Consumer Crypto's Frictionless Speculation | Analyst Round Table

Transcript

PL in hindsight why did like meme coins take off why did all these things take off like as opposed to defi which we were just talking about that like dramatically underperformed and you know isn't really getting the interest that it once did Pepe is a dominant meme on the internet I will see it on Twitter and Reddit for the rest of my life like I want to be long that Meme um that that's like kind of the defining characteristic of a lot of consumer cry or just consumer stuff is like eliminate friction as much as possible before we get into today's episode just a quick disclaimer the views expressed on this podcast by either myself or any guests are their personal views and do not represent the views of any Associated organization nothing in this

episode should be construed or relied upon as Financial technical tax legal or other advice all right let's jump into the episode what's up guys welcome back to another episode of zerx research um we're back today to bring you another analyst round table today is Monday the 13th of May uh this episode will go live on Wednesday the 15th of May today I'm joined by my co-host Ryan um as well as Hayden to talk about what's happening in the markets and across crypto today I kind of want to start off with something that we touched up on last week um even though this wasn't necessarily happening last week funds and meme coins um van NE launched their meme coin index um last Thurs day as far

as I know um um it's a market Vector meme coin IND index a modified market cap weighted index which tracks the performance of the six largest meme coins I know they have Sheba in this um I'm not sure what else they have in it to be honest Ryan do you know exactly what's in it they have all the majors they have Doge Pepe whff um shib and two others I believe I don't know I feel like we're going a bit too deep into the financial nihilism um thesis you know what I mean I think it's a bit much I'm like in general I would say as comfortable with memes as you can get um but oh it has

Floy in it uh flaky and bonk by the way just for our listeners um I'm as comfortable with mem coins I think as it you can get with mem coins I just I don't know I feel like you need to have a s certain like professional lens when you're doing investing you want to like keep them coins a bit separate but I don't know it's definitely like interesting that we're seeing this index before I mean they have defi indexes I just don't know how popular they are I be I I wonder how much of this interest or how much of this project is generated well obviously most of it's generated from the crypto native end um but I do

wonder how much inbound interest they have from less crypto native participants to you know track these meme coins yeah I wonder as I think it's become more and more um less crypto native as time goes on like I mean Doge has always been a huge thing obviously and Bon and whiff did really well this cycle and there's others as well um but I feel like more and more it's becoming a bit more institutionalized where like weal this is why I said we talked about this last week is or two weeks ago but we that week we had mcoin fees being written by Crypton native funds um obviously these are Crypton native funds

and like they've been in this um probably in their personal accounts um but it's still like becoming more and more institutionalized to the point that I'm not sure what the next step is I mean like obviously it can get Siler but I don't know like I was thinking about this most of this morning because this is actually not one of my topics to the listeners this is Ryan's topic I I don't have a like good take on this just I I have a I have a strong take on it um I I I've heard a few podcasts talk about the like this index and and what it means for the space I think that like it's unfortunately like indices are

Niche for most people but within the asset management industry in particular particularly the pension fund and endowment space who are just like professional LP investors in indices are extremely important so the way that I view um the importance of indices is like as follows they're important for like four major things like the first uh is information dis dissemination and legitimacy so if you so early in my career let's say go back to 20 18 2019 uh if you were if you had Bloomberg News up on your screen all day and you

were watching the tickers float by uh you did not see BTC or eth during the bare Market you didn't see them now or then fast forward two years you saw um BTC eth Litecoin Ripple fast forward you're seeing BTC eth salana and other legitimate projects right so like when you standardize performance performance measurement um in the asset management industry um it gives Traders another thing to trade it familiarizes them with the space you see that ticker float across your screen you say I want to bet on that thing um so that's super important in the pendant fund and

endowment space like performance measurement is key so this is like kind of like the second core thing I see with this index uh if you are going to let's say it's 15 years ago and you want to invest in the reinsurance space and you're offered an investment opportunity and they say it's going to annualize 10% over the next five years uh back then before let's say that reinsurance indices don't exist that 10% annualized return means very little to you you have nothing to Benchmark against now that there are proper reinsurance indicies out there you know if a investment opportunity is just offering you Market betag negative Alpha positive Alpha you

now have something to bring to your investment committee and say we can achieve this hurdle rate over this well-defined standard in the market uh the other thing is just like it so like in in the context of crypto right like if you want to measure the performance of a crypto manager you need to be able to decompose their returns and understand that they are actually delivering Alpha and not beta so what you would do is you would reconstruct their portfolio weights over time and you would assign each sector its own Index right and you would see that if you just invested in the betas that they were invested in could you replicate that return if you could replicate that return then you're not going to invest

with that manager so like and if you couldn't replicate that return if this fund outperformed the mean coin index then there's Alpha there you want to invest in that crypto manager so again it's just like it gives these sophisticated um large institutional shops that are professional LP investors it gives them a benchmark to measure performance which lets them put this stuff in front of an investment committee and then just like lastly one very obvious Mega Trend apart from just I guess it's like a sub Trend within passive investing is thematic investing so the Raa space is hyperfocused on these like thematic Investments right so like there are like

