Token Value Capture: Moats, Growth and Protocol Fees | Chris Burniske, Fernando Martinelli

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 all right everyone before we jump into this episode super excited about our newest sponsor Reserve big shout out to reserve they are the easiest way to design deploy and govern stable coins backed by a diverse set of assets with access to defy yield and insurance if you don't know Reserve we're super

excited about them here at bell curve you'll hear more about them later in the show I'm curious to get both your takes on how you think about returning Capital to shareholders and are we are we asking these protocols to do it at an appropriate time well so that fixation is that penny pinching mentality right of like you got to give me my money back now when they should actually most be reinvesting in the opportunity right and so that's like one of the perverse things I think of like we could just call it more Junior management or more short-sighted management but we got a big episode here coming with uh Chris berninski and Fernando Martinelli at balancer this was a really good one really I I want to do more of these conversations where we have like a builder and an investor here

I think uh Fernando was able to go really deep on specific topics and then Chris is able to zoom out and be like across a bunch of different protocols in the industry this is what folks are doing it's a good combination we probably could have gone a little bit more down the route of what's the difference of you know Capital allocation in Dow Land versus traditional startup land but I think we answered a lot of those questions so to give you all prime run why we wanted Fernando and Chris on this we wanted the perspective of both an operator in in Dows and also an investor to talk about building a dow through the lens of capital allocation and I think we we kind of started and looked at this looked at the whole episode through that lens but then we really got into some

pretty interesting discussions around uh what's the right way for Dallas to allocate their their treasury how should Insider rounds be treated in price within crypto like what is yield farming and mechanism going to design look like in in the future for crypto and just just a whole bunch of really interesting stuff so yeah I thought this was actually one of my favorite conversations of the Season yeah me too I mean these are both guys who have seen multiple cycles and have just uh are able to zoom out a little bit shall we get into it yeah let's do it see on the other side all right guys welcome to uh another episode of bell curve here we've got Fernando Martinelli I believe I'm balanced for labs and then Chris bernitski guys welcome to the show thanks for having us thank you thanks for having us

um so thank you both for joining yeah you know part of the reason for uh having the two of you on here is we wanted to get sort of a someone who's in the trenches and kind of an operator in a in a dow environment and actually an investor as well because you know we wanted to talk about this through the lens of basically how to effectively allocate capital in in Dow world and what are the similarities between allocating capital in a company sort of setting and then how it might differ a little bit in a crypto native setting and Fernando I hope it's okay if we use you know balance or sort of an example here and maybe we can use exact uh balancer in many ways it's like a jumping off point uh and then kind of go down a whole bunch of different threads

at the course of the conversation so maybe we could actually just start with kind of like the history of balancer like what was ultimately the vision you know what does it look like today and then if you had to almost describe balancer the business I would love to get like an understanding of your your revenue and cost drivers and all that sort of thing sure so um I kind of uh started looking into crypto early on and really liked the idea of separating money from State and all that Bitcoin kind of brought us I was very fascinated by ethereum this idea of smart contracts and and smart money um what what really kind of caught my attention was the possibility of creating uh stable coins right the idea

of having a way to hold crypto that would not go up by 10 and down by 30 percent uh overnight I think this was a prerequisite and still is for Mass adoption and ethereum kind of gave us that opportunity so I got involved with maker Dao very early on because they were the kind of the first guys really exploring that and uh I I had some mkr back then and some if and some die um and I have I had this portfolio that I didn't want to kind of just leave alone and um overnight again like be Overexposed to mkr because it went up a lot in value and it wasn't very

um very liquid either so that that kind of happened at the same time where we were having those conversations about amms and x times y equals K and I realized that x times y equals K what it does um Beyond being like enabling people to to exchange with that pool from the lp side uh standpoint it it kind of rebalances continuously constantly your your money so that it's always 50 on each of the of the of the sides each of the the coins um so I I thought myself why does it have to be just a 50 50 uh in two tokens why can't it be like a basket like an index fund where I know I always have like 30 of my assets

um in die in 20 in in mkr and the rest in eth so I went through like all this kind of mathematical um designed to to come up with balancer and that that's balancer V1 it enables you to like create an index fund where you pretty much like turn it upside down instead of charging LPS to be part of the index fund which is what tradfi does it actually gives LPS um fees because people who are interacting trading with with the index fund with the pool they're actually paying a spread which is then accumulating we all know that from uh uniswap so balancer is a lot more flexible so balancer V1 is is that and we realized that we needed some more

flexibility for some use cases um a team forked us and created like a way to use most of the coins that aren't in a pool to lend them out to a landing protocol to make it more um like more efficient more Capital efficient and another team did something else and we we had curve launched with another type of invariant which doesn't keep the percentage just but it kind of optimizes for liquidity around price one we realize that like there's so many things that can still be created around amms that we wanted to like create a platform like infrastructure for other people to come up with all those like crazy and Amazing Ideas uh so we didn't

want to be opinionated so we created a balancer V2 balancer V2 is really like an architecture that enables anyone to create their own tools prototypes with their own invariants and they use this common vault which holds all the tokens from all the pools it does a lot of like optimization of gas costs it's very secure so we spend a lot of money and time like making sure that this vault is not cannot be corrupted so what it does is really it allows teams like gyroscope and so many others that are using balancer V2 to very quickly innovate on top of um like thanos32 you doing their own like new amm so if they

had to do their own amm from scratch they would have to spend a lot of time and money in things that we already did right so we make it so that they can just plug their idea their invariant into our vault in a way that actually shares um like all the liquidity from audit pool types that are also using the same phone so it's not really commingled money like each or tokens each one belongs to their different pools but it makes it very efficient to do like bad swaps you trade with one pool that trades with another one uh and at the end the vault only sends the the net pot like the Nets tokens uh to the user who's trading and gets the the ones that are trading in back so it's a very efficient way to um to do bad swaps in

multi-hops so this is pretty much balancer balancer V2 and and how we're kind of trying to further the ecosystem and and help other teams like we like to say that the successive balancer is the success of those building on top of us so we kind of uh migrated a little bit from the early vision of like being a an end user application to being infrastructure for devs and other protocols that are then themselves going to interact with end users the idea is for a balancer to be really like this piece of infrastructure that some self-sustaining so we we don't want to be injecting money from investors or from people who are buying tokens from the

dial we really want to make sure that the protocol generates revenues because it's used people like are spending money to use it and and then like the dial decides how to use those revenues which service providers it wants to um to fund that are actually like um working for uh for the for the protocol so it's really about finding different ways because there's it's so generic it's so kind of um open to to like different ways of using bouncers very multifaceted there are different ways to charge veronical um fees and the the most obvious one is swap fees which uniswap is kind of always on the verge of turning on their

their switch and other protocols from from the beginning already had their switch on like curve so that's kind of the the the first type of Revenue Generation Um for the protocol the second one that we we believe in the third one maybe there's there's others coming but um something that's very typical to balancer is the the fact that we are focusing on having you bearing tokens assets on balances so we we all like we don't want all the tokens um in in the vault to be generating use passively like instead of uh eth rap steak teeth instead of uh bow wrapped a bow whatever Landing protocols out there and we have a very kind of uh ingenious

architecture for that with uh linear pools and boosted pools that I can talk more about but um yeah so the idea is and then and for those we can charge a little bit of the yield so we don't we don't need to only charge soft fees and probably you're all seeing that swap fees is a race to the bottom like more and more Protocols are cutting their fees and you see unisot launching new fee tiers to undercut curve and then and then dodo not charging any fees for some pools so there is like a clear race to the bottom and balancer is kind of putting itself outside of this race to the Bottom by finding different and and creative ways of of like charging fees where it's really adding value like uh you generation there's also like the the

use case of asset management uh treasury management that balancer does where you can charge an aun fee like you use balancer to rebalance your your portfolio or your treasury balancer takes a small small cut and that's not even being built by balance teachers like Partners building that uh like index co-op with index funds and others so yeah so that that's kind of the the business the way I see it and I'm just one of the participants like we have an amazing Community people stepping up from the community like really leading those conversations it's not me anymore it was me in the beginning but more and more like it's really getting very decentralized and uh it's me stepping back and seeing things happening so yeah that's more or less the the business of part of the protocol

