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All right, everyone, welcome back to another episode of Bell Curve. Before we jump in, quick disclaimer, the views expressed by my co-host today are their personal views, and they do not represent the views of any organization with which the co-hosts are associated with. Nothing in the episode is construed or relied upon as financial, technical, tax, legal, or other advice. You know the deal. Now let's jump into the episode.

All right, everyone. Welcome back to another roundup of bell curve. We got Michaels 1 and 2 Vance. Yeah, no, Alice. Welcome.

What's up?

Thank you, sir.

Good to be here.

Been a slow week. Slow week in crypto land.

Everybody's busy for DC though.

Busy for DC. Vance, I think we owe you a congratulations. Congratulations is in order. Yeah, we got the shout out from VCs congratulating themselves.

I'm a 2 time, I'm a 2 time.

You know.

Big of

true, Big of true.

That was great. You got me. Now that, good sport.

I mean, voracious reader. How have

your readings been going, Vance?

I mean, I bought 1 other book, and I thought it was a normal book, it's a fucking textbook. It's like a thousand pages that just showed up with that. I was like, I can't

read this. This is too far. Was it the Dalio, the New World Order book?

No, it's a hundred years of investment returns. It's called the Triumph of Optimus. It's got like all these charts. It's a lot. Maybe it's too much, but I'm gonna start digging into it at some point.

Did you learn

that every hedge fund, if you've given long enough time, eventually blows up?

Yeah, That is pretty undeniable. That and being bullish is usually a winning strategy. I think those are kind of the 2 lessons, especially if you read the long day it takes on finance, like the price of time or triumph of the optimist.

I agree with that. I think, even I've heard, even like Stan Druckenmiller, who I think he's that he makes his money in a bearish way, but most of the people, even like the famous macro bears out there made their money on longs, not shorts.

Yeah, I mean, I don't think I've known anybody in crypto who's made a career off of shorting. I know a lot of people who've been completely destroyed by that. So, you know, have anecdotes there as well. Yeah. All right,

you wanna get into the stories of the week here. So obviously, I guess the caveat here would be that these have already been sort of talked to death. So I want to spend a relatively limited amount of time on them. But the SEC has come came after both Binance and Coinbase this week. The TLDR is that the allegations against Binance were, I would say, much more serious than Coinbase.

So non-exhaustive list for Binance was that, so Binance, BAM Management, BAM Trading and CZ were all personally named as defendants in the suit. The allegations are that Binance BAM trading sold unregistered securities, Binance co-mingled customer funds, I'll call back to SBF, Binance operated as an unregistered exchange, there was wash trading on Binance US, Binance and CZ solicited US customers, and a whole bunch of other things. Coinbase is what's much more, I would say it's completely different actually. And their allegation is that Coinbase operated as an unregistered broker. There were securities, unregistered securities on that exchange.

The 1 that stood out there was Solana and Matic, but there were others listed like Cardano, Filecoin, Sand, and then they specifically targeted their staking program as well. So There's a lot that's been said about this already, but curious just what sort of takeaways you guys had from the week.

Frankly, it's not a super differentiated perspective, but as it relates to both of these lawsuits, I think 1 of the things that we should keep in context is what's going on with whatever is happening with Ripple. And that started in December of 2020. It's now June of 2023 and there isn't resolution on that. There's been intermediate decisions and intermediate kind of things that have been admissible, things that have been dismissed. But this is going to take years to play out for both of these situations.

And in the meantime, Coinbase came out and said, we're not shutting down our staking program. We're not delisting assets. We don't list registered security, unregistered securities. We are compliant. We were compliant when we went public.

All of this stuff is going to come up to a fight and it's either going to happen in the court or frankly, it's also going to happen potentially in Congress and there's going to be new laws, new rules created in the meantime. So yeah, not a hugely differentiated approach. I think on the Binance front, frankly, like everybody was wondering where Catherine Coley was. We now know. That's the best

part of all of this is that Coley's back.

Seems like Brooks and Coley have been sharing information. And you would also kind of assume, with the level of the allegations that are happening in the Binance suit, I wouldn't be surprised if there's something from the DOJ at some point. Just because it looks and feels a lot like the SBF, FTX, Alameda stuff. Not saying that a suit means that they're guilty in any way, shape or form, all that stuff has to get adjudicated, but it just feels like that's the direction that things are moving for Binance. Yeah.

Honestly, I don't really have that much to add there either, I think. I don't think it's widely.

The market, there were 2 things that were interesting. Gensler was out and the SEC, they were obviously trying to paint Binance as FTX 2.0, but If you look at the outflows of Binance, here I can pull the chart here, it was pretty just business as usual, like normal day, you know?

I think it's nice that you got this out of the way also. You had the well-known as hanging over Coinbase for like 6 months. Binance has been 4 years of waiting. You know, I remember Tether in the last bear market that like kind of resolving was 1 of the points where things got a little bit more optimistic. But you know, there's no alpha in my opinion, like worrying about this regulatory stuff.

