What's the Future for Airdrops? | Roundup

Transcript

all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-hosts today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode thanks all right everyone welcome back to the first inaugural episode of zero X bell curve this is the mashup that that you didn't know you needed between uh Dan Smith and Westy here from the blockworks analyst team and uh the sometimes hosts of Xerox research so guys welcome to the show

thank you thank you appreciate it yeah all right why don't we start with kind of a high level topic today but then we can delve down into some specifics so I want to talk to you guys and get your high level thoughts on airdrops so airdrops have been getting some renewed uh interest this week there's been some sort of funny activity book going on on both star great and ZK sync the last couple days so in the past seven days uh there's been 480 million dollars in Bridge volume on Stargate in the last seven days 195 Million worth of volume incoming for in ZK sync the ZK sync era at number two and the the general consensus is that this is sibling sibling or sibling and uh it's

it kind of just raises the question of maybe we could just have a discussion about uh sort of what should the function of airdrops be I think we saw a pretty interesting battle and very different strategies play out earlier this year between arbitrum and optimism both had very different strategies and I just kind of put the high level question to both you guys how do you generally think of airdrops if you're writing like a best-in-class sort of playbook for let's say an aspiring roll-up how would you advise them to do it yeah that's it's it's an interesting question because it's pretty open-ended and quite frankly unanswered at this point now you've seen the OG air drops where it's like user protocol from the early days and then we'll reward users this is kind of the the uni swap model like they airdrop to their LPS

um then you kind of saw an evolution of heyo instead of just giving the token away to people who have used the protocol why don't we incentivize continued use and so you saw like compound kind of pioneer this uh by incentivizing borrowers with comp tokens um and then ever since that you know you saw explosion B5 summer and a whole onslaught of different ways that protocols can throw tokens at users and and attempt to attract uh sticky sticky users um the Stargate example was a pretty hilarious one because if you go over to D5 llama click their Bridges tab uh and just check out the activity for you know various Bridges and they have pretty much every bridge listed here Stargate

is Far and Away the leader when it comes comes to the number of transactions but depending on the day they don't always even lead in 24 hour Bridge volume but the number of transactions is where things just get hilarious so uh just looking at our you know today is July 6th so random day uh but this is this is shamelessly consistent uh if you go over to this tab you'll think far right says number of transactions in the uh 24 last 24 hours so coming in at third is hop protocol with an honest 6700 transactions coming in at second is currently the ZK syncs uh their bridge and that comes in in second at 8 300 transactions and then coming in first by

an absolute mile is Stargate with 282 000 transactions like it's it's just not even close um and so it's like the the size gap between you know Stargate and everybody else even if you're combined up every bridge and said how many transactions in the last 24 hours it's just one order of a magnitude difference so it's just uh it's funny to kind of watch these things go and funny enough I was actually tearing through some Avalanche data earlier this week and the most frequently used transaction contract and like the the if you like basically look at activity based on the two address like the receiving contract or address of a transaction since the start of the year the most hit contract is none other

than the Stargate Bridge so um it's it's just funny to see where this stretches to it comes to like pumping these daily active user numbers but um you know this is basically this is something that exists and we're going to have to kind of kind of deal with but at the end of the day if Stargate successfully attracts a host of users to their platform by doing this then you know what maybe maybe it's a good thing yeah to me there's basically two major buckets that you want when it comes to an airdrop the first is incentivizing sticky activity I think a lot of airdrops in the past have incentivized activity in general but as soon as the airdrop ended all the activity sort of went away so I think focusing on more like sticky activity and that can be

done having like multiple air drops kind of like blur has like their Seasons so doing it over time I think is a good way to do that um as well as like I think sometimes you know having the Allure of a future airdrop is sometimes better than having a specific airdrop itself because then you know people can basically do math and understand what their Roi is and how much investment they need to put in whereas if it's sort of like invisible people will put up more Capital at risk and have more activity over a longer period of time and so I think that incentive has more sticky activity and then beyond that is like finding quality holders of your token so I think with that comes finding actual like organic users of your protocol well if you have

something like arbitrum's airdrop there was a lot of like third parties who were able to look into um the data when it came to the airdrop and found that a lot of addresses that were very clearly sibling that airdrop were given like a pretty sizable portion of the the air dry Barb and so being able to find quality token holders like actual real organic users of the protocol who are less likely to like sell the token are more likely to accumulate and be uh good actors in the system I think those are like the two key components uh to a quality air drill I I feel like it's this thing that's very easy to say in in practice very difficult to actually do I guess you

have to start a high level from the perspective of the protocol and you have to say what do I want to incentivize what is the action and outcome that I want to do and then what's the best way to actually do that I think one of the right now it's very popular to do these sort of post-mortem analyzes on yield farming and say oh my gosh look at how much liquidity these protocols were giving away look at how much it first of all it costs them to acquire an average user and by the way everyone just started dumping the token so this was a lose-lose what a what a dumb thing for these protocols to do I think the one shining benefit that yield farming had or airdrops have is that it's very simple it's very simple and I kind of have this one um experience that I'm

drawing on here which is designing sales comp plans which if there's like one or two of you out there who have tried to actually design a sales complaint you're nodding your head aggressively because it should be super easy and it's one of the most difficult things to do and get right but the guiding principle of a sales comp plan is that it should be extremely simple in terms of you know if I sell X this is how much I get paid and I feel like that's the one uh you know sort of Guiding Light just about in terms of how token incentives have played out so far now I think it's a bear market and bear markets are typically the time that you have cloud cover to fix things that are broken people are at it thinking about adding a lot of complexity which I think is good

but there's a dual edge sword for complexity because you can get a lot more granular but it also means you have to be there are a lot more assumptions when you make something complex and you have a lot more room to be wrong so I guess I mean what do you guys think about that kind of from a high level and then let's try to get tactical and give protocols out their advice like what are examples that you've seen protocols execute this well and yeah what would you what kind of activity you know when you say sticky activity how do you actually end up doing that in practice yeah no that's a really good point and you kind of mentioned the trade-off between air drops and like long-term liquidity provision uh so if you think about somebody like curve you know they add a pretty good token allocation 33 to

