DeFi 2.0: The Next Generation of Financial Primitives | Tokemak, Boba, Tracer, Vance Spencer

Transcript

um first off just wanted to thank the block works team and other sponsors for uh having us today and for what's been a really excellent conference so far i'm really excited to be up here alongside this group of industry legends to talk d5 2.0 the next generation of financial primitives my name is ej rogers i'm co-founder of fourth revolution capital we're an early stage venture firm investing in teams building the web 3 future across defy game phi metaverse infrastructure dow tooling without further ado i'll hand it over to panelists go around the horn and introduce themselves hi good morning i'm alan chu founder and ceo of boba network boba is an ethereum layer 2 scaling

solution and we're unique in that we're the only platform that allows smart contracts to call any external api so it's like connecting your phone to the cloud hey everyone i'm carson cook founder of two protocols platforms one is tokamak which many of you have probably heard of launched last summer it's a decentralized liquidity provider decentralized market maker operating under the thesis that has web 3 value flow is replacing web 2 data flow token exchange is becoming the new information exchange and therefore liquidity uh serves the role of bandwidth tokamak is really trying to usher in a broadband liquidity bandwidth moment um the second platform is about to launch and you'll be hearing a lot more about this soon it's called

membrane at its core it is a clearing netting and settlement platform that enables bespoke uh lending and otc trading at scale it's going to unlock mass capital efficiency and sit somewhere as sort of a hybrid between d5 and a centralized exchange hey everyone i'm vance spencer i'm the founder of framework ventures where crypto venture fund operating web3 hi everyone i'm ray one of the co-founders and core contributors at tracer and at tracer we're building derivatives infrastructure so not just a single financial primitive but all the pieces that you need to enable communities dows and institutions to manage their risk awesome thanks guys

really excited to be covering this topic today i think uh been a little bit of a rough go for for d5 the last couple weeks last couple months um but i think we all believe here it's very much not dead a lot of exciting things coming down the pipe so to kick things off i think we can all agree on when we think about d5 1.0 what what that means right like we think about the blue chips we think about uniswap compound ave maker synthetics um but when we think about d5 2.0 the definition is a little bit more murky right do we think back to defy summer and the food coins we think about spell and mim and recursive leverage do we think about you know

token mac where you know in you guys estimation does the line between where is d5 1.0 and where does d5 2.0 begin and where are we at in that evolution today for for me defy 1.0 is effectively the verticalized primitives and so things like spot amms things like borrowlens things like derivatives things that are very specific d5 protocol use cases that are geared towards end users and i think if you look at that category you see some of the categories they have you know dominant players unit swap with 67 of market share um you know ave and compound with a good dominant share of their markets as well but there's insurance there's options there's things are a little bit more of a horse race that are that are more open for kind of uh you know business in terms of

competition d5 2.0 to me is effectively you know horizontal kind of finance you know talked about vertical finance and all the different verticals horizontal to me and that's kind of what defy 2.0 is is you know things like tokemak which are metal liquidity layer that live on top of all the verticals things like staking which cut across defy use cases things like mev which are just living at the bottom of the order book and kind of directing where the flows are and then things like payment for order flow which really hasn't shown up in default yet but but it's coming and so for me you know those are the things where it's a little bit more emergent you know the vertical plays that we've seen in d5 which were you know frankly the first few years um at this point i think a lot of the you know the winners

of those markets have been crowned and d5 2.0 is simply kind of an extension of that trend but you know living across hilarious across the d5 use cases and you know toke max a great example of that uh yeah and i'll maybe build on that since he made a connection to tokamak i'll start by saying what i think defy 2.0 was kind of last year which was sort of when tokumak came out of the primordial lose olympus alchemics there was definitely a moment in time where it sort of was associated with those as well as tracer actually at the time a number of these that sort of came out and i would say that it was uh divisive to say say the least some loved this term some hated it because some thought it meant that we were trying to be disparaging towards defy 1.0 which

