Alex Cutler: Aerodrome Will Be The #1 DEX in 2027 (What's Changed)

Transcript

All righty, guys. We are back here in the tokenization tower. I've got the Aerodrome founder, contributor, CEO of Dromos Labs, Alexander Cutler. Alex, welcome to the tower, buddy. Good to have you. >> Dude, it's great to be here. Beautiful day in New York. >> right? Not bad, huh? [clears throat] >> Vibes are immaculate. Knicks in five. Amazing weather. Tokens are pumping. I mean, hell of a time to be here. >> Tokens are pumping. What What a weekend for news from the kind of broader macro climate. The Knicks won. The Carolina Hurricanes won. The World Cup started. >> Yeah.

>> Yeah. >> Yeah, it's a great time to be here and you know, it's been a bit of a winter in the the token world. >> Yep. >> Um but it's a great time to be up in the you know, the tower here talking about tokenization cuz as of today seems like people like tokens a lot more than they did yesterday right? >> [laughter] >> Well, Alex, man, you guys have been putting in a a lot of work on quite a few facets of Aerodrome. Maybe just uh it's been nice since since DAS. Maybe just catch us up uh on the latest of what you guys have been locked in on and then we're going to get into kind of thing about token value flows, predictive allocation, and just more of this kind of broader conversation.

>> Yeah. Um it's an exciting time because uh Aero and Metadex O3, what we announced in New York last November, right? And that we've been talking about on a few different occasions between now and then, it is officially in audit right now. Um that is like nearly two years of work, right? That we've been putting into what we think will be the leading on-chain exchange for spot markets. It's in audit. Uh we're ramping up to our launch. Um and this launch for us will be the moment uh four years in the making. It's actually four years now >> Yeah.

>> since we launched Velodrome, where we're going to expand to Ethereum mainnet. Um we're going to grow onto Circle's Arc. And really uh our objective is to be the definitive uh on-chain exchange uh for spot, you know, just in the way that hype is for derivatives markets, you know, we want to be the New York Stock Exchange of the on-chain economy, just like, you know, I think you've seen Hyperliquid, you know, they are the Chicago Mercantile Exchange, right, of of the on-chain economy, and here we are, right on the precipice of it, so.

>> Yeah, and that statistic, I think, from I think I saw on base, on Aerodrome, there's the number one spot volume, liquidity and volume for Bitcoin, ETH, and a couple other key assets on chain. >> Yeah, I mean, think about what are the top traded on-chain assets, and and some of the most important assets in the world right now. Certainly, you would say Bitcoin, and yes, most days, we are the the number one exchange for trading Bitcoin anywhere on chain, and that is incredible to think about. Most days, we're also that for Ethereum, which will be on most days the second most traded asset. And we are doing volumes, right, higher than some even centralized exchanges, and this is the sort of shift

we're seeing like with Hyperliquid, where it is beginning to outpace many of these centralized exchanges as well. But then, the third one is super critical, because this is going to be a major growth area for the on-chain economy, I think, the next 2 years, which is we are doing more FX volume, ERC USDC, than every other exchange on chain combined. And think about that, Aerodrome Aerodrome today services a single network in base, and we are doing as much as exchanges that service all the other exchanges that service 24 different chains and all this sort of stuff, and that is why we think we have this right to win, as we expand outside of base in the Optimism Superchain into

mainnet Ethereum, to Arc, and really across all of EVM, you know, we want to unite all of that, we want to be the venue that people are trading not just all the amazing assets and tokens we have on chain right now, but a growing FX network tokenized real world assets. Equities. We want to be the exchange layer. And by the way, we want to be that because if you look at the last year and you look at where value like accrues in the on chain economy. Other than stable coins, no vertical the on chain economy produces more value than spot exchanges. I think last year about 4.5 billion dollars in fees on spot exchanges. I think derivatives exchanges like 2.5, 3, something like that, so

less. Chains, right? I think did about like 2 billion. You think about chains? Chains are worth collectively what? 300 billion dollars, something like that? Very little value being created there and then there's lending and some of these other verticals. So, when we say we want to go out and win it, it's not just that exchanges are the second most important piece of infrastructure on chain. We think it's the single most valuable piece of infrastructure on chain and we want to unite that, right? Across all of EVM. >> Yeah, man. I mean, I I think we had the I think Logan, he's a VC from Frictionless. He's a very big Solana bull and he was he was been pushing on like trading and execution is like what matters. It's what makes money and it

seems like this space is really coalescing around yeah, just building elite DeFi primitives for trading. Obviously, you've got the perp side and the spot side kind of separately and it it's like we're getting that right right now, right? We're finally getting price discovery on chain, deep liquidity and then like the like the ratio from DEXs to CEXs, OI, liquidity, depth, volume is really starting to like really creep up. >> Yeah. Yeah, it's an incredible moment because these are the the bets that we assumed, right? Like, how can you be a real real time, 24 hours >> globally accessible network effect when it comes to creating marketplaces that

