Uniswap Fee Debate, ARK’s Investment Thesis, DAO Governance | Roundup with Brett Winton

Transcript

if you are sitting at the governance token level like you said santiago santi uh is it is that um that there's some value in being able to govern what's the value in being able to govern if you're not generating some slice of the fees [Music] this episode is brought to you by core the brand new non-custodial wallet that offers a seamless and secure experience on avalanche you'll hear more about core later in the show all right everyone welcome back to another weekly roundup we skipped the roundup the last two weeks we had so many good guests we were getting them out but we are back with another roundup and because we missed the last two roundups we brought on a really special guest we've got brett winton director of research at arc invest

brett i've been following him for years reading his stuff for years this is the first time we've ever actually spoken brett joined ark in early 2014 uh and has worked alongside kathy wood for almost 15 years since their time at alliance bernstein brett welcome to empire welcome to our weekly roundup my friend uh thank you for having me pleasure to be here yeah uh santi i'm the first question is going to you here today here's the agenda for today here's what i want to talk about i want to talk about markets i want to get everyone's take on just what's going on it feels like we are back risk is on uh eath is pumping bitcoins going up things are good i want to get your guys's take on what's going on there there's some funny stuff happening in crypto with like narratives are coming back because

price is coming back things like aptos and sui we've got the l1 chasers are coming back uniswap thinking about the fee switch lido is ripping on the back of a treasury proposal coinbase some interesting stuff going on there and then there's some other news a lot of uh variant just raised 450 some other big news i want to talk about i want to get um brett's take on some real world assets and policy stuff that he's looking at but santi the first question goes to you you just bought a home uh i think you're comfortable with me saying that uh if not we'll bleep it out but you were looking at a fixed versus a floating mortgage and i'm curious how you made that decision yeah i basically went floating i thought there was a lot priced in um

on on sort of the fixed and i felt that uh this was before yesterday of course but i felt that it was just too too priced in and so i decided to go variable the optionality of fixing it at some point um and yeah i just kind of uh went with variable uh of course none of this financial advice and if you're considering buying a home you know you should you should do your own thing but uh yeah you know i wanted to like the idea of paying upfront like in fixing for 10-year i sort of played it and said okay i'd rather take the sort of time value of money and like paying upfront on the 10-year was just a little too expensive i thought and you know i felt that

at some point market like rates were gonna probably come down a bit and so i just kind of decided to play that um so i may look like a genius i may look like an idiot who knows i mean it's still we're still on very record low interest rates and so i i feel like it's still pretty compelling um like if you have a 10 30 year view um so anyways you're a gambling man brett what do we think santi make the right move or the wrong move uh yeah i mean i think directionally the right move i think that the at least from our perspective it's pretty clear that fed is reaching the end of its it's um at least marginal like tightening cycle and so um i i think there is there is still a lot of investable

assets out there that are holding out because of fears about risk and if you think about like broadly what's happened from a macro perspective is a lot of the assets that we're focused on and you all are probably focused on are so sensitive to flows uh that kind of the marginal interest rates have been just slamming the assets around and and over the medium term markets play a weighing game over the short term they play a voting game uh and so all of our markets have been subject to the voting game uh which opens up pricing and efficiency for for the weighing game within the interest rate context like the you know alan greenspan i think said that there's a giant savings glut and it was causing all these problems

that's the reason there's a savings glut is because we have this insane idea that we're all going to retire at the age of 65 where it's going to stop producing at the age of 65 but we're going to live you know 30 or 40 years past that without producing but still consuming and so everybody needs to like build up their balance sheet to accommodate the fact that they're supposed to be able to still pay to you know live and eat and and travel um for some like absurd longevity risk that's even getting longer uh 65 used to be the retirement age because that's when people on average died and now it's now it's like stop working and keep living for 40 years uh and so that means you have to build up this big

like savings excess above what you are earning in income uh so that you have something to spin down over time and we're still despite kind of like a multi-year kind of asset expansion offsides of that and so what that means is you still have kind of like people trying to save money and pump them into investable assets and so um you know i think over the essentially the demographics and it would suggest that you're gonna still have a lot of people buying yielding assets and it'll compress yields um over time um in a profound way uh and and we're not that's not over because of this particular business cycle that's going to continue i just before this podcast i was reading

howard mark's latest memo um it came out yesterday and it's really fascinating i think he's one of the more clear-headed kind of investors out there and he references like swanson who was uh headed chaired the endowment at yale and did some pretty interesting stuff like investing in alternatives and before anyone really did and it's a great read for anyone i think uh it's just like really good wisdom it talks a little bit about what's saying which is this idea of like you know we kept talking about this in the podcast which is if you have a longer than kind of one year like one year time horizon you start seeing really good entry points um in things that you like before really trying to time the market uh and i felt like over the last couple of months a lot of

people were becoming macro experts and really opining on this stuff when the smarter guys were probably saying look we just don't know and so it's not very wise to spend so much energy in the short term where rates are going to be you know next quarter or in a couple quarters i think you know what we do best i think is investors just focusing on long-term kind of thesis and trends and then just invest behind that um so anyways it's a good read we should link it in the pod yeah and i think just expanding on that it's actually easier to underwrite the medium-term horizon than it is the short-term horizon think of how competitive it is the the kind of whole hedge fund game is basically i'm

competing on every three months i'm paying my staff based on one year's performance and so all of the incentive is shoved into this very kind of tight band of of potential return which means that you know as an individual like are you really going to out-compete someone whose entire full-time job with all of the data resources that their disposal is to to beat that three or six month window it it seems unlikely you're better off playing over a time horizon where it's it's easier to underwrite the positions and then you're not in competition with with the maximally incentivized sharks and and and it's it's actually you can your

investment thesis can be much more stable over the medium term you can do like a large amount of work on a specific asset to understand what it's likely to be worth over the medium term and then and then place your bet in a appropriately sized for for your assessment of your edge having to recycle that every month or every three months it's incredibly hard work like why subject to yourself to that as an individual yeah yeah the the the howard mark's piece was really good he said we can't know much about the short term if we do know a lot about the short term if we have an opinion about the short term we can't have much confidence in it and even if we do have confidence we reach a conclusion there's really not much you

can do in in the very short term right so in so if you take all those three things combined we really shouldn't care about the the short term i have a question then for both of you guys when you look at how crypto funds are set up uh one thing that's interesting about crypto is it's made all these illiquid assets in the private markets liquid from day one uh which everyone says you know and crypto is really good but it actually has this like detriment detrimental impact if you look at how vc funds are structured there really aren't like many private only illiquid vc funds they're all these kind of quasi vc fund meech meets hedge fund because they've allocated to these liquid tokens so brett like does that when you look at these crypto funds and how they're set up these vc funds are almost operating

as hedge funds does that have a detrimental impact because they become more short-term focused it could i mean i think that you would argue that more liquidity and transparency on essentially asset values conceptually for one thing it's inevitable and it's good from a like efficient markets perspective and i think there is business pressure there's media pressure that forces people to operate on a shorter time horizon than they actually rightfully should on behalf of their clients so everything that we've done inside arc is actually to to expressly say we're not going to respond to that pressure to to insulate kind of the analyst and investment team from