team investors with 67 to the Darwin community so that's kind of the area you generally want to see and they had actually a very small airdrop but a very large portion of that went to like long-term liquidity provision and to your point of what do I want like what is important to my protocol the answer to them was very much so liquidity and as it is for most dexes so they kind of built a tokonomic system that says all right well we need to pump out a ton of incentives and then we're going to create some sort of like a walking mechanism that kind of reels back in some of those tokens of course there's a whole box to unpack they're about you know why they their model works well a lot of these other ve token models failed um but broadly you know they they said

what's our most important thing liquidity well let's go ahead and you know design basically a token structure that is purchasing that into perpetuity is effectively what they did um and so that's kind of like an interesting model between trading off between pure airdrops and long-term incentives but when it comes to something that we've seen more recently you know we're kind of pioneered this point system where instead of just like accruing to tokens in real time you're in crewing points that will as presumably it was the idea that like these points will you know increase the size of my airdrop and so to Wesley's Point earlier it's sometimes the Allure of the of an airdrop is the actually the most beneficial piece and like we really saw that with arbitrum where the like hey a token's coming hey a token stomach

you know six months eight months 12 months later the token finally shows up and now that they've like gradually built up someone's usership then they we are seeing a fairly liquidity there and you know I would probably say a large portion of arbitrum success is they're actually having apps worth using granted most of them are like Perpetual Futures exchanges but uh it's uh sticky nonetheless uh yeah I guess there's there's a tip if you want sticky liquidity somehow incorporate gambling um but but we're seeing that kind of spill over into the salon ecosystem as well right so margin 5 just announced their point system model which again they didn't say it was for an airdrop but that is presumably what these points are being racked up for uh however it's

definitely not guaranteed we saw I believe I'm afraid to say this name because I don't want to quote it wrong but I believe it was ether Phi they kind of put out a point system they tallied those up and then they're like hey you can uh spend these these points on some of our merch and it's like okay that's not what we were going for um but so margin 5 is launching this um point-based system there are lending protocols so uh either lending assets to the protocol to you know spin up the borrowing process it gives you points and borrowing assets from the protocol get you points as well uh and then lastly you can like refer other people to the protocol to kind of like help promote the word of the protocol and that gets you points as well and so again the intent or the idea of this is

like okay if I earn enough points that'll increase the size of my airdrop position um and so you've seen people kind of like compound uh their farming efforts by taking Judo Soul which is that Judo is like an LST provider based on Solana taking that asset depositing it into margin Phi um and then kind of like compounding right so you get Judo Soul exposure while depositing into margin file it's kind of like a two for one um so you know is that the best way to do it you know still TBD really but it is certainly the most popular way for as of right now yeah I wish there was one example I could point to and say that's like a great example of an airdrop I don't think we've kind of hit that yet I think each and every one has had some sort of flaw with it

um I think the best one it has been Arboretum to date and I think that's just because you can look at the success it's hap that it's had after it's airdrop where even now it's number two index volume to ethereum sometimes even passing it on certain days and this is after incentives and the airdrop has been admitted and so I think that's like a clear I'll point to it being a successful airdrop uh whether the allocation itself or having the airdrop be most of it all at once is a good idea I think because you have to be determined but I think for the most part it's been successful and I would agree with Dan that things along the lines of blur or what's happening with these Solana projects were like a point system where people like have a clear road map clear kpis of what it takes to get the

airdrop but at the same time not having some some sort of clear Roi or clear here's the number of tokens you're getting and this is how much dollars you're getting allows for like more activity because sort of that unknown factor that arbitrum had um applies there where people don't know what they're getting which means they're more likely to have higher amounts of activity so overall like if we can see blur have sort of like arbitrum have the same level of activity if not more following its air drops I think we can therefore point to that as like probably the most successful I'm curious Westy though do you um do you think that the arbitrum airdrops success was like

like would you I don't know so arbitramp didn't really see a sharp drop off in like you know in total transactions users like there was a bit of a decline but nothing like you know uh astronomical by any means they still have high TV I'll still have good activity um the the Dow is still generating decent revenue from the sequencer and would you say that that's like you know how does how do you think the airdrop really plays into that like I I get the narrative that like oh there's a bit of a wealth effect you know you airdrop everybody a few thousand dollars which is effectively what happened um and they're more likely to stick around and hang out there and I see how that works for an L2 um but l2's kind of had a bit of a privileged position right they raised

that insane valuations and kind of came out predetermined to be you know everybody everybody gave that token a range between I wouldn't say everybody most sensible people gave that token somewhere an estimated price between like 80 cents and a buck 20. right in line with you know what we're seeing on fdbois between other l2s or current market cap wise um and that's exactly where it came out and is quite frankly still trading so they kind of had this ability to give everybody a few thousand dollars and plus that matters a bit more when you're you know a base layer like in L1 or an L2 as opposed to you know let's say you know I was just a new Dex that I was launching on ethereum right like I I just how do you think the Dynamics work there I mean that's definitely a good point

that it being an L2 especially one of the first l2s to to go live and get adoption I think that contributed contributed a lot to it sort of gaining momentum and the air drop sort of continued that flywheel but at the same time like having the airdrop and specifically the Allure of an airdrop I know the arbitrary airdrop was teased for like a year and a half prior to it even dropping and so because of that you're able to sort of create a flywheel on its own over time as more apps develop there because they want to take advantage of all the people who are there to side all the airdrop and you know as more and more users go there there's more more apps build there you sort of build an ecosystem that becomes

sustainable over time and that's is the goal of an airdrop is to incentivize activity that is sticky and you sort of create a flywheel where once you get rid of those incentives it can sort of exist on its own so I would say like the airdrop and the fact that it was teased for such a long time and that arbitrine was able to gain that momentum as a result that I would say is successful whether or not we're looking at the airdrop as an event specifically or all of the like its incentives leading up to it I would agree with that I I hadn't really thought necessarily about the you know obviously arbitrim waited way longer than than optimism but it's almost the analogy of uh maybe like HBO versus Netflix where Netflix kind of

dumps everything on you in one weekend and then you watch it when season two comes out you just can't remember anything as opposed to arbitrum is HBO and each episode of Game of Thrones come out on a weekly basis and it kind of you get used to it and you build and you talk about it and you like it I feel like Arbitron was just much better at drawing out the hype and they got you to do so much more up on their ecosystem and you've been there for so long they're like maybe I'm just gonna stick around here now I've got some arm tokens and they're probably much more successful at you know generating that but I guess if you're a layer two you've got a couple of different weapons in your tool belt right to try incentivized activity you've got your airdrop so

