Aerodrome Co-Founder: 90% of Top 100 Tokens Are Uninvestable (Here's Why)

Transcript

What's going on, man? Not too much. How are you guys? >> Great to see you. Alrighty, man. First takeaways from DAS, how you feeling? What's going on? How's the How's the environment? Yeah. Well, first I got to say I was watching you guys live streaming uh uh last week. >> Ah. And I'm I am blown away by the amount of energy you guys have. I saw you live streaming the entire policy event last week. I'm seeing you here. Are you guys coming out to France? Uh Yes, we will. Wow. Wow. Wow. Wow. Wow. Wow.

I think I think you guys are the only folks that I look at and I go, "My god, I think they've got more energy than we do." Oh, you guys are doing great, too. Appreciate it, man. Appreciate it, man. I've been seeing uh a fellow friend Austin Barrack of of Real Layer Capital bull posting Aero a lot on the timeline. >> Yep. Speaking about this kind of UPOD concept with regards to the token design and the revenue design, we have a pretty firm belief that a lot of this kind of fundamental based investing is returning back to the space. As you look around, there's you know, more suits here than there are at pretty much just about any conference over the last couple years.

These people want to invest in value. How does How do you think about this? How do you think about creating value from the Aerodrome perspective? What What is the Aerodrome kind of investment thesis here? Yeah, I mean I think we're in a transformative moment, right? And I think you saw that at the policy conference. You saw it with the guidance that we just got out of the major regulators. We see it at the the cusp perhaps of of getting clarity. Um we are moving, I think, uh from a time where the investment game was, you know, will this shitcoin pump? Will this token with absolutely no fundamentals will I be able to get in early enough and get out fast enough to make some money to a moment where people are actually going to be looking at and

we're going to have a new class of investors uh looking at can I own the best infrastructure of the space? You know, what can I own that's going to accrue value uh as the space grows by an order of magnitude? What are those mechanisms? What does the token do? You know, what rights does it grant me? And I think as that maturing and new investor class comes in, that's going to cause a massive reshuffling of what's seen as investable assets versus not. Because, you know, 90% of the top 100 tokens right now by market cap don't redistribute any value whatsoever. Do you really think all the funds, all the suits, you know, walking around us today are going to come on chain and buy a

token that's a functional meme coin? Um no, I think we're going to see a massive reshuffling in the top 100. And I think it's going to be oriented around how do I own a piece of the most valuable infrastructure of the on-chain economy. Incredible. Um Alex, obviously things have changed quite a bit. We're seeing more You know, we're in suits. We we've got quite a bit of institutions walking around here. As a DeFi founder and and a prominent protocol in the landscape, I'm curious, what is your prerogative when it comes to these conferences? Are you here mostly connecting with the institutions trying to get more institutional flow? Are you still trying to win more of the DeFi market share? What are you What are you thinking about as you're here amongst the institutions? Yeah, I think um

we come to a place like DAS, of course, to connect with fellow builders, um with funds, and with institutions. And I think what we're increasingly seeing is that when we're talking about funds and institutions, it is not just uh funds native to the space. Uh it is banks. Um it is entirely new funds that are raising from new types of investors to come in uh and invest in the space. And then, of course, we're seeing a whole new class of asset issuers. Talking about RWAs, um talking about tokenized equities, uh all this sort of stuff that they want to bring on chain. And so, for us as uh a team that believes that we want to be the unified liquidity layer for all of Ethereum, right? We want to be the exchange layer basically of the on-chain

economy. We want to be there first stop because we know we can help them build liquidity, deeper liquidity uh better than anybody else in the space. Um we can give them distribution, right? Across chain, you know, Aero when it goes live in in Q2 will be the first truly uh interoperable DEX across all of Ethereum, so we can do that for them. And so, we just want to be here to help because we see the opportunity to make the on-chain economy the most dynamic, real-time, uh always-on uh a marketplace in the entire world. And that's where you can go to trade everything from meme coins to emergent new digital assets to uh tokenized equities, uh settle FX transactions, all of this sort of stuff. And we want to be the