that pressure um to to underwrite our positions on on on on five-year windows to do top-down work so that we know that those five-year valuations are are well anchored uh and i mean i think that like let's go in in another direction the private market you mentioned swinson you know there's been flood of capital into venture capital for for a long time and the returns have looked great and they not only look great to those investors in venture capital they look like they're just up and to the right without bumping around which is the ideal asset it's like oh my gosh it just generates returns and it's not volatile at all if you daily mark those portfolios the volatility would freak those investors

out right and i think it's inevitable that those portfolios move towards daily marketing there are more liquid secondary markets for private exposures um crypto assets broadly like what are those going to do they're going to securitize everything they're certainly going to like serve as a function to securitize all of these assets that weren't otherwise securitized and so kind of like your ability to see marks on whatever you hold like what is the value of your floating rate mortgage on a daily basis you don't know now but you could trade out of that into a fixed rate at some point in the future like very efficiently uh which means you'll be getting like a daily mark on this is the value of that choice uh and

and so i think that the um how um investors insulate themselves from that transparency pressure becomes increasingly important and so in a crypto asset strategy you can yes have like the ability to trade but then have your investors be locked up for some amount of time so that you're not under this suddenly you're getting the call every week hey what's going on with this thing that's down 25 i mean i think that there's ways that you have to intentionally structure your business to prevent you from becoming subject to the media political um client pressure cycle that ultimately just serves your clients yeah oh no brad obviously that arg has been kind of a pioneer

in really i think producing some of the best research and making kind of really bold claims about the future and and in many cases just been right you know i think you know everyone is probably familiar with kathy and and and you know chris who ended up leaving and start a placeholder but what's your like you know would love to get your take on what's like the latest thinking on crypto internally on the firm i mean i'd be remiss not to say you guys punched out a coin base um you know that might be because of pressure or flows or you know have you changed i'm curious on that backdrop like what's the latest thinking on on crypto you're or the firm yeah i mean i think that the high level like the innovation of bitcoin introduced um

true digital property rights ownership as something that could be possible uh and and um we think of like there's this whole hey bitcoin is gonna take over everything uh and and then there's that actually you know smart contracts is everything and then there's the people that want to define web3 as comprising all of those things and i disagree with that claim i think that there are three simultaneous revolutions that were catalyzed by by the introduction of bitcoin there's a money revolution and their bitcoin is essentially positioned to win and so then our expectation for the value of bitcoin over the course of this business cycle hasn't changed because of you know what's happened due to the voting machine pressure over the past 12 months you know it's still

that over time it's going to win the money revolution and then that's you know conditional on like single digit adoption amongst a bunch of entities that hold money uh you end up with around a million dollars a coin then there's the financial revolution which is uh kind of um encoded in the smart contracting space and and it's still massively interesting and and given what's happened in the market cycle um we think that the um in some ways like the d5 protocols have demonstrated their importance and robustness in that there is uh accepting ust luna which i would argue was transparently like a failed concept the the you know all of

the collateralized loans all of the um kind of liquidity um um protocols all survived and actually gave us better insights as to the what was happening to the centralized firms causing kind of the recognition of their failure to be accelerated and actually kind of accelerate the deleveraging within the space in in a liquid way uh and and so the um we think ethereum is well placed there and that there's all kinds of assets like competing for kind of that level one um smart contracting platform that will enable defy and then there's everything that we categorize in web three which is more consumer facing nfts uh and and it's how do you take digital ownership

and and transmit it into the consumer-facing web and and what does that enable so these are three things that can move at separate velocities in separate paces i think the the intersection with coinbase and and entities that are trying to stay on the right sides of regulation is is really interesting and potentially challenging in that uh if if if the innovation is basically i can securitize everything on earth i can securitize movie tickets and so it means that i can own a movie ticket and uh and that has at least collectible rights that are ongoing for that movie ticket uh and maybe they're gonna airdrop me ongoing marvel merchandise because it was the premiere to you know some marvel movie uh and so

suddenly that's securitized does that mean i have to you know the the amc has to register with the sec in order to sell me that movie ticket like this is a hard you know this is how we end up having to give our social security number in order to buy like an action figure right and so clearly that's not the solution we're going to end up in but there is so much regulatory uncertainty that it's hard to say how it's going to break for the entities trying to provide those services today yeah um so the the like our view on like what is the next 10 years of crypto assets hasn't materially changed like where does the cash flow accrue to the companies trying to provide the services and and compete for

kind of the the the business opportunity that that goes alongside those crypto assets it you know we're assessing that weekly yeah i'm curious um how you've found crypto to be investible from an institutional perspective this is something that you know we we keep hearing the institutions are coming and there's more infrastructure we still don't have you know an etf uh nonetheless you guys perhaps have been more on i'm willing to take these kind of jumps and hoops but i'm curious uh how much of that is involved and how easy it is for managers to allocate to the asset class i mean managers can allocate their solution providers today we have solutions that we can provide to um allocators to to get themselves efficient exposure to

crypto assets and um and i think it is the right move for anybody that has long term liabilities to uh get access to a long-duration asset and if you think like bitcoin is essentially an infinite duration asset uh and and so um i think that like they should be and um the financial system is a system that charges money from clients to take risk on their behalf and then is business structured in a way where it tries to take as little risk as possible uh and so you know institutional allocators uh in their job is to take risk but the meta job they have is to not get fired and to

not cause clients to come back and say hey why did you do this uh and so that's the the kind of battle in in um in getting real institutional money into crypto assets and and even bitcoin which i think is probably the most understandable from uh like what it does and the potential it has in the world um you in conversations we've had with institutions there's um you know a very kind of steep learning curve of of what it is and why it might be interesting and then once they cross that then they get into well can we do this from a regulatory perspective how you know they have to do all the operational due diligence you know what happens to uh it

doesn't doesn't help when like some underlying kind of infrastructure providers in the ecosystem suddenly look unstable and so i think that i remember in march we had someone who's on the institutional side say march of 2020 say oh the drawdown here has set back kind of the institutional clock by by 18 months well if that's really true then then this most recent kind of um unraveling and deleveraging of the system has probably set back the institutional uh clock i don't know 36 months um so and and if if the institutions don't get there first in some way that's a better outcome because it allows people in

developing countries that are trying to protect themselves against um you know uh inflation and it allows like more individuals to get access to the assets before the institutional money comes in uh so from a kind of actually distribution of the holder base uh it could be net better for the world uh last week the sec announced insider trading charges against the former coinbase pm and two others for allegedly trading ahead of new coinbase asset announcements and then the sec said that nine of the 25 tokens that were kind of traded in that were securities then on monday the ssc is looking into whether coinbase allowed its us-based traders to trade unregistered securities obviously coinbase is very adamant that they don't list securities that they're

