Delphi's DeFi Year Ahead 2025

Transcript

[Music] hello everyone welcome back to another episode of the deli pod this is the fourth one we've released now obviously we did gaming markets and infra which was released the day we're recording this which is Wednesday December 18th this is the defi one I'm here with the defi team I've got uh Jordan Neil and Robbie uh they released this report last night and so we're kind of just go ahead and dive in pretty quick as a reminder like all these reports you can get everything on the portal definitely check them out I think you can get like a one month membership or something trial which you can get like all the reports for they're all like one and a

half 2 hour reads so when you have downtime over the holidays definitely a good time to check them out and we're not going to get through everything on this report the defi team here they came with a few themes the first one was consumer defi almost here this is mostly like spending cards and you know using crypto actually in the real world uh ZK TLS uh some cool experiments they are going on we've got some stable coin stuff uh fatter wallets you know fat app fat wallet thesis then we've got some digging into kind of the Innovation and Dex designs that we've seen which I would say you know Unis swap V4 and Cella probably the most the ones at the Forefront there but the where I want to start this is kind

of with Jordan um so you wrote here about consumer defi is almost here I think this is a big uh topic a big kind of like a big thing that crypto needs to get past um this like Niche internet thing to people using it in the real world uh I also like how you kind of compared all these crypto cards and then went through like the Gen zero ones which are fully custodial and then more progressing to like true like like crypto native um crypto rails like spending in the real life so maybe like walk us through this uh consumer defi is almost here is all about yeah so I'm really excited about this I feel like a lot of us that have been in D5 for like

several years now this is one of the things that uh we were hoping to see one day and like I'm sure we all have a lot of ideas of things we'd like to see like with our personal finances like when we really get to this point of using crypto in everyday life and you know paying out of a non-custodial like stable coin wallet for example um and up until now like a lot of these solutions that we have are very clunky and like they they just don't really work well um and if and if you are one of those people that's trying to like maximize the amount of like your personal finances that are in crypto it's more of just like a a party trick or or just doing it to say you're doing it um and it really looks like next year this is going to be

viable um definitely for crypto Natives and then maybe um if we're lucky like if it'll start to be good for like normal people that um have no interest in crypto um and the reason why I think that's possible is because um once this ux gets good enough to where like okay you couldn't just have a direct deposit into like a crypto wallet and then pay um both for like everyday spending and your bills um I think that with building this with different defi applications it'll be too good to like not do um compared to like a savings account where you make like half a percent in APR um so I'm like really excited to see one like the the basic architecture of this continue to get build out um and then as

well like once that does seeing what people build on top um and so like yeah like right now the only two main uh like cards that really get used a lot that are live are holly held and nois pay there's a lot more there's a ton of cards but like these are the ones that have a lot of traction um and seem to like have have the most mind share and like discussion and Holly houd does really good because it's like it completely streamlines the sort of topup process that a lot of these prepaid cards have um so you can sort of have your you can connect any wallet on any chain basically and it accepts like over a thousand different tokens so you can just sort of do your daily life with Defi and then it'll take like under a minute and it's gasless to com uh to

just top up this card and then you can use it uh us so I think the difference between this one and some of the other ones you've talked about is this it still like goes into that gen zero bucket where it's fully custodial you have to like move money over you're kind of just like prepaying a card but you've had some of these maybe let's go into like some of the uh more endgame type designs that are out there because I think these ones they're more so like you you keep your all your assets in your wallet right and then when you actually want to spend it then it kind of does the conversion in the back end and everything so yeah so I think are like very comparable right

because they sit on fuse sits on salana and nois sits on nois pay sits on nosis and other than ethereum and Bitcoin these are probably like the two most decentralized blockchains out there um so you sort of get best practices as far as like non-custodial wallet like you have your keys and then you're on a like a decentralized blockchain you're not on some like L2 that like has a multii or something so it's truly like completely represents the ethos of like self- custodial Finance um in that regard and then but these don't quite have all the training wheels off as far as like what you're able to do they have these sort of multi-i smart accounts and you sort of still have to top that up um like you do with the prepaid card but these are still like legitimate debit cards um and

then PE and like you're seeing right now with no sis pay they have Zeal which is a smart wallet that sits on top of it and that'll automate the top ups for you so you're still sort of getting that defi experience whereas you're not on these ones where you have to manually go through and do it another distinction here is that you're using crypto tokens on these so like on Holly held and some of these gen zero ones you're like off- ramping Fiat every time so there's not really like much of a benefit there other than just sending it back to an exchange whereas like on nosis pay you can sit in like s die and then have it top up with like e automatically and then pay with that so it's a little and then like once um once you get more stuff built on top then you can just

retain your um exposure to crypto throughout the entire process but then you have like AR and and metamask which are two that I'm like really excited about um metamask is slowly rolling out and like some Latin American countries right now and and there's like videos of it on Twitter um and then Argent is not out yet but these fully sort of remove that smart account stuff so obviously there's a little bit more of a security risk there because the like card partner that you're trusting with the spit limit like you're trusting them with a greater surface area of your portfolio if something goes wrong but that'll truly allow you to like face with an a like say you could you could make a payment and then draw debt against an a CDP and that's where that's where this sort of uh design space for building around um

crypto Finance really explodes and gets into some really interesting stuff wait how how how would it do that in like the moment like would you have to actually create the uh CDP like beforehand and then you could like tailor it to automatically just take debt to like pay yeah you would have to you would have to create the CDP beforehand um and then you would you would just have to like build it to where like it's spending usdc and like taking it out of a I know like again I'm not technical enough to like completely answer your question but I've seen like I've talked to some of the teams that are building these um like I talked to the Argent team and then I know in the nosis um in the nosis pay YouTube when they

announced that he alluded to like that's something that they're going to eventually allow you to do um and again now um like with nosis pay again like it has this sort of like smart uh like smart account car out um and that has a delay module so for now like that prevents you from like you know going on Unis Swap and like aping a meme coin right before you spend money um but like there's no technical reason why like that's not possible on nosis pay and fuse pay like eventually that's just like sort of a way that they're constructing their their platform right now but yeah again out of the gate on Argin and metamask like that's something that is possible to build um for for example um I find that really exciting uh and just the amount of like yeah I