so thanks for that Expo there's a lot to unpack there Fernando uh and maybe Chris I can tag you in here because I think maybe that the two ways that I'd like to unpack that is one you know when you think about where you are in the life cycle of a company especially a startup I think that determines like when you want to start basically showing profitability or really extracting cash flow and then there's also kind of fee preference right which is like you charge a fee like let's use like an Ria or something like that you could charge like a flat fee or you could take like a percentage of AUM so there's kind of like where you are in the life cycle of a company and then there's also like how comfortable the VCS and investors are subsidizing that product and then there's also like

fee preference and how that's going to express itself in different marketplaces so maybe Chris I don't know as a VC or like a long-time investor in this space uh I think if we were having a conversation in sort of web 2 land and you had a I know balancer is one of the older protocols but if you were talking to like a three or four year old startup you might be saying well hold on a second like you guys are still in growth mode and you don't need to necessarily be charging fees from your users yet at this point because we're all trying to capture market share so I'd be curious Chris about what you're sort of um how you kind of think about that whole argument in where we are in crypto right now I'd start with the fact that I so I don't think of balancer as a company

company right it's very much a protocol that's capitalized by a native crypto asset and it's supported by a company and the reason I want to draw that delineation is while there are some shared tenets of like how a company operates over the long run and how a protocol operates over the long run um like the balancer team could walk away and the balancer protocol would continue working on ethereum right and so like everything the the cost structure of of improving say the um the utility of the balancer protocol and you know increasing awareness of the balancer protocol and all those things

that's for evolution of the balancer protocol whereas like the balancer protocol could be just left to ossify everyone could walk away and it would continue to operate on ethereum um and basically the user would be paying for the marginal use of the protocol and that's very different from a company right like when everyone from a company walks away the service of the company shuts down and I think that's like part of the key for people to really understand how these things get quite powerful um that said to sustain people that are going to work on the evolution of a protocol and also potentially to have a crypto asset that accrues value over

time you do have to start to think about the you know inflows versus the outflows of cash or resources right and so um I would say that for teams that are in the growth phase like the The Playbook over the last couple of decades I would say has been just like continually reinvest everything that you can into growth and you know raise dilutive Venture funding um to juice you know your treasury even more or your balance sheet even more to you know Turbo Charge that growth I would say that um that that has also largely applied to crypto protocols crypto protocols have

had the further benefit of being able to create their own programmatic Capital right the the native crypto asset Bell and the in the case of um balancer or uni in the case of uniswap and that has gone towards the balance sheet or treasury of of the protocol but I think that like one thing that that happens and and why this conversation is interesting in the depths of the current bear Market is um people get really spendy and they don't really care in Bull markets and and I'm not so much talking about the protocols as well well like everyone spends too much money I would say in the bull market and and very few people care all that much about the reality of the economics but then

crypto's so cyclical and so boom bust that when we're in the bear markets you have a lot of angry people who just want to make their money back in some way right um and then they're focused on like oh well why aren't you giving me money back or like you know I see these fees like you have to give that back to me and the other thing is it's it's an open discourse right like a big difference between a dow in a company is a company is very hierarchical and um it's closed to to discourse at least the startup company right they're basically talking with their their core customers their investors the team but um it's pretty sterile I would say as

compared to a Dao has all these these vectors for conversation and is you know chaotic but extremely biodiverse right and so then like you're going to get all these viewpoints more and you're going to hear a lot from the people who you know want the protocol to stop reinvesting in its growth solely for their own personal interest to try and get you know some money back so um I would say that I believe in working with each team for you know what their medium to long-term goals are and in the case of something like balancer you know balancer aims to to become a foundational protocol with strong independent dependence where

a bunch of teams are building on top of it and so I see balancer as investing in you know the dev Tooling in the true decentralization of its community so that all these different teams that are building on it can be supported by many leaders not just the founders right and then um what Bao chooses to do with the fee over time is is going to always be an important conversation but I don't think um even though you know parts of the community are focused on it right now I don't think it's necessarily the key to longer term success we have to like get through some things first and then like once you're turning on that extraction or that fee mechanism I think the

protocol will be at later stage just as companies that get to later stage start you know throwing off dividends I I wanna I wanna just bookmark that to to come back to you later this idea that people feel like they're owed something and there's like these discussions about cash flowing protocols or protocols that return parts of the treasury to the youth the token holders I definitely want to put a bookmark and get to that but I'd love to get maybe both of your perspectives as well on the preference that's going to emerge in this market for fee extraction so to use the example right like people people already say this public market analysts say this is about coinbase all the time well you know fees for Brokers have basically brokerages have gone to zero over a period of time that doesn't mean that

brokerages have stopped extracting fees from markets they haven't they just do it in a slightly less visible way which is payment for order flow right very similar kind of people debate a lot on what's the right way to to pay Financial uh wealth managers right rias and there's a lot of good reason why it should be a percentage of AUM but there's also pretty good reasons why it shouldn't actually necessarily be that as well there are some weird incentives that arise but ultimately it's a question of uh preference from the standpoint of the customer or the user how do you see that evolving in crypto markets do you think it's a relatively similar thing where the upfront fee kind of goes to zero and maybe it's monetized through Mev or something else but how do you guys see sort of fee preferences playing out so I

I was going to mention exactly that Michael I think there's like the The Prodigal decisions in terms of like in inside a protocol how you charge fees and is it AUM is it swap fees is it you'd bearing fees and there's a layer maybe below that which is what is the consensus layer like the blockchain that's being used for that and we know that ethereum is amazing but um has a lot of Mev and there's a lot of discussions and recently denalitzer published a very nice article about like uni chain how this is something that he thinks is inevitable um like in how much money today like before miners now validators are are

kind of taking um from users and a protocol and and how having like uh an app chain can can change that in in kind of uh forward the the fees or what would be going to validate us to to users of the protocol and token holders so um I I'd say that for bouncer being such uh kind of a complex protocol that touches many different uh use cases and other protocols it's very hard for us to go to an app chain before there is very good kind of composability and cross-chain messaging communication because we really really rely on um atomicity and composability so I I do think that it's uh it's a trade-off like

how much goes to validators how much goes to LPS in in the case of amm so much goes to token holders that are maybe passively kind of just tagging along uh with with the products without actually generating a lot of value um I I think there's going to be a lot of Discovery and and I'm curious to hear Chris's opinion on that as he usually foresees things really well uh High precision well I'll do my best I I guess the the thing I disagree with about this idea that like fees go to zero is that creation is not Costless and so in order for fees to go to zero

creation needs to become Costless and the only place that I see creation becoming Costless is if you have you know general purpose AI or whatever GPT you know is producing protocols at like near zero marginal cost and it doesn't have an ego and you know it just wants to provide free services to the world and it just wants to well maybe it's egos it wants to out-compete all the puny humans I don't know but until creation is Costless there will always be fees that are extracted and there won't be Infinite Creation because we're Limited in like the number of humans in our capacities in our time and so like okay yeah there's a lot of amms

or there's a lot of brokerages like coinbase but there's not infinite right and there's actually like a relatively limited number that are a great ux very trustworthy you know High brand value to the user such that the user is willing to pay for that service and like as an example you know I've been in this space for a long time now and I still like I pay to use some like very high-end Services where I have to pay like a monthly fee or whatever um but like it's it's as high security as I could hope for while still having like a customer service representative or someone that I can just call if I'm

having issues and I do it because you know I'm willing to pay that amount of money just for like the ease of use the Peace of Mind the security all those things and so um that's say on the company side on the protocol side I I basically think that like protocols will charge the market-based fee and everyone will kind of be undercutting each other and like you were saying Michael it's like okay you'll start with the obvious one and you'll all undercut each other down to like as low of a marginal fee rate as you all as everyone can tolerate while sustaining their operations and then someone else will come up with some other Innovation that will be like a sneakier fee and then we'll get to the