working with the sec directly how much of your guess's decision to offload 1.4 million shares of coinbase was re because of regulatory reasons verse uh maybe problems with the business model verse uh there are obviously big competitors like ftx and coinbase and binance that are pop that are getting stronger verse d phi and like competitors like uniswap like what can you i don't know how much you can talk about it but tell us maybe a little bit of the insights behind that decision sure you have to think of um our trading activity is happening within the context of other potential options where to put client money the opportunity cost of holding coinbase yeah so so there's you know there there are other companies that have done

poorly in the last week in addition to coinbase and so if kind of like two companies trade down by identical amounts and previously they were here and here in the portfolio and then we have a scoring system for our companies and uh if we're raising thesis risk on on coinbase for example um and then actually we haven't changed our scoring for this other company then that'll cause us to swap our exposure from one into another i think the the promise for coinbase is to be essentially a vertically integrated financial service provider for all these crypto assets there's a danger that the u.s regulatory system could act in such a way that it punishes the best actor and then forces the activity onto entities that that are

essentially have have arranged themselves to avoid the u.s securities regulation system uh and so um if you think about competitive vectors to exchanges there's like offshore exchanges there's um kind of d5 as an interesting you know um you know potentially where all the activity gets shoved uh and and so within that context if if the sec is showing that it's gonna essentially dig in its heels uh and and try to uh punish the best actor so it hopes it has like um kind of ramifying and corrects effects across the entire ecosystem um then it at the very least provides a um a lot of blocking and tackling that coinbase's

management team has to do to to fend off that threat and to educate people as to well this is how these uh assets should be treated but again i think that the the underlying issue here is we're going to securitize everything so you can't have the 1933 securities law applied to everything like we cannot have movie tickets be deemed securities it would be a crazy thing to do and there are clear like business model opportunities in making movie tickets something that have ongoing value that or concert tickets where you get like a small percentage of the royalty rights from the documentary that was made of the concert

that you happen to attend why shouldn't you you were one of 10 000 participants that made that documentary what it was um but if to do so you have to um you know register with the sec then that business will never emerge uh and and so i think that the you know recognizing that there can be a lot of friction taken out of digital ownership of things and that that will make a lot of digital things look somewhat like securities and in some cases a lot like securities and that uh you know bill written in 1933 is not sufficiently expansive or particularly one that that doesn't you know prompt a rule making that acknowledges that these

are different assets with different characteristics is could really set the us back i was having a discussion with someone um who's not in crypto more nutritional finance and we were talking about this kind of like how would you create a new kind of framework to categorize like okay it's not going to be called the security because if you call it a security you get like cornered into this weird like very difficult mess but you do need to have some sort of you know there's certain things about what means to be a security that i think would be applicable to crypto assets writ large you know this idea of information and access to

information and fairness and i think it doesn't apply to like a nft of a movie ticket if you will but for other assets i think there are certain components of that that are relevant at least in my opinion i'm curious if you if you were to kind of like talk to a regulator like how would you imagine something like ethereum or another crypto asset salon if you will like how would you construct like this new category of securities for the today's age you know what i mean or not a security i'm just curious well i think a lot you know i don't think i can give you the perfect rule now but a lot of the rules that have been written are designed

by setting out like a category of kind of company that can do a certain thing for instance custody like their a separate company has to custody the assets well that's necessary um you know and the way in which custody is written is not written as in like take care of private keys right it's like written back when you had you know paper stock certificates that you would have in a file drawer uh and so if you continue to require there to be separate entities for different producing different functions when the entire kind of transaction chain can be transparently seen and audited by the market

participants then that doesn't it doesn't make conceptual sense why you would require all of these different entities that then results in kind of the slowness to settle in our existing financial system so i think the the um like what are the characteristics that are interesting about blockchains it's like instantly auditable and instantly transferable you know who owns what when exactly when they own it and um and and and the the um if the rules aren't amended to acknowledge that then you're going to end up with a with just an inefficient system a system that's very costly to run and operate

and so then the activity in in the businesses will move into geographies that facilitate a more transparent system like going back to your mortgage if if like you as a us resident in order to transfer out of that floating rate mortgage into a fixed rate mortgage um have to go back to your bank and go through the whole you know kind of refinancing process again and you know it's like a very expensive costly legally burdensome friction full thing to do but conceptually you could you could get a defy contract that actually affects that switch for you instantaneously much less expensively well if that's available to people outside the us but not available to people

inside the u.s that'll be bad for people in the u.s and so you know um the innovation and security there's two things it comes with it comes with increased efficiency and then leverage cycles that blow up a bunch of providers that seems like that always happens no matter where we do it uh and i think within um kind of like defy and the intersection with defy and kind of the securities regulation it's inevitable you'll end up with more leverage cycles you know i would hope that we continue to enable the leverage cycles to happen in a transparent and audible way rather than defining like oh this is the three entities that can provide custody for these assets and so then

and they get way offsides in some way that creates systemic risk all right folks this episode is brought to you by our friends at avalanche and ava labs they have just dropped a new crypto wallet called core you're going to be hearing a lot about it over the coming months you can now be one of the first to try it out here's the reason i'm excited to partner with them on empire right now crypto wallets and browser extensions they feel clunky they feel non-intuitive that's why ava labs built core it's a free non-custodial browser extension that gives avalanche users a seamless and secure web through experience across the entire avalanche ecosystem here are a few reasons to try core here's what i'm experimenting with number one core has intuitive dashboards

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ecosystem at all you have to be using core download core using the link below now let's get back to the show i wanna pivot this into actually a conversation about uniswap which might seem like a unrelated topic but i think it is related because uh the fee switch uh you turn on the fee switch there's kind of this claim that uh turning like the claim to protocol revenue could infer that uni is now a security so just maybe a little background for folks who aren't aware there's this long debate if protocol should take and specifically unit swap should take a percentage of the lp fees so uniswap currently has three fee levels you've got like 0.05 percent 0.3 and 1 right now all the fees are distributed back to lps there's this debate if the protocol should take a percentage of those lp fees if you look

at the original docs from uniswap they do say it's possible that a i think it's like a five bit fee would be turned on in the future um there are two primary arguments for why the fee has not been turned on yet a is maybe they just want to gain as much market share as possible in the early stages the comparison people make is like you know just a lot of sas businesses or even like the ubers and lyfts and amazons of the day you don't focus on profit you focus on just gaining market share once you have the market share right ubers used to be five bucks in manhattan now they're 50 bucks in manhattan because they got the market share the second uh reason for maybe not doing it is the regulatory concerns the concern being that a claim to protocol revenue could infer that uni is a

security brett i don't know if you guys at arc uh are are mainly focused on eth and bitcoin and like coinbase or if you push further into the defy stack but i'm curious to i'd love to get your take on on this situation if you guys have been following it sure i mean i think at a very high level we think of decentralized exchanges as potentially doing 15 trillion in volume by 2026. call it okay so then if you imagine you're going to collect a a you know 50 basis points fee off of that or a uh sorry a point a five basis points fee off of that right um you know then that translates into a meaningful revenue that then you

