Skeuomorphic Markets by Austin Adams - DeFi Today Devconnect ARG

Transcript

So, for now, I'd like to welcome Olsson Adams, who's the founder of Wetstone Research, uh, to the stage. >> Oh, baby. Thank you. Thank you. Can you guys hear me? Okay, perfect. I can hear myself. So, now I'm like I know. I know it's good. Uh, I get So, hi everyone. I'm Austin. I run a company called Wetstone Research. This is a wonderful little my opening slide. I at Wetstone we build protocols that do that try to sort of like innovate on uh market structures. So our main protocol is called Doppler. It's a liquidity bootstrapping protocol.

We do token issuance mainly. uh with this token issuance, we're mainly focusing uh like we do the token issuance for like Zora and the base app and FX hash and a lot of other sort of like these publisher exchanges that want to bundle together uh token creation with sort of like the distribution of content mostly. So, uh how do I go to the next slide? Is there a clicker or do I just tell you guys? Oh, perfect. I was right here. Perfect. All right. Sorry about that. Okay, perfect. Yeah. So I the talk is called skumorphic markets. I think like I'm going to say the word skuorphic probably more times than anyone should probably say in one talk. So uh this will be fun.

I I said like there should be a poly market for how many times I say skumorphic in this talk. It's probably going to be like 15 or 16. Um so first thing I want to do is I want to define what a skumorph is. Uh this is the Wikipedia definition which is uh the sort of like idea that these derivative objects or like you know improvements in uh new technology or new uh new ideas sort of like retain these features from previous ones uh that are sort of like ornamental in design now. And so uh this is sort of a nice Wikipedia definition but here's a few examples of them. So you can see uh Apple is very common for using skumorphs. They love to do them to help users uh have some sort of

continuity in their ideas where you know if like you want to make sure that uh like for like a te like the telephone app on your phone you can sort of like see there uh the the telephone app doesn't like make a lot of sense the way that it's done today but it it made a lot more sense back then. So like this is an example of uh like a DJ mixer like an electronic DJ. They have like knobs and things like that. like those things don't really need they're not necessarily needed but they're helpful for users to have some continuity in their design. Uh there's a nice like electronic teleg electronic uh candles that maintain the design standards that are sort of like were previously required from the design but are not anymore. Uh and so why do these

skummorphs exist? Uh it's mostly that it's just like really hard to build new things and you have to make a lot of choices when you're building new things. And sometimes you're just like I'll do what works. And so this is sort of like the king of skuorphs. Uh he's the guy who designed uh all the software for the iPad and the iPhone. And so he's sort of like the man who always talks about these things. And yeah, so I sort of talk about here that it's really hard to know that these changes you're making for your uh your designs or the future iterations of your product like if they're actually efficient. And even worse, it's harder to know that when you do make these changes, like you might lose efficiency or attrition your users out of these

things because uh the changes might break sort of like the users understanding of these things. And and even worse, a lot of companies don't really want to innovate on designs when things work because no one really wants to innovate unless they're really sort of forced to. This is sort of like traditionally known as the innovator's dilemma. Uh so this is actually what the talk is about which is skuorphic traditional financial markets. Uh so skeworphs are like really really common in uh in financial markets. We see these all the time. Pretty much every single financial innovation has these skummorphs where they start out with like uh the example that I I want to talk about is uh stock certificates. So stock certificates used to be literal

stock certificates that you would have in your hand. You would you know if you had those stock certificates you were the one who was uh you could guarantee you would be the one who owned those things. And what happened was the the the changing of paperwork was so complex that they said, "Okay, what if we take all these stock certificates, we put them in one little room, and we don't let anyone else move them." And then that was that that's the DTCC. And then what happened was we said, "Okay, what if instead we just put all these stock certificates on the internet and we actually got rid of them entirely." So those are the the skew morph is the idea of sort of like a stock like a stock certificate used to be this piece of paper that you held in your hand and now

it's nothing really more than an entry in a ledger and sort of like a government institution and this is similar for like bank reserves. This is similar for trading where uh you know trading used to be done and open outcry pits uh in these exchanges and now it's like mostly really only done on electronic exchanges. Um, so like why do we care? Who cares about all these things? Uh, I think like one of the things that I think a lot about is that these skeworphs really come through when you're doing in innovative things because you sort of question like why were these decisions in these previous uh ideas kept around and the thing we're going to really be talking about today is uh skumorphisms and IPO markets. So I

think IPOs in the way that they're really done today is the one of the larger skumorphs in the market. the form factor of the IPO really hasn't changed in almost like 500 years. So the original IPOs that were done uh by like large investment banks and that done in like the Netherlands have functionally been the exact same or the exact same design as how they're done today. Uh and back then it was like significantly harder to do these initial public offerings. So you would have to get together a bunch of banks. You would have to uh put you'd have to they'd have to put up like this monstrous amount of capital. And these IPOs were huge undertakings, but now they're not really as hard as they used to be. And uh we