bottom of that and so like you never actually get to zero because there's also just as there's technological innovation there's economic Innovation which includes fee Innovation and the only place all that goes to zero would take me back to the start which is you know Costless creation let's talk a little bit about uh and Fernando I'd love to get your thoughts because I think in many ways the but at the Bellwether or the board looking indicator here is like the uniswap fee switch which there's been an enormous amount of debate around right and they're kind of like several schools of thought on it which is uniswap is you know in many ways is a leader right in terms of the liquidity that they have on the platform today right the so it might not actually be an enormous impact Let's

test the fee switch on a couple of different pools I'm really sorry by the way if you can hear noise here they're doing construction right outside my window hope that's not too loud um then there's there's kind of another school of thought which is look like we were talking about fees on The Upfront fees of a fee switch are going to go down to zero over a period of time really what we can do is there's a lot of opportunity on Mev so I didn't read the Daniel olitzer piece but really another way that we could do is hey there are all these validators which are extracting value here we should have our own chain with our own validators and then instead of charging users up front what we can do is just order those transactions underneath the surface or or kind of over here in the mempool and

extract fees that way based on front running or back running or whatever you know whatever we want to call Mev these days do you have like an idea of how that ultimately ends up playing out or are we just gonna have to kind of wait for the market to decide and users to decide what their preference ultimately is so like Mev is the sneaky fee or like it's the next fee pathway right so the transaction fee is the explicit fee and Mev is the implicit fee that unless you're an informed user you don't really know about and so like we're seeing pressure on explicit fees if you're deep within the Mev Market that's changed a lot too like you know the players have professionalized

significantly within ethereum you're starting to have you know good exploration of Mev and some of the other ecosystems such as cosmos and Solana um and so not as professionalized as ethereum but so like that implicit fee within ethereum already has become much more competitive um but I I guess I um perhaps you could claim that there there will be some type of inverse relationship with the more you decrease the explicit fee the more that the harder people will work to extract as much as they can from the implicit fee um and

um that said the implicit fee that Mev Marketplace is just going to get more and more competitive um and so like I expect that we end up paying um like the the equilibrium is that like at zero percent um at at a zero percent you know call it APR let let's just take staking for a moment right if you look at like your yield off of eth okay so that yield is coming off of um inflation but also transaction fees plus Mev so um if you if you start to if you set aside the inflation for a moment

um the because inflation is like if everyone's taking you're you're actually just all staying at the same percent ownership of the network so you kind of just run in place and so then like the true you know uh yield creation is from transaction fees and Mev and I kind of think that that at like a perfect competition place starts to just hit the cost um for the validators to run the infrastructure right and like at a minimum that needs to to happen because otherwise the validators will start shutting down right or like it's not profitable for them to run and this is where like a validator is a company that supports a protocol right and so the the

validator has to operate profitably to sustain its operations um and then the protocol is Reliant upon there being enough validators to perform those operations and so this is again where like I think we'll have Market based Dynamics where like people will have to accept that there will be forms of fee extraction because this stuff isn't free Kristen your mind should that Mev accrue to be internalized to UNI holders and validators or to the to the eth holders validators or I guess separately put like what what do you think about the uni about Dan's uni chain thesis there so so I didn't read Dan's uni chain thesis I guess I've been spending more

time understanding the cosmos Mev ecosystem because I think it's slightly it's slightly it's it's more where the space is going I guess and um what I'm what I'm coming to understand about Cosmos Mev is that each app chain or sector specific chain has its own preferences and value sets and so if you look at something like osmosis they're they're pushing some updates where they're gonna uh Slash you if you perform sandwiching attacks as an example and so like they're gonna protect their users and their their users and their token holders will ratify some of these things that align

with their value sets that will decrease the profitability of a validator who wants to perform sandwich attacks right but then if you're a validator who wants to perform those attacks or whatever you might find another app chain or sector specific chain within Cosmos that will allow you to perform those types of attacks and so you'll start having um validators that are like the the value set or the chain of value will align like through the community better I think from like the user's preferences to the Token holders preferences and that's large overlap there to what the devs Implement to what the validators run and so I think that

like uni holders or or users will only want to pay for things that they can also benefit from if that makes sense and and maybe that's where Dan went went in his uni chain thesis um but like the way I would think of it is like um yeah I'm willing to pay and I'm willing to get extracted from if I'm like a big time uni user if I'm also like at the same time getting the rebate right because I'm staking uni or whatever it might be and so for me if I'm active as a prosumer right on the on the production side and the consumption side then I'm either Net Zero or positive um in in how I perform like that that's

the whole I think um idea of liquidity Mining and distributing tokens and air drops like what Chris just mentioned is super important like you you're being on both sides um kind of align the alliance the incentives much better so you um if there is a uni chain or or a ball chain in the future um and if you have a lot of people who are using the protocol but they are also staking or there are the bow holders in our case our tokenomics has this idea of locking for for a year or less um you have like those people aligned then you don't have like two different groups like in a tug of war like fighting towards like who gets um less fees and and then there's this

this race to the bottom just wanted to add that 100 um maybe that's like you know talking about yield farming and air drops and all that sort of stuff maybe that would be this would be a good part of the discussion to sort of transition into Capital allocation decisions which is really what uh you know an exactly the CEO kind of has to make that decision right it's a little bit different in land of Dallas and crypto but um you know if you were to take a look at like a budget for a startup or something like a startup company it would look very different than when you kind of look at token allocation distributions like how they look for for crypto protocols so I'd love to sort of get your thoughts on like what are what is a typical

I don't know what are the major buckets of kind of spend for a protocol and how would that look different uh from public company and then maybe we can get into like the old farming and airdrops and those sorts of things Chris will have the breadth and uh he knows so many teams invest in so many different uh kind of networks and everything so I'm kind of gonna gonna give the like you said Michael the picture at balancer and then Chris can expand that and generalize so I think there's a a lot of areas that are similar for a protocol um compared to a startup maybe the different and like we're really more in the tech startup world where most of the costs of a protocol go

or or the Investments go towards engineers and people creating any value creating code open source and really uh making making new things that people like to use and there's all sorts of kind of uh necessary supportive um things like you need you need a community manager you need to make sure people are being listened to you need to have people who create a a front-end and that's also technical but in a different way so you have also to make sure that people can use your protocol so there's the SDK side of things where where davs kind of uh connect to your to your protocol and can build on top of that so there in a lot of ways there's

similarities between startup Tech startups and protocols and I think the the biggest difference difference Michael is is what you said like how how those things are decided right so at the very beginning balancer Labs which is the company and I'm the CEO of uh we were doing a lot like all these things right at the at the very beginning and it was always in our roadmap to be as decentralized as possible in order to achieve that kind of uh really amazing state that Chris mentioned like if we just all like disappear the protocol will still be working um and and kind of have this independent dependence that make sure that if one fails or one team like just just gets I

don't know dismayed or wants to do something else the protocol will still have a lot of people working and adding value to that so at the beginning balancer Labs was doing lots of things um and now balancer Labs is just focusing on code and SDK and smart contracts and we have now this kind of uh framework of service providers who come to forum who say who they are what they want to do like how they want to add value to the protocol and how they want to be compensated for that so now any marketing that's done is done through service providers that also Labs doesn't touch that anymore uh any yeah Partnerships is done by balancer Maxis a team of like Community like core guys

who have been around since the beginning so yeah it's it's been more and more like a a an ecosystem really of companies and entities and even some individual contributors that are in on which you don't really see in uh in traditional companies and in Tech startups uh so it's it's really becoming this idea of like lots of different entities enons and and whatnot and companies that are then funded by the Dao and the Dao is really a forum a lot of people who have uh some some like trust in them that have been around for a long time and then how that's how decisions are made um Chris if you want to chime in on like how this is done different uh differently in many other places