mentioned like you could have an acorns grow which if you're not familiar um that's this that's this like uh Financial app that like lets you round up what you're spending at the cash register and then put it in like stocks it's like a Tesla stock so you could do that you could build that in crypto to where like you go to Target you round up your money and then that goes into like a pump fun launch or something like um there's all kinds of like random stuff once once we really um like realize the extent to which like we can play with money on chain I think I think it's going to blow a lot of people's minds the same way that like alchemics and urine Finance did uh last cycle like people are really going to get mindblown by Defi and like that's

going to be a big a big moment for us as a as a community yeah I definitely think the biggest uh area that defi can like I think most things there's a lot of stuff in defi like money markets txas that are seeing some margin improvements and stuff but the core of I def is kind of inere in a sense too um the core of like def infro is probably built but I agree on the consumer front it's always been lacking pretty hard and so yeah being able to like completely distance deta from having like a bank account and stuff and actually just using having all your assets on chain is definitely becoming more of a reality which I agree it's definitely exciting probably the

most exciting part like Consumer Finance uh right now and it's something that like fintech can't really to the extent that like crypto is doing right and so like that's where the big unlock kind of comes from yeah so I agree that's like a big theme for next year I'm excited to see kind of like how these pan out actually let's go to I'm going to switch it up a bit let's go to the uh stable coins uh Robbie I know you've been like basically just like been writing about stable coins for it feels like the past 2 3 months or something you dug into all this a lot and I think kind of like the big theme there is kind of with like a lot of these new like stable coin 2.0's right which actually have these new

models which are actually shifting some of the revenue back from you know like tether owning it all to being distributed further so maybe just take us through like stable coins and like what you're seeing there yeah for sure I think yeah stepping back maybe for a second um you know we always hear that stable coins are kind of cryptos killer use case um I think like that take a Lo is sort of reductive um and I think you kind of have to split stable coins into you know two use cases one is what I would describe is kind of oiling the cogs of um you know crypto speculative kind of Casino um and then two is like actually serving as like a monetary asset right that people um you know whether that's you know in Emerging Markets using getting access to US dollars or if that's like actually

making payments um and I think what's really interesting about this past year and what I think's kind of going to play out in uh 2025 is you're increasing finding that stable coins are finding product Market fit with that lad use case um so there was a chart I think I shared in the year Ahad report that kind of shows that um active addresses actually sending stable coins has gone absolutely up and to the right um irrespective of kind of where trading volume has been um so I think that's that's really really important to note and I think it's not something um that the Market's kind of realized yet I would say kind of the second thing is you're starting to see syex actually adopt stable coins and um the way I would frame this in and this is kind of why I think this adoption is inevitable

and like the game theory would kind of imply that eventually T it kind of becomes table Stakes for these fex uh to adopt stable coins and the reason is like fundamentally they they can improve the bottom line of these fexs um and that's kind of done in number way whether that's you know doing payments especially kind of in the in the global context or if that's allowing existing fexs to kind of own more of the payment stack like stripe for example I think the bridge Acquisitions kind of been conceptualized as um you know well stripe kind of just want to expand into Global Payments I think it's kind of a broader strategic move um to eventually own more of the payment stack by kind of creating their own closed loop network with stable coins so I think you're going to start seeing a lot more fintex

in 2025 kind of explore stable coins I think Visa is a great example like stable coins explicitly kind of cannibalized their own margins um yet they're still exploring it so I think that kind of signals that you know this is something even they're paying attention to um because I think they're kind of at risk of getting disrupted if they don't pay attention to it right so that's kind of like in a macro view why I think stable coins are are really interesting at this at this point you know it kind of begs the question well who's going to ultimately benefit from this kind of broader Trend intuitively you would think tether right and I think that probably will be the case tether and circle more specifically tether just um given this is kind of inherently win or take all game at scale um it's kind

of stable coin Market however there is an emerging model that I think's at least well position to kind of disrupt the the existing model um so these are what I'm calling kind of stable coin 2.0's um you could even call them 3.0 to to some degree um because prior to this we had yield bearing stable coins um and that was kind of a very hot topic for a while um this is the idea that you basically just hold the stable coin and you kind of get paid yield I kind of see two problems with that one on a regulatory side of things like that's technically security um so that's why it's been kind of hard to push adoption of these but then two and I think this is probably more important is they're trying to first win over kind of the end user um and I think the smarter way of

playing this is um to ultimately focus on who actually owns distribution right um and that's kind of the applications themselves so we going to split up unpack kind of what the the existing cint stack looks like in terms of how value is captured you have the applications which capture none of the value that they create on behalf of the issuers and then you have the issuers who very kind of fat in the value appr stack right um they end up capturing all this value and I think it's kind of a paradox because it's actually the applications that give usdt its utility and they're the ones actually bringing supply to the network so they're actually the ones creating all this value for for tether right so this is where kind of Revenue based stable coins Revenue sharing stable coins flip this existing kind of s stack on its head by

basically saying look if you bring Supply to our Network we'll give you yield according to the amount of Supply you bring to the network so there's kind of three examples of this so one is paxos usdg um so this is not yet live but they have announced it I think they're Partners like Robin Hood I think kraken's a partner and then they have a bunch of market makers the idea is basically you you know these exchanges who again own distribution can kind of push users to actually use usdg given they have an incentive to do so given they get economics from that right um so I think that gives it puts it in a much better position to at least disrupt tether given they're going to whoever has distribution right mzero is another one they're kind of it's it's a little bit different in the sense that if you

want to integrate m0 you could be either a mentor meaning you actually Mint m0 or you could be a integrator so you just kind of integrate um m is m is their stable coin um and then it's also is kind of like this raw material for other stable coins so Noble who's kind of a stable coin project in the cosmos ecosystem built their own stable coin now on top of um on top of them and then there's Agora which is kind of doing the same thing as usdg anyone who kind of has Supply brings supply to the network gets economics in this so I think this is like a fundamental kind of shift in in how stable coin issuers operate and that it kind of democratizes access to the economics historically only enjoyed by tether and circle and gives it not to the to the end user but to the