there's a strategy around that then you've got your sort of emission schedule and then you've got grants that you can Dole out like optimism was they sort of I think optimism actually did a pretty good job just in terms of giving out big grants to dapps that wanted to launch on that platform so it is worth pointing out it's not like airdrops are the the only thing it's one thing in your your tool belt of uh different in levers to pull yeah it'll be fun to watch what zksync does because they've been teasing a token for quite some time as well you see Heavy airdrop farming there as well um but what's interesting is just based on discussions we've had with the team on our various CRX research podcasts that we've had they they seem pretty Pro the idea that there will be a token that will be used

to decentralize the sequencer um and if that's the case then we talk about the trade-off between airdrop and long-term incentives you kind of need those long-term emissions where you're you know rewarding ballot is for participating uh honestly within your you know validating or sequencing process and uh that that gets into a whole another interesting piece for arbitrum and optimism because you know they don't have those long tail Mission schedules built into their current token models and they also don't really have a steadfast way to decentralize their sequencers so they might run into a problem later down the line that you know maybe ZK sync by launching their token later launching their chain later might have like a leg up and that kind of like I guess

counteracts the idea of first mover Advantage is everything in crypto do you guys see that Sunny the founder of Osmos has actually tweeted out that proof of stake was a mistake and actually had all these people piling on and yeah John charbato came over the top and said I might agree with you for Roll-Ups and maybe approved Authority design would actually make a lot more sense which I thought was that's pretty interesting because decentralizing the sequencer is definitely a more complicated task than I think many of us had originally thought but I want to book in this this discussion of of airdrops that actually move into talk a little bit about Solana D5 so Dan you were starting to bring this up earlier Wesley I know you've been digging around deeply in the data

of Solana but I'd love to just get your guys uh sort of viewpoint Solana originally originally D5 was one of the the first use cases that was touted on Solana and you had serum and that was the first a pretty exciting example now I know it doesn't look so great in hindsight but of essential limit order book there's actually possible on chain uh you know Anatoly did a great job of putting out this vision of sort of consensus of the speed of light and a decentralized exchange that works globally as fast as NASDAQ and I think it really jazzed everyone up post FTX and the one of the hardest hit sectors in all of crypto was probably defied solata but now you're sort of starting to see this rebirth and this Phoenix Rise From the Ashes if you will

uh which I think if you've been poking around and paying attention there are some great Founders that are building in that space so I would love to just get your guys sort of high level views on how you're viewing it's a lot of D5 these days whether or not you think there's some potential there is it all just a smoldering wreckage post FDX or what's your sort of view on the whole thing smoldering wreckage is honestly not a bad description of the current state but I think that's primed for a Renaissance to be completely honest so the idea of a high throughput blockchain makes a lot of sense in a lot of different ways and man every time I hear a discussion about like decentralizing the sequencer or uh you know social consensus or this or that I'm like I'm buying more Soul like not Financial

advice but it's just every single time that you get into those like steel-headed conversations it just it's tough man it really is and so I'm like one Single Shard that that idea seems to solve a lot of these problems and let's just juice the base layer until we can get the through the throughput to where it needs to be and like yeah there's definitely going to be problems that we run into there but it's not like the other path has no problems either so I'm glad we have teams building modular blockchains and I'm also glad we have teams focused on maximizing the throughput of A Single Shard so um that's why that's the thesis around why I'm still paying attention to Solana to be completely honest it's just the idea that someone is going down the other side of the path where you know

it's not like it's all sudden sunshine then roses on on the modular side either so that's what kind of kept my attention there and then once you start digging in like there are really really good teams building um margin Phi and and cheetah are two teams that I that's why I'm interested in them and I mentioned them earlier for potential of an airdrop which I again I have no idea if that's the case but um would be very interested in participating in those ecosystems most certainly Judo is building an muv focused liquid staking solution and margin advice like this this lending protocol those are two very core Primitives that ethereum has done very very well obviously Lido is kind of dominating the game when it comes to liquid staking but that is taking uh

increasingly Forefront uh when it comes to the rest of D5 now we're seeing like fresh defy protocols being built strictly around liquid staging super exciting to see that kind of formulate out and that's also now getting translated over to Solana and just granted the fact that you know Solana kind of it's hard to say what was real and what was you know just out Alameda uh kind of forged uh during the heat of the bull run but you know there's still some interesting tech there and I'm interested in what's to come so there's teams like uh Ellipsis uh being built by I think at least Phoenix Phoenix Labs not exactly Eugene yeah super excited about what they're building

um just getting the idea of the on-chain order book back you know we we haven't really figured that out and I would say dexes as a whole is probably the most exciting Cornerstone of defy right now on on ethereum you have uni before ambient um curve V2 new their fresh contracted coming out and then when you look over in the cosmos you have Duality and the new era of Cosmos or sorry of osmosis and then Salon is really no different you have affinity and Ellipsis while open book is kind of coming back online so it's it's definitely not dead and there's a lot of interesting things being built and you know if you're someone like you keep talking about airdrops I'll bring it back up but if you're someone who like that's what you want to do and go farm airdrops then I would definitely recommend not competing

against the Cyber Bots that are built to be evm compatible and go get in the trenches with you and 10 other people checking out Salon atifi yeah I think Dan hit the nail on the head there um to me I think one of the biggest uh aspects of blockchain that I think you sort of Forgotten at this point is composability and some people think you know synchronous composability like within the same block isn't necessary but I think it can be a superpower if possible with Solana you have the ability for synchronous composability and within like 400 millisecond block times as you can imagine once you sort of Stack these Lego blocks on top of each other that you would just have very seamless ux experiences across many

different apps and I pulled up a zero X mer uh tweet and it's so funny to see the amount of projects building on Salon D5 and looking at each one and understanding like the quality of the teams yes Phoenix margin 5 drift Zeta Cipher Meteora Jupiter mango jet like the list literally goes on and on and on he has an entire thread of all these projects building on Solana D5 and once you understand how the pieces sort of fit together from one product to another um you sort of see like yeah the defy ecosystem is coming back to life and while like Solana D5 was sort of plagued by um ftx's downfall