lithium supply chain ET FS there are like clean technology ETFs there are cloud computing ETFs it allows let's say like financial advisers to put an exciting theme into someone's portfolio with some positive expected return without them having to do too much work they can point to this Benchmark and it's rules-based and it updates and it makes investing very easy for them like indices had to in indices had to exist first before these products could be launched so me coin index like it's an index today but as interest compounds as legitimacy compounds you can build an investment product on that and it acts as

distribution for the space so I think that um while indes are super boring and passive investing is just like objectively boring it is a necessary Next Step um toward like these very particular institutions like touching this stuff I have two questions for you I just want to hear your take on them first of all with the mcoin index I mean I assume that these get adjusted Year bye but um if you consider a defi index that was built a couple years ago it underperformed like it always does underperform um as far as I know because like these tokens uni let's say it's like uni maker

maker doing okay now but they had that uh what the Parton Co the 36 month bare market so I wonder if that will because mem coins as well like Floy might still have the highest market cap but it's not like a top performer and I mean like if you think about it now would you want I mean this is NFA but would you want exposure to dgen like a forecaster Bas forecaster mcoin or to Floy enu and how does that like obviously this is the reason why you measure your performance against that because like if you can make the right choices but I'm wondering more so like I assume in traditional Finance these don't then the top performers

don't shift as much yeah so each index has like very transparent um and Def well-defined waiting schemes so with this index the max position size is capped at 30% because you could easily Envision a scenario where the number six meme in this category 10 50 X's whatever and becomes a dominant position in the index and and actually investors don't want that they want a passive strategy to not be completely passive there has to be some waiting scheme that prevents like um like C like um like that prevents against large position sizes that wants that should manage risk effectively and

I think like the other thing that you're pointing out is like do you want to invest in index or out of index super popular like especially with like amongst Bond managers where like they've most of them will Benchmark to the Barclay's aggregate index which is just an index of all the US bonds um that are on the market and average of those returns um and a very easy way for managers to outperform that index is to invest in things not in that Index right because once a thing is in an index like kind of like the market knows about it there's more capital in it um you know there are more eyes on it it just it's harder to outperform so yeah and E like one you're not going to get full meme coin exposure

here for sure like it's going to miss those tail assets um I imagine that the that these benchmarks change in morph overtime and best practices develop but like we're very early Innings obviously yeah I assume that um it wouldn't like it obviously wouldn't outperform m coins I was just more so wondering like how um but I guess what you like those four points that you outline makes sense like to me it just seems so wild that there's an index to because meme coins are like weekly phenomena and then eventually they might come back and there's stuff that like outperforms over time so like as an index asset and that's probably

why like I'm being kind of a mid but right now it's just I can't wrap my like stupid little brain around this concept that well given that like the way that I view m coins is completely different but I like the yeah feels like if in another uh scenario something like this happening would be around a lot of speculative cyclical top you know points of the market I feel like but there's not really anything going on it's just vanck and their crypto team saying hey it might be useful for investors to see I guess yeah how they could measure

themselves against an index of mean coins I don't really know how what to conclude CT's been looking for top signals over the past two weeks three weeks maybe two months um I don't think this van is like very very Crypt native I mean there they have like their own little intern that makes CT jokes Etc I don't I don't know how um I feel like if Pepsi was talking about meme coins and Wendy's was saying oh my God buy dog had or whatever then that's like a top signal right um You said there's nothing happening that's not true consumer crypto is happening um this is a venture coinist I can't

remember Luke Luke tweet and he pointed out that fantasy Top Hat uh more than 9 mil in Revenue uh Fe generated over the past seven days frch had nearly 5 mil and pump. fund had over 3 mil uh in fees uh generated I do not think that pump. fun or fantasy. toop are consumer um crypto but I think you can make an argument that they are it's very difficult to Define these things at this point especially since they're very early um frch I'm i' I'm not using it anymore I I feel like nobody's really using it anymore I've been using fantasy dotop I

we talked about it last week it's a lot of fun but I also wouldn't Define that as consumer crypto it's a game it's a game f project um I think the only consumer crypto project out there right now is foraster I don't know what you guys think I think that I would like my kind of mental model for it is just like there's consumer and then there's enter Enterprise and then like there's subcategories within those so given that like dichotomy um you know I I think that these are more consumer oriented for sure they're definitely not or Enterprise oriented or oriented towards

institutions um so I think I mean look this is um you can go back to 2017 and you can read investor letters where they're talking about like how consumer crypto is right around the corner and like the way that you know we kind of envisioned it I don't think that it happened in that way and it wasn't around the corner but there is a pretty strong argument to be made that like kind of the defining characteristic of this cycle was like infrastructure good enough to have like highfrequency like consumer oriented crypto things where you could put small bits of capital at risk and play around and then like

post memes on Twitter about it like to me that's a very consumer oriented activity and um and in many ways it's been the story of the cycle yeah apart from trying to Define consumer crypto I'm not going to do that but like okay let's assume that friendtech pump. fun and fantasy top are all consumer crypto I do think that that's what will continue to dominate over the next God knows how long like let's say for the rest of the cycle just because like in my the way that I like to view um what people will be doing um let's say as a guest is that when I'm doing these things if I'm having fun and

that's like for a variety of reasons if I'm like a enjoying myself on Twitter like you said I'm buying something selling something I'm like ha this is fun guys be if I'm making money on it or like if anybody's making money on it or if there's at least like a chance of somebody making money on it and that's one of the reasons why I don't think and and I think most people don't think infrastructure projects will do particularly well because it's not very easy to make money on them anymore as an investor um and see if they can keep my attention and all three of these things have pump up fun not so much um have kept my attention when I've uh like over sustained periods more than I would say

