In today's episode Dan and Sam are joined by CowSwap Technical Lead Felix. CoWSwap allows you to buy and sell tokens using gasless while providing MEV protection. They explore the economic concept of "coincidence of wants" and its application in CoWSwap, the unique batch auctions that differentiate it from traditional DEXs like Uniswap, and the protocol's unique approach to optimizing gas fees and combating MEV.

As always we have an analyst segment where 2 blockworks research analysts, Westie & Ren, join the guys to dive into Crypto's latest hot narrative; Friend.Tech. A Base chain native app, Friend.Tech, allows users to create and trade tokens associated with their online profiles.
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Follow Felix: https://twitter.com/fleupold_
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Timestamps:
(00:00) Introduction
(01:54) Friend.Tech Saga
(14:00) Improving the Bonding Curve
(30:24) Interview Start: Felix 
(30:52) CoWSwap High-Level Overview
(34:32) What are Batch Auctions?
(42:54) Solver Market Make-up
(51:12) Solving MEV Problems in the App Layer
(55:38) Impacts of One Price per token per block
(55:38) “Hexens Ad”
(56:42) Impacts of One Price per token per block
(1:04:26) Implications of UniswapX
(1:09:19) Tech VS Protocol Branding
(1:11:23) Cow Hooks & Future Development Plans
(1:14:32) CoWSwap & DAOs
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Resources
CoWSwap
https://cow.fi/
https://docs.cow.fi/

CoWDAO Grants Program
https://forum.cow.fi/c/cow-grants-program/10

Friend.Tech
https://twitter.com/friendtech
https://www.friend.tech/
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Disclaimer: Nothing said on 0xResearch is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Dan, Sam, and our guests may hold positions in the companies, funds, or projects discussed.

Due to just the fact that every order is on their individual price curve.

You don't have this concept of uniform price clearing.

You don't have this concept of, you know, matching people directly peer to peer and aggregating demand and supply.

And so in a hyper tokenized world with fragmented liquidity, I think we will see batch auctions, you know, play out another advantage over this mechanism.

And yeah, it's basically now up to us to demonstrate and show how, for example, with AMMs, maybe liquidations, really that concept of having 1 price per token per block gives significantly more MEV protection than just individual Dutch orders.

Welcome back to another episode of ZeroX Research.

Before we dive into today's episode, I wanna give a quick word from our sponsor, Hexens, the most hardcore security team in Web3, pioneering in ZK and novel cryptography.

Hexens is entrusted by its tier 1 protocols such as Polygon, working on their new ZK-AVM.

We've also got Mantle, RISC-Zero, Lido, 1inch, NewBank, and more.

You'll hear about them more a little bit later in the show, but be sure to stop by their booth at 832 at Permissionless.

And don't forget to mention ZeroX Research when you do so you can get a discounted quote.

You'll hear more about them later in the show, but first, as always, we're joined by 2 blockworks research analysts Ren and Westy not this time to talk about a hot seat Cool throne segment, but instead we are going to rift on friends tech the thing everyone is talking about on crypto Twitter Today's August 21st, and we've got a great interview lined up with Felix, the technical lead at Calswap.

But again, before we jump into the friends.tech talk, I do want to shout out our conference in Austin, Texas.

It's permissionless and it is the world's largest DeFi and crypto native conference bringing together builders, researchers, investors, and more people in the industry from all around the world into 1 place.

Westy, why don't I kick it over to you to talk about FriendsTech and what it's all about?

But yeah, basically to give an overview, it's a new social crypto site that allows users to buy and sell shares of associated Twitter accounts or X accounts.

And in return, you basically get access to an in-app chat with the user.

It's a progressive web app that's designed for users to basically access the site via their mobile device, their iPhone, their Android, et cetera, download it to their homepage.

And that's sort of a way to have it feel like a native mobile experience while actually bypassing a lot of Apple's restrictions when it comes to their app store, because they're pretty restrictive when it comes to crypto, even allowing them to be on their app store, as well as, you know, taking a cut from potential fees as well.

