Unpacking FDV, Token Distributions, and Hidden Value in Bull Markets | Roundup

Transcript

the steady state ratio for networks versus companies is going to be a multiple higher for networks for this exact reason and it's just very simple in the fact that there are multivari VAR reasons why people would want to hold the token maybe it's for governance rights maybe it's for staking capabilities maybe it's just for the cash flows maybe it's for you know X Y or Z Plus you layer on the liquidity premium that you're describing might and you compare that to any private you know Equity or or start stock uh and there's no comparison in terms of you know how you should evaluate this even in a public sense hey everyone wanted to give a quick shout out to the Wormhole Foundation if you're a bell curve listener you know that transferring across chains can be a massive pain I

certainly do I complain about it on this program all the time that's why we are super pumped to have partnered with the Wormhole Foundation the stewards of the Wormhole protocol the Wormhole protocol connects over 30 blockchains and six different run times including salana sooie ethereum layer twos and more and the coolest part about this particular partnership is that they have made custom bell curve nfts which you can get and mint for free you can claim that by just going down into the show notes and clicking on the link all right guys on with the show hey everyone this episode is brought to you by swell a team leading the reaking future with their liquid reaking token R swe now I've talked about liquid reaking on this program before I think it is going to be a massive tectonic shift for ethereum and I am super super excited about it

and I like the swell team a lot goes without saying do your own research this is not Financial advice you guys all know the again I like this team and if you stick around I'm going to describe how you can restake your eth in swell earn pearls I layer points and a whole bunch of future rewards so thank you very much for swell for making this episode possible hey everyone wanted to give a quick shout out to this episode sponsor flood protocol the optimal decks aggregator now if you are a listener of bell curve you know that me is a massive problem which is why we are so pumped to partner up with flood on this season flood is the only gasless and me free aggregator that not only gets you the best execution but also gives you back all the extra Surplus that you create

every single time you swap now this is relevant for both swappers and developers but you're going to be hearing all about them later in the program so for now thank you flood and back to the show all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-host today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with 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 welcome back to another Roundup edition of B Cur you at Michaels one and2 Advance Bellis how we doing how's the

week we're doing we're doing it going well yeah trying to think what's been going on yeah lower um there was a bit Yeah lower lower um people are worried there's a big igen layer raise I don't know you guys saw that 100 million bucks e6z took down the whole thing talking about real money now yeah exactly um there's a lot of good stuff this week actually I wna I I thought we had a fun debate last last show about is reaking leverage and I've got another topic to run run by you guys just how you think about market cap versus FDB but before we get into that um bance you and I were uh chatting a little bit about some of these takes around the Bitcoin ETFs and

you know friend of the friend friend of blockworks biano was describing kind of this uh this opinion where maybe some of the flows that are moving into the Bitcoin ETFs were less long-term he sort of delineated these two types of ETFs there's allocator ETFs and dgen ETFs which are mostly Traders and he was implying that a lot of the flows that were moving into the Bitcoin ETF complex are on the D gen Trader side of things what do you guys what do you guys think about that perspective I'm sorry what what the are you talking about it's like people people like Twitter trying to be like like what like the dent holder ETFs versus the tra like you don't need to have an opinion on everything and it just feels like trafy

and especially like the ETF Twitter complex of which like you know I don't know how much biano has in his ETF but like a lot of these guys have like 20 30 $40 million do of AUM they're just furious that this thing is kind of happening without them and they're trying to like latch onto the train and I just think it's you don't need to have an opinion on everything you can just let it happened but you you also are so obviously transparent when you're getting so pissed off or or ripped or just the cope is so transparent that you know you're not you're badging not Pat you're not ready to go um it is really really tough to see but I think a lot of this is really just painful cope the most recent one I saw this tweet this

morning is that uh Jim biano uh is okay with Bitcoin going up as long as it goes up for the right reasons so so now it's like you know it's not just that the price can go up or might go up it's like it has to go up for the right reasons we're just moving the goalposts all the time yeah I I do like Jim a lot he's um you know he's like I said friend of blockware he's been a permission list in the past and is a genuine supporter of this base I do I do disagree with him on this idea that Bitcoin has sold its soul and that the ETFs represent a betrayal of bitcoin's values ultimately the whole point of these systems is that they're permissionless and people should be able to use them in the rapper or

product form that best suits them and there's a bunch of trafi people that the ETF is going to be best suited for they should use Bitcoin in that rapper there are going to be a whole bunch of other people I think probably more people in the end that don't want to put it in the ETF rapper and that's totally fine too but I I don't I think it it's almost like it doesn't really matter is the tldr from my perspective it doesn't and like we hold our Bitcoin in coinbase or self- custody and that works for us and other people will hold it in the ETF and that works for them and his his like other argument is that you know now that iBot owns so much Bitcoin they're going to be able to govern and censor the network it just speaks to a lack of not

understanding how these systems work or how their governance operates so yeah some some pretty mid- takes this week on the ETFs from the uh the Trad Trad ETF crowd unfortunately I do like biano I i' subscribe to his research but you know he's kind of just out of his depth on this one I guess it's not Trad ETF crowd but I thought there was a pretty a pretty awesome take from the coinbase crowd talking about e ETF I don't know if we want to transition that let's talk about yeah let's talk about it yeah can you te us up there Michael what was the what was the sort of tldr from that take yeah so Paul Dre wall I think that's how you pronounced his last name but um Chief legal officer of

coinbase put out this long thread it's obvious that they've been doing a ton of analysis on um basically exactly what went into the SEC decision to approve the spot Bitcoin ETF uh relative to the futures um there's a look back period where they run a correlation analysis and they try to assess you know how correlated are the Futures markets on the CME to the spot markets on you know the trading venues like coinbase or or otherwise where you know some of the spot you know volume flows and they found that I I think it was numbers are going to be slightly off but a 98% generally correlation uh 98.1% between Bitcoin uh Futures and Bitcoin spot over

the look back period um basically coinbase ran the exact same analysis over the exact same period of time uh for ethereum and found that the correlation is actually higher than what the SAT found for exactly this is the table I'm looking at looking for um yeah so 98.4 on the hourly for what the commissions analysis found um 99.3 on the hourly for the ethereum analysis that coinbase found um another kind of interesting side note is that it doesn't seem and this is from Scott Johnson who's another you know notable person who follows this stuff tracks it pretty closely um no one who has the data including coinbase or Scott Johnson

