How to Value Crypto Tokens: Fees, Flows or Fugazi | Roundup

Transcript

all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-hosts today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode [Music] welcome back to another Roundup got Michael Michael and Vance what's going on guys up glad to be here Michael's one and two Michael's one and two well I wasn't sure if you're going by Mike these days I didn't know if you had to make a decision I know you've been liked it

I'm in a transition phase here yeah wow and Michael yeah yeah Vance and Michael I feel like we're supposed to give a disclosure now that uh you guys are now investors in Block Works how does it feel to be uh not just co-host but uh co-owners of the bell curve podcast [Laughter] yeah I mean you guys are growing super quickly you've got a good team so it feels good you know we've looked at a lot of different uh startups and you guys are definitely growing quickly and it's it's impressive so that's all cute really excited to be a part of it I was so professional of you I believe

it maybe a little bit more Gusto next time yeah I really believe everything seriously really fired up to be along for the ride yeah no once you've made the sale stop selling how does it feel to have us as investors now we're really excited to have him [Laughter] it's like yeah yeah we've got a lot of them um what do you guys paying attention to this week outside of uh our big announcement what what what's what's interesting

there's a lot of funny stuff that happened this week the uh the one that I don't think is on our uh prep dock was uh Aragon we were debating whether or not to get into that but I saw you I saw you ripping some some fun tweets about it so why don't you can you maybe give us a lay of the land on what's happening in Aragon land um yeah so Aragon is a project that has developed various different software products [Music] um Aragon Court being one of them it's funny because it's like uh you know it's supposed to be a court for like Dow governance which is like obviously solely needed in the wake of this this kind of blowing up but they built a bunch of different things they've raised a bunch of Ethan in an Ico and in 2017 I guess it was and uh they've

kind of been this beleaguered project that just spends money on kind of this that and the other thing like crazy off-sites uh stuff like that basically there's a lot of allegations of like you should just return this money to the community and a few funds decided to try to attack over the past I think quarter uh and so these funds bought a bunch of Aragon or accumulated a bunch of Aragon and they pushed to a vote with the Dow um you know return the capital immediately let's kind of right the ship and and you know go in our separate ways and uh I think they did vote to to and successfully pass this measure to return all the capital and then right as it was about to happen Aragon Foundation rugged the Aragon Dao took all the money and uh

called the uh process of voting a majority of votes and and you know passing something a 51 attack on on democracy just absolutely hilarious that they would call it that also like there is no 51 attack in something that isn't a base layer like it's just like cold voting um and you know I think a bunch of the funds that tried this got worked um because like Aragon is now worth basically zero of the treasury is also worth zero and Aragon Foundation also just looks terrible for rugging all of these people um it's not really their money anyways you know like it's supposed to be a doubt until they didn't want it to be um

and yeah just like the levels of of like cope and saltiness on the timeline this week were unbelievable um it really felt like people probably maybe bought a little bit too much ant and it just didn't work uh and you know it's just a friendly reminder that like this is not for advice and also like don't try to real real fair value uh raid treasury that can unilaterally move the funds on you like that feels like something that comes up in the first hour of diligence when you think about this project but curious to hear what you guys think just is an overall show in my opinion I don't really have I'm not really sure if I have a super specialized take here I did see

um you know ARCA you know they've proposed the buyback basically because the fdp of Aragon I guess is trading below the book value of the treasury I I guess I should have looked this up before I just went to but I would guess most of that treasury is paid up of the Native token anyway so I I think it's probably I don't know about that as an investment strategy for frankly for projects at this stage um but yeah I think it's just it's kind of unmasking some of the decentralization theater that happens especially at early stage Dallas and every time there's something like this that happens it's not like strictly speaking a massive deal but I think it does sort of chip away at

this idea of decentralization that crypto is supposed to be so yeah I just think it's kind of a black mark overall Ian not not necessarily saying that this is the case at all but uh in this particular situation but I do think that it does kind of like made the question of what happens when a projectile is done and like it's built it's complete We're not gonna be changing it anymore like what do you do with the treasury the people are sitting on at that point and I think ultimately what should happen is that it should be value that is delivered back to the community back to the users of the protocol in some way shape or form but uh yeah I mean in this case obviously not happening also like I

don't even know what aerodon is at this point you know they they have a massive treasury but also not a ton of product um and so yeah I I think it this situation is very different but being able to have like the protocol being finished and then being able to deliver that value back to users I think is an important step in insufficient decentralization so let me just make sure I understand this correctly so before this the Dow buttons so that so basically the argument is that Aragon did a bad job of establishing value for the ant token which is their governance token the ant fell below the treasury value Our God came in bought a bunch of tokens