like a lot of defi has over the past year I mean I'm not a big per guy and I feel like everything happening like exciting happening right now as applications is per aside from like Stak and forget or farming yield I did a big gamey uh like Expedition over the weekend and we can talk a bit about that as well but I'm curious to hear how you guys like view is that something that you take into consideration are you like okay I'm doing this on chain and I feel like a lot of other people are doing this on chain as well so they're going to keep thinking about this and I feel like this might become a narrative or is this odd I think it's an interesting um way to approach uh you know sort of like

thinking about the next narrative or applications that catch a lot of people's attention um for me meme coins were predictable only because I started to see all of the me activity that was happening on chain and the types of infrastructure that need to be built in order for these mcoin AC in order for this mem coin activity to happen and so if you just kind of like you know this was last year if you played out you know how are we going to test this infrastructure how are we going to gain feedback from the market in order to gauge or sort of lay out this path on developing systems that actually work um you'd have to think about the type of

activity that would exist and meme coins were the only thing that one of the only things that I could sort of like see um you know happening and so yeah I I kind of agree with you that um you know this is an activity these are these are sort of behaviors that will be the driver of uh you know this narrative this cycle um at the end of the day these are the behaviors that are being incentivized by protocols chains other people like if you are enjoying yourself or if you are like either financially or because you're just having fun then you're going to keep coming back to these behaviors and you're going to keep

coming back to these protocols yeah I think that looking hindsight why did like meme coins take off why did all these things take off like as opposed to D5 which we were just talking about that like dramatically underperformed and you know isn't really getting the interest that it once did I think like the there's so little friction to like usage for these crypto apps like what percentage of consumers like actually invest like look at the 10K and like do the fundamental analysis like no they don't want to they they they mostly invest on memes uh you know Tesla is like an easy meme to get behind it's like EVS are growing Tesla is the big EV thing in the US I will invest in that

thing like meme coins take like reduce that friction even further to like Pepe is a dominant meme on the internet I will see it on Twitter and Reddit for the rest of my life like I want to be long that Meme um that that's like kind of the defining characteristic of a lot of consumer cryp or just consumer stuff is like eliminate friction as much as possible you have that same Trend and Enterprise stuff but it's not as important because Enterprise is mostly concerned with like cost rather than friction whereas consumers are hyper focused on the elimination of friction I think that all these things um like the the the these speculative games that people are playing they really

eliminate friction to like taking risk and um yeah that seems to be the defining characteristic of consumer crypto today for me talking about memes um I feel like this is a pretty good example of what you were talking about where like crypto reduces this friction um for example gme there's also there's multiple coins on chain that exist called gme and one of the things that happened today was roaring Kitty came back sent out a tweet and this was kind of crazy to me because I feel like I watched the movie and I was slightly in like uh interested in what had happened but I wasn't a big like gme person and then this happened today I

don't know for to our listeners it's the jmy chart um I think it went up 100% and it was kind of like it was kind of ridiculous that this happened today and now that we're talking about it and you're saying it's it reduces friction compared to Tesla well sometimes this friction is forced like they stopped trading on gme again but you can't stop meme coin trading on the blockchain and I mean like I feel like I'd say this every week I I thought like meme coins are a thing they're always going to be a thing I don't know before I was like yeah I don't think it's a super cycle it's just like stuff happening it's just like every cycle this happens there's no meme coin super cycle

but a lot of things are getting sillier and sillier feel like so yeah my my framework for thinking about this is like okay so why was the do bubble so crazy like one reason is that like E Trade started around that time and reduced the friction for retail participants to get into that market and you know it showed in the stock prices um why was covid and 2021 like so crazy like why were those financial markets so nuts um like one people didn't have many other options um um but also importantly the percentage of retail

participation as measured by Bloomberg went from like 15% of Market volume to 25% of Market volume right and like that's not I mean that's a lot like if you think of the total dollar volume but in percentage terms like people can push back it's not a lot like things went nuts right um with with a small change in like relative um dollars from specific participants in the market like things are as the friction like as one like retail just compounds more dollars over time like we are objectively just like getting wealthier the middle class is growing like as as the as retail gets bigger as they participate participate in markets more like it's just going to

get more weird yeah I agree with that um I I'm going to kind of tie this into what I was doing with gaming like as I mentioned I did like this big Expedition on gaming and just trying to understand what the gaming landscape looks like and it's the exact same thing that defi is facing where it's we have so much infrastructure like we built out all of these new chains or data availability layer some form of way to make def5 more efficient but there are no apps anymore or like there are very few Innovative new interesting apps and I feel like that's kind of also leading to this because before you could

at least like have some fun on chain with new apps but whatever new app launches it's either like it doesn't get picked up by attention like people don't just don't care about it is the fun just making money like is that is that what the fun is it's that in defi summer there were all these apps that were fun because we could just Farm imaginary food coins I think slightly it is making money but it's also just participating in something like at the end of the day I think most people lose money um and I think especially on Meme coins but I think people keep coming back I mean of course there's the dopamine and there's the gambling but I also think it's like