or anybody else has been able to replicate the commission's analysis to get to that exact 98.4% um so it seems like there's something you know a little bit different going on but generally in line with what the sample found from coinbase of 99.1 for Bitcoin and 99.3 for ethereum suggests that it's actually more correlated than what you would have over the same period of time the same amount of time um uh is is really kind of the key Point here um so positive sentiment I think coming into uh the time period where you would see an ethereum ETF potentially get approved which is the May timeline for that first final approval uh there's also a ton of

other analysis that they put together in this document this report um just on kind of the legal basis the standing um and kind of using using the arguments that they use to support a Bitcoin spot ETF to also support a spot e ETF so positive sentiment there yeah the the other cool part is that they linked their GitHub repo at the bottom of the report so it's like I was like messing around with it last night you can rerun the analysis yourself Michael's point is correct it's um like if you're looking at this table you're basically looking at the the bottom right square of the eth Futures compared to the top left square of the of the Bitcoin Futures and the

correlations are as high or higher and that's kind of like you know one of the two main arguments of like people who are like the CF is not going to get approved it's like well the correlations are higher the sample period is effectively the same you know it's like two two and a half years for both Bitcoin and eth and then the other talk track that they get into is um like is eth a security how could you tell um and from the launch of the the Futures the micro Futures and and Nano Futures uh both on CME and coinbase derivatives like there's just a very succinctly put two-page argument on you know if this was a security it would have already been deemed so even in the Ripple case the SEC delineates between Bitcoin and

eth and and the rest of the field um and so it's like you know not a security has the same correlation as Bitcoin um at the end of the day you still do need you know it's a five five commission and you need three people to vote for it and I you know like for you know whatever reason you know Gary Gensler voted for the Bitcoin ETF and he was the the tiebreaker and I think you probably need the same here but why he voted was just because his hands were tied right and and I think this is like increasingly like tying his hands where if you have like this chorus of like look all of the data all the arguments are out you kind of do need to approve

it like there there isn't really a legal basis uh to not the other thing I I've been thinking of is you know let's say that let's say that we get a new administration at the end of this year whether you you want that to happen or not politically like what would be the path for additional ETFs and I think the path is you kind of do need like two years of sample period on a on a CME DCM style Futures exchange where you can say we launched you know a year or two ago like say salana or you know cardono or whatever Launches on this CME you have two years of period study period you can call it you can say okay you know the correlation is sufficient and

then you get the ETF approval I think that's kind of what I think through in terms of who is going to be next and what timeline it's like let's say Hester purse green lights new CME e or you know Salon of Futures next summer you're probably still waiting until 2026 or 2027 for that sample period to play out well there there's also a huge variable that's also involved with all of that which is the starting the clock on that CME Futures product which is the the cftc has to declare that asset whatever it is to be a commodity and not the security which means that that's how it could start trading on the CME and right now there's only two assets that the cftc has declared which is Bitcoin and ethereum and and so there I I think there might

even need to be potentially regulatory change before you would see a futurist product start which would start the clock on all of this um and I know you know the two bills in the house there's a stable coin and then there's the fit for the 21st century I I don't frankly unfortunately don't see those moving too far this round given that we're already almost in March of a of an election year um Maybe I'm Wrong uh hopefully I'm wrong but the fit for the 21st century does have a path in it for something to start off as a security and then eventually transition to a commodity based on a number of you know guidelines and a framework essentially and so maybe that is the getting item that then opens

you know potential more commodity digital assets um but you know as it stands right now there's nothing else that could even start trading on the CME uh you know according to the cftc one one last thing on CME so in in the coinbase analysis they basically point out that there's this thing called the commodity monetization act which passed in 2000 which allows the CME to list commodity Futures uh they can also list security Futures but if they if they list a security future basically the SEC has the right to step in and say like this is going to be uh both of our jurisdiction and we're going to mutually kind of uh decide how these markets work and you know eth is commodity future the

SEC has not kind of come out and said like look we need to kind of both regulate this because it is a security future but if you have like you know uh in the coinbase suit it's like I think salana and madic and like there's a few others that they that they designate as unregistered Securities like if if those would try to get registered on the CME the SEC at least in this Administration would step in and say like look those are unregistered securities this is going to be both of our jurisdictions and it would complicate the process greatly and so yeah I mean there's just a lot of um red tape between the next assets to get you know even listed on the CME in our view I agree with that I think eth is in

a really interesting position here because you're you're you guys are convincing me of this I I think longterm probably Salon or whichever other you know sufficiently decentralized l1s that that the cftc DS this commodity they'll probably get ETFs as well but I do like it seems like eth is going to be the only one that gets approved this cycle now eth is the next thing um and so the Tailwinds for eth is like okay for if you miss Bitcoin now definitely don't miss eth and I think a lot of people are not going to overthink that then the other thing is just like regular crypto cycle dynamics that you got coming in so feel like this is the the period of the cycle roughly where I think Vance you pointed this out last week that it feels like eth BTC bottomed um and is probably I don't know

if it's this month or next month or whatever but the thing that you would start to expect is for Bitcoin dominance which has been on a tear for the last year so if you're looking at this chart here I just showed on my screen Bitcoin dominance is way up this is usually what happens at the end of a bare Market beginning of the bull uh but then that starts to then that starts to change and like Bitcoin dominance has been basically like a oneway uh Street down to the right over time as more crypto ecosystems bring up then eth Bitcoin is like or eth BTC is basically a mirror image of that but and like you hit it on the head like it this looks this point on January 9th basically the day of the uh or the day before the ETFs launch like that looks like it put in a bottom

there and it feels like it's going to continue to run so yeah I think it's a super interesting spot for eth right here basically yeah it's um I wish there was like liquidity adjust version of these charts cuz like you know alts that have like 200 you know like World coin at like 100 billion it's not like it's not real in the same liquidity sense as like a like a Bitcoin like you can't buy or sell you know 80 billion of world coin yeah but I wonder how relevant these charts are going forward especially this cycle with ETF flows because like Ethan and Bitcoin are kind of like through their unlocks like Gemini is like kind of like the last selling of the gbdc Slugs but like