started then wrapped the tokens in a very quick amount of time gave them voting rights they voted for pro routed distribution of the treasury back to token holders so they could make some money and then rather than doing that like following the actual governance mode uh Aragon said that they were getting 51 attacked and changed so that Dow were no longer by The Tao but now governed by a grants program is that that's right like at the time of about I think Arion was like 120 million and they had 200 million of non-stable or non-uh native Network Assets in Treasury and so like there was this ARB if you could get it all returned but if you've ever done governance or ever spent time in any of

these Dows it it's very clear to you that there's kind of two phases of governance one is Snapshot uh and snapshot is not it's like snapshot's not connected to a Smart contract so I'm just more of like a polling mechanism and then you need someone with a multi-sig or I guess in this case someone who had unilateral control over all the assets to like go do something so yeah I mean equivalent to be you know this got hosed here like but also like should you have known that probably yeah well I think you're trying to apply the the activist investing model to crypto right like what's the activist model in a nutshell and you take a company that has great products a lot a lot of use like a lot of customers

huge Tam passionate audience and community and like user base usually cash flow positive all good things all green checks the X would be misaligned management or misaligned employees well that's what you had with that's what it seems like you have with everything I I actually say you know activist investing yes for sure this is more of like the classic Warren Buffett uh investing where you know his class Supply is like I'm not trying to find you know like uh solid companies that are that are trading at reasonable prices like I'm trying to find like cigarette butts that people have already literally thrown into the gutter but there's still like a couple of Puffs left in them you know things that are trading below their their

residual value things that are trading below their cash value but the the leap here is that you have the assumption that you're going to be able to take that purchase of these assets the anti-touting in this case for 120 million in value and be able to recover 200 million in value and and I think that's Vance's point which I totally agree with it's like anyone who's experienced in any of these decentralized governance mechanisms you're not going to be able to like just like flip a switch and turn over like all right give me the money now no that's not how this works on court like you do the money still no like this is not this is just these things are honeypots for Trad five

people I feel like because it looked Jeff feels exactly like traditional Finance but it's not so what's happening with Aragon now so now they took back control and they're they're fine I I wouldn't say they're fine I would say there's like pending lawsuits but like it's a Swiss registered utility token so like crack your bags you're going to Switzerland yeah and here's why this is gonna be bad as well as uh you only get like Mike and I've been talking about this a lot actually with Bitcoin which is like now that bitcoin's venturing into like D5 on bitcoin and things like that it's actually hurting the brand I think because you kind of only get as a company like one maybe two words to describe your brand

um and you have to like rally a community around that like that word and that ethos and if Aragon isn't willing to operate as a as a real Dow here their mission and like their values are completely killed which kills like that that is their customer set you know yeah I would say they lost track of like who their customers were a long time ago like Aragon Court doesn't really work like Aragon the Dow governance framework is like okay not great how does it all connect to a token extremely unclear maybe some of these things shouldn't have a token but you know like this yeah yes yeah this is a bummer to me because like if

Aragon didn't have a token Aragon could have just been a sick SAS company where they just built really good products and just charge people 20K a year increased it as the seats went up and boom called it that as that was just a note here I was actually wrong I just assumed most of their treasury would be in their native token but they actually did a much better job than most thousand diversifying so I would have I would have loved if usdc and eve were flipped to Europe but I mean this is this is like a top five percent of bad treasury management yep the ideas that come to people in Bear markets when they're like oh we should like go after this person and get their money because like they're not spending it wisely and like it kind of never seems to work I guess like worked out

kind of worked in in the same vein that was like the success case but but why is there Advanced why is that wrong the the token market cap was 110 million and their treasure is 185 million so if you're like it's a cult that's a huge mismatch there sure your upside as you make you know 1X your downside is you lose everything 1X you know like there's no asymmetry there and like chances are you're gonna get rugged and the amount of people that have like pitched like tezos has fought or like I think it's like two or three billion dollars of their treasury Natalie let's go get them it's like I'll see you when you get back you know I'm I'm just gonna like buy Ethan chill like it doesn't feel like

that's the best use of your time and there's like things that feel like work and when you invest like when you're like doing things and then there's just like things that don't where you're just like holding and being patient it feels like people just wanted to do some work here and it didn't really pan out well and it stems from the fact that you have all these after the semesters in intrad Valley you have the Warren Buffett investment the standards in Trad five and people want to replicate that and be those things in web3 and because of that it's sort of like this imposter syndrome of oh I want to be able to go off and like extract value from like 125 to 185 and it just doesn't work the same way uh and so yeah I think yeah we've seen this a number of times like we know a number

of investors who have the same mentality and have the same strategy uh but frankly I haven't seen a repeatable process that works by the way did you see that hindenburg's latest Target is actually um uh cry like I don't know oh yeah crazy story like it's good for for uh Carl can you what's the I haven't looked at this what is what's going on so there's basically allegations of him inflating asset values uh that are liquid and there's pretty good evidence to suggest that that's probably happening um Carl owns 85 of the shares and and his son owns 85 of the shares of Carl icon company I forget what it's called