um last year I think a lot of the teams have hunkered down we've seen a lot of new teams come on board and really they seem pretty unfazed by it all and as soon as we start to see more Capital more users flow back into the ecosystem I think it's definitely primed for an explosion yeah I tend to agree with all of that and what I would just remind folks who sort of look at ethereum and Solana and do a compare contrast is I would say in 2019 or 2018 ethereum did not look like the bulletproof uh you know Behemoth Market leading to our contract platform than it does today all these platforms that we like to point to at early successes of crypto the unit swaps the aves et cetera I mean these things didn't these things didn't really exist

there wasn't enormous amount to do on chain and actually the narrative back then was icos were a scam and all of this Capital ways and stuff that you're doing is illegitimate and probably Bitcoin is the thing that really makes sense and works and there's just a lot of you know pattern matching that you could do in between that's a lot of defy space today and where ethereum was in 2018 and 2019 and it's in it's almost an oversaid meme at this point but I think sub 80 ethereum is the same day as sub you know 15 or 20 Soul yeah that's not going to be an opportunity that lasts forever not Financial advice you know so I just I it's worth and and I I think you're exactly right it's a risk reward thing as well which is you know so much is priced into ethereum if you you know

no shade but if you look at the roll-up space like how many you know 10 to 15 billion dollar you know fdv Roll-Ups can we get before someone says wait a second does this uh ultimately really make that much sense or you know do you want to look at you know the whole market cap of Solana being you know sub 50 billion or something so I tend to agree with you there's also there's an interesting yeah before we move on here there's an interesting cold start problem that I think if Solana solved they'd be more Off to the Races there's this virtual virtuous cycle between liquid staking and defy that doesn't quite exist in Solana so for basically if you had to do sort of a user Journey right for people in ethereum the very first thing that you do is buy ethereum on a central ice

exchange then you move that to a metamask wallet then you liquid stake that then you take your liquid staking token and you use it in D5 and you compound your yield right you're taking a minimal amount of risk the problem in in Solana is is twofold is that one you don't have a robust defy ecosystem yet and or you did you just had a gigantic uh 18 wheeler drive right through it and then two is that the uh you know the adoption for liquid staking is just so much lower so you kind of have these two fundamental building blocks that you haven't been able to Kickstart that virtuous cycle yet that I think would really kick Office Salon to defy summer but they're a great team like Jito is trying to solve that marinade is trying

to solve that and once that gets solved I mean then you're kind of Off to the Races and you can either view that as a problem or you could be like this is a really solvable this is a solvable problem and once this gets kicked off you know could be gangbusters yeah I I strongly agree with that I think um I think you're gonna see like a curve like decks get built on Solano where you know it has above average Tech uh that and it just Chucks incentives at the wall and people will build projects to come make a token to stick to pool on that protocol that decks and participate in the rewards ecosystem you could you could argue that frax would not exist if curve did not exist if you look just at

their liquid staking token they use a two token model and the unstaked version requires an external yield to be an attractive solution um and so that gets generated through curve and that's what curve was built to do so it's kind of like this symbiotic relationship for the two protocols but um then you start like zooming out and say okay well how many other protocols have been built on top of curve uh convex staked out conic concentrator the list goes on how many protocols have been built on top of fracs there's there's also quite a few and sommelier uh is a cosmo chain actually just integrated frax so you see like this this flywheel cycle that starts to happen when there's like this one look you know maybe liquidity Hub or

incentive Hub or that kind of helps kick start the flywheel you're talking of um and then you need like a solid lending protocol for sure because Leverage is kind of what spins the entire world not just crypto um and the other thing I find interesting is Solana if you just like you know hey follow a few of their uh more popular I don't want to say influencers but people who are like live and breed the Solana ecosystem um you know they are actually focused on building apps that people want to use and that gets touted heavily by Anatoly himself which that's also a bit of a culture shift from ethereum which not necessarily a bad thing or a good thing it's just something I've noticed where ethereum is focused on building

building out like a scalable solution because that's what it needs to do where Solana is like hey like let's load this thing up like let's get people on chain like that is their Chief Focus right now and I find that super interesting so we might even see something on that's not D5 related really be the kickstarter for Solana I wonder if they sort of take a page out of ethos book where there's sort of like Creative Solutions to to bootstrap lsds whether that be interest rate derivatives I know pendal's been doing really well recently uh whether that be you know stable coins backed by lsts I think there's a lot of creativity going on in the ecosystem not Salon I could maybe pick up on and do more efficiently so I wonder if they sort of

take a book out of that page I actually I want to move on and get your your thoughts on liquid sticking because that's the the subject of this this series is um a topic but before we do I actually want to plug permissionless because we're doing a salon first of all permissionless is the event that we do with bank list gonna be the biggest best event in all of Define and crypto more broadly that's happening September 11th through the 13th in Austin Texas this year uh Dana Wester going to be down there so a little extra incentive and we're doing a great solada D5 panel which made me think of this and we're actually going to have margin 5 Eugene from uh Ellipsis we're gonna have uh Lucas from Judo and Bartos from Cube exchange all talking about it's a lot of

the fight gonna be an absolutely fire panel we're going to be talking about the roll-up ecosystem account abstraction a whole bunch of really cool stuff it's a discount code bell curve 30. so you get 30 off if you're listening to this see you there um all right but I want to move on to liquid staking more broadly and get your perspective Wesley so you actually wrote a great piece on this for sort of the state of LST Phi in general and would love to kind of just get your sense of how you break out the ecosystem at a high level some of the interest like what striving activity today and then what's some of the more interesting experimentation that you see going on there yeah that's a great question so I actually split uh sort of lst5 as a whole into five buckets the first one is

sort of like Leverage staking when people basically take their their lsds borrow eath against them stake them into lsts again and sort of loop that and all they made that particularly popular and more specifically with Steve as the specific LST and that was actually a major driver in in Steve's Supply Group over the past year was its use in looped leverage um and so you have all this sort of like the main uh protocol for the loop leverage but you also have you know other leverage protocols such as gearbox starting to pop up which do something similar and try and maybe have sort of higher risk strategies but with higher

potential yield and so that's sort of like the first category the second is sort of within amm's and providing liquidity so because lsts are correlated to East you can have sort of LST Pairs and you're able to basically not only get the yield from from the LST side of that LP pair but also the yield coming from odd trading fees and also potential incentives from Texas or through some something like a Curve Model where these lsts provide incentives to basically broad voters to have to drive more incentives to their pools and so that's a great way to sort of Drive adoption curve has obviously become the number

