How to Build a Sustainable DeFi Protocol | Kain Warwick, Synthetix

Transcript

uber has this network of people that go out and provide a service right and then uber captures some of the fees and the people who provide the service capture some of the fees and there's this tension between the two and you know we've seen that play out right where drivers want more money and you know so lps and uni token holders who's collectively the company are going to have to play this game of you know how much do we want because ultimately if the uni token doesn't accrue any fees and uni swap you know as a as a collective doesn't acquire any fees then you know on some level uh it's not really sustainable what they're doing all right everyone welcome back to another episode of empire santi is sitting this one out we got my

co-founder mike ipalito joining us and then we are joined by the semi-benevolent dictator or should i say former semi-benevolent dictator of uh some synthetics kane i don't know what uh you are describing yourself as these days but either way welcome to empire my friend yeah thanks so much i guess it depends on who you ask whether it's former or current uh but the former current who you ask but semi-benevolent dictator is is true though yes i think that's fair i think that's fair yeah nice how did you get the nickname um you know i used to be just like the dictator right um and not even benevolent um and i think you know we got to a point where uh we were like okay you know we need to uh decentralize things and give up power to

the community and you know we started that process uh and i think people like wait a second like you know you're very aggressively kind of advocating for certain positions and you're arguing with people um you know this is not necessarily what we were expecting you know giving up power and my argument was well you know if you give up power and you create a process where anyone can you know have a voice right then i should be able to have my own voice and my own opinions and my perspective and um that's you know gone gone fairly well i think but there's some people who sometimes get a bit annoyed about how vocal i am about certain things i think things have gone all right though so well we've come a long way since the uh the the dictator days of

2018 and 2019 and depths of the bear market you have this idea about like just different metrics that matter uh in different bull markets right so if you look at icos uh the metric that like 2017 and like just the market ripping then the metric that mattered was how much money can you raise right then it's like defy summer 2020 the number that matters is is uh is really total value locked is tvl uh and i've heard you talk about the metric that will matter it doesn't maybe matter as much now but you think it will matter and we can maybe mean this into existence is uh is fees right so i'd love to just maybe kick off this conversation starting with with that idea yeah you know it's interesting actually i had um a pretty prominent person in my dms uh

last night in the crypto space who was like oh token terminal kind of shows you guys are throwing off uh quite a lot of fees like what's going on there and we got into a bit of a discussion about it and you know it's interesting because uh i think fee tvl you know sounds like a metric that is um i guess fairly fungible right like tvl and curve and tbl and synthetics but the reality is the tbl you know is is a very blanket term for a lot of different things right there's things you know there's tbl that's in like you know uh staking like single-sided staking pools which you know is one thing this you know stable coin pools have tvl so when you look at tbl um you know it's not

like this kind of homogeneous thing right i think and that makes it easy to gain because if you can boost cheap tvl which is low risk right you can you can make things look better than they are and i think that there were a lot of those kind of you know games that were played back in the tbl days um and then you know over time people get a bit more sophisticated and they're like okay like we can see that you know this protocol has certain things and i think we'll see that play out with fees as well um because when you look at fees for synthetics let's say right um and even if you compare it to uni swap so unions fault generates uh the most fees of any d5 protocol right by like a pretty significant margin but it doesn't pay any fees to token holders

right it doesn't pay any fees to the protocol it only pays fees to uh liquidity providers which is fine your liquidity providers are doing a thing um whether you know whether and when the fees which get switched on will be uh a pretty significant change right because once the fee switches on then you as a uni token holder are going to get some kind of field and you can do you know calculation and what have you so even within um you know those two protocols that are kind of in the top ten synthetics is very different right because your uh your kind of risk profile and like risk adjusted return is different and the same thing goes for uni swap as well like if you're an lp in you know a stable point pool as long as

it's not ust you're probably okay right um and uh you know if you're an lp in like west some random coin well then you know your aisle risk is is gonna be very high right so like there's even within you know uh different kind of fee metrics the the risk adjusted return is is very different so i think that this is something that you know collectively have to get more sophisticated about um but luckily i think you know tradify has spent a lot of time working out you know how to how to calculate kind of you know risk adjustment returns and things like that so hopefully we can take some of the good stuff of that and translate it to d5 kane i have a question for you what do you think will be the determining factors for protocols that are capable

of commanding fees versus ones that don't or aren't capable of commanding those fees yeah i mean you know like [Music] i think we still don't have a good um kind of frameworks for for even reasoning about this yet um because you know every protocol is is kind of so different and you know has like all of these idiosyncratic uh kind of challenges right in terms of like how you think about fees and how they're earned and who earns them and where do they go and how they're distributed all that stuff so you know i think my my sense is that like again if you look at something like uni swap um you know if they switch on fees how how

much of the fee yield do you need to transfer to uni token holders because you know it's a zero-sum game right you're taking fees from lps how impactful is that to lps that are trying to you know uh you know do the thing right there's a service that's being provided which is liquidity right and you're paying the people who are providing the service 100 of the revenue right um it's it's an interesting concept it's very different to a business right like a business you know kind of turns up provides a service and captures 100 of uh you know it's probably the closer analogy of something like an uber right so you know uber has this network of people that go out and provide a service

right and then uber captures some of the fees and the people who provide the service capture some of the fees and there's this tension between the two and you know we've seen that play out right where drivers want more money and you know so lps and uni token holders who's collectively the company are going to have to play this game of you know how much do we want because ultimately if the uni token doesn't accrue any fees and uni swap you know as a as a collective doesn't accrue any fees then you know on some level uh it's not really sustainable what they're doing but why can why now like so you say it's not sustainable and i think what you're getting at is like if all we're doing if if we're not actually giving if we're not if we don't have this nice cycle and

this nice like feedback loop here and we're not actually spitting back cash flows then like what are we all almost doing here but if you look at uber uber's been around for 13 12 13 years founded in like 2009 2010 i feel like i mean i'm in manhattan right now it used to be five dollar rides anywhere in manhattan now it's 40 50 60 bucks but only in the last like year or two did did that change really happen so and like when you look at things like uniswap it's like really only have they had a lot of volume for let's call it two years um so it's like why can't we just almost keep subsidizing this stuff in the way that like uber and airbnb and lyft and all of them subsidized it for for nearly a decade so i think you know at a fundamental level

it's okay to subsidize things to bootstrap them right i think we took the idea of like blitz scaling and subsidizing and whatever uh to uh a degree that was probably unsustainable right and how did we do that well we had this crazy you know asset bubble based on money printing that was inflated and so feces had you know infinite amounts of money to dump into uh you know companies to allow them to unsustainably grow or unsustainably you know um subsidize uh services right um until they did it right and i think now we're kind of seeing the end of that party um so you know ultimately then the question is okay you know at what point can uh a business like uber kind of become

sustainable right and at what point should it become sustainable my view is like you realistically should try and become sustainable as you can as soon as you can right um obviously there's you know there's definitely a payoff curve there right and you don't want to do it too early because you could have scaled much larger but the reality is i think uber could have absolutely uh you know switch that if they didn't have vc's pouring money into them they absolutely could have you know the vision fund alone right subsidized billions of dollars worth of uh with you know low cost rides right and so like when you when you ask the question of defy like you know d5 is supposed to be more efficient right it's supposed to be less overheads less you know all the stuff if uni swap and synthetics and ave and compound have been around for you

know three four five years in some cases right i can't get to a point where we start to become sustainable i'm not saying we have to be 100 sustainable today but like we start that process then you know we're kind of just playing the same game right that we've seen you know uh a bunch of sas companies and you know uh another company's play for the last 10 years which i just don't think we need to play anymore i think we really can get to a point where so like a company that that's starting today or a project that's starting today go nuts subsidize raise money you know whatever uni swap and synthetics and you know the blue chip d5s have been around for four years like we kind of got to get serious now

