, just, it's a good project that kind of mirrors the trend of what's been happening, which is just people working in web3. I think that's been another theme this year. I think, I mean, obviously, if you look back to previous years, this is the year of the DAO, the year of the creator economy, the year of web3. I don't know, just what are your thoughts on working in web3 in general? And what do you feel like was kind of the, I don't know, lighter fluid that kind of drove this huge trend? 

Gabriel: Well, I think that CRE8R is a very unique protocol. There aren't any other DAOs, maybe there are now, but when we started there wasn't any like DAOs-- I don't want to say there weren't, there were very few DAOs that were focused on like actually providing a service to other DAOs, most DAOs  especially like a month ago, not a month ago, a year ago, it was like, OK, AAVE is a DAO. They are focused on  developing their product. YFI is a DAO, they're focused on developing their product. You know, Index is a DAO , Index is mostly focused on developing their products, although you also have this element of meta governance, which, whatever, we can get into labor, it doesn't-- but the point is that it's not that there weren't many DAOs that are focused on providing a service for anyone else to do some work for another particular project. 

So that was kind of an innovation in CRE8R DAO, I think. And the whole reason that, and I think that this, this hasn't really been possible for a long time is because you need a lot of components in order to make something like this work. You need  a multi-sig, you need the ability, you need ERC20, you need the ability to move  tokens around. We also need something like Coordinape and Coordinape was actually a key piece of the DAO. It was in the design of the DAO from day one, Coordinape. 

And the ability to fairly and transparently distribute funds value across people, is something that is very cool and I think enables a lot of different types of forms of work and like coordination. So you kind of have these tools that are coming together that are enabling people to work collaboratively. And the thing you know, what's interesting is like CRE8R DAO, for example, it's a marketing DAO. But you don't really, let's say I wanted to start a regular marketing company right now. It's very hard to coordinate with people across different time zones over  different countries. How do you pay these people? You know, what currencies do they accept? You know, that in itself is quite difficult  so having the ability to transfer funds and value across  internationally very quickly is a big driver of this as well. 

Crypto Texan: Yeah, absolutely, and you were involved with the Index Co-op early days for a little bit. I mean, outside of just interviewing Over Analyser which I just found out about, you also interviewed Dark Forest Capital and Verto, or also known as AG, who are Metaverse Index methodologists. Like what has your involvement been with the Index Co-op? 

Gabriel: At the beginning, I was pretty involved at the start of the project, I was going to all the meetings, doing interviews, creating content. Yeah, I mean, I just kind of moved on after a few months because for me, I get the most excited when something is new and trying to build that out, and I think that's for many people as well. But yeah, I was a Silver Owl, I don't know if I still have that status, but yeah, I was there from very early on. From pre-token even maybe, no not pre-token maybe just after the token. No, actually, pre-token, you know what, because I made a video about the DPI before the token came out. So there you go. 

Crypto Texan: That's right, yeah, I remember some of my very early DeFi Pulse Index Twitter threads, I would always, I started dropping your YouTube video talking about it. Yeah, that's right, I remember that. Wow. It's just  that it was just earlier this year, too, but it feels like.

Gabriel: Crazy. 

Crypto Texan: It feels like a lifetime ago, almost. 

Gabriel: For sure, for sure. 

Crypto Texan: Yeah, so what, I don't know, what other projects have been catching your eye. Ones that you're not necessarily involved in. Like, what projects do you see out there that are just doing cool things or innovative things that you're kind of keeping track of? 

Gabriel: Man, I don't know, I'm very focused on, I'm very focused on trying to bring CliptoDAO to life, to actually make this happen. So the last two weeks, three weeks, every single day I've been  focused on that, trying to push that forward. So I don't, I don't know, I don't have any good, I don't have any good answers for that. 

Crypto Texan: Yeah, no, that's OK. I actually ask this question to most, if not all of the guests on Conversations with the Co-op. And I get that answer from founders who were just very laser focused on the project that they're working on. And that tends to happen, I think. I mean, there's just so much going on in the space. And if you're not keeping up with what's going on on Twitter on a daily basis, it's easy to get behind or at least feel behind a little bit. 

But you've got to do it sometimes, you have to take a break from Twitter and just kind of get laser focused on what you're working on. I think  for a lot of us in the space, being on Twitter and working on Twitter and being in the Discord and the governance forums, and that is part of your job. But the main part is building right? And that's what you're doing with CliptoDAO. So yeah, that makes sense. 

But then  let's take a look back. You know, I can think of some probably misguided investments that I had made in 2021. So I just kind of wanted to get an idea from you, like, what were some of your big misses in 2021? That could just be  like a token that you threw money at or an NFT drop that you thought was going to be the next big thing. What are some of the mistakes that you felt like you made, that you learned from, that other people, veterans or new to the space could also learn from? 

Gabriel: Yeah, yeah. So I think that I didn't take enough profit, and I think that I held tokens too long. It's really difficult to navigate that aspect, and I don't think I could have done a much better job taking profit, especially as things were going up. So that is something that I reflect on, and I also forgive myself because at the time that I should have been more aggressively taking profit, I had literally just had a baby. So, I understand you can't be perfect, but that is something I think about a lot. 

Another thing that, probably my worst, and it wasn't, I guess it's an investment, but I held a bunch of ETH in SharedStake, which is just like a staking solution, right? And they ended up, like the team ended up being like scammers essentially and like rugging the token, and that was, that was really painful. I mean, because it was just, like to me, it felt, oh, this is this is safe, this is just ETH, like, I'm just responsibly going to hold this here. But if it's not, if your ETH is like wrapped in something or like there's no liquidity for it, then you gotta be careful. You got to be really careful, and that's just something that I, that I also think about. That was also earlier in the year, so yeah. 

Crypto Texan: Yeah, I don't necessarily consider myself a trader by any means, but in hindsight, looking back, there were times where certain tokens I was holding, I thought to myself, this valuation is way too high for what this token is doing right? And I didn't take profit. And yeah, I think that can be an important lesson for people to learn is, there's no shame in taking profits. So what, you 2x-ed your token, you sold and you could have 10x-ed, but you sold at 2x, you still made profit, right? And don't try to chase that, but you know, just focus on fundamentals, right? 

I mean, there's two main things in crypto, I feel like it's like memes and fundamentals, and eventually fundamentals are going to catch up to a meme. Right? Memes have the ability to spread like wildfire and really get people talking about a token. But if it doesn't have the fundamentals to support it, the meme will, you know, the fire that was caused by the meme will start to cool off and the fundamentals will catch up with it. So I don't know, memes are just like this.  

Gabriel: Even if it has the fundamentals, though, like that's the thing. Like Cobie wrote this piece, "The Attention Economy" and, it doesn't even matter sometimes if you have fundamentals, because in this space, things will blow up and then like, they'll go super high then they'll go super low. Even if it's generating cash. I don't think that's what's difficult. It's a different mindset that I think I certainly grew up with the idea of price to share, oh you're looking for value, but I'm not sure that's the case anymore. I think that it's definitely changed. It's definitely changed. 

Crypto Texan: Yeah, absolutely. I've got a commercial banking background, so that's kind of my focus too is like cash flows, generating cash flows and generating revenues. And I mean, early, even like in the stock market, once you start to look at the valuations of tech companies like Tesla and Facebook and you know, like they don't necessarily have a lot of hard assets on their balance sheet and their cash flows might even be negative. And, their valuations are through the roof for some of these tech companies. And then I had just had to sit back and reassess like, OK, so what, what is the market valuing here? 

And I mean, it is the potential future cash flows of a project, and I think that's what crypto tries to do also. But then crypto has like this huge FOMO element to it as well in the sense, like if a project is starting to moon, there's just a bunch of retail investors who are just going to FOMO into it. And I don't know, it's just, maybe it's not necessarily unique to crypto, but it's just, it feels like a different dynamic. I can't really exactly put to words exactly why it is so different in crypto, but it does just feel different. I don't know. What are your thoughts on that? Do you agree? 

Gabriel: Yeah, yeah, I mean, I don't know, that's just... it's just how it is, that's how it is. I mean. I don't have a good answer. 

Crypto Texan: No, that's fine. So like, memes are definitely important to the space like, and you touched on it a little bit, but like, what do memes mean to you in this space? 

Gabriel: Yeah, I mean, it's, that's, I mean, it's complex because memes are, memes can mean many things, right? A meme could be a narrative that pushes a token. You know, very high. And I could also be me making a video about Gary Gensler. Both these things can be memes. And before this year, I didn't, I didn't understand the value of a meme. And I think that I've very much embraced it over this year, and I think it is very important. And I think it is very important. 

And you know, the meme, I think me being this kind of like drill sergeant or coach or trainer or something? It's an expression of, there's something within CT that wants this or wants it because there's a very, there's an extreme, there's an extremeness in crypto Twitter. You know, one day you're going to the moon, the next day you're going to McDonald's, right? And you know. And me yelling about whatever it is, those are very extreme, it's extreme like, you got to tighten yourself up, you gotta hold on tight, like that also is a meme, like the meme of HODL right? So just, I think it is important, I think it is important to embrace the meme and to let the meme guide you in many ways. 

Crypto Texan: Absolutely. So what are the memes going to look like in 2022, Gabriel? Like what is the future outlook for crypto DeFi in the metaverse? Just in your opinion. 

Gabriel: Man this is such a difficult question, I don't know. I mean, I think that. A very easy one, I think, is just layer two, low gas fees, I think that's a pretty easy meme to get behind. The real thing that I think that crypto needs is just the simplicity of use, if there was a really easy way for people to engage on a much more fundamental level than having to use MetaMask and all these tools and all these apps like there needs to be a, I don't know, I think that that itself, with the possibility to interact, will create a very strong meme. Because right now, you have to, there's a lot of hoops you have to jump through, and taking the meme to the next level requires maybe better technology maybe, I don't know. 

Crypto Texan: Yeah, I think just better retail experience, better user interfaces of things like MetaMask, like you said, like that will probably be a huge driver, hopefully in 2022. But you know, Gabriel, do you see yourself more as the drill sergeant or the high school football coach in these videos? 

Gabriel: You know, what's the difference? I don't know. I think that sometimes I go into a video with a mindset of being like a coach, like trying to coach, I don't even know, but I think that it helps. If you're making any piece of content that helps to put yourself in that emotional state, right, like, OK, right now I am this sergeant who is yelling at CT about selling their bags yesterday. Like acting, I think putting yourself into that character, whether it is the football coach or the sergeant probably makes it stronger. 

Crypto Texan: Yeah, so maybe a retired drill sergeant turned high school football coach turned crypto degen, I guess. Yeah. 

Gabriel: Exactly, exactly. 

Crypto Texan: Well we've got about nine minutes left, but I think I'm out of questions here. Do you have any other stuff that you want to touch on, Gabriel? 

Gabriel: What are you most excited for next year? 

Crypto Texan: Oh, that's a good question, man I think the Index Co-op has a huge pipeline of new products that we're working on, like the Gonna Make It Index, which we're partnering with Bankless on and Lemonade helped put that together, which is just kind of more a smaller cap, innovative DeFi protocols. So it's a little bit more risky than the DeFi Pulse Index, which has been something that you know our users and purchasers of our products have been asking for. 

The JPEG Index is really interesting if we can figure out the liquidity situation there. And then we've got like a stablecoin yield index that's coming out. So I mean, bullish Index Co-op, obviously, for sure. And then man, I just think like Arbitrum, Optimism, they got to come out with a token and just to drive that layer two growth. And then if we can just get Coinbase on board to do direct withdrawals and deposits on Polygon and layer twos like Arbitrum and Optimism, I think that is going to be huge. 

I think something that we all need to look out for is that the merge is coming, right? With the Beacon chain and I guess the Canonical chain, or mainnet. And I think there is this perception out there that the merge is going to reduce gas fees. And that's just not the case, right? The reduction of gas fees comes with layer two adoption and with sharding, which is, and sharding is way further on down the line. But just the transition to proof of stake, it is not going to lower those gas fees. 

And when the merge happens and people come to that realization, even though it's been talked about plenty of times, you're going to get a lot of FUD from Binance Smart Chain, the Avalanche people and especially the Bitcoin community as well. So I think that's something, I don't know, that's just the narrative that I've tried to push a little bit lately. But overall, just very excited, very bullish with all the innovation that's taking place in the space. You know, I feel pretty fortunate that I get to interview all these thought leaders and meme lords like yourself, Gabriel, about what they think is going on in the space and just really excited for 2022 in general. And I, yeah, do you consider yourself a memelord, Gabriel? 

Gabriel: Uhmm... no. 

Crypto Texan: Well, I think you should, those videos are great. 

Gabriel: I appreciate that. 

Crypto Texan: And I don't know, we've got a little extra time. So two other just kind of random questions I've had you do a lot of these videos in public. Do you get a lot of weird looks from people when you're just screaming at your phone, like walking around outside or in the parking garage? 

Gabriel: Well, Crypto Texan, what do you think? They think that this man is completely sane? I don't think so. 

Crypto Texan: No, absolutely not. What does your wife think about these videos? 

Gabriel: What does my wife think about them, she thinks they're ridiculous mostly. In fact she's started to make fun of them as well, which are on her own Twitter, which is pretty funny. Well, yeah, she's supportive. She's supportive. 

Crypto Texan: Yeah, I saw one or two of her videos talking about your videos, I thought that was pretty funny. That's a nice little cherry on top to the whole Gabriel does Twitter videos saga, in my opinion. But yeah, I think that about wraps it up for us here, Gabriel. I'll just give you the final word here and just where can people go to find out more about you and the projects that you're working on? 

Lemonade: Sorry, Texan, do you mind if I co-opt this word for just one second, for one last question? 

Crypto Texan: Oh yeah, go for it. Hop on in. 

Lemonade: Thank you, thanks so much. Gabe, good to speak again and good to see you again. You hosted one of my first, or actually my first ever podcast. And I remember we were actually speaking about memes and kind of like the power of them, and like the information density of memes, and it was interesting. I heard you recount that kind of thing at the CoinDesk interview yesterday. Since back in the day at Index Coop when I started, I was more into content creation and making memes. 

At this point, I've kind of transferred to more of an executive, kind of like in the weeds type of role. I was curious, if you were appointed as Head of Memes at Index Coop, what do you think are some of the things that we could be, that we are under-utilizing or that we could be really pushing in terms of memes right now? 

Gabriel: Oh, that's a tough question, I think the Index Coop has been quite good at these memes. I mean, especially something like unincentivized TVL, that's a good meme. That's a good meme. Man I always thought that the Index Coop should just embrace more ridiculous types of indexes. That was my position from the beginning, and I know that the DAO didn't really want to go in that direction, which I understand, but I don't know, maybe that could be. 

But going with the trends on crypto Twitter, like hiring Hard Rock Nick to yell about Index Coop is always a good meme. But you know the thing for Index, I feel like the memes that you need to create are memes that are more focused on TradFi and more finance focused, because a lot of your, a lot of the products are not necessarily for degens. So like the memes are more subtle, they're for a different audience. 

Crypto Texan: Yeah, that's true, I feel like our marketing is pretty, I don't know, institutional focused at times and I don't know, I feel like with some other upcoming projects like the JPEG Index or the the GMI DeFi 2.0 Innovation Index maybe it's a little bit they're a little more risk on maybe and maybe a little more institutional, little less institutional focused. Yeah, that's a good point too Gabe. But yeah, the thanks for that question, Lemonade, appreciate it. And Gabriel, yeah where can people go to find out more about you and the projects you're working on? 

Gabriel: Yeah so the best place is on Twitter @gabrielhaines. And then from there, I got a couple @s in my bio @cre8rdao and @cliptodao. Those are the two projects I've been involved with right now. I'm spending most of my time on CliptoDAO, so I'm very excited about launching that. It should be coming soon and I hope when it's out, everyone will be able to test it out, purchase some Cliptos and that will be how the Index will boost its memes, via the CliptoDAO. So that's my call to action. 

Crypto Texan: I feel a potential partnership forming here, Gabriel. 

Gabriel: All right, let's go, let's go. 

Crypto Texan: All right, Gabriel, thanks for coming on the show with us. Thanks to everyone who's listening live. This is being recorded and we will get this out, published in about a week. Have a great weekend, everybody. Stay safe out there. Goodbye. 

Gabriel: Thank you Crypto Texan, I appreciate you. 

Crypto Texan: Absolutely. See ya.

Host: @Crypto_Texan

Audio Engineer/Mixing: @LloveraFrank

Marketing Image: @jackyjackdiller

Transcript: @qjuniperus

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Crypto Texan: Hello, everyone. Welcome to Conversations with the Co-op. This is where we source questions from the Index Co-op community to gain insights from today's leaders in crypto and DeFi. Today on the show, we have Jeff Garzik with Vesper Finance. Jeff, excited to have you here today. Thanks for being here with us. 

Jeff: Thanks for the invite. Excited to talk to the community here. 

Crypto Texan: Absolutely. And so the way we typically start these off is just, you know, let's get a little bit of background on you, Jeff. And then how did you get into crypto and decentralized finance? 

Jeff: I've been a lifelong computer nerd software engineer. I started programming at the age of eight. I did work for over 10 years on the Linux kernel in the late 1990s and 2000s - so deep, deep open source DNA, well before blockchain. And then in 2010, specifically slashdot.org News for Nerds post. In July of 2010, I discovered Bitcoin. First I was a skeptic. You know, how the heck can it be decentralized? Surely it's just five servers in an Amazon data center somewhere. 

But happily, I was myself wrong, and because it was open source, you could look at the Bitcoin source code, and I can prove to myself that the technology really was as groundbreaking and world-changing as it has proved to be. So I jumped from Linux in 2010 over to being an early Bitcoin core developer, started contributing when Satoshi and Gavin, the inventor and his number two, were around and have continued in blockchain up until today. I've always been motivated by, you know, kind of payment freedom, inclusion, egalitarianism, banking, the unbanked, really the core of what came out of the 1990s peer-to-peer type of culture. And just I've been very fortunate in my personal life growing up upper middle class, where I grew up and my father grew up. 

And so I've always kind of had one eye, to bring this kind of back to the present, Ethereum transaction fees, things like that really shutting out just so many people. When a single DEX trade costs $120 and you have $120 to your name, you just literally can't use the network. And so I like to focus on that, that level of inclusion and that kind of led to DeFi and Vesper Finance, which is one of the projects founded out of Bloq where I'm the CEO and CTO. It was about bringing DeFi to kind of, you know, the more retail inclusive, wider community. 

Crypto's always had kind of rough edges, and you know, what the heck is a hash? I shouldn't have to tell, you know, my mother, my uncle what a string of incomprehensible numbers is, it should just work and it should just be secure. And I think DeFi gets us down that road and we wanted to build and further that cause making DeFi easier to use, making DeFi more accessible to more people on the retail side and also just more approachable and risk adjusted and kind of, you know, twice audited care taken for institutional customers as well. 

So those were kind of the two audiences that I felt were not really being served by DeFi of present. You had, and we know them, we love them, we have plenty of depositors and the crypto degen DeFi expert category. But we really wanted to serve that broad audience because DeFi is for a broad audience. It is for everyone, not just the few whales that can afford soup fees on the Ethereum mainnet. And so that kind of brings us to today. You know, outside of that, I like doing outdoorsy stuff. I go backpacking, hiking, I own a tractor and play around on my land. All sorts of fun stuff. 

Crypto Texan: Yeah, and I'm getting the impression from you, Jeff, that, you know, open source software and open source code development is really important to you. Just based on your experience with Linux, Bitcoin and now Bloq and Vesper as well. Why do you feel like open source code is so important and how? Is it such, do you feel like it's a huge improvement over closed source or what are the pros and cons of that just in your mind? 

Jeff: Oh, absolutely, it's there. There's a saying from the open source community – "With many eyes, all bugs are shallow," meaning that you know, the more people that can, you know, specifically software engineers, but not necessarily limited to software engineers, the more people that look at source code and think about it metaphorically, beat it up and iterate on it, try to improve it, the better we all are. 

And in contrast with closed source, you have fewer people, fewer eyes on software. And I think the track record, the data I try to be data driven, the track record is that closed source software relies on security through obscurity. And that has led to a number of different hacks over the decades, whereby once said secret's out, if that source code is leaked or reverse engineered, which is pretty easy to do these days, then your security through obscurity is totally useless. So I think that open source is more secure. Open source can be developed more quickly because you have more people working on it, more eyeballs as it were. 

I think that's proved over the past couple of decades that I've been involved in open source. I was very much like biology or chemistry or some of the other hard sciences where peer review and the sharing of data and code among peers to produce the best, highest quality work has been imported into open source. So when I hear open source, I hear, you know, those biologists and chemists performing peer review on each other's work. That's, that's the gold standard. It doesn't always meet that standard. But that's the gold standard. 

And I think that if you look at what software everyone uses just widely, I'm talking way outside the crypto space, you know, Android phones, they're built on Linux, that's open source. Most of the servers and data centers that are serving your Netflix, Disney, Amazon web pages and videos, and YouTube. All of that is served by open source servers and open source software. And so I think the track record is that it wins and it wins for some specific economic and engineering reasons. 