they're kind of just just like a wash and demand the alts are are going to be kind of like maybe not this year but like next year like a wash and supply and like Michael has said this before it's like a lot of the uh crypto Market activity is is not like animal spirits or macro it's like how many tokens are unlocking on these alts um and yeah I mean just the risk return you that we see from from the majors versus the alts it's it's just like way different this cycle than previous Cycles because you have those natural ETF flows I think that's a really critical Dynamic to bring up and I actually wanna I want to get your guys' opinion because

uh I know we talked about the starkware airdrop on on last week's Roundup but uh Stark went live um you know SDK the token went live and it went live at a pretty dizzyingly high fdv um you know the the fully diluted valuation was so at one point it was like 33 billion or something like that it sold off a decent bit but just to put that in context that is the the F diluted valuations of optimism and arbitrum combined are like 37 billion so a lot of people were looking at this and just scratching their heads and saying this doesn't make a whole lot of sense I think this is this kind of low float High FDB Dynamic and Michael I don't it sounds like you've got opinions on this I don't know

if you want to take this but this is like we kind of saw this last cycle a little bit um but yeah what is your take on I guess s strk the token but then also like just this Supply and unlock Dynamic that you see in in alts generally I mean I think that this has been a conversation that's been debated about literally for years maybe even multiple Cycles at this point of like market cap versus FD which one matters and which one doesn't matter um the way that you could basically think about this is if you're a Trader and you're thinking in a very short mindset short-term mindset market cap is what matters if you're someone who is thinking about things in terms of months or years fully diluted valuation is what matters and it

all depends on when that number will change without any input from your end or from the protocol's end other than the unlock schedule and so what I mean by this is if you're looking at a wave of unlocks that are going to double or triple the market cap based off of you to tokens becoming online that that is a supply shock uh it is in a negative sense to to the entire network and I think you know one of the reasons why starware started off getting kind of some bad press or bad news is because of the way that they had done this unlock schedule where they had launched the token the token was already investing at this point or had already started its unlock schedule and then two months

after the token actually was air dropped and unlocked is is the first unlock for investors and team that's a very atypical structure and it and it feels like they're trying to to unlock and give the liquidity to you know potentially insiders sooner than what other protocols would would do combine that with a really high FDB and it looks a little bit you know Wy um to say the least but I I think if you look at any of the major unlock schedules of any of these protocol tokens um you could start off with a really high FTV but those tokens don't matter until you have do until you have domain over them and if you don't then you know you you can pontificate as to

what they'll be worth when you have that but it it really doesn't count until you do um and so you know if you're an airdrop farmer if you're someone who's just buying these things on the secondary markets when they launch sure you know that none of this really kind of matters because you're you're thinking about things in terms of relative days or or potentially weeks um but if you're an investor in the space FDB is the only thing that matters the like an kind of orthogonal point to this is um you know like starkware is at 20 billion right now I guess it probably haved since launch it launched at like 350 now it's at 183 and you know the unlocks for investors come in two

months um and it's like carb is kind of roughly the same FTV optimism is roughly the same FTV um but like once you see these unlocks start to hit like it feels like that's the signal for Traders to start rotating and you know for for 5% of people to rotate and win in a new coin 95% have to lose and like just like a thought experiment is um you know like a lot of l1s or l2s are going to raise in private rounds at 500 million or launch at a billion um and kind of all these l2s roughly do the same thing in our mind and there's going to be a lot more of

them a lot of people are going to want to buy the1 billion fdv coin instead of the2 billion FTV coin especially as those unlocks hit and I think you tweeted this today or maybe yesterday Mike but like are are the are the like the name brand l2s that are kind of older that are unlocking going to be more powerful from like an ecosystem momentum developer perspective than the hundreds of l2s that are launching today like this guy Krueger macro um he tweeted out something funny today which is there's this there's this rollup as a service platform called conduit where you can click you know op stack you can click Celestia da and you

can click to deploy it it's like three clicks and he was like you know I'm raising uh 10 million on 100 million FTV for this rollup that I just clicked deployed it's like man like 100 million fdv that's pretty good when when you're looking at starkware at 20 Minds go uh but again like for for 5% of people to win rotating 95% have to lose like that that is that is the game it just as like to put it in a to we don't play that game by the way like we're kind of doing different stuff but it's always helpful to kind of put the meta in context Ju Just to anecdote this um let's say that it was May of 2021 and you know the same narrative was

kind of the same narrative that we saw in that period of time which is alt layer one were the things that were just ripping at that point and you saw this another alt layer one that had massive backing massive funding um and massive Talent uh come out called interet computer protocol and you saw that launch at $500 in May of 2021 you know bull market times this is like pico bow and by the time we hit the Pico top it was already down to $35 and and right now it's it's trading at about 12 and a half and you you just witnessed you know the the bleed out you know 97% whatever that is um you know it can happen really fast but it can also you

know sustain there for a really long time and and the crazy thing is with the inflation schedule that they have even at 122 a half dollars it's still like A6 and a half billion dollar protocol um and and that is exactly kind of the difference between fdv and market cap which is your market cap will change the supply Dynamics will change you know that the Flows In and Out of the protocol will change independent of whether or not the price changes and it's really flows that determine over a longer period of time what the value of these things are um shorter period of time as well but but flows you know in and and this is what we're talking about with the ETF like flows into the ETF are positive you know less Supply based on

the happening is positive for things like price um and that's kind of what you're evaluated against and so you really have to think about the supply Dynamics and I think internet computer protocol ICP is a great example of of how it can turn to get you I I think the standard operating procedure is Bitcoin hits its all-time high first that happened in 2020 then in 20121 you had that massive 3 or 4X eth BTC move up and it hit its all-time high and then you kind of see what the alts are going to do um I think there's so many coins now relative to Prior Cycles that you'll probably see weaker breadth in terms of like is everything

participating um especially in light of things like unlocks like you know we we like arbitrum we work with arbitrum they're unlocking $2 billion do in the next couple of months of tokens um and regardless of what you think of the project and and how it's doing like that is going to be a headwind and and it will someone will need to buy those coins for it to proceed higher there's a lot of those um on the other hand there's things that um I'm trying to think of how much we can say but like there's coins that are like doing really well they have a really strong ecosystem they had a brutal unlock in the bare market like one that comes to mind is like

