The MetaDEX Thesis: Rewriting the Rules of DeFi

Transcript

All right, testing. Cool. All right, I think we're good to go here. I'm going to try to not move away from the microphones, but good morning. Um, thank you. Good morning. Good morning. Very grateful to be here with you all today. My name is Alex Cutler and I am the CEO of Dromos Labs. So, I am here today to share some perspective on a new era of DeFi. How the rules are being rewritten in real time.

And to announce for the first time an entirely new on-chain primitive. So, please stick around. So, for anybody who does not already know us, uh Dromos is a development company. We were founded in 2022. And we began in the space uh like I guess a lot of teams did. As a small group of anons from all over the world gathering in a Discord. Now, amazingly, we are a 30-person global enterprise. We even have a website now. Feel free to check it out.

But, I stand here incredibly grateful to everybody in the room. Because the story of Dromos is only possible thanks to Ethereum. To go from a handful of people who did not even know each other's real names to where we are today. Not because of any powerful connections, VC backing, or individual pedigrees. But, because of the power of the systems we've contributed to. And the value that they have created.

This is a story that is only possible because when you are on-chain it doesn't matter who you are or where you are from. Only what you build and what you believe in. And what drew us all together originally and what holds us together to this day is a common belief that shared systems should create shared value. We stand against value extraction in all of its forms.

But, especially when it comes to the critical infrastructure of modern society. Which is why we build common infrastructure that delivers back uncommon value. So, our flagship product is the Metadex. A next-generation DEX operating system underlying two of Ethereum's leading exchanges. And that would of course be Aerodrome on Base and Velodrome on the Optimism Superchain.

These are protocols that in their lifetimes have distributed a category-leading nearly half a billion dollars in revenue to users of their tokens. Now, last year I took the stage here in Can and admittedly it was a smaller stage than I'm on today. And I talked a little bit about the past. About the potential of on-chain systems. DeFi, its roots, and original promise.

And honestly, how it had been broken. How our industry with all of its talk of revolutionizing the world was failing. Optimizing for exits, extracting value, and in so many ways just recreating the very issues inherent to traditional firms that we all here set out to fix. And I shared some suggestions for how to design systems that would return DeFi back to its roots.

Well, since then I've had a pretty crazy year, perhaps the most exhausting of my life helping to build something entirely new. At Dromos Labs, we are developing Metadex O3. A DEX OS that is more interoperable, more responsive, and more efficient than anything on the market. And we have the privilege of building it alongside some of the most talented builders in the space and I see the Wonderland team right up front here.

And we are getting close to the launch of Arrow. Aerodrome and Velodrome are going to be coming together with an expanded set of features, with an all-new economic system, new revenue streams, and true cross-chain functionality to become the definitive unified liquidity layer for all of Ethereum. But, today I don't want to talk again about the past. I want to talk about the future. Its potential and why you should believe in it.

Because all of this is happening at an inflection point. Just as the world came online, it is now coming on-chain. From Apollo to Mastercard to the equal treatment of traditional assets and tokens, all of this is happening at this accelerated rate. And with this maturing of our industry comes a new set of questions and a new class of investors. People who won't be asking "Well, which shitcoin is going to pump today?"

But, what will be the winning infrastructure of this new era? And at the base level and I know I'm playing to a sympathetic audience here, but I think we can all agree that this new era will be built on Ethereum. I think there is a reason why building on-chain is synonymous with building on Ethereum. And it will be the foundation of this on-chain economy. Mirroring the roles that macro structures play in a traditional economy.

Which is why attention is beginning to shift to the application layer. And specifically the most fundamental of applications. Those that enable liquidity. Because the liquidity layer of the on-chain economy is as essential as the chains themselves. Without it, without easy access to value exchange, nothing else can happen. No other apps can operate. And the similarity does not stop there. Because an exchange is an open system.

The protocol provides the tech and the coordination tools. But, without its users, the network of liquidity providers depositing assets it's nothing. Which means that well-designed exchanges must to be thought of as networks. Liquidity networks. And a good liquidity network must be efficient first. Providing great execution to traders and increasingly agents. But, it also must be measured against some of the bedrock values of DeFi.

Neutrality. Not competing with other layers, but enabling them. Openness. It must be a permissionless network where anyone can participate, contribute, and be rewarded. Alignment. It must maximally reward behaviors that make the system stronger. And just like Ethereum uses a token to coordinate its block space liquidity networks too require a tool for coordination. A token that organizes and secures capital. Aligns all the various stakeholders and optimizes the marketplace.

