How Ethereum's Tokens Can Continue to Evolve

Transcript

[applause] >> Hello everyone. Thank you for being here and huge shout out to Karthik and the whole East Global team of like this is such an amazing time to do an event in the middle of New York. You know, like with all of the negative energy and like Ethereum sucks, the numbers going to go down. You know, to all be here I think right now is like excellent and very powerful. How Ethereum's tokens can continue to evolve. So, on the screen you'll see an Ethereum face uh a fi- so, my organization is called FireEyes and here I've made an Ethereum eyes. And on the on the Ethereum eyes you can see one universe which, you know, looks sort of okay, has a small little, you know, so some stars in it and then one universe that looks amazing, right? One universe that has like gravity, you know, way

more gravity, way more stars, way more amazing sort of opportunity. And so, what this talk is today is really like how do we go from the one on the left to the one on the right, right? How do we make Ethereum more of a beautiful universe with more stars, more amazing things inside of it and sort of what those stars are I would say are like tokens on top of Ethereum, right? and sort of how those tokens can continue to evolve. So, we want to make a beautiful universe, you know, that can have much more inside of it. So, what's some sort of like stats around the number of tokens on top of Ethereum? So, here you can see, you know, this is like a chart from 2017 to 2021 about like how the number of number of tokens, the cumulative tokens created on top of

different blockchains. You can see that like Ethereum has a clear market share, you know, there's not really anything else there. BNB chain has a few, but like until 2021 Ethereum is a very clear winner in terms of the number of tokens. Then, oh no, Solana. Look at how many tokens Solana has. They have, you know, 100 million tokens right now and Ethereum is only a tiny little sliver of that. You know, so why am I here talking about how Ethereum's tokens can evolve? Like should we be talking about Solana's tokens? Well, the reality is is that Solana's tokens are worth nothing. You know, despite having 10 times as many, you know, tokens uh on top of Solana, they have maintained, you know, a very, very small market share in terms of that total amount of value. You know, which is basically because, I would say, you

know, despite the number of tokens, you know, going up and up and up over time, the number of tokens that have been valuable have all stayed the same and all been on top of ETH, you know, despite the fact that there's like you know, 100x [snorts] more uh tokens on top of Solana than there are Ethereum, you know, that value has just never been captured by those ecosystems. And actually, you know, in the last like couple of months, you've seen that collapse even further, right? Where it's very hard to be a sustainable token on top of Solana. You know, maybe like there's one or two DEXes that actually make sense versus Ethereum has, you know, significantly more market share. >> [snorts] >> So, you know, let's look at the 10 years of tokens from sort of here to now. And maybe why, you know, despite the fact

that I have love for all tokens and, you know, the different types of magical powers, uh they have been suffering, right? I will not sugarcoat it. You know, like over the past, you know, whatever year, all tokens have gone straight down. So, why is this happening? And how do we sort of change that? So, on the far left, you'll see, you know, in the beginning of tokens, there was um the DAO and a project called Digix and a few more. These were projects that were really like early in the Ethereum ecosystem, and you would basically just deposit your ETH, right? You would take your Ethereum you had, you would send that ether to the contract, and then you would get back a token at a one-to-one rate, right? So, if I put in 10% of the ETH, I get 10% of the tokens. I also then got 10% of the

uh market of the governance power over that DAO, right? So, for both the DAO and Digix, if I put in 10% of the ETH, I had 10% of the control over what would happen with that ETH. Right? This is sort of like the initial phase of what ICOs were and what tokens, you know, the first tokens that launched on top of Ethereum. Then we sort of do that for a couple of years, you know, some of those things succeed, some of them completely blow up, and we move on to sort of like governance tokens, right? And where governance tokens really like take their stride in sort of 2019, 2020 with the Compound Governor contract. You see things like Uniswap, you know, uh Yearn, ENS, etc. These are all like pretty good tokens, pretty good projects, but it was like governance token time, right? We're all talking about governance, that's