you're kind of participating in something um and you're chatting in your group chat or whatever on Telegram and you're like part of this thing and I think there was a similar like if you look at the biggest like D5 projects um not the biggest but the ones that became like cult phenomena let's say like Olympus was all about like the whatever the community aspect free free I mean it was all about making money obviously like that's at the end of the game unfortunately with most stuff it's like that all the social F projects are also like that but like there is some form of a community engagement element to it and I feel like that just doesn't

exist in like there's just nothing new coming up how I was going to tie this is it's the same of gaming I feel like gaming is in its infrastructure phase where there's like a million new purpose-built gaming chains launching there's very few games to play I'm the only one I can like that I've talked about before here as well as parallel TCG um project Awakening is exciting um and this pixels which is apparently doing incredible stuff over on Ronin but that's it fantasy. toop is also another way that I was going to TI this in fantasy. toop is a game and I think it's probably the most successful like Game launch over the past year I think another thing that's interesting

about what's happening with crypto in terms of what aspects of crypto are catching attention from the mainstream is um we're kind of bringing it back to these examples that we used these these analogies that we used to make um you know a few years ago when defi was relevant which was there was always this analogy between um some def application in Robin Hood where Robin Hood makes trading the act of trading way more accessible and and Brian this is kind of like what you were talking about during the doc bubble moving on let's talk a bit about consumer crypto uh Luke Martin Venture coinist on Twitter had uh he put out a I'm going to share it now but it's

basically talking about how well some of these consumer crypto applications um I'm putting those in bunny ears because I don't think all of them are consumer crypto but we'll talk about that later uh how well these have been performing and how such as fantasy top made over 9 million fees generated over the past seven days frch made nearly five mil and pump. fund made over fre mil I um I mean this has to be the narrative over the next six months right like people are getting used to this idea of like oh if I use social fi I'm having fun I might potentially make money and you're rewarding those behaviors you're

incentivizing that and then feel like people are just going to keep coming back to that I almost like I I I've been doing this game fire report and I almost feel like some of these social fi apps uh or consumer apps the better word um have kind of replaced gamei as the fun um way of interacting and making money on the blockchain um I don't know what you guys think yeah I think I'm not one to speculate on compounding narratives uh I really couldn't tell you I don't have much of a track record doing that um but what's clear is that

um like it's happening this cycle you can go back to uh think pieces and investor letters from 2017 and everyone was talking about consumer and gaming applications back then they never happened they were supposed to be right around the corner they weren't um you in hindsight you had an obvious infrastructure bottleneck um but I think like consumer crypto is like obviously here to stay and the the the interesting observation here is that in 99% of cases like everything X farcaster where you can even argue farcast forecaster part of this bundle um everything is centered around speculation uh crypto enables you to

take arbitrary units of value and speculate on whether those are going to increase or decrease um it is the unique property of the infrastructure that we're playing with uh it was not very much existed in the internet era it's very much or the web 2 era it's very much existent in the blockchain era um I think anyone fading that Trend um is I I think that that's incorrect I think that speculation is a core feature of these new crypto applications and it's here to stay I don't know if I agree that these are consumer crypto apps though I feel like they're

mostly focused applications by which you could trade they just kind of funnel they're all funnels of attention where you can trade or speculate on various coins but I I to me when I think of cry consumer crypto I think of um you know Blackbird you know you you could it's this it's this restaurant app that's built on base oh yeah yeah that's also what I think of or like Mina swap where can like buy and sell um shoes that to me feels like consumer crypto I get what you mean Ryan has a good explanation well I think yeah I totally agree with you guys um that they don't

feel like the consumer experience that we're used to but like you know the I think it's Mark andreon and um and christic and over a16z they've kind of like coined this framework around uh like orphic products that like in in early in in new technology paradigms like the first products are often very skoric so like you can take for example like um you know uh like newspapers right like in the 90s like when the internet happened like you put the newspaper on the internet and it updated once a day just like the physical newspaper now like there are interactive Graphics there's

like 247 coverage there are like there's there's videos within the the Articles themselves um you can share them easily with links um you can embed them in your blog like the skew morphic idea was putting the newspaper on um on the internet but like the actual like like the actual big unlock was like all these all this new functionality so like Blackbird to me like I think it's cool I I use it when I can um but it's like a skew morphic idea it's very much just like put the rewards program on the blockchain and like that's going to have some unlocks but today it's pretty skoric I'm sure that

like new features will come around and it'll be interesting so like when I'm thinking of consumer crypto long story short when I'm thinking of consumer crypto I think we have to have a more open mind to what new consumer things will be because they're not going to look like what they used to look like like my framework is like there's consumer and then there's Enterprise and then there's like subcategories in both sections and like pump. fund to me is then clearly consumer like it is a little app within my Phantom app and I click it with my thumb and then in two clicks I can launch like some tradable asset like that's very that's a very consumer-like experience so um yeah when they're finding these things I I think

that that we have to we got to keep an open mind because things are going to get weird all right before we move on to more questions and topics let let's have a quick word from ethery thanks to our fantastic sponsor layer zero all right guys for this week's layer zero segment we are joined by Mike the co-founder of ethery a decentralized and non-custodial ethereum staking protocol thank you for joining us Mike yeah thanks for having me um just to start us off what is ethery and how do you guys fit into the ethereum staking and reaking Landscape right so ethery is a liquid raking protocol that lets you take your eth uh stake it and have it automatically restak uh in protocols like uh like IG to earn additional rewards and loyalty points and all that good stuff however