well it I mean within crypto it depends a lot upon um stage and where in the stack the team is right so um how much infrastructure versus how much application so how much Dev facing versus how much consumer facing um you know at the start I I totally agree with what Fernandez said initially which is like you need Engineers to build the thing right and so with a lot of teams that we work with you know four out of the first five hires are Engineers or eight to nine of the first ten hires are Engineers um and I would say that like pre-2017 you had a lot of like purely engineering teams with like people maybe one

business one BD person um 2017 started to change things um with icos and like people started to realize that like marketing and education and like these softer touch things were relevant but I would say that 2017 was a start of changing things and 2021 blew the door wide open uh in terms of diversity of spend of Treasury and if you look at teams like polygon Solana Avalanche um even to some extent chain link though chain link is more of a lot anomaly I guess we go with polygon Solana and Avalanche they all um had straw like well yeah let's so

they all had strong engineering teams um but complemented by a BD Powerhouse right and so if you went back in time I would say that like the BD and marketing or being overly heavy on that used to be kind of a dirty tactic within crypto and like crypto was nerdy enough and um you know insular enough that it was kind of like uh like why are you doing that whereas now it's gone more mainstream such that I see it as like a key tactic to understand and get right to effectively compete because not only are the users getting more mainstream but the devs are getting more mainstream and everything needs to be a little bit more spoon fed and like is is

um Less in The Wire Cypher Punky and so where I'm going uh where I'm heading to with this is like the you know past building the MVP like once you have the MVP the minimum viable protocol or product or product like I it's more important than it used to be in crypto to start to allocate to building out your BD team and and you know that's like the real use and like getting the Integrations and then from there you know on the marketing side I think that it's highest leverage to Market in Bull markets um at least to consumers or users um and then it's highest leverage in Bear markets to advertise to developers

and like the core users and people that will be stickier um and so I would encourage teams to adjust how they spend on on marketing depending on the face because you can burn a lot of money to you know say the same group of people in a bear Market but you're not going to get that much change say if you're if you're trying to pull in new consumers and you're like fighting uh outgoing tide so that's another thing I would um encourage people to consider I know everyone right now is going and looking at their Runway and how much money they have and so um it's important to be focused I I saw a great um this is a bit of a tangent but while we're on the topic I think it's worth saying it's not a great

quote it's from some Formula One driver um and it was from some investment conference but it was basically that uh this this driver was saying you know you can't pass 10 cars um on the track in sunny weather but you can when it's rainy and cloudy and you know I think that's such an elegant way of of revealing how important it is to be focused determined you know 100 conviction all in in a bear Market because the landscape changes so much in the bear market and like the signal is really clear and like people can pay attention a lot better and so things will rejigger it's kind of like the tectonic plates move around very quickly

and then that is the foundation then for the next expansion and by the next expansion like people are you know so borderline Manic and like whatever that like they're not paying attention as much substance and so like I'd say that the rate of innovation and the tectonic changes actually slow down and it's really just people like talking about everything that happened and was built during the bear Market mostly and like regurgitating that until you know then we get like a period of recomposition again all right everyone brief break in the show here to talk about our newest sponsor Reserve so you know it's looking pretty bleak out there it's not looking that great we know what the one thing there's no bear marketing stable coins Stables babies Stables we love those stable Coins app which is why we're

excited to partner with Reserve protocol so let's just start with the basics what is reserve it's a self-service platform to build deploy and govern asset-backed stable coins uh which can be integrated with defy or within the real economy so the cool thing about Reserve is basically anyone out there permissionlessly can take any set of erc20 tokens and use them to collateralize their own stable coin so the long-term goal of the reserve protocol is to create an non-inflationary currency that is stable on a month-to-month basis but also a century to Century basis in the meantime though their open sourcing design decisions for stable coins which is just super super cool I think one of the benefits that you get there is diversification you hear it all the time in finance 101 no such thing as a free lunch except for diversification that's

what you're getting with Reserve protocol yeah I've known the team for a long time I spoke on a panel at SF blockchain week with Nevin with Joe Carlson and Alex gladstein really impressive uh growth that they've been able to have so far right the premier stable coin is RSV it is backed by three other Stables it's already used by over half a million people transacting over 300 million dollars a month right now like Mike was talking about anyone can go create a custom bespoke stable coin using the reserve protocol you can back it by maybe specific USD Staples or you can get creative and you know maybe build something more complex like inversely correlated assets The Branding governance and composition are completely up to you and lastly if there are any Builders who are listening and

you aren't interested in issuing your own stable coin what you can do is you can stake reserve's governance token against your favorite stable strategies so what you're doing there is you're providing backstop Insurance to stable coin holders not riskless right not Financial advice there's definitely some risk in doing that but it does allow you to earn yield especially now in crypto when there are so few ways to do that it's definitely worth checking out so at the very least you should click the link at the bottom of this episode go check out the reserve website see all the cool stuff they're up to most importantly though click this link gotta give Jason me some credit here give us some love baby give us some love all right now back to the show let's get into it what do you think are um like lasting things that we will take

from the last bull market things like airdrops um or like token swaps like well what what will last from the last uh bull market that people will in protocols will Implement in the next bull market and like what will what are things that are just like oh that was like a 2020 bull market thing that won't happen again well I think people are still so like so airdrops have been around for as long as crypto has been around um and people are always iterating with them because the frustrating thing with airdrops right is like how do you keep people from just immediately selling the token right and like what are you actually accomplishing um with with that tactic and so things

like what um across is doing the bridging protocol within ethereum I quite like where they have an age of capital that increases your reward and this is like a combination of like airdrop plus yield farming but like where your reward starts going up the longer that your age of capital is so like the longer you've gone between vesting periods because presumably when you vest you're vesting to sell and so if you have no interest in selling you'll just keep um your age of capital going up such that you can achieve the highest rate of reward so like I think that airdrops are definitely here to stay and that's a

good thing but I think people need to put more time into the mechanism design around loyalty right and like how do you get the um the user behavior that you that you desire um so that would be one that that sticks out to me of course like yielding is um is going to be another key one and like where this is all gonna go is um yield markets where everyone's gonna see what different assets yield and that should be commensurate with the risk of being a participant that earns that yield right um and so like we're at a very early stage right now in that

um but like just like people ha you know have a Hawk's eye on the traditional Finance yield markets I think over time we're going to get to that level of sophistication where people really understand like okay you should probably be getting higher yield if you're supporting some like thin application that has some risky crypto asset on some you know risky alt L1 versus like if you're you know a validator within like ethereum or Cosmos or Solana or whatever it might be so I expect to see like uh I I guess more professionalization around what it means to be a yielding asset and less of the games of like oh

my God this is like 250 million percent APR because it's you know a complete Ponzi sure that'll come back somewhat but I think people learn their lesson too of how unsustainable it is now that said I'm always surprised by how few people remember the lessons that they once learned so you know uh there will be variants of that but like on the important stuff I I think professionalization around yield um more stickiness around airdrops the the thing that I would love and and this is you know my PR training of answering the question I I wish I'd been asked versus the question I was actually asked but um great question Jason yeah thanks Jason break me off yeah sure

really nailed that question thanks for your shitty question no it was a good question um but uh so I would love for people to think more about how they can compensate people who put in their time or their labor that don't have that much Capital um and so like most of the games thus far are still rewarding capital of some kind even being like a minor within Bitcoin proof of work that requires the capital necessary to purchase the machine and so on now it takes a lot of Labor too to keep it running staking is more just pure capital and less labor and that's where like I think

some of the proof of work arguments are valid but um you know a lot of airdrops or a lot of the mechanisms to distribute assets within crypto are still Capital dependent and the issue with that is you know the whole way through the capitalist system Capital gets Capital but gets Capital begets capital and so we see capitalism getting more and more concentrated or unequal and I actually I very much believe in capitalism as the best at scale coordination mechanism that we have but I think for it to work optimally it needs to be better distributed and I see crypto as Society is best tool currently to programmatically distribute Capital to labor and so like more ways that people can think of like uh compensating people