Crypto Texan: Yeah, that makes sense. So let's talk about Bloq. We want to talk about Vesper, but I guess it's my understanding that Vesper was born out of Bloq. So can you talk about, what went into your founding of Bloq and what other projects have come out of Bloq? And what is the sole purpose of that organization and your role within that organization?

Jeff: Bloq was co-founded by myself and Matthew Roszak, who is a prolific investor and company operator in the space. I'm the CEO, CTO and Matthew is the executive chairman. What we were, we founded it in 2015, and it's really a vehicle for building and spinning out really well engineered crypto products, similar to– oh projects, excuse me. 

I may draw the analogy to the Edison Company in the early nineteen hundreds that was formed around spinning out a lot of Thomas Edison's inventions. What we have created over at Bloq is a nodes and infrastructure business, which if you need a Bitcoin or Ethereum node that is a fully redundant, stable, highly available environment, you can come to bloq.com and buy that. We spun out Metronome in 2017. That's a, you know, very decentralized ethos type of project. It's fully permissionless. There is no governance DAO. There are no administration keys. There is, I think it's number 40 on the DeFi Pulse list, Metronome holds over $45 million worth of ETH in a vault that no one can touch, except for these core programmatic roles. 

And just like the musical metronome that goes tick, tick, tick and gives you a beat, Metronome has been ticking away quietly since its 2017 launch. It's kind of an ETH backed, quasi stablecoin, if you want to think about it that way, we spun out a business that got a lot of press recently – Titan Mining that does Bitcoin mining. We have several other initiatives which are nonpublic but will be public pretty soon, and Vesper was one of those. 

So we wanted to again take DeFi, we wanted to level up DeFi. We wanted to level up the user experience. We felt there were too many rough edges, felt it was very off-putting from both the economic as well as user experience standpoint. Just wanted to make DeFi more approachable, easier to use, and that was, kind of, we're already doing blockchain infrastructure at Bloq. And so it was very thematic and very on mission to spin out eventually what became of, what became Vesper Finance, as you see it today. 

Crypto Texan: Yeah, I totally understand that, because when I'm trying to onboard friends who are interested in DeFi or interested in the crypto space, it could be clunky and, like you said, a little rough around the edges. But as you said, that's why y'all came into founding Vesper Finance. So can you tell us now, just what is Vesper Finance? What does this protocol do and what is it aiming to accomplish? 

Jeff: We really wanted to make the user experience of participating in that initial layer of DeFi very simple, very approachable. We founded Vesper in kind of the early days of the pandemic, when there was the DeFi food festival, there were pickles and yams and sushis and all of these to the retail user who is not following, you know, crypto Twitter and crypto drama on a day to day basis, it was nearly impossible for the average person to make some sort of decision of where to put their their assets. Is that asset going into a well audited DeFi contract setup? Or is that going into some contract written by, you know, a drunk teenager? At 2:00 a.m., he put a Shiba Inu label on it, and there it goes. 

It's so difficult, sometimes even for software engineers, to evaluate the security of a project that average users kind of had no hope. And we founded Vesper as a layer sort of, you know, maybe a translation protocol almost, for users to just say, "Well, I have confidence that Vesper Finance is going out and evaluating each of these projects through the Vesper community and deciding on security parameters, asset limits, performance parameters, and then deploying that into a decentralized, non-custodial set of pools." So the users, they wouldn't have to, you know, discern, okay pickle security or yam security or sushi security. 

We've done, through that community and that software pipeline process, done that work for the users. And so they can just come to Vesper and have the confidence that if I have some, you know, let's pick a thematic token DPI. If they have some DPI tokens, they can have the confidence that they deposited into a Vesper pool. It's going to automatically seek the best APY among all the safe, tested, audited DeFi products such that you can have a confident -- higher confidence, you can never be certain, nothing in life is certain -- but have a much higher confidence that that balance is not going to go to zero one night and a hack. 

Crypto Texan: Right, so y'all are leveraging the composability of other DeFi projects, is that correct? Is that how– and how do the Vesper Grow Pools or the Vesper Earn Pools, how do those work exactly? 

Jeff: Yeah, that's exactly what's going on, is some people apply the label "meta aggregator" in that we connect directly to as many DeFi platforms as we can, which are safe, and we go through that first level of evaluation of, you know, is a given DeFi platform, that we want to compose with that composability, is that DeFi platform audited? What's its track record? How long has it been on the market? We call that seasoning. Has it kind of been through the Darwinian trial by fire of the open market and the open internet for a month, three months, six months, a year? All of those raise our trust and quality metrics. 

How do the Vesper Grow pools work? They examined those metrics that produce a list of yield strategies, modular automated yield strategies, which are going out to Compound or Harvest or AAVE or Yearn and sourcing the best yield within those risk parameters. So again, that might be a lot of technical how it works, deep dive for the audience. 

But you know, the top level experience for the audience members should be that users deposit a token and it compounds at the maximum safe market rate and they don't have to worry about things that are confusing, like impermanent loss, which just explaining what impermanent loss is to an average user is something that, in my humble opinion, should not, you know, that's a speed bump. That's mental friction for a user if they have to figure out these complex things. And so we want to reduce that mental friction of using DeFi as much as possible, and that's what Grow does. So you don't have to worry about impermanent loss, you just deposit a token and that token compounds similar to a savings account or something like that. 

Crypto Texan: Yeah, and you mentioned that I guess gas fees on mainnet can be a little restrictive, right? You said if you have $120 to pay for gas, but you only have $120 to your name, it's just not going to work. So is Vesper deployed on other sidechains and layer twos? Or which ones are y'all looking at in the future? 

Jeff: Yeah, absolutely it is. And the mental picture that I conjure is Ethereum is a pitcher of beer and we're pouring more and more beer, that's transaction volume, into this pitcher of beer. And eventually, when it gets full, it's going to spill over. And metaphorically, that's what's happening now out in the market. Ethereum transaction volume is high, which as the way the system works, the network use fees go up. That's gas fees. And when those fees go up, people look for alternatives that are lower fees, that's just natural economic incentives. 

And so we're very technology neutral, we're not, we don't want to pick a winner. We want the market to pick a winner in terms of whether it's a layer two protocol such as an Arbitrum or ZK rollups, such as Loopring, or whether it's another L1 chain, a layer one chain such as an Avalanche. We are deploying across all of the L1s and L2s, all the places where the users are. 

Because you want to go where the users are. The users, again, we believe in the wisdom of the market and the wisdom of the market is pointing us to specifically Polygon, where we're live in production as of late last week, December 17th, when Vesper Season 2 launched. We are coming to Arbitrum, which is an L2. We're coming to Avalanche, which is an L1, and the march continues. We want to be where the users are, and the users are finding that they want lower fees so that they can DeFi the way DeFi was intended. 

If you're, you know, to construct an example, you're getting some reward in some tokens, such as VSP, then you want to be able to claim some of that and compound it perhaps daily, perhaps more frequently through some automated process. And all of that is incredibly expensive. So much so that your fees quickly overwhelm anything that you would earn on Ethereum mainnet. 

But that's not the case on Polygon. That's not the case on Avalanche and some of these other lily pads that are being developed for the Vesper protocol. So I think that that brings inclusivity, that brings more retail users to DeFi. And it's okay that it's not Ethereum because, I like to call Ethereum Grand Central Station, meaning that if you want to go from, oh, I don't know, the Solana chain and the token on the Solana chain, let's call it Jeff Coin, to Avalanche, you're probably going to go through Ethereum. There are bridges, chain to chain bridges and some other things, but you're probably going to go through Ethereum to go from one lily pad to another. 

And so that doesn't mean, you know, kind of is Ethereum obsolete. And I'd answer no. I think that it becomes what we network engineers call a backbone network where other networks are hanging off this main Ethereum backbone network. They're settling assets to and from ETH mainnet. But most users are not using ETH mainnet, most users are using the Avalanches, the Polygons, where the fees are actually lower. To a network engineer like me, this is a highly critical network topology. You have one network and then you have another network and then you have another network. And the edge of that network is where the users are actually transacting. And that's what's evolving out in the market today. 

Crypto Texan: Okay, and there's, I guess, a little talk on Twitter in the past, I don't know, month or so, do you feel like Ethereum has abandoned its users in that sense? 

Jeff: It's challenging for users right now. Just with the high fee level, excluding a lot, that pushes people to other chains. If you look at over a 10 year time span, 20 year time span, Ethereum 2 is, you know, it's being developed more slowly than some people like. But the march of progress continues. And I think that in a couple of years, which is a long time in internet time, things will rubber band back to the Ethereum 2 and Ethereum shards, which is sharding and partitioning, is kind of Ethereum's answer to these alternate chains. 

And so, have they abandoned their users? You know, economically, I think the real politic answer is maybe a de facto yes, just as users are being priced out. But development wise, I'd say it's a strong no. The developers are continuing towards a future where the fees will be much lower on these shards. It's a good question. It's a complicated question. I think we're in a temporary period where Ethereum is more expensive than its developers would like, but it seems that that situation is likely to rubber band back to Ethereum. 

Crypto Texan: Wow I really liked your answer there, Jeff. I appreciate that and am excited that Vesper has deployed on Polygon. Us at the Index Co-op, we have a lot of our assets, almost all of them now in one way or another, on the Polygon network. I think one of the great things about Polygon is just the low gas fees, right? And I feel like in DeFi, one of the trends that we're seeing is a lot more retail facing protocols, right? I mean, if you look at protocols like Curve and Yearn, I'm not really sure how friendly those are just to, you know, Joe Schmo on the street who's looking to get a little bit of yield on his assets, right? But then, you know, you've got protocols like Vesper that come around and you've got all these very interesting, I guess, vetting processes and you're on Polygon, which is a low gas fee, retail friendly environment. And you know, you can deposit DAI into Vesper and you can receive your interest in DPI, which is one of the partnerships that we have going on here between Index Co-op and Vesper. 

Can you explain kind of what's going on under the hood when that happens? If you have a user that has DAI and they want to get yield and they can receive that yield in DPI? It's almost like kind of a way to dollar cost average into the DeFi Pulse index. But what's going on under the hood with that? And what was kind of the idea behind that product, did y'all see a lot of demand for something like this?

Jeff: Yeah, let me maybe high level it for the audience before getting into how it works. 

Crypto Texan: Okay. 

Jeff: The product is called Vesper Earn. We just launched a whole new product line, a whole new set of pools in Vesper Season 2 again this past Friday, December 17th. And what Vesper Earn does we feel is pretty unique in DeFi. Again, sort of purely focusing on what the user sees, what the user experiences. You can come to Vesper and on Ethereum or Polygon, you can deposit one token and we use, in the back end, this yield generating automation framework to generate yield, which then earns a second token. So, Vesper Grow Pools, you deposit ETH and you earn ETH and it's your basic compounding type experience that everybody's familiar with. Vesper Earn, in contrast, is when you deposit a stablecoin such as DAI, and in the background, robo-purchases, the DPI token. 

We have several of these earn pools, such, if you deposit, I'll give several examples if you deposit ETH, it will earn DAI stablecoin, so that's for crypto hodlers, if you hold ETH or BTC, you can come to Vesper, hodl that, your principle is preserved, that's the, you know, very key to understand. And furthermore, the interest from that principle is used to earn a different token ETH to DAI, ETH into DAI says that you're depositing ETH and you're earning a stream of US dollars. 

And in the inverse, we have several pools, several earn pools where users can deposit dollars in the form of stablecoins, the DAI stablecoin, and you can earn crypto. And so no matter whether you know, DPI or ETH or WBTC price is up or down that day, it's a stream of dollar interest. It's a stream of US dollars that goes to buy that particular token on the open market. So the DAI to DPI pool, users deposit US dollar stablecoin, and every time the robots rebalance the pool, which is every one to three days, some DAI yield is earned internally and that DAI is then swapped on the decentralized exchange market, the spot market, for DPI tokens. And so it's a robo purchase through this automated machinery of the token in question. So that's how the Vesper Earn pools work. 

So it's X into Y is the pattern, it's DAI into DPI, ETH into DAI, BTC into DAI, that sort of pattern. And so it's a new experience. Usually you'll go to, I don't know, a yield farm or a site like Vesper and you'll deposit your token and you'll earn more of your token and maybe a bonus rewards token. In this case, again, it's one token into a second token. It's, if you're a fan of fantasy and science fiction, I like to call it transmuting. You transmute the yield from one token into your preferred target token. So it's a very interesting product. It takes a little bit of explanation for a new audience because it's a new DeFi primitive, but I think Vesper Earn is going to be something that really solves some key use cases that, a lot of people again they were doing it manually and they were paying high fees to do what we're now automating. 

Crypto Texan: Well, yeah, I can see how there's a lot of just individual preferences of investors that this would, it's just a great product for them. Something that they would really want and need. How does Vesper Finance, I guess, drive revenues to the protocol's treasury? Is there a little fee on top of that? Or what is the treasury make-up of Vesper Finance? And is it governed by the DAO? 

Jeff: Sure, yeah, jumping on the governance and revenue systems side, all of these polls have a set of fees associated with them. There's a performance fee on the yield earned. On the Grow pools, there's also a withdrawal fee. There's no withdrawal fee on these earn pools. And those fees from each one of these 30 or more Vesper pools go into the Vesper revenue system, the Vesper DAO revenue system. 

And what that means is a bunch of, say, ETH pool fees and BTC pool fees, et cetera. All of those get melted down in kind of a smelter, that sells those tokens or swaps those tokens on the open market for VSP, which is the the Vesper Finance token. And so all these fees are going to buybacks of the VSP token on the spot market and then that VSP is further split. Half of it, basically half, goes to the Vesper DAO treasury and the other half goes to a special governance pool that people can participate in the revenue sharing of the Vesper system called vVSP. And so all of that is governed by the Vesper DAO, which is in turn governed by the voting through snapshot.org with your Vesper or your vVSP token. 

So it's a DAO type shape. It's governed by a governance token, and that governance token links into that revenue system that I just described that all the pools and pool fees link into. So it's a very at once familiar and also, obviously personally, I feel a very nicely designed and elegant system where we incentivize people to come to us not only to use the products, but if you're a developer, then there is a 5% developer fee. If you're a high school kid in Dallas, Texas, and you know Solidity, then you can write up your idea of a fantastic modular yield algorithm. You can submit it to our QA and testing zone. And if it kind of survives the torture tests, then you will receive a stream of income for writing that, for as long as that pool exists. So it's a real interesting case where you can incentivize external developers to continue to grow Vesper beyond what the founding team originally put into it. 

That was always the goal, you know, just like my experience with Linux and open source, Vesper's an open source project and open source projects are, as the word implies, open. They're open to a community coming in and helping to run the protocol. It's a challenge in that, as we say in open source, sometimes being transparent means you're airing your dirty laundry in public. But that's part of open source. That's part of working with the community and working with the community has led to several interesting features or directions where I, as the original designer, didn't think about or didn't expect. To me that really signaled that the Vesper community was starting to grow into its own, as I'm sure you see similar things with the Index Co-op in the Index Co-op community. 

Crypto Texan: Yeah, we definitely do. And you know, I've kind of pigeonholed Vesper as a retail facing DeFi protocol. So and I'm wondering, you know, when you're looking at the scalability trilemma, you know, of, you know, scalability, security, or decentralization, do you feel like-- or I guess, which in a retail facing DeFi protocol is the most important there? Like, do you feel like scalability is more important because retail users probably do care a little bit less about security and decentralization? Just kind of wanted to get your thoughts on that in general. 

Jeff: Well, we really led with heavy on the security side, reflecting that a lot of the the DeFi projects before Vesper, were lazy about that and they didn't really conform to just standard basic software engineering principles of continuous integration and continuous deployment, which also means continuous testing and auditing and that sort. So we really wanted to be in part a security layer for that DeFi experience because that security layer we felt didn't exist before, really before Vesper. 

You had to do your own research and there are plenty of lazy, I’m just going to ape in and do no research folks, which you can't really blame them because there's a lot to research and it's a lot of noise versus signal. That really led to again, how can we be secure by default? How can we reduce user mistakes, even if it's the user making the mistake? How can we reduce the possibility of users screwing up? That goes into our user interface, user experience research and the entire, really the entire Vesper experience. 

So that was first, first and foremost in our minds, kind of born out of the summer of 2020, DeFi experience and its lack of security. And then obviously, we followed up on that with scalability releasing on Polygon, et cetera. But yeah, definitely a, you know, I feel that the ease of use might sound trivial, but it actually really plays right into the security story because if your software is complex, it's easy to screw up and maybe fat finger thousands or millions of dollars into the wrong direction. And we wanted to avoid those kinds of mistakes. So ease of use, user experience, and security, we feel really go hand in hand. The secure experience is also the easiest to use and the hardest to screw up. 

Crypto Texan: Yeah. And do you feel like retail coming to the space, is that the next big unlock, because I think for a long time, the meme was that institutions are coming. And I think in 2021, it finally did happen to an extent. And should the next meme be retail is coming? Because I think another thing that can happen in, I guess just the crypto space in general, is being too early, right? If you are way too early and the community or the ecosystem is not ready for that type of project yet, it can kind of fall to the wayside. So I'm assuming that you would think that Vesper being this retail facing filter for DeFi projects for the retail users, you don't feel like you're too early right now. Correct? 

Jeff: I think that it's definitely the year. The years of retail institutions always move slowly. They dip a toe in the water and then they take the toe out of the water and then they put two toes in the water, et cetera. And it takes some years to get through their higher level decision making processes. You know, getting their own inside attorneys happy with the particular legal shape and stuff like that. So that process literally takes years for institutions, even very pro crypto, very interested in crypto institutions to actually come to the fore. 

Fidelity is an excellent example. They initially got into Bitcoin mining. The CEO of Fidelity had a Bitcoin miner on her desk as part of the let me, you know, let's get serious with crypto. And then the next step was they accepted crypto for the Fidelity charitable side of things. And then once they had that comfort level and their inside attorneys were happy, they started to move on to Fidelity digital assets and they've continued to get deeper and deeper into crypto. But that process has literally taken, I think, five years so far, and their CEO from the top down is a crypto fan who wants to get Fidelity into crypto. 

So those things on the institutional side are absolutely happening and you absolutely have champions inside of these institutions who want to get into DeFi as much as possible, but it takes a long time. Some of the hacks, the ways around that years-long process is like what Vesper's doing with Blockforce Capital. Blockforce Capital, they stand up hedge funds for various institutions. And institutions, they can very easily invest in a hedge fund because that shape and format is very familiar to them, whereas DeFi, that's a new shape, a new format. And so you have a hedge fund investing in DeFi and then an institution investing in the hedge fund. I know it's kind of a two step, but that is actually how you get institutions into DeFi more quickly. But again, that takes time. 

And so, you know, from the philosophy side, as I talked about earlier in this AMA, to wanting to secure the user experience and just broaden the reach of DeFi, it's been not only a focus on retail, but I think retail is actually responding. They're responding to, you know if you're talking to average users, the average users are responding to what they see in everyday life, which is the web3 stuff a little bit. There's a lot of NFT stuff, all of that flows back into, that gets you into crypto, which gets you into DeFi. And as a retail user, we think that, or as a segment, we think retail users are probably the biggest growth segment in 2022 as a result. 

Crypto Texan: Yeah, and now I want to talk about the future of Vesper. I'm also curious as to, you know, with your experience being an OG Bitcoin core developer and your experience in Linux, like how has that experience, I guess pushed you in this direction? Like what lessons have you learned in your previous lives in the open source world that, I don't know, that you apply on a daily basis to the Ethereum, DeFi world? And then what, in your mind, is the future outlook for Vesper and what's getting you excited on the horizon, on the roadmap there? 

Jeff: Yeah, in terms of principles applied, transparency and community are pretty key. I think that blockchain, I often say, is enforced transparency, meaning that unless you're taking steps to hide it, all the transactions are easily viewable on Ethereum, or the sister networks, making it easy to sort of prove that you're doing what you said you were going to do. So that proof of execution or proof of promise is even more prevalent in blockchain than it was in previous Linux and open source. So as is community, open source is nothing without its community. It's a group of like minded individuals marching mostly in the same direction, getting together, organizing, communicating, and iterating how to move in that direction faster, better, more securely, more thoughtfully, more philosophically. And from open source to blockchain, transparency and community absolutely have primacy. 

Also on the sort of nuts and bolts side, a lot of the software development, software engineering practices carry over. All the source code is on GitHub for any developer to to use, study, remix, improve upon. That's part of the open source way, it's open as our audit reports for security researchers to help bulletproof the system. So a lot of those practices really carry over from the Linux open source days into the blockchain DeFi open source days. 