uh what our ambition is it goes actually a lot Beyond uh staking and reaking our goal longterm is actually to create a suite of consumer facing applications that just make it easy for people to get access to Defi and that includes staking and reaking includes deploying Capital into defi investment strategies and then ultimately actually includes being able to spend that uh money in real life perfect uh um how does layer zero fit into ethery how do you guys work together so layer zero is a really critical partner uh for ethery they are the core of our entire cross chain strategy um specifically what layer zero did in in collaboration with EFI build

out our cross-chain native reaking uh functionality what that means is normally if a user wants to stake or restake on a layer two protocol let's let's say a base or something like that that uh they need to take their tokens they need to uh stake it on layer one cost lots of gas fees then they need to bridge it to base and then they get to use the token in uh in defi or alternatively uh what they would do is they would swap their eth for the restake token on base and that incurs uh swap fees and typically slippage so that's that's not a great experience for the user whereas with layer zero what

users can now do is one to one take their eth that's already on base and natively mint restak e eth which is our liquid reaking token on base for zero fees and zero slippage it's I mean it's the best offer in uh in all of staking and reaking actually and it's all made possible because of the magic of layer zero and the implementation that we've built out with them yeah that's perfect um do you guys have any exciting plans over the next six to 12 months we do yeah so I alluded to the you know our longer term goal of becoming a suite of application so that um in the near term looks like a suite of three products and those three products are stake liquid and cash

ethery steak which was our our first product is a liquid reaking solution that allows you to save your eth and earn the native interest rate of the ethereum ecosystem ethery liquid is a non-custodial automated defi strategy Vault basically it lets you deploy your stake de into Defi and earn h yields and then finally ether by cash is a wallet and credit card that lets you actually spend your eth in real life uh actually lets you spend and buy buy stuff in real life so between these three products users can save invest and spend their money without ever having to off-ramp on crypto so you basically get your assets onto crypto you can save them you can invest them and then you could spend them in real life without ever having to

do the dance of uh you know going back and forth between Defi and trafy wow I did not know that you guys were going to launch a cash product that's actually super exciting um thank you it is yeah it's you'll be able to sign up for it uh shortly in just in just a couple weeks actually perfect I'm very excited thank you so much for joining us Mike I really appreciate it all right let's move on let's talk about this K round controversy that happened over the over the weekend on Friday Ryan do you want to talk a bit about it yeah sure so uh coin desk released an article that basically frames uh K's today and talks about the kind of controversy

controversies around those rounds uh basically you know the article says a k that invests $10,000 in a project will hustle harder than one that is paid $10,000 just to tweet um the article mentions that K's often get to buy in uh at cheaper valuations than other investors uh and they're often guaranteed um or granted Hefty token unlocks that let them sell faster than other investors um it mentions that you know this could hurt alignment and then at the end of the day retail uh is likely the ones to get hurt from this kind of

activity so yeah I'll kick it to you guys uh thoughts on KO rounds uh do you like them do you hate them are they here to stay are they a thing of the past like what's going on I'll give my thoughts really quickly um I think like this whole K plus um essentially I think we're at this area where we've kind of we're kind of seeing a few like um I don't know how to describe it properly so I'm just going to try we're seeing like these few issues bubble up one of them is low float High FTV the other one is like these k rounds that are very clearly more favor like very favorable

for KS and we also see like a few more of these issues of airdrops happening Etc like being non-transferable and I think they're like each of these like individually are like annoying but they're not particularly like Vibe shifts you know but like this whole thing combined I think is going to lead to some changes over the next six eight months talking specifically about K rounds that K is the worst VC that you can have he is not in it for like because I feel like VC's to an extent like justify it to themselves about why they're investing

in something and why it's worth doing like a four-year investment because their like timelines are long and they usually don't like exit it's most of the time it's difficult for them to exit just because of like liquidity issues and they just have this like longer timeline with K it's very different do you get like 50% unlock at whatever or like 25 30% unlock they're almost like trying to make this these KS invest so that the investment is for free and I mean you just end up getting somebody who's not aligned at all who is not incentivized to who to me like that um what they mentioned that like K all

that that invest will hustle harder than one paid I don't think that makes any sense at all I'd rather pay like if I'm a project I'd much rather pay somebody to tweet then give them allocation because if you're giving them allocation you're just you're ruining almost like your price action for a little bit do you know what I mean because you're giving somebody free money and the free chance to get like a huge unlock at the very beginning I don't know this is like kind of of unfiltered thoughts but in general in my point of view K is like the worst iteration of a VC that you can have yeah I have uh I have takes um I think that a lot of

like these kind of um favorite retail narratives surrounding fundraising and crypto are kind of BS I think like the all VC VCS are evil narrative is BS uh I think that um you know the the high float FTV um debate misses a lot of nuance uh and so similarly I think that this kind of like K framing is misses the mark on a lot of things this is marketing expense and like we've been doing it forever um like William Shatner got Price Line stuff

