Exploring DeFi: Restaking, Stablecoins, and Governance Attacks | Analyst Round Table

Transcript

it is obviously I think a good thing that these things are cash flowing and are returning um some cash flow to stakeholders of these systems however I think it's useful to look to trafi markets to kind of get a comp for what investors have traditionally um thought about these events so if like I think it was like 2012 when Apple first started discussing a dividend and it was very bearish for the company now obviously like apple is fine today but it was a signal for investors that they had more cash than they needed which could be a signal that management is looking at the market and doesn't see that rich of an opportunity set for Apple's products

same thing happened with Cisco around the same time frame which actually like sent the stock into like a secular bear I think like from 2010 to 2014 the stock was like down only when it started issuing a dividend and basically signaled to investors like our days of growth are behind us nothing set on zerox Research is a recommendation to buy or sell Securities or tokens this podcast is for informational purposes only and any views expressed by anyone on the show are solely our opinions not Financial advice bacho Ryan and our guests May hold positions in the company's funds or projects discussed what's up guys welcome back to another episode of ox research I'm joined by Luke Ryan and Nelle today unfortunately our fearless

leader Bach is out um so we're going to have to make do without him um but we're here to talk about all that's happening in the markets and across crypto um what are you guys looking at today yeah so top of my watch list today is Cino Finance trading up 9% um it's interesting that we see despite the approval of the ethereum ETF uh the salana ethereum cross pair is trading up towards its all-time high and uh salana continues to outperform I'd bucket Camino as uh as beta to Solana it's currently the Lar money market on salana with deposits pushing 1.4 billion in tvl and that's more in deposits than it's next to

competitors margin fi and soul end combined so it's only 10% uh diluted right now so there's certainly a large Supply overhang and I think within the next two weeks we'll see the uh season 2 airdrop announcement um but I think given their incom position in salana money markets um their Reserve addresses account for they're generally the top holders of Sal native stable coins and salana Native lsts um they've certainly cemented themselves as the incumbent money market and liquidity venue on salana you think that there's maybe been a lack of growth or performance for the token itself due to like Supply overhang

um issues there yeah so I think throughout a lot of Q2 we saw most um most majors and altcoins in consolidation and they'd be trading beneath their highs um many alts got taken out to the Woodshed as well so Caminos tge was at about a $40 million market cap launched at 4 cents and in the first three days of trading it traded up to about 9 cents and then during that overall Market pullback um it traded all the way back down to about three three and a half cents um so I think there is some strong correlation to overall market conditions um I'm

personally interested to see how much of these deposits are just farming the airdrop um that being said there there are major uh Network effects and benefits to having the deepest liquidity in a lend borrow market and uh given the the ground that they've gained against their competitors I have a hard time seeing the other ones being able to catch up yeah I think I think Cino is a very interesting um you know small cap play um like you said the beta exposure makes a lot of sense to me and I think that every month that goes by without further salana downtime um like high frequency Traders

liquid funds get more and more comfortable with this space and it's like a very vious protocol where you're going to want to get leverage from uh so as people get comfortable with managing risk um yeah that that's definitely like a lever ba uh beta play on the space yeah I like I like your comment there as well Luke around incentivization of um users and and liquidity um I mean we'll get into it more later but I think there's a a note here on PayPal USD and it being incentivized um liquidity being incentivized there so um there's certainly a question as to whether like the longevity of these deposits what's the what's the true math look like there in the long term um but there certainly it seems there's something to be said for just cino's rampant growth um in the

space and against its competitors who have kind of been lackluster it seems um going on from there though what I wanted to touch more into today is if we could talk about a governance um there was a recent proposal um related to aonics and it changed um or path forward seems like really um in regards to returning fees in some means back to a token holders it seems like is really the ultimate goal here um there's some different kind of changes in spe specifics being discussed right now in in governance forums so um I guess Luke if you want to give us um some background on this topic and and

where you think this is headed yeah so to recap these two proposals that entered a govern governance last week um the first one was the proposed umbrella upgrade so to provide some context a has previously had a safety module where users could stake their a and go um tokens to effectively back stop the protocol in the event of bad debt which is debt balances that aren't covered through normal liquidation processes so this presented this tail risk on the a token where should there be bad debt

incurred by the protocol the a protocol would need to slash balances of a stakers from the safety module and then auction those tokens uh into the secondary Market to raise funds to cover the outstanding debt balance and the issue is both the A and go tokens are relatively illiquid so needing to auction those tokens onto the market would likely result in a high degree of price impact and slippage which would then also subsequently lower the capitalization of the safety module reserves so uh what the umbrella proposal uh suggests instead is to