applications who actually own distribution and then if they want to give it to the end user they can if they want to keep it for themselves they can and I think the last thing I would just add on this is this could also be a fundamental shift in how sort of defi projects actually make money you know I think we're going to increasingly see margins kind of compressed through at defi this has kind of always been a thesis I've had that you know when when everything can be forked um and subsidized it's it's very hard to kind of build out a vote um and therefore margins May compress but I think we could end up seeing kind of the business model of a lot of these projects kind of evolve into almost like selling stable coin distribution as a service where the majority of the money they make is is

actually by being a part of these networks bringing supply to the network um and you're basically compensated according to the amount of Supply um you bring to the network and I think intuitively this actually makes sense um and I I shared a chart in the the earhead report where it kind of showed how value has been created um kind of within the crypto economy and right now it's actually stable coin issuers have generated more Revenue than blockchains and applications combined um and that's not just one that's every blockchain application so this would imply that maybe the value to be captured is actually at the stable coin layer and therefore by giving projects on stable coin economics that could be kind of their their main business model yeah it's hard to tell like where you can actually like skim off fee income and revenue as a D5 protocol especially on

theend end of the day these are just like contracts uh you can like fork and everything but stable coins always have this fundamental value driver and yeah if you create like a good app you work with these like new stable coins to kind of get them integrated to your platform then you might not even make any money off of like the actual app that you've built but you're kind of just making off it off of the fact that you have like this Revenue share with the stable coin that's an interesting yeah if you just play that logic out too like if I can now make money as an application basically off this stable coin yield well now I can drop my take rate right to basically zero um and now everyone else kind of has to do that to remain competitive right so game theory in that

in that context would imply that you know everyone kind of has to do this eventually yeah no that's a good point and I don't think we've totally seen that yet all these stable coins are like pretty new it is still hard to see tether being disrupted as like the main stable obviously Athena which is I we'll call it like synthetic dollar has done pretty well with yields being really high uh recently I think uh another one I don't know if you've looked into it usual has done DEC recently um they had some pretty big incentives and their token I think like you hold the stable coin you get their token but then the token is what's going to get like the actual yield from the underlying underneath which that doesn't

I guess go into the same kind of spot as the other ones where like the application is getting it this is more like the holders of the token I guess but yeah I was surprised that the usual has actually I guess the incentives are good but like they've actually been able to bootstrap pretty well versus other newer stable coins that have found it a bit more challenging so I think yeah the market for stable coins is obviously massive we talk about this all the time but I do yeah I do think these Kickback mechanisms are if you're going to disrupt it this is kind of the way to do it like being totally integrated with the apps like that makes a lot of sense so one thing I would just add to is I think this becomes especially relevant you know World bur fintex are ultimately

ushering in kind of the next wave of uh stable coin adoption where they're going to I mean obviously they're going to demand economics on the sort of Supply they're bringing to the network right um and with with this model you know if you're doing it across a network you you have composability across like if I'm a fintech right now and I want to launch my own stable coin I can do that but my stable coin is not going to have utility in other kind of ecosystems right but if I do a with a shared network now my stable coin is composable with the same stable coin on you know all these other networks are also incentivized to adopt it um so I think that's kind of the key in understanding why this model could be so effective at scale that's good definitely will be a big gear for

Stables again and yeah I think that straight back acquisition kind of like I don't know what the term looking for not nailing the coffin but like kind of really put that Trend into like full speed I think next I kind of want to talk about we have in here 2025 year of the decks accelerate right that ACC meme it's been a year and a half now since people have been talking about lvr resistant dexes and this like big innovation in Dex design you know everyone still uses kind of like uni V2 V3 style dexes but I know like Cella labs and uni V4 are coming to Market soon so maybe we can dive into that Neil and talk about like why you think dexes who have been pretty there hasn't been a

lot of innovation dexes recently and like why you think like 2025 is going to be the year that we finally see like a lot come out there yeah I think one major reason why we don't see a lot of innovation in dexas is because it's just too hard to bootstrap liquidity and get users you may just be able to BU build out the best decks which exists out there right now but you don't have the kind of distribution that radium does or someone like swap does so in any case getting adoption for your new de has always been harder and I think like with univ V4 that is the one major thing that is going to change up um if you have a great deex design idea you can go and build it and just tap into the liquidity orderflow and the users that these

platforms have already built over the last 3 to 4 years so I think that has that is going to be the biggest unlock any Dev who has like a good enough idea or any team like we have the arus team bunny team or the ca Team all of these teams have their own unique ideas on how we can tackle lvr or get back as much value to the LPS as possible they can just spin out their ideas as a hook and tap into the distribution which has been missing up until now so anyone who wanted to kind of experiment or like try out their hand with their own ideas they have this design space now with your V4 hooks that allows them to bring all of these users to their platform and I think like what in like as of now I've

just been scouring through the unop ecosystem or V4 ecosystem for a really long time um and sella solution is something that I really like as well um it's it's a really cleverly designed solution they've taken a bunch of really cool ideas from like mechanism design so they designed like a leaderless um first price option theyve designed Des like patch auction and combining all of these different parts they're able to kind of design their own network which is where they're bundling transactions in a way that you have a uniform clearing price that allows them to kind of so I I think maybe we'll like I'm just going to explain lvr for the audience so basically the way dexes work today is you know there's a pool and let's just

say univ V2 where have like you put two assets in it and both their prices kind of go to infinity and they all trade on this curve and then price Discovery normally happens off chain uh like a centralized exchange or something so let's say eth is 3K on chain and 3K on uh coinbase right and then on coinbase it goes from 3K to 3.1k well the pools on on chain they haven't updated their prices yet right and so basically the the arbitrager can buy from the pool on chain at 3K sell it on the centralized exchange at 3.1k right and so this is a massive source of loss for LPS in crypto and so like when this loss re versus rebound saying lvr this is what