directly for their time and allowing people who don't have much Capital to earn their way into Capital um the better I also think that like that in part relies upon identity being solved because that will get gained that idea of allocating to labor will get gained by Capital right who will like set up a whole bunch of addresses and we've seen these games in Fernandez nodding his head because it's frustrating like you can try and design these mechanisms earnestly and then they'll get gained but like if we could have identity where you're provably revealing parts of yourself um that you know make you qualify like let's just say and this is probably a

bad example but like let's say people who are earning fifty thousand dollars a year or less on you know their provable tax return what if they were eligible for like 3x the reward as people who were earning like 100k to 200k a year on their tax return and like maybe the people who who are earning 100 200k they're probably going to not like that right and it's going to become a conversation but like I think the conversation needs to be had around like okay what are ways that we want to um compensate people with this Capital that we're creating um and then also like I would say that like the more you can contribute Capital

directly to some people who give a lot of time those those people will be very loyal if you change their lives and like one issue that we have right now in crypto is like there's so many people who are just like foaming at the mouth trying to collect every single airdrop they can or like you know every single thing they can kind of running around just you know collecting collecting but they don't actually care and so like I think it's more impactful for a lot of protocols um or adapts to allocate deeply and change you know ten thousand or a hundred thousand people's lives then like you know have a kind of like meh like incentivization mechanism for a million people and so I I'd love to see

more of that um and in addition to Identity I think we'll just need more mainstream applications right where like it's speaking to like specific user groups rather than just like crypto as a whole I am really curious to get your thoughts on this because what I've sort of I've read something on this basically called like governance mining as opposed to liquidity mining your uh I forget something like you're mining for labor right and that's kind of a fancy way instead of paying people for their Capital their liquidity or you want to pay for their labor I think the one thing I would say in in defense of sort of yield farming in in general is that it's simple and one thing like it was very beautifully simple and Jason you and I have used

this example before but like we've had the delightful experience of trying to design sales call plants and there's all this temptation to be like very specific about like this little thing you want to incentivize each little action but what you end up with at the end of this discussion is about every action you want to incentivize is a convoluted complicated mess that no one can really fully understand so I just I I view that as like a potential danger a little bit because I'm with you on that we want to specify more specific actions we don't want this mercenary liquidity that kind of plague field farming V1 but on the other hand I see us being in danger of like over correcting there and getting way too specific and making stuff too complicated especially in an environment in an industry of still mostly Engineers

I would say and then the other thing with when it comes to governance mining basically getting people to contribute to doubt that's something that yeah there's more just work involved right you need to get individual people to underwrite the quality of each individual contributor so I don't know if you have thoughts on that word vomit there it's good pushback um and I mean the complexity of um compensating labor versus capital is is why this is an issue right um because it's also like capital is is a commodity Within These systems but labor is typically pretty Boutique right and so then like and then you you get into this question of like well you know do you just treat all labor equally

because that's certainly not how wages work um but that said where labor is treated equally would be like within governance seats within the traditional systems right so like each member of Congress or the senate or whatever they'll have their base salary certainly they earn you know like look at Nancy Pelosi and how she trades like she uses that to her advantage to make more money on the side um but everyone has a base rate and so like I could see there being like um more base labor seats you know or of like different tiers for example like let's um and and like let's say that there's gonna be

um like the the scooters you know the uh the ride sharing teams like it's like what Lyft has or or whatever like I think that there's a world as we get more of these um real world applications of crypto or like meet space applications where like okay and now we're more in companyville where like you have whole fleets or like tiers of Labor right and so like you got the people who are going to go and pick up the Scooters or the people are going to maintain the scooters right or the people are gonna market and maybe marketing is at the company level but like the if you want like kind of this Loosely aggregated or

organized uh swarm of individuals I think that you can pay them in a combination of potentially like a base rate of dollars to cover their expenses but then you know you can pay them a token bonus um that potentially gets juicier you know the more that um their that they're loyal to that specific protocol or like you know that they like maybe they pick up slack maybe there's even like surge pricing for labor when labor is really needed on the like scooter pickup side um and and I agree like with your original question Michael of like okay

you make something too complex and no one uses it or it breaks easily or whatever and so I don't have um strong answers for any single use case where I do feel strongly is that like the conversation is only being had in certain pockets and I think it's a very important conversation for us to have because if we only enrich existing Capital more and more and more we're like the socio-economic change is or socio-political change is not going to be that great Fernando how do you think about this breakdown of Labor like in traditional economics you have like unskilled labor

semi-skilled labor you have the skilled labor then you have like professional labor like lawyers and doctors um and I mean Chris is right like in crypto you have this breakdown of that because there's like a lot of anons and you can kind of but but obviously different types of Labor have to get uh paid differently so I'm just I'm curious how you think about this yeah I I I think this is a super interesting area with lots of um potential to like creation of innovative things like uh Christmas was mentioning the problem of civil attacks which is uh a very big problem for um any any type of uh labor kind of uh compensation you never know if like it's a it's a one one bot or person like

creating lots of accounts so the identity problem that is being worked on by a lot of people is super key it would allow us also to do some interesting experiments with governance like quadratic voting um yeah so I I think there's a lot of uh like a lot of innovation coming from uh identity and and combating civil attacks uh the the way that there's also some smart ways they're already working for labor compensation uh one of them is uh one way we we use at balancer it's called coordinate so it's really like a smart way for for people to kind of uh be recognized for helping each other on on Discord or for

participating on the Forum so every contribution that people make kind of Counts points and if other people give kind of uh thumbs up or kind of there's like some cross um kind of algorithm that detects who is actually contributing so there's ways to automate that um and and we also have grants and like this idea of service provider so as you as you mentioned uh you know I like you you cannot pay developers they're super uh hard to get and and uh their scarce um resource like you cannot pay them the same way you would pay people who are just answering uh generic questions on on uh slack or or Discord so the you can

go to um to Grants and then kind of ask to do something and and people will kind of approve that or not so yeah I think labor is super important and like the people that were there in the beginning of the protocol being around and kind of uh helping and onboarding people like I think this is also super important if people just like um don't see that they're being valued so it's nice for Founders and for people who have been around to be like in the scored answering questions and welcoming people I think this is uh it's important to this this wrecking recognition not only um Financial uh why Finance wise one one thing I also wanted to mention is

delegation I think this is kind of a one of the answers to Chris's kind of um question of like how how do we kind of compensate people who don't have a lot of Labor like with recognition if you if you give as a big token holder if you give and you don't have time to follow everything that's happening if you give your voting power to someone who you see like has good ideas and is kind of Defending what you think you would if you had more time to follow the the project giving your your voting power to to that person or Community like could be a neon I think it's a it's a very interesting way to align like labor with uh governance power that would otherwise

only be given to Capital if you buy a lot of tokens or if you mine um liquidity so but I I do think as I said Michael liquidity mining is something that has been um really like groundbreaking and I think we're we're going to see it for a long time and for balancer for example we have this inflation that goes down over time and will eventually fade off like a little bit like like Bitcoin and uh the idea is that we'll we'll keep like with the with the treasury but also with the revenues generated by the protocol we'll keep um compensating labor and people who are actually giving their time to balancer as opposed to only the capital I want to make sure we we cover sort of two two

more big topics here before we have to depart which is one kind of like Insider rounds and this thought on like VC like actually Chris I'm I'm just going to start because you had a great you had a great tweet um great tweet on this let me see if I can find it but I really I really felt this uh all right many knee jerk uh saying that they won't buy here for XYZ reason the same people alone about how VCS get preferential access next expansion when they had equal access this bear actually Public Market is still even attractively uh valued as opposed to price private Market of crypto right now so can you like talk a little bit about you know you were just starting to get into this with like we want to make sure crypto is kind of a force of good and even evens things out

from a socio-political perspective but you talk a lot a little bit about like this whole pushback against VCS and how Insider rounds have kind of changed throughout the course of the time has been in the space sure so I'm definitely going to jump into that one just to emphasize that that last part of that tweet the public markets are more attractively valued than the private markets right now so like for anyone listening keep that in mind keep paying attention in particular if you're an investor now is your time don't moan at me later um so I'm just I'm I'm actually really tired of your public service announcement yeah I'm like I'm really tired of like certain characters like I guess people are calling on MP NPCs now