what it is. And we're, you know, the Digix and uh, the DAO, they were governance tokens, right? But we just weren't calling them that. Then we fast forward another couple of years again, and we get to the, you know, the most recent era where tokens really don't do much, right? Like, you can sort of see that transition from the DAO and Digix where it's like, this is a, you know, token that directly controls the treasury, you know, all the way to the other end, which is Eigen and Worldcoin. And you know, no, no disrespect to the Eigen and Worldcoin teams, you know, but the way that that token interfaces with the protocol versus something like the DAO or Digix is clearly very different, right? The other thing that happened over the same timeline is that tokens became really attractive and like cool, pretty assets that people wanted to invest in. And so,

the VCs decided that rather than letting retail buy them, it would be much better if you could approach a founder as a VC and say, "This is a really amazing protocol. This is a really amazing project. I want to give you $10 million, and I want to have a big chunk of your tokens." Right? Before they even get distributed or there's any conversation about people touching them. And so, it sort of changed the game from one that was very permissionless, very open, very much you show up with your ETH and contribute to a pool and now you have ownership over that, you know, asset to then something that's been completely removed to decentralized control, right? A lot of those tokens on the right, despite having love for them and having worked with many of them, you know, these are tokens where the the value of

that token and the control of that token is very disconnected from what it once was. And the valuations have sort of continued to increase, you know, almost linearly. You know, if you go down that list, you go from valuations that were very small in the sort of millions or tens of millions to then hundreds of millions to billions, you know, sort of value that have been cap- captured by these token raises, which perhaps wasn't the best option. So, here's [snorts] a bunch of uh, things that you won't be able to read sitting back there. But this is basically like the history of the sort of technical innovation as well as some of the social innovation around tokens on top of Ethereum.

One of the reasons I think tokens have really struggled as of late is because we sort of had 5 years of technology from like 2016 to 2021 where we like made, you know, the initial ERC-20 token, we built the first compound governor contract, and we started to really scale tokens. And then we've had, you know, this 2021 onwards, nothing has happened, right? Now, some things have happened, but in terms of tokens, very little has been innovated on, right? We're still using compound compound governor contracts that we built in 2021 and expecting these billion-dollar tokens to use technology that is like 5 years old. You know, despite the fact that we talk talk about this beautiful technology that is tokens and what they're going to enable and all the different programmable things they can do, well, we need to

program them then, right? We actually need to build the thing rather than just sort of using technology that's old and re-spinning it a hundred times to launch new tokens. So, you know, [snorts] what tokens could be versus reality. So, here's my amazing AI Care Bear image, which is tokens can do anything, you know, I think at the beginning of tokenization when these first, you know, and not tokenization that was just discussed by Chris about Plume. I think, you know, RWAs is also a very interesting type of tokenization, but sort of is different to the tokens on top of these different blockchains and sort of how they, um, you know, tokens and governance tokens, that kind of thing. So, you know, the these should have been amazing programmable tokens that can do anything and we can all be happy that we're building a new financial system.

Instead, you know, we generally got like Tim and investors buying houses. You know, most major DeFi protocols that have tokens, you know, the founder has a very big nice house, um, which is good, you know, they should have a really big nice house, but maybe other people should have some of that value as well, right? Maybe it's like every tail is down 99%, you know, perhaps you having a really big nice house, um, wasn't the point of the token. And I think we sort of got lost up in this like value capture where like it's very hard to resist number go up thinking. You know, like if if you see your tokens going up and up and up and up and you're and you're getting richer and richer and richer, you know, does your incentive to build something genuinely innovative go down?

Maybe. Um so, you know, tokens were for regulatory arbitrage. They were for investors and teams to capture value, for scammers, you know, to go down only. But, I'm at least very hopeful that this is not the only thing that they're useful for, right? They're also useful for sort of programmability, digital trust, you know, decentralized ownership. And we just need to build new technologies sort of make ourselves get there. New governance contracts, new token standards, new innovations around circulating supply, you know, like we actually have to innovate and not just follow the same default path that tokens have been doing for the last 5 years, because clearly this is not working, right? We now have valuations that are sky-high and tokens that go straight down.

So, you know, like I actually think I'm hopeful that these tokens can continue to evolve and it's not just this like infinite down only game where there's never going to be any positive sum, you know, energy. And I think this chart's going to continue, right? It's done its waves before. I think it's going to continue to do its waves. Ethereum's going to continue to have overwhelming market share, because why would you want to deploy your token anywhere else? So, if that's the history around why tokens haven't evolved and the sort of the issues that I've spotted around that, what are these paths to evolution? So, I would sort of categorize it into three separate categories. Um existing large tokens, existing small tokens, and new and net new tokens altogether.