one decks for LST trading but you have balancer and aura that have specific um sort of designs around lsts and trying to bootstrap that and so I think they could potentially give curve a run for their money as well as you know uniswot V3 and potentially V4 I'm going to guess they they have some sort of LSD strategy and then from there you sort of have LST baskets which are meant to like diversify your risk into different lsts but really you're you're you're adding additional risk because now you have a new smart contract you need to worry about um but you also have the ability to have sort of like a convex like platform where now that you have some sort of Treasury and a bunch of lsts you can

build products based on that whether that be you know new amms um or something along those lines to bootstrap yield and bootstrap you know more of the LST in in your Treasury and then from there I think the final two are probably the most interesting and I've seen probably the most growth as of late which are LST back stable coins so you have Libra I think is pronounced where you basically have LST backstable coin and it's a it's a rye Fork where you have basically no interest loans um on the back of your LST and then you have other projects that are launching that are very similar you have Prisma I believe is launching pretty soon which is looking to

basically enter into the curve complex flywheel you have um other other projects as well raft is another one uh which is another ride for um but basically they all take different designs decisions whether they're you know hardbacking to the US dollar because you know in the case of live broad the stablecoin itself is accruing a portion of the staking yield that's backing it and as a result you know there's basically higher incentive to hold the stable coin than there is to borrow against LST and so as a result you know the peg obviously is going to increase against the US dollar and that could have a problem when it comes to those that have uh borrow positions and so hard cording hard coding to the

US dollar might pose a lot of risks to the protocol but at the same time you know soft pegging to the US dollar obviously you're not going to have the same stability um and so there's sort of trade-offs that different projects make and there's a lot of experimentation here and I think these are the projects that have grown I think the most out of all of the LST file at a percentage basis a lot of raw has seen immense growth over the past month particularly and so that's like a pretty interesting area to look at and the final one is interest rate derivatives so basically Pendle is a good example because they've been growing like crazy recently where basically they're a split token protocol where you can basically take a yield bearing token and split its principle and yield components and from there

you're able to have certain strategies that you wouldn't be able to otherwise utilize such as trading sort of the yield on a specific token or maybe buying a discounted token prior to its expiration date there's a lot of different strategies that are involved and as a result Pendle has been able to basically create LST pools for these split tokens that are incentivized and a lot of people have locked up their Capital to deploy certain strategies and increase their yield and I think you know as we go forward and staking becomes sort of like the risk-free rate almost within D5 I think there's going to be a lot of interesting products around trading the interest rate uh around the East and so uh yeah those final two buckets as a whole I think are

the fastest growing and the most exciting the Pendle stuff is really interesting I I immediately haven't done too big a deep dive there but does that like effectively make give you the ability to like go long eat staking rewards yeah it's interesting so like like I said you have like a principal and a yield token and each of those have an expiration date and as you get closer to the expiration date if you hold the yield token you basically get paid out that yield and the actual value of the token sort of Falls towards zero as you get closer to the expiration date and in the principal token is sort of like discounted versus r value you can buy it discounted and then wait until it gets to its expiration date and it's going to converge on its basically actual value and so as a result you can like sort of

trade the yield tokens if you think all of a sudden there's going to be a ton of Mev coming up and yield sticking in each stick and yield you can buy the yield token hope that appreciates in price because it's pricing in its future yield and or you can maybe short the token if you think there was a huge entity of that and it's not going to be sustainable it's going to come down so yeah there is a way to basically trade the yield token I'm not sure if it's the most Capital efficient or like the best way to trade it I think there are other models that are coming out that are probably better when it comes to specifically trading the yield on Steve but at the same time you know it's pretty good for what we got now and obviously they've been able to bootstrap

liquidity yeah there's a lot of interesting experimentation going on Wesley one thing that I've heard that my actually act as slight pushback but I want to get your perspective on it is uh one in doing the research and we actually recorded with hostu this morning and that's going to come out next Tuesday which is a great episode but his perspective is the lst5 is a little bit of a meme and actually some of the majors in D5 they all basically accept liquid staking tokens as collateral so if your advantage is that you only work with liquid staking tokens and that's not ultimately really a moat and that you're just going to get eaten by the majors so what would you respond to that pushback I think that's a pretty fair take to me like lsts are a great bootstrapping mechanism especially now

that we're only at like 20 of each stakes and I think there's a lot of room to grow when it comes to liquid steak and growth staking as a whole as a result like right now if you're a new protocol it's the best way to capitalize on that and create tvl and create excitement and activity um and so like going back to the airdrop conversation using your token now to bootstrap that liquidity that's sticky that stays in potentially your treasury or within tvl of the protocol I think is a really good move because you know I don't think there's going to be many opportunities to bootstrap this amount of capital in the future and so yeah the way I see it is this is sort of like bootstrapping mechanisms for these new protocols and it's sort of what they do

from here that's the bigger question so obviously just having lst's backer stable coin is probably not the most optimal but sort of starting with that and sort of capturing the narrative and then pivoting from there I think is where we're going to separate the winners from the losers I want to move and talk a little about a a sort of a combination of decks and amm design which I feel like is becoming a much hotter topic you guys have done some great interviews on Xerox research with Doug kolkit of ambient finance and most recently Sunny agrawal of Osmosis but I want to talk a little bit about blur and your thoughts on nfts in general so we talked about this last week so I don't feel the need to go way more in detail about it but izuki had what I would would call a pretty disastrous mint the

last week where they they raised an additional like 38 million or some like just under 40 million dollars worth of capital with these new Elemental uh zukis and is basically the exact same art which is it's almost funny right and the community was very upset I understand there's going to be some sort of a lawsuit and the floor it's actually one of the it's one of the first times I think I've ever seen crypto markets respond perfectly efficiently they doubled the supply of tokens and the floor price fell 50 so yeah we've got a Fisher Market here guys that finally makes makes some sense but since then the Pac-Man the the founder of blur came out with a tweet it one of the interesting things that I frankly