non-player characters who just like regardless of what the environment is they're like they find things to moan about and it's like well you know like you've you've got a lot of opportunity right now don't tell me that you're gonna buy later because you probably won't um so in terms of The Insider allocations I think it's useful to go from Bitcoin to current and so like if you look at at Bitcoin um you know I would say it's widely recognized that Satoshi mined about a million BTC right um which is about five percent of the supply um if you look then next to ethereum so uh 2014 Design

you had by the way are you guys hearing me all right yeah okay so you had ethereum five percent of the supply to the the creating Insider um ethereum 2014 2015 they allocated 12 million units of East to the foundation so there's currently 120 million Ethan Supply so 12 million out of that 120 is 10 so double BTC there would be people who would claim because eth always gets you know uh like the Bitcoin Maxes always get angry about the East pre-mine which refers to 60 million eth that was sold in a public sale that anyone had access to I don't actually think of that as like an inside allocation because it was public access

and so like I guess I I really should have defined these things I think of inside allocation is like you need a privileged seat at the table and it tends to be the creators and the investors who support the creators in that process before the thing is actually liquid or even a reality so like everyone who's an Insider yes they get a privileged seat at the table but they also all run the risk of zero um before the the the thing is actually created or liquid and then the permissionless public you know like there's no privileged access and there's much less risk of of zero so you had ether ten percent

um then in 2017 I would say we started to get a lot of experimentation with ICS um where you you started to have variation I would say of like 20 to 50 percent um take by insiders to to fund the protocol and then 2021 that bled even more and we're now getting to a place where even though like the way that it's marketed or communicated um is is massaged let's say to be polite like basically 100 percent is going to insiders or being like top-down allocated by insiders and this is where like as crypto gets more mainstream and more corporate and whatever and like

indoctrinated with say some of or more invaded with some of the ideals that come from the traditional world people will just be like like well let's just take you know 100 of the supply and we'll know how how to allocate this better than anyone else I I very strongly disagree um with that view of like allocate 100 to insiders um because I think that like insiders can't help but be biased right and like there's this very human tendency when you control a lot of capital and resources to just allocate more and more to yourself and so like to break that cycle you have to allocate it um to the the permissionless public or what we could think of traditionally as

as Outsiders right now within ethereum I would say like the good guy Norm good guy and girl Norm is um 40 goes to insiders and 60 is reserved for the permissionless public so you have one and a half X the supply going to the permissionless public over um the Insiders and again that insiders includes like the core team the investors and like really the treasury to fund the evolution of the protocol um how that 60 is is used and communicated there's tons of variability right and you really have to look closely because sometimes like it's it's you know again it's massaged

um in terms of How It's communicated but um I I at a minimum think that like or or like the minimum tolerable or or you could all say maximum tolerable extraction is a 50 50 split inside or Outsider I prefer more for The Outsiders than the Insiders the only caveat to this that I'd say um because I wrote a piece on this called the original sin um is because of this normative shift where teams are taking more for the Insiders and that also in large part can be used to fund the protocol evolution if not enough is taken then you may not have enough of a war chest to out

compete you know greedier competitors um and so you know that's a a tricky conundrum the other thing that happens or like one model and you know we've spoken about this uh with balancer and like I know like synthetics explored it like there's a world where you don't have like an excess Supply creation you just actually create the supply that you need so so you wouldn't have like a fully diluted say overhang you would just have the circulating Supply and then you could issue on like an annual or every three year basis more tokens as needed to cover costs right and so this would be much more

similar to say how a company would work right in terms of stock based comp we have this very archaic system that's all based around Bitcoin which is there's this the total Supply there's this total supply of 21 million so then if you look like we learned so much from Bitcoin and there's actually one of the earlier episodes of this season was with hasu talking about like maybe some of the wrong things that we learned from Bitcoin and eth but that seems like I mean Mike and I talk about this all the time we learned this from Bitcoin therefore like fixed Supply therefore everything that has come since Bitcoin has had a fixed Supply and I do wonder if in the next cycle like people maybe get away with get away from that and look at traditional traditional startup fundraising as a more as a better model here

so I I think it's I think you're you're correct you're directionally correct in that fixed Supply assets are a rarity um like total anomaly within the traditional system and their inflexibility can be a weakness if you're not trying to build something like what bitcoin's trying to build and bitcoin's like a very specific thing for the world um and most other things are not that they're they're much more a type of um Capital than they are you know a commodity like store value which is what what Bitcoin is and so now the the tough thing is when you have like if we go back to a dash structure

and you have this like very um biodiverse set of participants it can become chaotic in a bear Market in the time when you like need most organization and like most Clarity and most you know uh conviction in a single direction and you also need to spend and the thing that I don't like that I see a lot is like communities become very penny pinching when they need to they actually need to spend most and they're like least penny pinching when they should actually be like saving up for that future rainy day right so like if you look at Dao spans like crazy

spends get approved in a bull market and then like fractions of that spend will get shot down in the bear Market on much more important things and so that's one thing that we haven't solved for yet if we were to go to this model because I'd be afraid that like some Dows would get choked out basically in Fair markets or they wouldn't be able to create because people like oh we can't suffer the dilution we're already down 90 percent and it's like well you're going to be down 100 if like this thing doesn't keep evolving right um and one thing that like the creation of total Supply enables is like a buffer to continue spending on the flip side it can lead to like a lack of discipline

because there's like such a big balance sheet right that like takes a while for people to realize that it's actually finite I mean really the the problem that you're talking about though of like oh we have to dilute more at the bottom that's the problem that companies are face like face today not in crypto is like that what you're really talking about is being conservative at the top and aggressive at the bottom and having enough like of a treasury management like a good treasury management solution so that when does hit the fan you don't have to go race to raise another Capital but as we're seeing today like while we're at the bottom not even in crypto there are a lot of companies that are like oh crap I didn't manage my treasuries correctly let me go race I need to I'm going to go dilute myself so

that I can stay alive and I can compete and I can hire talent and it's like yeah that's just there's just the sacrifice you have to make for not manner managing your treasury correctly one one thing I I I'd add though is that um the perception of a token that can mint infinite new tokens is like super important like if if someone is considering two tokens and the two Protocols are very similar they're like they have the same amount of users adding the same amount of value one can infinite two infinitely mint tokens and the other cannot has like a fixed supply for your next I don't know um uh all used to to fund itself investors and people anyone would would buy the one that has a fixed Supply

because you don't know how like governance might react in the future you don't know if there could be some attack that takes over governance and uses that infinite minting power to create a lot of tokens and transfer that to themselves so I think the um the kind of a certainty that that protocol doesn't have the technical ability to create new tokens and dilute everyone else who thought they would be buying into like this Supply but actually now it's double as much out of the blue you can always like do a four right you can always create a new contract and then allow it to make new tokens but not without a lot of hassle like to do to do work so I

think the my preference for a fixed Supply is really because of like the certainty that anyone like participating in that ecosystem that they're not going to be diluted to to zero if some crazy unknown unknown in the future happens I think the last place that I want to go here to to think about and before we think about wrapping this up is just around this concept of returning Capital to shareholders um like right now you're seeing uh I think just in Bear markets you see a preference towards like cash flowing protocols although I guess this might be the first bear market we've really had that but um there's this whole conversation around like uniswap turning on the fee switch obviously um how do you guys think about I guess when I look at that I'm like okay I see why we're having that

conversation but also in traditional markets it would be pretty absurd to request to go to a startup that was like three years out and request them to start returning Capital to shareholders like the most productive use of capital is to like r d and to like build more and then like maybe beyond that it you could like do some Acquisitions like the last thing that you want to do for a startup is to return Capital shareholders and that's something that we frequently ask of protocols these days especially in this market so I'm curious to get both your takes on how you think about returning Capital to shareholders and are we are we asking these protocols to do it at an appropriate time well so that fixation is that penny pinching mentality right of like you got