deprecate this Legacy safety module framework and introduce a new slashing asset which would come in the form of a a tokens which which are effectively tokens that represent a lenders supplied position to a money markets so under this new umbrella framework in the event that bad debt is occurred those staked a tokens would be slashed from the safety module and effectively burnt to cover the outstanding debt balance and I think this is a pretty interesting um Improvement to the mechanism design of the protocol primarily because it's a

much more deterministic way of covering balances in the event of bad debt um because there's no need to auction off a token um there's no price impact or slippage and it's effectively deterministic in the protocol's ability to cover bad debt um I will say bad debt on a is certainly a a tail risk and it hasn't been an an issue in the past as the protocol has only incurred about 2 to 3 million in bad debt but that being said um reducing this tail risk of large slashing and selling pressure on the a token um I think removes a lot of risk

for holding that um amongst a holders so that was the first proposal that enter entered a governance then to follow up on that um Mark Zeller introduced the a aics update which perhaps most significantly um suggested the implementation of a buy and distribute program where excess revenues or basically operating profits generated by the protocol would be used to buy a tokens off the secondary market and return those tokens to sters it would ultimately be up to a governance to basically manually manage

this buy and distribute program um in accordance with however much excess Revenue the protocol has occurred um but I think this is really interesting first step in being able to return some of the value generated by the protocol back to governance token holders um particularly right now A's key metrics and fundamentals are um basically all pushing alltime highs um tvl is up and to the right uh to borrows revenues earnings go Supply um bi all metrics a firing on all cylinders and well positioned to return that value to uh protocol token

holders yeah I'm curious your guys thoughts obviously you know the discussion of a fee switch for like uni for example has been a hotly desired and debated topic um in the community um I'm curious what you guys thoughts are are on a as well this is sort of like their kind of um shareholder dividend moment um in the same way as as the UNIF switch has been chased after um positive negative thoughts around returning fees to to the Token holders my main my main initial thought has to be around like taking Sushi as an example when it comes to like returning Revenue to token holders is it a good idea for like in the early stages for like a protocol for

example I mean Deb you know though a is one of you know the blue chips in the defi ecosystem you know as a whole defi is still quite young does it make sense to return Revenue to the Token holders as opposed to keeping the revenue for future growth of the protocol for R&D for other things like that the opportunity cost still exists there and so that's my miss my initial thought despite it being very exciting that A's fundamentals look great and potentially allowing for people to gain exposure to that that's my main thought is you know what's the opportunity cost there is it worth it you know this early on in defi so yeah it is it is obviously I think a good thing that these things are cash flowing and are returning um some cash

flow to stakeholders of these systems however I think it's useful to look to trafi markets particularly uh technology equities to kind of get a comp for um what investors have traditionally um thought about these events so if like I think it was like 2012 when Apple first started discussing a dividend and it was very bearish for the company now obviously like apple is fine today but it was a signal for investors that they had more cash than they needed which could be a signal that management is looking at the market and doesn't see that rich of an opportunity set for Apple's products right um same thing happened with Cisco around the same time

frame which actually like sent the stock into like a secular be I think like from 2010 to 2014 the stock was like down only when it started issuing a dividend and basically and basically signal to investors like our days of growth are behind us uh if you look at um Google's dividend today it's like less than 1% um so it's like returning cash to shareholders like is great and like that's why um or stakeholders and that and that's why certain assets have value but you know you also want to use that cash flow to grow and a lot of these projects are really early stage and look I I it's great that they want it's great

that they want to return cash but I think it would be a strong signal to the market and potentially like create like a secular shift in the industry where these D5 protocols they don't just build once create token sell it get rich but they move into more products and actually like build a like lasting dur able moat for their their business and their token holders yeah I agree with a lot of those points Ryan um currently seeing that A's treasury balance is about $60 million um net of protocol native tokens and that should be adequate to fund their product roadmap for both V4 and um

the features outlined in the 2030 proposal and I think one benefit of how this buy and distribute program is implemented is it is ultimately going to be up to governance as to how much of protocol generated revenues do get distributed um through the buy and distribute program back to token holders so it's ultimately going to be I guess dividend by dividend up to governance discretion how much of that profit to basically pocket for the treasury verse um buy and distribute throughout time yeah that that makes a lot of sense I think A's been one of the good ones right like they're pushing new products