What's the future of Vesper Finance? Boy, that's an AMA in and of itself. So we just announced Vesper Season 2, which really gives a hint into what is the newly expanded future. A number of different product lines for those retail users, Vesper Grow, again that's deposit X earn X. So, you know, deposit ETH, earn ETH, et cetera. We're going to be expanding those to a number of pools, as you know, for this community we just added a DPI pool whereby you deposit DPI and that compounds at a certain rate. Vesper Earn, which we just announced, invests for season 2, that x into y type of primitive. You deposit a US dollar stablecoin and you earn a different token, say DPI - deposit DAI earn DPI, deposit DAI earn BTC, deposit ETH earn DAI. That sort of x into y pattern. 

There are a number of multichain and cross-chain initiatives. Again, this is about inclusivity and getting more users. Are they using these products at a lower cost because that's to their benefit, they can compound more, do more on a lower fee chain. So expanding beyond Polygon, which we're live in production, to Avalanche, Arbitrum, and some of the L1s and L2s. 

Spanning governance, we just upgraded the revenue system - our community voted upon VIP, a Vesper Improvement Proposal to upgrade the revenue system and the DAO. There's a governance forum participation along with that, so that people can help steer the ship, which was always the intention. That's the intention of the DAO, as it's a community-led, community-steered type of project. Finally, reaching out to a number of different projects, and this Index Co-op is an excellent example of that, bringing on board folks and their tokens like the DPI token such that Vesper is helping, you know where we're uplifting y'all and y'all are uplifting us. It's just a mutual kind of win-win, positive-positive type of relationship. 

We want to do more of those across the DeFi and DeFi industry, and we have several, several more unannounced. We have, for example, FEI and FRAX, which are on their governance forums being discussed and studied. The future has a number of different initiatives, the Vesper Grow enhancements, the Vesper Earn x into y product line, a number of those are going to be coming out. The governance improvements, the multichain, all of that wrapped into this package are tied into a bow that we call Vesper Season 2. So a lot of stuff either just kicked off in the past couple of days or is coming down the pipe that I think users will really find of significant personal value to them. 

Crypto Texan: Yeah, Vesper Season 2 sounds really exciting, and it sounds like y'all have got a whole lot going on over there on the protocol level and at the DAO as well. And yeah, I agree with what you said. I mean, when you have different DAOs and protocols that are partnering with each other, that symbiotic relationship, it's just it's so beneficial to everyone in the ecosystem and to further composability of different protocols that just, I just feel like that helps like exponentially with the growth, and the outreach, and the benefits to the community and the ecosystems in general. And one of the things you touched on was how, you know, community is great for DAOs and protocols in the sense that it can, I guess, help projects march along the same path. 

But can that also be, in your mind, like, could that be a disadvantage too? Like just kind of thinking of Bitcoin maximalism? Do you feel like they're missing the mark there? Or is there some sort of benefit to having some maximalists in your community? And I feel like on Twitter, we're also starting to see kind of like Ethereum maximalism as well, and maybe in some sense, almost becoming as toxic as the ones that on Twitter that a lot of people don't like. I don't know, just kind of want to get your thoughts there, on maximalism and is there a certain percentage that could be good in a sense? Or are all these people just missing the mark in general of, in the philosophy of crypto? 

Jeff: I would say that I would go to my Zen philosophy corner of my brain there, in that you always, I think, want super fans. It's easy to kind of nit pick and qualify statements and hedge, and maybe I'm not so sure about, and you really are emotionally, I think, refreshed no matter what community you're in with, this guy is just a super fan. He loves what you're doing. That really energizes people and you want positive energy. You want people who get you excited about your own work. And I think that level is definitely on the positive spectrum. 

There's definitely, and I saw some of this from the earliest Bitcoin days continuing to today, specifically with Bitcoin, there was a, in the early days, a Bitcoin versus the world, including other coins, type of mentality. Some of the other coins have copied that, and I think that if you get into, you know propaganda and falsehoods, and you're kind of diverging away from science and honesty into more religious dogma that I think can be unhealthy, you know, unprofessional and dishonorable, and I at least care about that stuff, very much. 

And I also, you know, in particular, I'll tell you, one of my trigger words is the, you know, I won't say it in case, you know, a safer work audience, but the s...coin word right, is to me, using that word is just, you know, denigrating people's innovation. There are obviously, you know, coins that are nothing but hype, coins that are nothing but scams but if you get into the maximalist rooms where everything but their coin is a scam, then that's, I think, gone too far and it winds up actually helping real criminals, real scammers hide in the noise. 

So as in, as I led with, it's sort of philosophical zen - it's a range, there's not an absolute, you know, maximalism is bad, maximalism is good. I think that there's just a range of human behavior and some behavior is needlessly negative. You know, maybe more philosophy people are tribal in their DNA and just like, I don't know if you're a Dallas Cowboys fan, but you know, I'm certainly in the Atlanta Falcons fan that's part of my tribe. And sports fans sometimes go off the rails when it comes to, you know, hating on another team or pumping their team. And my deep, deep, you know, viction is that just tribalism is in our DNA, we can't help it. 

Maximalism is part of tribalism, coins enhance tribalism. It's just something that we have to live with and deal with that some people will always go too far. You know, again, the people that are positive in the room, that are fans, that are adding energy, that are really interested in what you're doing and push you to be a better person. That's, you know, that's the type of person that I want in the room with me. 

Crypto Texan: Yeah, absolutely, and I was especially interested to hear your take on that, just given your Bitcoin core developer OG background, but I think you and I share very similar sentiments there. And yeah, for the record, I am a Dallas Cowboy fan, living in Dallas, Texas. But I could change my mind on that any day, just depending on how the rest of the season goes. But anyway, Jeff, we're up on time, I really appreciate your insights. Thank you for telling us about Bloq and Vesper Finance. Would you mind just sharing with the audience one more thing and just tell us, where can they go to find out more about you and Vesper Finance? 

Jeff: Absolutely. Stop by vesper.finance, that'll be your front gate into everything that we've talked about today. Follow us on @VesperFi on Twitter, you can follow me personally on Twitter, but sometimes I get a little bit raucous and political, and some people might not want that. 

Crypto Texan: Those are the best Twitter handles to follow, Jeff, I don't know what you're talking about. But anyway, thanks to everyone in the audience who's listening live, I think we had about 33 of us in there at one point. This is being recorded, and so this will be published in about a week from now. Given the holidays, maybe a little bit longer, but Jeff and everyone else at Vesper, appreciate you being here with us today and everyone have a happy holiday. Thanks again. 

Jeff: Thank you. 

Host: @Crypto_Texan

Audio Engineer/Mixing: @LloveraFrank

Marketing Image: @ChavisChance / @cafpunk

Transcript: @qjuniperus

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Crypto Texan: Hello everyone, welcome to conversations with the Co-op. This is where we source questions from the Index Co-op community to gain insights from today's leaders in crypto and DeFi. I'm your host Crypto Texan. And today on the show, we have Bryan, XYK and Saganaki with us from Visor Finance. Thank all of y'all for being here with us today. 

XYK: Of course, thanks for having us. 

Brian: Yeah, thank you. 

Crypto Texan: So, I've interviewed one person, two people. I've never interviewed three people at the same time before, so I'm looking forward to this and I think a good way to get started would just be for each of you individually to just state your name so we can recognize your voice and just kind of give a brief introduction about what it is that you specifically do at Visor Finance.

XYK: So I'm XYK, happy to be here. I run operations at Visor and make sure that everything is running, with all of our pairs, you know making sure when we interface with different clients on Visor Phantom. I also handle a little bit of the front end.

Brian: And I'm Brian or BP. I do community management as well as business development and partnership outreach. I've been in touch with many members of Index Coop, including, you know, JD regarding like Index liquidity and Matthew Graham regarding MVI and various other Index products like 2x FLI and, you know, all the 2x FLI products and also been in touch with people working on various projects within Index, like the JPEG group and GMI as well. So, yeah, that's pretty much what I do - passing it along to Saganaki. 

Saganaki: Yeah and I'm Saganaki. I do a little bit more work on the Gamma side with the active management strategies. I do research, I do a lot of the active strategy framework part where we back test and analyze potential strategies. And I help out with a lot of the financial stuff.

Crypto Texan: All right, appreciate those backgrounds and introductions everyone. So I think it would also be a good idea, you know, since Visor Finance is very closely tied to Uniswap, before we get into what exactly it is that Visor Finance does, I think it would be a good idea if we could just go through, you know, just for our listeners who may not be familiar, what is Uniswap, what are the differences between Uniswap Version 2 and Version 3. And then how does Visor tie into Uniswap and what role is it playing in the DeFi ecosystem? I know, I know that's a lot, but I just feel like that would be a good base layer of information for everybody. 

XYK: Yeah, totally agreed. So Uniswap obviously is the decentralized exchange that's been around for a couple of years and, you know, they first came out with this equation called constant product function. And it allowed for the liquidity providers to just provide a ratio of assets from the price of zero to the price of infinity. And it was very easy and simple, and we saw DeFi Summer take advantage of the LP tokens that are minted once you provide liquidity and, you know, everybody essentially has the exact same position, just some liquidity providers have more of a position than the others. 

So then, you know, that was a great invention, the adding liquidity providers instead of having an order books structure. But what it did was it didn't allow for the capital efficiency that otherwise can be had with Uniswap V3 or with an order book. 

So Uniswap V3 represents sort of a hybrid between Uniswap V2 and a traditional exchange like NASDAQ, or New York Stock Exchange where you have – or centralized exchanges in crypto – where you have an order book and no liquidity providers. And how they achieve this hybrid solution was by making it, making concentrated positions available to LPs. And what that means is that you have to select a price range to provide liquidity within. 

So if it's ETH / USDC, you're choosing, you know, $3,000 to $5,000 dollars that you're providing liquidity for. And the more concentrated your position around the current price as it's active, the more amount of fees that you get. But it also means that every single LP has a different position. And that's exactly why Uniwap used NFTs to represent the position because each position is unique.

So, you know, that creates a very capital-efficient mechanism, but it also makes it so that if you're going to be an LP providing liquidity within a price range, obviously if that price goes out of your liquidity range, you're now sitting in one asset and you are no longer getting fees.

So there's this active component that is mandated if you are an LP on Uniswap V3. And because you have to be active, you know, that costs money to mint another NFT if you want to change your ranges. And you also have to, it also costs, you know, it takes a lot of time to monitor your position.

So we launched when Uniswap V3 launched and the sole purpose of the protocol was to, you know, provide active management, so that LPs don't have to bear the cost and the time to do this, but I know you wanted to just stick to Uniswap - what it is and, what is V3 versus V2.

Crypto Texan: Yeah, absolutely. And I can't believe I'm just now realizing this, but your name XYK. That is the formula for Uniswap V2 - X times Y equals K. I can't believe I'm just now realizing. Yeah, I think it also right before we go into Visor, I think it would be also good just to get, can you put into your own words, what impermanent loss is and what kind of risk that plays with an automated market maker and how that, I guess, can be even more of a risk when using Uniswap Version 3?

XYK: Yeah, I think Brian is better at answering this than I am. Brian, you want to take a stab at this? 

Brian: Oh yeah, sure. Impermanent loss on Uni V3. So you sort of risk, like providing liquidity on Uni V3 is almost like leveraged liquidity providing in that the more concentrated your range is, the higher the potential for your impermanent loss.

And the reason for that is, as the price moves within the, your selected liquidity range, you're pretty much selling off the asset that's performing better, for the assets that's performing worse. So the more narrow the bands are the more quickly you're selling that off. Whereas if the range was extremely wide, then it would mitigate impermanent loss in that you're more slowly selling the underperforming asset – or the outperforming asset, for the underperforming one.

So really the name of the game in Uni V3 is to limit impermanent loss as much as possible while also maximizing for fees earned. And that's a delicate balancing act that Saganaki and those at Gamma Strategies are developing strategies to have, like pretty much mitigate impermanent loss while taking advantage of the fee multiplier from having narrow range.

And what this entails is, you know, during times of high volatility where there's high potential for the price to move within the bands, our formulas will expand the bands as wide as possible, or to a sufficient amount. And then as volatility lessens, then the bands will snap back more narrow and take advantage of the higher multipliers. So that's sort of the trade-offs and how impermanent loss works on Uni V3. 

Crypto Texan: Yeah, thanks for that. And I know you touched on it a little bit, but now let's just dig right into Visor Finance. Who's idea was this? Like how, how did this idea come about for Visor Finance? And what kind of products are you offering users, market makers, and DAOs?

XYK: So we started off, you know, wanting to create a discretionary asset management stack with Ethereum and that's pretty complicated because most of DeFi is, the way you get yield in DeFi, we see it as really two categories. One is through lending protocols where you have positive sum, you're lending out your assets, you're getting a return on that. And then there’s the yield based on hyper-issuance of new assets. So a protocol like Yearn that has strategies in order to capture returns from farming and other ways, but based upon the hyper-issuance of a new asset, like Curve for example.

So we saw these two categories and said, you know, most of traditional finance is based upon discretionary asset management. Is it possible to create a layered system, set between the NFTs that we use as vaults? And, you know, traditional vault and DeFi, where you're minting LP shares and how can we set up, then a layer that allows for a manager that is applying discretionary strategies with an element of price prediction, and an element of there being possible loss with impermanent loss, but more of a structure that allows for the management of assets and choosing where they go and things like that. And so, that was started in January of this year. And at the end of February was when Uniswap announced Uniswap V3 and the design schematics.

And so that was when the two ideas merged because being a manager on Uniswap V3 is discretionary. And so we used our stack that we had already created and deployed and just pointed it entirely towards Uniswap V3, because Uniswap V3 mandates that there's a manager.

Crypto Texan: Okay, and so what type of strategies does Visor Finance employ in these vaults? I think, are they called NFT smart vaults? I think I saw that. 

XYK: Right. So I can just walk you through the structure. So the structure before Uniswap came about was, at the base layer, you have an NFT - an NFT vault, or a Smart Vault.

And we see, you know, a couple of protocols using this, in addition to us, but it’s a very interesting use for an NFT because usually it's for a unique property, and applied towards art but this vault can actually hold ERC-20s inside of the NFT and it can hold other NFTs.

And you may be asking, you know, why would you want to store – or why would you want to deposit ERC-20s into the vault? It’s because you can then permission those assets to be used by another party once they're in your vault or, you can simply keep the ERC-20 tokens in your vault. Let's say you have LP tokens that you're providing liquidity for. You have these LP tokens, you put them in your vault, you can then subscribe to a liquidity mining contract or a reward contract that lets you have full custody of your LP tokens. And the rewards are simply pointed towards your vault.

So the reward contract reads that you have these LP tokens inside of your NFT vault, and then it can pay to your vault, because you know, that is the asset that it's recognizing. And so it allows for total custody of your assets when applied that way. 

And so the base layer is this NFT vault, then you have what we call the Hypervisor, which is a position manager contract that you permission your assets to be used within, and each pair or each position in a pair, you know, with a selected fee tier is its own Hypervisor. So it's a Hypervisor smart contract that is the position manager contract.

And that can be used for other things, you know? So it doesn't have to be used just for Uniswap V3, but this is the first use case. So then you have, you know, you have this contract that basically routes your assets to and from your vault and goes to the protocol. So from your vault to Uniswap V3.

Then we have another layer, which is the last layer, and that's called the Supervisor. And that is the admin contract that allows for a manager to have restrictions on what they can do, but still have enough permissions to allow them to properly manage the Hypervisor, which is, you know, the position. So that was the stack that we had created before V3 came around. And then we saw, okay, there needs to be a manager here.

So how can we apply this around Uniswap V3? And now it's a specific– so it's an NFT vault that anybody can mint. And then the Hypervisor is for each position. And then the Supervisor is where, you know, at this moment it's just Gamma, but it is the research and development entity that we have created in order to specifically be focused on managing these positions. And in the future, there'll be other managers that can come along and prove their historical performance and be a Supervisor and users can select that. So that's the stack and the reason for it.

Crypto Texan: Okay, and I just want to make sure I'm understanding this, this sounds fascinating by the way. And I love, I just love so much like the true financial use of non fungible tokens, right? And this is just a prime example of this, and I think Qi DAO over on Polygon, they have something similar to this where you mint an NFT, but let's say that I have a Uniswap V3 position and we'll use DPI / ETH LP pair as an example.

So I come to the platform or the app and I mint the vault NFT, and is it empty at this time? And then do I have to put the assets in there? And at which time do I delegate the management of those assets to a Hypervisor?

XYK: So, you'll be minting the NFT, the NFT will be empty at that moment. Then you're going to select a position that you want to add your assets to. And when you do that, you are depositing assets. And so the Hypervisor maintains, or deposits those into the position, and then those LP tokens will be stored in your vault, in your NFT vault, opposed to, you know, not your wallet, which is typical. 

And so when they're in your vault, you know, that shows– those are receipt tokens showing that you have the underlying assets deposited in the position, but then the reason why we put them into the vault is because then we'll allow you to subscribe those tokens to a liquidity mining contract. And that way you'll have custody of those. 

So, the entire vision of the vault is not totally built out, now we have a lot of projects that we're working with that want to do liquidity – they want to reward for providing liquidity for their positions. This is how they would do that.

So it allows for gasless subscription to a reward contract. There's many uses for this – I think Gearbox right now, which is undergoing their launch at the moment, you know, they're using a similar structure here but it's with loans.

But you still have an NFT and you have custody of those assets. So right now yeah, it's a container. It allows you to subscribe, but there's a whole lot more that you can do with that, which we hope to see built out as more protocols understand that NFTs can be used for a full custodial vault.

And some meme that I've been seeing go around a little bit is, we should all be striving for a TVL of zero, which means the protocol doesn't ever own those assets. You as the DeFi participant do, and this can be achieved by using an NFT vault and, you know, it can also be used– and I think that this will happen more on L2 where you can even deploy a contract, but do it through the protocol, but you still have ownership of that contract. So yeah, I mean a lot more to be seen with the NFT vaults, but they are a very interesting layer of our protocol.

Crypto Texan: Yeah, and another thing that just pops out at me as a question I feel like I need to ask is, you know, gas fees on, especially like layer one Ethereum, because, you know, as it goes, the more complicated the contract, and NFTs are pretty gas sensitive too, how do gas fees play into that. And does having the LP position within the NFT, does that mitigate some of those gas costs or, how does that all that play in?

XYK: The subscription absolutely does. You know, to mint an NFT, it is more expensive than just making a deposit into a traditional vault. But you will have that, you have that NFT, you don't have to mint another one.

And with that comes the ability to subscribe, and subscribe meaning there's no transfer of tokens. There's no, when you're subscribing to a reward contract, because those LP tokens are in your vault, there's no transfer. So in the long run it will be saving you gas fees, but of course, to mint an NFT, it does cost a little bit of upfront cost.

Crypto Texan: Okay, and I think you may have touched on this a little bit earlier, but what strategies does Visor Finance employ? Like how does Visor, and I think you said that you use Gamma Strategies to use this, but what determines when there is a need for a rebalance or an adjustment of those bands that have been deployed?

XYK: So there's two types of strategies that we're focused on and really their end participants. The first one, which is who we anticipated using the protocol at the very beginning, are the retail LPs or regular DeFi participants that want– their main objective is to attain yield or returns on positions that are managed by Visor.

So in that type of environment, you are concerned about, the strategy is focused on making sure the liquidity is in range, but as concentrated as possible to extract the most amount of fees, because the more you concentrate, the more efficient your capital is, and the more fees you are getting relative to any other LP in the pair.

So, and we've seen that, you know, we expected the APY or APR to go down soon after a V3 launch, but we have seen, and, you know, I think it makes sense because the fees have stayed relatively stable and high. And I think that's because, you know, all the volume on Uniswap has been routed to V3 but the LPs, you know, it’s complicated to be an LP. So you see that volume increases, TVL doesn’t, is not as much as on V2. And so you have a ratio of volume to TVL. You also have the fee tiers that have changed, and so you can have a 1% fee tiers.

So, the goal there with the first set of participants is obviously fee captured. Now that's entirely different with projects. We work with, I think it's 10+ right now that we manage active liquidity for on behalf of the projects, and there's a close collaboration with how that position is managed, but the goal there is not fee capture.

It is to lower slippage on both buys and sells, and always stay within range so that there's liquidity around the current price of the token. 

Crypto Texan: Wow, I could see how that would just be a huge benefit. And I think that's why Index is getting involved there, but we can touch on that in a little bit too. First I want to touch on Gamma Strategies, and what is that relationship between Visor and Gamma Strategies? Is there overlap? And I guess contributors, how did that relationship come about? 

XYK: Yeah, so the reason why, and this, it didn't start at the beginning. It was about two months after, when we realized that these strategies are complex. There's a heavy data science component to this, there's a price predictive element to that. The ones contributing to strategy, which is really traditional finance strategy creation, are not Solidity developers. They're a special type of developers and data science engineers.

And so we chose to set up a grant system of $500,000 from Visor to Gamma. And so far Gamma has issued many of these grants, some to groups at universities, some to people that are in traditional finance right now, and others to groups that have built– our latest one was one to a group that built a very robust Uniswap V3 simulator that we can use because, you know, using Uniswap on Testnet is difficult.