maybe it's just called icon Enterprises on Enterprises and he's pledged 65 of the 85 percent as personal margin loans now if I told you this story what did I remind you of did I remove that marking up liquid assets paying quarterly dividends that people have advised him to not do allegedly including with Jeffries which is an investment Bank to sell these shares to retail and then taking a massive personal margin loans like you know he's obviously like a legend and uh I'm sure he would say terrible things about crypto if he had the chance but like what are you doing what like what what's uh what like what is the most plausible

solution for this or you know answer for all these questions and uh you know he hasn't put any you know answers to the questions that hinderberg asked and he's just continuing to increase his pledges of shares against these margin lens and the things that he will not disclose are what are the terms of the loans what's the liquidation price what's the loan to value you know how much debt have you pulled out of this thing and oh the other interesting part is so he pays up this massive two percent dividend per quarter but he doesn't pay it to himself he takes his dividend in paid in kind shares I saw that like like think of think of this as like um you know like if he were to take the

dividend in caps you would dilute everybody else's dip in so he doesn't do that instead what he does is he just takes more shares pledges them as marginal loans and like it all works in a circular way watch on watch off yeah I'm sure there's no problem uh but I I just like I don't know it makes it makes me wonder how many times other people have run this same scheme because you know the implicit right if you're obviously people who listen to this podcasts are familiar with the ftt scheme that he was pulling and you can basically replace FTD with ftt with shares of Icon Enterprises and uh Jeffries with Genesis and you'd be right there right with the

exact same analogy and I don't know it just I didn't realize I was like when I've kind of put that together with what he was doing what SPF was doing I was like oh that's actually it's kind of clever but I mean he was just doing running the Playbook that millions of you know uh billionaires have run before I don't know um the the answer is a lot a lot of people have run this Playbook before ah gotta imagine Bill ackman's pretty hyped right now oh yeah he was he was retweeting in Denberg and all that stuff and he's sitting in his apartment I'm like what the is gone yeah I bet that guy's so fired up right now oh one of the most epic moments of

financial media ever was when uh Ackman went on CNBC and then icon joins the call and they're duking it out on CNBC is that is that over Herbalife or something yeah yeah yeah all right and then Bill Ackman made a documentary still on Netflix yeah I remember that well and all that good honestly yeah yeah you know what it just reminds me of and then he did a two-hour uh two-hour pitch to investors about why why it was a ponzi's error pyramid scheme and then he asked for questions a bunch of questions went up and he called on his dad first who had placed a question in the audience dad [Laughter] wow you can't make this stuff up you

know what I uh so we just you know don't want to detour too far from here but uh druckenmiller did a great speech um this week you can look up and he had this line it's just it's resonated with me having been encrypt on that for um you know whatever five years but he's like yeah when people when there's zero interest rates people just make really dumb decisions when there are zero percent interest rates for 11 years people make really dumb decisions and I don't know if it's Carl icon but I do think everything that happened in crypto is probably a preview for the real show which is gonna be Trad fight and we'll figure out some some people are definitely swimming they can I I feel like we're I feel like we're further in the process of crypto kind of getting worked and then cleaning itself up like

we're we're still kind of on cleanup Duty for the past two years like we're Distributing Celsius oyster block fi Genesis will get resolved one way or the other this also feels like the bear Market where everybody gets their coins back from like you know Mount gox and the pro or like get gets their coin back meaning like you know the US government is selling it on coinbase but you know I think there's a good deal of mopping up what we still have to review I feel like for advice spaces is uh we haven't even had like the you know the spillage yet it's just like everything is so shaky and frenzy that if our icon is is taking it in in the teeth like he's supposed to mean you know the just he's supposed to be the guy who's

like responsible basically that's not important the first one yeah right Trad five heads yet to hit their Luna moment and and you know the other thing that happened this year or sorry this week last year is Luna like it has officially been 12 months since yeah everything started happening uh and it works out here David it happened Michael and I were at a wedding I gave the best man speech and now literally two hours later we were like oh it's it's all falling apart isn't it yeah that was terrible that's nuts That was supposed this was around the same time as permissionless last year and doe was supposed to be they actually sent out a whole bunch of

