The Parsec Podcast

DeFi Roundup #1

May 27, 2022 parsec
The Parsec Podcast
DeFi Roundup #1
Show Notes Transcript

DeFi Roundup with Spreek

We Discussed

  • Merit Circle SAFT clawback
  • Stablecoins in a high yield environment, difficulties of yield passthroughs on chain
  • Tron shenanigans
  • stETH Discount
  • Alt L1s sentiment / corollary with DeFi

Links


disclosure: this is an educational podcast nothing said on here by hosts or guests is financial advice DYOR - on parsec preferably ;)

Will:

Welcome to the Parsec podcast.

Fudzy:

This is where we interview founders, traders investors to take a deep dive into the crypto ecosystem and its market structure.

Will:

This show is brought to you by Parsec, which is the premier NFT and defy analytics.

Fudzy:

So, for today, we're gonna try to do a roundup. Welcome on Spreaker legendary OG deGen. Been around the synthetics community for a while and just overall, CT in general, could be a kain alt. We're not sure. But yeah, welcome to the podcast.

Guest:

Glad to be here. Thanks for having me.

Fudzy:

So yeah, well, do you want to open in the first discussion here?

Will:

Yeah. So I think probably the most interesting like one of the more interesting things that happened this week was this merit circle situation? I don't really have a ton of context in the project in general, but know that it's a kind of gaming guild. From my understand is pretty similar to to YGG guild? Ironically, because this actually involves them. Basically, there's a governance proposal to tear up the Saft that. That, YGG wrote in the initial seed investment to circle? And I think, initially, there was some, you know, on the forum, there was some pretty positive like, this sounds great. And basically, the premise was they haven't contributed, and they haven't been like a value added, quote, unquote, value add investor. And basically, there's less important than in the forum. There I go. Sounds great. Yeah, it's definitely do it. They don't deserve the tokens. But I think understandably, there has been a little bit of pushback from some people on CT, including mdnr, and Hasakah. And I think this maybe has some longer term implications for DAO investments. But yeah, I think, I mean, I'd love to hear what you guys think about this, like, what kind of precedent is this setting? And where does this lead? Lead us with these types of investments?

Guest:

Yeah, so I think that it's it's not surprising that we're seeing stuff like this. I know that it happens a lot in stuff that isn't a DAO sometimes because we existed an unregulated market, and people are sort of in the Wild West, doing whatever, whatever vibes, you know. But I do think that it's quite a bad thing. And pretty much beyond the pale of what a DOA should be doing.

Will:

I think that

Guest:

one of the, one of the major problems with DAO governance in general is that there's really not much in the way of protections for token holders or down members, like, even if you have a majority of the DAO a lot of dollars are ultimately like controlled by multisector are controlled by insiders. So if the insiders are doing something bad, you know, you don't have much recourse necessarily, at least on chain.

Will:

And I know, I totally I totally agree. And I think actually, one thing this has made me think is that maybe this will lead us towards more explicit vesting contracts on chain, because just for context that people aren't aware, most of the time when these token agreements are signed, it's an off chain agreement, almost completely off chain, there are some some dowels that that have done on chain vesting contracts, but a lot of douses don't do that. They basically say, Yeah, we're gonna give you the tokens. And, and the funds are kind of okay with that, because they don't want to take the spark context, because they don't necessarily want people to know what their addresses. But I think this might lead towards funds being like you have to set up a vesting contract for, you know, before we send you funds, which could potentially be a positive outcome, maybe.

Guest:

Yeah, I think that would definitely be a good outcome. Although one thing to point out is that, of course, in a lot of cases, a new coin can be created. Or like, if the, if the coin has a lot of governance controls, it could be like, burned or slapped. Yeah, yeah, that's, that's good. So it's not a total panacea against hostile governance. Just the other thing that I was going to point out, is that not only do you have a problem, even if you're in the might in the majority, but you have an even bigger problem if you're in the minority as a governance token holder, because, of course, the majority will often benefit from saying, All right, let's find some minority that people don't like and slash them, because then we'll Got a bigger control for the network. And I think that is quite a dangerous precedent to set and things like Judo that did something similar to this where they slash some large whale that allegedly had civil the distribution or something. I think that was a bad precedent. And I think this merit circle thing is also a bad precedent in terms of this kind of thing. So,

Fudzy:

yeah, I mean, most, most of these, you know, governance projects is like a breeding ground for minority squeezes. Like you pretty much have no chance. And even when you think it's, it sounds so messed up to say, but even when you think your vote matters, I'd say in probably 90% of cases and defy your vote, doesn't matter. Unless you're serious. Well, or you have like large delegations. How you fix that, and and a governance setting? I don't know the answer to that. Right.

Will:

I feel like, I mean, I think this has bigger implications for the for the larger holders and for funds. I think there's there, there's, like, theme here, where funds, maybe stop investing so aggressively in kind of very new projects with an established teams and teams that maybe are less trustworthy. Which, like, I think would be a rational response to this. And I think that's the other thing is, if you're a dowel doing this, like, I'm not sure why anyone would invest in the dowel, in an agreement like that ever again, like you basically like burned your entire, your entire legitimacy as as, like a capital fundraiser in this scenario, which I think is like incredibly, you know, negative Evie for, you know, a pretty small size of the token allocation. I think that

Guest:

I mean, I think even proposing and having a lot of a lot of community backing for something like this is already enough to make most people go Yeah, okay, that's on investable. Like, personally, I wouldn't touch something like this again,

Fudzy:

what do you think is worse, the YG G having these tokens or them creating this proposal in the first place? Right.

Will:

Like, oh, they accepted? I mean, they accepted an investment from IgG. I mean, it's it's an agreement.