It's onboarded, I think close to 100,000 accounts, maybe more than 80,000 at this point.

And I think A lot of that is obviously due to teasing and airdrop with points based on factors such as invite codes, trading volume, et cetera.

And yeah, they're able to onboard a ton of accounts.

I think as a result of onboarding some large CT accounts, which then had them post about their experience, which then on onboarded their followers and eventually made its way to celebrities like FaZe Banks.

And I think people are sort of realizing, you know, the power of this platform and the fact that they can earn trading fees based on how people trade their shares.

And yeah, it's been a crazy experience in the past week.

I don't know if I can pass this off to Ren because I know you have a bunch of numbers on how much volume we've seen in the past week.

Yeah, so since inception, there's been roughly 32 million in shares bought, 25 million in shares sold.

So that equates to a total trading volume of give it 60 million or so.

The total value of all profiles is 21 million with the top 10 profiles being worth 4.1 million.

The top profile right now is Razer, which is the creator of Friends.tech.

His portfolio is worth a cool 777,000, although he's not the highest earner.

So there's probably been less trading happening on his shares.

But yeah, it's been a wildly profitable and wildly successful protocol so far.

It's managed to generate $2.8 million in protocol fees, apparently $56.8 million in protocol inflow, and if I had to guess, that's probably around 25-30% of BASE's total TBL.

So it's definitely a significant contributor to BASE, and there's been $1.44 million in cumulative transactions.

I don't know how much of those cumulative transactions are bought.

I would guess a decent amount considering every large account gets bought or MEVed immediately upon signing up.

But definitely still respectable numbers nonetheless.

And from a cash flow perspective, a lot of people, mostly large accounts, have been completely raking.

Kobe has made $142,000, Hasuka has made $98,000, Racer almost $100,000, Suju himself has made roughly $60,000.

Maybe you can pay off some of those 3AC creditors with that.

But yeah, all things considered, it's been a crazy 1 week.

I think it remains to be seen whether this sustains.

I think a lot of crypto natives are betting on non-crypto individuals to come on, whether that's sports stars, gaming stars, your models or your favorite OnlyFans creator, whoever.

Yeah, It's really interesting that we've seen this so far.

And the way that the accounts earn fees is kind of interesting to me.

So there's like a bit, you're buying and selling shares of an account, which don't really give you like an ownership of an account in any meaningful capacity.

They just give you like this gated access to a really shitty private chat.

But it's interesting that so obviously there's trading volume that goes on with those transactions and then there's I think a 10% fee in total, half goes to the protocol itself, all the other half, so 5% each, goes to the actual account.

So that's like how these fees actually get generated for the user.

So it is kind of interesting that there is like some profit mechanism for the creator themselves.

You know, I think this is like directionally correct.

Kind of my framework for this right now is this is like a great proof of concept, but largely like we'll need to be heavily iterated on.

And what I'm battling with is like, okay, if this is really some like perfect be all end all solution, Why not just integrate this into Twitter or ex-formerly Twitter?

Now, every time I've mentioned that to someone or tweeted about it, the immediate response is like, oh, these are unregistered securities.

And I just think that is such a middle of the curve take.

I just don't see this getting regulated like it's a stock of illegal ownership to the cash flows of

It is a weird gray area for sure, because I could see why someone could look at that, like trading shares of an account.

It kind of looks like a security, but I think you're right in that the way it's actually set up, obviously I'm not a lawyer, but just the way that I see it is that if it's based on trading fees of the shares and not on the actual individual Output of that creator then I think it's completely fine But what I'm

definitely a bad name like I think you're just inviting unwanted attention by naming them shares but like This is even if you just like maybe you know you can probably draw lines to how it does look like a true share of a business, but that's just like objectively not what's happening here.

Like, I don't know, this is just not trying to buy ownership in the future clash flows of a person.

It's just like buying a community pass to that person.

Let's dissect what you actually get by buying a share in someone today.

If you buy a share of an account, you just get, like I said, a private chat sort of thing where it's like sort of like DMing except, you know, if you have multiple people that own shares, you can ask the 1 person let's say like everyone here has a share of Westy.