IMX where you know the price bottomed at I think it was like 38 cents or 39 cents and it's like at 350 today where you had all those unlocks happen in the bare Market and those are actually helpful because you you're just clearing those coins at much lower prices like IMX did all of its unlocks at basically like a billion or two billion fully diluted and if you're unlocking 5% even at those prices you need $ hundred million do of buying to step in and clear that out if it's 10x higher you need a billion um and so like people who've paid that tax in the bare Market I think are going to do better but I I can continue to believe this cycle is about

quality like people who are just like I'm going to hold meme coins and they're going to rip 100x it just kind of misses the point of like like you see all these eth and and Bitcoin flows and all these like positive things happening and the burn and the apps and like your response is to buy mean coins it just doesn't feel like the the right way to think about this cycle or or crypto going forward as a whole so one one other kind of analogy totally agree with all of that um Dan and I have talked a lot about this but um you know one of the analogies that I was thinking about this week is kind of like um and I was listening to a number of like traditional investors like the bill amans of the world and and um you know

listening to their kind of career progression and what it was like in I guess he started in the late 80s 90s and and 2000s um and you know in like the Warren Buffett you know Heyday um like the the the Ben Graham analysis Heyday security analysis Heyday there weren't that many companies that you were able to buy there you couldn't do analysis on hundreds of companies you probably had tens of companies that were publicly traded and liquid and you could you could do run the analysis on I can kind of think of that as what 2021 cycle was there were tens of opportunities that were public you know available liquid um and that you kind of like watch and follow and

see um now now we're getting to the point where that is getting to be hundreds um and so one of the big things you know that was the narrative when it was wor above it was can you find Value hiding in plain sight and you know obviously not electronically traded markets back then but you you could find real value hiding in plain sight I think the difference now is that obviously the percentage of successes would go down based off of the denominator effect growing but the bigger thing now isn't going to be can you provide value but can you provide and and sustain value but also have a breakout narrative and it it requires these protocols to hit on

something or create something you know from a narrative perspective that drives them forward and above the rest of the crowd um because there is just going to be so much more noise this time around where the there are like two maybe three ethereum alt layer ones that you have to think about there's there's like 10 maybe 20 and potentially 30 by the end of the cycle and and so I think you kind of have to position yourself to to not only figure out you know how can we build sustainable value for the users the the developers etc etc but how do we hit on something or create something new from a narrative perspective that that drives us through um it's just a a major difference this round versus last

round I think there's obvious candidates it's like defi it's gaming like the the funds that we talk to like who's got fundamentals defi who's got users like gaming where where where I I think people are are going to get confused is like Michael's right where there was four or five big old l1s like you're either a Luna guy or an avalanche guy or a salana guy and I guess there was like Phantom last cycle or but like it dropped off pretty quickly now I would say there's like probably less momentum in the all l1s and more momentum and focus on the l2s just because there's so many of them launching and like unless you're vertically oriented and like going after

gaming and like that's all you do or you're going after like even like blast with nfts and that's all you do it's kind of hard to tell them apart other than like you know arbitrum having I think it's like a million or two eth bridged like that certainly feels kind of like defensible optimism has a lot less tvl but I guess they have more ecosystem distribution but like all these things and we talked all these projects like their whole strategy is we're going to launch the L2 we're going to do either an ABS on Igan Lair or we're going to give tokens away to you know people to bridge eth but like all of the stuff is like a black hole for eth and I think that's like a pretty easy way to understand the L2 complex at the moment until somebody breaks out is it's just

like very net beneficial to eth as a but what I'm what I'm saying is okay maybe it's not alt layer ones specifically in this cycle I'm saying factor in all all layer ones all the all all the layer twos basically anything that could be an execution environment or a network and you've got you know svv with parallelization you've got evv with parallelization you've got uh I mean you can literally mix and match all the different flavors of the tech stack and there is an L2 for that right now and it's probably raised at a at a billion plus multi-billion dollar valuation has a massive VAP roll and you know has 50 60 70 developers building on top of it like that I can think of at least 10 to 15 that fit that exact criteria right

now and like that in combined with what we're just talking about which is you know you're going to launch and then a year later you're G to have your first unlock like massive supply of these digital assets is going to be coming online in 2025 maybe 2026 when depending on when these things launch and it it's like a it is truly like a 10x difference in terms of that Factor versus what we saw in 2021 hey everyone wanted to give a quick shout out to the Wormhole Foundation if you're a bell curve listener you know that transferring across chains can be a massive pain I certainly do I complain about it on this program all the time that's why we are super pumped to have partnered with the Wormhole Foundation the stewards of the

Wormhole protocol the Wormhole protocol connects over 30 blockchains and six different run times including salana SOI ethereum layer twos and more and the coolest part about this particular partnership is that they they have made custom bell curve nfts which you can get and mint for free you can claim that by just going down into the show notes and clicking on the link all right guys I with the show hey everyone this episode is brought to you by swell a liquid reaking protocol in the issuer of the RW liquid reaking token now if you're a listener bellur you know that I am just so fascinated by reaking and liquid reaking I think it is going to be one of the most important Trends in ethereum and I am really excited for the benefit that it unlocks both users and also ethereum the protocol itself now

disclaimer whenever there's yield involved in a product do your own research this is not Financial advice you guys know the drill but swell is a great team they have a non-custodial product and they are Missi driven on giving you the best liquid steaking experience if you take one benefit away from using liquid reaking make it be Capital efficiency now you can earn passive yield from ethereum you can earn yield from multiple actively validated services that stack on top of that and then you can still use our S as collateral in D5 and because I know y'all are a bunch of DG there's a points angle here as well but in swell we call them pearls so pearls equal points and if you stake your e with swell you can earn pearls and future igen layer rewards when there's a token generation event you can swap your pearls for swell

tokens head over click the link at the bottom of this episode again just pause what you're doing right now go click the link at the bottom of this episode check out swell thank to you later hey everyone want to give a quick shout out to this episode sponsor flood protocol the optimal decks aggregator now flood is the perfect partner for this episode on the multi-chain future because flood is solving so many of the issues that we're going to be talking about this season and this is relevant for both Traders and devs so if you are a Trader you should definitely head over to flood Swap and start trading because they solve three massive problems one gasless trading no more pesky trading fees two you don't have to worry about getting front run me free and then three they have excellent order routing so that you