allow you to trade anything, right? Anything from these amazing new digital assets we have to any global currency to increasingly tokenized real-world assets to and then, you know, for those of us who've been around, the crazy stuff, the meme coins, right? How can you be a global on-chain marketplace like that? And that's before you even start to think about the composability of DeFi, you know, the way in which you can then take these assets, borrow, lend against them, create entirely new primitives. But, I think we've seen this evolution um over the course of the last year where even the centralized exchanges, right, are starting to not try to protect their core businesses, right? They're not trying to compete with on-chain exchanges. They're actually trying to be

the distribution layer for them. >> Mhm. >> So, within the last year, uh Coinbase, for instance, integrated uh DEXs on Base, um and Aerodrome being the largest of them, directly into their front end. So, if you come and you issue a token right now on Base, right, you get instant distribution to hundreds of millions of Coinbase customers. And they were an early mover here, but actually now it's if you launch a coin on Aerodrome on Base, say, you don't just get Coinbase distribution, you get OKX distribution as well. And I think that will be the shift, right? Um it'll be more of this activity is happening on-chain. And then you will see players like Coinbase, in some ways disrupting themselves, but aligning themselves very

closely with on-chain infrastructure, and becoming the distribution rail, because, of course, most end users aren't going to care where their trade settles. Um all they're going to care about is do I get the best execution? Does this exchange or this interface offer me access to the tokens that I want? But like, you know, people will be using our FX infrastructure >> Yep. they're just on a trip to Europe and they're making a a dollar to euro conversion >> Yep. >> and rather than Wells Fargo taking like two, three percent off of that >> Yep.

>> um they're going to get this instant low rate settling entirely on chain. They don't even need to know what a blockchain is, what Aerodrome is, or what Coinbase is. They'll just know it works and it works better. >> Yeah, that is one thing that I've started to kind of wrap my head around, which is that this this idea of so a platform like Aerodrome, a platform like Hyperliquid, Hyperliquid has has these uh builder codes. You can kind of launch perps on any kind of front end. Aerodrome getting these integrations with the kind of suite of assets available via the Metadex product, but these are like going to start to end up being back ends.

>> Yeah. >> Right? It's like and then then the thesis for these things gets to be a lot crazier than just like oh, it's a UX and UI where you can go trade. It's like no, no, it's like the underpinning liquidity layer for global finance. >> Yeah. >> So it becomes not just like oh, you know, you know, Hype's a cool like competitor to Binance or like oh, maybe, you know, Aerodrome will compete with like all the brokerages and it's like no, no, like the brokerages, like the Schwabs, we'll start with the Coinbases and the OKXs, but then we'll get to these Schwabs and the etc. etc. These will just, you know, become the front end for these underpinning liquidity layers and the value of that is like immense in terms of the value being created by that activity.

>> Yeah, I mean, think about this. There was um leaks that came out of the SEC, right? You know, a few weeks back. Um maybe a month ago now. Time is is flying by right? >> Yeah, yeah. >> And the idea was that we are very, very close to the SEC saying we are going to say legitimately you can bring US equities and trade them on chain. You can tokenize these assets. And the minute that sort of thing happens, yeah, this on-chain infrastructure, um Um, like Hype, things like Arrow. Um, we are now actually directly competing with any on chain or any off chain venue >> Yeah.

>> that offers the ability to trade um, these types of assets. And you think about what we can offer. We don't need uh, thousands thousands of employees, right? Uh, we don't need uh, HR departments. We don't need all sorts of we can cut all the intermediaries out. We can make it faster, we can make it cheaper, we can make it more efficient. And by the way, because you've cut all that middle layer, that intermediary layer out, you can share more of the value. And this is actually like the core thing about I think who we are, right? We came to build on chain because we truly believe that we should be creating shared systems that create shared value for all of the participants in them. And uh, that by participating in these

systems, you now have like a greater stake in this new economy that we are creating than you could ever have in the traditional economy. I mean, >> Yeah. >> this is the innovation of the AMM, right? Like anybody in the world, anywhere can participate in the act of market making without asking anyone's permission right? >> Yep. >> And so, yeah, we are right on the the line here. And I think it's going to shift very, very quickly where these on chain venues are now increasingly becoming the places that people trade everything. You don't need to go to Schwab anymore if you want to pick up some Apple stock for instance.

>> Yep. Yep. Yep. Yeah, and I think that like breaking of the mental model of we're just doing crypto asset trading on chain to all assets is a big one in terms of like the valuation heuristics of these assets as well as that like the the the way that investors should think about Arrow, Jerome Hyperliquid Lighter etc. etc., etc. It's not just like we're trading crypto here. This These are going to be the the underpinnings of global finance. >> It's just better technology, man, right? >> And tech wins over time. >> It always wins, right? And and there's of course always a lot of doubt. Of course, there's always a lot of crime, there's always a lot of drama, but inevitably, if it is better technology, it wins. Like, you can never put these genies back in the bottle. And uh we're on the verge of doing that. And that's