They've built the entire thing and type script and it accounts for all the different variables that would otherwise be shown in a live environment, for us to quickly test strategies. So apart from giving those grants out and being able to work with other participants and members that are not really DeFi focused, but they have a background in traditional finance or data science.

Other than that, you know, there's a lot of research that goes on in finding high return pairs and building out Dune dashboards for Arbitrum, Optimism, and Mainnet, you know, looking at the past seven days and past two days of fee returns and then choosing to manage a pair based upon those returns.

So the pairs selection is a big part of what Gamma does, then once the pair has been selected, then it has to be identified, you know, is this a correlated asset pair that the strategy is very different because there isn't going to be this real impermanent loss risk or price divergent risk, you know, I'm talking about renBTC / WBTC or stable to stable coin, or a non-correlated pair, which is USDC / ETH and you have to have different strategies for each category of pairs.

And so within the uncorrelated asset pair like USDC / ETH, two strategies have emerged. The first one Gamma identified, which was a Bollinger bands strategy, which simply means there's a moving average that you're setting an interval for. So you're looking at the past seven days or the past seven minutes. You're looking for an average between all of the intervals within a select time period, and then you're applying a standard deviation, which is setting how wide the range is. And so you're trying to anticipate the next interval and what the volatility is going to be within that next interval.

And providing liquidity within a range is, does not exist in traditional finance because you're providing liquidity in an order book system, but the Bollinger band was designed in traditional finance to measure the next interval of volatility. And so it's trying to capture what is going to be the highest price and the lowest price within this next time period.

And so that was the first strategy that was not only discovered and prepared, but deployed, by Gamma using Visor protocol. And then our next focus, or Gamma's next focus was to mitigate impermanent loss and, they're called Gamma 1.0 and Gamma 2.0 strategies.

And so Gamma 1.0 was the Bollinger band strategy, Gamma 2.0, really comes into effect when we want to entirely eliminate impermanent loss. So, anticipating that there's going to be a high period, a period of high volatility and not really knowing, you know, is it going to go up or down, but knowing there's going to be volatility and wanting to not participate in that volatile period, because you may go out of range.

You may suffer impermanent loss and that's important – impermanent loss, it has to be measured between a start date and an end date. So a deposit or withdraw, but you never know if you're managing a position where anybody can withdraw, you may know that it's going to go– the composition of assets in the position is going to be 90/10 for two hours.

But somebody could be withdrawing at that time period, and you don't want them to suffer impermanent loss. So you would rather just not have exposure to the volatility in the upcoming time period and the way that is solved, which is a very creative way, that the people at Gamma and Saganaki specifically was able to identify and deploy, is by taking one of the bands and basically exploding it, you know, making it so that it goes almost to infinity or almost to zero.

So that you're still, you haven't withdrawn the liquidity, but the composition of assets in the position are not going to change as long as that price range, as long as that band is far removed. So you're no longer providing concentrated liquidity. And so you don't have that exposure.

Crypto Texan: Wow, that's fascinating. So I guess my next question is, what types of pairs are available? And I'm guessing they would just be the types of, I mean, is it permissionless or is it just the types of pairs that Gamma Strategies is comfortable managing? Cause I can imagine that there'll be pairs out there that, like I personally wouldn't want to touch and I would assume that Visor Finance and Gamma Strategies also wouldn't, I think in just like from a, like a low liquidity asset or low volume asset, is there anything that you prefer not to touch or how does all that work?

XYK: Yeah so Uniswap, in their docs, called these pairs exotic pairs, and what they mean by that, I mean, I think what they mean by that is, it is low volume, low TVL pairs. And so we don't like to touch exotic pairs, you know, we want a lot of volume, we also want in relation to the volume, a certain amount of TVL that makes it so that there’s, that volume returns a high amount of fees.

And that was another reason why Gamma created the Dune dashboards that any, you know, these are public, you can see the APYs and, usually the one, like if you look at the past two days on Mainnet, you're going to find pairs that return more than 1000% APY. And that's not even taking into consideration a concentrated position.

That's just looking at all fees returned in the pair, relative to the TVL that's in the pair. So Gamma will look at that and select, but we also, for economic arbitrage and exploit reasons, don't want to have more than 20% of an entire pair’s TVL.

And so that sort of limits us because we're seeking TVL obviously, for our own protocol, but we want to limit the amount that we take to 20% in the pairs and we’ll apply caps to that. So it really leaves us with the top pairs by volume and with the TVL considerations as well. So really blue chip ones. 

And, you know, we manage 40 pairs right now. And I think on Mainnet those will be, we won't be adding too many more other than a whole new category, which is the stable to stable, you know, that makes sense to have on Mainnet, but we are, we've deployed our contracts in Arbitrum and Optimism and going through an audit with Quantstamp.

So we want to be able to manage many more pairs on L2. And so those, you know, some of those constraints won't apply on L2, where they do apply on Mainnet. And we're working with Quantstamp to figure out a position safety framework so that we can have virtually uncapped and be able to manage more than 20% of the pairs.

But yeah it’s, on L2 I think there'll be a lot more trading, there'll be a lot more volume because we won't have the gas cost considerations, so you'll have more volume and so therefore more fees cause the fee tiers stay fixed, regardless of the network.

So yeah, right now I think maybe 50-100 we'll manage on Mainnet, and then those will all be blue chip stable to stable, highly correlated. And then on a L2, after we go through our audits, it'll be more of a permission-less environment. And hoping to see others deploy Hypervisors that can then be subscribed to our strategies. And that way we can go with the direction of entirely, the person who is deploying assets can have custody the entire time and not have to deploy them into our positions, but can rather just subscribe to a strategy.

And that will allow for a lot more as the strategies develop and can be selected and identified and run in a safe environment, like, OpenZeppelin, Defender who we've engaged. We want to focus more on the strategy components and allow anybody to deploy a Hypervisor position manager contract for any pair, any fee tier. But that's more about the roadmap.

Crypto Texan: No yeah, that was great information. And I'm wondering if y'all could just shed some color on this - how does Index fit into this? Because you mentioned, you know, we don't have the most liquidity or the most volume for our Index token, but I know we are partnering with Visor for a strategy for Index token. And is that just to maintain liquidity and reduce slippage through all price points? Or how was this partnership developing between our DAO and Visor Finance? 

XYK: Right. So the way that we see it, as you know, there's a lot of liquidity that is either owned or owned by the community across multiple different decentralized exchanges.

And so, you know, number one we want to consolidate, or projects want to consolidate that, they would rather have that liquidity in a V3 pair because you're increasing your capital efficiency 10 to 40 times. So now you have such a lower slippage with the same amount of capital, so you can see why that would be attractive to have your position on Uniswap V3.

And then further, if any person who's trying to buy or sell the token is using an aggregator like Matcha or 1inch, that will automatically route to that V3 position anyway, so as soon as you reach this critical point where all trades are being routed through the V3 position, then the liquidity in other places is almost useless because there's no trades being run through that.

And so, you know, it's a sequence of events. We view this and have seen it where a position is opened on V3, and a project gets involved and first moves their protocol, own liquidity there, and then others will naturally add their liquidity. And in terms of the sequence of events, that can either be through our position because we can list that publicly on our front-end and allow for anybody to deposit their assets into the position.

So now you're growing that, the fees will then only be generated on V3 in this position. So even anybody just joining or moving their liquidity from V2 to V3 are going to participate in this fee capture. And then the next sequence is being able to apply liquidity mining rewards for joining our position. And that goes back to subscribing and using the NFT vault. And that's sort of the last step, but it is all to achieve the goal of capital efficiency on protocol, own liquidity.

Crypto Texan: Yeah, that makes perfect– oh yeah go ahead. 

Brian: Yes. Just, yeah, just very specific to the Index liquidity that, you know, proposal just got passed and I think sometime next week, we'll get the liquidity Index deployed to Uniswap, but something particular about the Index pool is that, you know, there's a lot of trading data available, like Uni V3 trading data and there's already about close to a million of TVL on the pool and the protocols and add another 1.4 million to the pool. So there's going to be well over 2 million of liquidity in there, and when you have a little bit more liquidity we can add more trading data, typically we want 90 days of trading data, we can run the more advanced strategies that Saganaki and the people at Gamma have created.

The strategy we were talking about earlier where you're really expanding the bands as wide as possible during periods of high volatility, and those strategies, based on our back testing results, had the best results, the best yields after impermanent loss.

But this can only be done when there's a sufficient amount of liquidity within the pool, because when you are expanding the bands, you are technically increasing slippage, but you're also decreasing impermanent loss. But if you do have a sufficient amount of liquidity in there to begin with, then that is what makes this strategy pretty optimal.

And yeah, just wanted to throw that out there, cause the most projects were just maybe migrating liquidity through Sushi onto Uni V3 or just starting a pool where there isn't that historical trading data and they're not supplying enough liquidity on there. We typically run different types of strategies to handle that, and they're more heuristic in nature where we'll do a price stand of let's say plus or minus 50% around the current price tick and as the price moves up or down a 10 or 15%, you'll rebalance around the current price. So just want to add that in there about the Index liquidity pool. 

Crypto Texan: Yeah, thanks for adding that. And this is so great because I remember when Uni V3 first came out and you know, I got up there and I was ready to put my position in and I just thought this is hard. I mean, to put it bluntly and I was like man, I would totally pay somebody to do this for me. And then I just thought, you know, that'll happen, right? Someone's going to come along and figure that out. And then, here you are, y'all are doing it. But do y’all run into any competition? Like who else is doing something similar to this?

And I feel like y'all are the most successful at it. So I guess, yeah, those are my next two questions - who are your competitors and why do you feel like y'all have been so much more successful than those competitors? 

XYK: Well I mean, we started day one, so that gave us a big head start. We also, this is my view, but I think we're more thoughtful about the design of the position manager contract.

So when someone that comes on and says, oh, I want to be a manager, there's one option, which is using the Uniswap LP NFT. And so in order to be a manager, you have to come up with your own contract that interfaces with Uniswap V3 core contract and is a replacement of that NFT.

And the NFT, the way that you provide assets is very limited. And so we constructed a design that allows for changing– well so first, you know, it allows for two positions to be able to play at once you have the limit position, you have the base position, this is done so that we can seamlessly change ranges without having to withdraw all of the liquidity.

And then, you know, redeploy it into another range. It can sort of be done by having the two simultaneous positions. And this also allows us to change the composition of assets when we rebalance without having to do a swap. And a lot of people think, okay, well, if you're doing a swap, then all that's going to cost is gas cost, and you can be very specific about the ratio of assets if you're swapping from one to another in order to rebalance. 

But what people don't understand is that, when you're swapping on Uniswap, you're paying those fees. So if you're using, if you have deposits of other people's assets and your sole goal is to return fees on those underlying assets, if you're swapping, you're paying the same thing that you're getting, right.

So if you're swapping a hundred thousand dollars, you’re paying $1,000, if it's in a 1% fee tier. But if you use limit orders, like we do in our contracts to rebalance, you have zero slippage and you're not paying any fees at all. So, most of these other position managers swap unrebalanced, and that to me is just the biggest differentiator, because you're eliminating so much of what you could be making on behalf of your LPs, just by doing this rebalance, without being thoughtful about it. 

Then the second part is the Supervisor component. So being able to have an external contract that can call all types of different functions with the position in order to apply any strategy. And, you know, that's a big reason why we created Gamma and Gamma created the active position strategy framework, where you can see all of these variables and you can construct a strategy and simulate a strategy that can be applied to the contract itself.

So back when I was discussing, you know, who are the types that are working at Gamma and work on these strategies, it's non Solidity engineers that don't want to, or can't, develop a contract to then develop a strategy that interfaces with the contract. So instead we have an endpoint that allows a data scientist to come up with a strategy, deploy that, without having to understand Solidity.

And so the design of the contract that allows for that strategy component, that doesn't have the strategy on chain like others do allows for number one, you're not going to get front run from your strategy because it's not built into the position itself. And number two, you can attract talent that understands how to make a strategy, and then deploy that strategy.

And then I guess the third differentiator would be the fact that we focus on retail piece first and then once we got that down, we were able to focus on a different category and help, which are the projects that we help, actively manage liquidity on their behalf. And that's what we call Visor Phantom. And so, we haven't seen that with others, you know, we've captured that and built out great working relationships with a lot of partners in order to do that. So yeah just, those are a few differences. 

Crypto Texan: Okay, I'm glad you touched on Visor Phantom too, because I was going to ask about that. Another question I have is I saw today on Twitter that Uniswap at the front end now routes to the most price efficient with the less slippage, through V3 or V2. Does that affect y'all, in a negative or a positive way or is it just not a big deal? Just more efficient, I guess.

XYK: So there have been two updates to what Uniswap calls the Auto Router. And the first one came out probably 8 to 10 weeks ago and that, that is what you're describing, which is the Auto Router. And the first thing, when Uniswap V3 came out was, was to route the front end to V3 if there's less slippage. 

Then there was the secondary update to the Auto Router that was more of an auto router than just configuring the front end. And that was always going through the path that has the least slippage, and that was great for us because that is the goal of the position. And because we have highly concentrated positions, our positions are usually the ones that the Auto Router runs through. And it also makes it so that when we're creating a position or maintaining a position on Uniswap V3, we are also competing with that V2 position.

So if someone's using 1inch or Matcha to make trades, and a V3 position is better than Sushi, meaning less slippage, then of course it's going to be routed to us. But then if anybody's using Uniswap or using their Auto Router in their API, it will also route to us.

So we view that as, I mean, that was great for us. And then today, Uniswap came out with an update to their Auto Router, which is more about providing liquidity and makes it so that the ratio of assets that normally would have to have been acquired independently and previously to adding liquidity, once you select your range, meaning you have to have both ETH and Index token and you have to have the exact amounts and you have to select a price range.

Now you just have to select a price range and select one asset. So there's an atomic swap that goes on that allows for you to provide liquidity with one asset, provided that you're also paying for the swap. 

Now that is also great for us because for the first six months we always allowed for single-sided asset deposit. And that was because when you're depositing a single asset into our position, reason why we don't do a swap and we don't mandate a secondary asset be paired with that is because it goes straight into the limit position, which means, you know, we're deploying a low position with the single-sided asset one tick above the price, so that when the price drifts into that tick, it now is comprised of two assets in that, and when that hits the ratio of the base position, that limit order then get deposited into the base position. 

So that was a complex way of allowing for single-sided assets. Now because of the security framework that we're working on, that, you know, it sort of suggests that there's some risk there, allowing for single-site asset deposit and there being flash loan, price manipulation, when using that we have now constructed a deposit that enforces the ratio of the position.

So now that Uniswap announced today, and I think it's deployed, this new Auto Router atomic swap function now allows us to continue on what the single-sided asset deposits without having that economic exploit possibility. 

Crypto Texan: Wow, I feel like my mind is just now opening up to like all the different composability options of Uniswap and y'all are just taking advantage of these. And I think this is huge. I mean, I've got so many more questions. I wish we had more time, but we've got about eight minutes left. Let me think, which one do I want to ask? Make sure we get in. So I'm kind of thinking of another way that Index could utilize this platform, like in a sense where, you know, we've got an index, where there's an asset that we would like to include in that index, because it has a high market cap, but maybe it's not Ethereum native, but there are some tokens it's just got low liquidity on Ethereum. Is there a way that we could kind of use that, you know, maintaining liquidity within a certain price range to help with rebalancing and reducing slippage? Is that a strategy that could be implemented possibly? What issues do you all see there? 

XYK: So, we've thought about this a lot in the terms– we've had some of the fractionalized NFT projects come to us where you can deposit NFT, you can get minted fractional tokens in return, and of course that is meant to be paired with the floor price of the NFT. And so there's a desire to create liquidity and also to map price of the floor or of an external oracle. And so the way that, you know, right now we do not add a trading component or volume component, meaning we're just deploying liquidity and making sure that that stays around a certain price and, you know, all the different functions that we do with position management, except for the swapping function, external to the position, right?

So we're not making any trades in order to influence the price that we have a position around. Now, what we have done is paired up with market makers, and that's a service that they provide and just working out the collaboration with them. So I think that these things will come together where there's definitely a needed mechanism in order to make sure that the price oracle is a live price oracle that is sort of mapped on Uniswap V3 for pairs that have extremely low TVL and I think that's possible, but I think that that sort of requires constant buys and sells, constant.

And that's what market makers do, where they look at the spread between two exchanges and reduce the arbitrage possibility. So that could naturally happen, but with low TVL, you know, because of that high slippage and especially high volatility with price floors, or even you know, an index, especially if it's with other assets that have low liquidity and high volatility, then there needs to be this reduction of arbitrage and a trading component. So we are thinking about that and how to add that, but for the meantime, we're working with other market makers. 

Crypto Texan: Okay, yeah, that makes sense too. So when I think about Visor’s L2 strategy, I think you said that you're on Arbitrum and Optimism and so–  

XYK: We deployed there yes but it's not open to the public. 

Crypto Texan: Oh, okay. Okay. And I'm assuming that's because Uniswap V3 is also on those two roll-ups. 

XYK: Yes

Crytpo Texan: And so there was a proposal that went through saying that Uniswap V3 is likely going to be deployed on Polygon soon. Do you all see yourselves making the bridge over there and deploying there as well? Is that, I mean, that's your main focus, right? You follow where Uniswap V3 goes. 

XYK: Yeah, exactly. We follow Uniswap and that's because they're the, of course we're loyal to them because they were the inventors of this concentrated liquidity, and they're the only ones right now that exist. And so we do follow them where they go. And so we have been in discussions with Polygon for a while and we're prepared for launching on Polygon when Uniswap deploys there.

Crypto Texan: Yeah, we're big Polygon fans over here too at the Index Co-op, got a lot of our assets deployed over there. Now, one last question or two more quick ones - do y'all look at any other AMMs like Sushi or Balancer or does that not really fit y'all's model? 

XYK: Yeah so we've also discussed with Sushi about Trident, where those contracts are going to be very similar to Uniswap V3 contracts. And so we’ve made a determination that our contracts will be compatible with Sushi's version of concentrated liquidity. And then beyond that, we're building, we're working with Olympus Pro in order to allow other projects to use V3 positions in a bond at Visor, V3 positions and you know, our next one will be with Float and that'll be an Olympus bond that takes Visor LP tokens.

And that'll be next week when that goes live. And then, and so we view Olympus as sort of a liquidity venue and also working with TokeMak and seeing them as a liquidity venue where the liquidity that's going to be deposited through TokeMak and through the liquidity directors, you know, they have to choose an end liquidity venue.

So if the liquidity directors are choosing Uniswap V3, well you're going to need a manager for that, so that's how we're thinking about interfacing with them and building adapters. And then there's another protocol that has a V2 or a V2 style, you know, non- concentrated liquidity AMM that is working on a concentrated AMM version that is very novel.

And it’s not using any of the, it's not using NFTs, it's not using concentrated positions as they were invented by Uniswap, but instead using something different, which is very exciting. And we'll be managers on that concentrated AMM as well. 

Crypto Texan: I feel like you're being very careful not to say the name of that AMM. 

XYK: Yeah I am, I am. 

Crypto Texan: That's okay, that's okay. Well, it looks like we're up on time here. Y'all this has been fascinating, great information, really excited about the partnership between Visor and Index. So last thing to send everybody off - can you just tell everyone where to find out more about the three of you and Visor?

XYK: Sure so we're mainly on Discord, you know, our Telegram has an announcement channel, but we're on Discord - you can see our logos here, these are the– or not logos but profile orbs, you know, find us on Discord, in our channel, visor.finance is the website. And you can visit our web app through there, but that has also all the relevant links. But yeah, stop by our Discord, happy to chat anytime. 

Crypto Texan: Absolutely, yeah. Thanks to everyone who's listening live. Thanks to the core contributors of Visor Finance for being here. This is being recorded and we will get this out in about a week. I appreciate it, y'all have a great weekend and we'll see you next time. 

XYK: All right, sounds good. Thank you so much for having us. 

Crypto Texan: Absolutely. 

XYK: All right, bye. 

Brian: Thanks guys.

Saganaki: Bye.

Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

Transcript: @qjuniperus

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Crypto Texan: Hello everyone. Welcome to conversations with the Co-op. This is where we source questions from the Index Co-op community to gain insights from today's leaders in crypto and DeFi. I'm your host Crypto Texan, and today we have with us Romain from Paladin on the show with us today. Romain, thank you for being here with us today. How are you doing? 

Romain: I'm doing great, thank you. And thanks for inviting me. It's a pleasure being here. 

Crypto Texan: Absolutely. Well, we're happy to have you. We usually just get started with just a little bit of your background. How did you get into crypto and DeFi? 