rails on which people do that. Tell us more about this tokenized equities, you know, offering that we could see from Aerodrome as it gets more incorporated into the on-chain economy. Uh New York Stock Exchange and and and Nasdaq are entering this space. They're partnering with some of these tokenization teams, and they're going to be looking to access DeFi AMMs and structures and these sorts of things. Tell us more about how you anticipate tokenized equities and these high-quality assets entering the space. What is the market structure going to look like on chain? Yeah, I think I think from our conversations, there's just a ton of people chomping at the bit. And I think the big dependency right now is clarity. And I I I honestly feel, based on the conversations that

we've had, the minute we see clarity or the minute we see like a innovation sandbox or, you know, what uh things some of the regulators said might be the next big pieces that will come out, it's going to move incredibly fast. So, what will this look like? It's not going to look like I think the types of digital uh representations of RWAs or tokenized equities we have today, which frankly are not very good, right? Uh they don't convey or possess any of the rights of actually owning that equity. Uh you have to worry about the settlement mechanisms.

Um and I literally think like it could be weeks or a month after that, you're going to see versions of stocks trading on chain uh fully permissionlessly that actually have a way to connect to the fundamental rights of of owning an equity. And if you do that, then I think you're going to see a massive expansion because uh anybody will have access to these things. Anybody will be able to trade them. It'll be 24/7. They'll be able to tap into the permissionless nature of DeFi, right? You'll be able to borrow against them. People will build new products around them. And so, like I think this is imminent. Um I think uh if you you can't look at what tokenized assets are on chain right now and and think that's what's going to look like.

It'll be a an explosion. And it'll of course be fantastic for the infrastructure layers that support them. That's one of the things I'm most excited about. It's just the the the looping, the staking, the composability, everything that we had in DeFi but applied to high-quality assets. >> Yeah. I just push back on the AMM part, though. Like I had Yuki on. He is the co-founder of a of a company called Tenbin. And basically we we were just speaking about how with tokenized assets, AMMs just don't work. You have to have two LPs with, you know, willing to put up enough of one asset with an with another in a pool. You have to have incentive structures. You have to create this kind of like really just incentive frenzy designed to actually get any liquidity. And his take was that order

books are the only way that tokenized assets are going to be able to trade on chain. Um obviously Aerodrome has a very kind of interesting AMM structure. You have multiple types from the Metadex to the AMMs. But how do you feel about this? Like is the AMM structure as we know it, like the Uni V2 model, is that dead? Is Are AMMs dying for tokenized assets? I would be very interested to hear why, you know, a bit more about why he would think AMMs would not be uh great here. I mean, look at the direction the industry's going. Um you know, Coinbase has a great order book for digital assets today. Yeah.

Um what have they done? They've actually gone on on chain and integrated AMMs directly into their core exchange. Um OKX has done the same thing as well. Um we're talking about permissionless capital formation. We're talking about the composability of automated market makers. Um this has been growing in relative share to traditional order books, not shrinking. And so, I think anybody who's going to come and say, "Well, order books are going to come in and this is going to be the only place they're going to trade." That's the same sort of thinking that I guess has caught people off guard as AMMs have ate the world.

>> Mhm. And you have Coinbase saying it's actually essential for us to distribute AMMs to our customers rather than trying to preserve our monopoly on the sort of traditional type of exchange. So, yeah, I don't think there's any competing with permissionless capital formation. >> Okay. Uh you do need proper incentives, but that's just about redistrib- redistributing the value that's being created in those markets, um which we've seen can happen very efficiently on chain as long as you're not extracting value out of those markets to third parties or centralized exchanges. >> So, so you think then that AMMs are still the dominant structure over an order book for regardless of of of the asset type?