they're innovating on risk management they they launched go like they're they're clearly in it to win it um yeah we'll see how the market responds but I I think it I think it'll obviously obviously be net bullish no constructive positive and I think asymmetric to the upside um but that being said I think a lot of these like d bu 1.0 tokens that have incredible products product Market fit they're incumbents within their own verticals um I'm curious to what extent their protocol tokens might produce any Alpha to ethereum or salana outright that I have yet to

see a for example has underperformed ethereum since the start of the bull so I wonder really if there's to be any risk adjusted Alpha for these tokens yeah I think that's the difficulty there is you know I there's certainly Market participants who are always playing these events um but are they really playing and and holding an a position for the longterm relative to maybe eth like you're saying right it's the kind of the relative bet there is is always in question um and we've seen over longer time periods that often it doesn't really play out the way that you'd want um so that's that's a longer ongoing concern the other thing I'm thinking

about is that how does this you know serve as a case study for other defi protocols as to when it is opportune to switch on the fee switch because we've seen negative case studies like with sushi does this mean that a setting like a general time period that okay you hit this level of traction this time General time period of operating now it makes sense when does Camino switch on their fee switch if at all when does other lending protocols do the same thing that's the thing I'm thinking about as well is uh you know based on how this performs are we going to see like a kind of like a pattern where that's going to be a lot of other different protocols following soon one thing that I think is interesting about A's positioning for I guess turning on this V switch is it

would really be financed through the reserve factor which is about a 15% take rate on interest revenues generated by a borrows so they're already taking this fee and really it would it wouldn't reduce the expected value of lenders um because they don't need to hike their take rate at all uh whereas in the case of Unis swap should they turn on the fee switch basically all Unis swap LPS will have a lower um expected value on their liquidity provided yeah I will say one other piece to this that I I think is an interesting consideration is um the the

trade-off here between like growth and returning a fee to or you know basically buying and distributing a in this case um is we've seen some of the growth growth incentives used by defi protocols in the past and in the present have been questionable at best I think just you know unloading tokens onto communities for providing liquidity or engaging with something is not always the best case for a token or even a platform in its growth growth um so it this does you know I think if they're leaning in the direction of sort of returning a a fee Revenue to the to the Token um it it it might be a little bit safer I guess in

the eyes of maybe existing token holders today versus the kind of open-ended question of like what does growth look like by incentivizing up you know fee token rewards essentially um in the future you know we've seen how arbitrum has done their large gaming kind of uh play and all the new new projects with airdrops for incentivizing you know based on incentivized usage of the platforms um oftentimes in in the the short and maybe even the long term it's questionable um how beneficial this is to the Token itself so um that that's probably something else that that people are weighing here is the tradeoff there the other side of it like does it make sense for a to you know hold some of

those you know the tokens and the additional Revenue to incentivize trafi activity on top of a similar to what maker Dow is doing for example where uh not sure entirely how they're exactly incentivizing activity from more institutional participants but if a wants to be more competitive there does it make sense for them to hold on Revenue to you know subsidize lending and borrowing activity amongst institutional participants that's the only thing I can think of that might make sense for a growth strategy rather than like traditional just you know let's let's drop them the new L1 or L2 and let's just drop another a uh implementation incentivize there yeah great point well speaking of let's just drop another implementation um I think our next topic is maybe in that bucket a little bit jto

just recently announced jeto reaking um so they're getting into the reaking game as well um among all the other players in the space today so um I know nille you got some background here if you want to dive into kind of this announcement and what and what jeto is thinking here yeah of course jeto is a fan favorite by a lot of folks especially folks in the salana ecosystem and in general there was just announcement of two main products one is their vault program and the others is their reaking program that you know everyone basically heard of more or less so there's limited information in terms of the actual intricacies of how it works but what we do know is more or less that enables the ability for you know managing Stak assets having multiple different assets to be restak namely Jos soul but there's

mention of other liquid staking tokens as well that can be utilized and so it'll be interesting to see how this is utilized for like fine tune slashing and you know how do they like allow for nuance for reaking are they going to take the symbiotic approach they going to take the Igan lay approach that's still yet to kind of be mentioned there now the main thing that you know a lot of folks are interested in here is that jeto has been known to be the sort of Lio flash bots of salana but now suddenly there's there's this sort of like Trifecta that they're trying to go after which is cool but something to kind of highlight here is that jeto is obviously not the only reaking participant in salana we've got a variety of folks ranging from Soul layer we've got kaso we've got Cambrian

several other people that are trying to play around in this race but I think why people are especially excited about jeto is that they've already amassed this tvl they already have this liquid staking token they're really positioned to be a really strong participant in this area so that's the main High overview for that uh the main thing that I'm interested in discussing is how what does jto have an opportunity for that you know Igan Lair or Babylon or KCK or symbiotic could never do and what are they going to play a role in in the actual Sal ecosystem some people have talked about the bull case being that hey if salana takes off and you know starts to Eclipse ethereum GTO is basically the igen layer of the of salana more or less so then you know what can we do there see other folks