know that you are getting the best price so head over to flood Swap and click the link in the bottom of the show notes we're going to send you right there for the devs out there you can cage floods flexible hooks allowing you to make swapping a first class primitive by adding custom order types like t- wops or if you're a wallet Builder or something like that you can actually build your own orderflow auction in and start recapturing a bunch of that me if you want to reach out to them go to devs at flood. bid or just jump right in the Discord all right guys thanks very much appreciate you flood I had a long discussion with with one of our analysts Dan about this last night and one of the things that I've never really been able to we talked about it a little bit on

the show but I been struggling to square the circle in between the way that startup funding works and the way that protocol funding works and the different quirks in between the two of them and I read this great piece this week um so shout out to the author Grayson Grayson Alto who wrote about um trying to bridge the gap in between market cap and fdv and he he has a slightly more analytical framework but it's like very much what you two were just describing which is on a shortterm time frame you know the price is set by the circulating Supply and the market cap but over time uh you know it's fdv that ends up mattering and the

assumption is like basically if you only look at fdv then you're assuming that all of those unlocks happen today right and that's not actually the case and there are some unlocks which like there could be vests that are associated with that there could be uh some of the depending on where the supply sits if it's with the team or investors or if in the Dow treasury like it means different things in terms of how available that Supply is and like one of the things that at least I've been thinking about for a while but like you guys I'm sure have more sophisticated thoughts on me just being BCS is that I'm not really sure it feels like with this whole idea if you launch day one and all the tokens that you're ever going to have exist like maybe that's not really the best Dynamic actually in the way that funding

Works in a more traditional startup has better outcomes for everyone and I tried to draw draw this out actually in a in a really simplified uh chart um just to even make it make sense in in my own head um so the difference basically being for an early stage startup yeah you basically go through different stages where new tranches of equity are issued so you can see my screen here what you're show is like a really simplified version of what this looks like from a company standpoint where like let's assume like there's a valuation metric here which is like year 1 year 2 year three year four year five let's just assume all the metrics that you need to hit to raise to continue to grow your valuation are being hit um and

there's 100,000 shares at a million dollars in the first year you kind of keep doubling the valuation year-over-year again really simplified you break it down by investor shares and team shares and you assume that every year when you're raising you top up the amount of Team shares like you increase the the amount in your Equity pool and that you have to sell 20% of the company like roughly this is what the share price ends up looking like and price Discovery happens by this like overall total amount of shares and evaluation which is set in the private markets by investors directly with a team whereas in a and that has this kind of desirable impact assuming you don't everything up and have to do a Down Round which is obviously brutal in this situation like then this kind of goes up

in in this this up only pattern in the private markets and in protocols it's just really different um you kind of you go there are different very different sources of where those tokens ultimately end up sitting like some of it goes towards the team some of it goes towards investors and then there's us and the these are kind of like your your the combination of like Insider tokens which is good to have right you want to have investors and team incentivized but ultimately what ends up happening even with the same amount of tokens and the same like intrinsic valuation is now you've moved price Discovery off of this $100,000 uh number into a much smaller number of actually circulating tokens

which is really like the community portion of this and maybe some some Dow tokens um and what you end up with is this like kind of crazy to price per token because you're pricing this Bas off a really small amount of what's circulating and like up so basically the mechanism for yeah yeah I see I see what you're saying and and let me let me just explain it from maybe our perspective or or definitely my perspective which is the pricing never happens based off of market cap an intrinsic valuation which is you know how how it's modeled out here the price is always based off of the fdv especially when you're talking about something that is pre-launch like the way I look at you know coin gecko or

any of these different uh you protocol Pages or Price pages is that I looked at the token price and then I looked at the fdv and then i' back into via the market cap how much of the tokens are actually tradable and that's the only thing I look at from a market cap perspective and and then it's sort of like okay what are the token allocations so the token value for me is always what is the fdv and another thing in terms of you know the the mechanisms here there there is a major fundamental difference between building a protocol versus building a company and you know a company and we can get into all the details around this but you know one of the things that I think goes undervalued in this context

is when you're building a company and you have no you know desire to build a product call it's all about control how many shares do you how much ownership do you have and and if you're a venture capitalist you know really really good VCS will say I I need to own 20% of the company for me to be able to be you know like the institutional backer of this business good CEOs will say okay great I want to own an equal amount you know and and I want you know the co-founder should be owning that much as well dilution it depends on the company and you know the business model Etc and the capital uh requirements to get there but but ownership is really you know what people care about because that dictates who controls the company going forward whereas if you talk to founders of

protocols and if you talk to people are building protocols literally the opposite it is the vitalic boter in I eventually need to turn this over to a decentralized community and it's needs needs to be a self-sustaining open source protocol going forward and that difference I think allies a lot of the funding mechanisms and and sort of the reasoning behind why if we're an investor in a protocol you know 5% is kind of the the rough Target that we have for ownership because you know we want to be a participant we want to be a steward we want to you know engage in the protocol but if you're overwhelming you know majority of the to of the token especially from the investor allocation you know there's questions of decentralization there's

questions of you know motive and and so it is a totally fundamentally different way of fundraising but also governing and and running these different types of entities that I think you know leads to these bisecting you know directions yeah I think it's a really good point and and the the whole point of decentralization is that if you're a protocol you have new use cases that are available to you that you wouldn't if you were in a company structure and like a really easy sort of heris stick for that is like we trust Bitcoin or eth to be form of money because it's really decentralized no one controls it Google is an extremely competent company makes a ton of money would you trust them to issue a currency no wouldn't because for obvious reasons that are super apparent

so I think I completely agree with you on that Michael I guess the point that I was kind of trying to make sense of myself um and again just like I just put this together like late last night so I didn't think too much about it but basically the I think the reason why like you've seen so many charts like this in crypto so we're talking about you know ICP or whatever that protocols you know defini called now but there are tons of charts like this of like really good protocols like if you look at some of the D5 1.0 like Unis swap or uh like some of those but like those are down like 90% from their all-time highs and it's not some of them it's like most of them are like that Unis swap a like great protocols and I think it has to do

with this Dynamic of you know the the price Discovery changes from you know private Market investors to something that looks like and it it sounds like you guys don't think about it like this but I do think that a lot of like Traders end up do thinking like market cap in the short term which is extremely um constricted in terms of the float but then over time investors sell um and and the team sells as their unlocks happen and so you're like kind of flooding the market at the worst possible time and the other thing that's like a little bit different in between protocols and companies is like protocols try to pay for things in their token which is a little bit we like I know that happens a little bit in Silicon Valley but it doesn't happen nearly to the same degree