we kind of mean by this this is what these uni V4 protocols and like Cella labs are trying to kind of solve is um you know minimizing that gap between the Arbitrage of like the offchain to the onchain and so I think Neil you were saying with like Cella they have this first price auction what that kind of means is like when that Arbitrage is there that $100 free money essentially if you want to be the one that arbitrages that pool you have to go through like cella's Network right and you have to win this auction within and so you're trying to get that $100 most of it pay to LPS at

the end of the day right yeah the idea is very simple right like with sella U let's say this $100 opportunity is out there um and more the solver competition or like a Searcher competition exists the idea is that people will be biding up to $999 to capture this value um so initially for the right to Arbitrage the very first transaction in the pool let's say within a 12C ethereum pool this opportunity has has arised right um so only one person can capture this opportunity and sella basically is auctioning off this opportunity and if the competition is large enough U the idea is that someone will build up build up most of the value that they can can

be capturing so that is like the step one that is kind of followed in silla's design second design is that they're allowing users to play limit orders as well uh so in whenever you're trading in an amm what you're basically placing is Market orders but in suras design that is not the case users are placing limit orders and interestingly they're placing limit orders on the other side of the book so you're actually the user bits are going to be on the opposite side of the AUD book so you're basically Al buying at a slightly higher price or placing your bid at a slightly higher price and anyone who wants to sell tokens is placing their orders at a slightly lower price and they're doing this so that they can get the best

execution or they can get the immediate execution in this case and the next step follows where what sillas amm does is that instead of matching user orders with one and one or each other uh it basically calculates a uniform clearing price the basically all the benefits that we've gotten from a lot of these C swap auctions as well so when you when you have a uniform clearing price it is hard to sandwich transactions or extract the value through ordering in a way so if you eliminate the ordering Arbitrage and if you taken a lot of this lvr value which you're passing back to the LPS via the first price option that you're doing um you can capture a lot of value and the a team is pretty confident that the value

capture that they're able to do is better than other dexes and hence the pools that they they'll be launching will be taking like a three basis points fee as compared to like five basis points fee which other pools on Unis are catering towards right now so okay so that was interesting I didn't realize the limit order thing they're doing um so the idea there is basically obviously if you were to just swap through the pool uh well the first price you paid would be lower eventually you'd probably a higher effective price right so this kind of feels like it's targeted what towards people who want to do larger buys and sells and they can kind of just sit those like resting limit orders on chain is that like the target audience for like bigger trades I don't think it's get towards bigger trades per se uh

but it it is it is focused towards any Trader that wants to execute their trades on chain through an amm but uniquely enough they've given like a feature for market makers to participate in this ecosystem as well let's say like the user orders which are coming in are to buy let's say $10,000 worth of liquidity whereas sell orders are potentially just $1,000 of liquidity um so in that case what they allow market makers to do is market makers can also Place additional limit orders around the order book so instead of kind of going way along the bonding curve of the amm the orders can be filled against Market maker liquidity as well so they still get like lower slipage as compared to a simpler amm so anyone who wants to kind of execute larger orders yes you'll be

tapping into amm liquidity and Market maker liquidity so yeah if anyone wants to do larger trans actions this is still going to be the most efficient amm to tap into okay so how does uh sella then differ from uni4 cuz Cella is what it's more like targeted Cella Labs is building all the infrastructure and then univ V4 is it more like open for other people to build on top is that it or is there something else cuz they're kind of trying to solve the same problem right yeah I think with un4 it's basically a platform for developers to experiment around um so realiz definitely more interesting and they've taken the problem of lvr and potentially users getting front run and sandwich these are

like the major issues that they wanted to tackle what we're seeing in the hook ecosystem is that people are going Beyond solving this as well some hooks are being targeted towards uh just providing better incentives to active LPS uh some fols are like just trying to cify and interestingly like not all of the hooks are get towards making swaps better uh the there is teams like tener Finance which is trying to build a lending order book on top of Unis swap V4 uh instead of like just a swap application a lot of hooks will be guess get towards having nft swapping Happening by an amm um we're going to be seeing like options exchanges being built on top of your S4 us and C we already have seen a couple of teams

build po pmm so you can trade Perpetual on the amm itself so I don't think unisa P4 is targeted towards the lvr problem that is a problem that Silla decided that they want to tackle uh and their solution is gear towards that but with V4 I think like the design Space is really huge yeah that that's that makes sense um do we know when uni V4 is like going live all these things are what on testnet yes so all of these hooks which have been developed up until now have been on testnet um I think unof V4 was supposed to be live even now but it hasn't been um supposed to be be early December I think last month they were

also holding like a bunch of different competitions to just mine a particular address uh for the core contracts of univ V4 and I think that the contest has wrapped up as well so hopefully we see Unos for launch before the end of this year uh or early next year is would be my best guess so okay so basically on the deck side we have Cella they're trying to solve this like lvr thing very targeted um kind of like the biggest problem with Dex today univ V4 it's adding all these interesting uh it's like this platform anyone can build on what are kind of like some of the most CU I know you have some other ones in here you've got obviously you talked about angstrom by that cellus product um I know you've

got like bunny V2 this Doppler thing then you talk about valantis uh oracus like what are some of the other deck designs that you think are like interesting and like unique uh that you're like paying attention to next year one Tex design that I think U is going to increase or going to show up a lot more on our timeles is going to be the fluid Tex which is being built by the instap team uh I don't think like they've innovated a lot in like liquidity management or things of that sort but they've made a major defy unlock which is they're using a lot of petting liquidity so fluid initially uh was a lending protocol and a major

problem for all lending protocols is to kind of find out where they're able to generate demand for people borrowing the Assets in their markets so fluid basically the fluid Dex is a borrow demand generator for the fluid lending markets what they're doing is you can borrow assets from The Lending market and now deploy them into the fluid Dex and they're allowing you to recal the lp position that you have in the amm plus the debt that you deployed as an LP position is also something that you can use as collateral so the amount of Leverage that you can create on your LP position is just a really large amount so with like a LTV ratio of 95 you're able to generate almost 39x leverage on

your positions uh very simply even if you've not made any improvements on the next design level if you can just leverage your LP position 39 times you can have 39 times more fees that you're earning um and by doing that fluid has been able to kind of cap after a lot of volume and market share in the peg asset pools because that is the only place where you're able to kind of give out these high ltbs for people to borrow NLP into yeah so the idea is to you have like 10K and you want 300K of LP exposure you just Loop it yes the idea is that and you're fundamentally going to be limited by the liquidity that is there in the fluid lending markets uh so

that is one reason why I feel like the design does not scale as much as as a lot of these uniso P4 books might be able to because you are always going to be limited by the liquidity available in the fluid poles itself but it's a really interesting way I not a lot of teams were unlocking this liquidity that was there in the lending markets and utilize it for providing liquidity on amm um this unlock itself is very interesting and fluid has taken over Unos swap in a few trading pairs mainly the peg asset pairs like WRA teeth e or WRA stti teeth and E yeah I do think making LP shares or Capital efficient is still something that haven't seen a ton of innovation in