take the other approach which is that salana is constantly undergoing various different protocol upgrades to keep up with the you know ongoing demand is jeto a good way of basically internalizing some of these different additional upgrades without having to actually enshrine it into the protocol so curious on I 's thoughts on you know what do we think Cheeto could do for the salon ecosystem and how does it sit you know amongst all the different other reaking protocols it's not clear to me how useful reaking is though crypto does seem to love it so I think objectively you just want to launch a product there if you're well positioned to I think jeto is obviously very well positioned to do so they also are frankly they sit at a very very interesting place in the

market where this isn't going to be the only product that they launch like if you know if they're concerned with driving value to the jto Token like I can think of a you know list of five or six things that are like they are like new markets to dive into um they have the brand and they have the positioning um and I think that reaking is kind of like you know just the first of of kind of many things to come they they they've shown the um they've shown a bias towards shipping and it's really awesome to see um how how big of um how big of an impact reaking is going to have on the salana

ecosystem I think is yet to be seen I think objectively just because of how big salana is um like it's not modular explicitly so and it just has less of a need for restak things so it'll be interesting it'll be interesting to to see what people come up with um it's going it's probably going to get a little wild but I'm here for it yeah I think uh Ryan and nille to Echo some of your comments there um i' put myself in the camp as well around being a little bit of a reaking bear at the moment not not because I don't think it's valuable but I think it's become a little bit over indexed um just as a category

relative to um maybe the value that's that's really there today um you know maybe investors are really excited about about the future but it it does seem like it's gotten a little bit out of hand but at the same time um I also think this is really positive for goo um you know we've seen just continued development and and deployment from them um and they've really just kind of been continually expanding their product offerings um and we've seen that grow their their fee revenues as a protocol um so as as a product as a protocol as a token like it's it's looking incredibly strong on many fronts um and they really just continue to ship so in the category as a whole I'd say it's questionable but maybe to eek a couple of percent out for themselves in this Marketplace um I

think it makes sense for them as a team yeah I definitely agree there I think there's two main you know use cases for reaking at least that's been proven out in limited capacities as of right now one is like external shared security and the other is sort of like internal so with external it's more or less okay we're Babylon we're igen laay we're going to export this relatively cheaper you know Economic Security to other different protocols like take different app chains l2s rather than issuing your own token to bootstrap a validator set or shared sequencer set that would be expensive and you have to pay out a large inflation rate of like 15% again you know depending on who wants to look at it some people see issuance as a cost some don't the fact of the matter is that it's still

something that's going to add sell pressure to your token so you know with shared security that's the benefit there but when thinking about how goto sits in the landscape there's a lower demand for sold the asset compared to obviously BTC and eth like BTC for example has a lower interest rate premium rather than ethereum ethereum has a ra lower interest rate premium than Soul so you can afford to have cheaper Economic Security from other sources so I don't see people going to jeto and saying hey I'm GNA launch my app chain and I'm going to use jto soul for you know for that Source but where I do see goo playing a really interesting role is in internal shared security where there are these different protocol upgrades or different services that would be useful to the salana ecosystem but require some

level of economic incentives so like take you know Fast Lanes like we saw with stake weighted Q for instance that's sort of thing that a lot of folks in the Sal ecosystem are talking about so I see that Jos Soul can play a large role where different applications want to have effectively these Fast Lanes for their user base they go to jto they use reaking for that purpose to provide a better experience for their end user my only question and this is what I'm interested in hearing other people's thoughts on is uh what if people skip jto and don't use jto directly or jto Stak soul and they use their own LST uh for that and my main thought here is with sanctum like is there a universe where Jupiter margin fi all these different protocols list their own LST

and they use stake weighted Q basically in their own LST to provide this additional experience to their end user and rather than paying fees to jeto they pay fees to you know their own LST then um I'm not necessarily sure if this is mutually exclusive to jeto because according to their announcement it looks like they can support multiple assets outside of just Jos Soul they can support other lsts but I wonder if there's other people that are position better for this like sanctum I do think there's a question there as well um I'm not entirely positive of like the full interplay here in terms of like product experience but like helas labs for example and their RPC services and the fact that I think they're now number one um in terms of stake as a validator for