Like it's either, you know, like a full cycle away. So like the next bear market is like when this might resolve. But ahead of that, to Michael's point, there's like legislation, there's court cases, there's so many different things that could supersede this that, you know, who really cares in my opinion about this. Probably just like traditional media news outlets that are trying to make a narrative out of it. Yeah.

I also think traditional media.

Mainstream media, man.

Mainstream media,

you know? Yeah. You gotta get off here.

I actually think there was a bit of a market signal which was, you know, it's not like prices really reacted super negatively to this, especially post the Coinbase news. They actually rebounded. And generally I view it as a positive sign when there's really bad news, but prices don't put in a new low. So I thought that was actually kind of a silver lining.

Yeah, I mean, for all of the media consternation from the mainstream, ETH is up just about as much as NVIDIA this year. And NVIDIA is the best performing asset in the S&P. So like, there's kind of, I get this feeling that like, perception is like more, it's just like a bit more doomer than reality at the moment. It's good to kind of just like take a step back and look at the prices and just see that it hasn't moved.

It's kind of like, you know, in scary movies, when you have the whole like 2 thirds of the movie where you're chasing around and you're trying to figure out what the monster is and the monster's coming to get you, but then you finally see the monster and you're like, oh, that's just animatronics.

It is interesting if you think about how risk-averse Coinbase used to be. I forget if back in the day we were waiting for them to list ETH, because it was just like Bitcoin and Litecoin for a while. They only had 3 assets. They were super careful. There wasn't a listing framework.

It was just like there were 2 assets. And now it's the total different way and they're not really as scared seemingly of the SEC anymore.

Yeah I think that was sort of an internal fight between Balaji was at Coinbase at the time He was their CTO and there was someone else who had more of a trad5 background.

Yeah, I don't remember that being a regulatory reason for them. I think that was just like, are we trading Bitcoin only or adding stuff? It was May of 2017, no it was 2016 that they added ETH. It was when they acquired GDAX, right? Right.

Oh man, did they acquire that? I don't know. Or they rebranded Coinbase Exchange to the global digital asset exchange GDAX.

Yep.

And they had.

Well, I think they had, their UI was basically like a basic swap and then they added GDAX for professional traders because that was a, I believe that was sort of like a Fred or some desired goal. Cause he wanted it to be for more like a trading experience. Yeah.

I have a question for you guys. They're coming out, like all the C5 exchanges are getting attacked right now. It makes you think about like just the role. Okay, so basically like there are 3 groups in traditional markets that perform different actions, right? You have the exchange, which is like, brings together the buyers and the sellers and like, is the marketplace for the buyers and sellers.

Then you have the broker dealers who represent the customer and like bring the trades from the customer to the exchange. And then you have the clearing house, which settles the trades and sometimes the custodian as well. In DeFi, this would be in like CFi right now, there's like this kind of weird co-mingling of like, there's no broker dealer because like the user has their assets on Coinbase, then like the settlement is like sometimes with Coinbase, but sometimes just on the L1, like on ETH. It just makes me think about like, what is the role of CeFi in the next market? Is this just a stopping point on the way to the inevitable?

Like, let's translate that to DeFi, exchange, Uniswap, broker, Metamask, clearing agency, Ethereum. And it just makes me think of like, what is the role of CeFi, not in like the next year or 2, but in like 5 to 10 years from now?

There's a bunch of interesting stuff that's being, A bunch of startups that have recently gotten funded that are probably going to be in market in 6 or 12 months. The things that we see that are going to take advantage of this change in market structure are bilateral trading desks that are based in New York to replace the Genesis's of the world that no longer exists. Places like Biduta, places that have access to the CME. And recently the CME has been seeing a ton of new volume. So there is interest from the traditional institutions and they're starting to trade there a bit more in size.

And then there's things like payment for order flow, which frankly work at an abstraction level closer to retail. Those aren't really institutional funds trading. That's more so just servicing the order flow from those wallets, but those are coming, kind of just different participants, lit markets, people with different structures as with relating to things like custody and how you trade out of a separated custody account. That's also coming. There's like a lot of really interesting things that are being shipped right now.

And on the other side, you have probably a lot of market makers that are also getting bootstrapped. And those are going to start replacing like the Jane Streets and the jumps of the world as they pull back. So it does feel like there is this healthy rotating of the guard, but also like new technology stepping in to fill the market structure gaps, and then you also have just like DeFi running alongside that and getting a different part of the market. So I think it's all pretty positive. I think the things that could change are, if there's legislation and that literally changes the market structure, that creates a lot of very interesting new firms, that makes ETFs possible.

Places like Bitwise probably get share from that. So there's a lot of just different tailwinds that this space is riding at the moment. I feel like we're pretty positive on it, Michael.