>> Absolutely. 100%. >> Okay. Um what's going on with Base, man? Um feel like Base was at the top of the world for a bit, and now it seems like they're at the bottom of the ocean. They're probably going to surface somewhere in in in the middle. What's going on with Base? >> And there's maybe some divergence between the Base app and the Base L2. Maybe you could just help untangle what's happening here. Yeah, you know, I actually see it in the This is like the the cycle of of Base, right? >> Of all chains. Every Everybody faded Base right? Uh they thought it was going to be the Fed chain. There was like, "Oh, they're not going to have a token. There's no way this chain grows." And then, you know, it takes a year for them to flip every single L2 and come back and become

the largest. And it just goes through these cycles where people get very very bearish, and then get very bullish. Um and so, I think we're in one of those moments where people are going like, "What's going on here?" But look, they are still the number one L2 in the world. Uh they still uh have the backing of Coinbase. Coinbase is still building this vertically integrated strategy around them. And what I I actually love is like, I love that they take crazy bets. You know, whatever happened, you know, with the the base app and with creator coins, we need more people making big bets like that. And I actually it's kudos to them that they also know when to maybe pivot or shift focus. But I mean, their focus right now is they want base to be the best place to trade

everything. The best place to issue new tokens. And uh, I think you're going to be seeing a lot of stuff from base this year. Yeah. Which by the way is to expand their already existing dominance of L2s. I think to compete, you know, more directly across all chains. And so, yeah, I'm not worried at all. I'm as bullish as I've ever been on base. >> cuz I'm just going to keep throwing them at you. Yeah. Why would I buy Aerodrome over Hyperliquid token? Like Hype is one of my primary holdings. What would convince me to think that Aero asset is a better asset to invest in than Hyperliquid?

Uh, I I might not say better, but I would say these are two very complementary verticals in some ways, right? Um, uh, obviously you need a sort of perpetual primitive in in DeFi, very very important. And you also need a spot DEX primitive, right? These are two very important portions of on-chain speculation, capital formation, all that sort of stuff. And we share more in our DNA with Hyperliquid than we say do with with Uniswap, right? Because we redistribute 100% of our value just like they do. Um, and so I think like one thing to think about is uh, DEXes as a market, right? Is just as essential as the underlying chains to the overall functioning of the on-chain economy. Um,

right now DEXes produce about $4 billion a year in fees. Um, chains collectively produce about $2 billion. Do you know what DEXes are worth today? About $5 billion collective market cap compared to chains $300 billion. Yeah, it's not so. So why is there been a disconnect here? Right? It's because I think the tokens of spot exchanges, which again are essential, have not been very useful. They have not accrued much value. So you know, why would I think that an investor might see a a DEX asset as potentially interesting, especially somebody who's already interested in Hyperliquid? Well, now we have a DEX asset in Aero um, that is poised to be the Hyperliquid of all spot markets across Ethereum. Um,

and that this is a category that if it is making two times as much value as the underlying chains, should probably not be worth a fraction of those chains. So we've we've got an incredible, I think, growth path ahead of us. And I think uh, we have a model, right? Uh, that is very much like one of the most successful models in the industry right now. So if we can show that we're going to own the spot DEX market, yeah. One of the most valuable in the on-chain economy, just like Hyperliquid is dominating in their area, um, I think that would make you go, huh, there's potentially a lot of opportunity with these tokens.

>> it. Um, so I saw this graph that had it was a it was from Token Terminal. It had the price to fees ratio um, of Well, actually sorry. It had the um, it was basically like the the price to earnings for Hyperliquid and Sky to the most profitable protocols in the environment. You know, some of the only ones more profitable than than Aerodrome. And um, Hyperliquid is valued at like 20x what Sky is or 25x. But Sky makes about half of this amount of annualized revenue, about 365.

Hype does closer to 800. So is all revenue not equal? Or like how do we think about the value of a given revenue of a protocol, right? Because if we're thinking about comparing these things, how do we think about like maybe you could just explain why that valuation kind of, you know, disconnect is happening. Yeah, I mean, I think as a token holder and you guys, fellow token holders, probably any token holders out here in in the world, there's only one measure for revenue. Does my token have a direct permissionless claim on that revenue?