salana um it it brings up the question of whether you wouldn't just like you know kind of offshore all of this like need to Someone Like A helius you know have them be your RPC provider rather than all of these protocols standing up their own LST standing up their own validator and trying to acquire stti to it like uh I could also see the scenario where they just you know pay whatever you know fee is required to then make use of who is essentially the largest provider um and who would have the greatest benefit from St W qos today um for the best product offering um I think that's a dynamic that we're seeing is like I think St W Qs kind of incentivizes like this race to the top a

little bit for um you know these these top top valid validators for that Q piece um and so to that point it's like why as a protocol why bother doing all that work yourself Gathering all that stake when you could just go to the number one guy and ask you know ask for their uh for their benefits basically yeah yeah that definitely makes sense my only thought against why somebody might choose an alternative would be if uh a large enough dap that feels like they can you know assume a large chunk of fees like take a Jupiter for example they could probably offer some incentive program to their user base to use their own LST their own implementation uh rather than paying a larger provider but I definitely agree that it doesn't make sense for a small

dap to probably do that because they would lar they would probably not be able to amass enough Capital to create a you know enough benefit for their end user yeah I think that makes a lot of sense and that's that's where I was feeling and where I was going a little bit with the sanctum point is we've seen a lot there's a lot of lsts on there today for lots of smaller um purposes and so that I think it really brings it into question is it's like are you really going to get the benefit from stake weed qos if you're going to end up being a much smaller LST than um just going to like an existing provider for for services basically um is the point there hey guys permissionless the event for crypto natives is heading west to Salt Lake City and we're bringing the

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of the team uh use zx1 for 10% off on your ticket one more thing we're also hosting the permissionless re hacka font in collaboration with ble box the theme this year is a multi-chain future to build a better cross chain experience so I don't have to have a heart attack every time I bridge to new CH all Hacker found participants will receive a free ticket to attend permissions so if you're a developer come join us in Salt Lake City team up with fellow devs and build the multi-chain future let's stay in Soul land but talk a little bit about something else um PayPal they have been incentivizing um their stable coin on salana recently it's been on ethereum since last year but um recently in may they launched PayPal USD on salana um and that came along with incentives on both Camino um at the beginning of July

as well as margin 5 last week um they just announced some incentives there so um there's a few interesting tidbits going on here with with PayPal USC on salana one um they're making use of the token 22 2022 um extension in standard standard um for the token itself so that allows one that they've mentioned um one one feature they've mentioned is confidential transfers um I don't know if this is being used or fully implemented yet today um or if that's something that will come in the future um um and then the other piece of this is that obviously PayPal has control over the token itself listing addresses managing from sort of like a Regulatory Compliance

perspective um and I imagine that was part of the reasoning in in using this token standard um in managing the token itself um big question here for them is and probably part of the interesting story is they're currently incentivizing deposits and and liquidity for PUSD um to the tune of like anywhere from 15 to 20% um based on the amount of rewards that they've offered up to the pools on um Community today if you look there um for them as a business I think there's a there's a question mark on how long they'll be willing to offer up this um basically free money to you know people to basically deposit stables and earn and earn cash um you know I think we all know that you know people within

the space there's a lot of mercenary activity in the space and if you can earn you know 15% on what is large just a you know basically a free return with Rel relatively low risk um it's unlikely that PayPal will rug their users um that would be with some serious serious uh action I think for them um you know it's questionable how meaningful these deposits are going to be looking to the Future um if it's entirely based on uh liquidity incentives um similar to what we saw with a lot of activity in in 2021 um with liquidity farming being being a massive kind of Interest back then as well to to gain users and and TV growth um ultimately though I think there's a question here of you know we're seeing PayPal go after this this vertical and and wanting to use it um wanting to use

PayPal USD as sort of a backend for like fenmo or PayPal um to serve their users on the front end of those applications um does this open up like further growth and expansion for other trafi firms to like get into the space um it seems like it's been pretty simple for them to onboard several hundred million um in in tvl of the of the tokens so um clearly it hasn't been that big of a lift to get into the space but I guess there's a question mark here like could we see Visa could we see other like big payment Giants want to get into this space and um maybe from their operating cost perspective um is this something that they're just going to save money on as a business um are there other interesting things there is it is it worth going

this this route um despite maybe the added complexity upfront here so the last point that you mentioned mentioned uh one thing I'm interested in that I was taking a look at before was uh PayPal's main you know client base for different Merchants are primarily in uh the US Canada and Europe and then there are a few like you know on the longer Tales a few other nations but primarily First World countries and what we've seen in terms of staple coin adoption on you know in crypto are either amongst you know institutional parties that want to deploy a lot of capital onto different chains or different nation states that do not have maybe a more stable currency in want access to you know stable coins for you know more stable value you know take Tron for example where they have like