could say hey that's going to be yield off of of uniswap depending on your expectation of share there and suddenly it makes the the token much easier to value and it kind of reminds me of like the the whole asset class is still emerging there's still like people like chris when he was with us he threw he decided well what about network value to transactions as a way to like measure the value of these assets and there's reasons that's you know not a great measure but at least it's some kind of measure that you can on a relative basis say hey what's going on here versus here and um you know it used to be in the early days of equities it's actually equities were just valued on dividend yield i'm talking earlier early days like every

equity had to pay out dividends or else it wasn't really considered worth much nobody would buy for the capital appreciation and capital reinvestment and then at some point there was a phase change where people realized hey if we let businesses kind of reinvest the capital into their business then they can actually kind of grow their asset base um more quickly and so uh we will value kind of the underlying equity at more than just the book value of the assets that that underlie it uh and so by by paying out a fee uh for for uniswap it in some ways it can make it very easy to be like oh this is the value of this token um and um kind of given expectations for growth and decentralized exchanges you

might argue that you still need to be in kind of like capturing liquidity mode as in there's going to be some point where there's like one or two dominant decentralized exchanges due to network effects are decentralized exchange protocols uh and you would rather forestall kind of actually collecting that fee into treasury or distributing it to token holders for as long as possible to make sure you're positioned to like capture all those network effects so that's like my high level kind of response to it and then kind of but then there's the interesting dynamic of like can i drive up protocol value by actually feeding some of these call them dividends into the into the protocol which then um kind of attracts more um liquidity participants even though

they're accepting a lower fee and you know i don't know what the right thing to do is but i think it's fascinating the number that you guys so you said 15 trillion by 2026 in decentralized exchanges that's yes that's our estimate and today it's doing what probably a hundred billion roughly a month multiply that by 12. you're looking at probably a trillion so we grow by like 10 to 15 x yeah very rough ballpark sizes okay yeah interesting santee do you have uh do you have thoughts on the on the fee switch and and unit swap i don't know if you've been following this closely well for the scoliosis periphery um and so you know i'm biased of course but um yeah i think this has always been certainly something that i think a lot

of funds it would be interesting how they vote or if they abstain from voting um just given the regulatory kind of sensitivity um around around kind of turning on fee then does that make uni a security or because you know this has been sort of the the governance token and conferring kind of governance rights is kind of the more regulatory kosher approach and has been for a while uh obviously sushi has had a fee um kind of distributed to sushi holders and stakers um but actually like there's a pretty interesting discussion that happened six months ago or perhaps more with hasu that talked about this idea of okay the fees are accruing to a contract

whether you're distributing that to holders is another thing right and so if you put that if you kind of look at it that way a lot of startups don't kind of issue a dividend even if they're profitable like high growth companies reinvent reinvest in growth the question is like those funds are not really kind of being used right they're just kind of they're accruing is my understanding i don't think like the uniswap labs like is is using that to fund operations or or what have you uh but correct me if i'm wrong to my knowledge it's just sort of a crew into this contract admin contract and so you're not doing that like i guess those funds like you could look at like the enterprise value of the protocol if you will and equity

value and then like you know there's big cash balance that is interesting um but yeah i think there there comes a time and a place for a company if it's spewing out cash flow to distribute that to investors if it doesn't have um you know a better better you know place to invest of course i'm using all these terms that are you know company and investors and i think when you hear that in in crypto it kind of screams security again we're back to this thing so i i think it's going to be an interesting precedent around i'm looking at what are funds going to vote on it meaning like especially paradigm and e16z are big holders of that maybe they're going to delegate that to you know some someone else and then you know let them kind of vote um but i

think uh yeah as uh but even even if the fees accrue into the into a contract it's like then the your right of governance over that contract certainly is has increased in value correct yeah and and and it's kind of like what again it gets back to kind of this i think uh underlying security law question which is you know what are we what are we really trying to restrict here right and and and it it's you know if kind of like it's open to operate on the protocol you know there's like uh it's very transparent what's going on um and actually insider trading laws apply

regardless of whether or not anything's at security the doj you know charged the the coinbase people you know not having to say this was a security it was just um you know basically committing fraud against uh the buyers of of the assets right and and so i think that you know there's there's it seems to me that there should be uh that that protocol is trying to kind of like particularly on a like decentralized protocols trying to like make governance decisions on the basis of whether or not collecting this fee actually turns them into a security are are not going to be very satisfied with kind of the sec's treatment of them

regardless it'll either be like well you're a security anyway or not and i don't think it'll be on the basis of like this particular vote would be my guess right not legal i think you bring up really well really yeah i think you bring up a really good point which is i think we should focus on what what's the intent and what is the kind of the repercussion of whatever particular action and i think if i'm a regulator and i've you know i've sort of emphasized this is where is the harm being done hey if there is harm being done absolutely i mean i think you should focus on that and say okay there is you know is there a fair market transparent market that allows people to kind of have the same level of kind of interactions you have traditional

markets where you know there are the sec and edgar and companies there's a protocol on a process by which you publish information and a standard of quality that you know happens in these markets to give people fair shot i mean i think that that is philosophically very much aligned with that where i i think the the kind of regulators probably i hope and i think this is what they do is is there harm being done um by not updating certain laws or treating something that is very new treating like innovation with archaic laws like for instance the accredited accreditation kind of rules so many people have been kind of on the sidelines not being able to invest in

things that might be knowledgeable but because of this arbitrary definition that they're not accredited and of course there's been some changes recently but you know you you're sort of left wondering like how much like opportunity costs how much debt like how much who who's so many people have been affected because of that because you haven't really updated these laws and i think that that's kind of the i hope that the regulators kind of look at that right i mean what is the harm of unit swap obviously turns on this fee like is that is that all of a sudden like do you treat it as security and then what what happens like you know where is the harm being done in crypto okay of course there's scams there's like outward pond seats like this happens in every market like that's just fraud is fraud like no matter where you find it

but um i do sometimes wonder like what is the benefit of treating something a security or a commodity like like you know like i feel like it creates so much like friction and and would create like it's sort of unnecessary i think in many in many ways yeah and accreditation is actually a really good example because the reason you could imagine like ex-ante the reason accreditation rules exist is because if you're going to invest in a private entity for example there's like a fixed high upfront fixed cost to that investment and from both the company side and and your side and so then the amount of money you have to put in in order to do it is high right and so then if

somebody is below a certain net worth then the implied percentage of their portfolio they have to expose to this risky asset is high but if you take the friction out if you reduce that fixed cost and you reduce it a lot and so suddenly somebody can can actually distribute a bunch of you know um bets that are proportional to their portfolio and appropriate given their desire for returns like they they are appropriately balanced within kind of the total net worth then having some kind of like you have to be above a certain net worth in order to invest rule just just just it's wrong it it it it's basically like you know you're only allowed to get returns if you're already wealthy uh and and so so you can imagine like the initial reason to do that is

because of the high fixed cost and burdens of the existing system as it existed and all of innovation is driving that friction out and so then those high fixed costs disappear and then you just have a set of rules where oh if you have a certain amount of money you're allowed to make this investment and you can still make it very small if you want and if you're below that amount of money even though it's right size for your portfolio you're not allowed and that's wrong guys let me let me pivot the conversation away from the regulatory side of things but stick with uniswap because there's another i think the more interesting thing here with uniswap is actually the business model of these like tier 1 d5 protocols which is like should they be these like public goods almost or should they should they generate fees and should they have