do you think the ability to fork and just the fact that everything's open source core uh open source code and crypto is different it's like because the example of uber right basically the vc model is just fun to monopoly right you what you want to do is you want to subsidize subsidized subsidize at the end of the day what you want is a monopoly so that finally when you do jack the prices back up no one's left to compete with you but in crypto you have the option to fork right so do you think that's a fundamentally different dynamic that limits the ability to compete with that same strategy so it's interesting because like this idea of forking and fees and everything was like a huge discussion topic theoretical discussion topic during the last bear market right because we were all bored to come up

with something back i just wanted to talk about yeah we have to talk about some dumb thing right so like i think you know that like is the topic for like every thursday for like you know a year or something it's like no but you can't do this because it'll get forked or whatever i don't think and again i might be wrong right even um maybe uh that like anti-justin sun fork um i can't remember the name of the protocol but like you know i don't know how that's going now though the one that forked and took all his tokens away um uh literally i'm having a drawing blank on the name of it but you know it was a project that had been around for like five years justin sun bought it and took it over and like i don't know how that fork is going

right like maybe fine but there's not many good examples out there of protocols that have been formed right the i think the expected effort of maintaining a protocol that people had back in 2017 2018 that like oh it's just some code you deploy and then walk away um has been kind of invalidated right like you need a community you need people who are you know maybe they're not doing this in like a centralized fashion maybe it's this kind of as i said with you like a loose collective of people that's advocating and educating whatever but if you remove that um you know it the momentum uh drops significantly i i think is my is my view so i think the idea of forking to remove fees is uh is

more of a theoretical construct than it's like a practical concern do you think there's a this is kind of multi-coin's theory so i'm gonna i'm gonna try to paraphrase basically but i kind of like yeah uh i know but the idea of like managing risk as an ability to fork your protocol so like uniswap would like an exchange model you're not managing any financial risk there right you're just connecting buyers and sellers so the idea is that you could fork in exchange right and just offer higher you know subsidies essentially on this new fork and you might get a bunch of mercenary liquidity like and that it's it's less there's less of a moat whereas something like maker or something like that really what the mode is there is that you're underwriting risk and it's like okay i can fork maker tomorrow but like are all these units going to come

along with me and like maintain all of that competence and that balance sheet like probably less less so so i'm wondering if even within i because i tend to agree with you it's like i don't think you can just keep forking the nth iteration of a thing and expect people to follow but i wonder if even within different classes of d5 protocol maybe like managing a balance sheet or or managing some risk yourself is also more of a moat i i actually think there are a lot more moats than people realize right and you know my assumption um around that argument is that kyle had you know funded some maker competitor you know the day before was coming out with some psyops campaign to justify the investment or whatever but um but like i think what do you think about multi coin i'll actually say this right like i will

you know and i don't know if i've said this publicly because i've had a number of debates with kyle and you know kind of had had some uh some interactions with them on twitter i've actually recommended them to a number of funds of fun like funds of funds for whatever reason um they somehow got me on their roller decks and they they pick me every once in a while to be like hey we're thinking about you know making an investment into you know this crypto hedge fund or this one or whatever what do you think and i've actually never not recommended multi-coin um because i think that multi-coin is super opinionated um i think they're wrong but if you want exposure to like certain areas of crypto you know if you just go down like this maxi passive you're positive you're a

fund right you want exposure to people that are kind of maybe a bit counter thinking whatever so like i actually think multi-coin is fine um but you know tactically i don't agree with some of the things that they do but not not throwing a random tangent about funds cain but who do you think who who someone's like i'm either i'm raising capital for three front from three funds or i'm allocating to three funds who are like the best who are your favorite funds in crypto right now um i mean obviously you got a lot of love for a framework right um you know they they kind of turned up in the bear market um you know we're one of the first funds to really get behind synthetics like post pivot and everything so um you know we we obviously have grown up a lot since then

and you know not as connected to them as we you know were back in the day but i still you know i actually had um michael on my mentorship program uh last week uh so you know we we you know keep in touch uh pretty regularly so framework i think are great um and then it from there it kind of depends on what you're doing and and who um you know you like i don't want to go and shill some of the funds that i'm an lp in but like um you know realistically if you're super early stage there's some funds that are too big for you you want you know people that are more like angels so like for early stage like a company or project raising their first round uh my view is always like try and

get as many angels in as you can um and then find like a fun that you think is high conviction in that space and it will kind of come with your journey let's get back to mike's i wanna i wanna get your i wanna get your answer to uh mike's multi-coin question though oh sorry what was the what was the question it was just about like just within different models right like the ability like managing risk like kind of bright sheet risk and having like just moats around fork ability i guess yeah again you know i think the the immediate answer is you know my kind of take on it that like i think there are a lot more modes out there than people realize right like um you know people think that something is as simple as just deploy code walk away i don't think that

you know even the simplest d5 protocol really works like that because you're still operating in a competitive marketplace and there are a lot of alternatives to do the same thing and absent you know all of the kind of structure that you need around you know kind of information uh dissemination and education and all those sorts of things like you can deploy code and walk away and it can just kind of sit there but um you know if you don't have the the infrastructure around it it's going to be really hard to scale it up that aligns with how i like that makes sense to me that just aligns with like how i think companies are built and i'm like okay if you just like let's take block works for example if you just copy pasted like everything our website every single piece of content on the site all

of this if you copy pasta this exact interview and put it out on a different rss feed i'm like well there's no there's no marketing like there are no users and it goes really quickly right yeah there's no strategy and yeah okay so yeah and i just think that's broadly true for almost everything right like you know if you have three things that are doing the same thing two of them are kind of out there like advocating you know educating doing all these things to to you know make themselves accessible and you know build awareness and one of them is not even if it's the same code like the one that's not is just going to kind of disappear into obscurity although it doesn't totally disappear does it it usually goes down to like it retains like five percent of the value

of the successful fork yeah okay which is weird i mean that speaks to like crypto market inefficiency more than like anything right like i think you know tokens never go to zero right they go to like point zero zero zero zero zero one or something okay so i i thought that as well uh and actually our our newsletter writer byron wrote a newsletter on this and we got a response um i i don't wanna i'm gonna protect the names of the units but i thought it was a very interesting observation which is one answer to the mystery white which is why do these uh why do these forks retain any values like the ethereum classic or the bitcoin cash or whatever uh is that nobody wants to short them and the owners don't want to sell down there it's a common thing in very cheap stocks the company is very

clearly bankrupt but the stocks trades at 150 at a decent valuation because nobody wants to short it and the holders just can't be bothered to sell when it's down 95 so it's a kind of standard stable disequilibrium if you will which actually i thought was like the best explanation for why these things still exist that makes sense yeah like i guess it's just a question of why is that equilibrium or disequilibrium so high in in many cases right like it seems like there's a you know an opportunity and i think that kind of speaks to the efficiency like you know penny stocks trading at like a three million dollar you know um valuation of whatever fine weird zombie networks that are trading like a billion dollar evaluation like that seems like they're

you know but i i agree like there is no incentive to short them because you know how many times have people gone short you know wrecked shorting a sump scam or whatever right like you know it's dangerous to shorter crypto okay i want to get your take we're two years removed from d5 summer and two of the biggest things to come out of that was like you know you had uniswap kind of kicked off this airdrop season then you had compound kicked off liquidity mining we're two years almost removed from that a lot of folks have talked about copy pasta like a lot of folks have kind of just dove into liquidity mining and air drops and i think now a lot of folks are reflecting saying like well was that actually good capital coming in it's probably more like mercenary capital coming in and then they're quick to

leave what are your thoughts now that you've had some time to reflect on liquidity mining air drops all these different incentives that were really designed to increase tvl i think that what works in bear market doesn't necessarily work in in a bull market right and d by summer really happened in a bear market right like it was kind of you know one of the catalysts i think um that you're one of the things that had momentum coming out the last bear market and if you think about you know what yale farming did um and you know again like yield farming is a very blanket term right there's a lot of different things like you could include synthetic inflation right and you know realistically synthetic

inflation you know going from a fixed supply token to an inflationary token saved the project right it were not for that there was no way that people would have paid attention to synthetics right like that that yield from staking was what kind of drove the activity and then following on from that yield farming within like uni swap to create liquidity you know um in like uh entry and exit liquidity for um susd and the other synths right was another thing that kind of drove awareness so my view is that the the yield farming campaigns that synthetics did were the things that allowed them to survive right like when we talk about you know kind of unsustainable um incentives to bootstrap like we kind of got to the bottom right you know in