couldn't be further from the truth um i think you know now the fact that we're still using it this year i think of d5 2.0 very much as being you know defy n.o like this is nothing if not a disruptive industry that's always trying to iterate on itself and find the next thing lego things up rebuild things and so i think it's all just about what's next and kind of as vance was saying how do you integrate and coordinate the base layers that are being built within d5 or this defy 1.0 and so i very much think of d5 2.0 is things that uses the first layer of primitives and again you can see you can iterate this thing end times so i think of dfi 2.0 as just this process of going stacking up further and further

and ultimately all of this is going to look i think more and more like a black box in some sense to outsiders which isn't by design it's just the nature of this stuff sinking into a layer of the internet effectively i think of defy as basically a layer of the internet and within that you're going to have basically game of thrones playing out between tokens between protocols to find the most efficient financial layer of the internet to do the job and to support the web 3 economy that's coming for us i think the biggest piece in that is the the composability piece we've sort of seen as this this d5 2.0 movement plays out i mean with things like tokemak and tracer collaborating there's a lot more sort of doubted our business happening now that all the pieces are truly composable and

basically just relying on what's been built in the past to actually build out these new ecosystems and yeah it's it's super helpful for everyone that's entering the space to have these primitives that they can then build on top of yeah we think of device 2.0 as not only integrating the various building blocks foundational building blocks that were built during d5 1.0 but also facilitating the movement of liquidity across multiple chains because one of the transitions between these two eras is really moving from an ethereum dominant world to one where we see multiple odd layer ones that have risen up as well so naturally the next step is going to be figuring out how do we facilitate a free flow of liquidity across these different networks and then

beyond that how do we connect the d5 world with the traffic world and think about liquidity flows in that broader context yeah i want to dive a little deeper into something that that carson and ray just touched on which is this this notion of the pivot from kind of b to c to b to b or dow to tao i think that that is is probably one of the common themes across these new primitives that we'll see uh in this version of d5 2.0 to the to the endpoint point um so how do you guys see that kind of playing out today and where do you see that going in the future both kind of the impact to users and to protocols at large uh i'll maybe start on this so

i i think there's sort of a definitional question of what d5 means to different uh people and i don't think there's a right answer in in my brain i think of d5 very much as this financial layer um and and i'll use sort of an analogy here so if you're currently launching a an app on an iphone uh you're an ios developer you don't spend all your time thinking about tcp ip right everything sort of at the bottom layer or like at the network layer is connecting into these things but that's not where you spend your time thinking i think very similar thing will happen with d5 where ultimately there's going to be all kinds of things that i currently don't define as d5 i define them sort of as web 3 but the more consumer-facing applications and user interfaces and to a consumer most of them aren't finance or tech

nerds like most of us are here they just care about a great user experience and if it touches sushi swap or uniswap or ave or tokamak on the back end or any of these things in tandem they don't need to care about that nor should they care about that and ultimately even the developers aren't going to care about that all of these things are going to sink down more to a protocol layer so for me i think of d5 very much as these base layer financial infrastructure things that all these other things can connect into and then i think you'll have these broader pieces of web3 that are more consumer-facing gaming facing all these really exciting broader economies that are coming into this space that ultimately will connect to these things and don't really need to know exactly how they do

the other thing i'd say is you know d5 2.0 is also just a developer tool it allows you if you want to launch an amm or you want to launch a derivative exchange and you're the you know the 10 000th exchange to have launched you can be as liquid as uniswab on day one and that's just fundamentally a service that a lot of the d5 2.0 protocols provide and so i think to a certain extent you know it is it is a b2b you know business it does touch the end users you do have a relationship with your customers but you know b2b is you know frankly where i think a lot of this goes um it's also just going to be interesting to see when the staking protocols launch and get scale and get live you know those are going to be some of the