Yeah. I mean, I was going to jump in on the last point there and say the same thing, which is, I think actually, you know, in the eyes of what has been happening in D.C. Or New York, wherever these lawsuits are, these suits are being founded. The biggest thing that happened this week was the market structure proposal. And I think the quick TLDR is it provides a lot of black and white playbook for how things like stable coins should work, for how registration should work for token projects, how something goes from a security to a sufficiently decentralized commodity.

And that market structure will fundamentally change the way that DeFi interacts in the current status, where If you're an insider, a founder or an investor in a protocol versus a user, you're going to have different designation of the tokens for the first 12 months. You're not going to be able to sell them if you're an insider, you have to disclose all of the holdings. It'll eventually transition to something that's sufficiently decentralized. That will move from trading those assets from an ATS to a CFTC registered and compliant exchange. Like the market structure is going to get a lot more complicated as regulation starts to come to the forefront.

But I do think it's going to look and feel a lot similar for end users. It's just going to be the venues of where things trade when is going to change pretty fundamentally. It's not really just going to be like the exchange is Uniswap. It's going to be, yeah, sure, maybe eventually Uniswap can be an exchange, but for the first 12 months, it's going to be 1 exchange. And then after that, it's going to be a different 1.

And if you're based in the US, it's going to be something else. So maybe it's the wallets and the broker dealer designation here that has to figure that part out and route accordingly and manage the customer relationship accordingly and be registered accordingly. But there's a lot of movement in a very positive direction that we think about.

I'm also curious, what do people think, there was a Uniswap P4 teaser this week, or maybe like Easter egg, What do people think they ship? Pay for order flow? Probably like a Suave competitor?

I don't know. Something I think like that. There's a budding debate in the MEV world between sort of application specific order flow auctions versus more generalized order flow auctions like a suave. And I think Uniswap probably takes some kind of step at that.

Yeah. What do you think, what do you think, Vance?

I think like the AMM market is probably good enough. I don't see another innovation in that space really getting them from 0 to 1 in terms of just more market share or just growing the pie overall. I think their problem historically is they've been hamstrung by having to vote through these deployments on these different chains. And it probably works if you can have something that is functional at a level of abstraction over everything. So you can kind of service order flow on any chain on any type of block space that exists.

So that would definitely be a departure in terms of, you know, Uniswap is so simple and that's kind of like where its beauty comes from and why it has a lot of usership, but maybe they kind of take a step in a more aggressive direction with something that's a bit further out there and plays at a different level of abstraction.

I

think there are sort of 2 trends in AMM design that are diverging around maybe Uniswap versus something like Curve, I think is interesting. And it kind of has to do with their assumptions around supply side and liquidity. Like Uni, like the, the jump from V2 to V3 was kind of based on the assumption that you would have more sophisticated market makers. Like it's much harder to be an LP on V3 than it was on V2. And we've talked about this on previous shows.

I don't have great evidence around this, but from what I've kind of heard, it's, it's very concentrated in terms of who provides liquidity on V3. So I would bet you that their design sort of capitalizes on that, uh, in V4. And there's some sort of OFA like order flow auction type thing so that you can give a better experience for users. The Curve is almost taking the opposite approach. They're sort of banking, they've made it easier for retail to be LPs on the new design of their exchange.

And they're sort of lowering their fees and they're trying to subsidize that with fees from their stable coin. So it's kind of 2 very different designs. I'm interested to see how it plays out, frankly.

Yeah, that last playbook you described is only possible in Switzerland. U-Swap's not issuing a stable coin that they can do different things with the fees with. Their design space is a lot more concentrated.

Do you think that's a benefit or

an obstacle? I think the benefits of having a bit more expanse of a playbook where you can do different things with the fees, you can make it more reflexive have blown people up. And so there's drawbacks to that that aren't immediately apparent. But I think if you asked Hayden would he like a bit more design space to work with, he would probably say yes. It's just a matter of like, do you take that and then light yourself on fire?

You know, it is interesting, like you could probably draw that analogy across a couple of different examples in crypto. So in the CeFi space, there's like the Binance versus the Coinbase approach. Then there's kind of like Aave versus Compound and then maybe Curve versus Uniswap. And I agree with you. I think it's sort of like, we'll see which 1 of those strategies ultimately ends up.

I actually think the Aave versus Compound is pretty interesting. I think a lot of people have sort of slept on the new upgrade to Compound. In general, I know people really like Aave is great. They ship a lot of stuff, but they have very different strategies. And it seems like compounds is more like people want to borrow and lend stable coins.

So let's make it as capital efficient as possible to borrow and lend stables. Whereas Aave is like, you should be able to supply collateral and borrow lend with anything that you want. And so far that's been the winning strategy, but I'm not sure it's gonna be into the future.

I would also say, I don't think, you can't necessarily say that everything is apples to apples in the sense that, there are different markets between swapping spot assets, borrowing spot assets and exchanging and doing derivatives and all that. These are companies and it was just announced today, but like Lens is something that they're working on an Aave. It's sort of like, you know, there's just a bunch of things that are going on inside of all of that, that dictate a lot of the direction of where those things go. So it's not like we're going to take this strategy and we're going to go full bore into this direction versus, you know, that strategy in that direction.