Swag uh Tara swag um they had someone come by real quick and grab all of that but not quick enough because I got a t-shirt yeah commemorative t-shirt commemorative t-shirt yeah um I'd love to get your guys thoughts just uh moving it back to crypto here there are a couple of uh big proposals that went live this week on arbitrum and uniswap I love to start with the arbitrum one so this was proposed uh yesterday so May 10th uh but the proposal is the distribution of Dow Revenue to Armed token holders um just to read you kind of the high level tldr the objective is to distribute a portion of the accumulated revenue from the arbitrum Dow to our

token holders you know this will align Community incentives and give Arab a purpose Beyond a quote worthless governance token love to think we did that there as stated in recent tweets arbitrung the Dow has accumulated roughly 3352 Ethan revenue from L2 base and surplus fees distribution of Revenue will be proportionate to the amount of ARB tokens delegated by each holder so the benefits basically that they outline are Distributing Dow Revenue to our token All Digital online community incentives and create a more engaged and committed user base and it will give yeah give ARP this purpose so I guess the disclosure that we have to caveat here is that block works is a a pretty big Delegate for arbitrone so no opinions given here are indicative of of

anything yeah can't be out there but uh framework guys what do you guys and what's your what's your sort of take here um feels like the Overton window is moving for turning on few switches or sharing fees generally um which I think is really positive like I think if we get into the next Bull Run and we don't have real economics flowing at least to the Dow preferably like to the Token itself I think we're gonna look pretty silly like there has to be an end date in terms of when this happens um and I think it underscores just like how what the temperature is of entrepreneurs in the US like they're

still willing to launch tokens they're still willing to do things like turning on v-switches and you know maybe that's they feel like they're decentralized enough or they feel like the protocol is finished and they can kind of call it just like this neutral you know third-party layer um but I think it's positive in terms of like reading the room and understanding that the entrepreneurs that are still here are going to die on this hill either in this country or or a different one and figure out how to make these protocols um self-sustaining and like it's not you have to squint to see it but like at one point eth was probably in like a similar position like the transition of proof of work to proof of stake giving back economics to the network like eventually they were just decentralized enough to

do it and I think people are just saying like why are we not as centralized as they are and maybe they aren't in practice but like they're starting to make arguments that put them in that which I think is important yep um the the only thing that I would add is that you know in these sub markets where you have a number of different players that are going after the exact same models the exact same you know consumers uh users of these protocols uh imagine that you're one of those editors and the other people are able to do this whereas you are not it's sort of like imagine you're a centralized provider versus a decentralized opportunity where there's

token incentives and there's token models uh that incentivize usage and incentivize people to come to your platform it's sort of like this is a level of competition that if you don't have it you're not going to be able to compete and you're just going to get you know bulldozed by everybody else who's able to do this um so I ultimately I completely agree I think a lot of what is going to change the the stuff that is going to change is like we're gonna have a model probably by the end of this year as to how the stuff can work um and there's a lot of women on Capitol Hill right now to be able to have a framework uh to be able to uh build these things in in this way um in the US and and you know not under

the ire of uh you know regulator regulatory pressure um and so yeah I think generally like this is going to be like the Mainstay of what these future decentralized networks become um I hear I hear what you guys are saying I think I've got a little little pushback which is you know the way I sort of think about this is It's a capital allocation question and for me like usually when you talk about dividends or share BuyBacks or something like that the implication is I don't have a better use for this Capital like I couldn't put this to work in some way which would lead to more value Creation in the equity or the token of the project uh so any sort of return to token holders that

just doesn't make sense to me at this stage I guess that's an open question Advance your point is are these protocols done but I just I have to imagine that's their job right if you're on the arbitrim team like you're supposed to be allocating capital and creating value that's going to lead to the appreciation of ARB the token which I feel like is the most that's got to be the most productive use of capital for for a project at this stage the other the other thing I would like maybe like this the other way I kind of think about it is once you start to return Capital to token holders you can't really stop right it's the same way that investors become super accustomed to a dividend like there was a famous like it was GE right that was super famous for their dividend it was like as good as gold and

yeah it did really good stuff for GE stock a lot of people bought it for that dividend but later once they had you know problems or there were better uses for that Capital maybe they didn't have the option to take it away because so much of the holder base of that stock was conditioned to expect the dividend that was the reason why they were holding it so I think the race in between these l2s is wildly competitive and if it were me I would be trying to find uses for that Capital instead of giving it away back to token levels at this stage literally Vans and I were having this conversation this week as to like what does valued role look like for these tokens and like how do you value these

things going forward I part of me agrees that like okay yes using all the different tradfy analogies like dividend share BuyBacks whatever it is you can look at them the same way you can't take away a dividend because it looked negative you can't you know put the genie back in the bottle once it happened the the thing that I frankly just like don't necessarily think is is congruent here is I don't think any of these things I don't think any of these tokens are valued based on fundamentals so when you when you're talking about like okay is the profit referring to the treasury and like are we valuing the same on like price to sales or price to earnings or you know is the share buyback that's driving I think all of the stuff is