explosive stable coin activity primarily in a lot of different uh other nations like turkey for example where the Lyra is relatively uh less stable compared to the US dollar and so one thing that I'm thinking about that initially I thought this was very bullish for salana that potentially we could see salana as this big payments platform but if stable coins are basically you know bifurcated between institutional folks and Retail folks that are in you know nations with less stable currencies is Paypal going to be that much of a catalyst for stable coin activity on salana considering that their client base is primarily in Nations that would not need external access to the US dollar they already probably have access to a pretty stable currency yeah I think um tether kind of showed the world just how good a stable

coin business model can be from a free cash flow perspective um I think a lot of that ultimately though is still Downstream of macroeconomic conditions and monetary policy and the current interest rate Paradigm where you could have this business model where you give users a stable coin token and on the back end you hold the cash reserves in short-term money markets or two 10year treasuries clipping five to five and a half percent yield um certainly incredibly attractive from a business model perspective um PayPal has seen remarkable growth in its for a into the table coin Market I know when they first

launched um they kind of had this meme about them where they they were the the Boomer trafi firm entering uh crypto markets but they're now just short of 600 million in stable coin Supply uh 330 million of that is on ethereum uh 240 million of that is on salana and of uh Pi usds uh Supply on salana 66% of that is held in the Camino Reserve farming this incentives program which has been clipping about 22% apy so to Danny's point you know I'm unsure how much of this is actual you

know user interest in this new stable coin as opposed to just profit maximizing their yield on a stable coin Supply position um But ultimately like it goes to show stable coins are they're pretty boring they're not too flashy but ultimately they're an incredibly profitable business model so I mean looking at defi llama um I see black rocks Biddle at 53 on the defi llama ranks with 8 million in deposits I see Franklin Templeton uh at 62 with 420 million in deposits and with PayPal in those ranks as well I think it goes to

show it's a totally different cycle with the extent we have these large Trad five firms um entering the market yeah I I think you make a good point there Luke um the the question mark here for PayPal is if they're truly interested in in making use of PUSD for the sake of like operating their applications on the front end um basically facilitating transfers for you know people who are using venmo or PayPal or other products um using these tokens as as kind of that that means um ultimately they do need to incentivize liquidity because if you can't you know swap in and out of it then that's going to be a terrible experience right um the

slippage potentially the fees associated with that could be quite high if you know if they weren't at this point of hundreds of millions in deposits or if the liquidity really weren't there um so I think it makes sense like directionally where they're going but ultim like if these aren't if these aren't long-term users or you know if these people are all going to dump their pus when incentives go away then um they might have a they might need to figure out another way to kind of go about that unless everyone unless people using you know PayPal and venmo can somehow be uh you know via the front end they're unaware of what's going on in the back end but can be like you know you their activities can um make use of uh onchain liquidity in that fashion um maybe

without realizing it yeah I think PayPal has a really unique um positioning at least within Web Two firms to I guess propagate use of a Crypton native stable coin whereas uh Circle or tether simply didn't have the the Legacy Merchant rails to get distribution of their stable coin the way PayPal might yeah it's interesting that they have that distribution they also have an incentive to have people use this um if you're going to enable like immediate with or if you're going to enable immediate withdrawals for like PayPal users you're going to have to

cover that because of the time associated with actually moving money on tradire rail so there's like a degree of capital and efficiency in PayPal's business um they like they actually have an incentive to push like users to use this thing um it's not obvious to me that they're doing that within the apps yet but like I don't know maybe that changes as this regulatory environment improves uh I'm curious next topic I'm curious your guys any thoughts on this compound what's being labeled as um a governance attack um on on Twitter it seems like um to the compound treasury there's a a large wallet or a large holder of of comp tokens or um

accumulator of tokens who it seems like has has reached the threshold of being able to put forward um and and get past a vote to basically allocate themselves a certain amount of comp tokens from the treasury or from the Dow treasury so the the the question here is um I think there's a lot of sort of factors at play um there's lots of talk around Economic Security being a meme for blockchains um for defi protocols I think it's a little bit different of a discussion there's clear incentives here at play if you can gain enough votes to rate a treasury um then that leaves you know actors in the space um with an opportunity to go and do that like in this case um there's been some comments around whether this would be illegal or not in normal corporate law I can't speak to the