early 2019 and then looked around and said okay like if we're gonna pull this thing out like we need to um you know of the tailspin this death spiral that it's in right we're gonna need to do something uh kind of you know pretty uh pretty crazy right and and so that was where we came up with some of these like yield farming uh ideas to kind of drive that um so i do think that like in the right environment it can it can work um obviously you know sometimes it doesn't go well but like even looking at compound right like a lot of people would say like they're massively overpaid for liquidity or whatever they were juicing up tbl which you know at the time was the metric that everyone want to pay attention to but i think if you went around and asked the average person

who was still in crypto in the bear market right three months before compound launched their their token and started yield farming maybe a third of them would have known about compound maybe i agree with that like you know and then by by day three of compounds uh you know yield farming thing a hundred percent of people knew about compound and when i say like you know crypto people i mean like even like bitcoin maxis and stuff right that are like in their own little bubble off here like if you asked you know samson mal he'd be like yeah i know about compound i hate it but like you know he knows about it right yeah um and so i i do think that like when you when you factor in even though they gave away a lot of value right they probably overpaid and they could have you know it's hard to

get that sweet spot right but like they could have definitely given a lot less yield and gotten the same result but they demonstrated that you can go from you know like awareness market penetration whatever you want to call it of 20 of of old crypto to 100 in the space of like five days if you have like significantly you know uh high enough yield right and and so i do think that like that advertising if you if you went out and did like any kind of traditional advertising campaign whatever try and build that level of awareness would cost you who knows tens of millions hundreds of millions of dollars right to get that level of kind of market awareness so it can later think it would have worked you could have spent infinite dollars yeah it wouldn't have worked

you're probably right yeah you're probably right and and so you know in that regard you say well it obviously was a success right could it have been cheaper absolutely but you know the flip side of that is if it was too much cheaper maybe it doesn't work at all right like there's some tipping point and you don't know um you know yeah for before you start what that's going to be so i look at that the flip side is i look at air drops right and air drops thankfully are not the responsibility of d5 airdrop started back in the ico days as a way of like offsetting private sales as you know throwing a bone to the masses or whatever you know whatever the kind of tactical um move was there so you know we inherited airdrops and then i think most of the early d5 projects did

airdrops um it was probably uni swap that like revived the airdrop concept right like doing it with a token after they raised a bunch of money and deployed a bunch of stuff like that was a different kind of conceptual airdrop but i still i think today my view of air drops is that they're a failure versus yield farming like i think if you compare those two things i think yield farming still has value and the right kind of yield especially in a bear market i think yield farm can work effectively i think that air drops are a failure let me let me try to push back which is air drops now are um you see activity happening pre-airdrop and even pre-token on things because there's a it's it's like airdrops might

be a failure for the project but they're actually a net benefit for the space because they get people to try new protocols and new new projects um and try and try new products so like there are products that are like their products are like pretty crappy to be honest and they're pre-token but like people are people go and use them and they can get like the first ten thousand users because there's an expect because you have these like airdrop farmers and there's an expectation that they that the they might get an airdrop and then for like 1 out of 50 of the products the products actually pretty good so then they go and share it and it goes and it goes viral and you kind of see this with like pseudo swap maybe you could say this is happening right now

yeah and you know again like information dissemination in crypto is very hard right like it's super inefficient i was talking to um one of my mentor projects uh like a couple days ago and i was like it doesn't matter how good of a thing you do right like you know it's the equivalent of like 100 uh bill in the middle of um you know time square or something like that right like that hundred dollar bill in crypto can stay there for like weeks or months right because there's just money everywhere it's chaotic like no one believes anything that anyone says like there's all this like disinformation and stuff and so you know when you look at like market efficiency and and like the efficiency of

information flows it's really really weak and crypto right the amount of times i've seen something where like some project does something it's really successful and it takes like three months or six months before anyone even pays attention to it yield farming and airdrops are a way of kind of short-circuiting that right i think that was like the market solution to like how do i get people to pay attention to me today versus in like six months that it would take from like normal you know tactics of kind of going on podcasts or you know writing blog posts or whatever it was that people were doing so that's fine but then when you think okay so i've got tokens and i'm going to use those tokens to incentivize people to pay attention to me right and you think about what are the some of

the kind of you know approaches that i could take when i look at like the you know the kind of uh continuum of different approaches you know like a pure air drop to just a bunch of random people right which is the old days like you literally sign a form and get tokens right like that that kind of you know end of the spectrum to me is a failure as you come closer to like you know you have to do certain things and you know it starts to look more like yield farming like your point of like there are people using the protocol to qualify for an air drop like that's almost like you know pre-jailed farming sort of stuff yeah exactly yeah yeah um i i have a question just in terms of um you know i have this debate actually

with just like the expense uh so like if you view yield farming as like a very expensive form of customer acquisition like marketing uh you could look at that and say wow that's like really expensive but it's also not a cash expense right and a lot of these protocols like very early stage uh you know they don't necessarily have liquidity right like look at what's happening right now with like lido and git coin and they're all trying to diversify into stables right there's like a very limited ability to do that so like i hear you on the once like you can look at the dollar be like you sold for what you know how expensive was that but like on the other hand how readily was the actual cash available for that as well like you have a thought i just sound like just equity finance

first like actually converting to cash look there's no question you know it's being able to like give people equity right give people ownership in a protocol right um you know is not a cash expense right like if you look at paypal right the original blitz scaling move was paypal giving ten dollars to every person who signed up another person right like this referral bonus now okay you can't give out free money unless you have kyc to like you know anti-sibling right like realistically like and even then i'm sure you know they lost millions of dollars like civil attacks or fraud or whatever like that but they didn't care right like it allowed them to scale up to a point where they became you know critical to ebay's infrastructure and then that whole thing right so you look at some of these like startup stories of you know early like

you know web one startups right like you know back in like you know ancient history days right um you know this this kind of thing has been going on but if paypal had the ability to give away paypal equity right now on one hand dollars are more powerful than equity right for a lot of people because dollars dollars you can use them today you know versus equity but if there is an open market and a semi-liquid market for their equity they're a good proxy for dollars right like it might you know cost more because whatever so i think when you look at some of these tactics and what you can do like yes it's absolutely beneficial that we are able to spend you know non-cash consideration for attention right and and you know to to your point

i think about like markets right like um it is better for the market to have this mechanism right because it drives attention to different things that otherwise wouldn't be able to get attention and some of them are good and some of them are bad my question about air drops and you know even like ignoring pure air drops or whatever is that you remove the need for any kind of conviction right so this is the thing that i that i have an issue with right is that like yield farming required conviction you had to put your own money into a contract that you know i mean it was probably stake in roads that's all but like you had to put your money into some contract that someone encoded you needed to believe you know and if you wanted like real yield right

you might have to put like you know hundreds of thousands of dollars right like some people put like a meaningful amount of their assets into these yield farms right and it became this uh this game of who's in there you know and and people would look at certain wallets and be like oh that wall is in there so this must be safe they've vetted it etcetera and you know there was this game during device summer of like which things are safe which aren't safe and what have you but the reality is you need a conviction so even if you're yield farming and then selling you had some cost almost right like there was a cost to you acquiring these tokens and i think when you get free tokens just for doing a service or something like that um there's a lack of conviction which i think could be

rectified i don't have necessarily the solution to this but i think that removing the need for like some kind of conviction is is a negative on on the air drop side yeah everything that we're talking about is very b2c focused so like yield farming air drops these are ways to get users onto your onto your protocol and onto your platform i want to get your take on b2b or like what feels like like dow to dao which feels like the next evolution of what's happening in d5 i was looking at some of the stuff going on with synthetics you guys have like sip267 it allows you guys to integrate directly into applications i don't think this is official i saw something on twitter it's like the synthetics team is looking to create a direct integration with ave for a direct deposit module reminds me of like what