Fudzy:

I mean, long term implications, right. Like they argue that, like, this is, this is a bad look, we all agree on that. So maybe it's a worse Look, just to propose this in the first place than having why Gigi dumped your tokens, you know, vested over whoever.

Guest:

I mean, you could imagine some scenario where like, it could be necessary. Like, let's say there was an infinite mint bug, and somehow some whale ended up with 99% of the supply. At that point, I would think like, okay, there's no other option, right? But this is more of like, what it seems to me, like, agreed that like these guys, we gave these guys too much more than more than we would have, if we had known how well we would do in terms of token price. And now we regret it and we want them back.

Fudzy:

Yeah, man, you're giving your your competitors founder, you know, a 75k slot, which I don't know what it is equivalent to now. But it's just kind of funny to think about.

Will:

Yeah, and I think what I'm like, in a more macro scale, I do think we'll probably see this more often. I think you're good to point out do now because I think that's kind of a similar scenario of kind of the strange decision making process from from Dallas, but I do think this will happen a lot more. And I think there is a potential where this kind of gets people to think more diligently on both sides of the aisle, you know, think about who you're taking out as investors and investors, we'll think more about, you know, what the incentives are this team and of this token, like, are we aligned? But I definitely, yeah, I definitely think it's, you know, 100% a negative thing for for the project involved. But we'll say, Do you want to you want to listen to the next next topic? Fozzy

Fudzy:

see, yeah, so I think we'll on Twitter, posted about basically USDC how they're basically their collaterals making money. And if they don't somehow you know, share that money with the actual token holders, Competitors will come along and use that collateral backing, any yield generation generating environment, you know, to basically try to gain some market share on USDC. I saw there was basically a lot of talk based around the law implications. So is that turns into a six 30 I guess I don't know enough about that to comment. What do you what do you guys think?

Will:

Yeah, I mean, I think before the security thing, I think the the, like, learning discussing is interest rates are nonzero on dollars now, and circle or tether is gonna be making, you know, significant returns the capital, like the actual deposits, and that it changes the calculus around stable grants. I mean, I remember a lot of people, you know, a lot of the huge inflows into stable coins over the last three years have been predicated on the fact that it's a low interest rate environment, and this problem doesn't matter. Because if you're a trading firm or your fund or something, and you have some collateral locked up somewhere, you know, in high interest rate environments, you really want that interest rate to be accruing to that cat to that collateral. And so that hasn't really been a problem in defi, last couple years, because interest rates have been zero, but they're not really anymore, and they maybe won't be for the foreseeable future. And is there you know, a su tweeted about any product S T USD, like, basically like state dt, but for USD, just like, quote, unquote staking it in like US Treasuries and earning some sort of nonzero yield on it. Which I think is a really interesting, compelling idea. I don't know, from a compliance perspective, what it looks like, though. I don't know.

Fudzy:

I mean, shouldn't those yields translate across, you know, trade advice to crypto? I know it's not perfect right now. But you would think that, you know, if interest rates go up, do Ave rates go up to?

Guest:

You know, I think there's sort of, there's sort of a natural ARB where you can, just as there was inflows into USDC and usdt, when interest rates on trips were higher than Trad fi. Now, there's sort of an ARB in the opposite direction where you can redeem your USDC and go put it in treasury bills are more than you can and defy. And a lot of cases Yeah.

Fudzy:

Yeah, go on. Thank you, oh, sort of

Guest:

equalize itself and the longer term in terms of the state USDC. I mean, like, I think there's sort of not that much in the way of benefits if you're going to have like an isolated, FC USDC. That's not like heavily integrated into sci fi, right? Because at that point, just equivalent to okay, I'm redeeming my USDC and buying Treasury bills myself, essentially. I mean, of course, there's like liquidity, concerns and such. But in general, it's pretty close. Now. If you do integrate as Te USDC, entity fi, I do think you sort of run into all kinds of like, annoying problems, like we've seen in the past how these the state, so guilds that have like, variable redemption amounts can cause problems in terms of like the three pack and potential Ave exploit was related to this. And

Will:

yeah, and Ste has been kind of a custom integration with a lot of these protocols like the curveball is very custom for it. And it's not, it's not trivial to handle because it's rebasing like, that's the three bases which defy hates rebasing tokens. And, and like to your point, it would have to kind of be like natively, natively, like yield bearing,

Guest:

yeah. And I mean, either you rebase, which everybody hates, or you don't rebase, in which case, you have this ugly, like, non stable, stable coin, right. So that's sort of a problem for defi. And then the other issue that I have with this is, like, at a core level, I want my stable coin issuers to be able to make money and to be able to do it safely, right, because if they're not making money, then you have problems, because then they start doing all kinds of crazy shit. Especially when we're in this unregulated environment, essentially, like, you have stuff like tether or more extreme examples that are going pretty far out onto the risk curve. And, you know, I would sort of prefer if my stable coin puts like some into Treasury is that like, hopefully there's not a lot of liquidity risks, and like gapes, a decent amount of cash and like self can make money. Right? Because, I mean, at its core, I think that people that hold stable coins and aren't doing like an interest rate are they're not that concerned with whether they're earning interest. They're more concerned with like, am I actually going to be able to keep my stable coin I'm gonna get $1 for it.

Will:

It's a good point and like the the sustainability of these business, like the, the sustainability of circle has kind of been under fire for a few years now. And, you know, how will they actually make money on their deposits, because interest rates are so low, and now they actually have a path that, you know, substantial revenue, I mean, you know, 25 or 50 basis points on, on what 60 or 70 billion of USCC is, is a lot. And definitely sustainable business. I think one potential like medium ground that for discussed is large holders, kind of having off chain agreements, to get basically a pass through. So this would be, you know, like DAOs, like maker or fracks that hold, you know, nine or 10 figures of USDC. And maybe there's some sort of arrangement they can they can make to get a pass through on some of the yields, which which might be a nice way of passing it through to defy indirectly.