to give me my money back now when they should actually most be reinvesting in the opportunity right and so that's like one of the perverse things I think of like we could just call it more Junior management or more short-sighted management um that can sometimes come up from like a short-sighted community's preference and that's not me trying to slander uniswap like I see it across the board right and this is also like the way that having too speculative of an ecosystem can bite where like people are just too focused on the the short term so I think I think that like the fixation on it is is not you know the highest leverage thing that communities could be doing in

the spare Market um and that like actually like improving you know if you're developer focused you know improving the tooling educating teams getting more teams building on you so that you ultimately have more cool products that are leveraging your underlying infrastructure when things are booming in a few years time that's a much higher leverage way to spend a dollar than to like give it back to someone who's like disgruntled and probably going to go and sell it anyway right um or like I I'm not sure exactly how uni plans to like um or how the fee switch will exactly accrue to UNI token holders but I very firmly do believe that like now is the

time to be investing in the opportunity anyone who is um has a long-term Vision will be aligned with that and is not going to be focused on like trying to maximize their dollars extracted at this point in time I think the baluster has a really has kind of struck a really good trade-off between giving back to token holders and investment investing in like growth and creation for the ecosystem we have um the the same tokenomics as curve like this vote escrow token so first only the people who are really like escrowing their tokens um they're getting something passive bow holders are not getting anything right

so you have to lock your tokens for up to a year to be able to vote to get your share of revenues of the protocol and 75 of the revenues go to um to those kind of uh we we call ve bow holders and 25 goes to the treasury of of the Dao where the Dow then discusses should it go to Grants or service providers or coordinate um in in order to really like keep growing the the ecosystem and innovating so um you you need also in my opinion some stability for um for people to build on top of your protocol like baluster has Aura has tattoo has lots of different protocols it's not just token

holders that want to see their tokens back because they're short short-sighted it's really long uh term oriented protocols that need that income to make their own protocols built on top of balances to be sustainable so it's not re it's it's already just people who want their money back because they invested it's it's things that are getting built on top that need this kind of uh stability and not for those percentage of 75 25 to be changing uh every now and then so it yeah it's a complex kind of trade-off but I think baluster has found a very very good balance there actually I think there's one more thing I want to get your take on Fernando maybe I can throw this one to you or I guess I'll get I want to get both your takes on this from the Builder side of things and from the investor

side of things how do you think about um just this idea of building moats in crypto um and it's a problem I think a lot of folks haven't had to deal with before a lot of the founders in crypto and even the investors in crypto have never had to to deal with and think about is like uh it's just a different environment right building in like an open fully open source environment so I'm Fernando how do you think about as a as a founder and as a builder like just this idea of building moats it's definitely hard to build modes and like keep your Edge Competitive Edge if you're doing things always in the open and creating open source software which is our case like everything we create is open source and people can afford it um so we we believe that it's it's

really the like the words that Chris mentioned at the beginning it's the independent dependence so lots of different protocols and teams that are dependent on balancer because like not dependent in the in a bad sense like they use us as um as one of the dependencies like as in code you know you import balancers npn package and uh you can always like exchange that like replace that for a fork but a fork might have some changes and the interface is not the same so there's always some work to be done if you want to replace balancer for a fork or for a competitor um so the the idea of a mode for us as infrastructure is the more protocols

built on top of balancer um the the harder it is for someone else to create a thriving ecosystem like we have where there's a lot of liquidity in that in that uh one single vote where my protocol can uh can benefit from even if it's it's not my liquidity but I'm actually doing a multi-hop that uses heat dye liquidity from this Auto protocol that's also using my my Vault so uh it's Capital that's being accumulated and kind of there's some Network effects there but it's also the idea of like a lot of people are using our tools our smart contracts rsdk so even though we're all open source it's hard for someone for imbalancer to convince each one of those independent events they don't know each other it's

not kind of something that they can coordinate and move all to this other competitor because of a small percentage kind of drop in the fees if we charge any so I think that's how we should look at modes uh for for infrastructure in this open source space Chris do you see things in the same way so definitely on the infrastructure side independent dependence is the thing that we really focus on um because just just to draw that out a bit more when you have so many different teams relying Upon A protocol be a balancer or ethereum or like any of the major protocols out there they have to like all leave together to get that same combinatorial combinatorial utility so they they all

start feeding each other and you know this is often talked about through composability as well um so on the infrastructure side for sure I think on the token side um I think there is a wealth loyalty moat so like having gone through like the very early rise of Bitcoin with the bitcoiners or the very really early rise of ethereum with ethereans or like you know also observing you know Adam and Seoul um there are as you rise with a with a protocol um you become increasingly loyal to it especially if it becomes material or potentially changes your life right and so like this is something that I'm

probably seeing most acutely within the Solana ecosystem right now where Solana had such a crazy rise last year not I mean some people took profits but a lot of people didn't take as much profits as they probably should have and so now there's like this loyalty that they all have to the protocol right both because of like some of the core values that they believe in but also because they know how valuable it can be and they want to get it back to that place right um and eth went through the same thing in 18 and 19 when people were shocked that it went from 1500 to 80 bucks right um and so that's that's a real one um that that I see

um I would say on the consumer side it's going to be more of the traditional things that we would think of like just in terms of like um um when you're treated well you're likely to keep going back or like if a brand doesn't give you a reason to leave your default is to stay that said what's great about crypto and this is where the consumer wins um because you can always opt out or like we work with xerion right but there's also zapper or there's other you know examples that do relatively similar things and you can just you know connect your metamask or whatever wallet you're using and go from xerion to zapper to XYZ and get you know different views of

the same data and so that ability to opt out easily protects the consumer because it means that Brands need to behave better um whereas like in the traditional system where modes are easier to build the consumer gets over more and so I see like the difficulty of building moats at the consumer level actually means that the consumer will win and that Brands will have to behave better yeah there's been a great conversation guys uh I don't know if Chris you have anything left to add Fernando anything on your end too no I feel full I'll give Fernando the last word no yeah I think the conversation has been amazing um yeah maybe on the on the last topic

that Chris was touching on I think the the same is true for uh infrastructure so if you if you see like the new like crazy protocols that are kind of putting new things out there and then you see people building on top of them or using them getting hacked and you really need some Lindy effect if your infrastructure so our our utmost kind of important uh thing is is security so we've been around since the early days of like the the five summer and even before that so I think also for for infrastructure this idea of like being around for a long time and being trusted not being just like new um like trend is is super important so it's also part of the of the mode for

infrastructure protocols like balancer but uh I also yeah feel full and I think we talked about a lot of cool stuff thanks for inviting us you know Chris I don't know if you want to add anything no balancer is here to stay that's all actually Fernando I think I've been thinking more and more about that is uh just lint it's not just Lindy with protocols it's like the most important thing I I remember like month two of block Works four and a half years ago we had uh just like an advisor tell us like the only thing you need to do is survive especially in an industry that's going up but is incredibly volatile you just need to survive you don't need to be the best you just need to survive and even like I mean we're seeing other media

companies going down you're seeing protocol struggle it's uh yeah it's uh it's good advice so yeah anyways guys so so related to that sorry we keep going here but one of our favorite LPS told us um very similar advice he said um there are those who take themselves out those who get taken out and all you need to do is survive it's good advice so press in with this market so awesome Chris and Fernando this is awesome I appreciate it and uh yeah talk to you guys soon thanks Jason thank you bye-bye all right buddy what'd you think good up really good app um one of the best of the season in my mind I really like the discussion around fee preference and how what is the preference of users going to be and how

thieves get extracted in crypto and I've kind of thought this for a little while but I I really thought this walking away from the episode is that people like the uniswap v-switch discussion is a little bit of a red herring probably because at the end of the day that's not how these Protocols are going to monetize the way that they're going to monetize is say hey it's free to like use and trade on this protocol but then underneath you have validators that are basically ordering the transactions and profiting that way and even if there's probably an order of magnitude more fees that are going to get extracted through that process which is Mev But ultimately for the Casual even the professional user even though you know it's going on to not pay that that fee up front is going to be