like, you know, when Brian Armstrong said on earnings call late last year, he said uh their bet is that 10% of global GDP comes on chain in the next 5 years. People need to think about what an order of magnitude increase that is over the size and scale of the industry today. >> Yeah. >> And of course, that will translate into the layers of that economy that are uh critical and that create the most value. And that is why exchanges matter so much. >> And that is a good transition. You put um this tweet out that was pretty spicy. You're known to do that. It said, and this is kind of getting into like the accruing value into these assets. And you know, we've had multiple conversations about how the space has shifted. I mean, we call it return of fundamentals. We called revenue metal,

all these like silly like fun things, but they are the they've come to fruition. And investors in this asset class are no longer just hopping on narratives or ideas. They're looking for product market fit. They're looking for revenue growth. They're looking for an asset that is investable. You've notably said that a lot of the assets in the space are not investable. But this tweet specifically, you put out a chart showing what you guys are calling net token value flows. And you said um it's time to stop uh basically saying that emissions are not inflation or something along that effect.

Why don't we just start with like understanding the way that Alex and Aerodrome thinks about tokens and the design of a token from like a balance sheet perspective? And then we'll get into some of like like the bells and whistles here. >> Yeah. I mean, I would even take a step back before like we even think about financializing tokens, right? Um in our mind, and this is the first principle that we baked into the building of the Mendatex, right? Tokens are the single biggest revolution to coordination since the very invention of the firm, right? And that goes back to what I was just describing, right? In that we can build something that is a competitor to the New York Stock Exchange, and we can do it without any intermediaries. We can do it in these decentralized ways. How can

we do that? You do it with a token. The token becomes the central coordination tool of the overall platform. Um you know, in our system for instance, token operators, those who take and lock their token participate, they control the allocation of capital across our system in immutable ways. The degree to which we can control like our own token rewards that we distribute is totally proportional to the amount of the token that we lock and use each week. And then likewise, we take 100% of the current and future productive value of the decks, all the revenue, all the value it produces, and we give that to token operators each and every week totally immutably um

totally permissionlessly. And that's the same thing for us. We don't have the ability to uh enrich ourselves by taking the token that produces no value, going out selling that on the market, and um you know, buying ourselves a beachside mansion and uh before we've ever found any product market fit or before um you know, we've ever redistributed any value within the system. We are users of our own product just like anybody else. And so, we think about every token should sort of sort of be built on and evaluated against these principles. And I think just because it's more clear now than ever. It wasn't

that many years ago that Hyperliquid did not own its category. >> Yeah. >> Right? So, how did we go from a situation where there is a number of different derivatives exchanges out there competing fiercely for market share, and right? You know, at different times different leaders emerging. How did Hyperliquid go from that position to now being like the absolute dominant player and what I think is probably the second most important part of the on-chain staff right after the spot exchanges. They did it by not raising a bunch of money, selling a bunch of tokens on the market, things like that. They did it by distributing 100% or close to 100%, 97% right of the revenue that

that they produce back to the token. So now you see a situation where like Hyperliquid, I think in undisputed way seen as a proxy on the growth of on-chain derivative exchanges because their token represents 100%, 97%, close enough we'll round up 100% claim on it. >> Right. >> And that is also the same basic first principle on which Aerodrome and Velodrome which started as like five guys, you know, in a Discord anonymous without raising any money, without selling any tokens, slowly starting to take over L2 Ethereum with Velodrome, then taking over the single most consequential chain of the last

two three years which is base and now being in a position where, you know, we outperform the market leader three to one in these ecosystems and that's how Hyper won. That's how we've won to date and we think that that is the only moat that any on-chain firm will have in this new on-chain economy. >> Mhm. >> Because if you are not maximally capturing and redistributing 100% of the value that is a bounty for a competitor to come >> Exactly. >> offer that and beat you. And by the way, there's no amount of VC backing or pedigree or connections, doesn't matter how good the rave you threw at Token 2049 was, like none of that matters.

>> agree. It's like it's like it's, you know, it's you it's you guys coming out and saying, "Here's what we're going to do. You know, you can you can try to beat us at our game, but if you're not going to play the same game that we're willing to hold ourselves to, then you're not going to compete in in the in the operation that we're operating in." And And that's exactly what Hyperliquid and Hyp have done, and now you see this kind of like follow-on effect of a lot of the other kind of perp- platforms doing something very similar. But, there is usually like a leader, and there's like a lot of followers, but even that part of it aside, it's setting that standard that is like, "Here's exactly how we're going to do it." And if teams aren't willing to like also play at that same equal level, then

then there won't be real competition on that front. >> Yeah, and I think about it because this is one of those amazing things that I think happens uh pretty rarely in in industry and business. And this is where the um the virtue virtuous thing, the the um principal thing, aligns with strategic necessity. So, obviously, [clears throat] if you were here on chain, it's because you do believe there's something about this technology that can build better systems. And if you're aligned to the idea of decentralization, right, these open networks that redistribute all the value, like you probably bought in on the principle.