So, in designing the Metadex these are the principles that we put into practice. Ensuring that the token when used represented a claim on 100% of the exchange's revenue. A claim that is distributed continuously. Not as a bug, but a feature. A true liquidity network token. And this is a winning system. One that pulled forward the foundational principles of the space. The same ones that underpin Ethereum in a way that few others did. And it put the hallmark technology of on-chain systems, the token at the heart of everything.

And now I'm going to pause dramatically and have a sip of water. So, now I want to tell you why we're going to be changing it. So, one of my favorite things about DeFi is its constant evolution. The values of the space provide a strong foundation. But, how to execute on them changes with time. Through live experimentation technology iteration the community continuously rewrites the playbook. New principles emerge for what the next era demands.

Strategic imperatives discovered through building. So, for Metadex O3, we didn't just want to optimize for what had worked before. We wanted to build for what is coming next. And as it turns out, we were not the only ones thinking about this. Vitalik nailed it when he said the future of on-chain mechanism design will look something like a prediction market plus a capture-resistant preference-setting gadget. Something that is not just meeting the foundational values, but creating a system that is built around consequence.

We have outgrown participate and be rewarded. New on-chain systems must reward accuracy, being right. A system optimized for responsiveness. We are drifting away from snapshot votes, fixed cadences, and we are moving towards a real-time, always-on function. And our system shouldn't just be constantly available, but constantly improving. And finally, a system that is catalytic, not fixed or static, something that leverages new DeFi mechanisms to drive new economic value.

So, with all of this in mind, we looked back at the evolution of decentralized exchanges. And you have to remember that when decentralized exchanges debuted, they were fragile, two-sided, self-organizing marketplaces. AMMs revolutionized price discovery, which answers the question, at what price should this asset settle? But self-organizing marketplaces struggle with capital discovery, the question of where is the liquidity best deployed?

So, to better direct liquidity, a new class of exchange emerged, the three-sided coordinated liquidity marketplace. By introducing a third stakeholder, in the token operator, exchanges like the Metadex could direct capital collectively, building much deeper and much more productive markets than self-organizing systems ever could. And if you're not familiar, I'll just give you the quick TLDR on how this works. Every week two things happen. Token operators direct capital to their chosen markets, and in exchange, they receive back 100% of the revenue that those markets create.

And this system proved very efficient at both of those. It was unquestionably an upgrade, as demonstrated by the volume dominance against the leading self-organizing exchanges. And so, coordinated markets were a major step forward in capital discovery, but we are not stopping there. So, this is why with Metadex 03, we're replacing it with something totally new, something built for the new era of DeFi, where liquidity isn't merely self-organizing or coordinated on a schedule, but built in anticipation,

a predictive liquidity marketplace. And we believe this is the next chapter in DEX design. This means the new era will ship with no more epochs, no weekly reset, no Thursday deadline. I am here in Can to announce for the first time, predictive allocation, the world's first prediction-driven, real-time capital allocation and revenue distribution mechanism, a system now not built on knowing the past, but on anticipating the future.

In it, token operators will allocate capital as arrow rewards to markets on conviction and foresight. And this will bring the efficient truth-finding power and asymmetric upside of prediction markets to spot markets for the very first time. Here's how Here's how it will work. Instead of token operators voting weekly and directing the following week's arrow rewards, they will live allocate rewards to pools in real time. So, instead of receiving already accrued revenue, which is just a reflection of what happened last week, a token operator share will stream to them live.

Revenue distributed now as quickly as it accrues. And they'll be making allocations more often, not once a week, but daily or even hourly. So, this means that markets that stop being productive stop receiving rewards the moment allocation shifts. And markets that become productive don't have to wait a week to be allocated towards. This is a system now both responsive and self-optimizing. Why? Because every allocator has a direct financial incentive to correct it.

Each allocation now effectively becomes a bet, a prediction. The system won't simply reward participation, it will reward being right. Early inaccurate predictions will earn the most. An early bet means you are bootstrapping a market before anyone else realizes the opportunity, with the reward being a larger share of the value it creates when it materializes. So, in essence, we're moving from proof of hindsight to proof of foresight.

And here is the important part. The allocator making the bet isn't the only winner. The entire system is. Because a correct bet directs capital to a market before it becomes productive. This builds deep anticipatory liquidity that is right there when the market demands it. Liquidity that moves now faster than what any self-organizing or coordinated market can deliver, meaning Arrow can now win more volume, more fees, more revenue.