Romain: Well, for starters, I got into crypto by missing the Ethereum presale because of my bank. But, you know, at the beginning like most people, at the start you see Ethereum & Bitcoin, you see the price going up, you see the price going down. We try to understand what's behind it, what's the tech. For me, it really clicked when I actually met the guys from EthLend, which is now Aave. So it was like the end of 2019, and they explained to me what they wanted to do. So it was the genesis of DeFi. For a bit more description I actually have a financial and banking law background, I used to be a banking lawyer. So it clicked a lot for me, and when I discovered what the tech was about, I thought, yeah, we can actually solve a lot of the problems we actually have right now in finance, specifically via DeFi. Which is why I find it very interesting because it solves a lot of potential organizational trust problems and the concentration of wealth that we currently have, which is why I'm actually extremely hyped to be here. And I've spent yet the past two years explicitly trying to say, to try and find how we can make this place better, basically. So yeah, that was how I got in.

Crypto Texan: I think a banking lawyer background is something pretty unique and something that we haven't really heard a lot about on the show or I think in the space in general, actually. So, how did the rest of your colleagues in the banking law world view DeFi? Are they even aware of it?

Romain: They're obsessed by it. You know, banking law is basically banking, regulation and compliance. So you have to know that basically today, every single person that's learning about banking law, or that's working in banking, it was like either they think DeFi is a travesty and shouldn't exist because it goes against every single thing they work for. Or they're desperate trying to find the right frameworks. But you have to understand that crypto is basically the most important and discussed topic in the sector because the problem with DeFi, actually I would say the problem with banking regulation is that it cannot and does not fit DeFi. So we have to reinvent frameworks. I didn't want to reinvent the frameworks, I'm not interested in doing that. I want to create what basically goes in the framework. We want to build something new. Like that's, that's the whole promise of what we're building, right? Actually there's something that's not that well known, but there’s quite a lot of lawyers in crypto. If you look at Aave, for example, Stani Kulechuv is a lawyer. Andre Conje from Curve and Yearn is also a lawyer. We actually have quite a lot of founders who have a law background. The reason for that basically banking law is the architecture of finance. The more you delve into finance, the more you realize that basically it's built on two legal frameworks. And what's very interesting is that if you build DeFi you also need to build some kind of architecture and the banking law is a good school to actually teach you how to build these frameworks.

Crypto Texan: Well, I didn't realize that Andre was a lawyer as well. And so you said you met the EthLend people who started that, which is now Aave , how did you get in touch with them? Like how did that meeting happen? 

Romain:  Oh, actually, it was the EthLend and the Maker guys. So I'm French, as you guys can probably hear with my accent. It was during EthCC two years ago, so then it doesn't really go further than that. I was already blue pilled by crypto and I saw EthCC was happening. I didn't have an invite, but there were public events and there was an Ethereum magicians event that was actually done. Where the EthLend guys were doing a presentation and they basically blew my mind. Which usually happens once you discover DeFi, right?

Crypto Texan: Yeah, it definitely does. I mean, that's why I'm here. Cause my mind got blown by the innovation in the space and how the capital efficiency that comes with decentralized finance. Yeah, I totally understand. So what drove you to Paladin and what caused you to found Paladin and what need in the space do you feel like this protocol is serving.

Romain: Actually Paladin is broader than a protocol. What we are trying to build is more of an ecosystem I would say. The thing that happened basically is that going down the rabbit hole, I started joining DAOs looking at what was happening. I was looking for example, at MetaCartel, from afar. I joined LexDAO quite early while I was trying to find something where I can contribute, I'm not a dev. My co-founder Kogaroshi is the guy, the brains behind the code. And the more we were delving and discussing about crypto, the more I got the hunch that governance was going to be one of the biggest things. Not because we need to coordinate, but because the whole point today about DeFi is that we need to scale without intermediaries and without creating new centralized points.

What do I mean by this? Blockchain is basically just a trust machine, right? The idea is to replace trust with algorithmic control. So you have two schools in terms of governance, either you try to have as little governance as possible, which is governance minimization, or you try to have the most decentralized governance possible, for example, which the Co-op is trying to do. I don't think governance minimization is the right approach in most cases, because the thing is that the context evolves so quickly that your governance becomes obsolete. And if you want to update the governance, you need a centralized team behind it to do it, or the decentralized governance to vote on it.

So decentralized governance is kind of becoming one of the central elements of building anything in crypto. And the further I went into this, the more I realized that today we have a huge problem in decentralized governance, which is voter turnout. It's useless to build a decentralized tech and a decentralized social consensus if we don't have enough people participating, right. And the problem is that usually you give, let's say 10 to 20% to a core team. Then for example, you do private sales or you give to investors, or you have some large wells that will also have 10 to 20%. So you have basically 40% of all your cap that belongs to, vested of course, let's say two or three centralized entities that can collude. And today in DeFi, you have under 10% of voters participation, which means that on the long run, once vesting will be done, if we have under, like, let's say 50, a 25% or 30% participation, well, basically the funds and the core teams will remain king makers. So there's a lot of arrangements that can be made first to avoid this, but the core problem with that, and I'm going to go back to my banking law background, is that if we don't find a solution, the regulator can very easily requalify everything we've built as traditional tech. And they wouldn't be that wrong because it's not really decentralized. So there's a really big challenge in actually building decentralized tech, right? In terms of distribution, but also in terms of the right participation and participation is actually much more important than just because of regulatory frameworks.

What we're building is not some kind of company, the idea is that we're trying to build protocols that should last centuries, right? And that will basically be able to live off of themselves. So maybe one of us as founders will die one day, probably, most certainly. And the community should be able to keep running without us. Which means they should be autonomous. And if we don't have the right participation and the right incentives for the community to feed themselves off the protocols, well, these protocols would die pretty quickly once the hype dies down and the core team lives, right? The whole point about crypto is creating a system that will outlast us. And at Paladin what we're trying to do is how do we create some kind of overarching system, some, some kind of a flywheel on top of all these DAO to help them basically keep living it. That's kind of the jam we're going for right now. 

Crypto Texan: Yeah, I understand that. And the way I think about it, and I think a lot of people think about it this way is that decentralization is really a spectrum. I mean, if you take a look using Uniswap as an example, if you just had Uniswap and you just ran the code on Ethereum and you've got your LPers LPing and people making trades, and you've got the nodes just validating those transactions and that's all it was, just autonomous code operating on Ethereum, then that's decentralized. That's very decentralized. But I almost feel like once you bring token voting into the picture, that's where you start falling on a different side of the decentralization spectrum. Would you agree with that? 

Romain: I think there's something we don't talk enough about. I'm sorry. I'm going to take a detour, is that we think decentralization is a goal, which it’s not. Decentralization is a means to an end. We shouldn't strive to be decentralized just to be decentralized. Why do we want to be decentralized, that's the question. We want to be decentralized because we avoid concentration of power, because we avoid nepotism, because we avoid having someone taking over a protocol and deviating it from its original mission, right. That's my opinion of why we want to be decentralized. So why is token voting bad, and why is it good? That's a very long discussion. I wouldn't say I'm entirely for token voting, I do think there is no solution as efficient as token voting right now. I don't see one and I can't wait for one to appear. And the reason why we do Paladin lending, which is our phase one of development, is because we think it's the most sensible approach to the current market sentiment and the market state right now. 

If you look at why token voting is important and its functions, there's two reasons why it works. First of all, it's the best way to harness human greed to create efficiency, right? People give energy, they give capital in hope of earning more capital. That's the basic idea. The second reason why it works is that it's very liquid. It allows people to enter and exit the system. And the third reason why it's very useful is that it's good for financing. So the Co-op did an OTC sale to finance its activity. We did a seed round for example. The reason that it’s complicated is that if you have a reputation based system, why and how would you raise money for your - how would you fund your protocol if it's not viable? Because the truth is, if you look at most protocols right now, and we're early, quote unquote, and that's the reason why most of them are not actually lucrative. They do not have enough revenue to sustain their development and to pay all the other expenses. So that's why you think token voting is necessary in the current framework.

Are there other solutions? Probably. There's been a lot of talk about separating reputation based systems and the dividends token. It's a smart approach, but it doesn't work for everyone because not all protocols have constant revenue, one, and two, most protocols take time to actually develop their revenue, which means that there's very little incentive in investing early. If we want to take another approach, we have to know that it will totally change the way we work with these current protocols. 

Crypto Texan: Yeah and I'm kind of thinking back to a piece that Vitalik wrote a few months back that basically just said, token voting sucks and it might, you know, it might quote unquote suck, but it's probably the best that we have right now. I think that's kinda what you're trying to get at a little bit, but he also touched on a lot of shortfalls with token voting, some of what you touched on. But another thing is if I'm LPing my Index token, I can't use that LP to vote. And also if I'm lending it out, I can't use that to vote either. But the people who are borrowing Index, they can vote. There seems to be some sort of incentive misalignment there. I just kind of wanted to get your thoughts on that. Should LPs be allowed to vote and similar aspects like that? What are your thoughts on that?

Romain: For those who follow me on Twitter, you know I'm a very big proponent of these things. I think that one of the biggest problems right now, sorry go ahead.

Crypto Texan: Actually I saw your tweet about LPs should be allowed to vote. So that's why I brought this up.

Romain: No, no, no. But basically today we're forcing token holders and that's a problem, not with token voting, but with governance architecture, we're forcing them to choose between governance and utility. Which is ludicrous because usually if you give utility for the DAO, you're usually a proponent, you believe in the DAO, so you should have a right to participate.

And the worst part is that it's actually insanely easy to integrate utility and governance both, especially once you have, for example, an integrated platform such as Snapshot, which has had its downfalls, but has an enormous amount of strengths. With Snapshot, you can very easily integrate different tokens into your voting system.

So you already have, and you don't even need to code like literally during the AMA we could integrate the LP votes for Index because I checked it. And I thought that you could vote with your LPs in Index, but it seems you can't. Similarly as we talked about lending protocols, you could totally be able to vote with your Index, for example, if it existed. So the problem you'd have is that you'd have a double voting problem. Like you have a lot in corporate governance structures because someone could be able to borrow your Index and vote with it. So what could you do? Instead, you could say to the lending protocol either only use our token as collateral because we want to keep it as governance or instead when people borrow Index they mint a synthetic version which has no governance power. That's totally doable too.

Basically this problem when we talk about separating both, they're not problem of token voting. They are problems about us learning and using correctly these governance tools. And that's something that's extremely important because right now we’re preventing a lot of people who would vote and to actually participating.

Crypto Texan: Yeah. And just to clarify with the Index token, you can vote if you're an LP on Uniswap V2, or Balancer. But Uniswap V3, that's where we run into an issue there. Let's kind of transition a little bit and let's talk about Paladin. 

Romain: Uh, yep. Just something I'm sorry. Ribbon finance did a framework to use a Uni V3 LP tokens to end vote with them. So there's already a template if you guys want to use it.

Crypto Texan: That's something we're definitely going to have to look into then. Thank you for that. So let's talk more about Paladin. What is Paladin doing now and what is it serving? How can the Index Co-op and other token voting governance protocols utilize Paladin to better serve their community and their ecosystem?

Romain: Yep. Okay. Exactly. So what we've been basically building at Paladin is how do you make voter turnout more important and how do you create liquid governance?

So what's liquid governance, liquid governance is being able to give the right decision making power to people who need it at a certain time. So of course you need guardrails because it means some malicious people could try and take over the protocol, right? But what's important to understand is that one of the biggest problem, and I think the Co-op has been keenly aware of this, to be honest, I think the Co-op is one of the most advanced protocols in terms of governance, which is you guys have the most up-to-date problems, but also have a lot of solutions.

What's important basically, we're trying to think, how do we make more people participate in governance and how do we reduce the friction in accessing all of this? So the way we see this is we see this as a three stage development phases. The first one being, we released something called Paladin lending two months ago on which we wrote the proposal.

This is basically a vote lending platform. Why should we recreate a vote lending platform today? It's because it's the most in context to the current market, it's the most relevant thing to build. It's really interesting and important to want to build coordination mechanism for minority holders, which is our long term goal, but it will not work today because the APYs are so big with everything that if you try to create something sensible quote unquote and just think about the governance premium, it's just not going to be relevant.

I'll give you a very easy example. I put this on Twitter yesterday by doing the maps. If you look at a classic Index token, it has an underlying all the $34 in all of those tokens, it controls in terms of governance premium, just with DPI, right? And it's only value that have this. Why? Because the market doesn't really care right now about governance premium. What the market cares about is about perception. It's about brand, it's about future value of the protocol, but it doesn't really care about the pure power of governance that it has. And that's kind of the problem. The question is how do we recenter the debate from pure speculation into governing?

Because the real value of governance tokens comes uniquely from governance. For most protocols, there is no other value than just governing the protocol, right? So at Paladin, what we do is how do we create something that is going to bring value to the protocols? And at the same time it's going to fit to current market mood, which is only caring about speculation. 95% of the people do not care about governance, they care about price action. So let's give more APY to these people. And let's enable people to borrow these tokens on another side, like the people who care about governance, they'll be able to borrow the tokens.

The problem you have is that if you create this, you basically treat the voting markets, which is what we did. And the voting markets, at least at the beginning, is going to “favor plutocracy”. Because it's going to enable people who have money to basically borrow and buy votes. So the question we did is we need to curve this correctly for it to be easy of access if you need a little bit of votes to do the heavy lifting, and we need to prevent it for external powers to just enter in by a vote. So basically you have to curve it; the more votes you buy, the more expensive. And you have to link it to governance activities. That's basically what we did with Paladin.

Why is this important? Because now that we have this base layer, we can now start building coordination mechanisms and we can start opening the access slowly, slowly. First to DAOs, then to delegates, and then to the individuals to coordinate for themselves. And I think that's why I disagree a lot with Vitalik and that's why we took this “original approach” to coordination or coordination protocol. We have a lot of founders saying that decentralize doesn't work, it's too complicated to build like this. We keep saying that we need to create new subcommittees to structure everything. There's something we forget. And I think that's very interesting and important is that crypto is supposed to scale coordination. Literally why we invented crypto, right? Replaces some part of the social link with algorithmic control. And if we do it right, we should be able to have a totally decentralized organization without sacrificing decentralization. And each time we sacrifice a bit of decentralization, we choose the easy path. I'm not saying we should go a hundred percent in one go to the, to the hot path, but we have to be aware that, and that's what we're trying to build with Paladin is how do we build the flywheels on top of these DAOs to basically have them go towards the pure decentralization path?

It's not an illusion. It's really possible.

Crypto Texan: Yeah, I want to touch on something that you mentioned back there. And that was, I think you called it the governance premium of the Index token because with the Index token, Index token holders can vote in governance proposals of the underlying assets of the index products that the Index Co-op creates, right? And you mentioned DPI, so we'll stick with that. So within the DeFi pulse index, within that smart contract, the tokens that allow for delegated snapshot voting are Uniswap, Aave, Compound, Yfi, Balancer, and Badger, right? So what you're saying is the price that it would cost an individual to purchase the amount, an equal amount of votes that the Index token provides in all of those protocols, it would cost around $34. Is that what you said? 

Romain: Yep. So I did a small Excel and I put it on Twitter if you guys want to have a look at it. Basically the amount of tokens in terms of governance power that's held by each Index token would amount to $34. And you have to take into account that the market totally crashed the past two week it was something like $50 or $60 a month ago. So this is something that we have to be aware of. The market does not value governance premium correctly. Why is that? That's for very specific, in the simple reason, is that governance premium and like any financial premium depends on the (I'm trying to find a word in English) on the conflictual degree of the governance. The more conflictual it is, the more value it has, the more an actor dominates the governance, the less value it has, because what's the point of actually participating in governance if you know, someone's just going to keep voting until basically they see themselves deciding what happens. What's very interesting is that we like to think that there's some kind of 51% attack in governance. It's true, but it's so much lower than that. It's 50.1% of the voter turnout, which means that if most protocols have 5% of voter turnout, you need 2.51% to actually basically be a kingmaker and totally destroy the governance premium.

So what kind of, uh, I would say fucked because of this reason, because we felt that by giving like five, 10% to some actors, it would go right even to core teams. But the truth is that the voter turnouts are way too low. And by doing this will decentivize anyone to actually participate in the governance.

Crypto Texan: So with Paladin, I'm trying to wrap my head around this a little bit more. How is the voting power borrowed, and how can smaller activists within a community leverage Paladin? 

Romain: Okay. Paladin right now was conceived to try and top campaigns for people who actually want to pass something, but who are missing, for example, the turn out. We've seen a lot of actors who have been moving heaven and earth to actually get their proposal threshold and weren't able to just because they don't have the right platform. What's a bit complicated right now in crypto, and we're working on it in a different manner, is that it's hard if you don't have the right brand and the right network to actually find the right power. 

So how does Paladin work? It's what we call a riskless governance lending platform. Why? Because what you do basically is that instead of just lending the token, what you do is that users deposit into our smart contracts. And there's a borrow that's actually created, that's requested, we transfer into a sub smart contractor, the required number of votes, and then it delegates to the address.

So what we do is we don't basically loan the governance token. We loan the delegation mandates, the difference being that the person who has the governance power has absolutely no control over the token. So outside of smart contract risk, there is no other risks. There is no liquidity reasons. There are no counterparty risk that's on the depositor side.

What's also interesting is that unlike a bribe, for example, and I think we should get into that a bit further, to understand the importance and the situation in which Index is, the difference being that it's very easy to close the delegation. And in the mechanism we've built as guardrails into Paladin, this is very much something we're putting a lot of importance in it. 

Crypto Texan: Yeah. Let's talk about that a little bit. Let's talk about bribes in the ecosystem and how that affects token governance. 

Romain: So bribes is a complicated thing, right? Because crypto in defined general has always been hovering between idealism between decentralized finance and hyper capitalism. And to be honest, we're all in the same situation. We're basically deciding right now, which direction we're taking and we will make our decisions. We were very much for the purely decentralized finance. Bribes is a very smart approach. We tested it a bit. So to give a bit more context in that we've been working for a year Paladin.

We first did a proof of concept last January during EthGlobal hackathon. And we tested the bribes system mechanism during spring last year, and we thought it was complicated to actually scale this and control this correctly. Bribes basically have a pool architecture. So what they do is they say vote for this proposal and we will reward you for doing this. So basically, they put a pot of gold and everyone who does a specific action can take a piece of the action. We with lending, do the opposite, we have a push architecture. So what we do is that we give the vote to someone and he does “whatever he wants with it”. The difference with it is that we can regulate what he does with the vote, because we can see real time what he's doing.

So that's kind of the different architecture. What's really important to understand is that if you have 15 people bribing, it's going to highly dilute the importance of what they do. So on the market, on a pure market vision, if you are a client and you want to borrow, bribes are less efficient on the long-term. On the other side, vote lending is more efficient because you know exactly how many votes you're getting, but it's also totally different because it cannot happen during the vote.

So the biggest problem with any voting market is that it cannot, it absolutely cannot happen and disrupt during a vote. Why? Because if you do introduce the notion of buying votes during a vote, it's basically just going to be a ping-pong battle between who gives the more money to win the vote, right?

What we're trying to do is different. We're trying to take the act to inspire ourselves from the corporate activism. And we're basically thinking before a vote, you should prepare yourself. So we spell it. You cannot borrow a vote during a vote.The idea is that you know there's going to be an important vote beforehand. And because you've read the forums and you prepared yourself and everyone knows it on chain, everyone knows you actually borrowed some voting power. So I'll give you a bit, some example of use cases that can be done for small holders right now which are interesting. For Uniswap right now, you can put up a forum post, you can discuss, but just to put a temperature, check a snapshot poll, you need a thousand Uni. 1000 Uni is $20,000.

So I don't know how many of you have the $20,000 in there in crypto right now. We are in crypto right now so it can be a surprising amount, but it's not of access to anyone, right? So you can put an independent amount. If people are agreeing with what you did but they don't want to risk it with you, you're just not going to be able to put up a vote. With Paladin, borrowing for a week a thousand uni costs around $250, which is much more accessible. It puts skin in the game for the person to actually just put their Snapshot poll. We shouldn't engage people to $20,000 or more just for creating Snapshot poll. So that's kind of the idea.

Crypto Texan: Yeah. That's really interesting. Is there a way that protocols could somehow circumvent what Paladin is doing? 

Romain: So, what do you mean by circumvent? You mean like blacklist? 

Crypto Texan: Yeah. I guess possibly blacklist or some other way where they could say, Hey, we're seeing on chain that these votes are being borrowed for a temperature check.  I don't know. Is there a way to do that? 

Romain: There probably isn't to be honest, I haven't thought of a way to take down our proposal because what's interesting is that we have variable interest rates. So it means that the deeper, the borrowing pool is and the “cheaper interest” are right are. But the thing is that if people disagree with the vote that's actually taking place with a borrowed token. What they can do is they can trade rich quick, which is just exiting the pool. The utilization rate is going to skyrocket, the interest is going to skyrocket, and it means that the loan is going to close very early on, which can enable people to basically cancel the proposal for example. That's a rage quit mechanism. Protocols could probably blacklist a Paladin address, but the thing is that natively, each time we create a sub smart contract, so you'd have to blacklist each smart contract one by one. 