>> Sure. >> But, the principle doesn't matter if we can't win, right? And so, um we do this not just because we're convicted, but because we believe it's an ultimate strategic necessity. And just to emphasize this, I mean, we get asked the question all the time of, "Well, what if someone comes and they do this, or and they try to, you know, compete with you guys?" And we say, "What are they going to offer that is more than all of it?" >> Mhm. >> How do you disrupt somebody who's already redistributing through all of the value can possibly create? You would have to find other sort of uh ways in, but it's very, very hard. And you can see how hard it is in the sense of the share that we have gained against like extraordinarily well-funded um

incumbents uh who should have had every right right to sort of box us out of the markets in which we're not now dominant. But it's because of the 100% value redistribution that we've gained our share. It's because of that. I think it's an outside share of that of why Hyperliquid is now the thing, right? And on-chain derivatives exchanges. And that is the disruption we want to bring to global on-chain spot markets. >> And and so on that front, on the token front specifically, how how important do you think the programmatic enforcement's on chain are versus a more like let's say flexible schedule of tokenomics, right? For example, Sky

kind of does their buybacks based on the risk in the market, based on what they're seeing, based on their yield parameters, based on the interest rate. Sometimes they turn on, sometimes they turn it off. Um Pump, you know, does these really, you know, almost erroneous buyback schedule. And then they burned a bunch a bunch of their tokens. And then sometimes they'll buy them back, sometimes they'll So there's kind of a also bifurcation here. We already talked about, you know, setting the standard at 100% of value re you know, let's call it value sharing. But then what about the programmatic, you know, pre-commitment like type of buyback or type of of token economics? How valuable, how important, how crucial is that programmatic nature do you think for a project like

Aerodrome? >> Yeah. Um I guess what I would say is first the bar is low here, right? Because about 90% of the top 100 tokens we don't redistribute any value. And I think that is why the top 100 is going to be actively remade, right? Because you're going to have more of these disruptive tokens in that carry real on-chain utility value redistribution and things like that. So I will say anybody experimenting in the space of redistributing value, you're already ahead of the curve, right? And depending on the the product, the the model, I think there will be a lot of right answers on these types of things.

But to bring it back to the net flows question, I would actually say probably the more important question on you know, how you know, rules based you would say maybe the system needs to be versus very discretionary. I do think there's probably a degree of discounting there because you know, people could get very cute with how they're doing it, stuff like that. But it's really about well, is whatever you are buying back offsetting team unlocks, investor unlocks, incentive spends and things like that? Because if it is not, if you are saying, you know, we're going to have a 100 million in token unlocks this year, right? And that's going to go to

our original investors, insiders, it's going to go to team insiders and things like that. And we're just going to be buying back 25 million along the way. What they're really doing is transferring that 25 million to their own exits, right? And so that's where net flows really comes um uh as this sort of central evaluation mechanism here because I think you as a token holder deserve a single view where you can see how much value is directly flowing to you, a direct claim that you have versus you are actively subsidizing, right? And if that ratio's out of whack, and again, most tokens that ratio is infinite.

>> Yeah, infinitely skewed to the negative side basically. >> some of the top ones are still, you know, 20, 30, 50X on on the number tokens that are going to be sold on top of your head as as a token holder versus any value being given to you. But this is where again, hype like I know that they've they've taken their unlocks and they're discretionary, right? So they can kind of stream them out at the right thing, and they can keep their kind of overall >> Yep. >> positive positioning relative to revenue. I think that's very smart, right? But, there's probably only like within the last 6 months, um a handful of tokens that you could find >> Yeah.

>> where that ratio would be positive, right? And Arrow is one of them. Pipe is one of them. >> See, and it's just basically like it's basically like the business economics of the asset are net positive. >> Yeah. >> That's like the that's the It's It's almost It's like any business, right? You've got your revenue, and you got your expenses. But, it's it's putting that into the token model. And, you're saying that in that outlook of the world, there's only a handful of assets that you would that you could If that's your model for investability, >> Yeah.

>> that are investable in the space. >> Yeah. And, I think like you can still have a token. This would be like, you know, early days of Amazon, right? It took forever for Amazon to make any money. Did that mean Amazon was not investable? Absolutely not. >> Right. >> But, you could actually look at the numbers and just say how unprofitable Amazon is at this time. And, you could see you could bake into your own head and saying, I see a growth trajectory. I see them investing towards that growth. I can see that ratio of unprofitability beginning to shrink over time to the point at which Amazon becomes, of course, a wildly profitable >> Yeah.

>> um business. But, I think we just haven't been very honest about a lot of these things because I think even when you look at something like the net token flows dashboard today. If you see a token whereby it is uh emitting fundamentally like 50x or 20x >> Mhm. >> um what it is bringing in, you then have to look at that and say, well, do I believe that there is a trajectory, a course for them, you know, to close that gap? And, given some of the inflated valuations of L1 tokens and things like that, um given how little money some of these verticals make, like the chains themselves or in lending.

>> I think it's actually a hard case to make that that will ever balance out in a way that justifies things. But that just balances out, you know, where to allocate, in what size, at what time, at what phase of growth, and things like that. >> Yeah. >> And I think it's it's just a leveling playing field because I do think people got away with for a very long time >> Yeah, I understand. >> saying, "Sure, there's no revenue, but there's no cost in the system." Even as hundreds of millions were sold, and that was the cost. You were You were incentivizing a team to build something, right? And I think token holders just deserve a more honest conversation about the net value flows.