revenue and spit off hundreds of millions or billions of dollars a year right and the problem with unit swap today is that the value accrual there's like a broken value accrual mechanism and so there are ways that you can consider doing this like uh like licensing right like uni licensing fees could be a significant revenue in the future uh there's another thing which is they could almost follow the dydx model and move away from ethereum create because there's this mev that's getting uh accumulated but it goes back to the ethereum chain they could create uni could create their own chain i think uni could also i i've heard that unit swap is working on their own consumer app right so they could create their own app and almost like lock users in that way compete with coinbase but then they kind of lose the defy side of things so i'm

curious santi i don't know if you've thought a lot about just like these these maybe not so much with unit swaps specifically but like the aves and unis and makers like are these public goods or like do they need to figure out a business model that makes them long-term sustainable here and if so like what is that business model i wouldn't necessarily agree that their business model is broken i mean uniform cranks on fees you're just not distributing the holders and i think there is value in governing over that uh if you're ave for instance there is a place and a need for a token to govern risk parameters now of course maybe it's sort of not everyone should be voting on that maybe you should have a better system to manage that

but there is value in governing over these d5 protocols i wouldn't necessarily characterize them as kind of broken business models of course maybe the business models bro if in in any sort of financial services platform fees ultimately go to zero and you're seeing that with the coin bases of the world right now like you got to imagine fees go to zero with uni um so then does it become like uh not really no i i sort of disagree with that this is like there's some folks out there that like look at what happened in the internet says there is a lot of public good infrastructure there is a cost to upgrading and maintaining open source networks you know google giving employees the subsidizing a couple hours a week for them to work and tinker on open source stuff i mean there's a cost you just kind of don't

see it or like it's not necessarily as tangible sort of goodwill if you will but the whole premise of why like crypto is pretty awesome is the idea to tokenize something and allow you to capture value in other parts of the stack that weren't possible before you know like like if you look at the internet like most of the value accrued to a sliver of kind of more front facing up protocols and those sort of companies facebooks of the world and google is it just sort of utilized your opponent a lot of infrastructure that you know doesn't like you know didn't accrue value but you can tokenize now and create the possibility to to kind of con reward people that are contributing to these networks um so i

i don't think that like there's there's a common fallacy i think to like like use analogies and how things happen before and say this is the way work three is going to develop and i think that look it helps people understand something new but i don't but i think you sometimes simply need to unshackle yourself from like that that kind of like analogy and say it can't be different this time like in how things develop and so i do think that there's going to value value will be accruing to d5 protocols yes there is a lot of mev that goes to like there's an interesting perhaps discussion around are you better off investing in the l1 i.e ethereum because that's where mev ultimately

accrues with the fp59 all that or should you be buying the governance token i think that's a more perhaps interesting discussion we had with the guys at multi-coin that had the view that more value is going to accrue the l1 versus d5 and look d5 has been kind of like i think was right now where d5 has really traded pretty down over the last like year and a half so but i don't i don't necessarily look at that and say d5 is broken it's dead it's going to be a public good and i don't also agree that fees will go to zero there is value in using a trusted provider solution i.e uniswap over your other fork that may be absolute garbage well and by fees go to zero i mean you would still need to be providing fees to the liquidity providers right you're just saying or

janna you're just saying that fees accruing to the protocol might compress to zero right i'm saying that on all fun on most financial platforms whether it's like the old school like the platforms that were built in the 90s like the td ameritrades and any trades of the world or more modern day uh like stock platforms like those things when robin when robin hood launched everyone said oh it's going to totally kill every other kind of schwab and td ameritrade and all this stuff the reality is this that's not true i mean there's a lot of i'm not saying i'm not saying that it kills them i'm just saying like i'm for users like they're okay so if you're a platformer you have to acquire users you have to understand that the the apparent fees might go to zero but the actual

extracted value still remains as in like take robinhood doing payment for order flow right where like so there for for a company where there's some fixed cost of doing business right you have to like generate revenue in excess of that to still exist as a company at least over a sustainable duration for a protocol like you you know to attract the um basically the liquidity for a decentralized exchange you have to be paying out some something to the total providers and and you will continue to have to and i think the question or an interesting question is if you are sitting at the governance token level like you said santiago santi uh is it uh is it um that there's some value in being able to

govern what's the value in being able to govern if you're not generating some slice of the fees well the value is that somehow i can affect the fees in a way that personally rewards me at the expense of others in some way so in if you're not i you could argue if you're not spitting out some kind of thing into the governance token itself then it incentive that it means the person that's going to own the governance token is going to be the person that can you know drive a vote in some way that gets them a lot of personal stuff yeah i mean this is this is the example this is audience right there's a hack that happened last week where there was a the ability to upgrade the contract with a lot of governance to like this person effectively and drain like the community

fund out of six million and then totally dump the tokens and then pocketed a million um i think the interesting thing is these governance attacks or let's call it just this governance kind of the ability to influence you know like decisions and upgrade a particular protocol or modify a risk parameter that might be beneficial to you is interesting in the context where you almost are left wondering cause switching costs i think this is what you're getting at jason which is switching costs are very low in crypto you can go to uniswap and then go to any if uniform option by governance ends up doing you know voting in certain things that affect the user then you sure as hell

know that there's going to be an almost immediate response from a lot of people to go to another provider and there's just no it's seamless to kind of move and use different parts of the ecosystem in traditional finance going back to robin hood example you know people switching bank accounts people don't like to think about this like it's almost crazy but people don't like to think about money or who they're banking with and opening a bank account takes time yesterday getting a mortgage takes time these are all kind of frictions that that like will be stripped out of the system in a very material way and i think you're seeing it in crypto and d5 particularly and so you're left wondering like how will and this is maybe a topic like we don't

should rant on this but how much of like consumer behavior is going to change um particularly in finance because you're radically compressing a lot of friction that has existed in traditional finance by regulation by jurisdiction like we talk about [ __ ] coins and crypto i mean there's like all these kinds of [ __ ] coins and they're called the zimbabwe dollar the chilean best for the mexican peso can we just have bitcoin instead like i mean in a very extreme case so anyways this is why initially this is this is why i think like i became interested and built the d5 thesis way back in the day because i felt that there is probably no better like when you see friction and you sure sell no like you don't have an amazon like experience with finance there will

come a time where you can do that and i think crypto is like uniquely enabling that but anyways let me let me turn let me ask you a question here so so i like what you're saying santi so like less frictions more efficiency uh so like right now there's maybe i have my money with bank of america or wells fargo that's not the best place to do it but like it's a total pain in the ass to move my money and create a new bank account that has a higher interest rate when you decrease frictions capital it creates capital efficiencies so like when i have uh because my wall my money's now in in in my metamask or like web3 wallet i can move it around really really efficiently liquidity providers main incentive to take on an impermanent loss risk is the return on investment from trading fees