meaningful I think so I I just think Mev is going to the way be the way that fees get extracted in crypto yeah I I think it's becoming pretty clear that Defy is going to end up looking I don't know it's going to end up looking like traditional Capital markets with one with one difference which is the biggest difference which is that it's better for consumers uh because the switching costs are lower like I think a lot of things that you saw in traditional Capital markets brokerages taking fees down to zero that's gonna happen in in defy um and even in C5 like coinbase and stuff too um there will be fees but there'll be hidden fees like payment for order flow that's gonna be Mev and D5 I think it's going to look very we're realizing that like you don't really have to reinvent

the wheel it's going to look very similar um it reminds me of uh there's this quote about the iPhone about like new technology is usually is usually like worse than a lot of different elements or or it's the same except for one tiny difference and um it's like the iPhone you could have a computer in your pocket it was like smaller it was slower but you could have a computer in your pocket um and like with D5 it feels like you're kind of Reinventing all the things or you're you're actually realizing that you should kind of just copy a lot of the things from traditional Capital markets except for the fact that you should have easier switching costs that should be easier to switch and it's a fundamentally open system as opposed to a fundamentally close one that I think I think that's kind of like

it's permissionless and anyone can interact with it even if there ends up being kyc or large swats uh kyc I also think there are implications for the app chain thesis versus generalized protocols I I mean we started to get into that a little bit when Chris was talking about Mev that's going on in the cosmos ecosystem but being able to customize at the execution layer osmosis shout out to Sunny and what those guys were doing over there but yeah being able to do something custom like will slash you if you're a Staker and you're in your doing sandwich attacks in in our ecosystem you cannot you can't do that as far as I'm aware on the ecosystem so yeah I think they're going to be yeah good point people will want customizability at that level so it's just a way to generate Alpha I

think and create a better user experience um what else was what other takeaways did you have from this episode yeah I thought the discussion around yields and how that's going to evolve from yield farming to governance Farm I forget what he and the whole discussion around moving from Capital to labor Chris's idea from it it I think it's not a fully flat uh like fleshed out baked out idea yet but I like where he's headed with it which is if you just basically rebuild a system that um rewards Capital you're rebuilding a lot of what we already have and that it's it we we should be experimenting with rewarding labor it didn't feel I I think I think you had a good pushback there

and I think uh it didn't feel like a fully baked out thesis yet but I I like where he's headed with it the push-pull of Labor versus capital is something that plays out over economic Cycles in the real world and it plays out we just thought the last couple years were a perfect example of the push and pulling back so I think like zooming out of that frame and zooming way in on what do these protocols need how are they going to grow I think there's a very strong argument to be made that they just need people actually contributing and building stuff and marketing it and all that kind of stuff as that's much more valuable than just liquidity on a platform which people are just looking to to dump I I think the the one thing I'll say in defensive

yield farming which I kind of said on this episode is it's very simple but the thing that sucks about it is it just doesn't really work anymore I don't think it's gonna I don't think it's gonna work much anymore so they yeah they're gonna have to tweak it a little bit we didn't talk about lockups I I think you could probably solve an enormous part of the problem with yield farming by simply Distributing yeah yeah there are benefit they're they're interesting so there's a you can go back and there was this old episode of invest like the best that where Ted sides goes on and talks about what are the alignment Mis incentives of allocating Capital between like

institutional allocators and general managers and they're sort of trying to play around with this idea that like how do you reward the people that stick with you through multiple Cycles because as a as a GP as a partner like a hedge fund or something that you you kind of have to do short-term decision making because you can't have a long-term investment no one's going to let you lose money for three years because oh I'll make it back on my fifth or sixth year even if that's the correct investment strategy but so they're kind of trying to figure out a way to bridge the incentive Gap and they were hypothesizing around a side pocket vehicle which was like let's say you're an LP and you're like I'm gonna back this GP for the next 10 years and it's and the way that I'm going to be

incentivized to not bail when maybe their strategy goes poorly for like three years is there's going to be this little side pocket that will contribute to and it's like a loyalty program and that's what I heard Chris saying when he was talking about you know ve uh and that's just one of those cool it's very difficult to predict when you when you're able to get more creative around mechanism design some of the cool things that people will experiment with them I'm hopeful that we see some of that stuff moving forward because you do we do we need labor I think more than New Capital yeah I think also is this this is where I cut out a little bit right at the end but you I think there is this wrong idea in

crypto and it starts with an assumption there are two assumptions that I think we get in trouble with one everything should be based on bitcoin you know which is fix hard cap fix Supply and even that's probably gonna have to change I know that's you know crazy to say but I'm pretty sure they're gonna have to remove the hard cap fixed Supply too but spicy I think they will I I don't think the security model works if it's just based on transaction fees but but uh it it definitely doesn't make sense for protocols that are more company like more Equity like in their structure and I also think there's this other core belief in crypto which is if I was early I deserve to keep getting

rewarded passively and I just do not think that that's the case I think that sets at a lot of the problems like I got here early no inflation schedule because I correctly picked this so I don't want to get diluted by all you you know you people who are jumping on one cycle later than me and I just don't think it's a correct view the view should be you actually have to keep contributing to keep your pro-rada stake and and defect against inflation that way and I'd like a smaller piece of a bigger pie that that that I think I think Equity land largely has that right I think a lot of these protocols you know Chris made a good distinction between a protocol versus company but I think some of them uh I I think the the lesson about dilution

is correct in equity land yeah I mean another like similar similar to the beginning of the conversation we were comparing um what happens in traditional Capital markets and with brokerages taking fees down to zero and payment for order flow exists in capital markets and then crypto we have Mev similar conversation at the end of the uh the episode about how like maybe what exists in traditional startup land is like a better model than what exists in tokenland right now um and I think that there's probably a lot of operators and investors in crypto who are learning that some of these models some of these things and like the ways that things the way the reason we do things in

traditional markets is like is because these things have been baked out over time and we've we've made a lot of Errors over hundreds of years and and have landed on these models so here's I think it's a super simple thing it's if you can issue more tokens and for whatever you get for issuing those tokens is higher than the cost of dilution you have you've created value like if you if you have to issue a million dollar tranche of new Equity but for in return for that you get skilled labor or whatever by skilled labor that's going to create more Enterprise Value than a million dollars let's say creates 1.5 million dollars worth of Enterprise Value that's 50 you know return on your Capital so there you go I I that I think that's it's as simple as the calculation

needs to be any other takeaways too early to be returning Capital to token holders yes yeah yeah love that take by both of them and I agree with that you would never ask a startup that's three years old in traditional startup land to give dividends like why are we asking all these protocols to return Capital to shareholders go invest that in r d and build I much prefer these discussions by the way this is these bear Market discussions are so much better than bull market and like what's this next thing gonna it's all it this is so much better honestly I just these these are real like you know company building or protocol building or industry building type discussions the one thing that I think is an interesting

problem now everyone is within because it's the problem at hand how do I extend my Runway make sure that my assets exceed my liabilities and just survive as a company there's a very interesting other problem in Bull markets which we didn't really get to but here's another problem let's say tomorrow you have a billion dollars to spend what do you spend it on you have too much Capital to spend like in there was a period like even unit swap still in its Dow treasury has like two billion dollars that's that's crazy then it becomes the other problem it's like I have too much capital and I don't have enough profitable places to allocate it so that's why I think you started to see at the end of this bull market every crypto protocol was trying to do everything because I have all this money and I

don't want to just sit on it and have it be useless here but really the best thing they could have did was just trade that into usdc yeah yeah also you dropped out of this at the end but actually the really the most important thing anyone can do is just Lindy stick around survive survive good message at the End by both Fernando and Chris so anyways guys hope you enjoyed this we have one more episode of the Season uh coming up next week and then Mike and I'll do a big recap episode with our takeaways from the season so I hope you guys have enjoying the uh the season so far and see you next week cheers [Music]