stock 50 Cent got e equity and Vitamin Water uh like Ryan Reynolds is getting equity for the the companies that he advertises for uh P very famously uh did not get equity in sarak even though he built that brand and it was very controversial he ended up going with the um to court with the company uh over that decision so this is not a new practice at all um like now obviously you don't want to be Shady about this you don't want to have unfair terms relative to other investors but this is going to be um there are

going to be standards that develop on the market over time so like as someone who sits in my seat like I'm going to let the market figure this out and I think the market will figure it out um to the point on paying kol's in cash versus locked tokens over some time frame I disagree I think that it's far more Capital efficient to use tokens to pay a k than cash because cash is more useful to the startup um the startup will have Equity they'll have debt they'll have tokens and then they'll have cash and they can only pay Opex with one of those things and that's cash so you kind of want to treat cash with like the highest respect there um so tokens make a lot of sense it also like

if you do it right and I'm not saying that all these projects have done it right but if you do it right like you want your kol's to be aligned with your project and a cash payment is ephemeral like you fulfill your contract and then you're done whereas a token like there's potential capital appreciation with holding that thing and the better the project does the better you do I think it's much better for alignment than a one-time cash payment to tweet for an extended period of time because once that extended on that once that period of time is over like the relationship is over and they could care less about your project um and again like big disclaimer

I'm not saying everyone's doing K's right today uh undoubtedly they're not but like the Market's going to figure it out and like from first principles and like at the core of what this expense is it's it's it's marketing and it's it's it's here it's here to stay to some degree that's fair um like most of your points I understand I don't agree with but I I think they're like Fair points the only issue is that for example with 50 Cent let's say or Ryan Gosling Etc these are like onetime celebrities let's say and they become the face of the company for however long with KO that's not how the dynamic works as far as I understand if let's

say I'm launching I mean they had a massive one called one intro or something it was just like coin launching coin launch pad it was like f like the liquidity boost crapping protocol but on Solana either way they ended up going after 600 KS or something and like that to me is ridiculous because you can't CU like from your point of view it makes sense if you are giving 50 Cent I don't know how much it would give but let's say 0 five% of your whatever uh stock to become the face of the company fantastic but if you're giving 600 people just a tweet about you that to me is not a

marketing expense it's like a I'm trying to exit as soon as possible expense which is also like for as like if if I'm the protocol it makes sense to me to do something like that but I think it's like it's not it's not a it's not a good approach to this whole thing and I think it's kind of like like you said I think the market will figure it out though I think like there'll be a correction um and that's why I like at the very beginning of this topic I kind of rambled about how like it relates to low float High FTV Etc because I feel like I'm seeing a lot of these specific Trends pop up and like on themselves you're kind of like oh it'll fix itself it'll fix itself but like

together they're kind of becoming a bit like annoying to the point that I think they're probably going to get washed away for a little bit hopefully over the next few months on I 100% with agree with you Picacho this speaks to a a bigger problem within the space which is aligning incentives over multiple time frames and not you know this very shortsighted incentive scheme um between coins projects and investors I don't know any details about how these K deals work I'm sure there's obviously a lot more details um that make them different from a typical you know VC a VC um but I think that you're right in

the sense that the market will learn and correct um the way these incentives are are dealed out before you know pre-t toen prge and even just like zooming out like we live in this sort of attention economy that's something that is thrown around quite often in crypto and and broader markets and um yeah I had the same sort of like kind of idea uh you know uh before which is Charlie dellio uh the Tik Tok influencer and even Kim Kardashian these big influencers are they have their own VCS they have their own funds um and you know I'm not going of sort of I have no idea how these funds work I don't know

how sophisticated they are but you know I I would go out on a limb and say that the funds value the fund of the value of these funds are the brand um and also I guess Kim K and she's you know uh got all the resources and you know all the network that she has um but you know going from Tik Tok influencer to now having a VC in my opinion there's like a very large gap of information that you might not have from someone who's actually a a like a venture capitalist um and so yeah I think I feel like this sort of K meta has was you know has been a thing um in traditional markets as well that

will also C but we're kind of seeing it already die out because now like if you even mentioned that a project has a k or had a KO around like you get strong push back from Twitter from the community Etc like people are active like I don't know how efficiently that's going to help like the market correct but I feel like it's an easier fix than with low float High fdv stuff because first of all some people don't think that needs to be fixed that's fine but if you are somebody who thinks that needs to be fixed that's obviously way more difficult to fix because the like incentives won't correct fast enough I think like because

VCS and product protocol protocols uh they still like like they why should they be upset about the system that they have where they launch at a very high FTV and I mean yeah it might be hard for them to exit eventually but they don't know that yeah yeah I like at the end of the day it's it's the liquid Market's fault right like the liquid Market has to look at the private market and say like this doesn't make sense and like let that thing rate but liquid Market participants are not doing that like there's a lot of complaining about getting dumped on by by by VCS or kol's but like you had to buy it first to get

dump on uh so liquid markets need to be more Discerning that's for sure the reason that a lot of the shenanigans happens these Shenanigans happens is is because the liquid Market is there like ready and willing to take a flyer on it Kobe was talking about this on the timeline this morning and B like I think somebody just brought up that monad they were like oh like I hope monad launches that sub one bill like they were like I hope it launches that 200 mil or something and then people obviously said like they last raiseed that free Bill I'm pretty sure they're not launching at 200 mil I think Kobe chimed them