I'm stoked for all these stable points to get to escape velocity though. I saw this position on D5moon, the Twitter account, retweeted it where someone had taken I think it was like 7 steeth and looped it with Curve until they had 35 steeth. This is where, in my mind, this is where some of the credit is gonna come from for the next run. We still haven't seen any recovery of the dollar lending markets in crypto, but these seem to be the next best thing.

I completely agree with that. I think like 1 of the, like we've talked about it on this show, but 1 thing that at least I didn't understand in the last bull market was where leverage was getting introduced, which was via Grayscale. Just didn't get that sort of loop between the arbitrage that was being run.

Yeah, true. Not just Grayscale, but yes.

Yeah, true. That was a big part of it. And probably there's some sort of combination of like an eigenlayer re-hypothecation plus like the, you know, liquid staking tokens reaching escape velocity, which is probably good. That probably injects a little healthy leverage.

I mean, you can kind of already start to see it. People leaping these things, chasing yields. There's broad market fit for that, for better or for worse. I'm just trying to find this chart on the growth of some of this stuff. I'm going to send this to you.

This is 1 of the more interesting charts that I saw over the past couple of days. I think this is definitely Blockworks, analyst sourced, your army of interns. This is super interesting. If you want to throw it up in the chat. This is a chart of wrapped ETH versus LSTs.

And I didn't know that wrapped ETH was this prevalent, but at 1 point, almost 7% of the supply of ETH was in wrapped ETH. And you just see like, you know, like that kink from 7% down to 3% contrasted with the kink up on the LSTs. Like there's

3%

more of ETH just sitting on chain that will probably stake at some point. And it'll probably be LSTs as well. Like, this is going to be huge.

The key point here is that Weath wrapped ETH is what was technically used for most of DeFi. Because you had to wrap it to be able to put it into smart contracts to be able to, you know, use this collateral or whenever it may be. So it's basically like defy 1.0 versus what you can probably say is defy

2.0.

All right, say that again, Michael, say that last sentence again.

Defy 1.0 would be wrapped ETH on this chart. DeFi 2.0 would be LSDs.

LSDs, yeah. Yeah. I agree. I mean, it seems pretty obvious at this point, LSDs are just gonna continue to grow as a replacement to ETH and WETH.

So why would you? Yeah.

Yeah, I don't know. Sort of like, okay, here's an asset that you can use as collateral.

I feel like we've already talked about this a little bit, but I'm curious if you both, do you think we'll see, I mean, we talked about this last time a little bit, will we see a hard cap or like some sort of tax proposed on Lido's market share? Will we see it this year?

No, not this year.

No, well, I think

that's like a multi-year conversation. There's no taxes or hard caps or gates in the protocol right now. I think that would require, Like, you also risk splitting the community, frankly. Like, if 1 of the LSTs has 20 million ETH and people are like, all right, we're gonna hard cap it, like, does that community just take it lying down? Probably not.

You know, It kind of reminds me of the Bitcoin chain wars back in the day. Like it's an argument over basically the same thing, which is like the economics of the protocol.

It's gonna be a pretty interesting Q3, Q4 for ETH. You have, what's the next upgrade called? Cancun I think. Cancun you have a, you have P4A4F4, ProtoDank, Sharding, reducing L2 fees by a lot. You have like Steeth, Flippening, Wheath.

Yep. I think you're going to see a lot of that. I mean the short term, the 4A4F4, like I think it's very exciting. It'll definitely decrease the L2's fees, but yesterday Bedrock decreased Optimism's fees by 90% in and of itself. It's not like that was any change to the L1 or the L1 asset or the L2 asset itself.

It's just like a bit cheaper to transact and optimism. I think people are going to obviously enjoy that and use Bedrock to create their own L2s. But like, I don't really see that as being super, super, you know, big news. I don't know, Michael, if you agree with me or

not. Well, Bedrock was big, not because of like, Reddit cut gas by 40% or something, cut the deposit confirmation times by 90%, but I think the real like second order implication there is that it kind of opens the gates for Coinbase's base to launch, right? It's worth the waiting for this.

Right, yes. This is the first OP stack enablement feature.

The stuff on Z, and frankly, is like kind of the medium term, like 18 to 36 months roadmap of like, do we actually get Dank sharding on L1? What does that look like? Does the EF just like call it a day after the roll ups have scaled to like, you know, who knows how many transactions per second, but I think that's gonna be a very interesting debate within the community.

The other thing, just as context here, I pulled up ultrasound money, over the last 30 days, 137, 000 ETH that were burned. Arborsham was 3, 200 of that. Optimism was

1, 400.

So we're not talking about layer twos being a full feature or like a full burn component of yeah, they're like 1 and 2% respectively. And so I think generally, you know, we don't need lower gas costs right now on those L twos because they're not, they're not being utilized to the fullest extent. And once that starts happening, you know, applications start developing where you actually start cramming those things full of transactions. That's when we can start talking about, you know, the need for protodane sharding.