largest protocols in crypto if you assume that eth goes to a trillion dollars at some point it probably doesn't make a whole lot of sense for the largest staking network to be only worth 10 or 20 billion dollars it'll probably be far larger than that and so you know over time i see the playbook for d5 1.0 is kind of the following you want to acquire consumers you want to consolidate your lead and you want to work on value capture and accrual and i think that is kind of you know when i look at uniswap that's what they're doing you know they're building the wallet they're you know potentially at some point trying to turn on the fee capture but that's what they're doing d5 2.0 i think has just a lot more revenue that's endogenous to what they're doing because they're just users of these protocols

and if you think about you know the people who are actually winning on all the amm trades it's not really the users of these protocols most of the time it's jumper alameda some of the bigger market makers in the space and and you know taking dead aim at those types of businesses is the thing that's the most interesting to me about d5 2.0 other than just the scale of the endogenous revenue yeah on that i think we're going to see a lot more protocols and like carson touched on products that spawn on top of d5 2.0 that are actually relying on these underlying primitives we've started to see it like we've started to see protocols that are exclusively building on on synthetics or protocols that are exclusively building on other layers and i think that's going to be probably the next big wave where this this tech will

be established enough that people can actually build useful user-facing products on top of everything we're all doing here yeah i think this question around b2b versus b2c also has to do with your value capture model and go to market do you want to capture value directly from the end users and own that user experience and be the best in class in that or are you going to be focused on creating creating primitives that will be used by other protocols and and and focus more in the background but providing an indispensable piece of the infrastructure so when we're thinking about scaling it's been top of mind for us for for years now right and we're kind of starting to really see you know roll out an adoption of some of the popular and prophesized l2s that will

bring scale to ethereum um how do you guys look at you know do we expect that um you know we're going to end up in this kind of city model that's that's been the comparison where we have like 1l2s manhattan you know 1l2 is miami how many do you think are going to become popular we're going to be in a situation where many dapps are going to end up building their own their own l2 forks do we think that there's going to be kind of an aggregation by sector what's the latest thinking on how we see that playing out and uh and finally bringing scale that you know we've been waiting on for all this time yeah i think that's a really interesting analogy using cities as as a mental model and certainly we're starting to see the

emergence of multiple layer twos or layer ones where each one has its own culture and its own vibe to its community and when it comes to boba for example what makes it special is we help smart contracts connect to the web 2 world they can call any web 2 api they want and and to so to use the city analogy will be more like a port city of a large country like shanghai or la where we connect a country to the outside world and enable a lot more trading routes between these countries than if these ports didn't exist and it would be interesting to see how how these cities grow up over time and how each one becomes takes on a unique role in the broader broader country or even around the world and um and and how

how each one finds its own comparative advantage versus other networks from our perspective i do think we'll see a world where protocols have their own l2 or their own chain and i think with the addition of cross-chain messaging that means you'll have a central point where your protocol exists but then you'll have that product actually spread throughout the ecosystem and people from other chains can come and use your chain to interact with your product i sort of think on top of that as well we'll see institutions almost becoming their own roll-up or l2 as well i can see a world where you know centralized exchanges or yeah exchanges around the world act as a l2 they roll up all their transactions

they settle on your protocol chain which then settles on something like ethereum so i think we're going to get a lot more layers from where we are and i think cross-chain messaging isn't necessarily solved yet so it seems promising but i think there's a lot of things that need to be tested still and we've seen bridges sort of have a lot of problems as well so this is a more generalized form which does you know my engineer brain starts to worry but i do think there will be a world where that that is where we end up i think one of the core benefits of l2s on ethereum versus building your own chain is just you know to your point just the security of the bridges like we've had so many close calls bridging stuff but at this point we're just kind of like we're not going to do that

anymore um and i think the dogma used to be you know once you hit a certain scale in ethereum you'd go and you'd build your own chain and and i think like even people like apecoin still believe this but it just seems like a little bit of a silly exercise where instead of doing that you could bridge securely to your own l2 you could you know control your community you could have the same economics your own token and when given the choice i think the projects are just going to go this route the one thing i'll say that you know probably impedes the the uptake of of l2s is just the speed at which centralized exchanges onboard them you know it's taken a year for binance to onboard arbitration it's taken you know a long time for them to really even get started on the other l2s um and so there's gonna