I know you can I know there's some money markets that you can do it and obviously there's some of the isolated stuff where people have been able to borrow against it but yeah definitely seeing more Innovation there makes sense I do agree with you though I don't know how big something like fluid could get cuz there's comes a point where you don't want to lend to people doing that and the returns kind of just cancel out I guess also seems like a prettyy tough unwind but yeah I don't know that's uh pretty interesting as as like a lending market like I don't really think it's as of now I don't think it's much of a threat to Unis swap um but like I've I've tried it out um and like the smart debt as as like a person like opening up a CDP is like a really nice ux boost um

that's like when I'm borrowing if I'm borrowing against eth or rap BDC like I don't care if I'm borrowing usdc or or tether or die um and so like like you know an index of these and make money off people trading them I think is like a really nice touch um and yeah I think that's why you're sort of seeing a playing nice and going with these sort of alignment this alignment Proposal with adding the token to their treasury but with with the deck stuff yeah like they're they're they're winning on like these three pairs of like correlated uh Pairs and it's like if you put these trades into like one in or or like a an aggregator that doesn't include fluid you get the same quote so it's like all

right like it it's it's winning volume on these correlated pairs but it's not like materially better um and then on these like non-correlated volatile asset pairs you're there's not as much like lending volume and lending demand for those or at least not nearly enough to compete with like actual liquidity on dexes right so then you're trying to compete outright for like Dex liquidity on a lending Market which I think doesn't really make that much sense unless like the the returns are very high between like the L you know so like it it's just you're really trying to create a new type of product if if you want to make this a Unis swap competitor whereas I think on its own right now it offers really cool tools for like a lending

participant so in my opinion I think it's just like all right it's a really it's an OB competitor and like let's just leave it at that for now and until like I'm proven otherwise with some of the the performance of the Vol pairs I think what CH has unlocked for defi is that there is a lot of leting liquidity that can be used in amm and there is a lot of out of range liquidity in amm that can be just redeposited back into lending markets which is what morphos Hook is also about they taking a lot of liquidity that is out of range in these Unis pools and depositing it into Moro markets so that it can earn yield even while it's not actively helping so I think like the unlock which has come through this is that that a lot of in underutilized capital and defund will be

deployed back into amm and lending protocols uh to start earning at least some minimal amount of unit yeah I think as like my ideal decks as someone like what I would want is I want a DEX that's like V2 style okay where I can just deposit two Assets in I don't have to I don't want to do concentrated liquidity cuz I don't want to think about like you're essentially active Market making at that point I wanted to capture lvr right so I want to get that money return to me and I want the the as you said like out of range assets earning yield at the same time that kind of feels like

the ideal construction for like a retail user to kind of use as as this like you know you don't want to essentially take uh you want to just hold 50/50 usdc and you always want to hold 50/50 that just like makes you comfortable you want to sleep well you also don't want to get by like the lvr and you don't want these like dead assets sitting there all the time I think if you can kind of combine all those into a single deck design I don't think that you need to like completely remove lvr to or to completely make it like the most efficient on like the passive earning yield side you just need to make it kind of like where the user the retail user is not getting totally screwed by lping and so I do think that that that's kind

of like that feels like the holy gra to me of how you actually and like having passive liquidity on chain is just so beneficial to any ecosystem it's useful for it's useful for like liquidations right like having all this liquidity on chain um just like people trading so yeah I think that's kind of like what I would think the Holy Grail overall design to be I agree with that the only the only thing is a lot like a lot of these Leever uh mitigation like designs like you you forfeit the fungibility of it and I I just I don't know like like I think retail LPS on chain like a lot of them are like kind of Deen right like you're not a lot of them most of them aren't lping because

they think that they're like a professional Market maker and they can like make choices in profit right they're they sort of like want to be Deens they want to have like these fundable LP tokens and do stuff with them so I think if you can if you can partially M mitigate lbr like without sacrificing that I think could be a big hit but I do think like people are excited to use Bunny and like this rehypothecation and like a lot of that stuff and I think they'll they'll take that over like some basis like some Mark out I don't think that's the biggest concern to a lot of onchain LPS I personally would be helping a lot more on chain if I could have like a pass p position but which functions more like an active position in a earning phe in a similar Banner as well I think Bunny and

all of these Protocols are making like some in that direction and very optimistic about like how all of these hooks play out and the idea is we'll be seeing a lot of good ideas in every individual implementation and then it will just be one developer who picks up all of these good ideas and implements it together under like a single single platform and launches it again as a look yeah no that's a good point okay so dexus for next year lvr with Cella these Hooks and like we'll see what people build on top definitely feels like yeah I don't think there's anything in 24 for Dex is really so definitely excited to see kind of like where we go from there and obviously you know one of the big themes and the info report was all these

like high throughput chains and so that also just makes a lot of these Dex designs a lot easier when it's I don't know cheaper to do a bunch of stuff okay I want to talk about two more things here I want to talk about ZK TLS and then I want to talk about fat wallets so I think let's start with ZK TLS Jordan this is you you've been talking about this for a while maybe first like explain what ZK TLS is and why it's in like the D5 report and like why it's something to pay attention to yeah so the simplest way to explain ZK TLS is that if you want to build around or even like um access a lot of web two data you need uh the API key you basically need their permission to access it um ZK TLS