Fudzy:

So you guys don't want to invest in my stable coin backed by Chinese housing. That's off the table. Evergrande paper? Exactly. But I do think there is like freak mentioned, like, you want them to make money, there is a sense of security and trust that you need in a stable coin. You know, if you're a large fund, at what, at what yield? Does it become attractive enough to not use? Like, the two most trusted stable coins in the space? I don't think there is a yield that is

Guest:

20% Apparently.

Will:

I think it's an issue though, I think it's just you, I think you underestimate large holders, yield preferences. And I think like, big bigger players, like three arrows and like more active traders really care about these small amounts of yields. And the thing is, if it gets passed through to defy then you get the double dip and you get the rebasing interest from treasuries and then you get to go and put it in compound and like, take advantage of of like, leverage hungry on chain traders. If that if they ever come back, I mean,

Fudzy:

percentage chance. What do you guys give a new stable coin coming in and actually gaining a significant market share, you know, something above di, relative to USD, USD C and tether? I think it's extremely low. In the next, like, five years,

Guest:

yeah, I mean, personally, I think that it's so space where this this really quiet winner take all like, I think if tether was less of a disaster than USDC probably wouldn't even have much of a market share. Because I think that like basically what happened was USD T came in first and like, by all accounts, it shouldn't be dominant. But because they've mismanaged that so much, and people don't really trust them, it sort of opened up the door for circle and USTC to comment. But now that USDC is here. I just personally, I don't see. I don't see anyone coming in to disrupt the amount of like liquidity advantage as that circle enjoys.

Will:

I mean, look at the USD, like be USD is massive 18 billion. I mean, that was that's like, what two years old? I mean, Mim it was like less than a year old. It got to like 5 billion fracks is like only a year or two old. That's it over a billion. I I just I think there's so much demand for stable coins. And I think it's something that investors really like investing in. And I don't mean anyone I mean, there could be a bear market for it after after Tara but I don't know. I don't think it's a it's a drug that that will be quit too soon.

Guest:

Madmen fracks. And die are basically USDC though, right? Yeah,

Will:

man, wasn't them wasn't. I mean, I agree mostly with fracs. But I mean, it was legit.

Fudzy:

Be USD for the most part is I mean, that's just incentivize demand. Right. I mean, I haven't done

Will:

but why doesn't that count? I mean, I just think like, it does count.

Fudzy:

But if I mean, I don't know, I think the longer we go on, I think the markets will just get more efficient. And, you know, CZ, might not be, you know, he might not want us keep incentives. I don't know how much he benefits from that. Right? Like, how much is he making off the USD? Like, can he

Will:

ever mint redeem is probably, you know, 10 or 25 basis points. I don't know the exact price. I mean, they they licensed it through Paksas. So I'm not really sure what the revenue share is, but I'm sure they did and I'm sure they're doing fine on it.

Guest:

Well, thanks Same thing about bsv USD and Paxos stable coins is I believe they're like, very heavily in cash and not even in treasuries or like yo generating assets.

Will:

Yes, but that's true. And I think there's more protection. And BSD. If you're, you know, a non American trader, like an Asian trader, I think it's probably the best stable coin to be. And that's why for at least, you know, safer than tether and better jurisdiction. I

Fudzy:

wonder we're the largest stable coin on finance more chain is now assuming it's tether. But be interesting to see that split. But yeah, I mean, I think I mean, I wish you could indirectly bet on, like, stable coin games. And I don't think there is any way you can

Will:

like a market cap market cap project prediction market of some sort.

Fudzy:

Yeah, maybe there's some, you know, prediction markets and binary over unders or something like that. That could be cool. Yeah,

Will:

yeah. Okay, cool. Yeah, let's, let's, well, actually, this is kind of related to stable coins. But Tron. I don't really, I don't really know much about this, like, whole USD thing. But it seems to be kind of the only thing. The only DDM thing happening in the market right now. I don't know if you guys have any thoughts on that beyond just the absurdity of it?

Guest:

Yeah. I mean, the timing is obviously quite funny us what happened to USD recently? I think that the comparisons with USD or maybe not quite accurate, because USD is, at least in its current state, pretty heavily over collateralized. And person has just been behind it for as long as it goes. So I think that it's sort of maybe better compared to like, a standard yield farm, at least in this current state where basically like, there's a big player subsidizing, subsidizing it on sustainable yield to try to like draw attention and you search to his product.

Will:

Give me a sense of like, what the clock like, is it just kind of algo back like, it's backed by TRX? Like MIT redeems? Is that the makeup of it? Or? I think

Guest:

I mean, correct me if I'm wrong, but I believe the way it works is like basically, you can send a certain amount of TRX to an address that's like, ostensibly, ostensibly, a burn address, although it's actually controlled by someone from my understanding, because obviously, they have to, it's not like luda, where there's like, actual actual, like men's burns going on. It's just like, you send a certain amounts your ex to an address, get USD D back. And if you send USD D to them, then in theory, you'll get your ex back. And then there's also a bunch of like, outside collateral like, I believe they're thrown at a bunch of USD T and maybe some other stuff. So

Fudzy:

I feel like I saw a post saying like, he had 10 billion in collateral backing it. Maybe that's just Justin son

Will:

doing Justin. So I think that's just the TRX market cap.