can sort of like see how they should evolve. So the the IPO market is like something that I do a lot of research on. It's been functionally dead for around like 30 years now. The number of IPOs that happen each year has pretty much only been declining. uh there was a huge jump in 2021 uh when the uh postcoid but since then it really hasn't recovered uh e even worse the IPO quality so the average quality of the assets that are IPOing is significantly worse most assets that are IPOing today are actually uh losing money so it's like actually a bad stock to buy and they're mostly technology stocks these days um the IPO market did open in 2025 so we saw a bunch more than we generally

see. Uh but of these IPOs, the vast majority of them were actually uh crypto and AI companies. So there really were it was mostly just like these like vaporware technology companies. Uh and there still was significantly fewer IPOs than people expected because the IPO window closed uh sort of like in Q3 and Q4. Uh and the ones that did happen, the IPOs that happened uh like the Circle IPO and the Figma IPO were actually quite bad. uh they were like massively underpriced. They left a lot of money on the table and the sort of outcomes have been pretty poor. And so pretty much like we've had the best IPO market in the last uh this year was like the best one in probably five or six years. And

of those it was mostly technology and AI companies and of those the biggest ones were bad. So it's like what really is the problem with the IPO market? Uh the the problem with the IPO market is that it's gotten worse in probably almost every single way. Uh they're significantly more expensive. They're significantly expensive to do both like through regulatory the time it takes to do the regulatory work and the time that it takes to actually uh undertake the cost of getting your your uh IPO priced. The economy has changed very drastically over the last 30 years. So this is something that I write a lot about. Uh generally what happens is companies want to stay uh private significantly longer than they used to. So like for example

Amazon went public very quickly almost a year into their uh their life cycle because companies just used to go public a lot earlier than they used to but companies wait a lot more now and this has downstream impacts the IPO market. Uh another one is that the benefits for IPOs are much worse than they used to be. So companies would IPO because they wanted the marketing benefits from it. So they wanted to, you know, get their name on the big stage. They wanted to be seen as a big company, so they would IPO. And that's just like really doesn't happen anymore. People only really IPO at the end of their life cycle. Um, and I sort of see the last one is similar to why a lot of tokens are issued today.

Uh, like a lot of tokens are issued as marketing actually. Uh, and they have the same benefits as a lot of these early uh, IPOs. And so uh, the other one is that yeah, the private credit has mostly uh, replaced the IPO. So the IPO has been mostly uh replaced by venture capital and private credit. So the vast majority of uh what would have been done through private credit is done through these venture capital funds. Now uh the amount of private credit has pretty much been up only. It's been the best returning asset of the last 10 years. Uh similar to how venture capital was the best performing asset of the 2010 or the 20 uh the 2000s and 2010s. Uh and the problem with this is that private

capital creates a two-tiered financial system which I think is the really big problem with this is that there are uh you either have access to these deals these private deals or you don't and this has really created the problem where uh the public markets don't get access to deals until late in their life cycles. So the like regular people never have the upside in this. Uh I say here that like everyone's really these things are not malicious per se. they are a natural consequence of sort of how these markets have evolved over time. I but there's a lot of second order effects from how these markets have evolved. So um there's a ton of papers on like how do we improve the IPO? I you know read a lot of them and the answer is like no

one has any idea. We have no idea how to fix the IPO. We functionally think it's a dead market. Uh people there's regulation that was tried early on in the Obama era. The jobs act tried to improve the IPO. it had a very small uh benefit and it sort of didn't work. Uh there's been attempts in a market structure benefits of IPO or to fix the IPO. Uh those haven't worked either. The underwriters have been centralizing. there's fewer and fewer IPOs every year done by fewer and fewer underwriters and it consistently con concentrates these things and sadly the alternative paths uh for crowdfunding like crowdfunding and direct public offerings have had no uptick uh and mostly they're seen as

like an adverse selection factory. Uh so all this is to say that like no one really has any idea how to fix these things. They're kind of just trying their best. Um this is a wonderful slide from Alana at variant. And so the one thing I want to put up here is to highlight that we sort of see these synthetic assets like these X stocks and these Robin Hood tokens and sort of also this Galaxy token as these skumorphic uh skumorphic stocks. They're pretty much the exact same thing we have today. We're putting them on the chain and they really just come with all the same problems. They don't solve the underlying problem of how these assets get priced and get moved on the chain. And so we really will think about focusing on this this final area where sort of this native asset issuance is sort of bundled on the