basically lets you ignore that um and create a transcript and authentication of your interaction with like like a HTP https server um and so it does that there there's several different ways to do it um there's the proxy model there's the NPC model and there's like the T model um but once you have this you use uh Zer knowledge proof and you bring it on chain um and so then this lets you sort of like prove that okay I just went into my bank account and I saw $10 million there right so I can prove on chain that there's 10 without showing my entire bank account information right um and so that that opens up a lot of doors with stuff that

you can build on chain um and and I did a recent report it was called the inefficient Market hypothesis that sort of Dove deeper into like how ZK TLS works and then a lot of um the things that people are starting to build with it um it's been like as a concept it's been it's been explored for like 10 years now um but just now like in the second half of 202 before um it's picked up steam and you're having like several different options arrive um arrive for it and there's there's several teams that are building around it now and starting to go live in 2024 there's going to be a lot of them um and so yeah one of the reasons I'm most excited about this is um I've been talking about this for a while like defi needs this sort of consumer defi under

collateralized lending um identity stuff like that and people don't really care about it um and ZK TLS is a really easy hack for like civil resistance identity um introducing like alternative collateral types um so like one really good example of this is three Jane which is this new um lending protocol on Bas and um and so yeah that's going to like let you on board like do under collateralized lending by onboarding like soft collateral so you'll be able to prove through uh hooking up with pled that like you have cash flows and you have like receivables and and you have like a a job with money and then or that like you have a lot of money on coinbase

and stuff like that so um and then they're they're doing a lot of like other mechanisms as well uh like auctioning off bad debt and stuff like that but but the the big unlock is that uh ZK TLS can allow you to prove arbitrary things um in anywhere on the internet right and that's a big Yeah so basically I can prove that I have like this much I have over I don't think of the exact number which is kind of the point uh I can be like I own over this amount in like a brokerage account or this amount and like a savings account uh my credit score is above this number the last 6 months I've gotten this average inflow I guess of like payments income under collateralized lending is

something that has never been able to work in crypto this definitely feels like the the biggest unlock for that moving forward is there anything besides like under collateralized lending that zkt LS is being used for um I mean so there's I think it'll be big for like payday loans and earn wage access because then you can sort of uh you can borrow against like your accounts receivable basically um and then you can you could you could direct like with so with consumer defi how you're able to do direct deposit you could set up direct deposit to like an address or some sort of vault as this middleman and then borrow against that stream of cash flows then like if if you're getting really far into the future like when ZK TLS

Isn't So bandwidth limited like it is right now you could have sort of like Z location stuff that's like okay I I'm family of four in the suburbs and I've worked at this job for 5 years so I'm not going to like pack up my family and leave so you can sort of like extend more trust to people that you know are like are just chilling and that that like all right this doctor makes 250k and he's he's not going to uproot his family he's still working at this job like you can borrow two paychecks that as they're flowing into this like you know uh escrow account on chain like I the possibilities like for this are or endless um 3jane is building this there's a few other projects that are they are launching that are building similar type stuff like pay Al and earn

wage access that I think we'll be able to talk about uh soon but then yeah I mentioned a few others like there's there's ZK P2P which is building like a Ticket Master competitor that like sits on top of Ticket Master because like um you have to go into the the efficient markets report to like really dive into this but z uh Ticket Master is like a monopoly basically um they're they're getting hit with an antitrust law Su they have a monopoly on like the entire industry and so they don't uh you have to like move tickets on their platform um and that's where like StubHub and all these other um like competitors are actually built on top of Ticket Master so with uh ZK P2P they allow allow you to prove that you own a ticket on Ticket Master and then they let you they

facilitate you um trading and like setting the price for these with other users and then it transfers them on the Ticket Master like app for you um so then you're able to buy bypass all these like 20% fees and stuff um so yeah like the the thesis with the inefficient markets report is that like every inefficient Market out there exists in some way due to these sort of like regulatory red tape things that exist um and ZK TLS and crypto are like very um good match to break these down and allow us to innovate and restore this entrepreneurial uh spirit to the tech industry and and um yeah bring consumer apps to crypto yeah that's cool I definitely think that ZK

in general is going through a bit of a Renaissance we talked about this in the info report there's just a lot coming the development has been a lot faster than I think anyone kind of anticipated so I would also add to I mean this is more I guess D5 Jason or even kind of deep in related but it can be very effective for exist kind of vampire attacking like existing web 2 Market places specifically like service based Market places so Jordan's the one that actually showed me on this but Bash is it's sort of like a decentralized door Dash door Dash is take rates right now I think Jordan you'd probably know but I think they're like upwards of 30 40% it's ridiculous and they can do that right because they're a two-sided marketplace with two-sided you know Network effects um so it's very hard to

kind of disrupt that model um now what gkls allows you to do is effectively take the reputation layer so a big part of door das's moot is the reputation of existing drivers kind of on the network and they can effectively allow anyone to prove their reputation um th you can onboard them to a more decentralized kind of door Dash alternative that has a much lower take rate um and this applies not just to Door Dash but to decentralize Uber or any service-based Marketplace um where the reputation layer plays like a very key role in kind of insulating these existing Web Two marketplaces um so now it becomes a lot easier to vampire attack them so I think if there's one killer use case um at scale at least for ZK TLS I would say it's probably that if we also black

electricity build and as a sector on chain I think zls can have a lot of impact CU you're getting verifiable data about each user and you can calculate premiums way more efficiently without users basically lying about any data yeah that's true people um like one of the first consumer apps in crypto uh people forget about this it was uh Insurance Market a parametric Insurance Market called fizzy this is back in like 2017 um and it had like a fully executing uh like flight Insurance product um and it was B like you you bought insurance and if your flight was delayed or cancelled then you got paid out automatically um like via your credit card which was like really cool um and this is like from this is like

one of the major like European um like flight people produce this and they shut it down because it didn't get much usage but like back in 2017 that was a big theme was like oh hey look we're doing this thing with the blockchain right but like it worked it's on chain you can find it on ethereum Main net um but like ZK TLS could bring back like parametric insurance for like arbitrary like events I think there were a lot of good like ideas in General on crypto that the tech wasn't there for and now we kind of have it so we'll see a lot of these old ideas come back uh over the next few years which I'm definitely bullish on I want to just quickly pivot to one last section again this something Robbie you've written about a lot fat wallets um fat front ends you did a whole report