valued based on flows which is you know who is buying who is selling and if you can if you can inject yourself into the flows question there's actually a huge amount of you know undetermined value that you can drive for the token itself because it's not it's not like if maker was to go off and like double their revenue and therefore double the share buy back and burn that they would be valued twice as much on a token value perspective maybe some people would look at it and they'd be able to say okay well yeah like we can assume this and that but it really comes down to what are the flows of the token itself what's supply and

demand and who is buying and who is selling so I I generally think like if you have a bunch of cash flow that's flowing to the token having a token economic model that enables additional buying or additional you know purchasing of the token itself from the treasury but maybe it's redistrib redistribution of that token to the shareholders or maybe it's redistribution of the token to the people that are staking it whatever those models might be like that that becomes super valuable but we really have yet to see that because right now the only asset that is earning this much revenue is eth and and you know they burn part of part of the fees but nobody else has hit that scale

but so I I hear you on that I but I think you know so okay a p l might not be appropriate for something like that and yeah these things aren't trading based on prices sales or price to earnings or any other metric like that but my counter to you would be neither is basically any other early stage startup right like a SAS an early stage SAS company you know investors aren't necessarily underwriting that based on their p l or cash flow right there are certain metrics that you would look at right it would be like KHAK and LTV and churn and growth rate and all that sort of stuff like that goes into the valuation I feel like we might just be at too early of a stage of crypto where those like what determines flows you know what what is the leading indicator

for flights I I actually disagree I mean as soon as you move past the series A people are valuing this thing based off of you know what is your price to revenue what is your you know potential for profit like you assume all these things you don't ask those questions because they don't have any earnings they don't have any like you know major ebitda Revenue multiples whatever it is like that stuff doesn't exist for a serious B company but it it should um because that's what people are then Michael once you when you assume then that like crypto has probably just been to it's been in the seed in the series a phase and like there's a there's a decent likelihood that in the next cycle as more professional investors continue coming into crypto they will start to look at arbitrum and not just look at

the flows but they'll look at arbitrum and say okay you're doing about 100 million in annualized Revenue you've got like 30 to 40 margins after after the you know the call data costs uh after you know 4844 you're gonna probably go up to like 90 margins okay like that that's a pretty exciting business here um and this start you start valuing things on that you would assume that but these are like the most efficient inefficient markets that we've ever seen and yeah they're doing they're going to get they're going to get more efficient over time but I don't think people are going to start valuing these things like think of all the infrastructure the financial infrastructure that exists around like even startups but also just like publicly traded stocks we're not valuing these things and like trading

these things uh based off of those fundamentals I I'm a slightly different perspective um I think like we we've gone from like no evaluation framework to like there was one that was like tvl divided by market cap that was just like insane and like meant nothing and now like you're more on like the price to sales land but like what the gross margins are how much goes to the Dow is the fee switch even turned on like people don't seem to be thinking about that um but I think like we're trending towards like a more efficient Marketplace and I think the real point is like once you have flows that confirm you know these metrics like you're gonna

have more of a rational valuation framework like imagine if uniswap was buying back the token imagine if you know any of the like maker does it right now and it trades you know in a pretty tight range of like 20 to 30 priced earnings um I think we're generally going to get there and I think you also need to like potentially come up with a new valuation framework um and we've taken a couple shots at that but I think mostly what you need is like you usually have people who are passive buyers of stocks or Commodities or bonds that are trading Things based on you know if it gets this cheap or this expensive if I'm gonna do this or that you don't really have that crypto having the structural flow I think is kind of something that you're going to need to have if you're a serious project

um you know coming to the next run that's at least my thoughts yep I agree with that I think a lot of it has to do with the investor base and you know in Trad fire markets they do have these like ranges that they look for for PE multiples and that kind of thing and if it goes below a certain multiple or something it'd become you just a bunch more people will buy kind of thing I don't think the crypto is still mostly retail I just don't think people are thinking like that I I mean it not only just like ranges they have indexes where like if you're a part of this or a part of that or like you hit this threshold literally the index will have to buy you yeah like that that type of stuff that's what I mean by the infrastructure just

does doesn't exist right now so like we don't even know like how many retail investors in a given token like have ever been to token terminal.com or like T5 lava to actually understand like what these what these metrics are probably like 15 yeah or block producers yeah entering inside here but you know like what is that percentage it's probably less than 50. it's definitely less it's probably less than like 0.5 yeah exactly yeah I think so too let's talk about unit swapsody switch I mean is how do you guys uh so this week gfx proposed uh turning on the v-switch

um I don't know if you guys took a look at it I can give an overview but yeah how do you guys feel about that one 60 million dollars in six month Revenue you know like probably a little bit more than that uh in in a bull market like this is something that you know when things really get going it's probably generating like mid nine figures of of Revenue that's like pretty impressive in terms of you know like you're not investing in a startup for like what what are they making today it's like where things are going to go and and it feels like that's kind of like really the like the bar for success for these dabs going forward is like can you generate nine figures of of Revenue per year like mid nine figures and I think there's

like a few that can get there um you just swap certainly one of them I guess my question on this is like what's going on in the background with the Dow like we've heard you know different things about like different jurisdictions that you can do this in and maybe it's more favorable like is this the foundation that's leading it um like that's definitely a question the other thing that stood out is just like how reasonable their fees are compared to coin pace and and I guess less so Finance oh yeah it's like pretty cheap and the maker fees are negative and the taker fees are are less than you know the the centralized exchanges it's not surprising that they're doing more volumes in these places uh the U.S office doing more volume than coinbase um on a frequent basis like it just appears to have significant product