maker feels very similar with like yeah to makers yeah d3m um with ave uh which obviously they're scaling that up uh with probably other protocols coming soon what is that what is the future of like dow to dow and like is that is that where all of this goes where you have like the base layer of these like og like original d5 protocols that are kind of using other newer uh defy applications is like the front end again i think this kind of goes back to that like earlier point about moats right and people's assumptions about um what would happen versus you know what what actually transpired um which is that composability was supposed to just be

this open permissionless thing right like you just turn up and you've got this contract and you connect it right the reality is that just connecting two contracts is often not enough right and the reality is that even with composability oftentimes in order for something to work you know if there needs to be some like engineering effort on both sides right which now you're into like your b2b kind of uh you know there's a whole there's a whole thing right around like how you you know approach and negotiate and like deal with these things and so i think we're seeing that we're like most of the easy integrations you know simple uh simple kind of purely permissionless integrations um have been kind of uh

have been done right and you know that's not easily accessible stuff has been done but the harder stuff which required convincing the other community to make changes that you needed you know that's like this next evolution i think in your composability but it's not permissionless composability the way that everyone imagined uh you know it's funny about that um jason and i have talked a lot about like m and when is m a coming to crypto so to speak uh one thing that's very funny is like if you consider moat like to be a big uh or sorry community to be a big moat for crypto like the number one reason why m a fails is uh you know what's like what's like cultural differences yeah right um you know so it's just very interesting uh and i'm i'm curious to

see how that all ends up playing out in crypto frankly i think the biggest impediment to crypto m a right now is the fact that like senior age whatever you want to call it profit so you know the ability to print your own money make your own money and the speculative premium even in the bear market that is applied to that is so outlandish that it really makes it hard for two communities come together and emerge right like synthetics has looked at this a number of times right like okay you know i mean you look like the rari faye fiasco i think there's other issues going on there but like it's really hard to even get to a point where you can agree on what the value of the thing is when there's like this you know tradable

token that has a liquid-ish market that has this speculative premium attached to it that might be your orders of magnitude above the actual value of the thing that you bring in right and so that i think is is going to be the biggest impediment until you know some of these things kind of fail and then and then maybe you see like aqua hires and stuff like that that might happen when people kind of given up on the project and you're bringing an engineering team in or something i think that to me feels like the first kind of wave of these things that might happen in the bear market like teams that don't have runway one you know some exit strategy etc but even then i think if you were to go to the average project that maybe raised a few million dollars you know maybe has a

50 million dollar market cap or whatever and looked and said like okay we're supposed to buy this thing for 50 million dollars right like it's just it's nonsensical like you know no one believes that this thing is worth 50 million dollars like it's just a speculative um premium that that's not sustainable and so then the only counter to that is okay but we also have a token and that token also has a speculative premium and so what we're going to do is we're going to print more of those tokens and do like a token swap and that can potentially work but oftentimes the project that's acquiring this early stage project there's like a dislocation in terms of like what that speculative premiere is and so it's you know like are they turning up and being like hey i'm going to buy this

protocol for 100 million dollars and it's like wait what are you buying right like and i like i don't i don't even need to name the protocol you just say any protocol it doesn't matter like it's not worth a hundred million dollars there's no way so you want to print 100 million dollars worth of ave to go out and buy this thing like we can build it ourselves for that is the answer i think that most communities would say so yeah it's it's a challenge i think for m a unfortunately just due to valuation uh nonsense so if m a doesn't happen right now at the bot at what feels like maybe the bottom of the market or near the bottom whatever you want to call it um it's never happening yeah then it doesn't happen yeah this is the time right like yeah yeah you need peak fear i think um

to to tamp down the speculative premiere that you have for these smaller smaller early stage projects yeah i mean there are aqua highers and that happens and sometimes for like really high you know um who was that guy who was the jeff bezos guys that he had like a diaper company oh yeah yeah it was like two billion dollars or something like that yeah two billion dollar alcohol or something yeah so i mean that that does happen even for you know spectacular i think if you've got it i don't think that's what we're talking about no i mean it wouldn't yeah but like if you've got enough scale um you know and i mean the whole point of uh of that company was like it was built on holacracy or you know whatever so like that so even that is like you pay two billion dollars for a holocracy like

you could probably get a consultant to come in and you know yeah help you with that but anyway i have a idea this is um maybe you think this is relevant or interesting maybe you don't think it is but like that speculative premium being applied to tokens um you know there's something that's very different that happens like at a protocol the way that like your equity or token base is decided is like there's some tokens are more fungible than equity like if you consider equity a form of currency that you can buy certain things with you can really buy other companies or people right like human capital that's what you could spend that currency on um so like when you're doing your cap table at the beginning of a company you like divide it up and there's none left over right there's just like okay it's like the founders

the employees and then like the investors right and then at each round you like issue more equity but with tokens it's different like when you look at the initial token distribution it's like okay this is for the founders is the devs is for the community and this is just this chunk that's for nobody but it's what we're going to use to like buy with and it's just very it's very different because that those tokens are like more fungible for you can't buy anything you couldn't go to like cvs and spend uh you know snx not that i know maybe that's in the car but like you can accept more stuff you you can buy more things right like there's it's much more common to accept payment in tokens i wonder if that has an impact um

so i think i've got a couple of thoughts there i think you know i don't want to um blame all of this on like the rc20 standard right but like there there was this idea of like you only get to make a certain amount of tokens right which is not true for everything equity has you can print more tokens right for more equity right and so you don't need to have this undifferentiated pool of value because people understand the concept that when you undo another round you make more equity and then you sell it right and everyone else gets deluded in crypto people like whoa whoa whoa where we do not accept you i want you to scam exactly like i want to know how many tokens there are and it can never change right and it realistically goes

back to like bitcoin days right like this is a meme and it came from like bitcoin there's big supply yes there's emissions but like you can never print more bitcoin if you print more bitcoin the whole thing is just obliterated right and so like that like kind of pervasive thing like got kind of forked into the erc27 right like it was it was included as a concept that okay it's day one you're doing a project how many tokens do you have 100 million a billion like we all know that's not like what does that even mean like they're it's they're divisible to 18 decimal places like you might as well have one like or like it just doesn't matter right unibios notwithstanding we've learned that lesson right um and so so i think like

that is the immediate reason why i think you have this weird idea of like we have to have an undifferentiated pool because there's this meme of like ever almost know how many tokens there will be for the rest of time until the heat death of the universe and if there's one more token than that i'm out right and so so like you know when synthetics went okay hey everyone we've got 100 million tokens but actually we're going to create this inflationary supply and increase the supply like most people at that point thankfully didn't care because like the fdv of synthetics was like three million dollars and everyone's already out right um but if you try to do something like that today right it would be very very hard i think you get a little pushback so that i think that's the primary reason why we see that weird dynamic of

like you have to print extra equity whatever and like even in theory um you know who is it um amc is going through this like there is a cap on equity that can be printed typically right the same like a corporate charter um that requires token holder voting right to unlock so like even then i think there's like a fixed supply ish but it can be changed or whatever but it's just not as strong of a mean so that's the person the second thing i think is most equity doesn't trade on public liquid markets right so it's not as fungible with dollars as you know so as soon as you have every single coin is has a uni swap pool well it feels much more like a dollar than you know some early stage startup to just raise a seed round like who's out there

buying the equity like it just doesn't happen yeah i think a lot of it actually comes down to that the early stage liquidity because it actually kind of flips in your head like one thing that i've noticed that is like totally backwards in crypto and i um i have a lot of mixed feelings about it is um this idea that you should like get rewarded for being first and that rewards should continue to like accrue to you disproportionately which is like the opposite in equity right you start with this like small pool that like nobody cares about and then you kind of grow it and like you're okay with like deluding yourself because you have a smaller part of a much bigger pie and i've noticed that that's like totally flipped in crypto and it's like well i was here first so like what are