be a world where there's like a thousand of these different l2s um and they just need to keep up with that uh yeah so i think the city in lg is is good um and i think my thinking on this has evolved quite a bit in that uh i can say that my gut right now is you know there's not going to be one and there's also not going to be thousands but i actually think it could be more towards thousands because the same argument was playing out uh several years back when there was you know just as d5 it wasn't even called d5 yet but as the stuff was taking off and people were still arguing about things like bitcoin bitcoin cash litecoin people were literally talking is there gonna be one cryptocurrency or n cryptocurrencies and is it 10 or is it 10 000. and the

right answer is computers don't care uh it might be hard for us to wrap our heads around ten thousand uh token types because we're humans but just like there's tons of different file types and tons of different uh ways to store data on computers computers don't care they'll take n and it's just as easy even if it's a hundred thousand versus ten so uh you know my thinking is is i think i was maybe a little bit uh narrow in thinking early on on this and i think as long as it's purpose-built and gets the job better uh you know the number n might be quite large actually yeah so um one of the points ray just mentioned thinking about exchanges potentially kind of functioning as their own as their own l2 some sort of roll up to you know pour back the main chain what

do you guys see as in this defy 2.0 wave as you know the likely newer hooks that are going to bring new users new use cases into the ecosystem um you know maybe maybe start with vance because i know you guys see game five as one of those hooks that's sort of obfuscating away some of the complexity or uh you know putting a more engaging or dynamic skin on some of the d5 primitives that we're familiar with historically yeah i mean the the math on gaming is very clear there's three billion people who play games a year there's 1.5 billion people who have an internet connection who make less than five dollars a day and these people are going to be the first natural users of these you know player and player or play enter and kind of whatever you what do you want to call it games um and so i think

that's going to be kind of the the most immediate and natural retail funnel and you know all of the gameplay investments that we even started we really kind of started in january of last year and these things take about two years to just state it's not just you know three guys in a smart contract and shipping this network it's a lot more complex than that um and so there's going to be a gestation period you know and we're probably you know six to 12 months away from you know the games launching in in kind of their full you know forum and so i think that'll be you know one of the most positive catalysts for crypto and i think d5 will have to kind of uh you know reposition itself so that you know right now we assume that defy is you know both the use case and the

reason why people join and i think in the future it's going to be the reason why people join is the game and the use case is the you know basically the financing environment for the open economies that this game creates so that's where we think this is going to come from um so many people have told us that you know play to earn games aren't going to work and and you know like you know only the major studios know how to build you know games that are you know sufficiently strong to attract you know a lot of people i just don't think that's true and i don't think it's going to be the major studios that's going to be the indies and it's going to be the people who are kind of like nights and weekends interested in crypto building new types of games that we really can't even

anticipate yeah uh just building on that it's my personal belief that within five to ten years gaming is the biggest industry on the planet probably by a long shot if you look at what's currently coming at the intersection of gaming d5 nfts and ai there's some incredible and crazy things happening here and so if you sort of play that forward i think that one of the big tailwinds if defy can position itself correctly is to be this financial layer and sort of as as vance was saying it's not going to be people coming because they're hyped up about d5 it's going to be coming because there's these crazy experiences when i say gaming would be the biggest industry on the planet it's going to look very

different than what we define gaming today it's going to be gaming entertainment experiences gambling i think everything you can do in the real world you're going to be able to do for better for worse in a more compelling ma compelling fashion in the coming interfaces into web3 or into this gaming universe that is being designed so i think you know defy will be the ultimate economic engine or financial engine under the hood that's running all this stuff but consumers aren't going to need to sort of care or want to care exactly how that's carried out just like right now all of you on your phones aren't thinking tcp ip you're just surfing the internet the other thing i'll say is you know people like tokemac people like tribe you know kind of the d5 2.0 protocols that have a good amount of protocol