Do you have any sense, there was something maybe kind of interesting this week or maybe not particularly interesting, but I don't know if you guys saw something called Aerodrome happen, but Velodrome is I think it's the largest app on Optimism. Optimism exchange. It's a fork of Solibly with

a couple

of others, the Andre Cronin exchange that they're used kind of, it was kind of the original VE33. And there are some improvements. It's actually, you know, from what I understand, Velodrome is actually doing pretty well. So then Aerodrome announced that they want to be the liquidity hub on base. I'm a little bit unclear what the relationship is in between Aerodrome and VeloDrome, but there's going to be an airdrop of Aerodrome tokens and they're going to people who state VE Velo holders, like 40% of the token supply are going to VE Velo holders.

It generated some lively debate internally, like I think you could probably make the case like why this is just another deployment on a second chain, like why would you want to do that? I also think it's probably worth noting that there haven't been a ton of really successful deployments from like main chain on layer twos and maybe a sort of new but related team with a token is a good strategy. I don't know, I don't know if you guys saw it, but I thought it was kind of an interesting tactic.

I mean, it just like speaks to the dynamics of these L2s in Courage. It's like you launch a new L2, there's gonna be a project that launches on you, gives away tokens, bootstraps CVL, bootstraps fees, they pay it to ETH, you know, they post the call data. Like, I can kind of see this trend persisting over many, many, many different L2s, not just base. I think this is like interesting. Beldrum has definitely proven out that like there is a market for new challengers to incumbents on these different L2s.

And to tie back to our Uniswap conversation, I feel like that's probably what they're... That's what I would be thinking about is like, what's the growth factor right now? It's probably like LSTs on L1 and then just like a proliferation of native assets on L2s that look and feel a lot like your money makers on L1, like just meme coins, new projects, you know, random stuff like that. I think you kind of want to be across those if you're going to be serious about competing. And the 2 token model kind of seems a little silly to me.

You should probably just try to do it with 1, but I think Belladrome has the right kind of like strategic mindset of just going after every single chain that launches and trying to make it the canonical liquidity provider.

Vampire squared approach. Yep,

Yep. It's interesting that no one's tried that on Lido yet. Like I still think you know someone will will probably try and I guess they just haven't been successful so far but just that how game approaches. How would

you say that that would work just go after see holders and wrap Steve holders.

Yeah you offer them tokens like the LSE farms have definitely gotten temporary TVL, but you basically spit out tokens, try to basically force exit the steeth somehow and restake it to your own validators, bootstrap your own validator set. The problem is this all takes a long time, especially at scale, and your token price is gonna drop before you probably get to escape velocity. That would be my guess at least.

I do think that there's an element of maybe not dropping tokens specifically to Vampire Attack as a competitor to Lido, but I do see there being a lot of movement in the direction of like we were talking about with that crossing chart, adding Steath and Wrap Steath into the collateral set or into the capabilities of other protocols. And I think that's gonna pick up, and whether or not you're getting token incentives from participating with that as an asset, I think that's gonna be the equivalent of, okay, great, you wanna trade perps, like we've got a derivatives exchange, and you can use it at Rappsteeth as collateral.

It's gonna be hard to get collateral recognized, you know, if you got like a new LST. I definitely wouldn't take it in any, just like of the canonical protocols. Yeah. I think

the only 2 that are supported by Maker are RAP Steeth and Rocket ETH. Mm-hmm.

Yeah. I guess, so the, if you're a Lido, I guess there are a couple things that you can do. You can make Steeth more, give it more utility, or you could try to juice the yields. And then I guess juicing the yield is more in the, there are more implications for restaking there, because I'm sure there'll be some sort of race for like other liquid staking providers to have their validator set restake onto other weird chains and sort of juice the yields that way. So that's another sort of like a, you know, a yield competition.

I feel like that's another way that you could attack lido as well.

That only works if you think the restaking players have like a very high FTP coming out of the gate. Like I think we have evidence to suggest that your average new LST is gonna have very little success in vampire attacking Lido. But like if the restaking play is valued at like 10 billion and you have like a billion of incentives for a year to give out, you could probably take a better run at it. But I still don't think you'd be very successful, honestly. Because at the end of the day, the thing that you're restaking on, Like you need to get fees towards that, you need to bootstrap developer usage on that.

That's not exactly straightforward. You're basically just like another L1 or L2.

Yeah, well there could be, I mean I don't think any of this would happen with Eigenlayer anyway because Eigenlayer's only approved R, ETH and Steeth initially. So I think it'll be very choosy, but who's to say in the next bull market there wouldn't be some competitor to Eigenlayer that, I think that's how it works. It's some newfangled thing. I don't know what it'll be now, but they'll yeah, always.

It goes buying a prime trust. You see that?

Didn't get hacked once upon a time. Did that? Oh yeah. They go.

I thought it was pretty,

I don't know about that.