The first is for existing large tokens, you know, things like institutional memory. So, if you're a billion-dollar product or a billion-dollar company, you generally have pretty good standards around decision-making, right? Why was that decision made? Who was in the room? You know, what what consider Where's Where does the document live that we used to make the agenda about the meeting? You know, none of that stuff inside of a lot of these bigger DAOs, you know, I have a lot of love for AAVE, ENS, and Maker. You know, Maker actually is probably leading the way when it comes to this, but still, you know, that like institutional memory doesn't exist. Um formalized sort of um contribution structures. So, ENS is um, ENS, sorry my New Zealand accent. When I say ENS, people are like, "What are you saying?"

ENS, um, has has a service provider program, which is like a very, you know, interesting and and novel mechanism. That service provider program has 15 contributors sort of fighting for $5 million to build things on top of the protocol and sort of drive ENS adoption, right? That to me is actually like something very interesting that many other protocols should also adopt is this idea of having like an open contribution structure with like serious pools of capital that you can get access to for building something interesting. The next for these big tokens is like parallel governance experimentation. So, what what does that mean? Is like, right now we have these compound governor contracts that everyone is using that is battle tested that you don't want to, you know, you don't want to put your protocol into the hands of someone evil because you deployed the wrong governor

contract, right? But, what you can do is sort of do smaller experiments where it doesn't need to be all of the treasury or all of the decisions around the tokens, but you can sort of stand up new contracts, deposit ETH to them, and or you know, whatever the token is, and experiment with how you want to move that money around. But, basically like keeping the big structures as the, you know, the way they are for right now, but creating smaller experiments sort of inside of it some of these bigger protocols. The next is these um, existing small tokens. You know, so like exist old standards clearly are not working, right? We do not You do not want to be a token, you know, at a really low valuation, and you're like, "Oh yeah, let's just keep going exactly where we are. We shouldn't change anything. You

know, this is a great path." I don't think it's going to work. You know, and so it's time to sort of like, you know, get stand up, you know, as some of these small tokens and really like make yourself heard and it start to experiment in, you know, unique ways. Some good examples of that is like, so we just did a piece of work with Across. So, Across is a bridge inside of um, whatever crypto uh, Ethereum. Um, Across had a really useful protocol, right? There was a lot of people using the Across protocol and a lot of sort of throughput and volume through Across. Um, but the token really did not have a lot of love, right? It had a very small market cap. And so Across just did something called the bridge Across. And inside of that proposal, as you it's basically like a token buyback or a take

a token take private. So inside of that take take private, you can convert your tokens one-to-one to C-corp equity, right? So if you have 10% of the tokens, you now have 10% of the C-corp equity. Now, as someone that loves tokens with all of my heart, I'm not telling you that everyone should just convert their tokens to equity and we should give up on it, right? But it should at least be an option. You know, and sort of creating different options for these tokens in these different projects, I think is like, you know, is really important. The other two examples there is Liquidity and Infinix. Liquidity is a decentralized stablecoin protocol that has, you know, a couple of hundred mil of TVL. Infinix [snorts] is a new sort of like trading platform and sort of I think I guess complete Web3 experience platform um, built by Kain from Synthetix. But again,

both of these projects have tiny market caps. You know, it's like 10 20 million dollars despite actually having a functional product that people are using and like creating revenue. And so sort of how do we connect these things back together, right? What are the systems and mechanisms we can put in place to connect these things and make the token actually tied to the product or tied to the revenue or whatever that might be. Not that I think, you know, certainly this talk is also not trying to say that we should be revenue maximizing, right? The whole buy and burn meta that uh Hyperliquid is like really pushed forward, you know, should as a startup should you be burning 100% of of your revenue? My answer is generally no. You know, I don't think you should be burning 100% of your revenue. Should you be burning

50%? Like maybe, but I don't think you should burn 100% of your revenue as a startup. But it's about sort of, you know, experimenting with maybe 10% at the beginning and then we see how it goes and sort of like taking the risk to a treasury that can be used to drive forward positive outcomes for that project. So the last is new tokens. And thinking about the way that if you're a new token, I'm really excited about like experimenting with circulating supply. So one of the big issues I think that a lot of these big tokens had is that we built like a lot of the time it was fire eyes with these big protocols building the pie chart, right? Who's getting how many tokens?