The thing is, and that's something that's very important in crypto, it's not about the tool, it's about how people use it. And that's why we were very curious of doing this. It's not an experiment this protocol, because I'm very much convinced that not only is there a need to do that, but it actually reduces the friction and allows us to understand what are the needs in governance right now.

And what we're seeing is that there's a lot of frustrated people, not in terms of not being able to pass a proposal, but the biggest thing is about being heard. That's kind of the complicated thing, because if you have a 10 people governance where they're being elected, they can just speak and everyone's going to hear them. If you have a hundred thousand people, you have some good and some bad ideas. How do you make yourself heard? That's a very important question we haven't solve right now in crypto. 

Crypto Texan: I feel like this just adds a completely new dimension to governance and token voting. If you can just pool all of your assets out of the pool and in an effort to make the interest rates skyrocket, to make people pay their loans back sooner, so they can't vote. That adds another very exciting element. You know, this is one of the things why I love crypto and DeFi is that. Innovation like this is just happening continually. And you're making me very, very excited about Paladin right now. But I want to get in a little bit more on some of the governance for Paladin as well. Do you have a token? If you don't, when do you feel like you'll have one? And you said earlier that you felt like Paladin was more of just an ecosystem than it was a protocol. And I was just wondering if you can elaborate on that a little bit more as well. 

Romain: Yep. So I see my co-founder is listening. It's because I tend to leak things and he doesn't like it. So he’s probably surveilling me now, but we have a token. It is non-transferable, it's something we saw a few protocols do, and we really liked the elegance of the idea. We basically dropped half the PAL of the supply to everyone who participated in the large governance. So we had to make choices, we chose the one we had integrated, which are Aave, Compound, Curve, and Uniswap. And basically if you voted on chain on any of these, you are eligible to some PAL token. Okay. And the idea is that right now, the PAL token is only useful to govern the protocol. And that's basically the value of most protocols for most governance token, right? We didn't want to have anything to do with speculation before we felt comfortable with the fact that Paladin was basically an autonomous and a viable machine. I don't think we should introduce any financial aspect before that. And that's the governance will basically vote on it whenever they want. So right now, it's basically gated to everyone who had participated in governance.

Now we want to add some kind of proof of contribution dimension, where we're going to start it's in our forums. We're going to start the liquidity mining campaign to enable people to learn and borrow just for three months, just to give access to more people to the DAO. So it's a pure governance thing. Now why am I talking about an ecosystem? Basically Paladin is not just a vote lending app. The vote lending app is to fund what we want to build as a coordination ecosystem. Our idea in general is how do we make more people participate in governance. And the idea is reducing the barriers, for example, by introducing liquid governance, by incentivizing people in participating. And I think that's something very important that you guys talk a lot with the Co-op, is that you can't expect people to regularly and participating in a DAO if they're not paid for it. How do you expect people to work for it now, if they don't live off of it, and what becomes even more complicated is that most DAOs pay with their governance token.

How do you expect people to live with governance token? You can’t buy bread with Index or PAL tokens, at least not now. So the problem is that you're forcing all of your contributors to sell their token to live if you pay them. These are all different problems. And we believe that with vote lending as a reactor, we can basically build an ecosystem for DAO that's basically going to help them do that. I'll give you an example. I'm ready to put both personally and also with Paladin, but we'd have to vote on it to create either Alchemix or with an Alchemix fork a way for people to lock their governance token, borrow stable coins on top of it, basically live off their stable coins as if it was the wage and the issue yield opportunities with the token. It's basically just stakes and slowly pays back the interest rates and you can vote with the token that are locked in the Alchemix fork. This is a way for people to retain their governance power while being able to live off with their token wage. And these are the kinds of ideas that we want to either push and find the person to build.

This is not something we're building. That's why I'm giving you the idea, but there's a lot of needs that need to be done. And it won't happen with one protocol. It's an ecosystem. And our idea, we use the vote lending as a reactor because it's the most logical thing to do in today's context, we use the revenues to finance the rest of what we're building and we link everything with tokenomics. So that's what we've been building. That's why we prefer talking about an ecosystem. 

Crypto Texan: Yeah. I love that Alchemix idea you just gave too, because when I think about it, like the Index token, it has two main value propositions, right. And that's governance and meta governance. And then it also has a monetary value as well in the sense that I can sell it and then use that for living expenses as well. And it sounds like what you're doing with that Alchemix example is you've found a way to separate those two value propositions, the governance and the monetary value to where the token holder can lend out the governance and make money on the governance and also be able to monetize that monetary value that comes along with it. Is that basically what you were saying there? 

Romain: Yeah, I don't like the idea of saying separating governance power and then a monetary value. I think it's dangerous to think of it this way, because it creates a liquidity problem, which can be a big problem especially in crypto. If you look at the Olympus and Tokemak wave of discussions, but basically the idea is how do I keep my governance power while being able to - basically, how do I not sell my tokens while they're living off of them? And like a lot of the traditional finance society, which I think is kind of a problem, but that's a different topic. We're based a lot on lending and that's why Compound, Aave, and Rari they are working so well, is because lending is very important brick of our current traditional financial system.

And it is also a solution for us to basically retain our governance token. The idea is that, for example, you'd have your (I don't know how it's called), but this will be your alINDEX that would have governance power. And instead, like all of the Index inside of the fork would basically not be able to vote, you'd basically be able to mint some alUSD and live off of them. And can either pay back to get more of the Index token, or you can just totally get them back with time. And it basically creates a native vesting system for your governance tokens. Which is interesting, but the idea I was trying to get at is that building a coordination mechanism to help people participate in governance will not happen in one click because it is not in the interest of most people today to work together. And the idea, which is very interesting, we're seeing with Olympus, we're seeing them with the, with context, is that with algorithm, with smart contracts, we're able to push people into coordinating themselves.

Because if you look at Olympus, which is like the trend, what is Olympus? Olympus is a traditional bank. Basically they tell you, give us your reserve assets and we're going to give you a governance token that's going to help manage them. So you're trusting that us as a protocol will manage and coordinate better your assets that you loan. And that's why Olympus has value, to give the very basic idea of it. 

What’s dangerous with this system, and we've been seeing this with lobbyists, with Redacted, I'm saying dangerous - is that these are creating very powerful sub DAOs reserve asset vortex, that can basically eat all of them and they will not get it back.

So it means that you are basically giving up sovereignty and something very important about crypto is that you should always keep your sovereignty. You keep your keys, you trust you. Don't where you verify you don't trust. Right. And when you give your assets and you can't get them back, you hope to god that you're going to keep control of the protocol, right Because you're not seeing your assets again.

Crypto Texan: Wow. Yeah. So you mentioned a few protocols in there and I've got a couple of questions about other protocols. My first one is what protocols out there do you see that are doing just a really good job of governance? Like to the extent, to where if there was a new DAO coming up and they were looking for an example of how to do governance, very, very well. Which ones would you direct them to and say, this is a good way to do governance. You should copy this. 

Romain: Well, it puts me in a bad position because basically I was going to say you guys. So we look up a lot to how the Index Co-op has been building its structure, its organization. I think  it's one of the prime examples of how to do things right. I don't know if I could basically talk about another governance. I'm just thinking quickly out loud. It's quite hard because you know, the biggest problem with most governance is that usually they're quite small and it's been very hard to scale participation in discussions between a lot of people.

So I'm a big fan of the way Index Co-op has been doing things. I think Compound has something right too, but it's kind of complicated. We don't have any rule book on how to do governance correctly. And there is some kind of incentive first, right? We have to learn how to do this. And something else that's very important is that we think there's some kind of DAO equal, everyone has the same kind of governance model, but each different protocol has this specified culture. There are specified people using them and also the budget they have. There's so many different things that we have to take into account, and it can't be one special type of governance of DAO framework that's going to work for everyone, right?

Crypto Texan: Yeah. Right. Absolutely. And I'm kind of thinking more about the structure of Paladin and maybe I'm curious about the treasury makeup of what those treasury assets look like. And I'm also wondering what are some of the revenue drivers to the protocol today or what will be some of the revenue drivers in the future? 

Romain: Okay. So that's something that's very important. We've been thinking a lot about it because we knew that by building at least the Paladin lending model, the pools of not only the treasury, but the pools would have enormous voting power, right? So that's something very important. Paladin is a tool for governance. It's a tool for activists. The protocol itself will not vote with the protocols they have the deposited, neither will they with their treasury. That's not something we intend to do because we believe that this, the protocol in general can only work if it is credibly neutral.

So basically, that's the first part. The second part is that medium term, also we have to talk in a mix, right? So we'll tend to distribute most, if not all of the protocol treasury to, in a certain fashion, not to token holders, but to people participating in governance, because that's basically how we want to create the feedback loop for the protocol. That's something that's very important for us. 

You have two types of DAOs if you look at it. You have those that have treasuries and you have DAOs that basically keeps constantly redistributing everything. If you look at, for example, Curve. Curve has no treasury per se. They basically redistribute everything to veCRV holders. I think that allows the DAO to be more neutral, because as long as you have the “treasury”, people will keep vying for it to basically get a budget, to live off of it. So we were thinking of it this way. Something that's very important that I think not enough protocols do it, is that usually when you create a protocol, you have the core team that basically says, okay, this is our allocation. This is what we give to fans. Now we're going to build and let's see how it works. We've been trying something a bit new in our forums, just the discussion that just happened today. We try to have the community vote on our allocation.

So why is that? I don't know if you guys remember the articles that Andre Conje wrote on the why building in DeFi sucks. Basically he gets the feeling that the core team is a slave to its users. I think it's very unhealthy for a lot of reasons. It's because the core team should not be the benevolent actor in the DAO.

Everyone should be responsible for the wellbeing of the DAO and the core team should be elected to build one specific thing for a specific time. And that's the reason. So for example, as Paladin, we basically asked for a 15% allocation vested on triggers to build Paladin lending, to build the all business development, the communication around it. And then on top of it to build another project, which we call factions, which is a minority holder coordination and to build the transition over it. And that's basically what we want to build. So we will keep in this direction, we'll fix the business development, the communication, but if there's a lot of other opportunities that can build on top of Paladin and we believe there are, I don't think it should be our job to do it.

Like we have to be very clear. The team is not the protocol, and if we are, I think it kind of creates a problem. It disaligns the team from the interest of actually building the right thing for the protocol. The committee can choose to accept or not, if they think, what the core team has been building, but they can't dictate the team to what they should do each time.

Like people should just take up the matters of their own hand and do it. Our treasury has over almost 70% of  PAL tokens left. They can be financed if they need to build something, right?

Crypto Texan: Right. Absolutely. And so are y'all looking at any layer two strategies or EVM compatible side chains or just kind of want to see y'all's thoughts there and what are you looking at?

Romain: Well, most of you have seen it, right? Ethereum is very frustrating right now. I've been in Ethereum for four or five years and transactions are very unhealthy right now. The thing is that as the Paladin as a protocol, it's hard for us to go on other chains because there is no very easy, no other protocols where there's very interesting governance happening.

It's slowly getting there. We're seeing some chains like polygon, for example, where things are happening, but it's not as vibrant as Ethereum. On the other hand, I don't think you guys have seen a zK vote on Starkware is extremely promising. I do think that the optimistic roll-ups and even the more zK roll-ups show a lot of promise. I would love to see some kind of governance, roll up that would help us basically reduce the cost of voting this way onchain. And I do know some projects that are working on this and that's our plan is basically standing on the shoulder of giants and helping them transition into these more healthy and cheaper alternatives.

Crypto Texan: Yeah. I'm thinking about what Su Zhu said a few weeks ago. Do you feel like Ethereum has abandoned its users? 

Romain: Yes. Uh, Su Zhu just bought $500 million of Ethereum. So he abandoned, but he's a trader and to be totally honest, I don't follow him. He probably says a lot of smart things because his job is basically to campaign down his bags. His job is to make money. His job is not to build Ethereum and this is something we have to be very keenly aware of. Most of us are in this call. We're builders. Our job is to build things. Our job is to make Ethereum go forward. You have a lot of people. 90% of the people in crypto, their job is to make money. These are not the same thing. You can make money by building, but it's not the first thing you should do. The first thing you should do is build your project.

Crypto Texan: Yeah. I think that's something that I definitely tell a lot of people who are just getting into the space is, anything you see on Twitter or in Discord or on a podcast or wherever, just keep in mind that those people have an incentive to say what they're saying most likely. And I think you should always take that into account that everyone is trying to pump their bags most likely, right? But I think when you look at people who are, who are working for protocols, and I think that's kind of something that's kind of helped me focus a little bit more, it's just getting involved with the Index Co-op and keep my head down and working in it kind of helps you like sift through the noise a little bit and focus a little bit more on what's important in this space.

Romain: Yeah. You know, things go so fast. It's hard to lose the sight of what's actually important because you see, you have the Olympus thing going at 500000% a year, which is very exhilarating, right? And then you lose sight of basically what was important at the beginning. Also something I think that's worth mentioning, I don't know how many of you have you guys know WithTally that also work in governance, they do great job. They are releasing, I don't think they already released some kind of widget that you can have on Chrome. And basically on Twitter, it basically looks at which Twitter address is linked to which Ethereum address, and you can see the bags of someone directly on Twitter and, you know, crypto is all about transparency. It's all about being able to verify if someone is b**********g you or not. And what's super interesting is one, when you see someone basically talking about something you can actually see, and that's my hope if he was paid, if he holds a larger amounts of token, if he's a diehard member and I think giving this optionality of transparency is something that's very powerful.

And to be perfectly honest, we are aware that bribes are kind of inevitable in the sense that people will always try to buy votes. I'm not saying we should generalize it. What I'm saying is that we should be able to be aware of what's happening. And then that is really a bribe. If everyone knows you were paid for it, because either it's done in the right manner, because there are ethical reasons to actually need more votes or it's done in a wrong manner.

And you're basically losing your own credibility. I think transparency forces us to rethink a lot of the traditional paradigms we have in terms of ethics. And we haven't had that much work on it.

Crypto Texan: Yeah. I completely agree and I really appreciate your thoughts on that. And you mentioned that other protocol, I'm just curious in general, what other projects are you looking at in the space? Not necessarily related to governance, it could be DeFi or, or metaverse or data economy related, but what other projects are you looking at in the space that are really catching your eye from I guess an innovation standpoint?

Romain: I'll be honest, I'm a bit of a governance nerd. I'm extremely excited and had been called for very long time about Tokemak. I know I'm not the only one that someone sent me a message. I think it was Alex, Josh. And he was also talking about Tokemak. I think what's super interesting, you know, is that we're slowly, slowly pushing and it's logical to shift a lot of responsibilities that were in central hands into DAOs. So, what we're doing is that instead of having large holders, we have large sub-DAOs. For example, in Curve you have convex, you have Yearn, you have stakeDAO.  You're going to have Redacted & Lobbies. And what's super interesting, you’re going to have Tokemak too, is that it means that, and that's basically what Index is. Instead of having to go to one main DAO, you're going to have to see the different tribes, the different sub DAOs and have them sit down together, talk and decide what's good and what's wrong.

And what's happening is that we're starting to have the base layer protocols that are losing their individual and centralized lot holders. And in place you have a lot of large sub-DAOs. So what's super interesting is that governance is about to get much more complicated than it already is for the basic word is basically your protocols.

And we're kind of trying to make some sense out of this. Because right now, for example, I give a, let's say Convex starts accumulating Uni, Redacted and Lobbies too. So instead of just choosing one Uni token, you could use an Index token to leverage your road or a lobbies token or the convex token, right? And this is where it gets interesting because depending on the supply, the price of the market, it's not always more interesting to have just purely the Uni token. So the governance approaches are going to get much more modular.

Crypto Texan: Well, yeah, that's an interesting, interesting thought as well. We're kind of running up on time here, but there's just two more questions I wanted to get in. One of them is, you know, at Index we do have crypto native index products, like the DeFi pulse index, Metaverse index, Data economy index. What is another index that you think would be interesting for the Index Co-op to put out? 

Romain: Well, as I mentioned, I'm a governance nerd, so I would kind of say a governance index, but a bit differently than the DPI has done. I think what should be done is that thinking about what each type can bring, and have a specific indexes that brings specific types of governance power.

So for example, if you want a financial incentive DAO you'd have, for example, veCRV into your index. On the other hand, if you want, you could have a lending index. What I'm trying to get at is that each of these different index, because it has underlying voting power could allow the users one day buy into the index to know they're going to get leveraged power into the index.

So it could be index is centered around governance premium. What gets really interesting, and that's something where index kind of got boomer-ed by BlackRock, which is a bit crazy. I was talking with Mel about this, is that BlackRock is slowly giving up the governance power of the shares they own and letting the index holders vote with them.

So they basically decentralized their index, which is crazy. This is in traditional finance, right? I don't think there's an incentive to do it in crypto or even with the index, because the context of indexes is passive investing. But I'm just saying there's like a lot of different approaches that are appearing and we can't only think about index about just putting tokens in the basket. We can be much more modular and much more original in the approach. 

Crypto Texan: Yeah. That's a really good point as well. So the last question I have for you is where can people go to find out more about you and Paladin? 

Romain: Yep. Sure. So personally you can look at Twitter. It's @figue_me. I just usually ramble about governance. Paladin is on Twitter and on discord @Paladin_vote. And you can find us there to the discord. We try to be as transparent as possible. So if you guys have questions, please feel free. We've tried our onboarding process, basically onboarding index as a pool takes one hour, but instead of just on-boarding it, but we wanted to talk with the community. We don't want to build just something new and say voila, now you deal with it because the truth is that crypto is immutable. Our idea is how do we build something together? So its going to be a net positive.

Crypto Texan: Yeah, absolutely. And, Romain really appreciate you coming on the conversations with the Co-op with us today. Really excited about the future partnership between the Index Co-op and Paladin and yeah, this is great. Everyone who's listening in the audience live. Thank you for doing so, this is being recorded, so we'll get my audio engineer NakaMomo on the task, and we should get this recording out in about a week, but yeah, Romain, thanks again for being here.

Romain: Really appreciate it. Thanks for having me and thank you guys for attending. All right. Thank y'all. Have a great weekend. Bye.

Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

Transcript: @0xMitzy

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Crypto Texan: Hello. Welcome to conversations with the Coop. This is where we source questions from the Index Coop community to gain insights from today's leaders in crypto and DeFi. I'm your host Crypto Texan. And today we have Leighton Cusack from PoolTogether with us here today. Leighton, thank you for being here with us today. 

Leighton: Yeah. Thanks for having me. I'm a long time Index Coop holder. So it's good to be on the call.

Crypto Texan: Always good to have Index Coop holders on these conversations. So let's get into your background. What is your background and how did you get into crypto and DeFi?

Leighton:  All right. Yeah. I could probably talk about that for a while, so I'll try to keep it short. So my background is kind of generally just in software entrepreneurship. So when I graduated undergrad in 2010, I started a company right after undergrad, that was building software to facilitate donations actually, cause I was really passionate about trying to help people give more money by making it easier to give money. That was not a blockchain thing though. So that's my background. I started getting into crypto in terms of just buying it in late 2016. And then in late 2018, that's when I got introduced to DeFi.

And so my first DeFi experience was you know, locking Eth on Maker, minting Dai, and then taking it over to Compound and depositing it. And that was in December, I think, or November of 2018. And that for me was like the huge, just sort of aha moment of like, this is incredible. And from that point on, I knew for sure I wanted to do something in DeFi. DeFi the term didn't even exist at that time. So I didn't know I wanted to do something to DeFi, but I knew I wanted to work in the crypto blockchain space. So that's how I got into DeFi. And then specifically how I started contributing to PoolTogether was when at this time, early 2019, I was particularly interested in what are the applications for blockchain technology that help people become more financially healthy.

In the course of my research on that, I came across this concept of prize savings accounts, which are really popular all over the world. They very obviously would work a lot better if they were administered via decentralized smart contracts, as opposed to with centralized intermediaries. And so that's how I specifically started contributing to PoolTogether. 

Crypto Texan: And do you have a developer background or what, I guess, what is your role at PoolTogether and how do you use talents from your previous life in what you're doing now?

Leighton: Yeah. Well, that's a good question. First to clarify, there's PoolTogether, Inc, which is the company that I'm employed by, and then there's the PoolTogether protocol. And as of February of this year, the control and governance of the protocol was fully decentralized with the issuance of the POOL token.

And so I still work for the company, that's my role. But obviously the company is still working to build on top of and around. It's kind of the typical open-source software model where you create an open-source piece of software and then you can provide services around it.

So that's just to clarify sort of like what my involvement is in the protocol. So I'm no longer in control of the protocol. Now I'm a part of the company that initially contributed to it. And I would still consider myself like a contributor to the protocol in a more informal sense, but not so much professionally.