Well, Bitfinex got hacked and their money was at BitGo. Fudmonger.

Very different story.

Got a little fudster.

Multiple fuds.

No, I mean, BitGo did sell to Galaxy, but then that deal got walked back for 1.2 billion. It's a huge argument,

man. I feel like Galaxy dodged a bullet on that 1. And I think the

we were trying to it was the it was the it was in the heat of the prime, we're all going to build a prime brokerage conversation. Falcon X was ripping, Coinbase acquired to go me, everyone wanted to be the prime broker and Galaxy scooped them up. I also think they did not. Well, that's too much money.

Too much money.

Too much for sure. It depends on the financials of BitGo, but that was bull market, so you can assume that the valuation was inflated. The tinfoil hat perspective is that that was going to be the way that Galaxy went public on the NASDAQ. Because right now they trade on the TSX. They can't come public in the United States because basically investment company issues.

And if you have a big enough business that's driving enough revenue from a business versus investment returns, you can't actually become not an investment company.

He's also moving people out of the US. I just saw a report on that. He's moving the folks to Singapore or something.

Let's talk about that. Let's talk about the exodus to Asia. I had dinner with a

fake source.

That's what we're calling it. That's the title of this podcast. Everyone's leaving. Everyone's out. Everyone's out.

No, I did have dinner with the founder of this crypto company said 20% of their business 6 months ago was coming from Asia and now it's 70%, which is a very stark difference in a very short amount of time. I'm curious just how you guys are seeing that. Are your companies that you're talking, companies that you've invested in, are they trying to do more business in Asia? Is this some overhyped thing? Is this like, what are you guys seeing?

All the games are targeting East Asia, Southeast Asia. Those are kind of the most ripe markets for at least the game specifically. The DeFi and the trading feels like it's kind of like the UK, Singapore, Hong Kong, Toronto to a lesser extent. But like all the VCs are still in the US and it feels like all the media is still in the US and it feels like all the kind of, you know, very startup-y founders that you get from the tech ecosystem, which, you know, frankly, just tend to be the best ones, are still in the US. So it's probably a bit more skewed towards Asia at the moment.

But I do think that's also a preview of like if any of these games hit, the industry is going to be mostly in Asia. I think that could happen. It isn't happening at the moment, but I don't think the exodus from the US is the right way to phrase it. It's just like the Asian market is growing. Keep in mind, they did not get caught up in Celsius, BlockFi, FTX.

The government, right or wrong, saved them from that just by not allowing them access it. So, they

have a bit friendlier of a perspective on the industry than otherwise. Luke Gromen Equivalently, just imagine what it's like. And I was having a call with 1 of our portfolio companies this morning based in Brazil. And their perspective is like, listen, 80% of the market is finance. In Asia, it's probably the exact same.

This is all of the stuff that they missed also paired with we have the biggest exchange on the planet, which is a distribution funnel for anything that, people are launching. They also have a wildly fanatic games community as Vance was talking to, I think Asia is going to be kind of the temporary heart and center of this for a bit. But going back to it, as soon as regulation becomes clear, whether it's this bill, whether it's something else, like there's gonna be movements in the next year or 2 to make this stuff real. Like that center is gonna gravitate right back to the US. Because it's gonna be, instead of unregulated DeFi, it's gonna be regulated, totally blessed, and people are gonna move in.

Yeah, like think about it this way. If you're an entrepreneur and you have an option to do a token or equity and both are fully regulated and you won't get in trouble for doing 1 versus the other, 9 times out of 10, you'll probably do the token. I do think that will be like the new paradigm. And if you're an investor, you probably want to sign a token warrant for every single investment that you do, if that really happens. And that's a really different frame of mind for a lot of people and probably changes the VC landscape downstream as a result.

A lot of people have to register as RAs, but Yeah, maybe it does gravitate towards Asia in the interim, but I feel like once the regulators are able to put this behind them, and I do think the SBF trial is also part of that, there's just things like emotionally I feel like people still need to put behind them basically.

October 2nd. That's going to be a dumpster. I'm sure

every day the coverage is just going to be like insane as the evidence piles up.

It's going to be done. I mean it's supposed to be done by the end of the year, by Thanksgiving. Yep.

Well, look, the great, great Thanksgiving with the fam, it sounds like.

We got him. I will say someone put this pretty well. It's like the flip side that I was talking to this week. The flip side of the US taking forever to make decisions is that it also provides kind of more sound ground as opposed to a regime which is really top down and they can change their mind basically on a whim. So, you know, someone used like right now everyone's really excited about the UAE, right?

But let's just say for hypothetical sake at FTX had happened there, they can change these laws overnight, you know, and sunset a whole industry. And it's just not, you know, if you have a really longterm mindset and you're trying to build a generational business, it's just harder to do on that, that type of footing than it is in the US.

I would say in addition to that, it, a number of other jurisdictions are waiting to take their cue from US opinions. Yeah. I was once again was talking to the portfolio company in Brazil and they were surprised. They wanted to talk all about the different suits that were going on, but they were surprised because they hadn't heard that much about the market structure bill. And it's like, okay.