Fudzy:

Gotcha. Yeah, I mean, right now, it's too small to blow up. You know, just not financial advice, because I have no idea what I'm doing. But I expect USD to keep growing. I wouldn't be surprised if it hits like four or 5 billion in market cap.

Will:

I don't know. I think it's, it's basically it was the most risk on capital that was previously an anchor, he got out unscathed. And now it's just like running it back. But I agree that it's more of a more of a yield firm vibe than like, kind of some of the participants that were an anchor. But I don't really, I think the anchor growth to whatever I think Max is like 10 or 11 or 12 Maybe. I think that was a lot more of these, like exogenous flows, where you had literal like, one off SPVs that were built just to put money into anchor and you had a lot of retail flow. This is like very cynical capital that's in that's in USD D. And I don't think that they'll hold on to some unsustainable, like, runaway deposit number. Like they'll just get out

Guest:

also. I mean, personally, I don't think Justin sign will go that far. Like I don't think he wants to blow up his whole protocol. I think that he's just viewing this as like a marketing expats and he's gonna grow it to a certain point and then he's gonna start lowering the interest rate.

Will:

Yeah, and he's done this before. He's, he's a little bit more savvy at the, I mean, I don't know if I'd call it scamming. But these games and like, at, you know, at the yield firm level, and at the personal account level, he's been at pretty savvy. I don't know if he has a team with him or not. But yeah,

Guest:

I mean his band like the biggest sci fi farmer for since the very start so he he like knows what he's doing. And you may have a certain sense on ethical, but I also think that he's savvy enough to know like, where the line is and not surprised that yeah, I tend to agree.

Fudzy:

Yeah, I mean, he was given the perfect blueprint of what can happen. But it is funny how he announced all the near scrape their their algos, they will deny.

Will:

I think it's still up but I think it just says

Guest:

I never even hear the near thing is very similar to uscg, where it's actually like an over collateralized stable coin and its current state basically backed by the five day they received in toddler and like a certain amount of near of course, but like as it has an offense, whether it's a backup for the moment. So yeah, and this is

Will:

the thing about about Tron and here is that those systems were copycats, but in a sense, they didn't copy the worst feature of Luna, which was the actual protocol level meant redeem, which was actually like the death knell in the whole system. And so I think that those other systems are actually probably slightly safer than this.

Fudzy:

But so if I gave each of you right now, and over under a 4 billion market cap, what would you take? For USD? Yeah.

Will:

Like ever, like Top Tech? Yeah, top tech. 20%.

Fudzy:

Wow.

Guest:

Yeah, I mean, that seems about right. I'm also like, definitely on the under. So

Fudzy:

I guess, um, isn't the only one.

Will:

We got a trombone.

Fudzy:

I think it's a mixed dollar. I think it's the IQ curve. I think USD D right now is a mix of like, the lowest of low and then the highest of high that can try to time this thing. I think in markets if they continue to just keep crabbing?

Guest:

Well, I mean, here's the thing, like, it ultimately depends on what Justin does, right? Sure. Because Johnson is the one pay the interest. So like, you know, you have asked him for it. His calculus is like, well, I could get incrementally more demand for Tron by continuing to pay but on the other hand, I'm paying, you know, 15% or whatever on on for a bill. Yeah. You know, that adds up, right.

Fudzy:

Yeah. But I think it was, you know, a super interesting point Kevin made on our last episode was the nominal value, like market cap value increase, decrease that buying and selling incurs? And I don't know, maybe Justin saw, the sun is thinking about that basically saying, you know, if someone buys $1 worth of USD, how much am I making off that in terms of Tron appreciation? Just due to the natural ARB, mint redemption, compared to how much I'm paying in interest, right? That's like the calculation.

Will:

It's, but it's not that it's not the side that matters. Like of course, like, like child's gonna do well, on the way up?

Guest:

Yeah. Yeah. I mean, like, it's, it's a question of like, is he willing to, like, exit on every was wrecked skulls, and then like, collapse on the way down? Because it's like, it's in a certain, a certain sense, if you are, if you're recognizing that $1 of inflow as like revenue, when it comes in, then like, you're basically saying that it's a Ponzi, you're never gonna pay it back. Right.

Fudzy:

I think all of us understand the mechanism, what can happen pretty well, I mean, is there any way that in my mind, personally, I don't think you can slowly unwind these types of, you know, functions.

Will:

I mean, it's like any farm, it's like, they don't unwind slowly, like they unwind fast. And the token price goes down a lot. This is a little bit more complicated because TRX already has an ecosystem of you know, quote, unquote, ecosystem and has, you know, some history but it's pretty interesting like to see it kind of running the same kind of like it's, it's, it's moving into the market and like doing well against market very similar to the way to the way Linda did that.

Fudzy:

Yeah, and I'm just saying in terms of, you know, like you said, you can't slowly unwind it because then the market picks up on it, and it's just gonna front run you and it just makes it that much worse. Right. Well, you

Guest:

can slowly on why it as long as you have exogenous back it right back As long as as long as Justin sign is throw again, his own toddler to this time like, yeah, it'll be fine.

Fudzy:

That's a good point. It's not big enough yet to where the slow unwind comes into play. Yeah.

Guest:

But like, as soon as I started to became more of like an algo, a stable coin, then you start having the the bank run type issues.