So that's kind of a long-winded answer, but just to describe that portion of it. I think more directly to your question. I'm not an engineer, so I definitely can't write code. But I do have a pretty good technical understanding of how the systems work. I like to dive deep. So I'm not  technical, but I do have a pretty good technical understanding. And I think what's probably been most applicable to me from my experience it's just community building, you know, with the last company that I started it was a lot different because it wasn't decentralized. So it was a lot different in that sense, but there were some elements of the community side in terms of customer support and in terms of building community around a product that I think are applicable to DeFi as well. 

Crypto Texan: So are you a founder of PoolTogether or was it already around and then you just hopped in and started contributing?

Leighton: I was the founder of the company,  PoolTogether, Inc. So to go back again early 2019, I went to the Ethereum Denver conference and at the time I had this idea of like, “Hey, I really want to work on creating a protocol to facilitate price savings.” And I actually pitched it at the conference and this is a little shout out for people listening. I went to that conference and at the time I knew no one in crypto. I did not. I went to the conference by myself. I almost didn't go because I didn't really want to go by myself. It's kind of intimidating to go by yourself, obviously. And I knew no one in crypto and I went to that conference all by myself.

I actually ended up meeting my two co-founders at that conference. I pitched the idea for PoolTogether. People really liked it. I tried to work on it that week. We didn't actually win any prizes or anything in the hackathon, but that was sort of how it got started.

Crypto Texan: Okay. Yeah. And I feel like PoolTogether has been around almost as early as Maker, Synthetix, Uniswap, Compound. And personally, I'm a huge fan of the protocol, but I feel that PoolTogether when you compare it to those other protocols that I just named haven't really obtained the same type of popularity as the others. Why do you think that? 

Leighton: I think it's because.. I'm trying to say, I don't want to say that we're ahead of our time, but a little bit, I think PoolTogether is a protocol that, so if you look at like Maker or Synthetix or Compound, those are sort of like very base layer protocols, right? Maker is literally a stable coin. That's like the most base layer you can get. Compound is borrowing and lending that's for a financial product, that's sort of like the most base layer that you can get. PoolTogether prize savings, that doesn't so much appeal as much to whales. I mean, it does appeal to some whales, but it appeals more to people. It's more like a consumer protocol. And so I think that in the early stages, just naturally at the earliest stage is when there's less protocols out there. There's less people out there. The things that will get more prominence are going to be the things that are more base layer. Whereas prize savings is something that is built on top of Compound and Aave, it's built on top of that base layer. It requires a little bit easier like on-ramps to use it and things like that.

And so I think we're seeing this change right now. It's getting easier and easier, right? To get into crypto. It's getting easier and easier to use these things. Gas fees are getting lower on Polygon, et cetera. And so I really feel like for PoolTogether, our sort of moment in the spotlight is still coming because I think it requires the on-ramps into DeFi to be a bit more developed than it did for things like SNX and Compound and Maker.

Crypto Texan: Yeah, that's interesting. I haven't really thought of it like that, so you're not necessarily DeFi 1.0 or DeFi 2.0. You are, I mean, you might even be DeFi 3.0, which might be just completely retail facing. That makes a lot of sense because this prize savings accounts feels a lot more retail focused. And why don't you go into what a prize savings account is and what a no loss lottery is for our listeners. 

Leighton: Yeah, for sure. Prize savings accounts and no loss lotteries, those terms are kind of used interchangeably. I prefer prize savings accounts, just because if you say the word lottery, people get confused and start thinking it is actually a lottery when it's not. But the basic concept is, regardless of what term is kind of used to describe it, the basic concept is it's a savings account, on the blockchain of course, so not like a bank savings account. But it's a savings account like you would have at a bank where you can deposit & withdraw whenever you want to.

There's no fees to deposit and withdraw. But the difference is with PoolTogether, with prize savings, the difference is, instead of getting like a fixed APR, you typically get either like a lower APR or potentially no APR but the interest that's earned on everyone's money is combined and given out as prizes. And your chances to win those prizes are based on how much you deposit. So that's sort of the mechanics of it. If you think about it from a more behavioral perspective, it's essentially a way to gamify savings. It's essentially a way to make savings more fun, and also to make them more economically beneficial, because at a really core level, what price savings do is they give people an opportunity to get asymmetric returns without risking their principle.

So like, for example, the luckiest person who's ever deposited into PoolTogether, they put $75 in won like $43,000. So there's no other way, if you're someone who has $75, you don't have any way to get an

 asymmetrical return on that money without risking your principal, right? Like you could potentially get it by investing in doge coin, but you're taking on the principal risk. And so economically what PoolTogether does and what prize savings do is they give people, and this is particularly helpful for people who have smaller amounts of money let's say like $10,000 or less, they give people a way that they can still have their savings. They can still withdraw it whenever they want to. They don't have to worry about that, but, well, they have it deposited. They have exposure to asymmetric returns. So that's sort of like a mechanical definition of how it works. Also a psychological definition and also sort of an economic definition.

Crypto Texan: Yeah, absolutely. And why did you feel like this prize savings account idea was perfect for the blockchain because there are real world examples of prize savings accounts. So why is doing this on the blockchain better? 

Leighton: So, yeah, so a few things. So one is its auditable in public, right? So a big issue with price savings is like, how do you know that the person who won the prize actually was randomly chosen, right? And when it's on the blockchain, you actually can know that and you can verify it and you can see that for yourself. So having that public auditability is really, really important. The other thing is that typically prize savings are very costly to administer because, you know, if people are depositing like a hundred dollars and you have to handle the administration for each person that the unit economics are very unfavorable. Basically, it would be the way to say it. And so with being built on a protocol, there's no incremental costs, right? So more people can deposit. There's no costs that accrue to anyone when people are depositing more. So your growth is really uncapped, which makes it possible to have much larger amounts of money that are deposited and then therefore much larger prizes. So that's like the second reason. So the first is the transparency, auditability. Second reason is really the scalability. And the third reason is  you can get higher returns, right?

So capital is more efficient in decentralized finance. So therefore you can get higher returns. And then the final thing, which is sort of the overarching reason is that it can actually be a decentralized user owned protocol. Right. So instead of building this as a centralized service, where everything is controlled by a small group of individuals or a company, it can actually be a decentralized protocol that's owned by the people who actually use it. And to me that's the most important thing, but I think there's also, those product improvements are important too. 

Crypto Texan: I mean, it sounds like you're just hitting all of the major buzzwords and for the right reasons, you know, transparency, low overhead scalability, more efficient capital use, which yields higher returns. Are there examples of these price savings accounts like that you can think of in the real world? Because I don't know, I’m in the US and I think you're in the U S too. I don't know of any in the US. 

Leighton: Yeah. So there's a couple, there's a few in the US right now. One's called Prize Pool and one’s called Yotta Savings. There's also like Walmart in the past, they had a program that did this, so there are a few in the US. The biggest program globally is in the UK. So in the UK, they have a program it's called premium bonds, but it functions the exact same way, but they just call it premium bonds.

And that program has like a hundred billion or over a hundred billion US dollars deposited into it. so, you know, if you have a hundred billion dollars that they only, it only yields like 1.2%. But you're still going to be distributing like a billion dollars a year in prizes, If you have a hundred billion dollars deposited in 1% APR.

So that's the biggest one globally, but they are available in the US but I would say they're less popular culturally than they are in other countries. 

Crypto Texan: Yeah. And I think that, I mean, as far as I can think, at least you're one of the most successful early examples of a protocol that is actually building on top or utilizing smart contracts that call other smart contracts. Cause you're built on top of Aave and Compound, I think. Do you want to talk about that a little bit, and is there any possibility of expanding beyond just Aave and Compound for when you're using those smart contracts. 

Leighton: Yeah. Yeah, for sure. So yeah, you know, I think the word some people in the audience may have heard before is composability. So that's this big concept in decentralized finance and DeFi of being able to easily build new things by composing different things together. And so you could think of PoolTogether, at least like when it first launched, it was a composition of Maker with the Dai stable coin in Compound with a yield source.

And it was sort of built on top of those two things. And, um, yeah, I think PoolTogether has been one of the earliest and it's one of the best examples of that. To your question on like the yield sources long term. I mean, I would definitely hope that the protocol would be integrated with a bunch of yield sources.

Now with the decentralization, the inclusion of yield sources is up to governance to vote on. So it's not something we have control over anymore, but I definitely would like to see that happen. But you know, obviously with something like PoolTogether we want to be a lot more Conservative on yield generation, right?

Like there's all sorts of ways you can try to get like, you know, a 50 or a hundred or whatever percent APR, but a lot of times those come with increased risk. And so one thing I'm most proud of is the fact that the PoolTogether protocol has never lost anyone money. It's never been hacked in any way. And that's actually really rare right in this space. And that's a record that I really hope protocol keeps. 

Crypto Texan: Yeah, that makes sense. Like the security of what you're using to build on top of is really important because if you were to use something like Cream and they had that huge exploit a month or two ago, or even Badger today that would be a loss of funds for your users and that would kind of defeat the whole purpose of a no loss lottery. So users put their money into this pool, that money is then lent out and the interest is then paid to one or a few different, users in the pool. All of that interest that's generated, does all that go to the users at the end of the week or is some of that retained by the pool or by the PoolTogether Treasury. How does all that work? How does that distribution end up playing out?

Leighton: Yeah. That's a great question. So, and it's a little tricky to answer because there's some nuance and because the protocol has sort of been transitioned. The short answer would be The POOL token holders control how the interest is distributed. And so basically, and actually, so this is something that just happened today. The POOL token holders did their vote a few days ago to create a new prize distribution. Right? So, there's all sorts of ways you can distribute the interest that accrued.

Let's say there's a hundred thousand dollars that's accrued in a week. You could have one winner, you could have five winners, you could have 5,000 winners. Right. So that's up to the POOL token governance to determine how those prizes are distributed. The other parameter that governance manages that's pretty interesting is the reserve.

And basically what the reserve does is it's a mechanism to make sure that the prizes are always bigger than just the amount of money that's deposited into the protocol. So basically the way it works is like there's a reserve rate. So say it's 10%. What that means is like 10% of the interest generated, stays in the prize pool, and then sits there and contributes interest to all future prizes. So it sort of builds this like a perpetual growth machine. That's what we've called it before. Which I think long-term is a super powerful concept for the protocol to just have like hundreds of millions of dollars in this reserve, that's then contributing to making these prizes larger and larger and larger.

So those are sort of the ways it works out mechanically. But like I said, at the end of the day, it's the decision on what those parameters are up to the POOL token holders. 

Crypto Texan: Okay, so that interest reserve, and in your example you said 10%, that is no longer eligible to be won, but it is contributed so that interest compounds over time is what you're saying. 

Leighton: Exactly. Yeah, yeah. So it's not eligible to win. So what that means is. Well, I'll give you a concrete example. For USDC I think there's like, $20 million deposited, but then there's also like $5 million of reserves. And so that means there's the interest as if it's $25 million, but that $5 million isn't eligible to win. So that's just contributing interest to the prize. 

Crypto Texan: Okay. And is there a limit on how long someone has to be in that pool to be eligible to win? Because what's to stop a user from coming in, depositing a hundred thousand dollars on the day of the drawing, and then withdrawing it the next day. 

Leighton: Yeah. So there's not a limit. No. But basically your chances to win are weighted by your average deposit over the prize period. So let's say there's a prize every 24 hours and you deposit one minute before the prize. Your chance would be very, very small because your average balance over that 24 hours would be tiny. So it basically automatically weighs your chances based on how long you've been deposited.

Crypto Texan: Interesting. And so if I've had a deposit in the pool for a year, does that make me more likely to win as opposed to someone who's been in there for two months? Or is there a limit on that? 

Leighton: So, no, it's only within that prize period. Assuming you're deposited for the whole prize period, whatever that prize period is your chances to win are the same, it doesn't matter if you're in like multiples in a row. It's just a mechanism the protocol has to protect against what you were just talking about, which is like someone coming in right before a prize, like a big whale coming in and depositing and then withdrawing right after. It just keeps the system fair while also enabling people to leave whenever they want to without ever having to lose their money.

Crypto Texan: Yeah. That sounds fair too. So yeah, it's something you've obviously  thought about quite a bit. So what assets are currently available for people to quote unquote, PoolTogether, on your platform? 

Leighton: Well, that's a good question again. There's a little bit of a nuance here because the V4 protocol was just recently released. So the V4 protocol, it's just USDC. And that's really, at least in the short term, I think where the protocol is moving is just supporting USDC but you can deposit it on any blockchain that's out there.

The V3 protocol price pools do have other assets, but to be honest given what's happened with Ethereum gas fees in the last six months, I wouldn't really recommend anyone to deposit into them because it's just too expensive. So it's really just focusing on USDC.

Crypto Texan: Okay. Yeah. And given that you're a more retail or the idea is to be more retail facing a DeFi protocol, how have those gas fees affected the growth or just overall perception of the protocol?

Leighton: Oh, yeah. It's been a huge problem for sure. If you look at the stats, the V3 protocol pools, no one really deposits into them anymore. I actually just ran the stats; 96% of all deposits are on Polygon now with the V4. So there's very few people who are still using Ethereum. So that's an issue, but I guess the good side of that issue is that it's an issue that has not completely been addressed, but it's been largely addressed, right? Like with Polygon now being available, with these other blockchains as well with the L2s and, you know, once the critical piece I think is like, once you can go from Coinbase to Polygon directly, that's when it will really get unlocked. It's definitely been a big inhibitor to growth for sure. You know, I don't think anyone, if you had asked me a year ago, I don't think anyone thought gas fees were going to get as high as they've gotten. A year ago it was maybe like a dollar in transaction fees and now it's like $150. So it's crazy. 

Crypto Texan: And just in your opinion, what do you attribute to these high gas fees? Do you think it's just that the demand of the network and people are willing to pay those high gas fees for the overall security of Ethereum? Or do you think in the future that Ethereum's mainnet will be just used by protocols and L2s they batch transactions down to the mainnet or I don't know what future you see for mainnet in general.

Leighton: Yeah, I definitely see what you just said. Like, and again, that's why I just always tell people don't deposit because it's only going to get worse basically, in my opinion. I mean worse, maybe it's not the right word to use because in some ways it's better, right. Higher fees mean more economic security, but I think what you're right is that it's going to be Ethereum layer one will be protocols using it to move large amounts of money around. It will be L2 using it for security to verify stuff. It's not going to be normal people using it to do transactions.

I think the reason for a lot of the gas fees right now it's the arbitrage and it's the bots, right? There's so many arbitrage opportunities on AMMs to buy an asset and then sell it on a different one. And those bots are just running automated and the bots don't care. They'll spend $5,000 on gas to make $5 because they just are trying to make $5. So they don't care. I think that's  why gas fees get so high because these are not price sensitive transactions. These are transactions that people will run regardless of how much it costs as long as they're turning a tiny little profit. And that's what's happened with mainnet.

Crypto Texan: Well, yeah, I haven't really thought about the arbitrage bots and how that's truly affecting the gas price. That's an interesting take and I had David Hoffman on a couple of weeks ago, or was it last week? That was two weeks ago. And he just had that conversation with Brian Armstrong from Coinbase. And when he asked Brian Armstrong “wen Polygon”, he said we're working on it. So I think there's a light at the end of the tunnel there at least. 

Leighton: I think Q1 2022 is going to be pretty awesome for DeFi. I think Coinbase is going to come out with some stuff. I think we have the Zapper wallet that's going to come out. On-ramp is getting better with things like moon pay. So I do think we're going to have that breakout moment soon where people can actually use this stuff without having to worry about crazy transaction fees and a lot more people can have that aha moment that all of us on this call have already had.

Crypto Texan: Yeah, absolutely. And the Index Coop, you know, we've kind of been bridging assets over to Polygon to make that a little bit friendlier for retail on the gas standpoint, and then we've been moving people to the Dharma wallet. Because that’s a great fiat to Polygon on-ramp that is pretty seamless.

But we've talked about Polygon a lot, what are your thoughts on Arbitrum and Optimism. I feel like the Index Coop is pretty bullish on Polygon and the future there, and it sounds like PoolTogether is too.  Do you see any future with those layer two Roll-ups the optimistic roll-ups at least?

Leighton: I definitely do, and I'll be using them - that will be where the majority of my assets are. I don't know though that they're going to get to the 1 cent transaction fees that I think they have to for the mainstream. So I think I love both of them. I use both of them already. I will use them more, but I think they're going to appeal to sort of like a middle ground of people who maybe aren't whales, but also understand some of the decentralization security a bit more, and value that, and are willing to pay for that.

But I don't think they're going to ever get to and I could be totally wrong. So take it for what it is, but I don't necessarily know if they're going to get to like the 1 cent or like sub one cent transaction fees that we really want to get to. And I think Polygon maybe can stay there. I also think the zero-knowledge proof stuff, like the zK roll-ups, could potentially be there too. So I mean maybe the optimistic roll-ups can get there too, but I just know right now they're not. 

Crypto Texan: Does PoolTogether have any strategies to deploy on those layer two roll-ups?

Leighton: Well, yeah, like I said, ultimately the deployments will need to be voted on by governance, but I think the general idea in the community, if you come and hang out, is yeah we want to have the protocol on every EVM compatible blockchain possible. EVM compatible, meaning sort of an Ethereum compatible.

So definitely once Aave gets deployed, I definitely expect there to be a vote to deploy PoolTogether as well onto Optimism and Arbitrum. But also other EVM compatible networks like Avalanche. I mean Binance smart chain is even compatible. Phantom is as well, like all those networks.

Crypto Texan: So not only just EVM compatibility, but also you need to have Aave there as well. Cause that's what y'all build on top of. 

Leighton: So EVM compatibility would be a base requirement and then there would be some other dependencies and the most prominent one would be Aave. You know, Aave is not a hard dependency, like the protocol could use other yield sources for sure. But the integration has been built a long time ago. It's been audited. It's been live, it's been tested, you know, so there's a security component there where ideally you don't want to change that. 

Crypto Texan: Yeah, then that makes sense. And so what type of revenue drivers does PoolTogether have to drive revenues to the protocol's treasury right now.

Leighton: I wouldn't call it revenue, but the protocol reserve is a mechanism to build value into the protocol. And that value, that unique thing I think about is that that value makes the protocol better. It's not just building value for the sake of value extraction. It's actually building value for the sake of making the protocol better for everyone who uses it and building this long-term. It basically builds the best place to save in the entire world, which is kind of awesome. So that's really the primary mechanism right now. But again at the end of day, that's really up to the POOL token holders in terms of what they want to or how they want to manage that, how they want to set that, et cetera.

Crypto Texan: Okay. And what are your thoughts on treasury diversification for DAOs and protocols? Just kind of want to get your opinion and what is the makeup of PoolTogether’s treasury. Is like 90% of it in the POOL token or a hundred percent of it in the POOL token. How does that look? What are your thoughts on that?

Leighton: Well, that's a great question. So in general, I'm a huge fan of treasury diversification. PoolTogether did one of the first treasury diversifications earlier this spring with several large investors that put 6 million USDC in and receive POOL tokens from the protocol - there was a vote on that. So I think that makes a lot of sense. I think if you look today, PoolTogether actually does have a diversified assets in the protocol. There's probably about $50 million in total assets and probably about 10% of those are in.. actually no, more like 20. 20% of those.. close to 20% of those would be in like non-POOL token assets. So there's a lot of assets. Actually, if you go to info.PoolTogether.com, you can see there's just a dashboard. You can see all the different tokens and what the composition is. So I definitely think that for the longevity of the protocol, you want to have diversity. And so I am a big fan of treasury diversification. Did Index Coop do one? I feel like you guys did one too. 

Crypto Texan: Yeah. I mean, we do have some diversification in our treasury where we definitely sold some Index to get some USDC as a hedge against potential price volatility in our own native token, the Index. But then we also hold some DeFi pulse Index, metaverse Index, we hold our own products in the treasury as well as we probably should. Let's go back to the launch of version four probably about a month ago or so, what are the differences? You touched on this a little bit, but what are the main differences between version three and version four? And also I'm just curious; what did version one and version two of PoolTogether look like?

Leighton: Yeah. Well, okay. All versions have been the same core concept, right? No loss, deposit, withdraw whenever you want to, and while you're deposited you have the chance to win prizes. That's the same core concept. But what happened with version three? There's a couple of things. One thing that happened with version three is that it actually sort of became a victim of its own success because hundreds of millions of dollars were deposited into it. But version three had a very hard technical limit in terms of how many prizes could be awarded. So there's like five winners per week. And so what that meant is unless you were a whale, you basically had a really small chance to win, and that's not what anyone wanted. That's not how the protocol was intended to work. It was intended to work where even if you have a very small deposit, you still have a good chance to win. So, that was sort of what happened with version three. 

The other issue with version three is that it was built on Ethereum and obviously gas fees got out of control. And if we wanted to deploy it onto other protocols or other blockchains, it would require starting from scratch. So the V3 protocol was deployed into Polygon, but the prizes were really small because it wasn't cross chain.

So what version four has done is two main things. The first is that it's truly cross chain. And what that means is regardless of what blockchain you deposit on, you have the same chance to win the same prizes. So what that means is you don't have to pay Ethereum gas fees anymore. So that's really, really awesome.