We can all ask Westy a question in this chat.

But Sam, you can't see my questions and I can't see your questions, but Westy can see them both and we can both see Westy's responses.

It's like, I don't even know if that's intentional.

I think that's just like, it's just a broken product right now.

Launch an MVP, get to market, try to build up some hype, see if there's even any level of product market fit, and then iterate on it, which that's probably the best way to get a product out the door.

But in my opinion, if they don't start trying to fix this app, they're going to miss their window of opportunity.

When I'm trying to want to love this thing, but every time I open the app, something's wrong.

And I'm like, all right, what are we doing here?

I agree with going back to Dan's point about it being directionally correct.

However, I do think that's sort of like 2 different subset of users, right?

There's 1 subset, which is kind of creators, right?

The people who are probably using Patreon today, YouTube people, Twitch streamers maybe.

And then the other subset is influencers.

I feel like an app like Friends.tech, especially with its sort of pricing curve, is much more suited for influencers, right?

There's a lot of people that are out there right now basically saying, oh yeah, why wouldn't like a OnlyFans creator come on to Friends.tech and they can rake in a huge amount of trading fees.

But to me, I don't think that's their business model.

Like their business model is dependent on the constant cash flows that they're able to generate from like the OnlyFans subscriber, right?

And that's kind of what they're banking on.

Whereas if they move over, you're banking on trading volume, which I don't think will always be able to sustain, especially for a prolonged period of time.

And once that fizzles out, you're just going to be left with no value as a creator there.

However, I think the alternative side of this coin is for influencers.

They sort of thrive and live off that attention.

Like whoever the next biggest superstar is.

Like imagine if you got an up and coming actor early on.

I do think there's definitely some interesting, I don't know if integration is the right word, but real world privileges.

If you buy a share of Brad Pitt, you get to meet him for the next film, like Red Carpet, or you get to walk the Red Carpet with him, or something city like that.

But yeah, I think the difference between creators and influencers is pretty apparent for me and their sort of use case for Fence.tech.

I do think it'll be interesting to see how shares or the value of shares respond to real world events.

For example, imagine if Will Smith was on this app, right?

And then we replayed the Oscar last year where he slapped Chris Rock on stage.

And I don't know, it would be hilarious seeing everyone dump their shares for 1 hour straight.

But yeah, I am really looking forward to what the next wave of users that are onboarded onto Friends.Tech is going to look like.

And I think that would be fairly telling, to be honest, of how sustainable this app will be.

I think they've actually done a pretty good job of this, is trying to abstract away the fact that ETH is even a number on your screen.

The value of other people's shares is denominated on the home screen in dollars.

The only way you really see ETH is like on your own wallet in like the home tab or something like that, or your profile tab.

But I want to see them take that a step further.

Like if you really want your everyday Joe to log in and start buying their friends and you know, socializing on this app, I think you got to like completely remove the ETH nominations away from it.

And I even I tested something like this on my friends.

I was like, you know, like, what do you guys think?

Completely normal, like non crypto friends.

I was like, what do you guys think about this?

So I also think crypto Twitter is like, oh, this is our consumer app.

Like most people probably don't want to financialize Twitter, to be completely honest.

The funny thing is, I've actually heard the opposite argument that instead of denominating in dollars, we should denominate in ETH.

Because when you think back to NFTs, a lot of people were able to just shell out thousands of dollars because, oh, it's 1 ETH or a couple of ETH.

It didn't look like you're really selling out all that much, but in US dollars terms, you actually were.

And if people actually saw the amount that they were spending, they wouldn't spend as much.

So there is sort of that two-sided sword to that.

I would also echo Dan there a little in terms of the echo chamber on Twitter, I'm not entirely sure this is a new paradigm yet.

I know there's probably 100,000 active addresses, but if you look at the profiles of the most number of shares held or the most number of holders, that's Kobe and he has 157 holders.

That's like 0.0000001% of the human population.