you going to give me for sticking around yeah and i've got 10 000 bitcoins and like that um here you can pry them out of my cold dead hands right so yeah yeah it's just it's interesting and i wonder if like part of that is the liquidity uh at such an early stage because you know one thing that i've heard which just literally makes me laugh is like well you don't want to get front runned by the dow you know issuing more tokens and it's like that is so backwards it's so backwards yeah uh you know so look i i think there's a lot of things you know everything on some level is part dependent right and so weird dumb decisions that were made by early crypto participants like even going all

the way back to like 2009 like weird dumb stuff that happened in bitcoin just arbitrarily like some arbitrary decision that was made you know maybe satoshi woke up and didn't have a coffee that morning and was like you know i'm gonna write this instead of that right and like that like one decision like sends you off on this like tangent that like no one can anticipate what the impact of that would be 12 years later 13 years later right but like there is still the ability like nothing is like purely part dependent right you can still find your way back to the other reality you know it just might take time right and so you know i think that as the market becomes more efficient as experimentation happens things that are more efficient will do

better right and you know more participants means more experimentation which means like oh now we're doing this experiment where we don't have a fixed supply like synthetics was one of the first to do this right we were like we're not going to have a fixed supply token we can have inflation we're about to shut off inflation but that's a different story um you know so uh well i say that i'm about to propose it um they'll probably what's the reason for that can you like just what's the reason for shutting off uh inflation and like what are the maybe talking about the path dependencies like what are the second order impacts of shutting off inflation so one of the fun things about

synthetics is we understand i think as a community and and you know this uh i think there are a lot of early people that found their way to synthetics that just liked the way that the community early community thought about things is like you know we're in a lower information environment right so you can sit there and you can speculate about what the impact of anything is going to be but nothing is as good as like empirical evidence right so let's do the thing ideally in a small scale right and we try not to like walk through one of my doors but like do it at a small scale and see if you die right like eat like a tiny little bit of that like mushroom and like see if you live or you know whatever right um you know and if it's like super poisonous

you probably die but you accept that's like the risk of life right um and and so you know i think that this idea of like shutting off inflation people within the synthetic community in the overall synthetic community is like very open to experimentation and we're coming up on this like very meme like number which is what kind of triggered it for me you know there's 300 million tokens about to be issued i think we're like 292 or something like that right so there's eight million tokens left we started off with 100 million then we changed the inflationary schedule and you know going back and forth and had more or less inflation whatever but 300 you know the spartans etc like there's this meme thing about like somehow we ended up at 300 million tokens which no one expected

and here we are right and the reality is why can we do it today versus six months ago because we actually have the revenue yeah for the first time so we could maybe get away with it is it too early maybe right but you know synthetics and synthetics community has never kind of shied away from doing things that are a bit high risk like in worst case it is too early and there's you know some issue whatever then you know we can fix that problem right it's not an unfixable problem do you think and i wanna i know i wanna i've gotta jason i have a bunch of questions for you specifically on synthetics i know you've got a big upgrade that's coming down the pike but i got two more questions before we just uh move on there um do you think there's kind of like a game

theory thing here in terms of shutting off rewards kind of for inflation because if you there was a you know a proposal that almost passed with compound right and to your point right they kicked off uh yield farming right in d5 summer and there was a proposal that got really really close right to shut off rewards and to your point about path dependency i'm like maybe if they had shut it off it would have been like well if compound shuts out that i can shut it off do you think it's just like the game musical terrorism was just waiting to be like i finally shut these things off yeah like you know the overton window of what's acceptable in crypto is typically very small right um because it's still a very small community and so it takes some crazy person doing some crazy thing right to kind of open that up right and

say like oh this is the thing that we can do now right and and i think the reason particularly if you go back and look at like some of the things that were done and some of the like mimetic rules that that you know kind of you know and dogmatic things that kind of emerged in the ico mania was that like in an ico you had like a six-week window from like announcing your thing to like raising all the money right it was insane like there's like nothing the world has ever seen right and so if you made one wrong move you went from you know this reality where you could raise you know millions or tens of millions of dollars billions of dollars in case of some projects to nothing right it was a very binary outcome like you you set one foot wrong and it's over right the community

would abandon you and move on to the next thing because it was just this rapid fire cycle right and so that created this very like rigid view of what is acceptable because you know you would have a conversation with an investor and they'd be like okay so what are you doing with this and you'd be like we're doing this and they'd be like i'm out and that was it like it was done it was not like a conversation was just like sorry i gotta call in 15 minutes for the next you know crazy scheme right and so people were kind of forced into this kind of uh view of okay we have to do these things um but then i think you know over and defy somewhere was similar right like if you wanted a yield farm and you wanted people to go into it like you needed to

use taking rewards all if you wrote your own contract even if it was better people would be like whoa whoa whoa i don't trust this and they would go on to the next thing right so like when things are moving quickly you know people kind of you know huge of whatever is like the accepted you know approach to things um and i i do think that that has constrained our ability to like experiment and iterate and test things um but during their markets the pressure is kind of there to do things right like you kind of have to try new things so i think during bear markets you get a lot more experimentation whereas in a bull market it's just about do the thing that everyone expects you to do as quickly as possible and take advantage of you know this crazy

market momentum i've got one more question about fees um before we close this topic um one thing that i've noticed and maybe push back on a little bit um is i think there's a difference between to what you were saying like proving that a protocol can earn fees right and that there's actual value and it's not just based on you know inflationaries like just giving out rewards versus actually returning capital to token holders and i've noticed that people are like mixing those two concepts up right like to your point right in the beginning you like subsidize your growth like do whatever you got to do to like get yourself on the map then you have to prove like a provable revenue strategy and the ability to generate profit you probably don't have to extract it yet but you have to prove that you like can do it

and then eventually right this is like the life cycle of a company then you return capital to shareholders or in our case token holders and i've noticed that people are like conflating these two things like yes like earn fees so you can give me the token holder back the reward and i'm like that is not i don't just i just don't think that that's what should be happening at this early stage right you should be like protocols right it should be taking that revenue and putting in some form of treasury and like reinvesting it this is a this is a capital compounding problem not a you know juice returns problem what do you think about that i think again that's kind of another meme right of like uh you know there's a lot of entitlement in crypto right and so the entitlement is like whoa like why would i allow money

that could go to me to go to someone else like that's not okay right and so like there's this like very uh kind of uh rigid view of like no you know what could uni swap have to do with and also i think a lot of people look at large treasuries and they say why would i give you know that multi-billion dollar dow treasury more money when i could have it right like that's the other the other side of the coin as well i think um and i think the final thing of maybe where this emerged from was the idea of like dows don't need money they're efficient right they're autonomous like why would a dow need money why do they need a treasury like why do they need to do things right like the early days of like pure dallas like view was like it's just gonna be

some code that runs and like people will kind of be hanging around looking at it but like no one needs to do anything right and i think we've realized that that's actually not the case um so i think there is a tension there between people selfishly wanting the yield as soon as possible right like oh there's fees i want those fees i'm a token holder i've got you know a hundredth of a percent of the supply 100th of a percent of the fees generated today right um but to your point you know is that the best idea um you know that's why we have governance i guess right to like debate these things sorry i know i said this was the last question fees yeah how do you think fees end up getting implemented because right there's a very

rich history and trad vibe like people not liking to pay fees that are upfront so what they do is like everyone's still got to make their money so they put it in the background right like probably the most relevant part of this discussion is like mev um but i'd be curious like get your sense of like how you view that happening uh right like like do you think people are just gonna be okay with paying fees or they're gonna be like hey we demand lower fees and then you say okay well hey we'll we'll take down your trading fees or whatever it is but like we'll find this other kind of sneaky way like how do you see fees getting implemented yeah i mean your payment for order flow is probably the best example right like okay you can trade for free but you know

and i mean matt levine from bloomberg has talked about this like you know a million times right that like actually that is better for everyone right it is a better uh situation but it just feels like there's something like to your point like sneaky thing going on in the background right um you know it just feels like oh this doesn't look good but the reality is that like uninformed order flow is valuable right like that's a valuable thing right like you know because um and synthetics has struggled with this right like this is actually you asked about the the direct integration um sit right and why we're doing that the direct integration sip is kind of the equivalent of payment for order flow right it's like the d5 equivalent of that so we're basically saying to curve we want