didn't understand a lot is the azuki floors tent seemed like it dragged a whole bunch of other nft floor prices with it so nothing else was down 50 I don't think but it was all down 20 or 30 percent and now you're starting to see this idea of how the depth of nfts um and blur uh Pac-Man's blur's founder Pac-Man came out and basically this sort of defensive Twitter post and said this wasn't blur that killed nfts it was he actually frankly called the point of the finger at a zooky but I'd be curious to get your guys take on the state of the nft market and what impact if any do you think blur had I uh I I don't know I maybe it's a controversy you'll take but I'm just I

think pfp nft the whole craze around that Mark corner of the market that was a 2020 2021 phenomena I think this is going One Direction and it's not up um the idea of digital art being and in the form of an nft that will never go away that will be a continually growing Market luxury art well that's just how it works and the fact that it's now digital seems like a great idea to me I think you know my generation probably leans towards favoring more digital things and the one generation below me will most certainly be favoring more digital things so um I'm bullish on the idea of nft based art specifically art and the goose is a great example of this that just recently

sold for around five million dollars yeah that I'm bullish on that idea I'm also bullish on the idea of using the underlying technology of nfts to power very interesting crypto based Solutions an example of this would be like a block space Futures market so the rights to order a the transactions within the specific block is inherently valuable and each block is different non-fungible so using an nft to represent that the the rights of ordering a certain block is in becomes a very interesting thing and so that's like a cool use case where nfts could power uh more of like a a actual crypto native product another example is maybe like Unity swap using

nfts for their LP positions so not necessarily the best example just because there's a lot of inefficiency around that but nonetheless it is like interesting experimentation with the underlying technology but I just don't see how the next like the pfp collections 10k of these like shitty pictures it's just not it's it's I'm bearish I don't know how else to say it I'm not excited about it it is not interesting and I do think it will go away there will be a new form of gambling that takes the place in the role of the pfp nft marketplace um that's just kind of my two cents on the matter but uh so yeah I don't think it's where's fault I think they are just a market participant and I I just okay like if I'm in azuki

holder and I got the exact same metadata nft as one I already had yeah I'm gonna be pissed but am I really gonna be excited if I got a picture that just looked different like like no I you just gave me another worthless picture and like no they weren't worthless before but I I don't think the floor place would have taken much of a different move again you doubled the supply and it got cut in half like that's what else did you expect expect was going to happen I don't know I I'm just not excited about the state of nfts and probably won't continue to be I think there's two different discussions here which is what is the long-term future of pfp Collections and then there's the immediate there's our proximate cause of the nft bear market and blur's impact if

any um what goes up must come down I think I I don't think anyone should be wildly shocked that the market for jpegs uh went down as much as it it had a meteoric rise and this was always inevitable to some degree I do think it's in in it we were talking about this a little bit before we got online but I think there is a liquidity Cuts both ways a little bit and it was a great Uncommon Core episode one of the early ones where d-gen Spartan laid out this framework for wide defy tops so so far before the rest of the market and the idea was he he actually talked about sushi swap being the uh the cause of the defy summer top and the reason was that was you know it was sort of the fork of

uniswap and it was the first one to experiment with pool twos and do all this very risky very extreme incentivization of liquidity on the platform and it basically if in in a bull market when everything is going up that's fine but if you are a whale sitting on a whole bunch of illiquid D5 tokens and you see this as the golden maybe last opportunity to sell you're gonna sell right so there's probably a similar analogy here between uh blur and blend where the if you are sitting on a whole bunch of jpegs and you realize that they were not going to the moon and ultimately you were looking to sell but up until that point the market the liquidity conditions just hadn't been fit and all of a sudden you had an

opportunity to sell you would probably sell so I think there's a direct analogy to be made there so liquidity kind of cuts both ways and I come down on on Pac-Man side things it's it's not it's not their fault I don't think this was always just sort of bound to happen but then I also think that there's a discussion to be had about the future of pfp nfts I would agree with some parts of what you said Dan but I would also push back a little bit I think there's an interesting question frankly it would be an interesting poll to get done across different age groups but you know if you could spend you know twenty five hundred dollars keep in mind that's you know about one eighth right like one eighth on uh a nice suit or like a sick nft

I don't know it's uh you that I have to think about right because depending on what I get with that nft if it actually if I feel like it actually affords me status who knows I mean right I'm addicted to Twitter my God I mean I I go on Twitter far more than I then I wear a suit and that's kind of a cute example but I uh I talked about this becoming a pudgy show here but yeah I talked to Luca one of the the co-founders of pudgy and he just had such a refreshing take on you know what it took to build a brand and and look at what they've done they've actually sold Penguins you know they're talking about licensing the image of Pudgies just go old-fashioned just slap some pudgy Penguins on pajamas and maybe you sold the white pajamas for

10 bucks you saw the the license image for for 15 and you have a great income stream there so I think to be honest there were a lot of Founders that were pretty opportunistic in the nft space they saw the chance to just raise ungodly amounts of money but they didn't necessarily know how to actually once they've launched the nft brands how to how to build that IP and what you'll probably see is the week gets separated from the chaff and a whole bunch of Founders that are more like have more actual experience in building lasting IP and generating Revenue step in and do that and I think the last thing that azuki was a great example of is I don't know if you've ever heard the the framework or if you have to earn the right to launch a new product like it's

very tempting to oh like this isn't really working let's just launch a new product you know really the the great the product greats over the years have kind of this framework of your customers you need to basically saturated what your customers want really hit it out of that park with your current soft service offering before you can launch another I think it's the same thing with mints right if I think azuki would have gone very differently if there was this whole sort of character and identity introduced by the original collection and they've done all of these different things to monetize it and then within that General sort of storyline and Community there was a reason to launch another set of nfts that complemented the azuki originals they were slightly different there was a different identity then that mint would have worked but if

you're a whole business model is to just mint news jpegs and create a perpetual motion machine then that's not going to work so that was a bit of a rambling explanation but that's kind of my thoughts way too much logic when I could just go sell some jpegs for 38 million dollars but uh no no I mean I agree with you I think there will be there will definitely be pfp nfts that stick around and stay around and will always be a thing there is value in culture I do buy that narrative I just really don't see it like okay the nft market exploded last Bull Run and all it literally was was taking a random series of pictures and selling them and then they're going straight to zero and that happened over and over and over again and maybe it's too optimistic to think that market