Will:

Agree? Yeah, yeah. So the other thing that kind of continues in the market is St. Still trading at a discount. pretty sizable, you know, a little little over 2%. And it's kind of been much talked about, I think there are a few different things going on. Here you have anchor, had a lot of state defendant had, like, you know, over a billion dollars of state Ethernet, and a lot of that's come off. And those depositors were basically sitting in eath. Again, they were given the yield out to anchor because anchors actually taking the yield. So they did or not like implicitly safeties loose, so they kind of a lot of them sold for eath. And I would say, there's also just been more awareness around the fact that maybe stake eath doesn't need to be priced at one. And there's been a lot of talks about the leverage associated with that. It's mostly been de risked by some of these big wallets, but I don't know, it also plays into like, kind of merged sentiment, I think it's maybe an interesting way of like, tracking sort of merge sentiment and seeing like, when the market thinks this will happen, because you know, the tighter it is a one the more, you know, confidence people have that there will be actually a redemption loop pretty soon here. But anyway, yeah, I just think it's an interesting scenario that a lot of people are talking about as a trade, you know, to yield the 2%.

Guest:

Well, one thing to point out is that the merge for itself won't enable withdraws is actually right after that. And I think that there's some misconceptions on that. And that's, you know, that's for me, like, personally, I don't think 2% is very attractive, because like, you might be waiting, you know, six to six to 12 months. And maybe longer. Because one thing is like after the merge happens, I just kind of wonder like, how much urgency there's going to be for that next fork, I tend to think there might be sort of like a slowdown and like, people try to cram in a bunch of extra extraneous stuff. And so the next fork,

Fudzy:

I mean, what is the incentive for them to speed up that process? You're, you're literally allowing people to unstick from your network.

Will:

Yeah. But LIDAR has I mean, this kind of differing differing incentives here, I think that it is yet there is like a question as to whether like, how much does Aetherium the protocol care about the validity of that stake. But I think that is like proof of stake doesn't really exist until you can actually then stake my opinion. So I think, like, from a protocol perspective, like you have to do it,

Fudzy:

you have to do it. Oh, for sure. For sure.

Guest:

Yeah, but I think that, you know, we sort of operate on Aetherium dev time, which is slow in the best case scenario, when they're highly motivated to get something out. And when, you know, they just finished a big release the biggest release of all time, probably. And, you know, there's a whole bunch of other software's sort of that on the back burner that everyone has their, like, pet AIP that they want to get ahead. You know, I feel like there could be a lot of politicking in terms of that next fork. Yeah,

Fudzy:

I thought the lighthouse approach to kind of shine to stabilize the peg was pretty cool. They basically just abused the a parameter on curve incentivize the new pool, right? Yeah, I thought that was pretty interesting. It was,

Will:

it was interesting, I think it did help some of the, like, auto farmers like the it's adapts the lever. But at the current prices, basically, the slippage actually ends up being the same because the a, like, if you think about the curves, the a really concentrated around one, but right now it's at point nine, seven. So it actually is like pretty far out in the curve already. And it's basically the same slippage as the non concentrated one because once you get wider with the higher A's once you get wider than it actually becomes shallower because you have to compensate for like the leverage inside. But I think I think that it was it was a solid move still, and it's probably better to move towards that pool in general

Guest:

would have been interesting if they Add on something with Yoona swap the three instead, I think they did it because there isn't an easy like steak egg, or like Bing solution for that. But you know, in terms of like getting the most bang for your buck in terms of liquidity around pegs price that isn't one, you know, I think they would have gotten a lot more from a udv, Three Pool,

Will:

potentially, I think, well, there are two issues. So first, you have to do wrapped state D, which is like the non, you know, staking or the the non rebasing one. And but you also have to come up with a solution that like actually has liquidity on the wings. Because if you just went to like, if you just had it from like point nine to 1.1, then once it blah, if it blasts through point nine, then it's zero. Right? And, and like there aren't great tools, there still isn't like a year end that you need to be fair, there still isn't great tooling around like rent like full ranges, and you need to be three, like there's no off the shelf contracts to do that, as well as the incentivization issue. And like, because I agree that this should be something that you need to be three is good at, but they just haven't built any tools to do it.

Guest:

I mean, I think the like the the full range thing is mitigate a bet by things that sense of the curve pool, like as long as you have a curve pool, that it's not like liquidity is going to go into literally zero.

Will:

That's true. That's true. Yeah. The existence of the other one. Yeah.

Guest:

But yeah, in terms of like, lack of tooling, it's definitely a big problem. Like, I'm still kind of surprised. There isn't like a, like custom curve builder for udv, three possessions, obviously, that would be gas intensive. But you would think that like, you know, let's say you make like a combination of like three deference three different ranges and combine them together. I think that would be like a reasonable approximation of what people are looking for in concentrated liquidity asset. But for now, we don't have that.

Will:

Yeah, I mean, teams have kind of had to do their own thing like fracks. And right, and probably others that are not aware of basically built their own contracts to create these, like, concentrated systems. And then they can like, give token rewards on top of, because they did build like a token award contract, but I think it was pretty, like poorly designed. And yeah, it was like, what was the deal with that?

Fudzy:

I feel like they released it. But I don't think I've ever seen it. Yeah,

Will:

they released it as a as an official contract, the primary use was in ribbon after it been launched. And someone exploited it. And made, like, a few million off of the off of the rewards basically, by doing one tick.

Fudzy:

By not being in risk of execution, but just placing

Will:

the liquid were teetering on, they were taking on risk is fairly sophisticated. But basically, with these assets, like if there isn't any volume happening, and you just sit in the range, yeah, then you get all the rewards, because you're so concentrated.

Fudzy:

They still got, you know, eaten into a little bit you're saying

Will:

they did, but I mean, I think they probably lost a couple 100k on on their ribbon positions. But I did a whole accounting of it back in the day, and they they made a lot of money off of this

Fudzy:

similar to like DY DX kind of Orderbook. You know, washing? Yep,

Will:

yep. Yeah, pretty similar. Yeah, that's

Fudzy:

pretty interesting. I don't know. Maybe they're working on uni socks v2 or something. They've given up? I don't know. I think we should move on to the

Will:

yeah, all ones gasp

Fudzy:

ones, the metrics. I guess we can finally bring it up whether, you know, Is it really over? The bear market? Have the doomsday Sayers.