>> Yeah. And and Alex, you know, got somebody here in the in the chat asking about some of the institutions that you guys are like talking to or partner with, but I guess kind of to frame that in the way that I think would be interesting is you know, we heard from the Bitwise guys when they launched their hype ETFs that, you know, explaining this thing to allocators was actually quite simple compared to other assets because they got you know, they get the Bitcoin story, Ethereum, they kind of get it. They still need to, you know, put some cash flow analysis on it. All these other kind of L1s, same kind of cash flow analysis. But when when presented with hype, it was like very clear like, "Here's the business model, here's the revenue, here's where it goes, here's the programmatic buybacks, here's what's

happening here." Like it's very clear story. Have you had a chance to tell the Aerodrome story to larger allocators, and have you found similar experience or like what is that institutional lightbulb moment for Aerodrome, and kind of how's that part of the story coming along? >> Yeah. It's a great question. I think the most interesting thing probably exactly to that point is I think it is harder to explain to on-chain native allocators who have all this baggage, right, of all these different systems and models and things like that, than it is to ex- explain to um off-chain allocators, traditional allocators. And the example I'll give you here is uh

I won't name his fund because I I don't know how much he wants me talking about this, but um uh there's there's one gentleman who's who's raised uh a hedge fund um and is focused exclusively on uh uh procuring uh staked Arrow V Arrow position, right? Sure. And he doesn't raise from anybody on-chain native. He is going entirely to traditional money, traditional funds, and things like that. And when he is making the pitch for um Arrow, he is just talking about us in terms of, "Hey, here is the product. They're they're this amazing new tech company in this growing on-chain space." And he says, "They control about this percentage of the market share right now, and they are

growing. And their token is yielding, you know, 20 to 40% per year." And he said to us multiple times, "He has never closed rounds faster than when making this pitch, right? Um you don't need to know all the other details. This actually sounds like a very interesting asset if you didn't know anything about the on-chain world." And that has been the problem today. How do you sell people on a uh a governance token, yeah, right, with uh hundreds of millions of unlocks coming to uh a traditional allocator who just goes, "What is this garbage? This looks like the worst asset I've ever seen in my life." Or in many cases, "If

this was uh an equity, this would be illegal, you know? Like" And um I do think that this will be the new class of on-chain capital coming in. And they will not buy the shitcoins. They are going to be looking for real on-chain products, tokens that represent real on-chain utility, and value accrual, and assets that look like more interesting assets than of course what they've got easy access to every day in the traditional economy. >> And are they asking about like what is the you know what's the 2025 revenue?

What's the Q1 2026 revenue? What's the multiple? Like maybe you could just give us a bit of sense if you have a rough estimation in your mind of kind of like what those public numbers are for us. >> Yeah. Yeah, I mean I think that they they are they are absolutely applying traditional fundamental analysis to to the underlying tokens. So they want to understand costs, they want to understand revenue, and of course as we know in investing generally speaking they want to know about growth, right? Because growth is the entire story when it comes to what am I allocating, right? Because you're going to be betting on the potential for growth. And in our industry you've got two ways of course

to make a better on growth. You've got I believe this token or protocol represents an index on global growth. So right now, right? You don't have to bet on a particular protocol to bet on derivatives growth. You just go by hype because you know that they own that market, right? Or you can bet on somebody who you believe will take enough market even if the market isn't growing, there will be a growth story there, right? And so those are the types of questions I think we get asked and I think actually this is a big disconnect between like crypto Twitter and institutions and banks.

They have no doubt the on-chain economy is going to grow by an order of magnitude. So all they are trying to look at is to find the assets that may have some degree of like Lindy and growth potential that will accrue value from that growth and place their bets accordingly. And like I think you see that in the large raise, right? That you just saw Morpheus execute. Like there is no doubt lending isn't going to be an essential layer and that Morpheus has more than proven it will be at least a portion of that essential layer. So they are able to of course go out and get an unbelievable amount of capital allocated towards them.

So it's I think it's super exciting but that you know, the on chain world I think it's still got the baggage of years of all these terrible coins and just being narrative games or early games or insider games and that was a way to certainly make a lot of money but there was nothing back it up so you could lose that money just as fast as you made it cuz there was nothing underpinning the the thing. >> Yeah. Yeah. Last thing on the institutional side before we get into more of the predictive allocation, the Aerodrome launch. You know, it was amazing to see the ETF for Hyperliquid go live. It was like a really kind of like a big moment for the community.

On on Aerodrome side, what does that process look like? Like how how much effort and initiative is it internally to get a product out there that traditional allocators can invest in, right? Like I know that it's not easy for people to come on and you know, these these these funds, these asset managers they can't just like go on Coinbase and buy Aerodrome or they can't just go on chain and you know, put 100 million bucks and buy Aerodrome and their their their clients and customers surely aren't going to do that. What's that process look like to get the breadth of investment availability for the Aerodrome asset more available? Is that a this year thing? Is it a next year thing? How far along are you guys on that process? Without kind of you know, revealing things that you can't.