Even if that number was 1000, I wouldn't think that's very impressive in the grand scheme of a consumer app.

Maybe if that number was like 10,000, I'll be like, okay, yeah, this thing has legs.

But 157 is nowhere close to the first actual consumer app in crypto that's going to be widely adopted.

I mean, to me, I think the issue with that number specifically is the bonding curve that they used and the fact that you have to buy a full share of someone's account in order to have access.

Whereas if they had some sort of like smooth bonding curve, you could have like fractional ownership over these shares.

And I think you're going to, you would see a lot more holders of something like Kobe or like the top accounts where it costs what, like 2 ETH to buy a share, which most people aren't going to throw out to a new application, right?

But if you could buy, you know, 0.1 ETH of Kobe, I'm sure a lot of people would do that, right?

But to me, like, I think this is a worthwhile experiment as a whole.

Like, yes, I definitely don't think it's the end state.

But I think there's like 2 key things when it comes to like creating a new social network that crypto allows to do a lot better.

And I think we're sort of seeing inklings of this.

I think 1 is like bootstrapping a new user base.

That's like the biggest issue with new social networks is how do you get like your first user base that loves the product and gets other people on board and using crypto using like a token airdrop in this case using you know a community within ct that loves to try out new products like you automatically have an easy bootstrapping mechanism for your social network.

And then you also have like a second big property, which is sort of an addictive nature to the application, which we can debate whether that's like a good thing for the users or for society.

But I think it's pretty self-explanatory that the apps that people use the most are the most addictive.

And in the same way that how on like Instagram, how likes and how retweets, how they like sort of hit your dopaminergic system.

You can think of like speculation and the fact that your account is associated like its price goes up and down like that is really addictive to users.

And so I think using crypto in both those ways allow it to, you know, flourish as social apps.

And so while this is not the end state, I think it shows what could be possible.

And I think people are going to take this and iterate on it.

No, I'm definitely not Googling dopaminergic right now.

I think the next logical step here is someone creates a protocol that issues 0 day to expiry options on Friendstock that shares and then we run back turbo.

Speaking briefly on like derivatives, there have been derivatives that have been popping up around Friendstock Tech.

The 2 major ones are Aval and Hyperliquid.

Both of them have released Friends perps, which represents the total market cap of all of their profiles on friends.tech.

It hasn't been a huge amount of volume on AVO, the 24-hour volume is 470,000.

On Hyperliquid, The 24-hour volume is 3.6 million.

Hyperliquid has an open interest of 1.1 million, but the demand too long is definitely there.

AVO has a one-hour funding rate of 1.62%, which equates to 14,000% annualized.

They have an annualized funding rate of 5,600%.

So you are paying a hefty, hefty amount to go along right now.

Like, I feel like Friends.Tech will probably keep going for a bit more as long as people write the narrative of whatever target audience they think is gonna come and onboard into Friends.Tech.

It seems like a relatively asymmetric trade.

It seems like a trade similar to if someone made a perp on stablecoin market cap.

That should be a no brainer long over the long term.

But yeah, I'll pass it to someone else to talk about, you know, fractionalization, bonding curves and where it might go from here.

I actually, I think you need this super steep bonding curve to kickstart things, right?

Because if Kobe was trading at like $10 or something, this would have never gone anywhere.

And you kind of need those like original big set of big numbers to like draw eyeballs and get that initial wave of attention.

Mind you, I definitely think you need to make it affordable for nobody's, I don't know, not nobody, but throwing $2,000 at this just to start playing is obviously not that lucrative or engaging to most people.

So if you truly want a consumer app, it just needs the affordable entry barrier.

But that's been a notorious problem for almost every crypto game.

Because let's say you either do fractional shares or you just flatten the curve extremely, then that doesn't price out whales because they just buy a larger number of the underlying units.

So it's still kind of hard to figure out a way where you can actually keep it affordable for new people to come in.

Because Let's say it only took 150 shares to hit 2 ETH in the current bonding AMM or the bonding curve.

Let's say you made that so it took 100,000 shares to get to 2 ETH.