on this as well um you wrote about it again here like what what kind of did you see Happening Here over the next year in that respect yeah so I think historically front ends kind of have been written off in this value approval discussion um and mainly because they've just been seen as like an undifferentiated lens through which you're looking at other applications kind of on the back end um and intuitively that's a commodity right that's that's not something that's kind of going to capture value um but I think we're kind of seeing this shift and I think ultimately the way it's going to play out is values going to ACR to whoever owns what I would describe sort of the most the two most important and scarce kind of resources in the crypto economy um one is exclusive order flow and then the other is distribution and

we'll kind of we could unpack kind of both them in order so the first reason is you know in terms of exclusive order flow so I think as we're going to see this me supply chain continue to mature you know Neil talked about uh UD V4 you know we have a lot of these intent-based dexes that effectively Outsource execution to solvers who can Source liquid offchain and I think that's a really important Nuance what you're kind of seeing is you know I think the natural law here is that at the end of the day Val is going to OCC to whoever is sort of the originator of that order flow and the reason is actually very simple um it kind of just boils down to to competition right so if you think anyone Downstream of where that order flow originated from has to compete with

multiple stakeholders right so if you're a Searcher you're competing with other Searchers Builders compete with Builders validators validators right and even if you're at that Dex layer right you're now competing with all the other uni V4 hooks you're competing with Unis swap if you're you know this Salon ecosystem you know you're competing with you know it's radium Orco and now you know you've Camino who's now launched their own intent based decks which allows them to basically uh Source execution off chain Jupiter has their own RFQ intent based decks now so everyone's competing right and intuitively when people are competing you know um competition always kind of drives down their take rate um now the only person in that entire supply chain that doesn't have any competition is the one that actually owns that order flow because again intely they have a monopoly on that

order flow right so I think it's very simple like whoever kind of has less competition has more bargaining power um sort of within the Mev supply chain and therefore they're the only stakeholder that can actually increase their take rate without losing market share um whereas everyone else you know if a if a validator increased you know their take rate or you know one of these deck is increase their take rate um they're going to lose market share right so that's why I think it kind of comes down it boils down to exclusive order flow in in terms of kind of who captures value within the M Supply Chain and then you know the question is okay well who owns exclusive orderflow I think it's becoming increasingly um front ends right and you know that doesn't just mean wallets I think wallets are best

positions to monetize this especially given they kind of own the fee insensitive retail user so metam Mass swaps is like absolutely just printed money over the past few years and that's because people are lazy right they're effectively selling you um convenience as a service um so when you just go into your your wall you know instead of interfacing with different apps you can just literally just hit swap kind of right there so that's kind of why I think at you know the wallet layers especially well positioned but it's also other alternative kind of front ends and I think especially these what I would call horizontal front ends um that are maybe aggregating different apps across different chains um infinex is probably the best example of this I think they're also going to increasingly capture value is again they own that sort of exclusive order flow right so that's kind of and

again I think uni V4 exacerbates this trend given you know the more hooks you have the more competition you have at the Dex layer so I think the Market's kind of conceptualized it as like this is Unis swaps like very Noble attempt to solve you know lvr as we kind of discussed earlier right um and they're going to sort of harness the collective hive mind of different developers um building these different Hooks and um they're going to solve this problem and LPS are going to be profitable again I think that's probably the wrong take um and it's actually something a lot more strategic I think the Unis swap team's very very smart um and I think the way they're they're kind of seeing this is you know they already own that front end so what they can do and you know Unis swap X is kind of their canical front

end right so by creating more competition among all these different projects competing to basically attract that same order flow um that unisoft frontend ultimately owns in theory that's going to give better execution to the end user um and thus freeing up more room for them to basically charge their own take rate at that front end so I think one Trend it's I would say it's non-consensus at this point I think by the end of 2025 this will be very consensus um is that where you want to be in the stack is the closest to the end user um and specifically owning exclusive order flow so I think Downstream implications of that is you know one your probably going to see more more VCS investing I think at the front end layer multi- coins now they just uh released their talk from the multi-coin summit um and tar was talking about

exactly the same thing that they're looking to now invest kind of Upstream of within the stack I think also you're going to see more Innovation at the front end layer um so you're going to see more I think sort of wallets that are more chain abstracted um and kind of aggregating different apps and then I think you're going to see more projects like infinex kind of pop up as well um so that's kind of the first reason exclusive orderflow and then real quick um the second reason is kind of on distribution so again if you own the end user you own distribution you kind of own the attention of the end user right and I think Downstream of that you can negotiate some lucrative economics with you know other applications and even chains so I'll give you like one example is you know say bar chain wants to kind

of bootstrap um growth for their ecosystem they just want to get users kind of on the Chain onto some of their applications if they went to metamask and we're like hey look if you sponsor transactions kind of on our behalf and sponsor the bridging cost of getting users on chain and even maybe within your interface you kind of steer users towards using um be chain will give you some very kind of handsome economics um I think that's definitely realistic another thing you've seen is um metamask has always kind of been exploring this app store Vision with uh snaps but I think now you're seeing other projects kind of dive into this in in a different way so backpack's a really interesting example so they partner with dialect to is the Pioneer of this this blinks sort of feature um and now basically they're

creating almost like a monolithic user experience akin to like Tik Tok or X where users interface not with the applications but within with with blanks kind of within a feed and creating a very like intuitive smooth user interface right again this is possible because they own the end user wallets are kind of always been the this canonical sort of Gateway through which users interface with applications right again I think some lucrative economics can be kind of negotiated there as well you're seeing coinbase wallet kind of steers users uh towards specific apps with their like featured apps featur so and I think they're probably getting some good economics on that as well so again it I think it's the way I would describe this is you're going to see kind of the Delta between value capture and attention capture sort of a road throughout um 2025 and I think the