your water flow right we know that it's uninformed arbitrage right we know that there it's you know undifferentiated people trading through you know curve and they're doing something else and we're just facilitating that it's not someone who is sitting on finance you know trying to manipulate an oracle update by like dumping the price and then you know like it's not like it's not someone or it's not someone who knows that you know a token is about to collapse because there's been some kind of you know hack or something like that and it's trying to take advantage of it typically it's it's you know 99 of it is just uninformed arbitrage flow right moving between exchanges and amms and all kinds of stuff so we want that flow so how do we pay for that order flow we

pay for it with lower fees and we say we're going to build a direct integration into curve and give you lower fees if you accommodate this new route right and and you know that is a really good way of kind of generating uh more volume because it's valuable to us to have uninformed overflow right and you know um not have like adverse selection jason's never gonna invite me back on this podcast again if i keep jason a lot of time in like the maker with maker and like just read like think about like hasu and like you know his proposal and roon and like his end game and i actually do want to get your take on what's going on with maker but not yet i

want to get your i'd love to just hear like what is your end game for synthetics like what do you what is what is the vision for synthetics i think my vision versus like what the vision is um you know sometimes gets conflated right like it is i wanna hear i wanna hear your vision not the communities not the forums your vision yeah so i think my vision is i want synthetics to be the thing that i've always wanted for synthetics is to be self-sustaining right so that means that you know we need to get to a point where the volume and transaction activity that's happening is sustainable right that we don't have adverse selection we don't have the risk of front running and you know all of that stuff and so the vast

majority of the work of synthetics over the last like three years has been like front-running mitigation right like adverse election mitigation and trying to prevent people attacking the exchange right because you've got this open system that you know anyone can come uh and trade against and so people are constantly attacking it right and we've gotten more and more sophisticated at kind of preventing those sorts of attacks and you're trying to minimize the damage of them um but right now it's still like an arms race that's ongoing right and so you can't just say like all the contracts are there see you later right like within six months someone would develop some new scheme to like try and extract value from the contracts that would be

significantly bad you know like it would it would be very detrimental right i would imagine um over time obviously that risk goes down because we've kind of like but we've chipped away at the advantage but like that is just a very real thing that is ongoing with synthetics so until we get to a point where we're like okay this feels like we've got a long-term solution that is sustainable like a sustainable equilibrium then we you have to keep working on it right so that's the first thing i think the second thing is to get to a point where the community and um you know particularly stakers are sufficiently incentivized to continue to like maintain the protocol right like you know it's generating fees it's

working and you know there's a lot of uh kind of um distributed parties that have a significant incentive in keeping the thing alive right at the moment you know they're i think if you if you kind of switched off the efforts of the core contributors let's say right um and the dow stop paying them you know would people turn up and do things like are the incentives alive for them to kind of continue to do things um probably not at a certain point though when the yield is high enough from you know fees and transactions and when the risk adjusted you know adverse selection issues are dealt with people i think would just continue to work on it because they're making money from it and you know it

becomes more like a genuine open source project right where like there's people who are reliant on on you know it as a service and will contribute to it so for me that's my vision it's like to get to a point where like across all dimensions synthetics is sustainable um and you know it's never i i don't believe in this idea of like it just gets to like a stable point and then it stops right and then like the contracts are done and you know i think there's always going to be ongoing maintenance but the key is to make sure that ongoing maintenance is properly incentivized long term so you don't need to keep pushing it to keep that maintenance and keep the momentum going there's an interesting dichotomy between like i hate the term web 2 and web 3 actually

but i will i will use it here which is like web 2 founders and web 3 founders which is use what's what's the end state for web 2 founder it's like i want to ipo or i want to get a big exit and like when you talk to a lot of web three like i don't know crypto native founders oftentimes the end state the end game the end goal is self-sustaining what why do you think that is like why is that your end state because if you look at a web 2 founder most of the time they've created some you know multi-tier equity structure where they retain control um you know them and their descendants for taking control of this thing in perpetuity right and realistically that's not sustainable and i think web3 people fundamentally believe like at

some point i will die some point in the future i will die right so if synthetics is reliant on me being alive that is not sustainable right and that's a very like philosophical way to approach the problem but like if we don't have the right incentives in place such that someone steps up or you know ideally a lot of people step up to continue to maintain this project and you know maintain its value and continue to push it forward in absence of me being here then it's not really sustainable like you know we've seen this happen in a lot of two companies you know the founder leader leaves and the thing falls over because it was never really sustainable it just was relying on the efforts of that one person to keep pushing forward um so so i i think that is one of the

reasons why like a lot of us are you know a lot of the early crypto people you know very like crypto anarchist and you know believe that you should have like distributed control and you should have like a single hierarchical you know tree of decision making etc and so in that environment the only way that you can have something that's sustainable is you have the right incentives to like keep the thing going long-term in absence of this founder leader you know idea term to become self-sustaining you obviously have to be set up as a dao but i'm curious if if do you think you would be more or less successful like up until this point if you were not set up as a doe if you were just a centralized company you were the ceo you could execute really quickly you could

hire the people that you want to hire you could ship the products that you want to ship would you be more or less successful up until this point if you were not a doe far far less successful and this is the thing that people miss right um who is perpetuating this myth of these magical geniuses that know everything that have like this game plan or whatever right vcs and the people themselves right yeah like you know it like there is no such thing as like this magical part like okay vitalic notwithstanding right like and even vitalik isn't sitting there saying like do everything that i say right most of the things that vitalik says tend to be pretty right like over a long enough time horizon but like you know i guarantee you that even vitalik short

term has like i mean we know that right like vitalik got up there you know multiple times and told us like some new thing was gonna be the best thing ever and if he had like unilateral control to like push forward every single change and the community just accepted every single thing and there was no pushback from engineers or whatever we would have gone down a very different path and probably would be much further away from the scaling goals that you know we have for ethereum right the same is true for every single project and every you know if literally we listen to everything that roon said like i love roone but like he has some dumb ideas sometimes right like and so do i like so you need checks and balances right and i think what we have in a web 2 company in terms of checks

and balances is very weak right um and you know so we have this survivorship bias where you know you have a whole bunch of companies with single leaders very hierarchical and like 10 of them survive and we go oh my god look at these 10 magical creatures that have come down to like save us from ourselves or whatever right like the other thousand that we made separate random dumb decisions and died we don't care about them right so when we look at web 3 and think okay how do we not fall prey to this idea of like a magical leader that knows everything you know omnipotent or whatever the answer is like you put structures in place to make sure that governance is is much more decentralized and the reality is that

decentralized decision making while it might be slower is much more effective like that is unequivocal for me like i think dows and genuinely decentralized will out-compete other organizations and other forms of coordination over the next like 10 to 20 years and in hindsight i will look back and be like wow that was so obvious like who thought that like adam newman was the guy that we should be giving you know billions like why are we giving that guy unilateral control over like tens of billions of dollars right like no like it's just dumb right it's dumb and it's a meme that has been perpetuated by vcs and the founders themselves yeah do you think do you think this will be the case for all company like all company like you think dows will

eventually in all industries get bigger than centralized companies or you think it's specific to d5 i think you know human coordination is a human coordination right and like you know corporations as a form of coordination have had a very good run right but everything evolves and and you know when you look back 50 years and look forward 50 years reality looks very different oftentimes right like you know as we kind of progress um and so i think that the idea that you have this new coordination mechanism right that exists this new technology is not going to transform how we coordinate ourselves is is very crazy to me right like obviously it will in the same way that like people were like oh you know the internet it's

interesting but i don't think it's gonna have a huge impact on anyone's lives right like there are a lot of people who because they just don't have the like vision to like you know and it's not like you are sitting there saying i know exactly how this is going to play out like i know how the internet in you know 1990 is going to play out in 20 no one knows right but like you can sit there and say i don't know but i know that it's going to be weird and stuff's going to happen right and i think that that's the same thing for crypto like i don't know if dao is going to look like what they look like today it would be weird if they did but there's no question that this technology is going to unseat the kind of technology that we have in place today