controlled value they're going to be a natural you know point of flow into these gaming ecosystems you'll probably invest in gaming guilds you'll probably invest in game assets you'll probably provide liquidity for these gaming economies i really do see the convergence of of d5 2.0 specifically with games is probably stronger than d5 1.0 because d5 1.0 you're always at the risk of being subbed out for someone who's cheaper who can offer better economics to the game et cetera et cetera d5 2.0 you actually have the capital that you can use is you know effectively a weapon to protect your you know your orientation in the space um and so i think d5 2.0 in gaming is another very clear kind of line that i can draw i might go back to the the infrastructure piece on that too i think because a lot of these protocols are

very generalized as these new wave games come on we will actually have all the financial pieces we need so for example like one thing we're seeing players will want to hedge certain risks in games and they can use primitives that we're building players will want liquidity for their in-game assets for their in-game tokens they can use token mac like all these pieces are being built not necessarily for finance which i think is the cool thing but we will see also like more financial players come into the game as the ecosystem just establishes itself even more there's almost a natural fit between what we've built in d5 and a lot of gaming mental models i've even heard folks say compare yield farming to playing farmville with real money

they've already started making these mental mental connections and we've also seen uh players like robin hood how they've been able to use gamification to turn something that was previously esoteric like options trading into something that is that is accessible to the mass market uh so and and and of course with uh duolingo how well they are doing again using gaming as an interface to something that people used to think was difficult in learning a new language so this is definitely the uh the next wave yeah i think that's a really interesting point right like d5 as we've known it to date wasn't built just for the sake of d5 right because it was built for the sake of enabling financialization of applications that in web 2 didn't have direct monetization

and thus we landed in this kind of convoluted ad based model that's created and that's created this system where we have power accruing to you know the silicon valley behemoth which i think we can all agree is is something that we're trying to get away from um so with game five kind of being the first proven example of that what do you guys see as some of the next uh products or services that you know will leverage d5 rails to be able to directly monetize uh and create web 3d apps that you know supersede those that exist in the web 2 world today or maybe perhaps even net new products and services that weren't possible in web 2. the the big one for us is something that most people don't even have access to and don't use which is risk management

and i guess the funny thing is people don't really even know that they don't have access to it and they're not aware of how i guess sad that actually is and i think the best use case is the current gas fuel prices that we've seen after this this whole war between russia and ukraine if people were actually able to hedge their for their fuel exposure they wouldn't be paying these ridiculous prices they actually would have been able to continue living as they normally would and yeah there's a lot of benefit in that but i think that's a big case where people don't really know that they're missing out and by enabling that like actually giving these tools to people that need them across the world that's that's going to be super positive

so i'll give maybe two things one is i think where all this is going is that uh you will basically have no friction to transactions in the near future and that sounds like sort of an abstract statement but like all of economics or all of business is sort of and especially on the in the trading world but it's much broader than this is predicated on the fact that you have slippages you have loss when you like someone is in the upper hand on a transaction and if the price is the price is the price and this is something that tokamak and a lot of other protocols can can help usher this in where all of a sudden you can get in and out of things with zero friction zero time delay zero uh slippage that's gonna unlock be a massive unlock on the economy in ways

that are very hard to describe and even if we had this whole panel just to cover that topic other thing and this is maybe also seems a little abstract but i i think the applications that are coming are going to be completely insane in a good way because um effectively what we what defy unlocked is uh the ability to use incentives to for whatever outcome you want and if you think about what's possible with that everything is possible so i had this moment in mid 2020 when i was doing a lot of d5 degenning if you will and i was deep on the synthetics protocol and every week i had to go in and claim my x amount of dollars which was a very