Will:

Yeah. I mean, I think the bigger theme here is like, there's been some backlash against the but Alt L one trade. I think it was like, obviously super consensus trade for like, probably over a year. And I think some of those are unwinding, like, pretty violently, like a Vax and Filipina and Phantom in particular is like, you know, pretty rough price performance. And like, what, like, I think it's becoming less clear what the value prop of these like, quote unquote Alltel ones is, in general. Maybe it's a sentiment but

Guest:

I think that it was such a consensus trade and there was all of this sort of extra supply on the market from people that were in early in Private rounds or SAFS, or whatever. And sort of like there's natural selling Cosma yet. And as like, as long as you have enough buyers to absorb that, and the number keeps going up like it could keep on going up for a long time. But that's sort of the same thing as like a defy token that has heavy emissions from liquidity mining, as soon as salary is greater than buyers, then it gets really ugly really fast.

Will:

Yeah, I'm glad you brought up the defy tokens, because I think there's maybe a similar, the similar thing is going to happen to all of these l ones that happened to defy tokens were like, the fundamental, you know, quote, unquote, fundamentals aren't necessarily getting worse. And like, I think the funnel was our worst right now. But I think, you know, at least in my opinion, like Solana and Avalanche aren't going anywhere, I think that they are going to continue to like, have apps on them that are used and you know, people are going to keep using it and liking it. But I think the tokens could get ripped for a while. And like much longer than people think. I mean, you look at the defy cycle. And like comp is basically back to where it was. And we started the when we started Dubai summer Ave has been crushed, even though they'd been executing unis way down, everything's that curves way down. So, you know, I could see a similar

Fudzy:

story playing out there. Yeah, there's no reason why that blueprint shouldn't translate over to all the other ones. I mean, it's the exact same story. Most of the projects are the same concept in terms of tokenomics.

Guest:

I mean, I guess the only question is like, the extent to which big funds and big players think that oh, wands are like fundamentally a better asset than app, app protocols. Right? I think that, in a lot of ways is similar in that there's pretty heavy, like inflation, or like pseudo inflation on these, and there's not a lot in the way of revenue, like Sawada is not making very much in terms of these avalanche, not really that much in terms of fees, certainly not enough to, like justify the current valuation. Obviously, there's a lot of forward looking, and the prices people are paying, but it makes it difficult to absorb a lot of that selling pressure.

Will:

Yeah, it's, it's tricky, because you like, we look at avalanche. And like they're, like, you look at the user numbers right now, like these top contracts, there's barely anyone using them. But and like the issue is that privada and, like criminal Corrado me like grotto, left the chain and made the subnet, which is like, in theory connected Outlands, but it isn't actually connected to a Vax. And so they've just destroyed their, like, revenue numbers in exchange for scaling. And like, that's the trade off that that avalanche and Salon are explicitly making. And so like the, you know, value, investors are not going to think those are appealing for a while because they're prioritizing scaling, which, you know, I think something similar could happen with eath. Down the road, if roll ups up actually happen. And I think maybe that's just like, the trade off like, these chains become more usable, but also less financially, like, attractive,

Fudzy:

it is hilarious, the transaction chart for APEX looks like the Luna chart wants qurbana left. It's insane how many bots were running on that thing, just driving gas prices up. I just think it's funny, all these Aldo ones, they think they're, you know, solving Nobodies, as far as I know, solved anything regarding scaling. At this point. It's just trade offs.

Guest:

I mean, you can break compositive villainy, and that will scale you that's basically like the only solution that has really worked and like, certainly for a ivax in terms of reducing its fees that works. Now, you know, in terms of is that good for a ivax? The token? I don't know. sort of similar with Aetherium, although roll ups do sort of indirectly pay fees to mean that if you're younger, so it's maybe a little bit different. But

Will:

yeah, I mean, my understanding of subnets is that with avalanche is that there is some sort of connection to validators that is kind of adjustable, and like toggleable, by the subnet creator. So you can have like a really independent subnet, or you can have something that's like, you know, secured by avalanche validators. So it's like a little bit more connected, potentially. But, yeah, I think I agree. mainline, that, that it like, losing all these transactions is not necessarily great for the outset.

Fudzy:

It just comes down to whether you think people buy that Once, you know plugging in these absurd, you know, like, pe values into Google Sheets or Excel, and whether that's driving investments?

Guest:

Well, I don't see I don't think it's driving investments. But I think that's something like the eath burn is like absorbing a lot of the selling pressure that sort of naturally comes in from inflation. And from for sure, so eath doesn't have like the same overhang of supply as some of the newer chains do.

Fudzy:

Yeah, I think the, the, you know, the PE, the cash burn buyer narratives. I think that's a pretty small part of like the ecosystem in terms of buy pressure.

Guest:

I mean, I think that like, first certain kinds of tokens are like explicitly use, let's say, misleading metrics to try to attract buyers and might be a significant portion of their buyers. Yeah. But in general, I don't think that like I think that like 95% of crypto investors don't care, and may not care for a long time, directly. Now, the indirectly they care about number go up. So if fundamentals make number go up, then those investors will care. But if not, then the

Fudzy:

problem with most of these fundamentals is they're just sanely reflexive, just based on tokenomics. I mean, from how was built so far,

Will:

gas prices are so low that that kind of eath burned goes down as it goes down. But yeah, I mean, this is the other things about oil was and why the the whole, like L one Maxi thesis never really made sense to me is that apps on oil ones are leaching security, like they don't have to pay for it. And they get this like, hyper secure, especially on you know, on the more security and the the hyper secure apps in exchange for users having to pay slightly higher fees, that's about it. Like they don't have to pay that much for themselves, and they get super secure environments like run finance on and kind of the L ones have to bear the cost of that by paying validators and paying miners. And I don't think that the market hasn't fully internalize that yet, or maybe even like, thought about that at all.