>> Yeah. I mean, I think we have a philosophy of if you build it, they will come, right? Um and so for us like our focus has been since day one, just build a better product. Uh Build a better exchange. Expand that exchange's share. Build it around a token that is maximally useful. That captures and redistributes all the value. And if you do this correctly, right? The rest of these pieces will come. So of course we play like a very active and consultative role, right? I'm talking about my friend, you know, who's all in on us raising a hedge fund.

We talked to every major token issuer and institution. But like the greatest example of this to me is when we launched Aerodrome on base. People assume given sort of the closeness of our team to the Coinbase team over the years that maybe we were ex-Coinbase employees or something or or maybe we had cut some sort of deal. We didn't. We deployed At the time it was our new DexOS MetaDexO2 was powering Aerodrome. We deployed and the first day we deployed, we doubled the TVL of the chain. So obviously at that point, you know, the Coinbase team is getting real close,

right? To understand who these guys are, how they did it. >> Yeah. >> And when it came to their own investment, of course they came and approached us and said "Hey guys, what you guys are doing is awesome. We would love like a greater stake and a greater share. Like will you sell us any tokens?" Things like that. And we had to say the same thing we say literally every single week. No, we do not have any tokens to sell. But you have access to them the same way everybody does. >> Go buy them. >> Go buy them. And so Coinbase Ventures went on chain and I believe this is one of the first or second time that they went on chain to buy a token just through TWAPs. And over time it ended up being

at least at that point the single largest liquid investment Coinbase Ventures had ever made in their history. And I think that still holds up. And >> they took all those tokens and they locked them and they participate each week in the system. >> Yes. Yeah. >> And so I would expect, right? Because this is such a unique product and such a unique token because it shares so many characteristics even with hype, which we know now people understand the value proposition of. If we stay focused on the best product, all the partners, if we um, take over EVM and um, uh, over last few weeks or even days we're just within 50% of the market leader on on total volume. So we are we are closing that gap even before the

launch. If we do all those things, of course there's going to be a number of different uh, institutions partners who are going to want to come in and participate. >> Yeah. >> Um, and again, their option set is pretty pretty small. >> We we're going to outperform anyways, but >> No, no, but I mean, hey, I mean, you know, we can get the Bitwise guys on the phone. We can get the uh, the 21 shares guys. They'll get these >> ZTF scale >> Damn right. >> They definitely will. >> So let's talk about this Arrow launch in July. I think this is like the you know, you know, the token's doing great so everyone in the chat is excited. They're calling you the cult leader here. Uh, um, and uh, you know, token's looking good. People are excited. July launch, Arrow coming to Ethereum with this new

kind of mechanism you guys are dubbing predictive allocation. >> Yeah. >> Talk to us about, you know, we I think we understand, you know, we're bringing this this uh, platform that you guys have built onto the largest DeFi platform of Ethereum. >> Yeah. >> And you're going for the number one spot on Ethereum. It's clear Uniswap has been the primary market leader. You're going straight for Uniswap. You're trying to eat that their lunch and grow the market share as a whole. You know, it's it's it's it's peer versus peer, but it's positive sum. We're building the on-chain environment.

>> Yeah. >> Arrow's going onto Ethereum in July. What does that mean and why is predictive allocation this interesting new kind of spin-off almost on prediction markets and on this gameified auction design to bring more value and to create more value on chain. What does this launch mean to Aerodrome? >> Yeah. So, I mean I think it's pretty clear by this point that Metadex 02, the operating system that powers Velodrome and Aerodrome today is is the single most advanced operating system powering a decentralized spot exchange today, right? You can just see it in the relative market share anywhere it competes. Um but we're never satisfied, right?

Um so, we're not just taking Metadex 02 and uh extending that on domain net Ethereum. Uh we are doing the single biggest upgrade um both on the technolo- technology side and on the economic side in this expansion coming together as Arrow and moving on to main net Ethereum. So, we're trying to leapfrog even farther ahead on on the lead that we have here today. And one of the principal aspects of this is something that we decided to keep pretty quiet until um we were out in Can, right? And we got to meet up and talk out there. Uh but what we announced was predictive allocation and um this is something that is in our minds an entirely new on chain primitive.

>> Yeah. >> Um it's not something that has been done before and it is a primitive that is only possible in on chain systems. So, I give this preface just because it's complicated right? >> says explain it to us like we're five. >> I know. And it's it's a hard it's a hard thing to do because, when you're talking about new primitives, I mean, why do we still roll out and we say read the Bitcoin white paper? It's like because to really understand it, you got to go into it. Or, you know, when V- Vitalik dropped his first uh blog post being like, we should build this thing. It's maybe called like a automated market maker, right? And then you'd have to spend hours reading it before you really understood it. So, it's complicated.