that there's a dow treasury with like your token and like blockworks often receives payment from protocols with token and so there's just this kind of like dumping mechanism and the other the other thing I think that was sort of I was thinking about as we were going through this is it actually makes sense to me that there should be some sort of liquidity premium on these tokens like one of the things that kind of sucks about owning startup Equity is that you don't have access to sell it for sometimes a long period of time and you as an employee especially have no window in terms of when that's going to be so a token being liquid on day one all else being equal assuming yeah setus power boosts the token should be worth more because you can sell it today and you

can see that you know when like a lot of employees don't end up valuing Equity but like tokens are huge um uh vehicle for or lever to acquire Talent during these periods of time and I think that's I mean I I have a thesis a pretty strong thesis over the last five years that and I think it's been you know pretty much proven at this point that the steady state price to earnings if we want to call it that um you know protocol Revenue that's distributed to the Token holders the cash flow of you know that's generated by these protocols the steady state ratio for networks versus companies is going to be a multiple higher for networks for this exact

reason and it's just very simple in the fact that there are multivari VAR reasons why people would want to hold the token maybe it's for governance rates Maybe for staking capabilities maybe it's just for the cash flows maybe it's for you know X Y or Z Plus you layer on the liquidity premium that you're describing might and you compare that to any private you know Equity or or startup stock uh and there's no comparison in terms of you know how you should be evaluate this even in a public sense like imagine if you can take your Apple shares and state them to earn you some additional governance rights in apple or participate in in a different way in the Apple ecosystem you know that's kind of what we're talking about

here when you have a digital asset that's based in software yeah it's just it's a little bit of a honestly even just trying to think through this uh it's kind of dangerous to do live on on a podcast just put my brain in pretzel a little bit but I'm trying to describe why there are these like common if you look at the chart for even protocols that I think are great it like fits this pattern like this early kind of pump and then they have to work through this weird Supply overhang that they give themselves and the reason why I feel like it's relevant even talking about these l2s it's like I I hear evance on the like like someone's going to have to buy up all this arbitrum but it doesn't feel like we're really changing the dynamic for even the new l2s that are launching so yeah they

look cheaper now but they're going to end up with the same issue that everyone else ends up facing at some point right we we aren't and I don't think these are um answerable questions to some extent it kind of depends on what the asset is eth went from I forget what it was after the Dow hack but it went from like you know maybe like 10 to like back to like a140 and it was just like this is over and now it's at 3,000 um but most assets don't have that because most assets are not singular in that way and so what you need to ask yourself is like am I a thesis long investor in starkware at 20 billion two months before invester

unlocks if so why and if you can answer that question and and get right with yourself you should hold it but if you can't you probably should think a little bit more holistically about what you're investing in because it's not just like I get to buy a meme coin and it will outpace the crypto Market by 10x anymore I think we're just in a much different environment today than we are even like a few years ago there's just way more coins there's way more of them to be sold and there needs to be way more buying to keep them at the same prices what do you guys think about the idea that I I've seen like Deli has pushed for this a little bit and you see you see a little bit of it here and there on Twitter which is sort of this return of

icos what do you guys think about that and I know the last thing I'll say here's the regulatory overhang of doing this is extremely challenging and there's probably a good reason there's a lot of shenanigans that happened in the Ico era just the idea being that if you launch to the community uh that everyone gets a sort of fairer shake at it and this is sort of what I guess may be trying to do potentially but yeah I mean what do you guys think about this sort of Return of icos type thing it it's going to be hard for for Michael or I to disavow icos like back in the day this is what we did and this is what allowed us to be capitalized and really start framework and so like you know to the extent that people are going to be

doing things like this like I don't know I don't feel like we can really pass judgment on people speculating on icos just because it was such an amazing opportunity for us um as is a lot of crypto from like a developer perspective or a project perspective if you're doing an Ico in this day and age you are taking risk you should get right with yourself and understand that and if you're outside the US maybe it's different um I prefer things like Fair launches and those seem like a kind of a better crack at you know Financial opportunity for a lot of people but like we are now getting in the cycle in the part of the cycle where the stakes are high enough that people are going to do stuff like

this you know you're not going to do a bare Market a bare Market Ico the legal risks outweigh the financial rewards that you are potentially going to reap but now it's like people can you know put a hundred million do into an Ico and the project raises that and the token goes nuts and it's like worth it or you can fight the SEC or fight the lawsuits or whatever so these things are going to happen um I just think you have a natural selection bias that best projects do not Ico but if if Kobe does things like you know the the project he's up to I think that can help a lot which is cool I there this is also like there are so many different flavors of what can be

determined to be an Ico uh it's it's really hard to just like plaster one perspective across the entire I mean you could do on one end the total like 2017 summer7 17 here's an ethereum address you know sendy will send you back tokens like I don't see that necessarily happening that often if ever really anymore um and you could also do the like intermediate step of like Geo gating right like that that can definitely help in an argument um there's also things like twiin list and and we have uh portfolio companies that have recently done coinless sales everyone's kyc you're not able to buy a certain amount it gets distribution into

the hands of of potential customers um notoriety like it it solves a lot of problem you you able to fund raise for the business like there are a lot of different flavors of you know token sales to individual community members um and then there's also I mean we obviously talked about this a lot but like airdrops novel mechanisms of doing points programs can get a lot of the same effect minus the fundra where you get your token in the hands of a number of different people you force them you know us to do something of value for the protocol by participating in some way shape or form and I I mean I I just get creative in terms of um you know the relative risk reward of whatever it is

that you're doing try not to break any laws if you can yeah consult consult Council whereever possible please yeah the I agree with you I think that the biggest question for me is like the adverse selection problem this is a really known issue with platforms like like Kickstarter in the past the idea is if you have a high if you have a high caliber founder you'd want to partner with the Frameworks of the world right instead of you know 10,000 random dentists because you guys provide a lot of value um so I think that's that's the ultimate challenge with it and there's an optic standpoint there's like a whole bunch of standpoints from or like uh considerations from the founder standpoint one well one one one doesn't