participants are will be wiser over time but I I I will be I will eat my words if that happens again yeah and I agree with everything you said Mike that we're gonna have some winners come out of this but at the same time like for me I think the most valuable projects the ones that will have the highest returns or those with the Clean Slate that are sort of the new shiny objects that have new ideas new like creative things that they're building you know the 10 000 pfp collection I think is kind of done like that's been done a million times so once people start to iterate of new sort of creative ideas I think people are just going to latch on to that and because you have you know a clean slate you don't have a price chart to look at for

history like people are just I think gonna bid the new projects as opposed to the old yeah I tend to agree with that too all right I I think that's probably good for nfts well maybe we could close on this idea of D5 1.0 catching a bid actually it was reminding myself when we're talking about d-gen Spartan have you ever seen his D5 bear progress chart oh beater thing yeah so I I I was following it for a little bit but I saw a tweet the other day all right this comes from tweet that we are actually right now in July is month 35 of the D5 bear market so obviously 36 months is something that

de-gen Spartan pulled out of his pulled out of his ass but you know it has been it's funny because D5 was a little bit idiosyncratic with the rest of the market it led the market it experienced the bear Market earlier and it's really just been down in the bets for such a long period of time and I'd be curious you know maker it actually looked like was catching a bid for the first time in in quite a long time recently and that with even the backdrop of end game which I'm not sure anyone really understands you know sort of acting as a headwind so I'd be curious what do you guys think of the current state of Defy is it posed for you know some potential I know it's tough to call after almost three straight years of downward price action but what do you guys think

thank you yeah I think part of the price action we've seen over the past couple weeks has been really like kicked off by comp specifically like comp has been the outlier I think that was people anticipating the super State drop from Lesner and a potential you know partnership or some synergies between the two projects and as a result I think a lot of other projects sort of there was sort of like a beta trade on comp specifically and I think that drove a lot of the specific price action but at the same time like D5 1.0 a lot of these projects are definitely primes because if you look at their charts they've done basically done only mid 2021 it's been pretty sad to be honest like especially

maker has been hit pretty bad and maker especially as a reason that's gotten a lot of traction when it comes to you know onboarding rwas having new loans like the die saving trade is now over three percent um and they're I think on on Pace for like nine figures in in profits over the next year which is pretty incredible and I think it's been overlooked simply based on the fact that people don't want to buy a token that's like falling constantly over time and so as a result I think you know maker specifically as bottoms at this point and is continuing to increase their revenues over time you know synthetic says pivoted a lot over the years but they're another one

that you know tops the charts constantly when it comes to Applications generating revenue on a daily basis through their purpose product um so they're another great example of the D5 1.0 project that's sort of been oversold and this has like a clear road map towards profitability and you know you can point to a lot of these other projects as well as being in a similar boat and I think it's a pretty funny coincidence that that bear Market timing does light up to uh d-gen Spartans uh sort of timeline but yeah I think the D5 1.0 is definitely poised for for a comeback yeah I don't have the uh the numbers

right in front of me right now but uh if you want to take like a fundamental approach and and if that's just you know there's Merit to that and also you know the reality of that not being the best metrics for crypto in its current state but if that's what you are looking at um you want to price the fees or price to sales ratio maker actually is one of the few protocols you could say was arguably undervalued and to your point like they do have like a huge headwind in the end game there are probably five people that truly understand what the end game is and those five people work for maker uh one of them is roon so there's really not that much Clarity around it but um it could be a HUD wind it could be a

tail and it's it's really just too hard to say so there could be some pricing of just execution risk there to be completely honest um but yeah to Westy's point they're they're they're generating cash flows and that might be exciting at some point um there's a lot of talk in in the crypto Twitter Circles of course that uh cash flow is bearish right because then you can actually price these things and turns out we actually don't like the prices that those turn into um but you know the reality is is maker was cheap relative to its peer so I'm not too surprised it's catching a bid here um Ave kind of has this Narrative of the it's Sable coin go coming out soon uh the current status of that is like any day now but to be fair it's been any day now for a couple weeks Ave companies uh

has built the contracts out of the contracts they are good to go uh Ave Chan has handled the governance side of things it's greenlit from both angles uh just kind of honestly waiting for the on-chain proposal uh so there's a bit of alpha keep your eyes on the Ave governance contract for the go proposal but the thing that I'm finding interesting is you know these a lot of these D5 1.0 projects had genius teams that actually wanted to build a true D5 protocol that solved you know some sort of sort of financial problem um and their teams never gave up during the bear market and so now they're two or three years into their life and they're putting out the best versions of those products again we've seen maker as

created a pretty fairly resilient stable coin and they're continuing to improve on it kind of migrating away from the PSM into a more like Amo model and then you have curve that uh you know updated their Dex contracts to the most advanced passive amm model we've seen and they've created a revolutionary lending protocol that kind of removes the need for or mitigates the need for a hard liquidation it kind of goes to his collateral conversion process and you've seen Ave launching their own stable coins so you've seen this like continued development from these large well-respected teams in the space and you know they they currently have the best prop the best products curve has the most TBL second most trading volume uni swap's got the most trading volume

watching univ4 obvious got the most borrow outstanding of any protocol like if there were assets to go by and defy like it's it doesn't shock me that these are the ones getting the true attention right now yeah I agree with that take it's probably worth pointing out as well that some of the majors you know curve all they maker they all seem to be converging on a similar business model and they all it actually reminds me a little bit of there was a race in C5 back in 2019 or 2020 to build Prime brokerage and it started from the a bunch of businesses started from a very different Vantage Point some of them started from the perspective of lending that blockifies the world some of them started from the perspective of custody the bitcoast or the anchorages of the world some of them did cap intro or

whatever they did but everyone converged on this idea of prime brokerage and you're starting to see a very similar sort of convergence with the the um the business model for some the defy Majors so die originally started or maker obviously started as a stable coin with die Abe was exclusively for our land and now you're starting to see all of those those models converge and I think they're I am torn about how I think about this because I think in the one sense if you were it just depends on the organizational structure behind them because if you're a traditional sort of company this makes all the sense in the world the the bear case we're looking at something like the D5 protocols that exist today is you take sort of a

non-profit Banks do a whole bunch of different things right like an investment bank has a whole bunch of different functions you can make the argument that something like Ave takes a very unprofitable part of that bank and just makes it a software you're like well how exciting is that really I'm not 100 sure it's banks are much more exciting when you have all of those different Services bundled into one so you can have certain services that can be lost leaders and then you can be net interest margin or some you know kind of lead into some of the the higher margin activities on the other hand you know you have to be have a very rigid hierarchy and the actual corporate structure of a bank makes a lot of sense for that whereas one concern that I have like the Dows that I kind of like or frankly the Lidos