right now those returns are already quite small and they've been getting smaller since defy summer i would argue when you take those fees away from them in a hyper efficient capital world those lps are probably then incentivized to move somewhere else yeah correct now again going back to what brent was saying if you if you have thesis that all this volume is going to come right then even though the percentage fee might go down i mean you're sort of playing a volume game and you might be indifferent between holding two assets and so the permanent loss concept is something that a lot of folks coming from traditional finance say wait a minute this is never gonna work unisoft is not gonna work a lot of folks passed on the idea of having an amm because

they said the order book models is highly more efficient like we don't need to reinvent finance here guys lo and behold you sort of again this is consumer behavior like you have to think about like from first principles how is this gonna like you're allowing anyone to be a market maker and there's a pocket of investors and token holders that say i'm actually different between two assets and so the idea of a permanent loss while is mathematically correct it misses the point that there are some investors in some market environments that actually providing equity like being an lp is great like your app like costs everything up or down a particular asset and so it might be a really efficient strategy to accumulate a particular token without trying to time the market while you're earning some fees to offset that so i think like this idea of again

by analogy you look at the order of model and say that's perfect it's better mathematically i get it but it doesn't factor in this idea of it is it is democratizing access and being a liquidity provider being a market maker for so many people that historically have not been able to and so that that in and of itself creates a lot of value for different people um and yes creates a lot of consumer surplus for sure but there's still value being created and accruing somewhere it just doesn't like go to zero i think i think one last thought here is uh on the actually i think there's one other thing which is um capital allocation brett i'm going to turn this into a question to you about dowse but the pres

the lead up to the question is i think there's a capital allocation problem here and i think we're seeing that with with um with dows right like one if you look at a centralized company one of the most important things a ceo has to be good at is capital allocation capital out is allocated into three buckets at a company organic growth right you build new products and services that are developed by the company second bucket is inorganic growth like m a basically third bucket would be share buybacks share buybacks happen at larger companies where they can't figure out organic growth they can't figure out the inorganic growth they typically happen when you have a bunch of cash and you can't figure out how to grow your uh appreciate the stack by doing m a or by growing it or inorganically so you're basically going to buy back the shares and reduce the

float when what if you look at the governance forms in uniswap there's a lot of pushback that if you're going to create taxes or fees that make you less competitive less capital efficient you should probably this is a quote you should probably have a rigorous plan of how you wish to spend those funds but there's no it's taken them a long time to to put that together because you've got this dow model i've been spending a lot of time in the maker dow forums recently and it's it's for anyone who spent time in the maker forums it's been a bit of a [ __ ] show recently so i'm curious brett to just get your take on dows are they the future how like what are your maybe i don't know if you how how much you guys have been looking at the governance side of dao's but curious to

get your take on them well i think like broadly direct democracy is a poor way to make decisions in in a dynamic environment and so how do you you know like what we look for in management teams is um typically uh you know a founder uh ceo who can um steer the ship with a lot of agility right and it's because the the the pace of change is accelerating across all sectors you know uh technology is is just like basically turning up the the world's pulse rate uh in in in a profound way uh and so then i

think there's a call it an open question within kind of defy world um does like are you forced to have a dow in order to be decentralized but then does that it both exposes you to kind of like a bunch of risks of people operating on their own behalf within that distributed governance structure and then does it slow down and and kind of like calcify your ability to make decisions and remain competitive i don't know i mean i i think that in some ways it's it's like the the glory of bitcoin in terms of it's like both positioning within the marketplace and the specific thing it's trying to

displace is actually profound conservatism is better to win the race of money and so having you know a governance that can't like it requires massive kind of effort to to kind of shift people off of the asset to change the way it works you know um is is net better for that opportunity but if you are operating in a space where there are protocols being venture funded because they're going after kind of different areas that where they feel like the market is being disserved where there's like a lot of competing even layers in the value chain i would guess that leaving aside the regulation side

the the the the protocols that are being run by someone who's like well this is the vision this is what we're going to do are are going to um win and uh so so then the balance is like how long can you continue to do that without crossing a foul of securities law and everything else uh if you have to in some way like get to decentralization in order to be considered not a security in order to actually do all the things that protocol should be able to do i think it's a hard question so yeah i don't know i mean it's like anybody who's you know had a condo board or anything like this is a recipe for not getting things done is having a lot of people with input on it and and kind of like

or or a recipe for like concealing where the true power lies where somebody basically like sybil attacks the governance thing and like accrues a bunch of nodes so they have voting power so they can force things through and then then it's really decentralized not truly decentralized and so i i just don't know how you kind of like pair off or match those two things yeah i want to pivot away from uni for a second away from daos there's one other dow thing just maybe just because this is a roundup i want to say just one thing i'm paying attention to uh lido is debating selling lido from their treasury to dragonfly for dye to diversify their treasury there seems to be this debate about the discount price used uh the amount of lido sold lock-up period lido is ripping it's up 60 on the week uh just and i would if i would if

folks are listening to this i would pay attention to just what's going on with lido dragonfly i think it's a really interesting conversation around dao is trying to get capital in the bear market and and diversifying their treasury uh it's funny like you've you've noticed that you know when a company sells equity like they raise their series a and or series b or whatever it is there's a lot of excitement it's like all right this company's booming when a dow sells their own tokens which is effectively almost like a series a or series b or something it's like why is this dao selling their own tokens that's negative um so i don't know i think that's i don't know if either you guys have been paying attention to that but i just want to call that out i would recommend we can put a link to the

to the forum the initial proposal got rejected right there was of course a precedent of them doing it selling it to paradigm way back in the day and then other investors as well uh yeah you're right i mean i think like it's interesting because there's this hotel mentality in crypto that i think is very toxic at times which is like certain investors have become like everything's on chain so you can monitor these flows and everything but you know you sort of we either glorify huddle mentality and then vilify people that like take you know are essentially trying to manage risk and uh this is actually a question that i wanted to ask you brett which is when you do research and if you're deep in the weeds like it's hard not to get

excited about technology like just full stop whether it's crypto or just technology is what gets the human race out of trouble in the last minute it like pushes us forward the problem is that how do you marry like excited about technology with actually like price and having a view on price because at some point it does really matter i describe the view of when you actually enter a position like you know things can be could be a great company but a terrible investment or a terrible company and a great investment so price largely kind of dictates that and crypto of course you are in full price discovery even a bitcoin and no one has there's no like p ratios and all this stuff like and so it's hard like narratives like you know

what you think can happen in 10 years happens in three months and you're like oh wait like what happens like you essentially need to manage risk right should a game that a gaming company crypto that hasn't produced anything be valued at like on a fully diluted basis of like 5 billion absolutely [ __ ] lutely not and so i'm curious brad how do you how do you like manage like doing research and then like saying okay and being excited about all this and then saying well actually it might not be a good time to invest on this and like like the investor side of your brain and then the research kind of more intellectual side of it well i think the two are actually quite closely coupled in in that often we will do research on at the