uh kane our analysts are going to kill us if we don't ask you at least some technical questions about the v3 upgrade right so some of the features that they're literally gonna get murdered uh so some of the features there are multicollateral staking customizable depth positions permissionless sense so maybe if you want to touch on some of those but like just from a high level like what is v3 what are some of the big changes that folks should be expecting yeah so i think v3 is our chance to rebuild the protocol from scratch taking into account all of the things that we have learned of the last you know four and a half five years right and so you know they're like and even there were just things that were not even contemplated right like uh from like a technical perspective right this idea of like

continuous time functions like we you know they existed but there were no implementations in solidity back then right and even like proxy architecture and like all there's so many things where we just had to cobble together some solution to make it work at the time you know back in 2018 or even earlier in the case of some of the like haven code and so we've learned a whole bunch of things and the industry has gotten much more sophisticated there's you know a lot more kind of you know design and mechanism work that's happened um and we have kind of looked at all of the functional components so synthetics requires you know claiming of fees okay great so back

in the day we're like what if you claim the fees once a week and you have to do this weird convoluted thing and it's super expensive whatever and now today like we have a mechanism for claiming fees that you know in continuous time that like most protocols use and it's just the understood way to do this thing right but we can't slice out that little bit of code and replace it because you know the overall thing is is just so complex right so we basically said okay let's take all of the functional components look at what the you know state of the art is in terms of how you implement them today on chain and design a system around those components so it's doing the same thing in just a much more effective way basically and then there's some things we're like that was a dumb idea let's remove it and

replace it with a better idea what do you think about uh so one of the the things that i think you have to keep in mind right especially as a as a d5 founder today right is regulation especially us-based regulation be curious um you know to get your thought on like for sense do you like expect to just be able to because one of the things that i think you're introducing as well as like permission listens so you know the ability to create something like an equity right like an instrument that mimics like tesla stock or apple or something like that i think u.s regulators have been not super kindly predisposed to so yeah like i'd be curious to get your thoughts about like about just that whole interaction yeah i mean you know i think if you go back three weeks ago or whatever right um

most d5 founders would say that like we weren't in an environment where something like of sanctions were super likely right you know or even like some other regulatory body like really like bringing the hammer down right it's one thing to like you know go after some fraudulent actors and you punch them and make them discourage profits or whatever but we hadn't really seen like a lot of aggressive uh behavior towards what i would call like good actors in the space right like people that were like genuinely you know trying to build things that had value for uh for their communities and society i think that has shifted a little bit right so previously i would have been like well you know synthetics is sufficiently decentralized that um even

if a regulator might not like the idea of synthetic equities if the community decides to deploy a permissionless contract to do it right that's fine um but i would say today the the kind of uh trade-off space there's shift a little bit right where i would say like probably you shouldn't do that right like the community probably shouldn't do that now okay you create permissionless synths right and saying whether you create like permissionless uni swap pools and you can't really stop people but what that's forced you need to have to do as like uniformed labs i guess right like probably it's like blacklist a bunch of assets right and and you remove them from front ends and things like that so that's not something that synthetics as a community has typically done um but i

just think we need to be much more mindful um you know given the current environment than we were so i i think you would have a hard time convincing the council you know who are ultimately the representatives of token holders right i think you'd have a hard time convincing them to uh create you know synthetic equities how about um i know another idea that you've talked a lot about right is liquidity as a service can you walk through walk us through like what that means for you specifically yeah uh you know there's a lot of people that are trying to experiment with this right um you know they're like protocol liquidity and you know different different things like that um and so i think

you know we unfortunately a lot of the projects that were experimenting with that stuff tacked on weird ponzis which um you know kind of uh created like a little bit of like a a weird sense from people that like maybe it was not like it's legitimate um you know of an idea um but i think that um you know the the reality is that like liquidity is one of the most critical things in d5 right um and so if you can uh facilitate more efficient trading um people will pay for that and we're seeing that with like atomic swaps right so like synthetics is this like liquidity as a service that is injected

into the middle of like an arbitrage trade right it just makes that trade more efficient right and people are willing to pay for that because they get a better fill et cetera and it's kind of like that payment for the flow stuff that we're talking about as well um so i i do think that like a lot of what we're doing in d5 is just about provisioning liquidity right and then the question is like how do you pay for it and who who pays for it who benefits etc um i have a just you know whenever you're looking at something that's as complicated as provisioning liquidity except i i think it would be an interesting exercise for listeners to like if you had to sum that up and describe synthetics in one sentence for your business model how would you do that because i've thought

about this for block works too yeah i i like you know this is not the first time that i've uh that i've been presented like even like you know in the community right like people turn up and they're like what do we do and i'm like i don't know like we do a bunch of random stuff right so like you know inspiring yeah exactly i know right um like i think ultimately like synthetics and i've said this i've said this before many times right synthetics is less about being a specific solution to a specific problem as it is like a generalized like solution machine if that makes sense right like what we're you know we see opportunities and we try and solve whatever the challenges are for like

taking advantage of those opportunities so like atomic swaps is a good example of that right like that was not part of the core synthetics you know mission right like it was really like we wanted to build an exchange where you could trade synthetic derivatives of things whatever and then just the market shifted a mms became a big deal curve and stable swaps and all that stuff became a big deal and we just saw this market opportunity where like wait you know if you have two pools that are you know super liquid but are disconnected right um and siloed if you could bridge those two pools you could you know capture a lot of value right and so you know literally we went out and tried to solve that and we've still you know taken we had like a bunch of smart people andre

and anton from one inch a bunch of people trying to solve this thing right and you know it turns out it's really hard problem to solve to do it in a way that's like not front runnable and not exploitable um so i again i i kind of think like synthetics is about just trying to solve hard problems not about like any specific solution um i guess just the last the last question uh this also comes from it comes from our analyst uh you kind of talked about it with the decision uh to go off the inflationary schedule um and the way you maybe describe that is like not to put words in your mouth but it's maybe it's not about the kitchen sink type thing but it's like definitely a very important decision that i'm sure you've chewed over quite a bit um cues again kind of like sum up for us like

what is the reasoning behind moving off the inflationary model like what are some of the risks that you see in your mind and what do you hope to gain right like when you come out of the other side like not being dependent on that what's the you know other than the 300 meme which i'm sure you can rip like great uh leonidas memes all day long but like what's the what's the valhalla so i you know we actually and this got less attention but we actually tried the alternative right we actually tried to increase the inflation right right to see if it would have an impact on staking um and you know i had this idea that like if you increased inflation significantly you would get a higher staking rate now staking in synthetics is kind of critical um particularly in v2x and current system in v3 it's less

critical but in v2x it's critical that people stake snx to provide liquidity and we were you know pretty regularly trading above peg right we're having a hard time like getting enough synths into the circulation to meet demand right and so the idea was well you know we're only seeing about 65 percent of that's the next state right back at its peak you know in 2019 it was like 85 or 90 something like that right and that was with a higher inflation rate so we're like okay fee yield is not sufficient right now what if we increase the inflation rate and we did and really didn't move now my argument was we didn't give it enough time right and that like you know maybe which is my that's always my argument right like you just need more time but

like you know maybe after six months or 12 months of higher inflation maybe would have moved the dial but at a certain point you need to say well look we've experimented with this and it didn't work right so we you know started decreasing the inflation rate uh about like five or six weeks ago or whatever um in response to the fact that like this number that we're trying to get in like the staking percentage just didn't move right and so my theory is well okay we tried it in that direction let's try it in the other direction like if if incentives from staking are not um you know like the inflation uh inflation rewards are not sufficient to move the dial what if we remove it will people keep staking um and if staking rates drop then i think we'll need to like assess that but you know if we end up in

a place where like 50 of snx is still staked just for the fee yield and people have an expectation like future for yield will go up then like theoretically that should create like a positive cycle because you've got less you know snx kind of being printed every week and there's a lot of people i think out there who sell their inflation right so it is it you know even though inflation is locked there's a lot of people unlocked smx that can you know okay i've got 100 snx well i'm going to sell i'm going to go and hedge my exposure for that year by selling 100 spot snx today right and so you remove that constant selling pressure even if it's only 20 of inflation or whatever that's that's being sold every week you remove that and i think that that will have a positive feedback loop in