Guest:

I think the other thing is that the market is just not pricing in any amount of competition for our one. So like, every single Alwan is praised as if it was like the only competitor to a theory out. Yeah, I miss price as if it's going to be the leader forever. You know. So I think that there's sort of a disconnect there where like, it can't be the case that all of these valuations are right.

Fudzy:

I just think of it from kind of incentives just from capital market participants, whether that's like venture or, you know, even some of retail, I guess, but like, there's no reason why they won't just make new l ones in five years. Like there's Why would anyone want to keep investing in you know, an Alt L one right now, when they can make a new L one, maybe slap on some ESG? Or like, what was that she was that like the hard drive mining? Or what's that? Something like that? Right? Yeah,

Will:

I think you're under estimating how hard it is to get these off the ground. I think I would say some of the some of the like L ones, I think that are not going away. I would say the three that immediately come to mind are Solana, avalanche and polygon. And all three of those have like, Go did BD and like outreach and like community level engagement. If

Fudzy:

you think they're too big to fail at this point.

Will:

I don't think they're too big to fail. But I just think it's it was not easy getting where they got. And I would say there are definitely some that are like this copy, like copy paste and played like game like I'd say phantom product falls into the category of like, probably going to go away. Eventually. I'm not sure what the like long term story is there. And like, everyone that uses Phantom, just like like sealed, I

Fudzy:

think they sold it got to where they got just because of Ethereum fees, and most participants getting priced out phantom or others. Just you know, majority of the other ones that you mentioned.

Will:

No, I I don't think explicitly I'd say maybe avalanche. But I think Solana has a has a different story, that that is combined some people?

Fudzy:

Yeah, I mean, I don't know. I don't I'm not technical enough to know if Solana will be in or how they plan on solving their non auction model. I just find it fascinating how they're trying to approach that. I don't know if you guys have any input on that, or that's a whole nother discussion for another time.

Will:

I think we should do a podcast on it because I don't fully understand that either. But I think it's worth it's worth looking at.

Guest:

I mean, I think that's sort of the key question first a lot as because if they can solve that that like, they're definitely gonna stick around. out if that counts that, you know, really is a distinct possibility that it isn't still around. So,

Will:

yep, yeah, if the team just doesn't work consistently, then, you know, apps aren't gonna want to run finance on it. You can't have, you can't have daily downtime, like full day. downtimes, like, mature financial obligations, like that's just a nonstarter.

Guest:

Yeah, that's really a deal breaker. And I think that like, you know, in the presence of because what's gonna happen is, of course, that's part of the Solana killers, just as there were a theory of killers. And, you know, if Solana cat saw that, that I think, I think that there will be a lot of migration to other newer chains that claim they have a solution.

Fudzy:

Do you guys see? You know, and of course, a lot of bridges have gotten hacked. Right. And I think this really hurt the L one trade as people become more skeptical about bridging over assets, whatever they're doing over there farming playing game five, I don't know what they do these days. But do you think centralized exchanges adding more compatible assets? For these Alt L one exchanges? It can that like, revive? You know, can that bring the round two? Because I think that's one thing where, you know, I would trust a buy Nance bridging my Aetherium to Phantom, or something like that, right?

Will:

Yeah, I think it's like, we're, I think that wormhole, like the wormhole hug really spooked a lot of people birthing, like, understandably, and that a lot of people just started going through, such as exchanges, if doable. And yeah, I think it might help maybe, but I just think people got a new change because of financial opportunities. So I don't know, like, just the silly things going down on finance on, no one's gonna go there.

Guest:

I mean, the other thing is that like, an exchange, being like a pseudo bridge doesn't solve the systemic risk problem. If you're Shane has, if you're Shane has like a canonical bridge, then, okay, by Nance can like do the bridge a for you, but still, ultimately, when you're on that chain, and you're holding what's effectively an IOU for a token and a bridge contract on Aetherium? Right.

Fudzy:

So it's a great point, it's, you know, all those assets that were backed by that bridge can be pooled with the binance assets, right? So you're just indirectly exposed to that?

Guest:

Well, and what I mean is like, the two options for buying ads are either they make their own like binance Aetherium, right? Or they just like, do the bridge for you behind the scenes, and they give you, you know, Phantom native Aetherium or whatever, or SWANA wormhole. Aetherium. And if if they do the first then, you know, it breaks composability. And you have, like, a situation on a Vax, where there's multiple USDC is a vaccinated USDC and REG, USDC are like on Solana, where you have so let us see and

Fudzy:

100 of them on.

Guest:

Yeah. Do you have more actually on Solana? Because Solana doesn't have like a canonical bridge to a theory. But so, I think neither of those is ideal. And I think so far exchanges typically use existing bridge tokens. So actually, it wouldn't really solve any.

Will:

Yeah, you're gonna get that the risks themselves.

Fudzy:

I think, you know, we talked about metrics. I don't know why people bring up like wallets. I've never or transactions. I think all that stuff is just mostly bots, you know, and it's botted. And I've never found that to be like, a metric that was, you know, I don't know. So it's really

Guest:

sensitive to like, a few projects like, like on a IV access really sensitive to a crap game on a theory. You know, it's really sensitive to like the amount of MEC and open amount of open seer. Yeah, yeah. But it's an honor. She has this like sense. That's the number of civil attackers trying to get your job.