And they're intrinsically tied in with a number of regulators and governmental bodies in Brazil. They want to move forward, but if there's something on the table that the US is going to pick up and move forward with, Like they're going to follow suit. Exactly.

If you're still in position in the US and your business is doing well and the regulation happens like it's going to be night and day, you know, cause there's not a lot of people who will just like, frankly, still be there at that point. You know, even if it's in like 6 months or 12 months, I do think it's just going to be game changing for the whole industry. Yeah.

How worried are you guys short term about some of the subpoenas that seem to be going out to protocols? Not worried. Not worried.

Not really. That's, you know, that's been going on for years.

Yeah, that's not a not a new phenomenon. Yeah.

Yeah. Well, what I mean, I don't know. We I think a little while ago talked about like sort of sentiment and it's an overused analogy but this does feel at least to me a lot like 2019 kind of. And I feel like there's a big sentiment difference in between even when FTX and everything is like exploding and people are really worried, at least there is sort of an active energy there, right? Like you're sort of keyed in and paying attention.

Whereas I do feel like the aftermath of that tends to be a little bit more depressing actually, because that's when apathy really sets in. And you know, what your first instinct to say is that, oh, all that stuff is behind us. Now everything's gonna turn around, but then there's like a lag before it actually does turn around and I think that can actually be the most mentally challenging for a lot of people, especially very execution oriented builders. What do you guys think about just like sentiment net generally, do you talk to a lot of your founders that are struggling with this, like how long do you think this goes on and what advice do you give them?

I think you can, on the negative side, you can really dig the hole as deep as you want. You can go to the earth's crust just thinking about, is the industry fucked, does this protocol work, is my team the right team, am I wasting my time, All of that. It really is kind of like you can choose your own adventure and that leads you only to 1 path which is just failure or giving up. But I do think if you take a step back, like objectively a lot of the stuff that's happening is like a positive backdrop. And you know, when things are bad, you just gotta put 1 foot in front of the other.

I think there's really no like, you can't wake up happy 1 day, you just gotta keep going. You know, maybe that's not like the most comforting advice, but like good advice. No, I have, yeah. There's nothing else you can do, always. And the alternative is just like the doom loop.

I'm trying, it doesn't really work that well.

It doesn't help. The best founders don't have those types of points, that's all positions or perspectives. And I would say honestly, most of the conversations that we have with portfolio founders is like, here's all the news that's happening. Like how do you reevaluate? How do you readjust?

You know, do you want to change strategy? Like I know your head's down building right now, but like maybe pop up and like touch some grass or like actually get outside and see what's going on to assess where things could be going and make sure that you're on the right path there. Like that's our job is to see the tea leaves or hear, you know, different disparate information, put things together and just say, Hey, like, here's where we think things are going. You know, use this information as you want. It's, it's really not like the founder therapy of like, what do we do every day when we show up to work?

Also, I think it's like 2 days away from being the 4 year anniversary of starting Framework. Like we started in the summer of 2019 and if this is summer 2019, like this is the best time to be doing exactly what we're doing.

Yeah. I think the other thing is like you have to believe that you're building a big business. Like you have to there's there's milestones that you can put in the ground that are irrefutable. Can you get to 50 to 100 million of ARR? That's kind of like the minimum for like a venture outcome for you to make a lot of money.

And I think a lot of people, you know, frankly have like the small market problem right now, where it's like, you know, you're a business that's selling to a business that's facilitating like retail flow, or you know, NFT sales, Or like, you know, there's just not many things that you can sell software to. And I think those people are having a bit harder of a time just understanding the reality of like, if your startup is gonna succeed, you need 10, 000 others to like use and buy their product. And right now there just aren't 10, 000 startups willing to do that. But the people who are closer to the metal, either building new markets, closer to the fundamentals in places like DeFi, or building for just gigantic markets like games, those are the people who have a lot of reasons for optimism and it's kind of just on them. Like, I do believe most of those people can really build things that are important.

It's just a matter of having the tenacity to do it. You guys want to

talk about Chainlink a little bit? They've had a big news week. Oh boy. Chainlink. The Marines, baby.

The Marines. Give us the, give us the- This is our growth strategy. We need the Marines to jump off.

Of course I wouldn't play

with them. Man, they were also born in market Yeah, chain link had some announcements of some partnerships this week. I think the funny part is When at least we got started with chain link, which is in 2017 when they launched literally the rumor of the first partnership that they were going to announce was Swift. And it was like, Chainlink and Sergey are working with Swift behind the scenes. And it was always the rumor of Swift, and when were they gonna announce that, you know, Swift is switching to Chainlink and it's gonna run on Chainlink.