So that and that allows for growth without fragmentation. Right? So instead of having a $10,000 prize and Polygon and a $5,000 prize on Optimism and a hundred thousand dollars prize in Ethereum, you just have a $150,000 prize that you can access on any chain. The other thing that's really cool about V4 is you can have an unlimited number of winners and prizes. So previously it was like a hundred thousand dollar prize, and there's five winners who each win $20,000 now. And again, this is up to governance so it can change, but basically it can be set up any way that governance votes for. So it could be like, “Hey, there's a hundred thousand dollars in total prizes, but there's going to be one $50,000 prize, and a thousand, a hundred dollars prizes and 10, whatever the math is on, like different tiers.” Those can be adjusted over time. 

What that means is as it grows, instead of your chances of winning getting worse and worse, your chances of winning can stay the same or actually even get better because new prize tiers can be introduced. And so just to put this into specific numbers, the V3 USDC prize pool ran for 47 weeks. And over that time it had like 200 winners total. The new V4 USDC has been running for seven weeks and it's already had over 2000 unique winners. So already over 10 times as many winners in a much, much smaller amount of time. So it's orders of magnitude better than the V3. And so this is really what I think is going to be the best design for the protocol to support helping people save. 

Crypto Texan: I think it would also be interesting just to kind of estimate what were the cumulative gas cost for the V4 versus the V3 winners? Cause now Version four of PoolTogether is currently on mainnet and Polygon. And I know it's all based on governance, but what would you predict would be the next chain to be deployed for version four. 

Leighton: The one that we've been talking about internally in the Discord is Avalanche, so I think that probably will be next. There's going to need to be a vote on that soon, and then I think after that would be Optimism and Arbitrum, I'm assuming, because I do think they will be over there pretty soon too. But to your point, with the V4 97% of all deposits are on Polygon. So there's actually only like a hundred depositors on Ethereum and there's like 4,000 something on Polygon. And the reason is because Ethereum really makes sense if you're a whale and you have a bunch of money you want to deposit. 

Crypto Texan: Yeah, it's kind of a funny story. Actually, when version four came out, I deposited some funds onto mainnet. And then I won 20 bucks and I was like, all right. And to claim it, it's $150. And I was like...That's not going to work. 

Leighton: I'm sorry. You had that experience. 

Crypto Texan: No, that's okay. I moved over to Polygon, which I should have done in the first place. If I had thought about it a little bit more I would have come to that conclusion quicker. You said that y'all just ran the stats on numbers of winners for version four. Is that what you just touched on or did you have more that you wanted to elaborate on that?

Leighton: No. Yeah. I think that's mostly what I touched on. It's basically the stat to contextualize it. As of today in the first seven weeks or whatever, half of all unique wallets that are currently deposited have won a prize. If you tried PoolTogether with V3 or V2 or V1, there's probably a 99% chance you never won anything, but if you try it now, there's almost the exact opposite. If you had your money in for a few weeks, there's a very high chance you'll win at least something.

Crypto Texan: Yeah and I think another thing that PoolTogether is really known for is just having a great community. And I'm just kind of curious, what can you attribute to that success of having such a great community? What advice would you give to other DAOs and protocols to somehow mimic that success that PoolTogether?

Leighton: Yeah. Well, I think the first thing I'd say is there's no shortcuts to it. To create a great community, there's no shortcut, it takes a long time. It takes a long time having people in your community who are welcoming, who are willing to answer questions, who are willing to deal with trolls who come in to harass, who aren't looking for just a short-term profit, who believe in changing the world and who believe in making a big difference and a positive impact on society. There's some of those people are on this call. These are people who had been on the community star tree, who had been in the community who have helped countless people. You know, good people attract good people. And what you have to do is you just have to have patience. You have to just show up every day. And, over time though, you start getting more and more good people and more and more good people bring even more good people.

And that results in a really wonderful community, but it just takes time. I think that's one of the biggest things. 

Crypto Texan: Yeah. And I've, I've kind of started to think that if you're looking for a protocol or a DAO to get involved with, and you're looking for one that has a good community, I think a good place to start your research is on Twitter. And just looking on people's Twitter names and seeing what emojis do they have on their Twitter names. And for y'all you have like the wave that crashes down and that's kinda y'all's thing. And I think it means a lot if someone's willing to identify their Twitter handle with a protocol that they've invested in or a community that they're trying to get involved in. So that's kind of maybe just a little anecdotal, something I've been kind of looking at recently. Olympus DAO does a great job of it too, with the (3,3), and that was pretty big. 

Leighton: Yeah. It's really cool. I mean, that's a really interesting point. That's great. Like it's such a unique thing that has only happened in the last year. But it's very good. It's an interesting observation that that's kind of the new way of doing it. 

Crypto Texan: Yeah. Cause it's not only are they just invested and involved, but they want other people to know too. And that's kind of their way in the metaverse of doing that. I think if you look at other protocols like Uniswap, every time there's a governance proposal and Uniswap, it makes headlines in the Twitter space at least. But I don't know if they have a very strong core community, and that's just another way that PoolTogether just kind of differentiates itself from these other DeFi protocols. You and I talked a little bit earlier, but there was a research report that came out by other internet research about PoolTogether Dao. How did that come about with that research paper? 

Leighton: Yeah, well that, that was something that the pool grants. There's a really good grants program. I'm obviously not affiliated with it or on it, but it's an amazing program that I support. The grants committee actually funded that research report. And it's actually quite interesting because the other internet did two research reports, one on Uniswap and one on PoolTogether on the communities. And the reasons for doing those were really because they're opposites. PoolTogether having a very flat, highly engaged community and Uniswap having different different types of community.

It was really cool I think for everybody in the community to have some outside experts come and observe and do interviews and really validate what we all knew and believed, which was that this is a great community and that it is something special. And there's something really valuable about a special community. It was awesome to have that fun, and awesome to have that report done. And they also pointed out ways that the community could be improved. And I think everyone's really excited about acting on those two. 

Crypto Texan: Yeah, something that I learned when I was just kind of skimming through that report was that PoolTogether was actually closed source at the beginning. And then around, I guess the summer of 2019, I think you or the community made a decision to open source the protocol. And it was like early days of DeFi, early days of these tokens that maybe the closed source was a more common thing, but what went into the thinking of starting closed source, and then what convinced you and the team to open that code. 

Leighton: Yeah, it's a good question. I mean, I definitely have originally approached PoolTogether and DeFi in a very web2 mindset. And closed source is a very web two mindset. It's very much like, “Hey, we're going to create this thing. We're going to copyright it. We're going to control it. And we're going to extract value and we're not going to let anyone else use it.” And I had that mindset to be honest in the beginning. I really didn't understand. I understood some of the tech around it, but I didn't understand around blockchains, but it didn't really understand open source & what that meant. I didn't understand what it meant to build public goods software to give up control. And so that was a huge learning for me. The impetus was really the community saying no, you guys can't do this or you shouldn't do this, there's a better way.

And there was a huge educational thing for me coming from a startup background in web2 and not really understanding open source software, what it meant, how it worked, et cetera. And so having a bunch of people, some of them in kind ways & some of them are not kind ways, explaining that to me was a huge aha moment for me and really changed my whole mindset to really just be dedicated to building open-source software that is decentralized and that's in control of the users. It's actually just a way, way better and more fun way to build because you aren't in control and that's scary. There may be downsides, but it's also a lot more fun because you get to see things take on a life of its own. You get to see people step up, you get to see how things evolve without being in control. 

Crypto Texan: Yeah. And so we're kind of running up on time a little bit, but I just kind of want to ask a few, just kind of more fun, random questions. The first one being what other projects do you have your eye on right now?

Leighton: That's a good question. I think there's so many good DeFi projects right now that are so underrated. I really like ribbon finance, Maple finance. I think Index, I think the Fei and Rari merger is really cool. Those are some of the biggest ones right off the top of my head. Oh, perpetual protocol I think is really cool. I mean, I love the L2 stuff, I love Optimism and Arbitrum. I know there's no tokens, but those are awesome projects. I'm a huge supporter of awesome to use things too. So that's a, that's a quick thing, but you know I’m a DeFi believer through and through. So you're not going to convince me that this isn't going to change the world. 

Crypto Texan: So you're a degen as well?

Leighton: Well, I wouldn't actually say I'm a degen. I'm not crazy aggressive financially. I love to try out stuff, but I don't consider myself to be a speculator. I'll say that I don't do trading. I don't do a lot of buying and selling. I put a lot of money into crypto, but it just kind of sits there. Yeah, that's what I would say. 

Crypto Texan: Yeah. And it's interesting, you've mentioned like the Fei and Rari merger that they're proposing and you kind of saw that too with the Polygon Hermez deal as well. I wonder, do you think that that's going to be something that we see a lot more of in the future as protocols just kind of get this symbiotic relationship with each other? I mean, cause y'all use Aave so much, do you see a future where PoolTogether and Aave could merge or what's your outlook on that? 

Leighton: Yeah, I mean, It's possible. I don't think that would happen, but it's certainly possible. And it's certainly, yeah. And I do think more of this will happen in the space in general. And I think it makes a lot of sense because it's also typically what you see in innovation cycles. Right? You see like a new underlying innovation, you see a sort of an explosion of projects and things built on top of it. And then you see some level of consolidation as people realize by combining forces, you can do more. So I'm definitely interested in that trend and to the degree that, you know, could that happen to PoolTogether? Definitely. I mean, I don't have any specific ideas, I haven't talked about it, but like, could that happen? I definitely think it could. I think it's something that we're going to see a lot more of. I think we'll see protocol to protocol stuff. We'll probably see company to protocol stuff. We'll see protocol to company stuff. Like where a protocol buys a company. We'll also probably see where a company maybe buys a protocol. I mean, obviously you can't really buy a protocol, but a protocol could vote to sort of put a company in control, like those types of things. So there'll probably be a lot of interesting stuff in 2022. 

Crypto Texan: Yeah. I guess a company could purchase enough governance tokens to have enough control of a protocol. That's a possibility, right? So what else on the roadmap for PoolTogether outside of everything that we've talked about with like L2 and EVM compatible side chains, what gets you most excited or what other features would you like to see added to the protocol?

Leighton: What gets me most excited is just that with the new V4, is that it's finally sort of working, right? Like people are coming into the discord and saying look, I used to buy lottery tickets, now I'm saving my money. There are people who are like, Hey, I'm showing my kids how to save money by doing this, like those types of things. Those are anecdotal, but I love seeing that. And I think we're going to see a ton more of that in the next year. I think the way that's going to happen, it's going to be through the protocol getting integrated into interfaces that are offering it to the end users. So I don't think the future of 2022 is like a bunch of people coming to PoolTogether.com and depositing through the interface that's on there. I think what's going to happen is fintechs, banks, exchanges, et cetera, will be integrating DeFi broadly, but also in that I think PoolTogether specifically, to make it really easy for people to access the value propositions of DeFi without needing to deal with all the complexities of it.

And so I think that's what I'm really excited for. I think DeFi as a whole, right? We're not in a space right now where we need necessarily new innovations. We have a lot of innovations. What we need is to make it easier and safer for people to access them. And that's similar to right with the Coop. For a long time, and I know now the DeFi Index tokens on Coinbase, but it was hard and you were talking about that with bridging over to Polygon. So it's not so much that we need to invent new things. It's just that we need to make it safer and easier and more accessible for people to use them.

So that's what I'm excited about and I'm excited about the impact that's going to have on people's lives as that happens.

Crypto Texan: Is the POOL token on Coinbase?

Leighton: No, it's not, it's only Polygon and Ethereum.

Crypto Texan: Okay. Yeah. I don't use Coinbase at all. I only use decentralized exchanges anymore. So when I have random friends that text me, “what do you think about this token?” I'm like, “where did you hear about that?” And they're like, “oh, it's on Coinbase.” I'm like, oh my God, there's so much on Coinbase now. Big shout out to our institutional business development team for getting the DeFi pulse Index on the Coinbase institutional platform. Which maybe means that we can get on actual Coinbase or Coinbase pro in the future as well. I think that's all the questions we really have. Is there anything else that you wanted to touch on while we have an extra six minutes here? 

Leighton: No, I think this is great, I think I would just give encouragement for the people listening. If you're curious about this stuff. There's a welcoming community to help you, I'm sure. At Index Coop and also at PoolTogether. Generally the best way to get involved in that community is to join the discord for either of those two projects. I was someone two years ago or three years ago, knew nothing about how any of this works and knew no one who worked in crypto.

And now I know a lot about it and I know a lot of people and I'm happy to share that knowledge as best as I can, but I also just wanna encourage people. If you think it's too late, it's not, you can get started now. It's scary to go to conferences by yourself or things like that, but it's going to be a really rewarding experience. That would be my last thing to say, just give everyone encouragement to try things out, get involved and start learning. And I think they’ll be really rewarding. 

Crypto Texan: I think one of the main reasons that it kind of deters people from getting involved is just, there's so much new jargon that you need to know. And that's kinda what I tell people is like, just get involved, listen to podcasts, read, get involved with the DAO. And you're going to hear words that you don't understand like sharding and mempool. But I think over time through osmosis, you just start to figure out what that stuff is and you don’t have to look it up or read an article about what the mempool is eventually. You're just like, oh, okay. Yeah. The mempool is full, so gas fees are going up or whatever. 

Leighton: It's a lot of jargon. 

Crypto Texan: Yeah. Well, Leighton, glad we were able to get you on. And also, uh, the Index Coop back in the summer had our DeFi summer panel and you were on it. So just want to give you a shout out there and say, thanks for joining that council with us as well, that panel discussion. 

Leighton: Yeah, that was a lot of fun. That was one of the first post-COVID crypto things I went to. So that was awesome. 

Crypto Texan: Yeah, me too, actually that was my first crypto event ever because I just happened to be in New York that weekend and I was like, Hey, I'll be in town, like I need to go to this. And of course all the guys that I contribute with over at Index were like, oh yeah, totally, just come on over. Great experience there, but Leighton, like I said, thanks again for coming on. Thanks to everyone who's listening live right now in the discord, a special thanks to Nakamomo who's going to be mixing this and we will get this mixed and published in about a week or so. Stay safe out there  everybody. Don't get rekt and have a great weekend. Appreciate it. 

Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

Transcript: @0xMitzy

- How do you short an asset?

- How does shorting assets make for a healthy ecosystem?

- DPI, MVI, BED, & ETH2xFLI available on Beta Finance?

- and more!

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

Follow us on Spotify: Link here

RSS feed for Apple Podcasts: Link here

Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

- Which new projects are you paying attention to?

- Is Aave Arc and Compound Treasury REALLY DeFi?

- Next big thing for Ethereum?

- and more!

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

Follow us on Spotify: Link here

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

- Fusing blockchain and AI?

- A way to scale your consciousness with AI?

- iNFT - Intelligent NFTs?

- and more!

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

Follow us on Spotify: Link here

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

- Real Estate on the blockchain?

- Index Coop partnership?

- Which jurisdictions allow for RE on the Blockchain?

- and more!

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

Follow us on Spotify: Link here

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

* What is PrimeDAO?

* What is a Meta-DAO?

* How can DOAs launch, rate, pool and venture together?

* and more!

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

* Why are you called DeFi Dad?

* How do you explain crypto to newbies?

* What role do L2s have for adoption?

* and more!

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

* Smart Alpha vs Smart Yield products?

* Is Barnbridge DeFi 2.0?

* $DPI is live on Barnbridge!!!

* and more!

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

* What’s in the Data Economy Index?

* Compare $DATA assets to their analog equivalent?

* Other non-Ethereum native asset inclusions?

* and more!

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

* How did you get into Crypto?

* What’s your relationship with the real Elon Musk?

* You’re a Data Economy Index bag holder?

* and more!

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

* Is Bitcoin just a meme-coin?

* What are zombie chains and ghost chains?

* What is the importance of financial privacy?

* and more!

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

* What is a Hybrid Liquidity DEX?

* Why have orderbook DEXs taken a backseat to AMMs?

* When is IDEX launching on Polygon?

* and more!

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

* Collateralized vs algorithmic vs centralized stablecoins?

* When DPI as collateral?

* Is there a multi-chain future for Qi DAO?

* and more!

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo6

Marketing Image: @ChavisChance / @cafpunk

* Partnership between TikTok and Audius?

* What is the next unlock for DAO tooling?

* "I think that DAOs are the new LLCs"

* and more!

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo

Marketing Image: @ChavisChance / @cafpunk

Audio from the August 19, 2021 installment of “Conversations with the Coop” with Kain Warwick, the Founder of Synthetix.

* Why do regulators hate synthetic assets?

* How do governance attacks help the ecosystem?

* "I've got a big chunk of DPI, been holding it for a while!"

* and more!

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo

Marketing Image: @ChavisChance / @cafpunk

* Why fork Compound vs Aave?

* What is this new iceCREAM token?

* Deposit DPI into the Iron Bank!

* and more!

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo

Marketing Image: @ChavisChance / @cafpunk

* What is Slingshot Crypto?

* Why did you launch on Polygon vs Ethereum?

* Who is the Concourse Open Community?

* and more!

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Host: @Crypto_Texan

Audio Engineer/Mixing: @Nakamomo

Marketing Image: @ChavisChance / @cafpunk

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real alpha in this conversation.

* What even are binary options?

* What’s the relationship between Synthetix and Thales?

* What should users be paying more attention to in the DeFi space?

* and more!

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real alpha.

* How are Ethereum on-chain analytics used?

* What is “Token God Mode”?

* How can DeFi users and DAOs benefit from on-chain data analytics?

* and much more!

Audio from the July 12, 2021 installment of “Conversations with the Coop” with the founder of The Daily Gwei and co-founder of EthHub, Anthony Sassano.

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord and get the real alpha.

* DAOs are revolutionizing work

* EIP-1559 and ETH 2.0

* Why did he shave his beard?

* Is he looking into other L1s?

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord.

* The institutions are coming!

* Aave Pro vs Compound Treasury

* How did Stani get into DeFi?

* And more!

To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord.

* The Future of LPing

* What is Indirect Liquidity Provision?

* Launching a protocol during a bull market

* And more!

* Index internships

* The return of the smart Balancer pool

* ARCx allocating to DPI

* Things you can do with your DPI

* New Index Coop website

* MVI growth budget request

* DATA index proposal from @Thomas and @Kiba

* Liquidity mining strategy including the game changing Uniswap V3

* Delegating FLI update parameters

* General market thoughts and outlook

* Protocol ambassadors for meta-governance

* A revamped Instagram account

* Whether the Index Coop is a startup

* KPI options as a proposal to reward hitting targets

* $300m Total Value Locked

* Rari Capital integration

* MVI hits 1 month old!

* Onboarding new joiners to the Coop

* INDEX community allocation as part of the strategic sale

* Design team laying out plans to overhaul the website

* Charitable donations from a DAO

* Q1 snapshot review against our North Star metrics

* Call for product contributors

* Vote for merch designs

* ETH2x-FLI revenue briefly flips DPI revenue

* Ocean of data by JD Cook

* $INDEX Strategic Raise

* A proposal for DPI backed RAI from Reflexer Labs & Fire Eyes DAO

* Zerion cashback campaign

* SDI and BED get one-step closer to launch

* Index merchandise with MetaFactory

* The novel concept of impression mining

* Market making loan for our KuCoin listing

* Methodology update for DPI

* Products galore: Synthetix Debt Pool Mirror Index, dVIX and BTC2x-FLI

Other topics covered include:

* Ownership economies and financial empowerment through crypto gaming

* Liqudity mining incentives for MVI

* The virtual launch event at Tominoya Casino in Decentraland

* Battling Axies (unsuccessfully!)

* BED Index moving to the IIP

* Index Coop Dune dashboard

* Renewed focus on meta-governance

* Bankless share their BED with Index Coop

* Full-time contributor retention

* The market waking up to $INDEX…

* Token Terminal Through DG1

* Treasury Management

* Meta-governance arbitrage

* $DPI is listed on Bitmart!

* The Index Coop Financial Report

* Moar data

* IIP Triple Threat

* CGI official launch

* BED product proposal by Bankless

* Decision Gate 1 voting for the Metaverse Index

* PoolTogether lottery for $DPI

* Flexible Leverage Index reaching Decision Gate 2 voting

* Premia finance launching DPI options

* Treasury diversification

* DPI growth

* NFTs as an investment

Other topics covered include:

* Transak Integration

* Metaverse Index Q&A

* CGI x YAM

* The Bull Case for $INDEX

Other topics covered include:

* Metaverse Index

* Meme Team

* Website Upgrade

* $CGI Logo

* $DPI growth

Other topics covered include:

* CEX appeal

* Set Protocol V2 Launch and the BED portfolio

* CGCI-LV index looking for a new name

* mStable inclusion and BTC on Ethereum

Other topics covered include:

* Loopring layer two liquidity mining for DPI

* Latest updates on the FLI and Coinshares indexes

* Unincentivised assets under management

* Governance staking and meta-governance