Like is there is there no intermediary? Is there is there no uh, permission mechanism? And um, so I think when you look at what is that disconnect, it is, you know, is that money flowing to a DAO that I in theory have a vote over like a treasury or something like that? I think we've seen that that is basically meme revenue, at least from the standpoint of the token holder. They know that there's going to be far more tokens going out and being dumped by team or investor to to subsidize the operations than you will ever get directly back. And that is why I think the only way to actually evaluate revenue, and DeFi Llama is a great measure on this, is token holder revenue. Direct flows to you. And then you can measure that against new tokens

entering circulation, whether that's the team going out and subsidizing their operations by selling tokens, uh, whether that is investors, you know, who got in early selling tokens, whether that's incentives. And that gives you the sense of what is the actual like net uh, value flow for a token holder. But I think people have gotten away with this for a long time. And even fees would be the I I hate anything that looks at fees because if the fees are not flowing to the token, who gives a Um, you know, that is not a number that affects your life at all. And for most of the duration of crypto, every single token, uh, or almost every major token, the ratio of of costs that you as a token holder are eating to value you're

getting back is infinity. Yeah. And those are not investable assets. So in DC, Mike Seelag, Paul Atkins, they they announced these five classifications of digital assets. Um, you know, without going into all of them, they they did break down tokenized uh, securities and tokenized commodities. Most tokens right now fall into that commodities, but then you've got equities that are, you know, are obviously securities. And within that equities bucket, you've got like growth stocks and you've got dividend stocks, right? Buybacks. It would it make more sense to to pay these revenues direct to token holders and effectively issue some sort of dividend, given that would make that thing a security most likely? Is that the right way to do these things cuz

it's worked for so long in equities? If we get some regulatory clarity, will we see some more protocols go in the direction of, hey, we have this token and we're just going to pay maybe it's USDC, maybe it's some stablecoin that you just hold this asset and you get these dividend payments every block or every month? >> Yeah. Yeah, I mean, I think um, I think value accrual is super important. Um, and I actually think the way in which they've structured it makes a ton of sense. Which is, you know, it can't just be a passive revenue distribution, right? Because then that's is getting us into securities territory. But um, if you're talking about an on-chain asset, you don't want it to be passive. You you want these tokens to be useful for

something, you know? In Ethereum, you know, it is helping secure the overall network. In our system, it is about optimizing the network and directing incentives across it. And uh, you should use that revenue not just as a yield source, but as an incentive for an essential service uh, corresponding to that protocol. And this is one area where I think like Hype the token is certainly distributing a lot of value, but uh, is there a lot of on-chain utility and control associated with the token? Maybe a little bit less so. Um, and I think that is where the uh, guidance that they came out with is awesome. And it's great for us because, you know, you have to be an active participant. You have to be providing value to the overall protocol in order to receive value.

Um, and so I think that would be the direction I think more protocols should go. These tokens should be useful. And that utility and how you use it, the value you provide to the network, is reflected back to you. Alex Cutler, have a great day. Enjoy yourself. I'm sure there's a lot of deal making that you know, needs to get done here in conversations and meetings. I'm sure you're a busy guy. Thanks for spending some time with us. >> you coming on. >> at EDC last week. I'm sure that was also interesting from the regulatory side. Now this is more of the institutional side. So you're just kind of hitting it on on all angles. And then what? Straight to straight to Paris for some freaking what is it? What's the orange drink? The Aperol spritzes?

>> Oh, love [laughter] love me an Aperol spritz. Having some of the Sportwhale vibes. So he's he's hitting all the angles here. Sportwhale is in Denver. Ken Ken's more of like Ken will will will be in the heart of the DeFi DeFi world. And I know you guys always like it if I drop a little alpha. So I I will I will be sure to share that um, Monday at Can. I'm speaking on the the main stage. And uh, we obviously had a big event out in November where we shared a lot about what V3 and the new launch of Aero is going to look like. But we held some stuff back, including what we think is an entirely new DeFi primitive that will be built into Aero.

And uh, we're going to be talking about that out at out in Can on Monday. So maybe we'll have an opportunity to catch up after that because we're hoping to make some uh, big waves next week. So hope hope folks tune in. Um, and uh, hope to see you guys out there. Yeah, hopefully with an Aperol spritz in hand. Yeah, we will see you there. Guys, check out Alex Cutler from uh, the main stage at EDC.