Well, this week, man, it's Swift. It's Swift. It's Swift. It's Swift. We were

like, for years, just little photos and we'd watch, we would dial in to the Swift yearly conference, which is totally, it's such banking drivel, so dry and getting through hours of it just to see 5 minutes of Sergey. But the madman, he pulled it off. Or at least proven concept, step in the right direction, but it is good to see

Sergei yeah, they've got some pretty decent agents is Sergei Nazarov there were rumors

I like although like sir yeah is Sergei Satoshi like he owned smart contract comm in like 2009 like a day after the white paper went live, like all those things.

Wow, you've gone deep on your Sergei lore.

Chainlink was my, yeah, well, we won't get into it. The guy next to me, when I first, the guy next to me in 2017 was when crypto was ripping. When I pre-block works was a, was a big guy at chain link bag holder. So I would, uh, all his name was Mike.

You owe that guy. Thank you. I think you owe him like an edible range.

But I

owe him a

thank you. Yeah. Um, what is chain links business? Cause they have like 400 or 500 or 600 employees or something. How do they make money?

What is their revenue models? What are their products?

Well, it's changing. I think historically it started off with price feeds and all the DeFi applications that needed decentralized price feeds. Basically every single DeFi protocol at this point would pay to use those price feeds. And that was something that was sort of negotiated or talked about. And sometimes it was paid by the Dow.

Sometimes it was a service fee. I don't actually have very much context as to how that was constructed. I think where they're moving in general is to CCIP, which is cross-chain communication information protocol. I'm probably butchering that, but we can think of that as a cross-chain messaging protocol where you can actually have no bridges and decentralized trust for those different node operators on those different chains. And that gets cured by the token, you know, it's paid for by the users, and it would be something that flows to the operators of those nodes.

Like an L1, basically.

Yeah, got it. I think the Chainlink DreamOwn L1 is actually gonna happen. That was at least like the smart con takes of last year. And if you think about it, they probably have some of the most amount of developers building on them of any L1 in general, just by virtue of the price feeds.

I mean, they definitely have the most TVL that's supported by a protocol other than Ethereum.

Is it public how much revenue they do?

No, we don't have any idea either. Yeah.

Yeah, I think generally, You'll be able to see everything on chain with CC IP. I would assume because it's all in the on-chain The stuff that happens that isn't that and historical products No idea. The other stuff that they do which I think is kind of under noticed is random number generator, which is what powers most of the play to earn gaming. So whenever like it's actually kind of a hard math problem to prove that something was a random number, especially with the compute of Ethereum. And you have to be able to have that for it to be a fair game.

And so that's 1 of the things that, you know, they're obviously powering DeFi, but they're also powering a ton of games.

That's interesting. Can you

explain that? I'm not fully following. What is that?

Why do you do that? Yeah, so like in, if you're programming and you have like a math function that gives you a random number, it's actually just like we're going to choose 1 between 0 and 100 and set db to that percentage to a certain decimal point. Well, it's actually not mathematically random. There is some bias in that. And for you to do a fully random calculation, it has to be something that requires off-chain compute, and that's what their off-chain compute enables, and then brings it back on-chain.

Gotcha, interesting.

Yeah, it's cool. They've got a

lot of different things like that have traction.

It doesn't, it's not like outside the realm of possibility to see this as another 1. Do you guys see a little while ago, I think it was Dan Elitzer who wrote this big long thread about what makes up a crypto primitive and sort of advocated for not using oracles in DeFi primitives. I would be curious what you guys think about that.

I feel like that would lead to multiple financial disasters almost immediately. The on-chain oracles have caused more problems than the off-chain oracles, just empirically, over the past few years.

Also, Well, generally I would say that sounds like a great research project, but not something that's real.

Yeah, like UMA, I remember back in the day, tried to build BitMEX with no oracles. Like, it was an interesting idea, but like mostly a science project. Like, These are really interesting designs. They're just the consumers make it makes it very hard for them to use. And also there's huge accidents if you get a bad Oracle on chain because it's just super volatile.

Right. And the prices are by definition stale if all of the discovery happens on centralized exchanges.

It's like I remember when Augur was going to be the Oracle solution for all of crypto and it was like a 14 day contest period and you had to get a certain number of votes to be able to enable quorum and then people would vote on whether the outcome was correct or not. It's like, come on. People just want to know if it was heads or tails.

I feel like decentralized prediction markets is 1 of those like white whale things in crypto that like every 3 years people are looking at that.

Poly market does okay, I think, but only when there's like the once in 4 years presidential elections.

Yeah. What do you think about different like a Dex, like what about something like a Uniswap or like that which wouldn't depend on a price oracle, but they basically depend on arbitrageurs to move the price back in line.

I think generally, the 1 thing that is becoming more apparent and actually Kane from Synthetix had an interesting post on this recently, which is basically their trials and tribulations of having a pull versus a push Oracle solution. The reality is that having multiple solutions for different use types and user types is probably the best solution for most of these protocols.

99%

of the time it's gonna be used 1 way, but if you're gonna use the product in that way or this other way, it's probably something that would be better suited for something easier. I gotta run.

All right, fellas, we can call it.