preclude the other and I think this is this is kind of the the main point I think you can work with the Frameworks of the world and do a distribution to community members and I think that that is what the Playbook should be that's what I was going to say is yeah it doesn't have to be totally binary and you could even imagine something like you could even imagine there are really high value like community members out there people kind of do this with like angeling right now but uh you could have like even one layer more on that Spectrum instead of like institutional kind of VC money here Angels here then like High Caliber uh Community participants that maybe aren't Angels because they don't meet a certain monetary threshold or whatever but you could even if there's some kind of platform you could take a test or submit

you know proof of your contribution on the forum for however long and like maybe that could get you some sort of preferential allocation or something like that I don't know there there are lots of different flavors to this I I totally agree um Le Let's uh let's let's move on to 4844 um and this uh this Bitcoin tweet from BAGI so BAGI I mean unfortunately for him Bitcoin did not go to a million in uh in two weeks time but he just tweeted out Bitcoin has passed all-time highs in 14 different countries I I think this is actually pretty interesting just because um obviously like the numbers that I'm

keeping track of are the ibit alltime high we're $29 on ibit alltime high for ibit is 31 so that'll be a moment uh there's obviously the USD all-time high which is I think 69,000 um but meanwhile 14 different countries you've got Bitcoin at all-time highs including in in in both the the Japanese Yen and then Chinese REM andb um it's just really impressive that most of these countries are kind of like living in the future where where the bull market alltime High has been broken like kind of gives you a little bit of uh I don't know we we could we could we could kind of see like the international

side of things pick up just based on more euphor from the alltime highs I I like that take a lot and I've seen some people on Twitter respond to this it's like well if you looked at the S&P you know it would look very similar and it's like yeah but these people many they can't buy the S&P they can buy Bitcoin that's the whole point so yeah I I think it's a super interesting take and even if BAGI didn't end up being right I think he was he was kind of trying to you know flash the bat symbol type thing for Bitcoin and I think he ended up doing that so BAGI is laughing all the way to the bank the dude has more coin than than I think anybody knows about so whether it goes to a million today or in 10 years

like he's good yeah what do you guys think about so could you give it like an update on 4844 and just denune in general like what is the what is the sort of expected timeline there and then I think people are very curious about what is going to there's the 4844 there there lots of different U sort of eips that are lumped in with the hard Fork but 48 44 is the Proto sharting part of it and that should immediately um make some of the da cost for rollups cheaper so what are your guys thoughts overall about 444 as a catalyst and then how much do you think it's going to impact things on the da cost side for rollups so denune is March 13 um and it looks like it's going to

decrease da somewhere between you know five and 10x for for l2s so that'll be pretty significant in terms of you know that cost and it kind of like sits kind of opposite from like a Celestia in terms of narrative where if those things are roughly the same like maybe you kind of see the the modular thesis slow down a little bit in terms of like why would you switch da layers if if they're roughly cost effective um I think the stuff that we see on the private side is there's a lot of l2s that are waiting to launch um and so like whatever cost Offset you have in terms of fees not coming to eth like you're going to have

more supply of l2s launching um and and using things like 4844 for da um and so I think you're just going to see an increasing amount of l2s launch and and we're already seeing a ton but you know like think of you know March 13th as the starting gun for all these l2s to launch then you have lay probably sometime in Q2 with all the ABS launching and reaking launching like it just feels like there's so many catalysts right now for eth specifically on the technical side um and developers are going to take advantage of that so I think it's positive overall kind of something we've been waiting for for I think like a year at this point there's also a number of

other changes that are getting um closer and closer that are going to be in the next hard Fork um which is looking like it it could be later this year as well um and and some of those um you know start to even get closer and closer to kind of the full um D charting Concepts yeah and that next that next hard Fork that's Electra right I think I can't remember the name when when is that still being disgust yeah I thought it was well the reason I was sort of paying attention to it is because they're they're talking about adding a um b a decent change to eth's uh issuance policy I'm not sure if you guys

saw this but there was a big thread that came out today by some of the folks from the ethereum foundation it actually might be worth getting your guys take on here because it's a pretty meaningful change to the protocol if this does end up getting implemented and I know the EF has been um or some folks from the EF have been kind of interested in this and talking about it but the idea is to adjust the issuance policy of ethereum to Target a certain percentage of stake and specifically in this proposal there would be something that looks like a hard cap for stake that comes in at once 25% of the network is staked then there's actually negative issuance policy so if you are staking and more than 25% of eth in the network has been staked you're actually losing um you

like you're your your eth balance is going down and the rationale for this mostly has to do with liquid staking and there's kind of a there's a push pull here in between one you could argue that at a certain point like the network doesn't really need need much more security after a certain amount has been staked um and then if you do if if there there is a whole bunch more staking and specifically in eth Lio the steth is issued by Lio which is very separate from ethereum the protocol and ethereum doesn't have a lot of great ways to regulate that then uh Ste could start to compete with actually the money quote of ethereum itself um so and there are some there are some risks that are associated

with that right like I'm Li is a great team um they put a lot of their internal Dev resources towards decentralizing and making sure there are no bugs and stuff like that but you can never really be sure right it's not as it's not as safe as ethereum the protocol so what would you guys think about this policy of adjusting the the issuance of ethereum to actually Target uh or sort of cap the percentage of ethic State um I mean the negative issuance I don't frankly like um and and this is such a substantial change that I think this is probably going to be like a multi-year discussion um and like the LI team published something that's kind of like

on the opposite side of this and there's like a lot of LST oriented teams that are like obviously on the other side of this and so the question is like is it like the EF or is it like the the broader Community who has a lot of interest in staking who's going to dictate this trend um and I don't think targeting 25% stake when we're already well north of that makes a ton of sense so like that number doesn't seem right um I frankly need to read more I need to read this before I can like respond to it so maybe we can do like a session on this next next time um don't want to prejudge you know this work and I know the guy who wrote this and he's smart so you know want to kind of give him his

due I don't know Michael we don't have to go too deep and me we can cover next week it's just I I've been thinking about this a lot because I'm you know reaking is like the the big like we talked about that quite a bit on on last week's show and there's a lot of money that's going into that be it for new yield or like maybe it's farming i points or or tokens in the meantime but I I do wor the the one worry that I have with uh capping the amount of issuance is that I think it actually it might do the opposite of what this proposal is intended to do and it might actually push people further along the risk curve into uh more reaking opportunities like this is kind of the dynamic about how works and trafi with interest rates right it's like if you lower the