That's just a way of I guess lowering the bar on explanation, but like let's let's give it a shot here. The way to think about it is that um AMMs came into existence and they solved for one problem, which is like what is the price of this asset? >> Yep. >> in any particular time. And uh they were very good at that, right? You could remove all these intermediaries, you could just know I'm here, I want this, the price is this, boom, we're off to the races. But this is revolutionary stuff. But what they weren't necessarily good at was where does capital need to go next? Where do markets need to exist where they do not yet exist? And so the evolution of these um exchanges built around AMMs was first

self-organizing marketplaces. So um this is the classic two-sided marketplace of Uniswap. You're a trader, uh you want liquidity, I'm a liquidity provider, I've got that, you're going to give me fees, and in exchange I'm going to give you um uh the tokens to swap against and hopefully the best execution about that. It was simple, but it's kind of a fragile thing. Um uh the big innovation in Metadex O2 was thinking about these things as coordinated marketplaces. So you add a third participant in the token operator, and the token operator is allocating capital into markets um which allows it to bootstrap things ahead of a clear market demand, right?

>> Mhm. >> Um so uh two great examples of this is where we are leading, right? Um there was not significant Bitcoin trading on Base. >> Yeah. >> Um uh but anyone could have come on Base and spun up a pool >> Yeah. >> uh in a self-organizing way, but that's not how it happened, right? It happened because uh folks like us and like Coinbase [snorts] used their capital allocation power to direct um capital to establish the world's best Bitcoin market and then that market ended up producing extraordinary value, right? It was like within a week or two more Bitcoin was being traded on Aero and Base than on Uniswap in mainnet Ethereum, which it had been basically since the genesis of DeFi. And the FX markets of ERC USDC would be another

great example. Um but as of right now, when you're allocating capital in that way, you don't actually get the upside on being right about where a market does not yet exist, right? Cuz you get rewarded with the fees generated before. So you'd have to basically outlay your capital, take on the risk of bootstrapping that new market, but you don't get an asymmetric reward. So this is how we get into um predictive allocation and markets that are not just self-organizing or coordinated, but now anticipatory and predictive.

So in predictive allocation, it is no longer that you are allocating capital each week incentivized by the rewards that represent what happened last week. You are allocating capital to where you think markets need to exist next. And if you are right, this is where the prediction market thing comes in. Prediction markets are about, you know, making a bet on what you think is true. But it's not They don't play a role in actually creating the outcome. Um but you do get an asymmetric upside in a prediction market, right? If you are right on uh figuring out a a truth claim, right? When an outcome is uncertain. So what if you could do that while bootstrapping new markets? So the

example I always like to use here is uh Wintermute um is uh they they bought tokens off the market too. They locked them. So they they hold Arrow. They allocate rewards each week. Wintermute has a lot of intelligence, right? About where they think um liquidity needs to exist because they are going to be one of the single biggest traders into that liquidity. Um and so Wintermute for instance, if they had a point of view that there is going to be an unbelievable amount of volatility, you know, in the blue chips next week, maybe they allocate 100% of the the capital from their voting power to those markets. That incentivizes those markets to grow in advance of the

demand, and then because they were right about that, they get to collect an asymmetric reward by virtue of being right about that is where the activity was going to concentrate or generate. But it could be something even way more in the trenches where you have a point of view about you know, a a more exotic pair, right? You think um so-and-so is going to go on stage and they're going to announce something pretty amazing, you know, about this coin. So, you shift from a pretty guaranteed outcome. You could go from like voting for wrapped ETH USDC. You don't know if it's going to outperform, but you know, it's going to generate a lot of value. To allocating everything

there. And now uh it's printing, you know, a 1,000% APR. LPs file in. And then if that volatility, if that activity, if those fees hit, you get all the sort of gains from being right about that is where that thing needed to exist right? >> So, you're able to So, you've created a system to just kind of summarize, you've created a system that you are incentivizing liquidity providers and capital allocators to go to where to make a bet on where they think the most amount of trading activity is going to happen and thus providing the most amount of liquidity if they are right to these pairs, which will give the

users who want to trade that pair the best possible execution, the best liquidity, the most depth. And then if they're right in doing that early and and in betting on that, they get an outsized return of the fees generated or the value that was generated from that activity. And that resets on, you know, a weekly basis or some sort of cadence. So, you're basically creating a system where you're incentivizing people to allocate capital in a more efficient manner rather than kind of having it broad spread. Like say about like, you know, let's just do five pools and then we're we're going to, you know, allocate it based on what what we think is going to happen.

>> Mhm. >> And then that gives it the users the best case >> Yeah. >> for their liquidity and for their needs. So, my question is, what if a lot of the large cap allocators make a make an a predictive allocation for the week ahead of the day ahead or whatever the cadence may be and um what if a lot of them are all are wrong and a lot of the activity happens on a different pair where a lot of your LPs aren't in and the experience isn't as good and the depth isn't as good. What happens then? >> Yeah, I mean, I think this just get comes down to do you believe in the efficiency of markets? And if, you know, you show me the incentive and I'll show you the outcome. Right.

So, we believe, of course, that if you create a market-driven um incentive that is oriented around um you get the most reward the more right you are. And every participant from Coinbase to Wintermute to the on-chain Degen, right? Um they know that each week they need to optimize things to be as right as possible. Um there will be weeks in which they are wrong certainly. Uh um but the collective intelligence, because the incentives are so good, because there is so much latent edge and information, right, in these systems that can be used, um it will optimize, right, over time.