And this is what makes our system different from something like a standard standard prediction market. Prediction markets are exceptionally good at truth discovery. They crowdsource likely outcomes from participants with individual financial incentives to get things right. But the But most stop right there, predicting the future, not helping to create it. So, this new mechanism takes that principle and applies it to a system that is actually productive, because capital because market-driven forecasting directs capital to its highest value use.

And in doing so, individual benefit and efficient resource allocation become the very same act. So, we see this as an entirely new on-chain primitive. While Arrow is applying it to liquidity flow on an exchange, it can be applied to any domain where decisions are made under uncertainty, lending markets, derivative markets, prediction markets, and any sort of forward-looking resource deployment.

So, AMMs tackled price discovery. This tackles what comes next, capital discovery. The question, where should capital go right now under uncertainty? Capital discovery requires a real-time mechanism built on true consequence that catalyzes economic activity, produces value for individual participants and the system itself. A new primitive that when in use creates a new category, production markets.

Markets where participants compete to allocate shared economic resources by betting on the product productivity of their own allocations, where each allocation directly funds economic activity and the prediction and the investment are the single same act. And with predictive allocation, Arrow will be the first exchange offering production markets. And just to be clear, this is not just a theoretical or philosophical idea.

According to our backtesting, it will have a massive systematic impact, delivering as high as an 80% efficiency improvement to the system's ability to allocate capital. And this is great for token operators. This is great for liquidity providers, because now their returns are more precisely in line with their contributions to the system. And we'll be publishing a lot more data on this today. And of course, we want to make the benefits of predictive allocation very easy to access, which is why Arrow will also ship with autopilot, so any token operator can use this to automate their chosen strategy.

And long-term, what we envision is a growing marketplace of a agent-driven, competing predictive algorithms. And of course, predictive allocation and autopilot aren't the only things that will be shipping with Arrow. They're complemented by a comprehensive set of new and upgraded features that will make Arrow the best place to trade, the best place to earn, and the best place to launch on chain. So, three rounds of auditing will begin in mid-April.

This summer, we will be running a bug bounty contest, and Arrow is planned to go live across 14 chains, including for the first time ever, on the home of DeFi in Ethereum mainnet in July. Now, as I spoke today, we launched the all-new arrow.xyz site with details on everything we announced today. And we've got a lot more good stuff coming soon. So, please stay tuned. Otherwise, I will say thank you so much for your time. Thanks for everybody who streamed online, and we'll see you on mainnet very soon.

>> [applause] >> Any questions? Hey, [clears throat] very excited for this. Um quick question. Does this stop with AMMs?

No. Um I think I as we sort of set up any uh market where an outcome is uncertain, and you're thinking about the real-time ability to make a bet and allocate capital to bootstrap something within that market, and then in on-chain permissionless real-time way realize the value of that bet, uh is a space where this primitive can play. And if you think about markets, that's just about everything. I think we listed course uh you know, perps and bunch of lending and and anything else, but we had to cut that list down because we just kept finding more places where we think it could play.

Awesome. Thanks. Uh thanks, Alex. Um so, a huge part of the sort of truth-finding um power of prediction markets is that it encourages kind of insiders with more knowledge than market to essentially, you know, allocate capital and and and sort of additional reward. So, do you see the same thing happening here? So, for example, people who are about to, you know, generate volume on a DEX, say they're about to sell a lot, would would then allocate liquidity to the pool that they're going to selling to, and then

that sort of fulfills that that kind of loop of of sort of prediction power. Is that the kind of sort of use case that that you're thinking of? I I mean, I think we are going to see, with this being entirely new, a whole set of of new potential uh behaviors. Uh it could make sense if you own basically the means of production, right? And you are going to take the opportunity cost of bootstrapping more liquidity on a token that you think is going to require that liquidity in that moment, that you could use that capital allocation power, eat some degree of opportunity cost, cuz there might be a better prediction out there, but then bootstrap that market, certainly. But, I think what is far more

exciting is that uh you know, Wintermute, for instance, is a major stakeholder in in Arrow, right? They're not only trading on top of the DEXs today, but they are a voter. They have a an interest, and they have their own algorithms on where the market is going to go in any given time. They have an interest in there being uh deep liquidity in those markets, and uh that's why we expect this to turn into something where there is any number of different like predictive algorithms and autopilot vaults uh in competition for better predictions on the future, right?

And bootstrapping markets for any given purpose, whether that's just an anticipation of a market event, um or even that, yeah, a project needs liquidity in a pool uh for for some reason. But, it's not too different, you know, than how even it works now today. It's just more real-time. Thank you. Cool. All right. Thank you, everyone. >> [applause]