that are trying to limit the surface area of what they do and minimize the decisions that governance can make these Protocols are going in the opposite direction of that and they're actually expanding their managerial surface area and they're expanding the amount of complexity that the Dow has to manage and that I could see the pros and cons for frankly both sides of that argument and I think we just have to wait and time will tell how it all plays out that's an interesting point just like governance overall like no one's figured that out no one even has gotten close to figuring that out uh it's kind of cool we're seeing new ideas come to fruition right the idea of sub-dials is actually being executed on by maker Dao frax has been uh you know working on their frax gov which is like

some sort of trade-off between having a team that's using a multi-sig to really push forward change and Innovation and like actual execution but having the token holders like you know be like a gatekeeper to some critical level changes uh that seems like a really cool model and so we've we're kind of seeing some uh some interesting exploration there but I I think I'd tend to agree that less governance is better it's just like that's that's one of those things that it needs to be an end state that you build towards not like somewhere you start at like hey ungovernance program like we're no governance protocol okay well we're a rapidly growing industry and you're going to need to make some changes in in the current state but I like the end goal of kind of reducing overall governance and I think that the

final thing to add there is there's probably a sort of Stack which depends on how close you are to the base layer infrastructure like if you consider ethereum sort of the base layer infrastructure and it's trying to create like a money or commodity that powers smart contracts it then that maybe the next layer up is what ethereum has decided to Outsource but are still critical functions for ethereum so that could be block building in the form of swab and flashbots that could be liquid staking the form of Lido that could be restaking in the form of eigenlayer but those things there's a it's not actually antithetical to making a good product but decentralization is is a requirement for the product actually and then maybe one layer up from that would be like borrow lend and dexes and then maybe

there'd be games on the top and let's be honest no one really cares that these these games don't need to be as decentralized as ethereum here with those are games it doesn't matter as much so I think it also depends on where you sit in the overall stack as well one last thing I'd love to get your take on guys so Lido recently passed a proposal to uh transition a bunch of its ethereum and its treasury to speak so on the one hand I I could see this being good uh you know Steve is yield bearing so that's uh you know some extra essentially net interest that leidos treasury's earning but it wasn't earning before on the other hand a treasury is supposed to be a rainy day fund and you really need that treasury if there was a problem

with Steve itself um so it seems like you might be taking out a little bit of unnecessary risk there but then at the same time if there was some kind of catastrophic slashing event with Steve probably all that Ethan the treasury isn't going to help anyway so I'd be curious to get what do you guys what are your guys takes on this I think your last point hits the nail on the head like quickly pulling it up um Lido has 14 and a half billion dollars of tvl I think they're I think the proposal is correct me from wrong but I think the proposals for 20 million dollars of Treasury eth to be converted to Steve like I mean that's not even gonna it's not even get close to covering you plus you know something critical happened to stake teeth white was probably toast anyways so you

know I don't I don't hate the going all in on your own token thing in this case um this is a bit of like dog fooding it like hey like we're doing it with our treasury you should too kind of thing maybe but more so it's just like look if we put 20 million dollars in there and we can earn five percent a year we can actually pay our our core team off of State yield and that would be kind of a cool a cool thing to do with that so I think it actually makes sense I I like the idea yeah I mean I'm for the most part for it but I think Mikey brought up a great point and it's like what is the Ethan the treasury supposed to be used for is it supposed to be a rainy day fund where if Steve Falls below Peg you can use

that eat to basically bid up Steve back to Peg is if so then you want each new Treasury and not Steve but I'm guessing that most of the treasury is going to be used for to pay or devs or for certain initiatives Etc and so having it in Steed I think is fine yeah it kind of like increases their risk of a slashing event but really not enough for it to be an issue because they're already sort of taking that on as a protocol um so like as a whole I don't think it's a bad proposal I think it's pretty good um but if it were me I'd be a little more cautious maybe like 80 percent stake than 20 not but yeah overall not not too bad what's your take on this mic I don't know I nobody runs these

Treasures how I would run them so I I guess I'm just not not thinking to say I I just I think the treasury is the one thing you don't want to take even an outs of risk on and it's actually kind of similarly to how I think about you know my oldings of eat versus steak teeth this is this was the analogy that I had with block five as well which is you know if you think that the asset that you're holding is going to appreciate you know it's high risk assets so might appreciate 10 to 20x over the course of the next you know five years or something like that on a conservative you know estimate for some of these assets are you going to add an additional layer of spark contract risk that I can't diligence at all uh you know for an F extra three or four

percent per year you know I know Warren Buffett would get his calculator out and tell me how much money I'm losing by not doing that but that's just not how my brain works and I don't know that's the side I I would run things a lot more conservatively if you waved a magic wand and I was in charge of everyone's treasuries it would basically all be in I would make the assets Mass liabilities which is also why I like eth uh because if there was ever some sort of you know slashing event even a more minor one and you had to do a payout or you had to defend the peg like I think you could actually make a really good case for eth sitting in lightest treasuries but if you're almost any other protocol I'm sitting in yeah obsidian hot basically 100 usdc I

think that's just the safe thing to do because you actually got in my head about that I had like I had most of my eat steak that steak teeth and then you got in my head about that and I'm like what am I doing of course the other half of mine is like you know time blocked for a year in convex and fraxied so the complete other end of the spectrum so I'm like all right maybe we meet one half on the Zero risk side and one half on the max risk side you know what though it's a good it's a good reminder that these this time when you don't feel like taking risk is the time to take risk and like the time to be bearish was 18 months ago that was the time to be bearish this is not the time to be bearish you want to be

bullish in this in this period of time so maybe that maybe that's a good thought to edit on not Financial none of this is financial advice for the love of God uh and guys if you're listening to this on the on the bell curve Thief definitely head over to Xerox research because these guys are unbiased but these guys are awesome and that they dump out some Alpha every single week consistently so definitely head over and check them out at blockworks research as well yeah yeah we'll put a link in the show notes to uh the blockworks research fresh new landing page shout out to to Dennis our CTO really really went uh Above and Beyond on that one but yeah Mike it's been fun man thank you this was fun guys I actually do what I mean [Music]