veracity there but I'm curious any thoughts you guys have around you know just governance of these large and like Legacy protocols um has comp just been ignored for too long and it just left this opportunity wide open are governance parameters like a little too loose um would this be illegal is you know is that something that that we should dive into any thoughts yeah I think the legality thing is is not something that like I can personally speak to I do know like as a rule of thumb there's a big difference between a hostile takeover and I believe what's called stripping where a hostile takeover you

basically like push management out and like the thing is still a going concern and you want it to be more valuable over time whereas stripping and corporate law involves like hostile takeover Dynamics but then aggressively selling assets and leaving behind a much less valuable or bankrupt entity uh I don't know what's going to happen in the compound scenario um I'm definitely going to be watching to see how it unfolds but I think it's interesting that it like has happened to these I guess like Legacy D projects that aren't

exactly in growth mode uh I'm not a I'm not an expert on compound uh but I think that the prevailing narrative is that like who's using this thing like it's a shell of its former self uh the token is mostly down only um it doesn't seem to be as much of a going concern as other like lending protocols in the space and like that when you have like hostile takeovers in trafi like it's very much a result of like management doing something incorrect investors being fed up and then like forcing change um so it's like it's kind of no surprise that

you're seeing these kind of takeover actions happening in these corners of the market where projects aren't exactly on their front feet in regards to like growth and like structure and like a go forward plan um but you need these things to happen so that it forces other teams to like get on their front feet and you know ultimately it'll be an experience that this that the space learns from yeah I think there's an interesting point here in that we've seen similar cases of this though maybe not quite by you know individuals or you know a single individual or entity but um like rfv like risk-free value attacks if you want

to call them that but in cases where a token relative to its treasury um you know if if the governance process and then the value of the treasury um of a certain protocol is are out of whack um there's an incentive there for existing holders to kind of align behind a mission to basically just return that value to themselves and and and you know dissolve the project essentially um this has played out in a few cases um I I think particularly um Aragon Dao might be an example in the past um and there's I know there's definitely others but um would need to go and pull those up either way um I think when you've got incentives that are sort of

misaligned here and um you know if if a treasury goes grows a little bit too big for its bridges um and and the token is way out of whack with that kind of I think in regards to what you're saying here Ryan like if if a protocol is not really not doing much and hasn't been developing and there's not growth on the Forefront and you know holders don't want to believe in that and they think there's more value in just you know taking hold of that of what what's left in their treasury for themselves then they'll be incentivized to do so if that's kind of how the risk reward looks yeah makes sense there's also some additional like tidbits here that came out that like looks like the compound Dow is trying to respond to fight the actual proposal itself which is interesting to see in real time uh like

two of the things that they had announced was one adding some sort of time lock uh towards like the community multi sake when it comes to paying things out and there was like a risk parameter update for the actual comp token uh but it looks like both of these things will likely only pass if at all after the actual uh governance attack per se and so that's interesting to see that like how how can Dows combat like attacks in real time if at all and what are like proactive measures that can be taken as well but I think it was mentioned by both you Danny and Ryan as well that you know for a lot of these larger like protocols take a for example take maker Dow token prices are higher they've got larger token holders uh

counts and so it's going to be a lot more difficult to orchestrate some serve attack to begin with but curious to see if like people start to think about this when structuring Dows you know we already see that the arbitrum Dow is experimenting with new types of things you know adding all these different safeguards adding these different operational uh you know sort of strategies and so it's cool to see how Dows are basically becoming much more mature and thinking about all these things that traditional businesses have had to think about for quite some time yeah like Luke pointed out earlier like a shipping and they're returning value and a token is is doing well like their financials are firing on all cylinders like no one's vampire attacking a I think that's a great point I think this

almost lends an argument to having these accretive mechanisms for the governance token to the extent you can uh bolster the value of a token through returning fees this should decrease the incentive for people to dump the token on the market subsequently reducing the market value and making it easier and easier for external Market actors to acquire necessary stake to put through a hostile uh governance proposal so yeah the more attractive it is to actually hold the governance token the harder it is to uh put through one of these attacks

compound should have switched on their fee switch Yeah great great points again all around I think um there'll be ongoing concerns and and and probably people looking out now that we've seen events like this take place um I'm I'm sure we'll have individuals and entities looking for similar opportunities in the future and um this is going to be a more kind of open uh topic for Dows to consider going forward um one last last topic um to to touch on today um Luke I'll be curious to get your insight into the details here but the or project um the basically the token mining project being built on top of salana um has a V2 update coming out soon and a bunch of

the details were just released um over this past weekend it looks like so Luke if you want to fill us in on kind of the the rundown on the update and and what's to come there yeah so or is a highly experimental uh Fringe project on the salana blockchain um when it launched in April it was effectively a proof of work algorithm implemented as a smart contract on the salana blockchain and uh when it first launched it saw incredible demand where calling the program effectively accounted for 10 to 14% of all of Salon network activity