And you think about we built this fully believing that a vast majority of on-chain activity is going to be increasingly a genic, right, and algorithmic. And so, you can imagine a scenario where it's not even individuals in many cases making these bets. It is hundreds of agents looking at an unbelievable amount market signals and then allocating in those ways measuring testing results refining to like capture more and more at trade. Yeah, I'd love to see you like AI XBT and I lock some S arrow because he's always out there talking about what he thinks is going to happen. Now he can have some capital on the line and if he is actually right

about those outcomes he can be rewarded in disproportionate ways. >> So the thesis is basically like look people may be wrong but the collective group the intelligence of the of the of the pack is going to suffice such that there will always be enough liquidity to be very competitive with other on chain spot markets and then in the in in the event that the pack you know is right what you get is extremely optimized liquidity for the exact right pair at the right time plus the LPs you know benefiting in an outsized fashion which kind of creates a whole another layer of community and trust and desire to be involved. So like

worst case is like you're you're going to be competitive and relying on market sophistication to kind of even out. Best case is like you're consistent like the system works in such a way as you're consistently right and you just have a lot of fees being generated because all aggregators or any sort of flow kind of like machine will see that you guys have the best liquidity route trades there or people will just trade direct and they'll get a better experience and and and then again the LPs will have a outsized win.

>> Yeah and I'll give you just a reason to bet on why this will be far more right far more often than it will be wrong right? We've seen this already in prediction markets. >> Okay. >> Political commentators election reporting, pundits right? >> Yeah. >> Um, everyone had opinions. You had unbelievably expensive polling firms who go out and market and run all these sorts of things. What is the best way to actually know right now the likely result on any particular question, especially those of larger market sizes like a an election result, a primary?

It is going to things like Polymarket. >> 100%. >> So, if the incentives there work such that that is the best vehicle for truth discovery in any single moment in time, that exact same mechanism applied to capital allocation and then the reward for that on chain, I think it's very easy to take the the bull case >> Yeah. >> um, on this. And if you think about the markets that these allocators are trying to bootstrap, their competition is still these lagging self-organizing marketplaces. So, they are trying to build liquidity that moves in an anticipatory way ahead of things and that's just going to further

increase the degree to which the self-organizing markets struggle to compete, which brings in the compounding effects of more liquidity moving into um, rails that look and operate, you know, far more like ours. >> Yeah. Yeah. Yeah. Yeah, man. I mean, so mid-July launch, just kind of closing out here, what is left from you guys to prepare? Are you guys ready to go? What's, you know, what's what's left? >> Yeah, so I mean, we are fully in the hands of the auditors now, right? We're we're working with Chain Security, we're working with Sherlock, we're doing, of course, multiple rounds of audits, we're doing um,

bug bounties and all that sort of stuff, but of course, it is a moment in time where if it wasn't your top priority prior, and always taken security unbelievably seriously. >> Yeah. >> But I think clearly we've seen over the last 6 months some teams didn't have the the same disposition. >> Um but we are going to be sure right that those auditors we are completely in their hands. They take as much time as they need. So I think we should have a good read or we're about to close another round here shortly. >> Yep. >> So we'll start I think have a clearer idea on the exact date. But I mean the tech we've been working on for years, the economics we've been working on for years. Um you know if you're a DJ on chain, one of the most

fun parts is when it feels like a game. And it will be a game when we show up to to mainnet because last time we had any fun there was the SushiSwap vampire attack. So you know, we've got spreadsheets. We kind of we kind of know, you know, where we want to go and play and and like I said before, you know given how dominant Aerodrome already is today, we are already the number one exchange in terms of revenue. >> Yep. >> Um we're leading the the market leader there. Um we are very close on volume and then TVL and fees, right? A bit farther behind. But it only takes us taking about 20 to 30% of mainnet Ethereum.

And we are now the number one largest global spot exchange on chain. And my hope for that, right? Is not just that that we're successful, right? And that um this hyper-efficient system um that shares all the value, right? And all the other participants are rewarded for the bets that they placed, right? Uh but my hope is that it catalyzes a remaking of the top 100 tokens because now you you have two examples >> Yep. >> in the two most critical verticals the on chain economy that say anybody from anywhere can beat anybody if they maximally redistribute 100% of value. And all those top 100 tokens that

that aren't doing that, they fade and they start losing against anybody who builds according to these like arrow and hype principles. And then by the way, that's not just for like the disruptive power of our industry, but that is how we go beat the TradFi incumbents, too. Because they can't beat this. They they've got extract value out. That's baked into the whole system. We don't have to do it, so this is also the thing we get to go out and beat them with. >> Man, that just gave me some chills. Let's give them some some love, man. Alexander Cutler live from Tokenization Tower. That was a great episode. Thanks for joining us. Guys, I'll be right back to close out the show. We're going to go over markets, charts, scroll the time on a bit, and just get caught up on everything that we missed earlier on.

We'll be right back. From Tokenization Tower, live from the financial capital of the world, you're watching The Roll Up with Alexander Cutler. Thanks, Alex.