If someone wanted to buy that much, they still could.

I don't really know if there's a great solution there, but that's definitely 1 issue that I think we need to keep kind of hacking away and solving it.

If you fractionalize the shares, then you know, wouldn't that person, the creator, have to be like super, super attentive to every single shareholder?

Or like, I don't even get what the argument is here.

To me, the value of it is like being within a group of 100 people who can hit up Grace and Alan to like have a conversation.

Like, I feel like the value proposition at that point is completely ruined.

I mean, most people are going to be buying in fractionally to get exposure to the price.

They're not actually getting in a group chat.

So I think in order to do it, I think that's a great point though.

And that if you were to fractionalize it, you'd need to have a full share at least to have access to the chat or whatever.

So it allows for there to be a pricing of 1 share, which prices you into a chat, while also being able to buy a fraction to get exposure to the price.

This also doesn't feel that different from stock splits and tradfi.

Most big tech companies, once the stock reaches a certain ridiculous number, like $1,000, they'll do a 6-to-1 or 1-to-6 stock split.

Like Apple, Disney, all of the big companies have done that.

But I do like the idea of like, sure, you can fractionalize it, that makes it a lot easier for new participants to come in and buy shares, but you still need to retain a certain amount in order to interact with the profile and I feel like there's actually a pretty good amount of customization that Friendstack could do there like letting the creator or like the person choose what that number is whether that's like 0.1 if you're like not as big you're like a casual Twitch streamer or like 10 shares if you're like a superstar.

Yeah, no, I think that makes sense to me.

I think there's 1 also, 1 narrative that kind of got misconstrued pretty quickly, which was Just the fact that somebody I think it was like band tag or whatever put like scraped a github And put together a list of like Twitter account names linked with the funding address that got picked up by a news media outlet and circulated as there was a data privacy breach or something along these lines.

And honestly people that were taking the side of this is like a doxing, like what are you doing?

You're kind of just exposing yourself for not really knowing how a transparent ledger blockchain works.

So if you fund an address with a different wallet, that is a transaction that appears on the blockchain that anybody can query at any point in time and there is forever into perpetuity as long as there's 1 Ethereum node running evidence of this transaction.

So it's not a, it shouldn't come as too big of a surprise to anybody in the space that yes, when you fund an address with another wallet, people will find who that previous wallet was.

So not totally surprising, but for some reason that that did come up as a narrative.

But nonetheless, I think there's actually 2 winners here.

So Ethereum itself is a little bit obvious, but I know this was people using Ethereum as money and even if you're denominating it in dollars at the end of the day the transactional asset is still ETH and this is again just putting another leg on the pedestal of the ETH as money narrative and that's probably why ETH has the value that it has.

It doesn't have to do anything with the profitability of its block space or things of that nature.

There's no DCF to run as John Charb likes to point out.

ETH is gradually becoming native Internet money and there's a market for that.

All this activity is happening on base, their new L2.

And I think that's just kind of got to get them excited.

If you're seeing this and you know, I think they're what, 2, less than a month, maybe 3 weeks into on-chain summer and the release of this protocol, they got to be fired up to see this level of activity and being a consumer-based app, right?

Because eventually you got to think Coinbase doesn't want to expand into more crypto natives, but beyond that as well.

And actually, right before this podcast, I saw that Coinbase just announced a minority stake in Circle, And they're going to be launching USDC on 6 additional chains.

You'd have to imagine that's Noble and Base will be getting native USDC.

So expanding the Coinbase empire onto Base and bringing more cash flows to those reserve asset yields.

So pretty exciting for both Ethereum and Coinbase.

Yeah, to add to your base optimism, that's kind of a pun I didn't mean to do, but there you go.

I saw that base actually surpassed Arbitrum and Optimism at daily transactions just before we hopped on this call, which is obviously I think like a third to half of that transaction activity is Friends.Tech.

And I find it kind of ironic because they're doing this like on-chain summer promotional movement.

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How CoWs Will Save DeFi Swaps | Felix