basically saying like this stuff should eventually fix itself but like you said if there's also like kind of this discrepancy because I feel like we're not at that point of the cycle yet but maybe we are like if stuff is launching at 20 Bill FDB first day then and private markets are raising at three to five Bill like maybe we are there it's just this is the new thing um you just have to avoid for a little bit but this also like this is something that I want to talk about hyper liquid I feel like this is kind of related to them this is uh to our listeners they

like I don't know how common knowledge this is but hyper liquid didn't raise at all um as far as I know they don't have any VC involvement um they completely booster up the protocol them by themselves they I think thre P generator or something and the main reason that I want to talk about hyper liquid today was because their points program ended and they announced another a new points program um but I think it suits this conversation better where it's like okay is the like dichotomy of high fdv low float going to like how is this going to interact with Hyper liquid which is objectively a good protocol I mean maybe it's not the best perpose taex but it's a good one and it launches let's say at

a higher flow it's at a more reasonable valuation will that be enough to show VCS that um perhaps the approach that they're taking or not VCS but the protocols let say or whoever the big guy is that decides on the valuation if they end up launching a product because we already know that a good product if they end up launching at a high flow lower FDB do you think that this might encourage VCS and like whoever the big guys are to take a step back and be like okay like maybe let's maybe there's a different way to launch these tokens maybe we don't need to launch them super low flow maybe we can launch them higher FDB I think it's possible I think that um in general I

like it when projects experiment with their uh a token design so um I think the low the low float high fdv is um you know not the greatest way to align incentives for key stakeholders including the community over the long run and so yeah I think it's cool to see projects um take alternative uh strategies um I think that's I think that's like uh a really cool uh Direction um to take a risk um now will it change the way

VC's you know approach this this game um I probably not but I think that enough projects doing this um you know taking you know different approaches you know will will eventually lead to what um you know is aligned among everyone in the market as opposed to you know a select few maybe the way I asked it was a bit too bait I more so meant like if people see that there are projects that are successful that end up launching with higher

floats um and like not at ridiculous valuations that maybe people will say okay maybe we don't have to have like 7% float and launch a 15 Bill like we can take it a different route right right well I think like this to me makes me feel like it gives projects the different approach right rather than having to sell equity for VC investment VC Capital you can just bootstrap uh with a great product I think that is like the big difference here you could as a Founder create a project generate attention um didn't necessarily you

don't have to necessarily take on VC Capital um you have conviction you have the talent you could do it on your own and then now you have a situation where you could distribute a token where you are more aligned with the community and not having to think about what the VC necessarily wants um I think that's a yeah so so I think it does it can change the way Founders think about this kind like this it does change how Founders approach tokens yeah I feel like we've talked about VCS over the past few weeks same with mem coins so I'm gonna switch it up Hayden do you want to talk a bit about

lvr I mean it's it's what I've been focusing most of my time on lately if not all of my time what one Let's do an interview style I'm going to ask you questions because I don't know what I don't understand it so can we do it that way Hayden before we get started welcome to zerox research podcast what is lvr lvr stands for loss R rebalancing um the very basic way to think of lvr is um every block LPS on Unis swap are quoting stale prices because on centralized exchange prices are quoted continuously and so every 12 seconds um the lp are at risk

of you know quoting a wrong price or an outdated price and so lvr is the uh value that LPS are losing whenever the price on binance for example is different from the price on uniswap there's some sort of sexx arbitrager who can exploit the LPS quote and make a profit uh with the uh centralized exchange lag I get that this is very different to impermanent loss my question now will be which one do you think is more important for LPS um like which one do you think is more significant yeah so I think well so the

main difference for maybe people who aren't aware of the difference between lvr and IL it's just the way you measure per an LP's performance um and so in my opinion if you're an amm designer LV R is the better metric to optimize because it gives you uh more of an objective uh function to design an amm so every block this is how much Alpha that an LP is leaking now if you're an LP it might be easier you for you to sort of like measure your performance because you have arbitrary periods of time where you decide to LP or where you

where you decide to enter exit and so that's the main difference lvr is measuring your profitability um every block or you know over a period of time at each at distinct intervals whereas impermanent loss is uh measuring your nlp's performance over an AR arbitrary period of time where they enter a position and then exit um so I think if you're an amm designer lvr is what you're supposed to be you know looking at and if you're an LP yeah it depends on your strategy depends on what you're doing in the pool what are some key takeaways that you would like to discuss about lvr like what are some cool things that you found out what is something that you'd like to like talk about more an

extent um I think uh lvr is Define ethereum's biggest problem um yeah I think it's easily it's I mean at the application layer I mean there's all sorts of problems um you know at the infrastructure layer that need to be solved um but lvr is the biggest at the application layer in fact it um issues with you know C let's say like you know Central this centralized Builder Market that's AR rise that that's Rising those are directly related to um lvr um so I think that in the sense that these

integrated Builder Searchers you know are are dominating sort of the me the me that takes place on ethereum and most of that most of that me roughly 80 to 90% of it is coming from lvr um so in that sense yeah lvr is deeply sort of like connected with these bigger problems I guess that the space has to think about um but in terms of like ethereum at the application lay yeah it's easily the biggest LPS continue to lose based on lvr and we already know that shorter block times reduce lvr so there are already chains with shorter block times that in theory um produce less lvr so if