chain exclusively on the chain. And that's uh she has it open for innovation. We hope to you know be part of that innovation. Um and this is my belief. This is sort of like the the things I'll harp on for the rest of the talk. The traditional financial markets are like very much underserved the public. uh and it's mostly due to skuorphic artifacts of how these uh things evolved over time. So like IPOs used to be uh this massive undertaking that was so difficult for people to do and now it's pretty commoditized. There's a few investment banks that do them all the time and it has sort of like created this two-tiered financial system. Uh worst off the public really has been locked out of asset creation. uh you

only really get them uh the public is only able to access these financial markets once they have IPO the longer it takes to IPO the less upside there is for these financial institutions so we've sort of locked them out of them I I argue here that like the functional banning of early companies from going public has led to uh them the retail getting locked out of generational wealth like there's so many stories about people in the 80s and the 90s during the tech boom and through the IPO boom of people making generational wealth for themselves because uh they bought some stock early that they believed in and that led to their family having a lot of money that's just not possible today. The only way you could

have access to these companies is by being an accredited investor and being an accredited investor is like actually surprisingly very hard. Uh we need to sort of move past these design decisions and we need to build uh we need to build these markets that are uniquely enabled by today's technology. Um, so here's what we can do about it. Uh, this is sort of like what we think about it at Wetstone of like how can we build a better system for asset issuance. So we think about like automated asset issuance, public underwriting, and long-term liquidity management. These are three things that we'll go into. Um, but we also sort of think we need to make the IPO more valuable to companies.

They're not very valuable to companies anymore. We need to make it happen earlier in their life cycle and we need to make it easier to actually undertake. They're significantly hard to take. it's, you know, like a $50 million investment more than that for a lot of these companies. Uh, so what does automated issuance means? Uh, so like the tokeniza, like tokenization, I think is like the biggest example of this. Like if you can create a system that automates a lot of this issuance, what happens is it becomes significantly easier to both do diligence for investors. So investors have to check fewer things and also allows market standardization where you have a you know one traditional type of market. You don't have to do all this diligence for all these things. So what

happens today is like these assets are created. You don't have to check the code. You can look at the pie chart. You can look at how all these things work and it makes it much easier for people to do diligence. Uh and we also think that issuance protocols that help with issuance are uh they lower the barrier to entry for creating assets. Uh so what this means is people who are not experts on creating assets and they're more trying to create uh like content, they're trying to create art, they can get a lot of the benefits of this like incredibly powerful issuance protocols by utilizing uh automated issuance. And then finally, it removes a lot of the barriers to entry for getting listed on exchanges. Uh like one really hard part

for exchanges are for new assets is getting listed on exchanges. It's actually extremely difficult and so we think automated issuance can improve those. Uh another one is market driven underwriting. So today there's like six underwriters. Uh they're mostly mega investment banks who price all the deals and they do all the liquidity generation for these events. And what has happened is they have responded to uh they've responded to the change in the IPO market by doing significantly fewer but signific uh significantly larger. Did I get cut out? Am I okay? Uh they've responded to doing uh they've responded to uh issuance by doing significantly

fewer but significantly larger issuances. They don't really care about these small ones anymore. And so what happens is these small companies have no one who's willing to do underwriting for their service. And this has created a problem where you know these these small it's not worth it for anyone to price these small companies which has led to them not being priced which has led to sort of a a this part of the market just being underserved. And then finally, we think that by using market driven underwriting, you can allow the public, you can allow uh more people to take part in the underwriting process, which will allow people to have more upside in deals because they can participate in them earlier. Uh these are sort of like pretty unique to crypto. These are uh you know, these are things you can only

really do in these markets. Uh finally, I think like one thing that people should harp on a little bit more is like long-term liquidity management. So what happens once an IPO is done is you have to get an underwriter who will uh or sorry you have to get a market maker who will provide the long-term liquidity for your asset. One thing that's very interesting about u the long-term liquidity management and issuance protocols is these two things are bundled together. So what happens is the market underwrites them. some of those proceeds or all of those proceeds goes into an automated liquidity management protocol and that allows uh you to sort of bundle these two things together that have historically been apart and allows you to have a public market that's well

priced long term. Uh one thing that's been interesting for us is that the pretty much spreads have not decreased uh especially for larger um for for sort of like smaller cap assets have had the same spread for a very long time. If you want to buy a small cap asset, it'll be like 1 or 2% spread just to buy them. And we think that liquidity management protocols uh like AMMs and protocol liquidity can lower these barriers because they can enable automated uh make it automate a lot of these things which is like pretty unique to crypto.