greatest beneficiary is going to be you know the interfaces that ultimately own the end user um so I think again this is another take this maybe not as consensus today um but I think you're going to see a lot of interesting features integrated the wallet layer and just also just front ends more broadly yeah I do think stable coins and front ends are like the two things things that you can really extract the most value out of I agree with a lot of your front end things I've agreed with this fat wall thesis I even wrote fat wall thesis and like J 23 or Feb 23 haven't really seen it yet but to your point a lot of these recent developments you are starting to see it when people when like like metam Mass swaps when that first got popular I thought that that was just people

airdrop farming for the most part but there's really no I mean I don't think that's a big portion anymore of people using it and yeah like when you're trading these assets that are moving you know 50% in the day you don't care about a 87 bit fee right you saw I forget what proo some protocol was hacked and the hacker used metam Mass swaps right and so this is someone that's technically knowledgeable enough to hack a protocol and they're using metam mass swaps because I don't know maybe they don't want to get rugged on like going to a bad front end or something right and they just trust the wallet and they they it's stolen money to them any anyways right so it's like they don't really care about paying a fee maybe not the best example but you have a lot of like fee and sensitivity with these assets

just cuz they move so much I was going to add just two things briefly on that so one is um another kind of tailan for this fat app I mean a fat wall thesis is if you're essentialized exchange and you want to monetize onchain users right so you already own the top of the distribution funnel you're monetizing those users um now you want to monetize onchain users the wall layer is like where you're going to do that and this is why you know Jesse who's initially spearheading base is now spearheading the wallet feature within for coinbase I think that's not a coincidence I think they really do see the wallet layer is very very important and a very like monetizable um sort of feature so I think again and this applies to okx binance you know any major exchange so I think what they're going to do is

increasingly onboard users on Chain by doing it through their wallet and then integrating these different features whether it's kind of in in wallet swaps or whether it's um you know native yield on assets or or whatever it is and I think you know coinbase is doing that now where you just basically have usdc and you're well you're going to get yield on that they could clip some you know fees on that as well so I think that's also going to you're going to see a lot more while to that and then the second thing I would add is there's been a lot of talk about chain abstraction um and historically we've always talked about chain abstraction intuitively at the chain layer and then even at the app layer like having chain abstracted apps I think one thing that we're going to see in 2025 is chain abstraction is

going to finally get addressed but it won't be at the W at the you know the chain layer the app layer but instead of the wallet layer um and again that's because you're meeting users where they're at um and so one balance is a project working on this where they use what's called resource locks um so where they effectively lock your balance on the wallet so that you can't you know you can't double spend across different chains and then they can execute um you know whatever your action is on on different chains kind of using intents so it's actually very elegant like technically elegant and also like a very economical solution to chain abstraction and then safe the wallet is also working on this um and they just released I forget the name of it but it's effectively the same exact thing where now you have chain abstracted

while saet yeah safe net exactly so so I think that's one thing you're going to see is like we're finally going to have chain abstraction it's just going to be at the wall layer where kind of no one else um you know no one kind of thought it it would be right on Neil did you want to say something yeah yeah I actually have like a I don't think it's a 2025 take I think it's a long-term D5 take for me uh I already see like the take rates that all of these wallets Protocols are taking through all the services that they're providing is already getting quite High 875 is actually quite high if we think about it I hope over the long term in D5 what we see is that we just have like these open source solvers U that can do the routing

problem for you potentially maybe embedded within a team that any user can access so you're using these open source solvers to kind of figure out the routing for you basically a movement towards CLI side defi wherein any computation for my transaction that needs to happen can happen on my device and it figures out the most optimal path for me and can help me execute the transaction at the least take rate possible so kind of taking by all of that value that we're leaking out to middl Def and taking them back to the users yeah it's like kind of the long-term Point too I think I was going to say that too though the the fees are ridiculous like um Robbie you mentioned backpack and dialect like I I saw that little dialect like uh tweet

announcement with them and like you know you just start start to wonder like dialect is cool right and it's like all these people are going to have their cut and there's not room for for backpack to charge a 85 bit fee on top of this and I know like yeah salana people are dgs and stuff but other people are taking that fee too like metamask charges the 85 B fee and metamask isn't adding the value that backpack and Phantom are right Phantom and backpack are adding value because salana mobile is very poor right whereas metamask mobile is terrible and they still charge you that 85 BP um I'm like I am concerned about it they're being like way too much value capture from the wallets and then they're still integrating all these other services that are also adding value and they're going to need their cut too yeah I mean

I I definitely agree like these are very high fees um but I think they can be justified right like people are paying for it U like this is It's capitalism right d and I don't think it's just about adding value I think it's about you know being in a position where you can actually you know extract value right um if you're looking at purely through the lens of like if I'm looking at this through the lens of an investor then you know mamass incredible business obviously as a user this is not what you want to see um so I think it's important to I guess distinguish between the two of those um but I think yeah these teams they're smart right and I think that's why you're seeing them um successfully kind of extracting this value obviously over the long run you know I'd like to

see again this is why I kind of got into crypto I imagine it's why a lot of you guys got into crypto we're here to kind of disintermediate you know middleman right and and kind of return this value back to the end user um so I agree this is a little bit antithetical to kind of what we came here to build um you know that's said these are very very good businesses that own distribution and therefore they can kind of charge what they charge I don't know if it's totally antithetical crypto is also just like hyper capitalism crypto has like this weird mix of very so like very socialist Vibes and also very capitalistic Vibes uh I think the wallet thing though is kind of yeah a good example of it but yeah anyways for people listening to this uh obviously we couldn't like these

were the main themes in the report but you know the podcast can't really do it justice we got nice pretty charts in the the D te makes some nice pretty charts uh that makes everything kind of easier to digest and understand uh a lot more deep Dives in all these sectors so definitely go ahead and check that out if found the stuff interesting and um yeah the last one coming out here will be the dpin Dei one which uh two like newer sectors that it's actually the first year we're doing reports for these sectors um so that'll be that'll be excited I know everyone's pretty hyped up on the agent stuff right now so yeah with that being said Thank you to Jordan Neil and Robbie for you know not only

report but also coming on the Pod and uh yeah have a good rest of the week and good holidays [Music]