ethereum doesn't sort of like figure out a way to reduce lvr then I think over time you know liquidity finds more finds greener pastures I feel like we've talked about this before this isn't very related to lvr but it kind of is we've talked about this before like on our morning calls where uh we talk about LPS and why they continue to LP what like what do you think it is um we're I'm ignoring sophisticated LPS in this scenario I mean like dumb not dumb but like I guess dumb dumb money who just leave their money in pools and they just like they think they're farming whatever 9%

reality is they're down 14% on their position because of lvr I Etc uh so your question is why why do why are passive LP why why do passive LPS exist is that your question yeah why do you think there is I think that um I've I've LPD I continue to LP um maybe not in the bigger e SDC pairs but you know every once in a while I'm lping whether to farm Rewards or uh whether I want to just create a market because there's more fees but anyway I think in general the reason why I'm giving my personal experience is because I think that amm are are strictly a defi uh you know primitive so I think that um there's an aspect of wanting to

support defi um that I think LPS uh you know share and this might sort of like speak to you know who the LPS might be maybe they're bigger investors that are you know interested in supporting these ecosystems um and so when you think about it like that yeah it makes sense to sort be an LP and then you know do your best to research and design um various lvr Solutions because in the end of the day the bigger thing here is amms they're effectively um decentralized passive investment strategies upon which you could like build out uh you know um upon which solvers and different and other

services can optimize returns and so yeah in that sense I I think there's this longer term Vision that LPS sort of sort can sort of believe in which is um this hybrid between you know the traditional Market making uh you know service and what an ETF manager would do what do you think about because I feel like most people are now claiming that order books are the ideal way to swap um I think they are as well amm obviously have they like strong points especially with like um tail assets um like real real

like stuff that you cannot like that market makers just won't touch obviously but what do you think is like the ideal solution to this how do you see the amm versus order book space u moving shifting over the next say six months that's a long enough time period yeah I think I think amm and Order books will continue to coexist I think that um yeah they they'll continue to coexist the interesting thing I think this is more of a conversation of which chain could be could host the best amm because amms I mean if you if you like for example in V3 if you set a Titan of

range you're effectively you know quoting a limit order um so it depends a lot of this depends like an amm's functionality does depend on the underlying chain to a degree um so you know if we're talking strictly about ethereum yeah it seems as if the space is going to have to develop auction mechanisms to uh sort of compete with these order books off change off offchain order books right you could you know batch swaps together into one into one trade um that you can settle on chain

which effectively is kind of like one market order one limit order um something like that but um you know we still haven't seen the efficacy of those Solutions in practice um but we will Ryan do you have any questions for guest if not I have one more is there a path on any evm chain to an order book is there a path on is there a path for an order book on any evm chain yeah like are are any evm are any teams on any evm chains experimenting with an

order book I think fully on chain order book right not off chain uh that's a good question um on mainnet I'm sure there are I mean I should know I should definitely know what what they are but um you know dydx was the big one and they're on they're in Cosmos now um I'm sure there are some on some layer twos like hyper liquid um I think hyper liquid is Cosmos though I'm not sure if they use the evm I think they they use hyper bft um which sounds like it would be Cosmos because

it's Comet BF or whatever right if the eel1 is is positioning itself just as like this strict settlement layer like does it how much does it matter like is this as much of a problem on the l2s as it is on the L1 and does this exist today simply because the community might not be focused on it because of that kind of long-term road map of eth becoming simply a settlement layer and data availability layer yeah that's a good question um I'm not sure I think you're right in the sense that there are ethereum holds uh different uh design

philosophy um than you know other chains so um I'm not sure how important uh order book decks would be on Main net especially if they continue to optimize if if if may it continues to optimize for things like Unis swap feel like that's a good way to that's a good place to end it thank you Hayden for saving the Pod I appreciate it um I don't have any more questions I'm excited for this report though I feel like lvr is something that I'm so so far away from even though I have an understanding of me to an extent an understanding of impermanent loss when extent like I understand amm versus order books but lvr is it's a new one me

Twitter keeps coming up with new little abbreviations that I just am not aware of at all yeah I I think I'm I'm like maybe it's just my personality that I get super not necessarily bullish but super like like passionate about the stuff that I work on like now we can't put it in now it was jeto two it was jeto two to three weeks ago now it's just lvr lvr lvr yeah I think it's easily the biggest problem and I think it could be solved I think there's a I think there's a way that ethereum can optimize LP returns um but you know a cool sort of

thing that I've learned is there are other chains that in theory already do I like you can have Unis swap on on another chain and in theory uh you know at least according to the research there there should be lvr and that's the that's like the that's like the another thing that I realized is lvr is a function of market cap like lvr is bigger because eth succeeded so it doesn't seem like it seems like these other chains you know at least salana being the first one the the higher Soul gets the bigger problem lvr you know U becomes but will it be as big of a problem given the same market cap as eth with shorter block times those are things that e the research says no

it won't be as big of a problem um but we don't know yet because eth is has been more successful to this point so it's like a blessing and a c apart from lvr Solano amms also need to fix their entire product they need a better product radium is horrible thank you all for hopping on to listen to ZX research thank you Hayden for joining huge shout out to Ryan my new co-host um the new Co host of zerox research podcast an incredible debut um I hope you all have a incredible day [Music]