And so you can bundle these two things together that previously were unbundled. But long-term liquidity management and sort of the IPO in general. Uh this is the sort of the future state. This is sort of like the things that I'm hoping for. Uh so the first one is by lowering the fixed cost to create an asset we hope we can create new asset classes and we've seen this with sort of like the things that we work on with uh content coins and art coins and micro IPOs. So by lowering the barrier the fixed cost required to undertake an uh an like an initial public offering you can enable new classes of assets that weren't possible or sort of priced out before.

uh experimentation with assets also allows you to experiment on these sort of like small but meaningful changes. So what has happened is like uh with other protocols we've like changed the price we've looked at like you know changing fees changing vesting schedules changing the structure of these things and that has really impacted uh like what assets and allows us to experiment and prod with these designs uh open up capital to more users and more people so we can see things like micro IPOs or onchain pricing rounds and then finally uh we hope that we can create the best structure for streamlining diligence for capital allocators. Um, today it's very hard for you to know when you're buying a token, what does it mean? Uh, but we think that by uh creating automated

diligence and internet road shows, you can potentially make that significantly easier. Uh, this is so this is our our logo, the Doppler logo and this is uh what we built. This is the Doppler protocol. This is what we think uh hope that it does. So it creates standardization in market driven underwriting, distribution and long-term liquidity management for any type of initial offering. uh it was intentionally designed to be not skumorphic. It was designed from first principles to attempt to get the best possible uh to create the best possible market for internet sort of native assets. Um this is our logo and I guess I'll keep that up there while I do questions. So I got five minutes for questions and happy to yap about them.

>> Thanks Austin. the questions right here. >> Give me the questions. >> Yeah. >> I mean, I'd love to yap here for a few for a few hours. >> You know, I love yapping with you as well. So, >> we won't keep building too long. Okay. First one is why are centralized exchanges so so large in comparison to decentralized exchanges? >> Yeah, I think that's more of just like a path dependency. uh so I think centralized exchanges were there before decentralized exchanges and uh we have seen that like those uh the amount of volume being done on decentralized exchanges is pretty much up only compared to centralized exchanges and so the share of market volume being done by dexes is pretty much up only I think that'll eventually will flip

I at least hope it will but it's not guaranteed so I think the so the answer is more I think it's a path dependency of just like how things have evolved over time. >> That's a very optimistic answer. I >> Yeah, you got you got to be optimistic. >> That's good. That's good. Okay. The second question is how does the market driven underwriting functionally work? >> Yeah. So, how we use and and uh we have multiple auctions in Doppler. Uh but one of our main ones what it works is we have an expected amount of tokens we expect to sell per period. Uh and if there's more tokens being sold than we expect uh the protocol expects, it raises the price. And if there's fewer tokens that it uh being sold than it expects, it decreases the price. So what it's doing consistently is based on the

amount of marginal demand. If the marginal demand is what we expect, then we sort of keep the price stable. If the pri if the marginal demand's low, we decrease the price. And so this is sort of like how the market responds to our change the protocol's changes in prices. And that drives a sort of like gradient descent to like what is the sort of like optimal or correct market price through uh looking at marginal buyers and sellers. >> Cool. That makes sense. Okay. Then fin one last question which is ah I see another one. So you have two more course. How do you protect retail while allowing them to access assets earlier?

>> Yeah I think you know I I do think it's really important to protect retail from the from scams. I do think that one thing that's really important is highlighting that fraud is already fraud. It's already illegal. One of the reasons why like the blue sky laws were put into place in the 1900s against uh protect like stopping retail from taking part in these markets was because it was fundamentally impossible for the US government to keep up with the amount of scams. That's not true today. It's very different than it used to be. Uh and we think that like one of the ways you can do that is through uh you know having good laws on like what really is fraud and pushing and and attacking sort of like the bad actors in the space. We don't think you should be punishing good

actors and stopping people from taking part in these things. We think you should be targeting bad actors. Like one of the reasons why uh we just banned everyone was because it was like the 1900s. There was like there was no SEC. There was no there was not even a single government institution and it was simply just easier to like put your hands up and say we lost this fight. Let's span uh retail from taking part in these things. That's not how it is today. The internet has massively changed people's access to capital and access to new uh new opportunities and we think that like those are the thing those things will help with protecting retail with like more diligence and more uh information about these things.

>> Okay. The the final question is uh similar in vein. So the question is do you think that the most promising companies will continue raising privately no matter what and that whatever is publicly accessible early will always be subject to some degree of adverse selection? >> Yeah, I think it's a good question. I think that like one of the things that is important to think about is like one of the reasons why people do private rounds is that it's like actually it's more cash efficient. uh it's people are companies get significantly better prices doing private rounds than they do on IPO markets and I think a lot of that is just because of the structure of them and so I think it's very important that we create a system in which it is economically viable to compete on uh with these private rounds and I think

that by opening up capital to more people we'll get better prices for and better prices and better outcomes for uh these sort of like smaller cap tokens And I also hope that by uh opening it up to a broader audience, we'll also enable um like more marketing like these sort of second order benefits past just prices. Like what we've seen with a lot of tokens is it generates like a very good holder community, people who believe in it, people who uh give good responses and take part in these things. And we think those are the more second order effects of having a public asset.

>> Okay, awesome. I think that was all. So thank you again Austin for your presentation.