meaningful amount from synthetics and it also struck me over the head for me this was the moment of the singularity and this might sound silly but generally humans write code to make computers do their bidding everything had inverted and now the network had incentives which was making me the human come and take an action and so incentives effectively code for the human population incentives will make people do things so leave that to your imagination for everything that can be done here i can tell you every single silicon valley or web 2 model that's being run right now will be put out of business in web3 and and should be put out of business and replaced by a better model in web3 now what we think will be i think what would be really interesting

to see is is the conversions of oh or um bringing the web web 2 uh traffic world and the web 3 d5 world together and we're already starting to see actually teams building d5 protocols that are that are bringing real world assets and fiat-based cash worlds into the d5 ecosystem and uh that's one of the reasons why at bulldog we built hybrid compute to facilitate that kind of web 2 web 3 interoperability and and what the reason we're excited about that this emerging trend in d5 is because it it brings an additional supply of capital to support the yields that are being thrown off by d5 protocols so that we're not singularly dependent on new token emissions to sustain these yields

and and what that might what kind of possibilities might that open up you know we could see d5 protocols that are based on the performance of a particular shopping center where the yield is tied to the the cash flow being thrown off by that shopping center over a certain month or year or derivatives that are created based on packages of of mortgage securities so i think that that's going to be the next frontier will be really interesting to see what that enables and and how that changes the d5 landscape in terms of creating different forms uh different new curves and types of performance and risk reward profiles yeah absolutely um so thinking about this you know many many l2 future how do you guys look at um building community maintaining that

sense of that sense of unity and value accrual uh in in the d5 2.0 wave uh i'll maybe start um and uh just say i don't know that i have the playbook for this but i think protocols that have done this well have realized uh that the community is just as important like table stakes is a system of smart contracts that are secure audited and work and do the function that they want and have an actual business model and generate revenue right you have to have that but that's one of two networks that you have to be very very cognizant of and optimize so you have the on chain network uh and by the way the second one uh and we saw some i think recently was dani and where some of the stuff is

going this other one will eventually be on chain two but for now you have to establish the social network you have to have interest from groups you have to have people excited and so it's it's uh as someone who admittedly that's not my expertise i'm more on the tech side i acknowledge that that is just critical here and we'll become more and more and more critical as we go more into the consumer facing get out from our kind of silo right now that that defy and all these you know experiments for lack of a better word that all of us are building a lot broader than experiments but at this moment at sort of experimental scale when this spills over into broad global appeal we have to make sure that we are thinking on the social side and how to engage communities and get them

excited and active i think a lot of it also comes down to kind of what is the business model of your l2 and you know if you look at something like optimism how it's constructed is you're auctioning off the role of the sequencer which has access to all the mev and you know all the transaction fees as well of that network and then the question is kind of what do you do with it do you you know have everyone stake their tokens and give them their pareto share do you put it into public goods funding do you invest it extremely aggressively into the d5 protocols that are on your on your l2 you try to create your own stable coin probably not the last one anymore and so like i think there's only a few really kind of types of business models that you have and that'll be a

large part of dictating you know what type of community you have and what the general activity revolves around so it's always from first principles like you know what are people doing this for they're economically incentivized and that's kind of what blockchains are built for and you have to see that through all the way to just the the business model of your l2 if you're going to build a strong community yeah i think for us the the biggest key piece is that dao's are actually the enabler of this community we've seen just really great like things come out of dow de dao community collaboration and i think we're going to see that as like see that increase as time goes on the really key missing piece is the tools we actually use we're all relying on such primitive things like discord

where people are just sort of bouncing around getting involved which is great but there's no real way to then funnel that into what each team is building so i think like things like what stanley is doing are great for the industry on a whole because we now have again base layer primitives that we can build tooling that is native to the communities we're actually growing and i think a lot of these dows are completely different to real-world businesses they're they're operating in a completely different way and that's the power of them so as we grow the tooling i think we'll see yeah more more collaboration that actually leads to more innovative products which i'm excited for yeah and the way we think about our business model is so i'm a product guy at heart i think it's important to make sure that the way we monetize is