How many do investors get? What's the unlock schedule? How many do I get as a founder? You know, often times it's fire eyes' job to say "I think you shouldn't have 10% of the token supply to yourself, Mr. Founder, because this is a decentralized protocol and if you have 10% of the entire market share, you know, in perpetuity for not having to do anything, maybe this protocol isn't going to last for a long time." And so, I think the idea of doing experiments with circulating supply where we're not starting with like a billion tokens up front that we're going to issue on day one, and instead like something like an idea we were talking about last night is that you start with like a 10-year plan of what you would like the circulate the distribution to be. Right? So, on month one, the founder gets 100% of the

tokens. On month two, you sell, you know, the next 100% of those tokens off to the market. So, now the founder has 50%. You know, the next month, you know, you issue new tokens to people that are using your protocol in some way and you do an airdrop. But like experimenting with circulating supply is I think going to be the thing that sort of drives us towards new outcomes because we've been too sort of hyper-focused on minting all of your tokens at once and also starting at really high valuations. So, you know, for these new tokens, it's like big shout out to what Uniswap is doing with CCAs. You know, which is a CCA is a clearing auction. I can't remember what the other C is. You know, but basically it's like they're starting the valuation really low. That's the point, right? Is that these Uniswap CCAs

that are happening, they're not starting at a $5 valuation. They're starting at a $5 valuation. You know, so I think thinking about that circulating supply and how much you want to sort of prop that up at the beginning, you know, maybe you don't want your protocol to be worth a billion dollars and then drop 10x and then the investors are still up 10x while retail is down 10x, right? Because that is just not and that that's like a majority of tokens sort of fit into that category. >> [snorts] >> Um so, these are like three separate paths, but I think, you know, more importantly, if we want to build towards this amazing, you know, so much amazing, beautiful universe with all of the lights and all of the stars and all of the different participants that are sort of making Ethereum the best way it can be, you know, tokens are

important. I have a lot of love for the Ethereum Foundation, but the Ethereum Foundation have never been able to talk about tokens, right? Because this is something that's like financialized, this spooky things here, maybe we can't talk about it. You know, FireEyes has really tried to step in, you know, through through Ethereum's existence and sort of drive better token outcomes for a lot of the largest projects inside of the ecosystem, but I I sort of feel quite alone in doing that, right? Most people that are sort of designing tokens or thinking about these distributions, they're doing it from a really fixed lens, which is that they're an investor, right? They're an investor, they're a consultant, you know, they're designing this to make money, they're designing this to make you money, and you know, your investors' money, and it's actually not about how do we generally innovate?

And so, you know, I'm sort of here waving a flag of like, let's innovate with tokens, and then often times I'm met with founders that are like, "I don't really want to innovate with my token because my investor told me that I shouldn't and I got a lot of money from them and I'm sort of freaked out about it." You know, so part of it is actually stepping into that, right? And sort of understanding what we're building is a revolutionary technology, you know, like Ethereum is an interplanetary network, and tokens on top of Ethereum allow like interplanetary scale of like how coordination can happen around projects and protocols and these kind of things. You know, this is like a huge opportunity that we have, and we're sort of, you know, taking that and we're taking one step in and going, "Okay, now we have, you know, my protocol with my

token where I can get rich, um and I get 25% of the tokens for my team, and we and we're never going to inflate the token ever again. Thanks for coming." You know, and so, I'm hopeful that sort of, you know, those listening in whatever online and in real life, you can sort of like take this as an opportunity to like Ethereum's tokens can continue to evolve, and if we, you know, go back to this chart here, you know, I don't think this is going to go down to the floor, despite the fact that tokens are a brutal market to be in right now. You know, I don't think this just goes to the floor and sits at zero and there's never any market cap on top of these different protocols. I think it continues to grow and so I would encourage everyone here to sort of help,

you know, drive that and and get founders and token holders to sort of experiment and push the ball forward in a way that is genuinely innovating around the way that tokens on Ethereum are done. Thank you very much. >> [applause]