technology level and be like okay this is not it's either it's this is not gonna happen in a time horizon that makes sense for us or it's kind of like okay we've done all this research and then we basically like you know turn over the page and see what other people have done and like oh our perspective on this market is relatively similar to the markets and so kind of we don't have an edge it's probably all embedded in the securities themselves so from the top down level that's a comparison we do all the time like given our expectations for cost declines and um unit economics and different sectors you know what's this market going to look like and then where are we relative to everybody else who've used you know some other i argue flawed methodology and if we're in the

same spot then it's like okay i don't need to do more work on that so that happens to us with some frequency and we have to celebrate that like the analysts should be encouraged to like do the work and and you know deciding not to invest is as valuable as deciding to invest uh then at the security the individual company level um we we take the companies five years forward and and we say what is the cash flow generativeness of this business five years forward and if i were a for seller to not me but to a techno pessimist who's only paying for that cash flow at that margin structure with that capital intensity what would they pay and so historically that's always been like massive multiple compressions to our expectations for the company in the

current moment with some of them it's like oh well they're already kind of at a fair a fair fair um you know cash flow generative multiple uh and so then we have massively differentiated expectations for top line growth and so then we think that they're great investments so but they're i think it's it's very i think people don't do the work to quantify things enough when they get excited about things like um uh like fuel cells like they it is demonstrable that like fuel cells aren't going to become cost competitive with consumer vehicles um within at least until early 2030s in that even conditional on like a passenger fuel

cell vehicle doing toyota prius like volumes from here to there in terms of like manufacturing scaling so it's not going to happen but that doesn't stop kind of people to be like fuel cells are the future and all these fuel cell companies are great and and then you look at how they're valued and you have to embed an expectation that fuel cells get into passenger vehicles for it to at all work uh and and so and even at the you know when the ev ipos and and facts were coming out like some of them we really liked and we assessed but like rivian for example you know it's a great brand and company but we can't make the valuation work at all unless you have a

aggressive view on their ability to deliver autonomous on top of their platform which they don't really have credible plans for uh and so then you just say okay well we'll wait till it comes to a price where it hits our return on capital target um so like um i think i think completing the work is actually translating it into the economic value because whether or not the technology is going to come to fruition is in part contingent upon it being able to motivate capital into its continued development uh so you have to be able to make that case i think for for to even be excited about the technology um and you don't get them all right so it's like you do all that work and you're like okay uh and and then it turns out

oh you were wrong on kind of like the friction in this point or commercialization friction is often a huge challenge uh and so um the the i i think it it's an important discipline to to at least operating how we try to operate in the marketplace where we try to you know put out our research we take long-term um positions in points of view and then try to like aggressively allocate client assets to technologies that are massively misunderstood today and i i do think a lot of people think that technology investing is as good as like evs are going to be great and so i'm going to invest in every company that says ev and then you just ride this huge

type cycle without kind of being selective at all so then the other thing we do is it's like balancing between technologies right now everything is is subject to the voting game so all the technologies trades down and trades up but but there's um actually more diversification benefit to um diversifying across technologies than there is diversifying across sectors at least according to to our research and so um like you're better off having like a technology diversification than your sector diversification uh and so that's how we manage kind of like the internal risk of like an individual forecast in our portfolio being wrong brett speaking of the uh the hype cycle we have reached the most hyped part of

the episode which is the rapid fire the ending which uh puts a smile on santi's face santa you want to uh you want to you want to put brett on the spot and uh get in some rapid fire to close this off yeah so the rules are try to uh five like five ten second responses so um you know so here we go uh first question how many hours of sleep do you get between seven and eight wow you always say uh you always say wow to that are you getting like four hours of sleep at night like what are you uh man anyone in crypto doesn't if you can win seven hours and you're in crypto i literally need to research your brain because yeah i've gotten i've gotten a lot more diligent about sleep hygiene like if you

think i think i think it it affects mental athletic everything performance so um i would encourage you to there's a great book called why we sleep which things you know the second question any what's like the most interesting book you've read recently or a piece of content um i'm right now reading um the well political order and political decay but before that the rise of political order origins of political order by france that's uh francis yeah yeah it's uh that was supposed to be a five-second answer but it's a good book and it's like thinking about how crypto assets can can spur a new like a catalyze a new kind of political order

is the context in which i think it's really interesting uh is the dollar will the dollar be replaced by something else bitcoin or another currency in the next five to 10 years uh it depends on your definition of replaced as like the the the the the preferred kind of store-bought the global reservation yeah unit of the account preferred store i think 10 years would be too aggressive to say it'll be displaced as a unit of account in 10 years but i think that its displacement is inevitable over a multi-decade time horizon i i don't think there's nothing there's there's nothing so special about the us that you would

you know expect that our economic system will be the the pivot on which the world turns over meaningful timelines yeah have we as inflation peaked yes and then feel free to give a more than longer response here but what is that what is it something what is something that you wish you knew early on in your career as an investor researcher that you know now i think when you first like get into in um investing particularly in technology it's easy to dismiss kind of like distribution and commercialization friction and so i think the the um i don't know i actually i don't know the

end do i wish you know uh yeah i really don't know you're more like you're more like you you you you encourage everyone to learn by trial and error just learn to know what they're good at or not and that's unique process or like yeah i mean i i i think the way that i've won and the way i encourage my analysts to win is just to always be in learning mode um and so it's hard to like [Music] maybe a recognition that you're always accreting knowledge and that knowledge pays you back over a compounding time frame but i feel like that's something you mean like you never graduate yes yeah no no and i think that's really important i mean certainly it's important within crypto and that's um you know you mentioned chris i think i said to chris as he was leaving you you

know you've demonstrated to me that you can very quickly appear to be an expert on a new topic you know and yeah but the reason why is because you know you're you're like all of these fields are so early um and across technology like the the technological frontier is advancing so rapidly that it's actually like the guy who got a phd 10 years ago is probably less expert than you because he's he's you know burnishes his credentials on the research piece he did 10 years ago as opposed to trying to remain like right at that frontier of knowledge and and kind of learn and just like to develop the knowledge in the individual area and and i think that's the um and it's something

that it kind of like um it compounds like your ability to take on new topics and then compress them into like how does this work from a first principles perspective and then move to a different topic you get a lot better at that so yes i don't know what i would tell my old self to to like i don't think i guess i guess the point is i don't think it i can't compress it into something that i could deliver back do you know what i mean like compressing all the things i've learned there it's like an accretion not like a single insight right and so then how do i compress it into a single thing that i deliver back without it being like trite and dumb brett how do um one of the core values at blackworks is just curiosity

how do you guys hire for people who are naturally curious or like just lifelong learners like is there is that baked into your hiring process and how do you do it um well we're not 100 successful but the i mean i think that literally on like my hiring rubric when i go through an interview with a care candidate uh intellectual curiosity a score on that is one of the four things i track so how do you assess that how do you how do you well how do you quantify intellectual curiosity well i mean on a uh i think it's a seven star scoring system maybe i use a five star scoring system kind of so it's very it's subjective and it's it's you know running a candidate through a a case question of a topic that they're