Fudzy:

Exactly. I view TVL is probably the most important metric. And I was looking at bridge TDL, just for all the L ones that you can get to from a theory of pretty much all I guess, and the numbers are down, like 70% In the last like three months. Now, obviously, I think that metric was taking into account maybe the USD value, and obviously the markets have come down. But I mean, that's pretty significant.

Will:

Well, I think partially, the unchained grid has just been useless because of the world. All, unlike the the TBL. And those bridges, and like bridges, like synapse is basically the same as like FTX holding one side of the collateral, right? Like you put USDC and FTX and then take out like USCC E. Avalanche, like that's basically TVL, quote unquote TVL for FTX. Yeah, but like it's, you know, with synapse and these other ones, I think they just kind of came off a little bit people got a little spooked.

Guest:

I think they should be because bridges are like empirically. Disaster like they're getting rocks all over the place. And it seems like nobody has any idea how to make a secure bridge. So

Will:

yeah, it's a uniquely, uniquely tricky problem for sure.

Fudzy:

So I think it's pretty cool to talk about these higher market cap, fully diluted value, coins that trade about 100,000 a day. I think lotto is like maybe a perfect example that trades a little bit more. But, you know, how are you guys doing? You know, those types of coins in this environment?

Guest:

Well, I think that like, first of all, you have to ask yourself, whether the data you're gay, as accurate and like what potential issues there are with it. One thing with LIDAR in particular is like, is pretty low in the amount of centralized exchange listings. And so that's sort of like naturally going to make its volume look lower, because a coordinates heavily traded on centralized exchange sort of depths, like sort of gets like a lot of extra volume, because first of all, centralized exchanges will often lie about their volume. And second of all, because like, if a coin is primarily traded on a centralized exchange, then the price discovery happens on the centralized exchange. And then there's sort of like natural volume on the DAX that like, equalizes that just to orbit up, right. So you sort of get like, get like a multiplier effect on your,

Will:

it's quadratic, like the number of exchanges you have, it just kind of bubbles up the amount of volume, and how much like fragmentation there is. So if you have one market for an asset, and that's where everything trades, the volume is gonna be a lot lower than if you had 10. But it has the same amount of flow. But I think, regardless of that, I think the larger point is like you have incredibly small inflows and outflows from these coins, and like, very low liquidity, and like propping up very high valuations like and I think that's why we've seen such like, kind of face melting moves on the way down, just like we saw on the way up, just because you have, especially with coins, like FX s or curve, or things like that, which have really big supply things like with the V tokens, and like different kind of liquidity pool contracts, like they just lock up so much supply that basically if anyone sizeable wants to sell, it just destroys the, like, the strength of the chart, like, yeah, in one fell swoop. Finally, we've

Fudzy:

seen you know, before in the run up, you had people like, oh, you know, so and so project is like $20 billion, fully diluted, like, this is the easiest short, and it's like, well, you know, you got to look at how many tokens can actually be like, sold. And that's, that's probably the most important, you know, aspect. So, like, locking up best thing that, you know, that helps. And Kobe made a post on that just saying, you know, you know, lock up your tokens so we can dump on you was the TLDR, you know, in a way. Obviously, there's other benefits, but

Guest:

well, also, I think there's a lot of like anchoring to the last price. In crypto, especially like there's, there's more people that look at a chart than there are people that look at an FTZ or even a market cap. So I think that, like a coin that's on the way out is like the FT V is like, not super relevant, but then like on the way down when the people looking at the charts have no desire to buy anymore, but you're sort of looking at a long way down potentially.

Fudzy:

Yeah. And you'd probably have to think, I don't know, what do you think the average vesting or Cliff rather is in crypto, right? Six months, maybe? Maybe,

Guest:

I mean, it's probably a year on average?

Fudzy:

Yeah, maybe on average,

Guest:

I mean, I think six months off and has like the vibe of like the cash, like projects, yeah. late stage.

Fudzy:

So you'd have to think like, as we continue on, you know, a year or two you know, everything begins to vest so you know,

Guest:

but for for the liquid stuff. There's a lot of you know, secondary Trading SAFTS and of, you know, perks and whatever. So I think that, you know, maybe it's a little bit over exaggerated at times that sort of like the binary nature of the cliff.

Fudzy:

Yeah. And you wonder if that not to, you know, revert back on the Alwan trades, but like, that had to play a part. And just looking at like, the present, or the funding rates for the Alltel ones, it's pretty interesting that like, they're barely negative. So I don't know if that's an indication that a lot of these secondary deals have been sold. It's mostly just your average market participant holding this stuff. What do you guys think? Well, I think that's kind of interesting.

Will:

I think a lot of Yeah, I think most people that have the rest have had zero some of the bigger stuff at this point. But I think there's a lot more attention being paid to supply dynamics in this market. I think you've seen tokens that don't have as large unlocks are like kind of cliffs supply do better than ones that that have giant you know, don't chance whether they're gonna unlock here. Even if the unlock has been sold. I think it doesn't matter in the sense that people are evaluating and based on the idea that it hasn't been sold.

Fudzy:

Yeah, but the only thing you can do is watch unfortunately, you know, just not you know, everyone's going to be in their popcorn in my mind for the next year or 2

Will:

bearish hopefully not that long.

Fudzy:

years, not that long, you know, year and a half have been worse. Yeah, who knows what's gonna happen? I don't know. Yeah.

Will:

Could be can be the 80s in Japan, the Nikkei that'd be max pain