directly aligned with the purposes that our product serves and the and the in the interest of the end users we've already seen the downside of business models where on one hand you try to serve one population but you monetize from a different population and how that leads to misalignment of incentives um like a lot of web 2 entities so we try to keep things really simple where we monetize from transactions so you spend bulba token to to call off chain apis you spend mobile token to pay for gas and the more people use the network the more revenue we generate it's kind of simple and back to the basics but it helps to align incentives between who we serve and how we monetize so we've got about eight minutes left i have a few

bit more thought provoking questions i'd like to flirt to you guys let you open on them so thinking back to d5 summer 2020 um what's one thesis that each of you held then that has either not yet played out or has proven you know plainly false and what's one newer thesis that you believe today that you hadn't really considered back then i think a newer thesis that i've had is that these institutions are coming in quicker than we think they are but also that they are going to use ethereum as a base settlement layer and that is the world we're going to see i was quite skeptical

early on if we would be able to achieve that but i think we've seen progress in that area that these institutions are now willing to collaborate with teams and actually explore using ethereum for what it's meant to be this this global settlement layer um so i think that's like a positive change in my thesis there i think the the one that i have is probably you know when d5 summer hit it was very clear that options and futures and more complex financial instruments were right on the horizon and the only blocker was just scaling i remember defcon osaka whenever that was maybe like three years ago with the unipeg demo when it came out it was like great like it's here six more months like everyone's gonna be on l2 three years later like we're still

making that transition and i think the the complex financial products you know they need that that type of latency and speed to really operate and so they've been hamstrung by that um and just to elaborate a little bit more you know i thought that you know we would kind of break down the the really speculative side of d5's market into kind of like the options and the pert protocols and maybe they would be about 50 50. you know options are super popular in tradify and so like i thought that that would translate the thing that's different that i realized today is that you know perps are really a perfect product you know there isn't really anything like that in tradify and and we invented that from first principles in crypto and so you know i'm still very bullish on options and i think that they're going to come but i

think the size of the perp market is going to be far larger than we anticipate and we've only started to scratch the surface of really transitioning from these centralized exchanges towards things like dydx and you know people have said that like we haven't really uh cracked the d5 derivatives puzzle quite yet i think that's probably true um but d5 dydx had you know more volume than you swap for several months during the bull market and i think that'll come back and and the next time that we run this back with the bull run i think that you know the predominant venues of you know trading and liquidity will be the decentralized derivatives platforms uh i i think in 2020 uh i was thinking of this largely as a retail phenomena and that was objectively correct at the moment d5 but i have a very different way of thinking

about it now with hindsight and with the last couple years of of i sort of thought of this as retail because retail was excited about the opportunities and yields here and to some extent that's correct but really what's happening is that and this links back into d5 2.0 is the first things that were built needed new things right it takes a lot to basically build on chain conceptually wall street to make a new web 3 based economy that's going to be much more massive than the world based economy we we have right now run and so really what retail was doing was they were actually doing the b2b or p2p protocol to protocol game they were actually filling in for roles that now defy 2.0 and beyond are building in so part of the reason you'd talk to a lot

of these self-proclaimed d gens and at least the old parlance right and they felt so like they looked wiped out they were exhausted they were saying they're aging their brains and aging their body very rapidly was because they were doing you know they were retail people but they were not doing a retail game they were absorbing the amount that ultimately computer code is supposed to do so i think what we're going to see uh and so this is a new thesis that i have that i didn't have then is that uh all of this stuff the things that we've all been doing many of us in the audience over the last couple years will be replaced by these new protocols in d5 2.0 and beyond that can do those things and not make us rot our brains trying to remember how all this stuff works and

link in and take massive risks on our personal accounts i think one of the assumptions from d5 1.0 was was that i had was seeing the proliferation of all of these protocols and and then later on with the rise of outlay once was assuming that liquidity fragmentation is a given it's it's just that's just the way it is we don't like it but you know tough but we're starting to see the emergence of different cross-chain messaging protocols and how to make things work in this multi-chain world that actually gives us an inkling of maybe we can solve that problem actually by easing the flow of liquidity across these different different cities or nations and um and and so how how might that then further translate to enabling uh liquidity more free flow of liquidity