Market fit Vance could you explain how these maker fees are negative um so I mean they're just incentivizing people to effectively add liquidity to the pool and the taker like this may not mean a ton but uh so if you are uh taking a limit order on on centralized exchanges um you're usually given or if you make limit order you're usually given a little bit less of a fee than you would if you just sold it all at market and this is kind of like that idea taken to extreme where like you know like you're charged negative fees on making limit orders but if you're just taking random liquidity like it's gonna cost you um which is probably the right model

like just looking at coinbases fees they just seem you know like what is it like if you scroll up a little bit 40 basis points for things under ten thousand dollars like that's the and 60 basis points if you're the maker like that's pretty crazy uniswab has the inverse fee structure of that where the makers are negative and the takers are significant but that that's sort of a misnomer right because like who is a maker on uniswap it's a liquidity provider yeah and the one thing about you know providing liquidity on your swap is you also are affected by impermanent loss so like while while I understand like they want to represent these things as negative I'm not sure that that's like a fair representation

yeah like we don't provide liquidity in unib3 for a reason like we found that it's very easy to get picked off it's very hard to provide liquidity profitably and so I think the real litmus test at the end of the day is like what do the LPS think and there's a lot of stale liquidity they're in these things kind of like uninformed retail just getting hit um so I think over the long long term it's not about like what are these fees uh for you know the people who are swapping it's like or your liquidity providers making money after a permanent loss and like we've had multiple portfolio companies try to build options vaults derivatives things like that a lot of the impediment to them doing it is the unib3 architecture with regards to you know you as a writer yeah well I think

it's a it's a super interesting point I think it connects with uh whenever we were talking about blend this kind of key assumption like what they spell this right out here the lp is making the most money up unit swap are not retail Traders they're professional market makers it's like the ones seen on traditional exchanges so I kind of do think you're seeing the evolution in just Market structure for some of these uh dexes and basically they're very comfortable assuming that the people that are the entities that will be providing liquidity into the future are not retail it's not retail it's professional hedge funds and market makers and yeah I broadly think that's the right assumption I'm I'm super interested I'm kind of bothering actually from a framework that miles from uh who's been on the show ever he

has but like if you if you think about this most of these protocols this kind of two-sided marketplaces uh pretty interesting indicator to pay attention to is the amount of pricing power that these protocols have over their supply side and this case it'll just be super interesting to see yeah basically how the LPS uh how the LPS interact and if it migrates somewhere else like curve or something like that like to use the analogy of something like Airbnb which is also a two-sided marketplace where the band is users and the supply side is homes if Airbnb Jacks their fees up or like how many people stop supplying their home for people to stay in and if they Jack their fees up and nobody stops

supplying their homes then airbnb's got a pretty good business um but if they like move their fee at all and they lose a whole bunch of their supply then you know that's something that you'd want to pay attention to so uniflop's been talking about this v-switch for a while and this this proposal gets into some of the technical it's not a technically easy thing to do actually especially for B3 it's kind of tough but and they're they're just FYI they're testing it out on polygon first as well V3 on polygon which I think is smart because the stakes are just a little lower there's lower TV on volume up there so I just kind of want to see what happens at this point you know um I just want to see what happens

do you think a bunch of liquidity will migrate off of unit swap at some point yeah or like we won't be the source of of you know retail flow that would be another option I think like where you just does really well are like long ill pep-based style coins where you talk doesn't do as well or like the blue chip you know what with it and frankly like that's where their fees are generally the highest as well yeah so I don't know I like it's the landscape's just going to change with regards to liquidity venues over the next few years and I think the first step is getting the money into the Dow the second step is getting the money to the tokens um and like really the thing that you

just want does not have is like a really strong community that can help them racing through all these issues and it feels like that's going to be just like super important at some point but probably not immediately I I agree with that um actually do you want to talk about there was some uh or does anyone else have any more comments on the p-switch we're gonna swap no this is also just uh because I know there's been there's been a whole bunch of different proposals for this over the years and sometimes it seems like they're picking up steam and then they kind of end up dying but uh gfx Labs like Getty Hill they're like pretty serious people and deeply in the