terms of you know kind of price discovery and realigning things so that's that's the overall reasoning but also the 300 also always do it for the meme yeah exactly um okay i want to think about wrapping just with a more with that uh two topics that are not related to synthetics one is i want to get your take on maker and like kasu and roon and just everything that's happening there the other is i want to get your take on protocol specific stables like ave rolling out stables i'm curious yeah i mean you can start where where do you want to start look let me address the stable point thing first right like you know this go this speaks i think to um to michael's point earlier about like

returning money to investors versus like reinvesting it right like is ave whatever ave is right the best thing that ave token holders could be giving capital to like the best entity the best you know whatever um thing to be investing right like because you get to a point where people are building empires right they're like oh stable point sound fun like why don't we do that right or maybe we'll build a social network or whatever right so if you are giving like yes standing is amazing and yes the ave community is amazing they've done an incredible job of last five years but like am i giving them my marginal dollar to go and build

something because i think this great idea like that's not how we solve investment right like we find a small team that's got a very you know clear idea of what they want to do when we give them the money and say go out and do this thing right and focus on it so in that sense like returning funds to token holders so that you don't have this giant pool of capital where you're like oh what are we doing today i guess we're gonna you know whatever right so that that's what i worry and you know the second thing is i think people think stab people have forgotten that stable quotes are hard like and you know this speaks to maker right like why did they forget this because maker just jammed a bunch of usdc into like a rapper contract and called it a day right like you know and

i say that like in the meanest possible way because i've been against this the entire time but like it made people have this false sense of like oh it's not that hard to have a decentralized stable coin but you know ust you like look like look at the you know the counterpoint right like it's really hard to build a stable coin that is sustainable it doesn't matter how much capital you have i i would um we were doing a um an analyst called like our qt analyst colin uh there was a prominent uh like finn twitter listening and he dm me and he said they were talking about the decentralized like these stable coins like go and the curve one and he was like do you do you realize that your analysts are just describing private bank notes and i had to sit and think about that

and i was like that is like literally exactly right from like the wildcat banking days like each bank would be like hey what do i have i have this uh there's a whole bunch of assets here i can issue a dollar against them i can do my own little private uh fractional reserve banking system and like that worked horrendously so yeah it's you know it's funny like i um i try to re-read this like once a year um hayek's denationalization of money right um where he he talks about this idea of like being able to like issue you know your own currency right like having like a market-driven version of currency rather than like having like decentralized into a central bank or whatever um and i think the interesting thing about it is that like he didn't contemplate the technology so

like obviously he was like well the only entity that could do that would be a bank right like but now actually no like we have the technology that anyone can print their own money and it is a much more like market-driven thing the problem is that like not everyone should print their own money right and even more importantly it's one thing for ave to print ave tokens right as like a form of equity and use them to you know create incentives or whatever it's another thing for ave to like create their own dollars right like that's like a different thing so you know um again i think people underestimate how hard it is to to manage a stable coin in the same way you know and again like i love ave but like i think ave has already come to this conclusion that synthetics

came to you know a long time ago which is like it's also really hard to be on like 55 different networks right like you know if you go and deploy your code even if it's just like oh we're gonna dump it like it's not as simple as just deploy the code and walk away like you have to maintain it you have to deal with the people who are using it like it's really hard like and you know oftentimes each marginal network is is going to be net negative for the protocol it's gonna be a distraction and and you know so that you're already seeing them like pull up some of those deployments and be like actually we're gonna shut this thing down right so but it's good experimentation someone needs to do that experiment thankfully ah they did it for us and they've told us that maybe it's a bad

idea to deploy into every possible evm compatible chain as quickly as possible um but to come back to the mega question um i actually spoke to roone uh for the first time um in a little while um last week and you know i think everyone was caught by surprise by this tornado cash thing right like you know okay we sit here and you know we we talk about all this cypherpunk stuff and you know uh anti-state stuff and um censorship resistance whatever um i really don't think in the same way that like everyone was a bit caught by surprised by like the aggressiveness of the sec you know over the last 18 months i think

we all kind of thought we had a bit more time before like we genuinely had state actors coming after us right um and i think that that was mako's thesis realistically right they're like oh this is not gonna be a problem like your cc is fine you know it's not like an existential threat etc and now i think we're seeing that like actually it is right like they have the ability to block token addresses they are not just willing to do it but like they're eager to do it right and with the right incentives you like your circle is eager to like they will over comply right like ofac didn't come to them and be like hey go and block all these addresses as far as we know right they looked at it and said what is the biggest de-risking thing

that we can do block everything right and just like shut down those addresses and the idea of like stranding end user funds right and like not insignificant amounts of money in these contracts as like an over compliance thing is like petrifying to make her as well it should be right like you know all like what is the threshold that would get some entity you know like doesn't have to be of could be you know some entity in europe or like who knows right it could be anything but like we don't know what the reaction of circle would be i mean you know making a call to block the maker addresses as a compliance measure would

be pretty huge right because it would almost invalidate usdc as like a stable coin right so that would be an existential threat so it's definitely a level above tornado cache but like do we want to play that game right so i think that the reality is the maker community um made a bad call a long time ago about how to scale die by just dumping a bunch of usdc in there they thought that they would have more time to get themselves out of this mess and figure it out but i think you know unfortunately they're out of time and they're gonna have to make some hard decisions about what the path forward is so if you were the benevolent if you were the full dictator of maker what are what are you doing if i look if i was a full dictator of maker there never would have been any

usdc in die right but knowing that there is no knowing right knowing that there is if they said to me today hey come and be the dictator of maker i would absolutely shut down all parts going towards real world assets real world assets are not the solution here right like and i've been against them since when they were first proposed in like 2018 right like this idea we're gonna put you know treasuries and all kinds of stuff in there um so like i just think it's just a bad idea um you as soon as you attach something to the you know real world like a small contract to the real world and reliant on it that is a you know a pressure point that uh anyone

can leverage against you right and your ability to maintain censorship resistance and um you know uh avoid regulatory pressure etc just is gone right it's the same reason why i advocate for daos to not have entities right as soon as you've got an entity even if it's like a cayman's foundation or a swiss foundation or whatever as soon as you have one entity that has some control over the protocol that is a pressure point that people can leverage to uh to try and you know impact the protocol so your perfect collateral like you think the collateral of die should just be bitcoin underneath i mean this is the problem right like that's not the solution like we've seen that right like that doesn't work right okay so

is there another solution and i like my argument at the time when this was happening was maybe you threw up your hands a little too soon right like synthetics has dealt with all kinds of issues of you know supply constraints or whatever and we've chosen ideologically to not deal with those supply constraints by using usdc we could have like synthetics would probably have like two or three billion dollars worth of supply right if we had decided a year ago or 18 months ago to just dump uscc like no question right like it makes sense like susc is used to farm a bunch of things people want more of it like uscc would have just you know flowed in and like the majority of uh of since would be backed by uscc right now

if we'd make that goal i i think that's pretty obvious so yeah that that's my that's my view is that like it's it's fruit from the poison tree as soon as you take that first bite game over yeah because it's going to be hard to wean yourself off at cain this is actually one of the biggest yeah yeah yeah you're getting i was going to i was going to rap kane i know it's been now yeah i think we could do this for three more hours but this is yeah thanks for uh waking up early and doing this with us it's yeah my pleasure really enjoyable definitely need another coffee though um [Music] yeah hit in the end another three youth another espresso yeah exactly exactly but yeah it's been super fun um i think uh like honestly like a lot of these topics are topics

that don't necessarily get raised on like you know the average uh show right like we were just wondering about like what's the road map look like whatever i think that like most of the things we talked about early on um are much more important than like specific aspects of any one project right like they're fundamentally i agree with things we need to we need to address uh to move forward so yeah cool man we'll do it again soon thanks guys appreciate it all right be well see ya [Music]