between the the traffic world and the d5 world and because if we zoom out a little bit that liquidity fragmentation exits not only within our d5 ecosystem this corner of the financial system right but also between d5 and the rest of the world so could we solve that liquidity fragmentation problem as well taking some of the mental models of cross-string messaging into that broader context so that would be an an exciting emerging trend to watch yeah so to borrow a page from uh the peter thiel playbook here in the context of defy and where we see the industry and sector headed um let's get a bold take from each of you guys what's one thing you believe is true that few others agree with

i think the reason why bitcoin is largely you know not succeeded as a store value asset is because it's a structural supply asset if you think about the minor dynamics you know they have electricity costs they have dollar-to-nominated costs for other things they have to sell their bitcoin you know whenever they can and as the price goes up it scales linearly with the market cap you know and you're dumping more and more bitcoin the higher the price goes and the same thing is happening with ethereum today where on a daily basis there's probably 20 million of structural supply that's sold into the market by miners and you know if you don't find 20 million of discretionary demand to balance that out the eth price goes down and you're going into a scenario where you're going to have all the structural sellers all the structural supply wiped out like

at one point and i think that's going to be very powerful in a way that people don't fully realize where we spent you know at this point 10 years finding the equilibrium between supply and demand and that equation is about to shift dramatically and so you know like we've been accused of being maximalist like we just hold a bunch of eth um for me i think that's the most compelling trade in the market and maybe it's not super contrarian but i just think if people dug in a little bit deeper they would realize why it's so powerful i may be preaching to the choir here but i think this would be a not very much not known or not believed in uh thesis to the outside of this room and that is that the web 3 economy is going to absolutely dwarf our current economy so

uh and it's a very simple thought experiment to just see why so uh human-based economics have thus far played out on the surface of the earth right it's a confined space we now have just unlocked a virtual universe with an infinite expanse or an infinite frontier we already have built with define will continue to build the financial infrastructure to enable that so you do the math on what's coming in terms of value creation and what's going to be out there in a web 3 based economy and it's going to be absolutely colossal another one that's probably not so radical for everyone here but i think for the outside world is that decentralization does truly matter uh and for the longest time i did worry

about how we convinced the world that that is true but i think we've had enough like examples over the past couple of years that people are slowly starting to understand but i think that's still a thought that's quite radical that we hold that we probably still have to make sure we we push out to the wider world and that we also hold it true when we're building and creating these things so one of our contrarian beliefs is that the prevailing computing architecture is actually hybrid uh i love we love the benefits of decentralization especially the permissionless nature of of decentralized infrastructure and d5 of course at the same time for for this movement to really grow

10x 100x beyond where we are today inevitably we're going to be integrating enough rate off in and interoperating with existing entities and that requires an infrastructure that bridges the two world the decentralized world and centralized world and sometimes i run into decentralization maxies who push back against that like no as any element of centralization you introduce it's going to be bad but the reality is the existing centralized systems are not going to fade away and they do hold on to a lot of users and and and assets and capital so for for us to grow as a movement we have to make these integration points happen and in in ever easier way so that developers don't need to twist their twist their minds just to

make some simple api calls off chain so that that's a i believe that is somewhat contrarian in in the decentralized world but we strongly believe that that is that is going to be what's required to take us to the next two orders of magnitude of growth and i think as long as we hold that true while we build we will be fine because i know over the last few days everyone's been talking about trad fire coming in institutions coming in and i think the worst decision we can make is just letting them come in and try suck us in back into the old world like we need to keep pushing on to them that this is the way forward uh and integrate them because there is value integrating them yeah completely agree absolutely all right guys um that brings us up on

time so uh thank you all for being up here today thanks everyone been a great audience and thanks again to the block works group it's been an awesome conference