Weeds on uniswap I feel like this feels um like it actually might have some legs I know we've seen it before but I'll be very curious to see you know how this place out over the coming weeks at once what's Quorum on on a vote like this like what what does it take yeah it's a good question I'm not actually sure I don't know no idea usually it's like five or like in in some doubts we're involved in it's like point five percent I would imagine something like this is probably like more of like five percent but uh you're gonna need a lot of tokens to get this through it's it's just yeah there are there are lots of complications as well so one of the big one of the big hurdles that has made

this not good over the finish line is just tax and legal concerns and jfx basically has this disclaimer where look this is kind of a treasury issue I'm I'm paraphrasing here so they don't have a great solution for that but yeah I mean I have no idea how that would work from the tax standpoint if the Dow itself starts accruing Revenue I mean they don't what's the legal entity that ends up paying the tax this is the tricky part like if you can do it at all it's best to not have it go to Adele you should just have it go straight to the tokens because like people who get the money like you should figure that out or do like a buy and burn

where there is no Revenue accruing it's just like buy pressure and then deletion of Supply um but you know these are complex questions and nobody has answers for them well I I think it's also exceedingly difficult when you're a U.S company based in the United States right with you as persons and that is the Dow that you're going forward with that being said I think that and and who knows exactly what's going to come out but it talked about it a couple of weeks ago um it seems like there's going to be some proposal that goes forward in the next couple of months for you know things like how uh commodity how a security can become a commodity what actually means decentralized uh or

sufficiently decentralized like there there will be a lot of answers to these questions in the United States it seems um and we'll see whether or not you know that house proposal goes through and and gets ratified by the set end and are voted on by the Senate but I I do think that it's also you know one hand if not both hands tied behind your back while you're trying to operate from the US what about on the um on the regulatory side with like how you guys treat governance tokens if you owned unit swap tokens I don't know if you do or don't but like if you owned uh unisob tokens in this went forward would you feel comfortable voting on this in today's regulatory uh like world or would you just you wouldn't touch that

what we do with governance is uh we have a program where we delegate to a number of different entities and have them you know vote on our behalf uh so yeah that's how we you know operate within uh governance and do you trust them to vote on your behalf or do you tell them how you want we do not tell them anything uh usually most of these most of these entities are like blockchain clubs at universities um and they can vote on you know however basically Vance didn't like that question so much that he muted and turned off his camera I haven't seen that one in a while

this is a good time for me to uh call out that we are hiring a podcast producer uh on the crypto side so if you are uh yeah Garrett was like do not forget do not forget I totally forgot to call it out no um we're hiring a new uh a podcast producer if you if you have a very deep understanding of crypto uh D5 nfts all that kind of fun stuff um come join us you are not the one editing the shows on the video and audio side you're the one kind of like overseeing a show so you'll like help us source and schedule guests to plan and research episodes it'll lay up some good content so that Michael can know what to say uh because you know tough to get this stuff off the Noggin uh yeah you

craft the content post-production all that kind of fun stuff so um yeah if that's you slide through the DMs actually don't do that go on our careers page and apply let's talk about uh everyone's favorite um Mev bot Jared from Subway this is a great thread for I just thought it was a cool I'm not sure if folks actually uh saw this thread but Robert Miller um kind of shared some light on the alpha so I'll actually just I'll just share my screen here and walk people through it uh but I think it's just kind of a cool case study of how these Mev Bots actually work in practice so basically Jared he's sort of famous or this bot is sort of famous for make the whole bunch of money sandwiching Traders on Pepe the meme coin and

basically the the three bits of alpha that that Robert walked us through was they the way they do their inventory is very different from other from other bots so if you think about a sandwich depending on the two there are two assets that are required for a sandwich and it kind of requires that you start in one asset so eth is sort of the front run then you move into the meme coin Pepe and then you back run back into eth but Jared actually takes a very different approach um and starts with he's got a whole bunch of supply of Pepe the token and then he goes back into Ethan then back into Pepe and there's just much less competition the reason why more Bots don't do that is just because warehousing becomes very difficult you

don't if you're if you think of your balance sheet there you don't really want to hold a whole bunch of your assets in something that's as volatile as something like Pepe because any profits that you get from the sandwiching could be offset by declines from the meme coin basically failing but I guess Jared from Subway is extremely good at sniping um and he actually bought a coin Pepe just 10 minutes after it's it was deployed just a little a tinfoil Hattie right there but that's how you that's how he gets his his Warehouse of uh or his inventory and then um he kind of does this interesting strategy of Mega sandwiching so he basically you know puts more trades into the sandwich than just a one one one so it's kind of an