which is absolutely Bonkers um the way V1 was implemented was there's very much a strong incentive to sible or spam the program and submit as many hashes as possible within a given time frame um so this of course led to a lot of the the network um I guess congestion or bandwidth issues we saw during that point in time and even got to the point where uh toly was on Twitter basically begging the founder hard hat Chad uh to move the program to devet instead so what we saw was Chad burnt the admin keys for V1 and uh moved away to

basically build the V2 program um he recently announced what V2 would entail with a number of upgrades to both make it more attractive for the network to reduce spam um but also increase incentives for holding the token itself uh so this includes um part of the proof of work logic is that you you can only submit one hash per minute so this disincentivizes uh the the spam risk that we saw in V1 and then another mechanism is miners can receive a a multiple of up to 2x for basically

staking their or um and Mining so basically seems like with this V2 redesign uh whichever minor has the most stake is going to be the most competitive um so of course it's a it's a fringe and experimental project but it certainly saw uh remarkable traction when it first shipped and for that reason I'm I'm certainly paying close attention and uh looking forward to the V2 launch and um seeing what sort of demand there is to mine uh once that goes live I think Danny you mentioned this offline before uh but you know one of the things that you know I've also been thinking about at you know

especially after you mentioned it is the dilutive factor of it being a proof of work token like right now obviously there's not a ton of a circulating Supply that's out there and funny enough there's a similar experiment that was run in end of 2021 beginning of 2022 on Avalanche something called X power mine that was you know similar idea CPU mining meme coin token effectively and there's a ton of demand for it but uh because of the lack of liquidity the main way that people would basically actually gain the token was just to actually M it which made sense and very very quickly the supply exploded and uh you know just basically cliped the demand and uh the price was obviously down only so obviously different story

because with salana with the mcoin frenzy and whatnot there is a world where maybe demand could actually outpace the supply which could be really interesting but you I'm curious to see how that sort of done Dynamic is as we go into seeing more miners come out yeah I think it's a great Point um I think if you look today for or it's there's like 20,000 tokens in the circulating Supply today um with the kind of active one once the mining goes live again um it's intended to be around like one hour per minute so um obviously we're looking at quite a few tokens coming out of the market per day like if you do the math there um and if you guys know that that that famous song that's 525,600 tokens

any year um so looking ahead like you're looking at multiples expansion in the supply in a very short period of time um upcoming so to your point nille 100% agree there's a big question here like how does this Supply face the like kind of Niche excited demand about like a uh a mining project built on top of a proof Estate Network which is interesting but um that's quite a few tokens to contend with I think yeah wonder if there's going to be some copies that pop up on all the different highr putut chains are we going to see like a a site or an abdos or uh maybe when Eclipse launches we'll see an eclipse or so be interesting to see that if there's any

success I'm sure that they'll be that'll be copied yeah part of hard hat Chad's mission is that he uh didn't like seeing the evolution of Bitcoin mining to be eventually run by uh those most sophisticated institutions with huge balance sheet and huge capex required to actually be like a competitive Miner on the network um and one aspect of Bitcoin mining is mining the block the rewards are exclusive to one minor so what Chad has implemented is basically users can Outsource these Hardware requirements to Salon of validators which have amongst

the most performative Hardware already and also mining rewards are non-exclusive so if you submitted any hash regardless of the difficulty regardless of the ore you have staked you have some claim on the one ore per minute um so really for for users the value proposition here is you can basically run the web application with uh 20 bucks of salana to fund for gas and depending on the price of ore earn some degree of passive income on that if this thing is successful to any degree the Bitcoin people are going to be so angry like Cipher Punk crypto is going to be up in arms yeah I I I think to

your point Brian like it when you think of it from the lens of anything if the goal is to really have anything M it and then you earn proportionally relative to your kind of ownership um stake percentage right um there's sort of like a it's like a interesting combo Dynamic of of proof of stake and proof of work um which really hasn't been implemented to this point in time but um certainly you know if someone starts modeling out the uh value transfer from Bitcoin to or um we're going to see some some wild craziness on the timeline um if people are that bullish um any last thoughts for you guys before we head off for

today it was great having a chat with yall just looking out for who the Michael saor of or is going to be looks like we got a good candidate here in Luke starting out yeah there you go hard hat Chad he's a man of the people awesome well great chat today today guys and thanks for coming on as always thanks everyone see you been pleasure [Music]