um familiar with and then a case question and a topic that's kind of like outside of their kind of core competency is my typical interviewing style and so you put them in terrain where they think they know everything or they think they know a lot and try to get them to like you know try to basically like push them across a boundary where they actually it turns out they don't and see how they react and see how kind of the interplay works and then put them in a terrain where they you know effectively know nothing and try to give them the basic information they need to try to construct the world as it exists in that separate terrain um and those you know that's so i don't know if do you have an idea of how to measure kind of

curiosity i used to so i used to run recruiting kind of for my group at jp morgan when i way back in the day and then i think one of the things and this advice i got from someone who i was like going into my super day is often times you will be asked questions where they don't expect you to know the answer to and they're just assessing do you have the like are you a sufficiently secure person with confidence to be humble enough to say i don't know versus try to whiff because if you whiff that's a really big red flag that's i think what gets you in trouble in investing as mark twain famously said it's not what you what it's not what you know it's what you think you know but ain't so and i think that to me is where you really blow up as a fund like a

long-term capital management the mortgage crisis like this idea that housing prices can never go down and so it's that like i think that to me is if you're not humble enough to understand that there are unknown unknowns and factor into that into your thinking you're at some point gonna make a really bad assumption and mistake so that's that's how i of course i don't use a seven point system but that's to me the one of the more important things yeah but i also think i think there's like it's two-stroke in that there's one people are naturally curious two a lot of like education and training like tries to pound the curiosity out of people three being curious is actually really hard work and it's harder work as you get older so you do need to like

select for it in some way so then for you know like typically people who have been through like analyst programs and investment banks that actually diminishes their curiosity at least in my experience so they tend to fail out of our interviewing process a lot more frequently and the environment in which you work and operate that guides you know creating an environment that fosters curiosity is is as important as selecting people who are curious right and so um kind of the yeah the one of the assessments during the interview is like how much is the person like you said it's not just like swinging and whiffing it's like are they seeking more information like and being

met aware of okay what is he trying to get at here and where right now you know how can i kind of like um kind of show what i know and show what i'm capable of thinking while also understanding what the problem is that i'm being confronted with you know so a lot of times people particularly when they're under pressure they'll they'll just like you know try to go on and on or try to you know they they won't have that kind of interplay which is really important yeah yeah i think you're absolutely right in the point where uh when you go to college or these programs you get ranked there's this like delayed great gratification ie the marshmallow test is really powerful because you know it's oftentimes

especially investing you have a scorecard everyone has a scorecard you want to be right you want to be rewarded for being right but to your point around compounding and accruing kind of these learnings i think a lot of really intellectually curious people just always have that like innateness of just you're never kind of satisfied you're constantly in this trajectory it's and you never kind of reach an end state of like okay don i took the test i scored 100 or whatever i'm done it's more i what could i have like look back and say what could i have done differently to get maybe to the same result and sort of this constant like desire to grow internally and do introspection i think is pretty key but yeah it's it's hard we've noticed um we've noticed that curiosity and passion are

are very linked right so if someone is very passionate about something like there's often the most passionate people are oftentimes the most curious people too and they'll just they're also maximalist jason and stick to bitcoin i mean no no but i think brett made a good point which is like the older you get the harder it is to stay curious because staying curious takes actually a [ __ ] ton of work it means that after your work day you have to dive into like you know like i don't know i was like watching this youtube video last night on like how mev works and like that is a um that is i don't know i think the older you get like the more uh responsibilities you have the more like busy you get uh and and i think it's quite hard to uh to do that and you

only end up doing it if you're actually quite passionate about a topic so even if it's not related to your work we found that people who are inherently passionate about something will be c can find passion in something else good point so so much for a fire round yeah this is uh yeah we've literally deviated from the agenda and the plan and everything but this is hey we're all intellectually curious so we are allowed to go on these tangents so anyway they'll stop them right i want to wrap it with this one question i'm going to tie it back to something santiago said at the beginning of the conversation about howard marks uh howard had something else in his piece he said i'm just going to read it here he said if your behavior and that of your managers is conventional you're likely to get conventional results

either good or bad only if the behavior is unconventional is your performance likely to be unconventional and only if the judgments are superior is your performance likely to be above average arc strikes me as someone who's always been very unconventional what are you guys doing right now in the investing landscape that you think is unconventional today but is going to be seen as quite conventional five years from now and what is something that you think everyone else is missing today that seems obvious to you i go back to i think people misunderstand the value of transparency and research as in there's a lot of entities that have tried to duplicate what we're doing and they both but just on uh hey we're going to invest in

aggressively in technology basis but they don't enable their analysts to publish under their own names don't let them operate on social media and in fact they think that that's like marketing gimmick rather than something that delivers real value i think you can see like the pace of change in crypto is so fast in part because the people are online and they're battling out these ideas and kind of they're putting out papers for people to respond to and we're trying to do the same across all technology areas where by allowing the analyst to like generate a a figure that they think is interesting have it you know pass through our internal process of like oh this is interesting why is this interesting and then as frictionlessly as possible um kind of post it for

response and to figure out where they're wrong and where they're right just increases our velocity in terms of being able to get to um unique insights in the world and understand kind of like the building blocks that that lead up to those unique insights and so like the thing that surprised me from inception to now when we started i thought i was just going to have a research team that would effectively duplicate the work that like mckenzie global institute and bcg had done like end up at similar outcomes but we would understand the mechanics better and so be able to invest on that basis um what's happened instead is we've generated i'd say

more accurate forecasts over meaningful time horizons than these teams that have like you know five phds on their papers and they have you know the 25 co-authors and you know these big big uh expensive research efforts that these consultancies put out um and i think it's because we're like just on a much more rapid kind of uh intellectual advanced cycle by being transparent about what we're doing the world is full of data we have a massive abundance of data now and so your job as somebody who's trying to learn about things is to figure out ways to tune the data into kind of the information specific for what you're working on and the only way to do that is to like announce to the

world this is what i'm working on and provide them with nuggets of interest of what you're working on because then the world feeds all of that data towards you like and so you you like anyway yeah sounds like you're doing uh research from an open source distributed and more decentralized and that is i've always told people that you guys are probably one of the best if not the best research shops out there so uh very true to the crypto ethos of open sourcing information and knowledge uh so not surprised why you guys love one of the earlier ones to be very vocal about not just crypto but other stuff as well so yeah kudos kudos to you guys right brett this is a great conversation man i

appreciate you coming on uh we'll link to your twitter and arc's website and stuff in the show notes uh for anyone who's just listening doesn't want to look at the show notes it's at w-i-n-t-o-n arc winton arc um anything else you want to plug before we uh wrap this up brett uh we're putting out uh a bitcoin monthly now uh you're seeing a team put that together it's a great um look at both kind of what's happened over the last month and um some d5 metrics some custom to arc um we have david pewell on the team who who you know and i think coined slash invented um market value to realize value ratios and and so doing a lot of on-chain research and development of of metrics and new

ways to analyze on chain data in bitcoin i encourage everyone to check it out it's a great quick read great amazing brett thanks so much santi has always been a pleasure and i will see you guys on next week's episode of empire all right cheers thanks fred take care [Music] you