interest I don't know if you guys had any takeaways but I thought it was just a cool sort of inside look at how some of these Mev Bots work I mean it feels like like we saw Jane Street stop doing Med trading I think like two or three weeks ago and like these strategies feel very much in the gray area of like is this profitable trading or is this something else uh kind of like Avi Eisenberg style um yeah I mean it's not surprising to see like the big guys pull out of this specifically and like these like Jared from Subway style characters start to emerge but I I think it just kind of is proof

positive that at a certain level of economic activity you see that turned on and then the Mev is a substantial portion of fees like I I forget how much he spent in the in the few days where he was really going for it but it was a substantial part of the the med burn that happened uh via uh one five five nine but I don't know these are all good signs like meb's turning back on these crazy coins are turning back on pretty easy as it needs validator to just sit there and collect uh collect your winnings yeah that's that's what I was going to say it's just that maybe the less the Meb side but just the level of activity and engagement on Pepe itself just makes me feel like we're starting to see the

green shoots of what this bear Market is and having passed it and you know mab is going to be a a benefactor for all of that so and and demands this point I think it's very difficult to be doing that um as an institution and necessarily from the United States so you're going to start to see more Jared from Subways less Jane Street I think it's I think it's a tough um the Builder Market in general is one that's sort of opaque and rule of law you know up till this point hasn't necessarily been applied to Mev The Regulators are there's some evidence that they're kind of aware of it but they're not paying a lot of attention now there was a great thread from this account uh AI something I'll

get the I'll get the name but basically questioning whether or not you know if you were a builder that had access to essentially order flow and you were trading using that information does that constitute material non-public information and then pi and then is it insider trading and you could make you could certainly make a case for it and my guess for something like Jane Street and if you look at you can check relay Scan they have one of the most active and successful Builders but they haven't won like anything in the past week and I would guess some compliance or legal or someone over there has said hey guys we could be at risk here it's probably not worth it I doubt they pull out of the Builder Market in general but they probably have to retool some of their strategies

the other thing I would say is like this stuff is like water if you block one of it like One Direction of it is just gonna flow somewhere else yeah and and it's not like you know the the people that are you know searching are are just gonna like oh that's it we're game up we're moving on and nobody else is getting a paid job where they left off and continue forward like someone will the value will be there it'll just have to you know be somewhere that is a more friendly jurisdiction the um the e-scaling roadmap uh maybe smarter people and we could push back on this idea but I think sort of implicitly requires the presence of larger more

sophisticated Builders and swab is trying to get ahead of this with their ability to decentralize block building to some extent but even write a sequencer right now is the combination of like it's a combined Builder and proposer it's what we've separated on eth main chain but especially as you have a proliferation of different l2s and then eventually you get maybe it's decentralized sequencers maybe it's shared sequencers they're still just dumb pipes that do the sequencing you need a builder that understands state to stand in front of that and yep well there's the more order flow that you see the more transactions that you have access to the better you'll be at winning blocks so it's gonna happen in Cosmos I think it's going to happen in ethyl 2's as well like you're gonna have big Builders so I

just I doubt James 3 is going to pull out permanently I think they're just gonna reassess well all the all like the I saw some like really silly liquidity chart which was fake by the way I don't know if like people I saw a bunch of people retweeting it I was like mathematically there's no way that this is possible oh I got it this far where it was like there used to be like thirty thousand BTC liquidity within plus or minus two percent and now it's like one Bitcoin it's like okay well is that true like I don't have to do the math to know that's unrealistic but like you just spread like wildfire and then like the last day of comments All I heard on Twitter was like low liquidity watch out out there you know could could get crazy like oh my God it's just like think to

yourself these people are not pulling out and if they do there's going to be crypto they have market makers to step in which like frankly I would rather have I would rather have big crypto Market crypto native market makers develop themselves than anything else like that that kind of anything I'm still looking for is like back in the day you had like Alameda squaring off with like three ACS squaring off with like all the other crypto native market makers it doesn't feel like there's like those like big people that are kind of like just going for it I think getting the big Trad five market makers out probably paved some room for them to to develop that's I was about to say I was about to say I think there's huge Market opportunity right now to be that crypto native Market maker that doesn't exist

in in the same way that Alameda 3ac used to exist maybe not Alameda but um like you know I'm not talking I'm not talking about committing fraud I'm just talking about mating markets I mean it's it's literally just winter meat at this point yeah if you want to uh nerd out there are different um there are some upstart market makers out there I don't know how public they are but there are different models for Market making it's like my understanding is you kind of either Market maker like Bitcoin and eth and that's a much more traditional model or you kind of have this like token call option model of Market making where you're given yeah

some percentage of like arbitrum per se and you want to make a market on that at a certain price and it you know if your your allocation kind of ends up being something like that but isn't that a model that eventually goes away like that's kind of like an early yes I think so too yeah yeah it's not that's not like a real scalable no no I agree with that should we rap yeah yeah I think we gotta rap all right guys six