interest rate you are actually encouraging people to take more risk right people don't just say oh well I guess I'm gonna earn less yield than I was earning right they're like no I need to earn the same amount of yield and now I need to go into riskier and riskier opportunities and so I worry a little bit just that it would you know that it could backfire is is the only concern that I have it's pretty bullish I layer if this ends up uh happening but bullish restake in general I I think it's you're going to see plurality of approaches not just if something like this especially kind of happens where you're going to see people yellowing eth all over the place which has negative effects obviously all right we probably got time

for one more thing we've got we can either talk about Gauntlet leaving a uh Athena everyone's kind of been giving their takes on Athena the stable coin or vault or whatever whatever they are and then uh coindesk actually wrote a really great uh oped on the vibe ship that's going on which one do you guys want to close with let's talk Gauntlet I feel like the Athena takes have been new RS yeah all right I'll te it up so Gauntlet obviously they are um one of the oldest and I'd say most respected uh sort of service providers on the Dow side of things in crypto most of what they do is sort of risk analysis and mitigation for protocols and a um you know I it's just one of their longest

stand in at least from the outside kind of strongest relationships and so yesterday in the Forum they basically released this post saying hey unfortunately we are terminating our relationship with with a the protocol and I guess they were in the middle of a year-long roughly $1.6 million contract so I'm not really sure what that looks like uh from a contractual standpoint of what they're going to have to do but they basically cited they cited a couple of reasons but what it seems seems like uh and again not an Insider on on anything here is that there were some disagreements in between Gauntlet and Mark Zeller over at a and Mark is an extremely active pretty prolific delegate um who's done a lot of great

things for the protocol definitely also has a lot of control on the a side of things and it almost kind of sounded like I know like uh yeah they just were at odds from a personal standpoint and um I I'd be curious on on where you guys C uh yeah shook out on this whole thing I mean it's a big contract to sever which is kind of surprising um and I think Gauntlet has done good work for a there's some some stuff that we've disagreed with like you know we thought they should have been a little bit heavier handed on allowing Mishka from curve to borrow you know 50 60 70 million doll from a like probably not doing your job well um but I do think

these risk scoring consultancies are helpful uh but at the end of the day Dows are closely held and you know they're controlled by people who have tokens and if they don't want you there you're kind of done so I don't know I like tun I like a um I do think that there's things that they could have done better in the past but you know bygones are bygones at this point one point in clarification maybe I miss this who who severed the contract uh it was from The Gauntlet side so there's a there was a post not a particularly long post just it was from uh John Morrow who I I don't know personally but I guess he's one of the

co-founders at at Gauntlet and just said you know we have you know basically paraphrasing here we've loved working with a in the past but Gauntlet is no longer able to continue our work with a and we're terminating our payment stream as soon as possible and looking to find a replacement for the risk Steward position which is what they held right wh which is you know in a lot of ways the service provider firing you as as the client it's not something that typically happens very often no no I'm firing myself I'll see myself out yeah yeah I I think it does highlight just like Dows are not you know in 2021

it was okay we're going to figure out token economics then we're just going like way this Magic One governance is going to be solved as well like government governance has taken you know countries who have all the resources in the world hundreds of years to be able to you aify and get to a point of solidity that actually you know really has the effect intentions that they started with and and I think when you have a dow um of of governance participants that probably aren't experts in Risk analysis and parameterization and um there's a lot of politicking involved um it does make for you know who's actually

controlling these things um as a as a major question um it's kind of like saying if you have a bunch of people who own shares in a business like who are the people representing those people and you know whatever percentage it is I can't remember off top of my head is now of like the S&P 500 is now owned by index funds well who's actually voting with those shares in many cases it is the index providers themselves the vanguards fidelities of the world who are taking those shares and voting them on behalf of every 401K you know owner of Apple stock let's say um they're educated they know it's sort of like a representative democracy in a lot of ways um but that's not how a lot of these Dows are structured and

that you do have you know the random uh a token whale who who has the ability to sway BS um and and that can get probably better La last thing before we wrap um different topic so Circle has discontinued support for usdc on Tron this was always one of the weirder things that was going on in crypto that Michael and I had no idea what true story was like there's like three billion or four billion of like stable coins or staked usdt onon you know it's like moving around a lot there's a lot of uh people using it allegedly um and circle has apparently decided that this is no

longer legitimate they will not support it they're going to remove support um I think there's going to be another shoe to drop here basically like there's the ongoing Justin Sun lawsuit there's a lot of sketchy stuff happening on on Tron maybe maybe next week we'll have a little bit more clarity but this is a this is a big deal in stable coin land you know it's probably four or five or six% of total sta standing well USD is the primary stable coin on Tron and that's where like what 60 70% of USD exists and I think that that's like the preferred payment uh for a lot of you know non us rest of world countries like

turkey Tron is is how people pay people and and uh Tron specifically usdt on Tron is is is mechanism of payment um I I mean we don't need to stoke the fire of of uh lawsuits but um I could see that I could also just see you know usdc Circle being like hey we relink we relinquish this this network not something that we need to venture into especially you know keep in mind cirle is trying to get ready for an IPO later this year supposedly forgot about that dude I have just never understood tether I I it's just been such a question mark for me

and I'm not sure if I have any intelligent opinions on it like I don't know we'll see I wouldn't be surprised at that prediction B but I have no knowledge so but it it's a good call up back in the day I shorted tether on bitm when I was living in Tokyo uh immediately got liquidated and then my girlfriend broke up with me so I've stopped trying to understand what's going on with te the wiow and Michael and I I asked I was asking did the trade get put out basically like did the trade happen and before bance even responded that the trade is live it was Liquid Ed it was instant

liquidation and then and then she bounced she saw your trade was like nah she was out must go yeah yeah oh boy um all right fellas this one was a really fun one um see you here same hey everyone Mike here if you're a b curve listener you know that transferring assets across chains can be a massive pain I certainly do I complain about it on this program all the time that is why we are incredibly excited to have teamed up with the Wormhole Foundation the stewards of the Wormhole protocol and the coolest part about this particular partnership is that they have made custom bell curve nfts which you can get and mint for free click the link at the bottom of this episode take you get your free

[Music] nft